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2007-12-31 0000064978
2009-04-01 2009-06-30
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2008-04-01 2008-06-30
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2008-01-01 2008-06-30
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2008-12-31 0000064978
2008-06-30 0000064978
2009-06-30 0000064978
2009-01-01 2009-06-30
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Tagged Note 1 - mrk:BasisOfPresentationAndDescriptionOfNewAccountingPronouncementsNotYetAdoptedTextBlock-->
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<div align="left" style="font-size: 10pt; margin-top: 0pt"><u></u>
</div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>1.
Basis of Presentation</b> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>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 audited
financial statements and notes thereto included in Merck & Co., Inc.’s
(“Merck” or the “Company”) Form 8-K
filed on May 20, 2009.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>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.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Certain reclassifications
have been made to prior year amounts to conform with the current year presentation.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Recently Adopted
Accounting Standards — </i>On January 1, 2009, the
Company adopted Financial Accounting Standards Board (“FASB”)
Statement No. 141R, <i>Business Combinations </i>(“FAS
141R”), FASB Statement No. 160, <i>Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB
No. 51 </i>(“FAS 160”), FASB Statement
No. 161, <i>Disclosures about Derivative Instruments and Hedging
Activities </i>(“FAS 161”), Emerging Issues Task
Force (“EITF”) Issue No. 07-1, <i>Accounting
for Collaborative Arrangements </i>(“EITF 07-1”)<i>,
</i>EITF Issue No. 08-6, <i>Equity Method Investment
Accounting Considerations </i>(“EITF 08-6”), EITF
Issue No. 08-7, <i>Accounting for Defensive Intangible Assets
</i>(“EITF 08-7”) and FASB Staff Position EITF 03-6-1<i>,
Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities </i>(“FSP EITF 03-6-1”).
On April 1, 2009, the Company adopted FASB Statement No. 165,
<i>Subsequent Events </i>(“FAS 165”), FASB
Staff Position FAS 157-4, <i>Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly </i>(“FSP
FAS 157-4”), FASB Staff Position FAS 115-2 and FAS 124-2, <i>Recognition
and Presentation of Other-Than-Temporary Impairments </i>(“FSP
FAS 115-2/124-2”) and FASB Staff Position FAS 107-1 and APB 28-1,
<i>Interim Disclosures about Fair Value of Financial Instruments</i>
(“FSP FAS 107-1/APB <br /> 28-1”).</td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>FAS 141R expands the scope of
acquisition accounting to all transactions under which control of a business
is obtained. This standard requires an acquirer to recognize the assets acquired
and liabilities assumed at the acquisition date fair values with limited exceptions.
Additionally, FAS 141R requires that contingent consideration as well as contingent
assets and liabilities be recorded at fair value on the acquisition date,
that acquired in-process research and development be capitalized and recorded
as intangible assets at the acquisition date, and also requires transaction
costs and costs to restructure the acquired company be expensed. Transactions
are now being accounted for under this standard. On April 1, 2009,
the FASB issued Staff Position FAS 141(R)-1, <i>Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies, </i>which is effective January 1, 2009, and
amends the guidance in FAS 141R to require that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized
at fair value if fair value can reasonably be estimated. If the acquisition
date fair value of an asset acquired or liability assumed that arises from
a contingency cannot be determined, the asset or liability would be recognized
in accordance with FASB Statement No. 5, <i>Accounting for
Contingencies </i>(“FAS 5”)<i>, </i>and
FASB Interpretation No. 14, <i>Reasonable Estimation of the
Amount of a Loss. </i>If the fair value is not determinable and the
FAS 5 criteria are not met, no asset or liability would be recognized.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>FAS 160 provides guidance
for the accounting, reporting and disclosure of noncontrolling interests and
requires, among other things, that noncontrolling interests be recorded as
equity in the consolidated financial statements. The adoption of this standard
resulted in the reclassification of $2.4 billion of minority interests
(now referred to as noncontrolling interests) to a separate component of Stockholders’
Equity on the Consolidated Balance Sheet (see also Note 12). Additionally,
net income attributable to noncontrolling interests is now shown separately
from parent net income in the Consolidated Statement of Income. Prior periods
have been restated to reflect the presentation and disclosure requirements
of FAS 160.</td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>FAS 161 requires enhanced
disclosures about derivative instruments and hedging activities to allow for
a better understanding of their effects on an entity’s financial
position, financial performance, and cash flows. Among other things, FAS 161
requires disclosure of the fair values of derivative instruments and associated
gains and losses in a tabular format (see Note 7). Since FAS 161 requires
only additional disclosures about the Company’s derivatives and
hedging activities, the adoption of FAS 161 did not affect the Company’s
financial position or results of operations.</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>EITF 07-1 defines collaborative
arrangements and establishes reporting requirements for transactions between
participants in a collaborative arrangement and between participants in the
arrangement and third parties. The effect of adoption of EITF 07-1 was not
material to the Company’s financial position or results of operations.
See Note 5 for the associated disclosures of the Company’s collaborative
arrangements.</td> </tr> </table> </div> <!-- Folio
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style="font-family: 'Times New Roman',Times,serif"> <div style="margin-top:
0pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt"> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 0pt"> <u> </u> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>EITF 08-6 clarifies the accounting for certain transactions and
impairment considerations involving equity method investments and is applied
on a prospective basis to future transactions.</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>EITF 08-7 clarifies that a defensive
intangible asset (an intangible asset that the entity does not intend to actively
use, but intends to hold to prevent others from obtaining access to the asset)
should be accounted for as a separate unit of accounting and should be assigned
a useful life that reflects the entity’s consumption of the expected
benefits related to the asset. EITF 08-7 is applied on a prospective basis
to future transactions.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>FSP EITF 03-6-1 clarifies that unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are considered participating securities and shall be included
in the computation of earnings per share pursuant to the two class method.
The effect of adoption of FSP EITF 03-6-1 was not material to the Company’s
results of operations. The provisions of FSP EITF 03-6-1 are retrospective;
therefore prior periods have been restated (see Note 17).</td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>FAS 165 establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. In addition, FAS 165 requires the disclosure of the date through
which an entity has evaluated subsequent events and whether that date represents
the date the financial statements were issued or were available to be issued.
Merck adopted the provisions of FAS 165 during the second quarter of 2009
and the effect of adoption on its financial statements was not material. The
Company has evaluated subsequent events through August 3, 2009, which is the
date these financial statements were issued.</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>FSP FAS 157-4 provides additional
guidance for estimating fair value when there has been a significant decrease
in the volume and level of activity for an asset or liability in relation
to the normal market activity for the asset or liability (or similar assets
or liabilities). In addition, FSP FAS 157-4 includes guidance on identifying
circumstances that indicate a transaction for the asset or liability is not
orderly, in which case the entity shall place little, if any, weight on that
transaction price as an indicator of fair value. The Company adopted the provisions
of FSP FAS 157-4 during the second quarter of 2009 and the effect of adoption
on its financial position and results of operations was not material.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>FSP FAS 115-2/124-2 changes
existing guidance for determining whether debt securities are other-than-temporarily
impaired and replaces the existing requirement that the entity’s
management assert it has both the intent and ability to hold an impaired security
until recovery with a requirement that management assert: (a) it
does not have the intent to sell the security; and (b) it is more
likely than not it will not be required to sell the security before recovery
of its cost basis. Assuming these two criteria are met, FSP FAS 115-2/124-2
requires entities to separate an other-than-temporary impairment of a debt
security into two components. The amount of the other-than-temporary impairment
related to a credit loss is recognized in earnings, and the amount of the
other-than-temporary impairment related to other factors is recorded in other
comprehensive income. The Company adopted the provisions of FSP FAS 115-2/124-2
during the second quarter of 2009 and the effect of adoption on its financial
position and results of operations was not material.</td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>FSP FAS 107-1/APB 28-1 requires
disclosures about fair values of financial instruments in interim and annual
financial statements. Prior to the issuance of FSP FAS 107-1/APB 28-1, disclosures
about fair values of financial instruments were only required to be disclosed
annually. The Company adopted FSP FAS 107-1/APB 28-1 in the second quarter
of 2009 (see Note 6). Since FSP FAS 107-1/APB 28-1 requires only additional
disclosures of fair values of financial instruments in interim financial statements,
the adoption did not affect the Company’s financial position or
results of operations.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td><i>Recently Issued Accounting Standards </i>—
The FASB recently issued Staff Position FAS 132(R)-1, <i>Employers’
Disclosures about Postretirement Benefit Plan Assets </i>(“FSP
FAS 132(R)-1”), FASB Statement No. 166, <i>Accounting
for Transfers of Financial Assets—an Amendment of FASB Statement
No. 140 </i>(“FAS 166”) and FASB Statement
No. 167, <i>Amendments to FASB Interpretation No. 46(R)</i>
(“FAS 167”).</td> </tr> <tr> <td
style="font-size: 6pt"> </td> </tr> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>FSP FAS 132(R)-1, which is effective December 31, 2009,
amends FASB Statement No. 132R, <i>Employers’ Disclosures
about Pensions and other Postretirement Benefits, </i>to provide guidance
on an employer’s disclosures about plan assets of a defined pension
or other postretirement plan. FSP FAS 132(R)-1 requires disclosures about
plan assets including how investment allocation decisions are made, the major
categories of plan assets, the inputs and valuation techniques used to measure
the fair value of plan assets, the effect of fair value measurements using
significant unobservable inputs (Level 3) on changes in plan assets for the
period, and significant concentrations of risk within plan assets. Since FSP
FAS 132(R)-1 requires only additional disclosures about the Company’s
pension and other postretirement plan assets, the adoption of FSP FAS 132(R)-1
will not affect the Company’s financial position or results of operations.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>FAS 166, which is effective
January 1, 2010, eliminates the concept of a qualifying special-purpose
entity, changes the requirements for derecognizing financial assets and requires
enhanced disclosures to provide financial statement users with greater transparency
about transfers of financial assets, including securitization transactions,
and an entity’s continuing involvement in and exposure to the risks
related to transferred financial assets. The Company is currently assessing
the impact of adoption on its financial position and results of operations.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>FAS 167, which is effective
January 1, 2010, amends the consolidation guidance applicable to
variable interest entities and requires enhanced disclosures intended to provide
users of financial statements with more transparent information about an enterprise’s
involvement in a variable interest entity. The Company is currently assessing
the impact of adoption on its financial position and results of operations.</td>
</tr> </table> </div> </div> </body> </html>
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Tagged Note 2 - mrk:MergerAgreementTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>2. Merger Agreement with Schering-Plough
Corporation</b> </div> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>In March 2009,
Merck and Schering-Plough Corporation (“Schering-Plough”)
announced that their Boards of Directors unanimously approved a definitive
merger agreement under which Merck and Schering-Plough will combine in a stock
and cash transaction. The transaction is structured as a “reverse
merger” in which Schering-Plough, renamed Merck, will continue as
the surviving public corporation (“New Merck”). Under
the terms of the agreement, each issued and outstanding share of Schering-Plough
common stock will be converted into the right to receive a combination of
$10.50 in cash and 0.5767 of a share of the common stock of New Merck. Each
issued and outstanding share of Merck common stock will automatically be converted
into a share of the common stock of New Merck. The cash portion of the consideration
will be funded with a combination of existing cash, the sale or redemption
of short-term investments and the issuance of debt (see Note 10). Upon completion
of the merger, each issued and outstanding share of Schering-Plough 6% Mandatory
Convertible Preferred Stock not converted in accordance with the preferred
stock designations shall remain outstanding as one share of 6% Mandatory Convertible
Preferred Stock of the newly combined company having the rights set forth
in the New Merck certificate of incorporation. The transaction remains subject
to Merck and Schering-Plough shareholder approvals and the satisfaction of
customary closing conditions and regulatory approvals. The transaction is
expected to close in the fourth quarter of 2009.</td> </tr> <tr>
<td> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>On July 29, 2009, Merck and sanofi-aventis signed a definitive agreement
under which Merck will sell its 50% interest in the companies’ current
animal health joint venture, Merial Limited (“Merial”),
to sanofi-aventis for $4 billion in cash, subject to adjustment in certain
circumstances. Following the close of the transaction, sanofi-aventis will
own 100% of Merial. The sale of Merck’s interest in the Merial joint
venture is subject to clearance by the European antitrust authorities. Merck
anticipates it will complete the transaction before its planned merger with
Schering-Plough is finalized. In addition to the Merial agreement, Merck,
sanofi-aventis and Schering-Plough signed a call option agreement. Under the
terms of the call option agreement, following the closing of the Merck/Schering-Plough
merger, sanofi-aventis would have an option to require New Merck to contribute
Schering-Plough’s Intervet/Schering-Plough Animal Health business
with Merial to form an animal health joint venture that would be owned equally
by New Merck and sanofi-aventis. As part of the call option agreement, the
value of Merial has been fixed at $8 billion. The minimum total value received
by New Merck and its affiliates for contributing Intervet/Schering-Plough
to the combined entity would be $9.25 billion (subject to customary transaction
adjustments), consisting of a floor valuation of Intervet/Schering-Plough
which is fixed at a minimum of $8.5 billion (subject to potential upward revision
based on a valuation exercise by the two parties) and an additional payment
by sanoft-aventis of $750 million. Based on the valuation exercise of Intervet/Schering-Plough
and the customary transaction adjustments, if Merial and Intervet/Schering-Plough
are combined, a true-up payment may be required to be paid by either party
to establish a 50/50 joint venture with equal ownership between New Merck
and sanofi-aventis. Any formation of a new animal health joint venture with
sanofi-aventis is subject to customary closing conditions including antitrust
review in the United States and Europe. Between September 30, 2009 and the
closing of the merger between Merck and Schering-Plough, the agreements provide
Merck with certain rights to terminate the call option for a fee of $400 million
or $600 million. </td> </tr> </table> </div> </div>
</body> </html>
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Tagged Note 3 - us-gaap:RestructuringAndRelatedActivitiesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>3. Restructuring</b>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"></td> <td width="1%"> </td>
<td><u><i>2008 Global Restructuring Program </i> </u></td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously disclosed,
in October 2008, the Company announced a global restructuring program
(the “2008 Restructuring Program”) to reduce its cost
structure, increase efficiency, and enhance competitiveness. As part of the
2008 Restructuring Program, the Company expects to eliminate approximately
7,200 positions — 6,800 active employees and 400 vacancies —
across all areas of the Company worldwide by the end of 2011. About 40% of
the total reductions will occur in the United States. As part of the 2008
Restructuring Program, the Company is streamlining management layers by reducing
its total number of senior and mid-level executives globally by approximately
25%. As of June 30, 2009, the Company has eliminated approximately
3,725 positions in connection with this program, comprised of employee separations
and the elimination of contractors and vacant positions. Merck is rolling
out a new, more customer-centric selling model designed to provide Merck with
a meaningful competitive advantage and help physicians, patients and payers
improve patient outcomes. The Company is now operating its new commercial
selling models in the United States and other markets around the world. The
Company also will make greater use of outside technology resources, centralize
common sales and marketing activities, and consolidate and streamline its
operations. Merck’s manufacturing division will further focus its
capabilities on core products and outsource non-core manufacturing. Also,
Merck is expanding its access to worldwide external science through a basic
research global operating strategy, which is designed to provide a sustainable
pipeline and is focused on translating basic research productivity into late-stage
clinical success. To increase efficiencies, basic research operations will
consolidate work in support of a given therapeutic area into one of four locations.
This will provide a more efficient use of research facilities. As a result,
during the second quarter of 2009, the Company sold a portion of the operations
conducted at its basic research facility in Seattle, and two other facilities
in Pomezia, Italy and Tsukuba, Japan ceased operations. The remaining operations
of the Seattle facility are scheduled to be sold or closed by the end of 2009.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Separation costs are
accounted for under FASB Statement No. 112, <i>Employers’
Accounting for Postemployment Benefits — an amendment of FASB Statement
No. 5 and 43 </i>(“FAS 112”<i>)</i>,
and FASB Statement No. 146, <i>Accounting for Costs Associated
with Exit or Disposal Activities </i>(“FAS 146”).
In connection with the 2008 Restructuring Program, separation costs under
the Company’s existing severance programs worldwide were accounted
for under FAS 112 and recorded in the third quarter of 2008 to the extent
such costs were probable and estimable. The Company commenced accruing costs
related to one-time termination benefits offered to employees under the 2008
Restructuring Program in the fourth quarter of 2008 as that is when the necessary
criteria under FAS 146 was met. The Company recorded pretax restructuring
costs of $192.3 million and $366.9 million in the second quarter
and first six months of 2009, respectively, related to the 2008 Restructuring
Program. The Company anticipates that total costs for 2009 will be in the
range of $400 million to $600 million. The 2008 Restructuring
Program is expected to be completed by the end of 2011 with the total pretax
costs estimated to be $1.6 billion to $2.0 billion. The
Company estimates that two-thirds of the cumulative pretax costs will result
in future cash outlays, primarily from employee separation expense. Approximately
one-third of the cumulative pretax costs are non-cash, relating primarily
to the accelerated depreciation of facilities to be closed or divested.</td>
</tr> </table> </div> <!-- Folio --> <!-- /Folio
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New Roman',Times,serif"> <div style="margin-top: 0pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt"> </table> </div> <div align="left" style="font-size:
10pt; margin-top: 0pt"> <u> </u> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>The 2008 Restructuring Program was put into place prior to the pending
merger with Schering-Plough and does not reflect any potential impacts of
the merger.</td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"></td>
<td width="1%"> </td> <td><u><i>2005
Global Restructuring Program</i></u></td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>In November 2005, the
Company announced a global restructuring program (the “2005 Restructuring
Program”) designed to reduce the Company’s cost structure,
increase efficiency and enhance competitiveness which was substantially complete
at the end of 2008.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>For segment reporting, restructuring charges are unallocated expenses.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The following tables
summarize the charges related to restructuring activities by type of cost:</td>
</tr> </table> </div> <div align="right"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="98%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="20%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px
solid #000000">Three Months Ended June 30, 2009</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="14"
style="border-bottom: 1px solid #000000">Six Months Ended June 30, 2009</td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Separation</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Accelerated</td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Separation</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Accelerated</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2"> </td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>($ in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Costs</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Depreciation</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Other</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Total</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Costs</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Depreciation</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Other</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Total</td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr style="font-size: 1px"> <td colspan="33"
align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td
nowrap="nowrap"> <div style="margin-left:15px; text-indent:-15px"><i>2008
Restructuring Program</i> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="33" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Materials and production </div></td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">47.0</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">0.1</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">47.1</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">68.4</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">0.9</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">69.3</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Research and development </div></td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">107.6</td> <td> </td> <td> </td>
<td> </td> <td align="right">0.2</td> <td> </td>
<td> </td> <td> </td> <td align="right">107.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">193.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2.3</td> <td> </td> <td> </td>
<td> </td> <td align="right">195.9</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Restructuring costs </div></td> <td> </td>
<td> </td> <td align="right">16.7</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">20.7</td> <td> </td> <td> </td>
<td> </td> <td align="right">37.4</td> <td> </td>
<td> </td> <td> </td> <td align="right">44.9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">56.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">101.7</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="33" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td align="left">$</td> <td align="right">16.7</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">154.6</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">21.0</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">192.3</td> <td> </td> <td> </td>
<td> </td> <td align="right">44.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">262.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">60.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">366.9</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="33" align="left"
style="border-top: 3px double #000000"> </td> </tr>
<tr valign="bottom"> <td width="20%"> </td> <td
width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="14"
style="border-bottom: 1px solid #000000">Three Months Ended June 30, 2008</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="14" style="border-bottom: 1px solid #000000">Six
Months Ended June 30, 2008</td> <td> </td> </tr>
<tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Separation</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Accelerated</td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Separation</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Accelerated</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2"> </td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>($ in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Costs</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Depreciation</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Other</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Total</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Costs</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Depreciation</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Other</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Total</td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr style="font-size: 1px"> <td colspan="33"
align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td
nowrap="nowrap"> <div style="margin-left:15px; text-indent:-15px"><i>2005
Restructuring Program</i> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="33" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Materials and production </div></td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">15.8</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">0.3</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">16.1</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">31.1</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="left">$</td> <td align="right">(0.1</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="left">$</td> <td align="right">31.0</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Research and development
</div></td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Restructuring costs
</div></td> <td> </td> <td> </td>
<td align="right">75.6</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">26.6</td> <td> </td> <td> </td>
<td> </td> <td align="right">102.2</td> <td> </td>
<td> </td> <td> </td> <td align="right">177.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(5.1</td> <td nowrap="nowrap">)</td>
<td> </td> <td> </td> <td align="right">171.9</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="33" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td align="left">$</td> <td
align="right">75.6</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">15.8</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">26.9</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">118.3</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">177.0</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">31.1</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left">$</td> <td align="right">(5.2</td> <td
nowrap="nowrap">)</td> <td> </td> <td align="left">$</td>
<td align="right">202.9</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="33" align="left" style="border-top:
3px double #000000"> </td> </tr> <!-- End Table
Body --> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Separation costs are
associated with actual headcount reductions, as well as those headcount reductions
that were probable and could be reasonably estimated. In the second quarter
and first six months of 2009, approximately 925 positions and 1,975 positions,
respectively, were eliminated in connection with the 2008 Restructuring Program.
In the second quarter and first six months of 2008, approximately 600 positions
and 1,500 positions, respectively, were eliminated in connection with the
2005 Restructuring Program. These position eliminations were comprised of
actual headcount reductions, and the elimination of contractors and vacant
positions.</td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Accelerated depreciation
costs primarily relate to manufacturing and research facilities to be sold
or closed as part of the programs. All of the sites have and will continue
to operate up through the respective closure dates, and since future cash
flows were sufficient to recover the respective book values, Merck was required
to accelerate depreciation of the site assets rather than write them off immediately.
The site assets include manufacturing and research facilities and equipment.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Other activity of $21.0 million
and $26.9 million for the second quarter of 2009 and 2008, respectively,
and $60.0 million and $(5.2) million for the first six months of
2009 and 2008, respectively, reflects costs that include curtailment, settlement
and termination charges associated with the Company’s pension and
other postretirement benefit plans (see Note 14), as well as asset abandonment,
shut-down and other related costs. Other activity for the first six months
of 2008 also reflects pretax gains of $51.1 million resulting from
sales of facilities and related assets.</td> </tr> </table>
</div> <!-- Folio --> <!-- /Folio --> </div> <!--
PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 0pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt"> </table> </div> <div
align="left" style="font-size: 10pt; margin-top: 0pt"> <u> </u>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>The following table summarizes
the charges and spending relating to restructuring activities for the six
months ended June 30, 2009:</td> </tr> </table>
</div> <div align="right"> <table style="font-size: 10pt; text-align:
left" cellspacing="0" border="0" cellpadding="0" width="98%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="52%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Separation</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Accelerated</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2"> </td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>($ in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Costs</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Depreciation</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Other</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Total</td>
<td> </td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr style="font-size: 1px"> <td colspan="17"
align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px"><i>2008 Program</i>
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="17" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px">Restructuring
reserves as of January 1, 2009 </div></td> <td> </td>
<td align="left">$</td> <td align="right">607.7</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">607.7</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Expense
</div></td> <td> </td> <td> </td>
<td align="right">44.9</td> <td> </td> <td> </td>
<td> </td> <td align="right">262.0</td> <td> </td>
<td> </td> <td> </td> <td align="right">60.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">366.9</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">(Payments)
receipts, net </div></td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(180.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(60.3</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(241.2</td> <td nowrap="nowrap">)</td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Non-cash activity </div></td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(262.0</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">0.3</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="left"> </td> <td align="right">(261.7</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Restructuring reserves as of June 30, 2009
<sup style="font-size: 85%; vertical-align: text-top"><i>(1)</i></sup>
</div></td> <td> </td> <td align="left">$</td>
<td align="right">471.7</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">471.7</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="17" align="left" style="border-top:
3px double #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px"><i>2005 Program</i> </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Restructuring reserves as of January 1, 2009
</div></td> <td> </td> <td align="left">$</td>
<td align="right">114.8</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">114.8</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Expense </div></td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">(Payments) receipts, net </div></td> <td> </td>
<td nowrap="nowrap" align="left"> </td> <td align="right">(51.0</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(51.0</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Non-cash activity </div></td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Restructuring
reserves as of June 30, 2009 <sup style="font-size: 85%; vertical-align:
text-top"><i>(1)</i></sup> </div></td> <td> </td>
<td align="left">$</td> <td align="right">63.8</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">63.8</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 3pt" align="right"> <table width="98%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr> <td width="3%"></td> <td width="1%"></td>
<td width="96"></td> </tr> <tr valign="top"> <td
nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(1)</i></sup></td> <td> </td>
<td><i>The cash outlays associated with the remaining restructuring
reserve for the 2008 Restructuring Program are expected to be completed by
the end of 2011. The cash outlays associated with the remaining restructuring
reserve for the 2005 Restructuring Program are expected to be largely completed
by the end of 2009.</i></td> </tr> </table> </div>
</div> </body> </html>
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<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>4. Research Collaborations,
Acquisitions and License Agreements</b> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>In July 2009, Merck and Portola Pharmaceuticals, Inc. (“Portola”)
signed an exclusive global collaboration and license agreement for the development
and commercialization of betrixaban, an investigational oral Factor Xa inhibitor
anticoagulant currently in Phase II clinical development for the prevention
of stroke in patients with atrial fibrillation. In return for an exclusive
worldwide license to betrixaban, Merck will pay Portola an initial fee of
$50 million at closing, which the Company will record as research
and development expense. Portola is eligible to receive additional cash payments
totaling up to $420 million upon achievement of certain development,
regulatory and commercialization milestones, as well as double-digit royalties
on worldwide sales of betrixaban, if approved. Merck will assume all development
and commercialization costs, including the costs of Phase III clinical trials.
Portola has retained an option to co-fund Phase III clinical trials in return
for additional royalties and to co-promote betrixaban with Merck in the United
States. The closing of the collaboration agreement, which is expected to occur
in the third quarter of 2009, is subject to the expiration or earlier termination
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act,
if applicable, as well as other customary closing conditions. The term of
the agreement will commence on the closing date and, unless terminated earlier,
will continue until there are no remaining royalty payment obligations in
a country, at which time the agreement will expire in its entirety in such
country. The agreement may be terminated by either party in the event of a
material uncured breach or bankruptcy of a party. The agreement may be terminated
by Merck in the event that the parties or Merck decide to cease development
of betrixaban for safety or efficacy. In addition, Merck may terminate the
agreement at any time upon 180 days prior written notice. Portola
may terminate the agreement in the event that Merck challenges any Portola
patent covering betrixaban. Upon termination of the agreement, depending upon
the circumstances, the parties have varying rights and obligations with respect
to the continued development and commercialization of betrixaban and in the
case of termination for cause by Merck certain royalty obligations.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>In April 2009,
Merck, Medarex, Inc. (“Medarex”) and Massachusetts Biologic
Laboratories (“MBL”) of the University of Massachusetts
Medical School announced an exclusive worldwide license agreement for CDA-1
and CDB-1 (MK-3415A) (also known as MDX-066/MDX-1388 and MBL-CDA1/MBL-CDB1),
an investigational fully human monoclonal antibody combination developed to
target and neutralize <i>Clostridium difficile </i>toxins A and
B, for the treatment of <i>C. difficile </i>infection. CDA-1 and
CDB-1 were co-developed by Medarex and MBL. Under the terms of the agreement,
Merck gained worldwide rights to develop and commercialize CDA-1 and CDB-1.
Medarex and MBL received an aggregate upfront payment of $60 million
upon closing, which the Company recorded as research and development expense
in the second quarter of 2009, and are potentially eligible to receive additional
cash payments up to $165 million in the aggregate upon achievement
of certain milestones associated with the development and approval of a drug
candidate covered by this agreement. Upon commercialization, Medarex and MBL
will also be eligible to receive double-digit royalties on product sales and
milestones if certain sales targets are met. The term of the agreement commenced
on the closing date and, unless terminated earlier, will continue until there
are no remaining royalty payment obligations in a country, at which time the
agreement will expire in its entirety in such country. Either party may terminate
this agreement for uncured material breach by the other party, or bankruptcy
or insolvency of the other party. Merck may terminate this agreement at any
time upon providing 180 days prior written notice to Medarex and
MBL.</td> </tr> </table> </div> <!-- Folio -->
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'Times New Roman',Times,serif"> <div style="margin-top: 0pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt"> </table> </div> <div align="left" style="font-size:
10pt; margin-top: 0pt"> <u> </u> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>Also, in April 2009, Merck and Santen Pharmaceutical Co.,
Ltd. (“Santen”) announced a worldwide licensing agreement
for tafluprost (MK-2452), a prostaglandin analogue under investigation in
the United States. Tafluprost, preserved and preservative-free formulations,
has received marketing approval for the reduction of elevated intraocular
pressure in open-angle glaucoma and ocular hypertension in several European
and Nordic countries as well as Japan and has been filed for approval in additional
European and Asia Pacific markets. Under the terms of the agreement, Merck
paid a fee, which was capitalized and will be amortized to materials and production
costs over the life of the underlying patent, and will pay milestones and
royalty payments based on future sales of tafluprost (both preserved and preservative-free
formulations) in exchange for exclusive commercial rights to tafluprost in
Western Europe (excluding Germany), North America, South America and Africa.
Santen will retain commercial rights to tafluprost in most countries in Eastern
Europe, Northern Europe and Asia Pacific, including Japan. Merck will provide
promotion support to Santen in Germany and Poland. If tafluprost is approved
in the United States, Santen has an option to co-promote it there. The agreement
between Merck and Santen expires on a country-by-country basis on the last
to occur of (a) the expiry of the last to expire valid patent claim;
or (b) the expiration of the last to expire royalty. Merck may terminate
the agreement at any time upon 90 days prior written notice and also
at any time upon 60 days prior written notice if Merck determines
that the product presents issues of safety or tolerability. In addition, Merck
may terminate the agreement in the event that any of the enumerated agreements
between Santen and the co-owner/licensor of certain intellectual property
terminate or expire and this materially adversely affects Merck. If either
Merck or Santen materially breaches the agreement and fails to cure after
receiving notice, then the non-breaching party may terminate the agreement.
The agreement provides for termination by the non-insolvent party due to bankruptcy
by the other party. Finally, the agreement will terminate if, during the term,
Merck develops or commercializes a competitive product (as that term is defined
in the agreement).</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>In addition, in April 2009, Merck and Cardiome Pharma Corp.
(“Cardiome”) announced a collaboration and license agreement
for the development and commercialization of vernakalant (MK-6621), an investigational
candidate for the treatment of atrial fibrillation. The agreement provides
Merck with exclusive global rights to the oral formulation of vernakalant
(“vernakalant (oral)”) for the maintenance of normal heart
rhythm in patients with atrial fibrillation, and provides a Merck affiliate,
Merck Sharp & Dohme (Switzerland) GmbH, with exclusive rights outside
of the United States, Canada and Mexico to the intravenous (“IV”)
formulation of vernakalant (“vernakalant (IV)”) for rapid
conversion of acute atrial fibrillation to normal heart rhythm. Under the
terms of the agreement, Merck paid Cardiome an initial fee of $60 million
upon closing, which the Company recorded as research and development expense
in the second quarter of 2009. In addition, Cardiome is eligible to receive
up to $200 million in payments based on achievement of certain milestones
associated with the development and approval of vernakalant products (including
a total of $35 million for initiation of a planned Phase III program
for vernakalant (oral) and submission for regulatory approval in
Europe of vernakalant (IV)), and up to $100 million for milestones
associated with approvals in other subsequent indications of both the intravenous
and oral formulations. Also, Cardiome will receive tiered royalty payments
on sales of any approved products and has the potential to receive up to $340
million in milestone payments based on achievement of significant sales thresholds.
Cardiome has retained an option to co-promote vernakalant (oral) with
Merck through a hospital-based sales force in the United States. Merck will
be responsible for all future costs associated with the development, manufacturing
and commercialization of these candidates. Merck has granted Cardiome a secured,
interest-bearing credit facility of up to $100 million that Cardiome
may access in tranches over several years commencing in 2010. Cardiome’s
co-development partner in North America, Astellas Pharma U.S., Inc., submitted
a New Drug Application with the U.S. Food and Drug Administration (“FDA”)
for Kynapid (vernakalant hydrochloride) Injection in December 2006
that included results from two pivotal Phase III clinical trials. In December
2007, the Cardiovascular and Renal Drugs Advisory Committee recommended that
the FDA approve vernakalant (IV) for rapid conversion of atrial fibrillation.
In August 2008, the FDA issued an Approvable action letter requesting
additional information. A Phase IIb double-blind, placebo-controlled, randomized,
dose-ranging clinical trial in patients at risk of recurrent atrial fibrillation
showed that, at the 500 mg dose, vernakalant (oral) significantly
reduced the rate of atrial fibrillation relapse as compared to placebo. This
agreement continues in effect until the expiration of Cardiome’s
co-promotion rights and all royalty and milestone payment obligations. This
agreement may be terminated in the event of insolvency or a material uncured
breach by either party. Additionally, the collaboration may be terminated
by Merck in the event that Merck determines (in good faith) that it is not
advisable to continue the development or commercialization of a vernakalant
product as a result of a serious safety issue. In addition, Merck may terminate
the agreement at any time upon 12 months prior written notice. Cardiome
may terminate the agreement in the event that Merck challenges any Cardiome
patent covering vernakalant. Upon termination of the agreement, depending
upon the circumstances, the parties have varying rights and obligations with
respect to the continued development and commercialization of vernakalant
and in some cases continuing royalty obligations.</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>In March 2009, Merck
acquired Insmed Inc.’s (“Insmed”) portfolio
of follow-on biologic therapeutic candidates and its commercial manufacturing
facilities located in Boulder, Colorado. Under the terms of the agreement,
Merck paid Insmed an aggregate of $130 million in cash to acquire
all rights to the Boulder facilities and Insmed’s pipeline of follow-on
biologic candidates. Insmed’s follow-on biologics portfolio includes
two clinical candidates: INS-19 (MK-4214), an investigational recombinant
granulocyte-colony stimulating factor (“G-CSF”) that will
be evaluated for its ability to prevent infections in patients with cancer
receiving chemotherapy, and INS-20 (MK-6302), a pegylated recombinant G-CSF
designed to allow for less frequent dosing. The transaction is being accounted
for as a business combination pursuant to FAS 141R, which requires assets
acquired and liabilities assumed be recorded at their respective fair values
as of the acquisition date in the Company’s financial statements.
The determination of fair value requires management to make significant estimates
and assumptions. In connection with the acquisition, the Company allocated
substantially all of the purchase price to Insmed’s follow-on biologics
portfolio (INS-19 and INS-20) and recorded an indefinite-lived intangible
asset. The fair value was determined based upon the present value of expected
future cash flows of new product candidates resulting from Insmed’s
follow-on biologics portfolio adjusted for the probability of their technical
and marketing success utilizing an income approach reflecting appropriate
risk-adjusted discount rates. The Company will assess the indefinite-lived
intangible assets for recoverability at least on an annual basis or as events
and circumstances warrant a review. The ongoing activity related to INS-19
and INS-20 is not expected to be material to the Company’s research
and development expense. The remaining net assets acquired were not material
and there were no other milestone or royalty obligations associated with the
acquisition. This transaction closed on March 31, 2009, and accordingly,
the results of operations of the acquired business have been included in the
Company’s results of operations beginning April 1, 2009.</td>
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<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt; margin-left: 0%"><b>5.
Collaborative Arrangements</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt; margin-left: 2%">Merck continues its strategy of
establishing strong external alliances to complement its substantial internal
research capabilities, including research collaborations, acquisitions, licensing
preclinical and clinical compounds and technology platforms to drive both
near- and long-term growth. The Company supplements its internal research
with an aggressive licensing and external alliance strategy focused on the
entire spectrum of collaborations from early research to late-stage compounds,
as well as new technologies. The Company executes a number of external arrangements
including research and development collaborations, preclinical and clinical
compounds, and technology platforms across a broad range of therapeutic categories.
These arrangements often include upfront payments and royalty or profit share
payments, contingent upon the occurrence of certain future events linked to
the success of the asset in development, as well as expense reimbursements
or payments to the third party. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt; margin-left: 2%">The Company reviewed its third
party arrangements to determine if any arrangement is within the scope of
EITF 07-1. Each arrangement is unique in nature and the Company’s
most significant arrangement is discussed below. </div> <div align="left"
style="font-size: 10pt; margin-top: 12pt; margin-left: 2%"><b><i>Cozaar/Hyzaar</i></b>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt;
margin-left: 2%">In 1989, the Company and E.I. duPont de Nemours and Company
(“DuPont”) agreed to form a long-term research and marketing
collaboration to develop a class of therapeutic agents for high blood pressure
and heart disease, discovered by DuPont, called angiotensin II receptor antagonists,
which include <i>Cozaar </i>and <i>Hyzaar</i>. In
return, the Company provided DuPont marketing rights in the United States
and Canada to its prescription medicines, <i>Sinemet </i>and <i>Sinemet
CR</i>. Pursuant to a 1994 agreement with DuPont, the Company has an
exclusive licensing agreement to market <i>Cozaar </i>and <i>Hyzaar</i>,
which are both registered trademarks of DuPont, in return for royalties and
profit share payments to DuPont. </div> </div> </body> </html>
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<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt; margin-left: 0%"><b>6.
Fair Value Measurements</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt; margin-left: 2%">On January 1, 2008, the
Company adopted FASB Statement No. 157, <i>Fair Value Measurements
</i>(“FAS 157”), which clarifies the definition
of fair value, establishes a framework for measuring fair value, and expands
the disclosures of fair value measurements. In February 2008, the
FASB issued Staff Position 157-2, <i>Effective Date of FASB Statement
No. 157 </i>(“FSP FAS 157-2”), that deferred
the effective date of FAS 157 for one year for nonfinancial assets and liabilities
recorded at fair value on a nonrecurring basis. The effect of adoption on
January 1, 2009 of FAS 157 for nonfinancial assets and liabilities
recorded at fair value on a nonrecurring basis did not have a material impact
on the Company’s financial position and results of operations. FAS
157 describes three levels of inputs that may be used to measure fair value:
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt;
margin-left: 2%"><i>Level 1 </i>- Quoted prices in active markets
for identical assets or liabilities. The Company’s Level 1 assets
include equity securities that are traded in an active exchange market. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left:
2%"><i>Level 2 </i>- Observable inputs other than Level 1 prices,
such as quoted prices for similar assets or liabilities, or other inputs that
are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities. The Company’s Level
2 assets and liabilities primarily include debt securities with quoted prices
that are traded less frequently than exchange-traded instruments, corporate
notes and bonds, U.S. and foreign government and agency securities, certain
mortgage-backed and asset-backed securities, municipal securities, commercial
paper and derivative contracts whose values are determined using pricing models
with inputs that are observable in the market or can be derived principally
from or corroborated by observable market data. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><i>Level
3 </i>- Unobservable inputs that are supported by little or no market
activity and that are financial instruments whose values are determined using
pricing models, discounted cash flow methodologies, or similar techniques,
as well as instruments for which the determination of fair value requires
significant judgment or estimation. The Company’s Level 3 assets
mainly include mortgage-backed and asset-backed securities, as well as certain
corporate notes and bonds with limited market activity. At June 30,
2009, $42.1 million, or approximately 0.7%, of the Company’s
investment securities were categorized as Level 3 fair value assets (all of
</div> <!-- Folio --> <!-- /Folio --> </div> <!--
PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt"> <u>
</u> </div> <div style="margin-top: 0pt"> <table width="100%"
border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"></td> <td width="1%"></td>
<td> which were pledged under certain collateral arrangements (see Note
16)). All of the assets classified as Level 3 at June 30, 2009 were
acquired when the Company elected to be redeemed-in-kind from a short-term
fixed income fund that restricted cash redemptions as described below.</td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>If the inputs used to
measure the financial assets and liabilities fall within more than one level
described above, the categorization is based on the lowest level input that
is significant to the fair value measurement of the instrument.</td>
</tr> <tr> <td style="font-size: 12pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Financial Assets
and Liabilities Measured at Fair Value on a Recurring Basis</i></td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Financial assets and
liabilities measured at fair value on a recurring basis are summarized below:</td>
</tr> </table> </div> <div align="right"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="98%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="20%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="15" style="border-bottom: 1px
solid #000000">Fair Value Measurements Using</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="15" style="border-bottom: 1px
solid #000000">Fair Value Measurements Using</td> </tr> <tr
style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Quoted
Prices</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="3">Significant</td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Quoted
Prices</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="3">Significant</td> <td> </td> <td
nowrap="nowrap" align="center" colspan="3"> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">In
Active</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="3">Other</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">Significant</td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">In
Active</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="3">Other</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">Significant</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Markets
for</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="3">Observable</td> <td> </td> <td
nowrap="nowrap" align="center" colspan="3">Unobservable</td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Markets
for</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="3">Observable</td> <td> </td> <td
nowrap="nowrap" align="center" colspan="3">Unobservable</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Identical
Assets</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="3">Inputs</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">Inputs</td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Identical
Assets</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="3">Inputs</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">Inputs</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td style="border-bottom:
1px solid #000000"> </td> <td style="border-bottom: 1px
solid #000000"> </td> <td nowrap="nowrap" align="center"
colspan="3" style="border-bottom: 1px solid #000000">(Level 1)</td>
<td style="border-bottom: 1px solid #000000"> </td> <td
nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid
#000000">(Level 2)</td> <td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px
solid #000000">(Level 3)</td> <td style="border-bottom: 1px solid
#000000"> </td> <td nowrap="nowrap" align="center" colspan="3"
style="border-bottom: 1px solid #000000">Total</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px
solid #000000">(Level 1)</td> <td style="border-bottom: 1px solid
#000000"> </td> <td nowrap="nowrap" align="center" colspan="3"
style="border-bottom: 1px solid #000000">(Level 2)</td> <td style="border-bottom:
1px solid #000000"> </td> <td nowrap="nowrap" align="center"
colspan="3" style="border-bottom: 1px solid #000000">(Level 3)</td>
<td style="border-bottom: 1px solid #000000"> </td> <td
nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid
#000000">Total</td> </tr> <tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><i>($ in millions)</i></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7">June 30, 2009</td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7">December 31, 2008</td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="33" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px"><b>Assets</b> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="33" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px"><i>Investments</i> </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Corporate notes and bonds </div></td>
<td> </td> <td align="right">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">1,986.7</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">1,986.7</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">3,093.2</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">3,093.2</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">U.S. government and
agency securities </div></td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,151.6</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,151.6</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,885.7</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,885.7</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td
nowrap="nowrap"> <div style="margin-left:15px; text-indent:-15px">Mortgage-backed
securities <sup style="font-size: 85%; vertical-align: text-top"><i>(1)</i></sup>
</div></td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">702.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">702.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">723.9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">723.9</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Commercial paper </div></td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">326.8</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">326.8</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">133.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">133.0</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Asset-backed securities<sup
style="font-size: 85%; vertical-align: text-top"> <i>(1)</i></sup>
</div></td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">202.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">202.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">306.7</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">306.7</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Foreign government
bonds </div></td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">82.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">82.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">319.4</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">319.4</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Equity
securities </div></td> <td> </td> <td> </td>
<td align="right">94.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">34.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">128.9</td> <td> </td> <td> </td>
<td> </td> <td align="right">71.1</td> <td> </td>
<td> </td> <td> </td> <td align="right">73.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">144.7</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Other debt securities
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td align="right">2.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2.9</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2.8</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2.8</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="33" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Total investments </div></td> <td> </td>
<td align="right">$</td> <td align="right">94.4</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">4,490.4</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">4,584.8</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">71.1</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">7,538.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">7,609.4</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="33" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"><!--
Blank Space --> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Other assets<sup style="font-size: 85%; vertical-align:
text-top"> <i>(2)</i></sup> </div></td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,182.1</td> <td> </td>
<td> </td> <td> </td> <td align="right">42.1</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,224.2</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,877.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">96.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,974.5</td> <td> </td>
</tr> <tr valign="bottom"><!-- Blank Space --> <td>
<div style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Derivative assets <sup style="font-size:
85%; vertical-align: text-top"><i>(3)</i></sup> </div></td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">378.8</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">378.8</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">548.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">548.4</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="33" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px">Total Assets
</div></td> <td> </td> <td align="right">$</td>
<td align="right">94.4</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">6,051.3</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">42.1</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">6,187.8</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">71.1</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">10,964.6</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">96.6</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">11,132.3</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="33" align="left" style="border-top: 3px double #000000"> </td>
</tr> <tr valign="bottom"><!-- Blank Space --> <td>
<div style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px"><b>Liabilities</b>
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="33" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Derivative
liabilities <sup style="font-size: 85%; vertical-align: text-top"><i>(3)</i></sup>
</div></td> <td> </td> <td align="right">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">136.6</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">136.6</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">275.0</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">275.0</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="33" align="left" style="border-top:
3px double #000000"> </td> </tr> <!-- End Table
Body --> </table> </div> <div style="margin-top: 3pt" align="right">
<table width="98%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr> <td width="3%"></td> <td
width="1%"></td> <td width="96"></td> </tr> <tr
valign="top"> <td nowrap="nowrap" align="left"><sup style="font-size:
85%; vertical-align: text-top"><i>(1</i>)</sup></td>
<td> </td> <td><i>Mortgage-backed securities
represent AAA rated securities issued or unconditionally guaranteed as to
payment of principal and interest by U.S. government agencies. Substantially
all of the asset-backed securities are highly-rated (Standard & Poor’s
rating of AAA and Moody’s Investors Service rating of Aaa), secured
primarily by credit card, auto loan, and home equity receivables, with weighted-average
lives of primarily 5 years or less.</i></td> </tr>
<tr style="font-size: 3pt"> <td> </td> </tr>
<tr valign="top"> <td nowrap="nowrap" align="left"><sup style="font-size:
85%; vertical-align: text-top"><i>(2)</i></sup></td>
<td> </td> <td><i>Other assets represent
a portion of the pledged collateral discussed in Notes 10 and 16. At June 30,
2009, Level 2 Other assets are comprised of $578.6 million in municipal
securities, $217.6 million in commercial paper, $173.9 million
in mortgage-backed securities, $140.3 million in corporate notes
and bonds, $66.5 million of asset-backed securities and $5.2 million
of U.S. government and agency securities. At December 31, 2008, Level
2 Other assets are comprised of $987.4 million of corporate notes
and bonds, $792.5 million of municipal securities, $357.3 million
of commercial paper, $276.0 million of mortgage-backed securities,
$240.1 million of U.S. government and agency securities and $224.6 million
of asset-backed securities.</i></td> </tr> <tr style="font-size:
3pt"> <td> </td> </tr> <tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(3)</i></sup></td> <td> </td>
<td><i>The fair value determination of derivatives includes an
assessment of the credit risk of counterparties to the derivatives and the
Company’s own credit risk, the effects of which were not significant.</i></td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Level 3 Valuation
Techniques:</i></td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>Financial assets are considered Level 3 when their fair values are
determined using pricing models, discounted cash flow methodologies or similar
techniques and at least one significant model assumption or input is unobservable.
Level 3 financial assets also include certain investment securities for which
there is limited market activity such that the determination of fair value
requires significant judgment or estimation. The Company’s Level
3 investment securities at June 30, 2009, primarily include mortgage-backed
and asset-backed securities, as well as certain corporate notes and bonds
for which there was a decrease in the observability of market pricing for
these investments. These securities were valued primarily using pricing models
for which management understands the methodologies. These models incorporate
transaction details such as contractual terms, maturity, timing and amount
of future cash inflows, as well as assumptions about liquidity and credit
valuation adjustments of marketplace participants at June 30, 2009.</td>
</tr> </table> </div> <!-- Folio --> <!-- /Folio
- --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times
New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top:
0pt"> <u> </u> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The table below provides
a summary of the changes in fair value, including net transfers in and/or
out, of all financial assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3):</td> </tr> </table>
</div> <div align="right"> <table style="font-size: 10pt; text-align:
left" cellspacing="0" border="0" cellpadding="0" width="98%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="28%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="10"
style="border-bottom: 1px solid #000000">Three Months Ended June 30, 2009</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="10" style="border-bottom: 1px solid #000000">Three
Months Ended June 30, 2008 </td> <td> </td> </tr>
<tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Available-</td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Other</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2"> </td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">for-sale</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Other</td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">debt</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Other</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2"> </td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>($ in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">investments</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">assets</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Total</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">securities</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">assets</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Total</td> <td> </td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="25" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Beginning Balance April 1 </div></td> <td> </td>
<td align="left">$</td> <td align="right">26.8</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">48.2</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">75.0</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">161.2</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">161.2</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Net Transfers In to
(Out of) Level 3 <sup style="font-size: 85%; vertical-align: text-top"><i>(1)</i></sup>
</div></td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">40.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">40.4</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Purchases, Sales, Settlements,
Net </div></td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(26.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(6.2</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(33.1</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(15.8</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(15.8</td> <td nowrap="nowrap">)</td>
</tr> <tr valign="bottom"> <td nowrap="nowrap"> <div
style="margin-left:15px; text-indent:-15px">Total Realized and Unrealized
Gains(Losses) </div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Included
in: </div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:45px; text-indent:-15px">Earnings<sup style="font-size:
85%; vertical-align: text-top"><i>(2)</i></sup> </div></td>
<td> </td> <td> </td> <td align="right">0.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">0.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">0.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(6.0</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(6.0</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:45px;
text-indent:-15px">Comprehensive Income </div></td> <td> </td>
<td nowrap="nowrap" align="left"> </td> <td align="right">(0.4</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(0.3</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(0.7</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(0.3</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(0.3</td> <td nowrap="nowrap">)</td>
</tr> <tr style="font-size: 1px"> <td colspan="25" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Ending
Balance at June 30 </div></td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">42.1</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">42.1</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">179.5</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">179.5</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="25" align="left" style="border-top: 3px double #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td
nowrap="nowrap"> <div style="margin-left:15px; text-indent:-15px">Losses
Recorded in Earnings for Level 3 </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Assets
Still Held at June 30 </div></td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left">$</td> <td align="right">(0.5</td> <td
nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap"
align="left">$</td> <td align="right">(0.5</td> <td
nowrap="nowrap">)</td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="left">$</td>
<td align="right">(6.0</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="left">$</td>
<td align="right">(6.0</td> <td nowrap="nowrap">)</td>
</tr> <tr style="font-size: 1px"> <td colspan="25" align="left"
style="border-top: 3px double #000000"> </td> </tr>
<tr valign="bottom"> <td width="28%"> </td> <td
width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="10"
style="border-bottom: 1px solid #000000">Six Months Ended June 30, 2009</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="10" style="border-bottom: 1px solid #000000">Six
Months Ended June 30, 2008</td> <td> </td> </tr>
<tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Available-</td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Other</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2"> </td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">for-sale</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Other</td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">debt</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Other</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2"> </td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>($ in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">investments</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">assets</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Total</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">securities</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">assets</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Total</td> <td> </td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="25" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Beginning Balance January 1 </div></td>
<td> </td> <td align="left">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">96.6</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">96.6</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">314.5</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">958.6</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">1,273.1</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Net Transfers In to
(Out of) Level 3 <sup style="font-size: 85%; vertical-align: text-top"><i>(1)</i></sup>
</div></td> <td> </td> <td> </td>
<td align="right">26.6</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="left"> </td> <td align="right">(23.8</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">2.8</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="left"> </td> <td align="right">(314.5</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(744.8</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(1,059.3</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Purchases, Sales, Settlements, Net </div></td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(26.9</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(32.5</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(59.4</td> <td nowrap="nowrap">)</td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(24.6</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(24.6</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom">
<td nowrap="nowrap"> <div style="margin-left:15px; text-indent:-15px">Total
Realized and Unrealized Gains(Losses) </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">Included in: </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:45px;
text-indent:-15px">Earnings<sup style="font-size: 85%; vertical-align:
text-top"><i>(2)</i></sup> </div></td> <td> </td>
<td> </td> <td align="right">0.5</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(1.3</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="left"> </td>
<td align="right">(0.8</td> <td nowrap="nowrap">)</td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(8.3</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(8.3</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:45px;
text-indent:-15px">Comprehensive Income </div></td> <td> </td>
<td nowrap="nowrap" align="left"> </td> <td align="right">(0.2</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">3.1</td> <td> </td> <td> </td>
<td> </td> <td align="right">2.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(1.4</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="left"> </td> <td align="right">(1.4</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td colspan="25" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Ending Balance at June 30 </div></td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">42.1</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">42.1</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">179.5</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">179.5</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="25" align="left" style="border-top: 3px double #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Losses Recorded in
Earnings for Level 3 </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Assets
Still Held at June 30 </div></td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left">$</td> <td align="right">(0.5</td> <td
nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap"
align="left">$</td> <td align="right">(0.5</td> <td
nowrap="nowrap">)</td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="left">$</td>
<td align="right">(8.3</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="left">$</td>
<td align="right">(8.3</td> <td nowrap="nowrap">)</td>
</tr> <tr style="font-size: 1px"> <td colspan="25" align="left"
style="border-top: 3px double #000000"> </td> </tr>
<!-- End Table Body --> </table> </div> <div style="margin-top:
3pt" align="right"> <table width="98%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr> <td width="3%"></td>
<td width="1%"></td> <td width="96"></td> </tr>
<tr valign="top"> <td nowrap="nowrap" align="left"><sup style="font-size:
85%; vertical-align: text-top"><i>(1)</i></sup></td>
<td> </td> <td><i>Transfers in and out of
Level 3 are deemed to occur at the beginning of the quarter in which the transaction
takes place.</i></td> </tr> <tr style="font-size: 3pt">
<td> </td> </tr> <tr valign="top"> <td
nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(2)</i></sup></td> <td> </td>
<td><i>Amounts are recorded in Other (income) expense,
net.</i></td> </tr> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>On January 1, 2008, the Company had investments in a short-term
fixed income fund (the “Fund”). Due to market liquidity
conditions, cash redemptions from the Fund were restricted. As a result of
this restriction on cash redemptions, the Company did not consider the Fund
to be traded in an active market with observable pricing on January 1,
2008 and these amounts were categorized as Level 3. On January 7,
2008, the Company elected to be redeemed-in-kind from the Fund and received
its share of the underlying securities of the Fund. As a result, the majority
of the underlying securities were transferred out of Level 3 as it was determined
these securities had observable markets. On June 30, 2009, $42.1 million
of the investment securities associated with the redemption-in-kind were classified
in Level 3 as the securities contained at least one significant input which
was unobservable. These securities account for the entire balance of the Company’s
Level 3 assets at June 30, 2009. During the first quarter of 2009,
investments in the aggregate amount of $26.6 million, which were
no longer pledged as collateral, were reclassified from Other assets to available-for-sale
investments.</td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Impairments
of Investments</i></td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>As discussed in Note 1, on April 1, 2009, the Company adopted
FSP FAS 115-2/124-2, which changed the other-than-temporary impairment model
for debt securities. The impairment model for equity securities was not affected.
An impairment exists when the current fair value of an individual security
is less than its amortized cost basis. Under FSP FAS 115-2/124-2, an other-than-temporary
impairment must be recognized in earnings if the Company has the intent to
sell the debt security or if it is more likely than not that the Company will
be required to sell the debt security before recovery of its amortized cost
basis. Even if the Company does not expect to sell a debt security, it is
required to separate other-than-temporary impairments into two components;
credit losses, which are recognized in earnings, and those losses related
to other factors, which are recorded in other comprehensive income. In determining
if credit losses have occurred, the Company evaluates whether expected cash
flows to be received are sufficient to recover the amortized cost basis of
the security. Based on the Company’s circumstances in the second
quarter, substantially all of the Company’s other-than-temporary
impairments must be recognized in earnings; therefore FSP FAS 115-2/124-2
did not have a material impact upon adoption or during the second quarter
of 2009. Impairment losses recognized in earnings for the three months ended
June 30, 2009 were not significant.</td> </tr> </table>
</div> <!-- Folio --> <!-- /Folio --> </div> <!--
PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 0pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt"> </table> </div> <div
align="left" style="font-size: 10pt; margin-top: 0pt"> <u> </u>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>A summary of the gross unrealized
gains and losses on the Company’s available-for-sale investments,
including those pledged as collateral<i>, </i>recorded in Accumulated
Other Comprehensive Income (“AOCI”) is as follows:</td>
</tr> </table> </div> <div align="right"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="98%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="20%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="3%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="15" style="border-bottom: 1px
solid #000000">June 30, 2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="15" style="border-bottom: 1px
solid #000000">December 31, 2008</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Fair</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Amortized</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000">Gross Unrealized</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Fair</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Amortized</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000">Gross Unrealized</td> </tr>
<tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Value</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Cost</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Gains
<i>(1)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">Losses <i>(1)</i></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Value</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Cost</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Gains <i>(1)</i></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Losses
<i>(1)</i></td> </tr> <!-- End Table Head -->
<!-- Begin Table Body --> <tr style="font-size: 1px"> <td colspan="17"
align="left" style="border-top: 1px solid #000000"> </td>
<td> </td> <td colspan="16" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Corporate notes and bonds </div></td> <td> </td>
<td align="right">$</td> <td align="right">2,130.0</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">2,088.6</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">46.0</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right">$</td> <td align="right">(4.6</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="right">$</td> <td align="right">4,124.7</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">4,158.4</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">31.6</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right">$</td> <td align="right">(65.3</td> <td
nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">U.S. government and
agency securities </div></td> <td> </td>
<td> </td> <td align="right">1,156.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,147.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">15.8</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(6.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">3,125.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">3,061.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">67.4</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(3.2</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Mortgage-backed securities </div></td> <td> </td>
<td> </td> <td align="right">905.4</td> <td> </td>
<td> </td> <td> </td> <td align="right">886.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">22.0</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(2.6</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">1,031.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">1,024.4</td>
<td> </td> <td> </td> <td> </td>
<td align="right">12.5</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(5.0</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px">Municipal
securities </div></td> <td> </td> <td> </td>
<td align="right">578.6</td> <td> </td> <td> </td>
<td> </td> <td align="right">566.1</td> <td> </td>
<td> </td> <td> </td> <td align="right">15.2</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(2.7</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">792.5</td> <td> </td> <td> </td>
<td> </td> <td align="right">764.4</td> <td> </td>
<td> </td> <td> </td> <td align="right">28.4</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(0.3</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Commercial paper </div></td> <td> </td>
<td> </td> <td align="right">544.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">544.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">490.3</td> <td> </td> <td> </td>
<td> </td> <td align="right">490.3</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Asset-backed securities </div></td> <td> </td>
<td> </td> <td align="right">279.0</td> <td> </td>
<td> </td> <td> </td> <td align="right">265.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">13.9</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(0.7</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">551.7</td> <td> </td> <td> </td>
<td> </td> <td align="right">571.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">0.6</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(20.7</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Foreign government bonds </div></td> <td> </td>
<td> </td> <td align="right">82.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">80.4</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">319.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">305.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">13.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Other debt securities </div></td> <td> </td>
<td> </td> <td align="right">17.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">16.7</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1.7</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(0.6</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">46.7</td> <td> </td> <td> </td>
<td> </td> <td align="right">48.6</td> <td> </td>
<td> </td> <td> </td> <td align="right">1.5</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(3.4</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Equity securities </div></td> <td> </td>
<td> </td> <td align="right">114.0</td> <td> </td>
<td> </td> <td> </td> <td align="right">72.4</td>
<td> </td> <td> </td> <td> </td>
<td align="right">42.4</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(0.8</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">100.9</td> <td> </td> <td> </td>
<td> </td> <td align="right">86.3</td> <td> </td>
<td> </td> <td> </td> <td align="right">17.7</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(3.1</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td colspan="33" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td align="right">$</td> <td align="right">5,808.9</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">5,668.4</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">159.4</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right">$</td> <td align="right">(18.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="right">$</td> <td align="right">10,583.9</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">10,511.7</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">173.2</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right">$</td> <td align="right">(101.0</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td colspan="33" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 3pt" align="right"> <table width="98%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr> <td width="3%"></td> <td width="1%"></td>
<td width="96"></td> </tr> <tr valign="top"> <td
nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(1)</i></sup></td> <td> </td>
<td><i>At June 30, 2009, gross unrealized gains and gross
unrealized losses related to amounts pledged as collateral (see Notes 10 and
16) were $33.5 million and $(6.1) million, respectively. At December 31,
2008, gross unrealized gains and gross unrealized losses related to amounts
pledged as collateral were $36.1 million and $(30.3) million, respectively.</i></td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The amount of gross unrealized
losses at June 30, 2009 that were in a continuous loss position for
more than 12 months was <i>de minimis. </i>Available-for-sale
debt securities included in Short-term investments totaled $4.4 billion
at June 30, 2009. Of the remaining debt securities, $36.6 million
mature within 5 years. Debt securities pledged as collateral included
in Deferred income taxes and other current assets were $687.4 million at June 30,
2009, with the remaining amount of $128.8 million maturing within 5 years.</td>
</tr> <tr> <td style="font-size: 12pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Nonfinancial
Asset and Liabilities Measured at Fair Value on a Nonrecurring Basis</i></td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The Company has cost
method investments associated with certain research and licensing agreements
which are measured at fair value on a nonrecurring basis. During the first
quarter of 2009, two cost method investments with an aggregate carrying value
of $24.7 million were other-than-temporarily impaired and written
down to their respective fair values, resulting in an aggregate impairment
charge of $8.2 million which was recorded within Other income, expense,
net. These investments are traded on a public stock exchange in active markets,
therefore, the observable quoted prices were utilized as the fair value amount
(Level 1).</td> </tr> <tr> <td style="font-size: 12pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Financial Instruments
not Measured at Fair Value</i></td> </tr> <tr> <td
style="font-size: 6pt"> </td> </tr> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>Some of the Company’s financial instruments are not measured
at fair value on a recurring basis but are recorded at amounts that approximate
fair value due to their liquid or short-term nature, such as cash and cash
equivalents, receivables and payables.</td> </tr> <tr> <td
style="font-size: 6pt"> </td> </tr> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>The estimated fair value of the Company’s loans payable
and long-term debt (including current portion) at June 30, 2009 was
$10,761.3 million compared with a carrying value of $10,682.9 million
and at December 31, 2008 was $6,294.8 million compared with
a carrying value of $6,240.4 million. Fair value was estimated using quoted
dealer prices.</td> </tr> <tr> <td style="font-size:
12pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td><i>Concentrations of Credit Risk</i></td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>On an ongoing basis, the Company
monitors concentrations of credit risk associated with corporate issuers of
securities and financial institutions with which it conducts business. Credit
exposure limits are established to limit a concentration with any single issuer
or institution. Cash and investments are placed in instruments that meet high
credit quality standards, as specified in the Company’s investment
policy guidelines.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>Derivative financial instruments are executed under International
Swaps and Derivatives Association master agreements. The master agreements
with several of the Company’s financial institution counterparties
also include credit support annexes. These annexes contain provisions that
require collateral to be exchanged depending on the value of the derivative
assets and liabilities, the Company’s credit rating, and the credit
rating of the counterparty. As of June 30, 2009, Cash and cash equivalents
includes cash collateral of $37.6 million received from various counterparties
with a corresponding offset included in Accrued and other current liabilities.
The Company had not advanced any cash collateral to counterparties as of June 30,
2009.</td> </tr> </table> </div> <!-- Folio -->
<!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family:
'Times New Roman',Times,serif"> <div style="margin-top: 0pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt"> </table> </div> <div align="left" style="font-size:
10pt; margin-top: 0pt"> <u> </u> </div> </div>
</body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
- --> <html> <head></head> <body> <!-- Begin Block
Tagged Note 7 - us-gaap:DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>7. Derivative Instruments
and Hedging Activities</b> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>On January 1,
2009, the Company adopted FAS 161 which requires expanded disclosures on (i) how
and why an entity uses derivative instruments, (ii) how derivative
instruments and related hedged items are accounted for, and (iii) how
derivative instruments and related hedged items affect the Company’s
financial statements.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>The Company uses derivative instruments to manage certain risks
relating to its ongoing business operations, including risks relating to foreign
currencies as well as interest rate changes. The Company has established revenue
hedging and balance sheet risk management programs to protect against volatility
of future foreign currency cash flows and changes in fair value caused by
volatility in foreign exchange rates. The Company may use interest rate swap
contracts on certain investing and borrowing transactions to manage its net
exposure to interest rate changes and to reduce its overall cost of borrowing.
The Company does not use leveraged swaps and, in general, does not leverage
any of its investment activities that would put principal capital at risk.
The objectives and accounting related to the Company’s foreign currency
risk management and interest rate risk management programs are discussed below.</td>
</tr> <tr> <td style="font-size: 12pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Foreign Currency
Risk Management</i></td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>The objective of the revenue hedging program is to reduce the potential
for longer-term unfavorable changes in foreign exchange to decrease the U.S.
dollar value of future cash flows derived from foreign currency denominated
sales, primarily the euro and Japanese yen. To achieve this objective, the
Company will partially hedge anticipated third-party sales that are expected
to occur over its planning cycle, typically no more than three years into
the future. The Company will layer in hedges over time, increasing the portion
of sales hedged as it gets closer to the expected date of the transaction,
such that it is probable that the hedged transaction will occur. The portion
of sales hedged is based on assessments of cost-benefit profiles that consider
natural offsetting exposures, revenue and exchange rate volatilities and correlations,
and the cost of hedging instruments. The hedged anticipated sales are a specified
component of a portfolio of similarly denominated foreign currency-based sales
transactions, each of which responds to the hedged risk in the same manner.
Merck manages its anticipated transaction exposure with purchased local currency
put options, which provide the Company with a right, but not an obligation,
to sell foreign currencies in the future at a predetermined price. If the
U.S. dollar strengthens relative to the currency of the hedged anticipated
sales, total changes in the options’ cash flows offset the decline
in the expected future U.S. dollar cash flows of the hedged foreign currency
sales. Conversely, if the U.S. dollar weakens, the options’ value
reduces to zero, but the Company benefits from the increase in the value of
the anticipated foreign currency cash flows. The Company also utilizes forward
contracts in its revenue hedging program. If the U.S. dollar strengthens relative
to the currency of the hedged anticipated sales, the increase in the fair
value of the forward contracts offsets the decrease in the expected future
U.S. dollar cash flows of the hedged foreign currency sales. Conversely, if
the U.S. dollar weakens, the decrease in the fair value of the forward contracts
offsets the increase in the value of the anticipated foreign currency cash
flows.</td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>These derivative instruments
are designated as cash flow hedges under FASB Statement No. 133,
<i>Accounting for Derivative Instruments and Hedging Activities </i>(“FAS
133”), and the fair value of these contracts are recorded as either
assets (gain positions) or liabilities (loss positions) in the Consolidated
Balance Sheet. Accordingly, the effective portion of the unrealized gains
or losses on these contracts are recorded in AOCI and reclassified into Sales
when the hedged anticipated revenue is recognized. The hedge relationship
is highly effective and hedge ineffectiveness has been <i>de minimis</i>.
The cash flows from these contracts are reported as operating activities in
the Consolidated Statement of Cash Flows.</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>The primary objective of the
balance sheet risk management program is to protect the U.S. dollar value
of foreign currency denominated net monetary assets from the effects of volatility
in foreign exchange that might occur prior to their conversion to U.S. dollars.
Merck principally utilizes forward exchange contracts, which enable the Company
to buy and sell foreign currencies in the future at fixed exchange rates and
economically offset the consequences of changes in foreign exchange on the
amount of U.S. dollar cash flows derived from the net assets. Merck routinely
enters into contracts to offset the effects of exchange on exposures denominated
in developed country currencies, primarily the euro and Japanese yen. For
exposures in developing country currencies, the Company will enter into forward
contracts to partially offset the effects of exchange on exposures when it
is deemed economical to do so based on a cost-benefit analysis that considers
the magnitude of the exposure, the volatility of the exchange rate and the
cost of the hedging instrument. The Company will also minimize the effect
of exchange on monetary assets and liabilities by managing operating activities
and net asset positions at the local level.</td> </tr> </table>
</div> <!-- Folio --> <!-- /Folio --> </div> <!--
PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 0pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt"> </table> </div> <div
align="left" style="font-size: 10pt; margin-top: 0pt"> <u> </u>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>Foreign currency denominated
monetary assets and liabilities are remeasured at spot rates in effect on
the balance sheet date with the effects of changes in spot rates reported
in Other (income) expense, net. The forward contracts are not designated
as hedges and are marked to market through Other (income) expense,
net. Accordingly, fair value changes in the forward contracts help mitigate
the changes in the value of the remeasured assets and liabilities attributable
to changes in foreign currency exchange rates, except to the extent of the
spot-forward differences. These differences are not significant due to the
short-term nature of the contracts, which typically have average maturities
at inception of less than one year.</td> </tr> <tr> <td
style="font-size: 6pt"> </td> </tr> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>The Company uses forward contracts to hedge the changes in fair
value of certain foreign currency denominated available-for-sale securities
attributable to fluctuations in foreign currency exchange rates. These derivative
contracts are designated and qualify as fair value hedges under FAS 133. Accordingly,
changes in the fair value of the hedged securities due to fluctuations in
spot rates are offset in Other (income) expense, net, by the fair
value changes in the forward contracts attributable to spot rate fluctuations.
Changes in the contracts’ fair value due to spot-forward differences
are excluded from the designated hedge relationship and recognized in Other
(income) expense, net. These amounts as well as hedge ineffectiveness
were not significant. The cash flows from these contracts are reported as
operating activities in the Consolidated Statement of Cash Flows.</td>
</tr> <tr> <td style="font-size: 12pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Interest Rate
Risk Management</i></td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>At June 30, 2009, the Company was a party to seven pay-floating,
receive-fixed interest rate swap contracts designated as fair value hedges
of fixed-rate notes in which the notional amounts match the amount of the
hedged fixed-rate notes. There were two swaps maturing in 2011 with notional
amounts of $125 million each that effectively convert the Company’s
5.125% fixed-rate notes due 2011 to floating rate instruments. In addition,
during June 2009, the Company entered into five interest rate swap
contracts with notional amounts of $150 million each that effectively
convert $750 million of the Company’s $1.0 billion,
4.0% fixed-rate notes due 2015 to floating rate instruments. The interest
rate swap contracts are designated hedges of the fair value changes in the
notes attributable to changes in the benchmark London Interbank Offered Rate
(“LIBOR”) swap rate. The fair value changes in the notes
attributable to the benchmark interest rate are offset in interest expense
by the fair value changes in the swap contracts. The cash flows from these
contracts are reported as operating activities in the Consolidated Statement
of Cash Flows.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>Presented in the table below is the fair value of derivatives segregated
between those derivatives that are designated as hedging instruments under
FAS 133 and those that are not designated as hedging instruments under FAS
133 as of June 30, 2009.</td> </tr> </table> </div>
<div align="right"> <table style="font-size: 10pt; text-align: left"
cellspacing="0" border="0" cellpadding="0" width="98%"> <!-- Begin Table
Head --> <tr valign="bottom"> <td width="39%"> </td>
<td width="3%"> </td> <td width="35%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%">       </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="6" style="border-bottom: 1px solid #000000">Fair
Value of Derivative</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px
solid #000000">U.S. Dollar</td> <td> </td> </tr>
<tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>($
in millions)</i></td> <td> </td> <td nowrap="nowrap"
align="left">Balance Sheet Caption</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="2">Asset</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="2">Liability</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="2">Notional</td> <td> </td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="15" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px"><i>Derivatives Designated as Hedging Instruments</i>
</div></td> <td> </td> <td align="left"
valign="top"> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Foreign Exchange Contracts (current) </div></td>
<td> </td> <td align="left" valign="top">Accounts
Receivable</td> <td> </td> <td align="right">$</td>
<td align="right">119.7</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">2,359.0</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Foreign Exchange Contracts
(non-current) </div></td> <td> </td> <td
align="left" valign="top">Other assets</td> <td> </td>
<td> </td> <td align="right">219.2</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,731.0</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Foreign Exchange Contracts (current) </div></td>
<td> </td> <td align="left" valign="top">Accrued
and Other current liabilities</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">44.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,837.5</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Foreign Exchange Contracts
(non-current) </div></td> <td> </td> <td
align="left" valign="top">Noncurrent liabilities</td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">16.5</td> <td> </td> <td> </td>
<td> </td> <td align="right">347.5</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Interest Rate Swaps (non-current) </div></td>
<td> </td> <td align="left" valign="top">Other
assets</td> <td> </td> <td> </td>
<td align="right">24.9</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,000.0</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="15" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td align="left" valign="top"> </td>
<td> </td> <td align="right">$</td> <td
align="right">363.8</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">61.3</td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="15" align="left" style="border-top:
3px double #000000"> </td> </tr> <tr valign="bottom"><!--
Blank Space --> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td align="left"
valign="top"> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px"><i>Derivatives
Not Designated as Hedging Instruments</i> </div></td> <td> </td>
<td align="left" valign="top"> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="15" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:30px;
text-indent:-15px">Foreign Exchange Contracts (current) </div></td>
<td> </td> <td align="left" valign="top">Accounts
Receivable</td> <td> </td> <td align="right">$</td>
<td align="right">15.0</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">1,057.1</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Foreign Exchange Contracts (current) </div></td>
<td> </td> <td align="left" valign="top">Accrued
and Other current liabilities</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">75.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,374.7</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="15" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td align="left" valign="top"> </td>
<td> </td> <td align="right">$</td> <td
align="right">15.0</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">75.3</td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="15" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td> </td>
<td> </td> <td align="left" valign="top">$</td>
<td align="right">378.8</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">136.6</td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="15" align="left" style="border-top:
3px double #000000"> </td> </tr> <!-- End Table
Body --> </table> </div> <!-- Folio --> <!-- /Folio
- --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times
New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top:
0pt"> <u> </u> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The table below provides
information on the location and pretax (gain) or loss amounts for
derivatives that are: (i) designated in a FAS 133 fair value hedging
relationship, (ii) designated in a FAS 133 cash flow hedging relationship,
and (iii) not designated in a FAS 133 hedging relationship for the
three and six months ended June 30, 2009.</td> </tr>
</table> </div> <div align="right"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="98%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="20%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="14"
style="border-bottom: 1px solid #000000">Three Months Ended June 30, 2009
</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px
solid #000000">Six Months Ended June 30, 2009</td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Amount of</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Amount
of</td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Amount of</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Amount
of</td> <td> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Amount of</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Amount
of</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Pretax</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Pretax</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Amount of</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Amount
of</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Pretax</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Pretax</td>
<td> </td> </tr> <tr style="font-size: 8pt"
valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Gain (Loss)</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Gain (Loss)</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">(Gain)
Loss</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">(Gain) Loss</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Gain (Loss)</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Gain
(Loss)</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">(Gain) Loss</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">(Gain) Loss</td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Recognized
in</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Recognized in</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Reclassified</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Recognized</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Recognized in</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Recognized
in</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Reclassified</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Recognized</td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Earnings
on</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Earnings on</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">from AOCI</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">in
OCI on</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Earnings on</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Earnings on</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">from
AOCI</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">in OCI on</td> <td> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>(in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="right" colspan="2">Derivatives<sup style="font-size:
85%; vertical-align: text-top"> <i>(1)</i></sup></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Hedged Item <sup style="font-size: 85%; vertical-align:
text-top"><i>(1)</i></sup></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">into
Earnings <sup style="font-size: 85%; vertical-align: text-top"><i>(2)</i></sup></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Derivatives</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">Derivatives<sup
style="font-size: 85%; vertical-align: text-top"> <i>(1)</i></sup></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Hedged Item <sup style="font-size: 85%; vertical-align:
text-top"><i>(1)</i></sup></td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right" colspan="2">into
Earnings <sup style="font-size: 85%; vertical-align: text-top"><i>(2)</i></sup></td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right" colspan="2">Derivatives</td> <td> </td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="33" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Derivatives designated in fair value hedging relationships:
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Interst rate swap contracts </div></td>
<td> </td> <td nowrap="nowrap" align="left">$</td>
<td align="right">(1.7</td> <td nowrap="nowrap">)</td>
<td> </td> <td align="left">$</td> <td
align="right">1.7</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">1.0</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="left">$</td> <td align="right">(1.0</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Foreign exchange contracts
</div></td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(46.5</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">46.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">9.1</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left"> </td> <td align="right">(12.7</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="33" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td nowrap="nowrap" align="left">$</td> <td align="right">(48.2</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="left">$</td> <td align="right">47.7</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">10.1</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="left">$</td> <td align="right">(13.7</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="33" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"><!-- Blank Space --> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Derivatives
designated in cash flow hedging relationships: </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Foreign exchange contracts
</div></td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="left">$</td> <td align="right">(8.7</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="left">$</td> <td align="right">233.0</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="left">$</td> <td align="right">(7.8</td> <td
nowrap="nowrap">)</td> <td> </td> <td align="left">$</td>
<td align="right">161.8</td> <td> </td> </tr>
<tr valign="bottom"><!-- Blank Space --> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Derivatives
not designated in a hedging relationship: </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Foreign exchange contracts
<sup style="font-size: 85%; vertical-align: text-top"><i>(3)</i></sup>
</div></td> <td> </td> <td nowrap="nowrap"
align="left">$</td> <td align="right">(87.2</td> <td
nowrap="nowrap">)</td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">78.5</td> <td> </td> <td> </td>
<td align="left">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="left">$</td>
<td align="right">—</td> <td> </td>
<td> </td> <td align="left">$</td> <td
align="right">—</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="33" align="left" style="border-top:
3px double #000000"> </td> </tr> <!-- End Table
Body --> </table> </div> <div style="margin-top: 3pt" align="right">
<table width="98%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr> <td width="3%"></td> <td
width="1%"></td> <td width="96"></td> </tr> <tr
valign="top"> <td nowrap="nowrap" align="left"><sup style="font-size:
85%; vertical-align: text-top"><i>(1)</i></sup></td>
<td> </td> <td><i>Recognized in Other (income) expense,
net.</i></td> </tr> <tr style="font-size: 3pt"> <td> </td>
</tr> <tr valign="top"> <td nowrap="nowrap" align="left"><sup
style="font-size: 85%; vertical-align: text-top"><i>(2)</i></sup></td>
<td> </td> <td><i>Recognized in Sales.</i></td>
</tr> <tr style="font-size: 3pt"> <td> </td>
</tr> <tr valign="top"> <td nowrap="nowrap" align="left"><sup
style="font-size: 85%; vertical-align: text-top"><i>(3)</i></sup></td>
<td> </td> <td><i>These derivative contracts
mitigate changes in the value of remeasured foreign currency denominated monetary
assets and liabilities attributable to changes in foreign currency exchange
rates.</i></td> </tr> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>At June 30, 2009, the Company estimates $19.4 million
of pretax net unrealized loss on derivatives maturing within the next 12 months
that hedge foreign currency denominated sales over that same period will be
reclassified from AOCI to Sales.</td> </tr> </table> </div>
</div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
- --> <html> <head></head> <body> <!-- Begin Block
Tagged Note 8 - us-gaap:InventoryDisclosureTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>8. Inventories</b> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>Inventories consisted of:</td> </tr> </table>
</div> <div align="right"> <table style="font-size: 10pt; text-align:
left" cellspacing="0" border="0" cellpadding="0" width="98%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="76%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">June
30,</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="3">December 31,</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>($
in millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Finished goods </div></td>
<td> </td> <td align="right">$</td> <td
align="right">511.4</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">432.6</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Raw materials and work
in process </div></td> <td> </td> <td> </td>
<td align="right">2,358.3</td> <td> </td>
<td> </td> <td> </td> <td align="right">2,147.1</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Supplies
</div></td> <td> </td> <td> </td>
<td align="right">96.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">98.6</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="9" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total
(approximates current cost) </div></td> <td> </td>
<td> </td> <td align="right">2,965.7</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,678.3</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Reduction to LIFO cost
for domestic inventories </div></td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(34.3</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="9" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td align="right">$</td>
<td align="right">2,931.4</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">2,678.3</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Recognized as: </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Inventories </div></td>
<td> </td> <td align="right">$</td> <td
align="right">2,155.3</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">2,091.0</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Other
assets </div></td> <td> </td> <td align="right">$</td>
<td align="right">776.1</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">587.3</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>Amounts recognized as Other assets are comprised entirely of raw
materials and work in process inventories, the majority of which are noncurrent
vaccine inventories.</td> </tr> </table> </div> <!--
Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div
style="font-family: 'Times New Roman',Times,serif"> <div style="margin-top:
0pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt"> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 0pt"> <u> </u> </div>
</div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
- --> <html> <head></head> <body> <!-- Begin Block
Tagged Note 9 - us-gaap:EquityMethodInvestmentsDisclosureTextBlock--> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>9. Joint Ventures and
Other Equity Method Affiliates</b> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>Equity income from affiliates reflects the performance of the Company’s
joint ventures and other equity method affiliates and was comprised of the
following:</td> </tr> </table> </div> <div align="right">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0"
cellpadding="0" width="98%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="52%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7">Three Months Ended</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Six
Months Ended</td> </tr> <tr style="font-size: 8pt" valign="bottom">
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7" style="border-bottom: 1px solid #000000">June
30,</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="7" style="border-bottom: 1px solid #000000">June 30,</td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>($ in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" valign="top" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td valign="top"> <div style="margin-left:0px;
text-indent:-0px">Merck/Schering-Plough </div></td> <td> </td>
<td nowrap="nowrap" align="right" valign="top">$</td> <td align="right"
valign="top">362.3</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top">$</td>
<td align="right" valign="top">365.2</td> <td nowrap="nowrap"
valign="top"> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="top">$</td> <td align="right"
valign="top">653.2</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top">$</td>
<td align="right" valign="top">758.0</td> <td nowrap="nowrap"
valign="top"> </td> </tr> <tr valign="bottom">
<td valign="top"> <div style="margin-left:0px; text-indent:-0px">AstraZeneca
LP </div></td> <td> </td> <td nowrap="nowrap"
align="right" valign="top"> </td> <td align="right" valign="top">122.9</td>
<td nowrap="nowrap" valign="top"> </td> <td> </td>
<td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">61.4</td> <td nowrap="nowrap"
valign="top"> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="top"> </td> <td
align="right" valign="top">291.2</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">192.5</td> <td nowrap="nowrap"
valign="top"> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Other
<sup style="font-size: 85%; vertical-align: text-top"><i>(1)</i></sup>
</div></td> <td> </td> <td nowrap="nowrap"
align="right" valign="top"> </td> <td align="right" valign="top">101.9</td>
<td nowrap="nowrap" valign="top"> </td> <td> </td>
<td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">96.4</td> <td nowrap="nowrap"
valign="top"> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="top"> </td> <td
align="right" valign="top">228.6</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">224.6</td> <td nowrap="nowrap"
valign="top"> </td> </tr> <tr style="font-size:
1px"> <td colspan="17" valign="top" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom">
<td valign="top"> <div style="margin-left:0px; text-indent:-0px"> 
</div></td> <td> </td> <td nowrap="nowrap"
align="right" valign="top">$</td> <td align="right" valign="top">587.1</td>
<td nowrap="nowrap" valign="top"> </td> <td> </td>
<td nowrap="nowrap" align="right" valign="top">$</td> <td align="right"
valign="top">523.0</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top">$</td>
<td align="right" valign="top">1,173.0</td> <td nowrap="nowrap"
valign="top"> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="top">$</td> <td align="right"
valign="top">1,175.1</td> <td nowrap="nowrap" valign="top"> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" valign="top"
align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 3pt" align="right"> <table width="98%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr> <td width="3%"></td> <td width="1%"></td>
<td width="96"></td> </tr> <tr valign="top"> <td
nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(1)</i></sup></td> <td> </td>
<td><i>Primarily reflects results from Merial Limited, Sanofi
Pasteur MSD and Johnson & Johnson°Merck Consumer Pharmaceuticals
Company.</i></td> </tr> </table> </div> <div
style="margin-top: 12pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td><i>Merck/Schering-Plough</i></td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>In 2000, the Company and Schering-Plough
Corporation (“Schering-Plough”) (collectively the “Partners”)
entered into agreements to create an equally-owned partnership to develop
and market in the United States new prescription medicines in the cholesterol-management
therapeutic area. These agreements generally provide for equal sharing of
development costs and for co-promotion of approved products by each company.
In 2001, the cholesterol-management partnership agreements were expanded to
include all the countries of the world, excluding Japan. In 2002, ezetimibe,
the first in a new class of cholesterol-lowering agents, was launched in the
United States as <i>Zetia </i>(marketed as <i>Ezetrol </i>outside
the United States). In 2004, a combination product containing the active ingredients
of both <i>Zetia </i>and <i>Zocor </i>was approved
in the United States as <i>Vytorin </i>(marketed as <i>Inegy
</i>outside of the United States).</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>The cholesterol agreements provide
for the sharing of operating income generated by the Merck/Schering-Plough
cholesterol partnership (the “MSP Partnership”) based
upon percentages that vary by product, sales level and country. In the U.S.
market, the Partners share profits on <i>Zetia </i>and <i>Vytorin
</i>sales equally, with the exception of the first $300 million
of annual <i>Zetia</i> sales on which Schering-Plough receives
a greater share of profits. Operating income includes expenses that the Partners
have contractually agreed to share, such as a portion of manufacturing costs,
specifically identified promotion costs (including direct-to-consumer advertising
and direct and identifiable out-of-pocket promotion) and other agreed upon
costs for specific services such as on-going clinical research, market support,
market research, market expansion, as well as a specialty sales force and
physician education programs. Expenses incurred in support of the MSP Partnership
but not shared between the Partners, such as marketing and administrative
expenses (including certain sales force costs), as well as certain manufacturing
costs, are not included in Equity income from affiliates. However, these costs
are reflected in the overall results of the Company. Certain research and
development expenses are generally shared equally by the Partners, after adjusting
for earned milestones.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>See Note 11 for information with respect to litigation involving
the MSP Partnership and the Partners related to the sale and promotion of
<i>Zetia </i>and <i>Vytorin.</i></td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>Summarized financial information
for the MSP Partnership is as follows:</td> </tr> </table>
</div> <div align="right"> <table style="font-size: 10pt; text-align:
left" cellspacing="0" border="0" cellpadding="0" width="98%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="52%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Three
Months Ended</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7">Six Months Ended</td> </tr> <tr
style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000">June 30,</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px
solid #000000">June 30,</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>($
in millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Sales </div></td>
<td> </td> <td align="right">$</td> <td
align="right">1,033.4</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">1,152.5</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">1,978.7</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">2,385.4</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="17" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom">
<td> <div style="margin-left:30px; text-indent:-15px"><i>Vytorin</i>
</div></td> <td> </td> <td> </td>
<td align="right">519.9</td> <td> </td> <td> </td>
<td> </td> <td align="right">592.1</td> <td> </td>
<td> </td> <td> </td> <td align="right">985.9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,243.3</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px"><i>Zetia</i>
</div></td> <td> </td> <td> </td>
<td align="right">513.5</td> <td> </td> <td> </td>
<td> </td> <td align="right">560.4</td> <td> </td>
<td> </td> <td> </td> <td align="right">992.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,142.1</td> <td> </td>
</tr> <tr valign="bottom"><!-- Blank Space --> <td>
<div style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Materials and production
costs </div></td> <td> </td> <td> </td>
<td align="right">43.1</td> <td> </td> <td> </td>
<td> </td> <td align="right">51.2</td> <td> </td>
<td> </td> <td> </td> <td align="right">85.1</td>
<td> </td> <td> </td> <td> </td>
<td align="right">103.6</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Other expense, net </div></td>
<td> </td> <td> </td> <td align="right">282.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">319.3</td> <td> </td> <td> </td>
<td> </td> <td align="right">524.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">646.1</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Income before taxes </div></td> <td> </td>
<td align="right">$</td> <td align="right">708.0</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">782.0</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">1,369.1</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">1,635.7</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"><!-- Blank Space --> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Merck’s share
of income before taxes <sup style="font-size: 85%; vertical-align: text-top"><i>(1)</i></sup>
</div></td> <td> </td> <td align="right">$</td>
<td align="right">368.6</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">346.4</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">662.4</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">741.0</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 3pt" align="right"> <table width="98%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr> <td width="3%"></td> <td width="1%"></td>
<td width="96"></td> </tr> <tr valign="top"> <td
nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(1)</i></sup></td> <td> </td>
<td><i>Merck’s share of the MSP Partnership’s
income before taxes differs from the equity income recognized from the MSP
Partnership primarily due to the timing of recognition of certain transactions
between the Company and the MSP Partnership, including milestone payments.</i></td>
</tr> </table> </div> <!-- Folio --> <!-- /Folio
- --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times
New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top:
0pt"> <u> </u> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>AstraZeneca
LP</i></td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously disclosed,
the 1999 AstraZeneca merger triggered a partial redemption in March 2008 of
Merck’s interest in certain AstraZeneca LP (“AZLP”)
product rights. Upon this redemption, Merck received $4.3 billion
from AZLP. This amount was based primarily on a multiple of Merck’s
average annual variable returns derived from sales of the former Astra USA,
Inc. products for the three years prior to the redemption (the “Limited
Partner Share of Agreed Value”). Merck recorded a $1.5 billion
pretax gain on the partial redemption in the first quarter of 2008. The partial
redemption of Merck’s interest in the product rights did not result
in a change in Merck’s 1% limited partnership interest.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Also, as a result of
the 1999 AstraZeneca merger, in exchange for Merck’s relinquishment
of rights to future Astra products with no existing or pending U.S. patents
at the time of the merger, Astra paid $967.4 million (the “Advance
Payment”). The Advance Payment was deferred as it remained subject
to a true-up calculation (the “True-Up Amount”) that was
directly dependent on the fair market value in March 2008 of the
Astra product rights retained by the Company. The calculated True-Up Amount
of $243.7 million was returned to AZLP in March 2008 and
Merck recognized a pretax gain of $723.7 million related to the residual
Advance Payment balance.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>In 1998, Astra purchased an option (the “Asset Option”)
for a payment of $443.0 million, which was recorded as deferred revenue,
to buy Merck’s interest in the KBI Inc. (“KBI”)
products, excluding the gastrointestinal medicines Nexium and Prilosec (the
“Non-PPI Products”). The Asset Option is exercisable in
the first half of 2010 at an exercise price equal to the net present value
as of March 31, 2008 of projected future pretax revenue to be received
by the Company from the Non-PPI Products (the “Appraised Value”).
Merck also had the right to require Astra to purchase such interest in 2008
at the Appraised Value. In February 2008, the Company advised AZLP
that it would not exercise the Asset Option, thus the $443.0 million
remains deferred. In addition, in 1998 the Company granted Astra an option
(the “Shares Option”) to buy Merck’s common
stock interest in KBI, and, therefore, Merck’s interest in <i>Nexium
</i>and <i>Prilosec</i>, exercisable two years after Astra’s
exercise of the Asset Option. Astra can also exercise the Shares Option in
2017 or if combined annual sales of the two products fall below a minimum
amount provided, in each case, only so long as AstraZeneca’s Asset
Option has been exercised in 2010. The exercise price for the Shares Option
is based on the net present value of estimated future net sales of <i>Nexium
</i>and <i>Prilosec </i>as determined at the time of exercise,
subject to certain true-up mechanisms.</td> </tr> <tr> <td
style="font-size: 6pt"> </td> </tr> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>The sum of the Limited Partner Share of Agreed Value, the Appraised
Value and the True-Up Amount was guaranteed to be a minimum of $4.7 billion.
Distribution of the Limited Partner Share of Agreed Value less payment of
the True-Up Amount resulted in cash receipts to Merck of $4.0 billion
and an aggregate pretax gain of $2.2 billion which is included in
Other (income) expense, net. AstraZeneca’s purchase of Merck’s
interest in the Non-PPI Products is contingent upon the exercise of the Asset
Option by AstraZeneca in 2010 and, therefore, payment of the Appraised Value
may or may not occur.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>Summarized financial information for AZLP is as follows:</td>
</tr> </table> </div> <div align="right"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="98%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="52%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7">Three Months Ended</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Six
Months Ended</td> </tr> <tr style="font-size: 8pt" valign="bottom">
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7" style="border-bottom: 1px solid #000000">June
30,</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="7" style="border-bottom: 1px solid #000000">June 30,</td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>($ in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" valign="top" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td valign="top"> <div style="margin-left:0px;
text-indent:-0px">Sales </div></td> <td> </td>
<td nowrap="nowrap" align="right" valign="top">$</td> <td align="right"
valign="top">1,493.2</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top">$</td>
<td align="right" valign="top">1,350.0</td> <td nowrap="nowrap"
valign="top"> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="top">$</td> <td align="right"
valign="top">2,808.9</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top">$</td>
<td align="right" valign="top">2,676.8</td> <td nowrap="nowrap"
valign="top"> </td> </tr> <tr valign="bottom">
<td valign="top"> <div style="margin-left:0px; text-indent:-0px">Materials
and production costs </div></td> <td> </td>
<td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">666.1</td> <td nowrap="nowrap"
valign="top"> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="top"> </td> <td
align="right" valign="top">630.1</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">1,350.7</td> <td nowrap="nowrap"
valign="top"> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="top"> </td> <td
align="right" valign="top">1,326.4</td> <td nowrap="nowrap" valign="top"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td
valign="top"> <div style="margin-left:0px; text-indent:-0px">Other
expense, net </div></td> <td> </td> <td
nowrap="nowrap" align="right" valign="top"> </td> <td
align="right" valign="top">292.7</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">353.0</td> <td nowrap="nowrap"
valign="top"> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="top"> </td> <td
align="right" valign="top">618.3</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top"> </td>
<td align="right" valign="top">737.7</td> <td nowrap="nowrap"
valign="top"> </td> </tr> <tr style="font-size:
1px"> <td colspan="17" valign="top" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom">
<td valign="top"> <div style="margin-left:0px; text-indent:-0px">Income
before taxes <sup style="font-size: 85%; vertical-align: text-top"><i>(1)</i></sup>
</div></td> <td> </td> <td nowrap="nowrap"
align="right" valign="top">$</td> <td align="right" valign="top">534.4</td>
<td nowrap="nowrap" valign="top"> </td> <td> </td>
<td nowrap="nowrap" align="right" valign="top">$</td> <td align="right"
valign="top">366.9</td> <td nowrap="nowrap" valign="top"> </td>
<td> </td> <td nowrap="nowrap" align="right" valign="top">$</td>
<td align="right" valign="top">839.9</td> <td nowrap="nowrap"
valign="top"> </td> <td> </td> <td
nowrap="nowrap" align="right" valign="top">$</td> <td align="right"
valign="top">612.7</td> <td nowrap="nowrap" valign="top"> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" valign="top"
align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 3pt" align="right"> <table width="98%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr> <td width="3%"></td> <td width="1%"></td>
<td width="96"></td> </tr> <tr valign="top"> <td
nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(1)</i></sup></td> <td> </td>
<td><i>Merck’s partnership returns from AZLP are generally
contractually determined and are not based on a percentage of income from
AZLP.</i></td> </tr> </table> </div> </div>
</body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
- --> <html> <head></head> <body> <!-- Begin Block
Tagged Note 10 - mrk:DebtAndFinancialInstrumentsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>10. Debt and Financial
Instruments</b> </div> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>In connection with the
planned merger with Schering-Plough (see Note 2), on March 8, 2009,
Merck entered into a financing commitment letter with JPMorgan Chase Bank,
N.A. and J.P. Morgan Securities Inc. (collectively “JPMorgan”),
under which JPMorgan committed to provide $7 billion of financing.
On May 6, 2009, Merck entered into the following with a syndicate
of banks:</td> </tr> </table> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="4%" style="background:
transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>a $3 billion
364-day senior unsecured interim term loan facility (the “bridge
loan facility”);</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="4%" style="background:
transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>a $3 billion
364-day asset sale revolving credit facility (the “asset sale facility”);
and</td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td> <td>a $1 billion
364-day corporate revolving credit facility (the “incremental facility”).</td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>In addition, in April 2009,
Merck amended its existing $1.5 billion five-year revolving credit
facility maturing in 2013 which will allow this existing facility to remain
in place after the merger.</td> </tr> </table> </div>
<!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK
- --> <div style="font-family: 'Times New Roman',Times,serif"> <div
style="margin-top: 0pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt"> </table> </div> <div
align="left" style="font-size: 10pt; margin-top: 0pt"> <u> </u>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>On June 25, 2009, the
Company closed an underwritten public offering of $4.25 billion senior
unsecured notes consisting of $1.25 billion aggregate principal amount
of 1.875% notes due 2011, $1.0 billion aggregate principal amount
of 4.00% notes due 2015, $1.25 billion aggregate principal amount
of 5.00% notes due 2019 and $750 million aggregate principal amount
of 5.850% notes due 2039. In connection with this offering, the bridge loan
facility was terminated and the commitment of the lenders under the 364-day
asset sale facility was reduced to approximately $2.6 billion. Proceeds
from the notes will be used for general corporate purposes and/or to fund
a portion of the cash consideration of the proposed Schering-Plough merger.
In addition, Merck may use all or a portion of the proceeds to fully fund
the two funds established for qualifying claims pursuant to the Company’s
U.S. <i>Vioxx </i>Settlement Agreement (see Note 11), in which
case the collateral previously pledged in connection with such funds will
be returned to Merck (see below).</td> </tr> <tr> <td
style="font-size: 6pt"> </td> </tr> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>The asset sale facility, the incremental facility and the amended
$1.5 billion five-year revolving credit facility will be used to
fund, or backstop commercial paper used to fund, the merger and for other
general corporate purposes. Upon completion of the sale of Merial to sanofi-aventis,
the asset sale facility will be reduced by the amount of net after-tax proceeds
Merck receives. Merck has incurred commitment fees of approximately $100 million
associated with these facilities which are being amortized over the commitment
period. The Company may incur up to an additional $100 million in
commitment fees. The Company has not yet drawn funding from any of these facilities.
The funding of the asset sale facility, the incremental facility, and the
effectiveness of the amendment to Merck’s existing credit facility
is subject to the consummation of the proposed Schering-Plough merger.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The commitments described
above and the ability to draw under the new credit facilities or render the
amendment of Merck’s existing revolving credit facility effective
expire on a “drop-dead date” of December 8, 2009.
However, this drop-dead date will be automatically extended to March 8,
2010, if the drop-dead date under the Schering-Plough merger agreement is
extended to March 8, 2010.</td> </tr> <tr> <td
style="font-size: 6pt"> </td> </tr> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>In August 2008, the Company executed a $4.1 billion
letter of credit agreement with a financial institution which satisfied certain
conditions set forth in the U.S. <i>Vioxx </i>Settlement Agreement
(see Note 11). The Company pledged collateral to the financial institution
of approximately $5.1 billion pursuant to the terms of the letter
of credit agreement. Although the amount of assets pledged as collateral is
set by the letter of credit agreement and such assets are held in custody
by a third party, the assets are managed by the Company. The Company considers
the assets pledged under the letter of credit agreement to be restricted.
The letter of credit amount and required collateral balances have declined
and will continue to decline as payments (after the first $750 million)
under the Settlement Agreement are made. As of June 30, 2009, the
letter of credit amount had been reduced to $2.7 billion and the
collateral balance had been reduced to $4.4 billion. As of June 30,
2009, $4.1 billion of the collateral was recorded within Deferred
income taxes and other current assets and $360 million was classified
as Other assets. In July 2009, an additional $1.2 billion of collateral was
released. As of December 31, 2008, $3.8 billion was recorded
within Deferred income taxes and other current assets and $1.3 billion
was classified as Other assets.</td> </tr> </table> </div>
</div> </body> </html>
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<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>11. Contingencies</b>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>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.</td> </tr>
<tr> <td style="font-size: 12pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td><b><i>Vioxx </i></b><b>Litigation</b></td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Product Liability
Lawsuits</i></td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>As previously disclosed, individual and putative class actions have
been filed against the Company in state and federal courts alleging personal
injury and/or economic loss with respect to the purchase or use of <i>Vioxx</i>.
All such actions filed in federal court are coordinated in a multidistrict
litigation in the U.S. District Court for the Eastern District of Louisiana
(the “MDL”) before District Judge Eldon E. Fallon. A number
of such actions filed in state court are coordinated in separate coordinated
proceedings in state courts in New Jersey, California and Texas, and the counties
of Philadelphia, Pennsylvania and Washoe and Clark Counties, Nevada. As of
June 30, 2009, the Company had been served or was aware that it had
been named as a defendant in approximately 10,475 lawsuits, which include
approximately 25,100 plaintiff groups, alleging personal injuries resulting
from the use of <i>Vioxx</i>, and in approximately 56 putative
class actions alleging personal injuries and/or economic loss. (All of the
actions discussed in this paragraph and in “Other Lawsuits”
below are collectively referred to as the “<i>Vioxx </i>Product
Liability Lawsuits.”) Of these lawsuits, approximately 8,450 lawsuits
representing approximately 20,500 plaintiff groups are or are slated to be
in the federal MDL and approximately 130 lawsuits representing approximately
130 plaintiff groups are included in a coordinated proceeding in New Jersey
Superior Court before Judge Carol E. Higbee.</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>Of the plaintiff groups described
above, most are currently in the <i>Vioxx </i>Settlement Program,
described below. As of June 30, 2009, approximately 60 plaintiff
groups who were otherwise eligible for the Settlement Program have not participated
and their claims remain pending against Merck. In addition, the claims of
approximately 300 plaintiff groups who are not eligible for the Settlement
Program remain pending against Merck. A number of these 300 plaintiff groups
are subject to various motions to dismiss for failure to comply with court-ordered
deadlines.</td> </tr> </table> </div> <!-- Folio
- --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div
style="font-family: 'Times New Roman',Times,serif"> <div style="margin-top:
0pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt"> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 0pt"> <u> </u> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>In addition to the <i>Vioxx </i>Product Liability Lawsuits
discussed above, the claims of over 29,400 plaintiffs had been dismissed as
of June 30, 2009. Of these, there have been over 7,050 plaintiffs
whose claims were dismissed with prejudice (i.e., they cannot be brought again)
either by plaintiffs themselves or by the courts. Over 22,350 additional plaintiffs
have had their claims dismissed without prejudice (i.e., subject to the applicable
statute of limitations, they can be brought again). Of these, approximately
13,750 plaintiff groups represent plaintiffs who had lawsuits pending in the
New Jersey Superior Court at the time of the Settlement Agreement described
below and who enrolled in the program established by the Settlement Agreement
(the “Settlement Program”). Judge Higbee has dismissed
these cases without prejudice for administrative reasons.</td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>On November 9, 2007,
Merck announced that it had entered into an agreement (the “Settlement
Agreement”) with the law firms that comprise the executive committee
of the Plaintiffs’ Steering Committee (“PSC”)
of the federal <i>Vioxx </i>MDL, as well as representatives of
plaintiffs’ counsel in the Texas, New Jersey and California state
coordinated proceedings, to resolve state and federal myocardial infarction
(“MI”) and ischemic stroke (“IS”)
claims filed as of that date in the United States. The Settlement Agreement,
which also applies to tolled claims, was signed by the parties after several
meetings with three of the four judges overseeing the coordination of more
than 95% of the U.S. <i>Vioxx </i>Product Liability Lawsuits.
The Settlement Agreement applies only to U.S. legal residents and those who
allege that their MI or IS occurred in the United States.</td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>Under the Settlement Agreement,
Merck will pay a fixed aggregate amount of $4.85 billion into two
funds ($4.0 billion for MI claims and $850 million for IS
claims) for qualifying claims that enter into the Settlement Program. Individual
claimants will be examined by administrators of the Settlement Program to
determine qualification based on objective, documented facts provided by claimants,
including records sufficient for a scientific evaluation of independent risk
factors. The conditions in the Settlement Agreement also require claimants
to pass three gates: an injury gate, a duration gate, and a proximity gate
(each as defined in the Settlement Agreement).</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>The Settlement Agreement provides
that Merck does not admit causation or fault. The Settlement Agreement also
provided that Merck’s payment obligations would be triggered only
if, among other conditions, (1) law firms on the federal and state
PSCs and firms that have tried cases in the coordinated proceedings elect
to recommend enrollment in the program to 100% of their clients who allege
either MI or IS, and (2) by June 30, 2008, plaintiffs enroll
in the Settlement Program at least 85% of each of all currently pending and
tolled (i) MI claims, (ii) IS claims, (iii) eligible
MI and IS claims together which involve death, and (iv) eligible
MI and IS claims together which allege more than 12 months of use.
Under the terms of the Settlement Agreement, Merck could have exercised a
right to walk away from the Settlement Agreement if the thresholds and other
requirements were not met. The Company waived that right as of August 4,
2008. The waiver of that right triggered Merck’s obligation to pay
a fixed total of $4.85 billion. Payments will be made in installments
into the settlement funds. Through June 30, 2009, payments totaling
$2.085 billion have been made into the MI Settlement Fund. Interim
payments have been made to certain plaintiffs who alleged that they suffered
an MI. In addition, through June 30, 2009, payments totaling $56 million
have been made into the IS Settlement Fund. Interim payments to IS claimants
began on February 27, 2009. Additional payments will be made on a
periodic basis going forward, when and as needed to fund payments of claims
and administrative expenses. During 2009, the Company anticipates that it
will make total payments of $3.4 billion into the <i>Vioxx
</i>settlement funds pursuant to the Settlement Agreement. However,
if the pending merger with Schering-Plough is completed in 2009, as expected,
the Company expects it will also pay the remaining approximately $700 million
into the IS Settlement Fund. Payments for qualifying MI claims are expected
to be complete sometime in the fourth quarter of this year. It is expected
that the full $4.85 billion will be distributed before the end of
the first half of 2010. </td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>After the Settlement Agreement was announced on November 9,
2007, judges in the federal MDL and the California, Texas and New Jersey state
coordinated proceedings entered a series of orders. The orders: (1) temporarily
stayed their respective litigations; (2) required plaintiffs to register
their claims by January 15, 2008; (3) required plaintiffs
with cases pending as of November 9, 2007 to preserve and produce
records and serve expert reports; and (4) required plaintiffs who
file thereafter to make similar productions on an accelerated schedule. The
Clark County, Nevada and Washoe County, Nevada coordinated proceedings were
also generally stayed.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>As of October 30, 2008, the deadline for enrollment in
the Settlement Program, more than 48,100 of the approximately 48,325 individuals
who were eligible for the Settlement Program and whose claims were not 1)
dismissed, 2) expected to be dismissed in the near future, or 3) tolled claims
that appear to have been abandoned had submitted some or all of the materials
required for enrollment in the Settlement Program. This represents approximately
99.8% of the eligible MI and IS claims previously registered with the Settlement
Program.</td> </tr> </table> </div> <!-- Folio
- --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div
style="font-family: 'Times New Roman',Times,serif"> <div style="margin-top:
0pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt"> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 0pt"> <u> </u> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>On April 14, 2008 and June 3, 2008, two groups
of various private insurance companies and health plans filed suit against
BrownGreer, the claims administrator for the Settlement Program (the “Claims
Administrator”), and U.S. Bancorp, escrow agent for the Settlement
Program (the “AvMed” and “Greater New York Benefit
Fund” suits). The private insurance companies and health plans claim
to have paid healthcare costs on behalf of some of the enrolling claimants
and seek to enjoin the Claims Administrator from paying enrolled claimants
until their claims for reimbursement from the enrolled claimants are resolved.
Each group sought temporary restraining orders and preliminary injunctions.
Judge Fallon denied these requests. In AvMed, the defendants moved to sever
the claims of the named plaintiffs and, in Greater New York Benefit Fund,
to strike the class allegations. Judge Fallon granted these motions. AvMed
appealed both of these decisions. The Fifth Circuit heard argument on AvMed’s
appeal on November 4, 2008. On November 17, 2008, the Court
of Appeals affirmed the district court’s ruling that denied the
two motions for preliminary injunctive relief. Greater New York Benefit Fund
has served a notice of appeal. On January 22, 2009, the PSC and counsel
for certain private insurers announced that they reached a settlement agreement.
The agreement provides a program for resolution of liens asserted by private
insurers against payments received by certain claimants who have enrolled
in the Settlement Program. The agreement can be terminated by the private
insurers if fewer than 90% of eligible claimants participate. The plaintiffs
in the AvMed and Greater New York Benefit Fund lawsuits have agreed to participate
in the settlement.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>There are no U.S. <i>Vioxx </i>Product Liability Lawsuits
currently scheduled for trial in 2009, although there are several currently
scheduled for trial in 2010. The Company has previously disclosed the outcomes
of several <i>Vioxx </i>Product Liability Lawsuits that were tried
prior to 2009.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>Juries have now decided in favor of the Company twelve times and
in plaintiffs’ favor five times. One Merck verdict was set aside
by the court and has not been retried. Another Merck verdict was set aside
and retried, leading to one of the five plaintiffs’ verdicts. There
have been two unresolved mistrials. With respect to the five plaintiffs’
verdicts, Merck filed an appeal or sought judicial review in each of those
cases. In one of those five, an intermediate appellate court overturned the
trial verdict and directed that judgment be entered for Merck, and in another,
an intermediate appellate court overturned the trial verdict, entering judgment
for Merck on one claim and ordering a new trial on the remaining claims.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>All but the following
three cases that went to trial are now resolved: McDarby v. Merck, Ernst v.
Merck, and Garza v. Merck.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>The first, McDarby, was originally tried along with a second plaintiff,
Cona, in April 2006, in the Superior Court of New Jersey, Law Division,
Atlantic County. The jury returned a split verdict. The jury determined that
<i>Vioxx </i>did not substantially contribute to the heart attack
of Mr. Cona, but did substantially contribute to the heart attack
of Mr. McDarby. The jury also concluded that, in each case, Merck
violated New Jersey’s consumer fraud statute, which allows plaintiffs
to receive their expenses for purchasing the drug, trebled, as well as reasonable
attorneys’ fees. The jury awarded $4.5 million in compensatory
damages to Mr. McDarby and his wife, who also was a plaintiff in
that case, as well as punitive damages of $9 million. On June 8,
2007, Judge Higbee denied Merck’s motion for a new trial. On June 15,
2007, Judge Higbee awarded approximately $4 million in the aggregate
in attorneys’ fees and costs. The Company has appealed the judgments
in both cases and the Appellate Division held oral argument on both cases
on January 16, 2008. On May 29, 2008, the New Jersey Appellate
Division vacated the consumer fraud awards in both cases on the grounds that
the Product Liability Act provides the sole remedy for personal injury claims.
The Appellate Division also vacated the McDarby punitive damage award on the
grounds of federal preemption and vacated the attorneys’ fees and
costs awarded under the Consumer Fraud Act in both cases. The Court upheld
the McDarby compensatory award. The Company has filed with the Supreme Court
of New Jersey a petition to appeal those parts of the trial court’s
rulings that the Appellate Division affirmed. Plaintiffs filed a cross-petition
to appeal those parts of the trial court’s rulings that the Appellate
Division reversed. In October 2008, the Supreme Court of New Jersey
granted Merck’s petition for certification of appeal, limited solely
to the issue of whether the Federal Food, Drug and Cosmetic Act preempts state
law tort claims predicated on the alleged inadequacy of warnings contained
in <i>Vioxx </i>labeling that was approved by the FDA. The court
denied the plaintiff’s cross-petition. In December 2008,
the New Jersey Supreme Court granted Merck’s motion to stay the
appeal pending the issuance of a decision from the United States Supreme Court
in Wyeth v. Levine. On March 4, 2009, the U.S. Supreme Court issued
its opinion in Wyeth v. Levine. In April 2009, the parties each filed
supplemental briefs addressing the impact of the Wyeth ruling on the appeal.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously reported,
in September 2006, Merck filed a notice of appeal of the August 2005
jury verdict in favor of the plaintiff in the Texas state court case, Ernst
v. Merck. On May 29, 2008, the Texas Court of Appeals reversed the trial court’s
judgment and issued a judgment in favor of Merck. The Court of Appeals found
the evidence to be legally insufficient on the issue of causation. Plaintiff
filed a motion for rehearing <i>en banc </i>in the Court of Appeals.
Merck filed a response in October 2008. In January 2009,
plaintiff filed a reply in support of their rehearing motion. On February 11,
2009, Merck filed a reply. On June 4, 2009, in response to plaintiff’s
motion for rehearing, the Court of Appeals issued a new opinion reversing
the jury’s verdict and judgment is still rendered for Merck. Plaintiff
moved for a second extension on her motion for rehearing <i>en banc.
</i>The Court will grant the extension, making the motion due on August 20,
2009.</td> </tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously reported,
in April 2006, in Garza v. Merck, a jury in state court in Rio Grande
City, Texas returned a verdict in favor of the family of decedent Leonel Garza.
The jury awarded a total of $7 million in compensatory damages to
Mr. Garza’s widow and three sons. The jury also purported
to award $25 million in punitive damages even though under Texas
law, in this case, potential punitive damages were capped at $750,000. In
May 2008, the San Antonio Court of Appeals reversed the judgment
and rendered a judgment in favor of Merck. In December 2008, the
Court of Appeals, on rehearing, vacated its prior ruling and issued a replacement.
In the new ruling, the Court ordered a take-nothing judgment for Merck on
the design defect claim, but reversed and remanded for a new trial as to the
strict liability claim because of juror misconduct. In January 2009,
Merck filed a petition for review with the Texas Supreme Court. The case has
now been fully briefed.</td> </tr> <tr> <td style="font-size:
12pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td><i>Other Lawsuits</i></td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>As previously disclosed, on
July 29, 2005, a New Jersey state trial court certified a nationwide
class of third-party payors (such as unions and health insurance plans) that
paid in whole or in part for the <i>Vioxx </i>used by their plan
members or insureds. The named plaintiff in that case sought recovery of certain
<i>Vioxx </i>purchase costs (plus penalties) based on allegations
that the purported class members paid more for <i>Vioxx </i>than
they would have had they known of the product’s alleged risks. On
March 31, 2006, the New Jersey Superior Court, Appellate Division,
affirmed the class certification order. On September 6, 2007, the
New Jersey Supreme Court reversed the certification of a nationwide class
action of third-party payors, finding that the suit did not meet the requirements
for a class action.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>Approximately 190 claims by individual private third-party payors
are currently pending in the New Jersey court and in federal court in the
MDL. Merck and plaintiffs have agreed in principle to settle these outstanding
private third-party payor claims, including all actions pending in New Jersey
and in the MDL, for an aggregate payment of $80 million. The Company
recorded a charge in the second quarter of 2009 for this amount. Separately,
there are also still pending in various U.S. courts putative class actions
purportedly brought on behalf of individual purchasers or users of <i>Vioxx
</i>and claiming reimbursement of alleged economic loss.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The New Jersey Superior
Court heard argument on plaintiffs’ motion for class certification
in Martin-Kleinman v. Merck, a putative consumer class action, on December 5,
2008. On March 17, 2009, the Court denied the motion for class certification.
Plaintiffs moved for reconsideration of that ruling on May 1, 2009
and Merck filed an opposition on June 3, 2009. The Court heard oral
argument on that motion on July 9, 2009.</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>On February 3, 2009,
Judge Fallon dismissed the personal injury/wrongful death class action master
complaint and the medical monitoring class action master complaint in the
MDL proceeding and, on May 14, 2009, the court entered an order dismissing
the class claims in all of the separately filed personal injury and medical
monitoring class actions underlying the master personal injury and medical
monitoring class action complaints.</td> </tr> <tr> <td
style="font-size: 6pt"> </td> </tr> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>On June 12, 2008, a Missouri state court certified a class
of Missouri plaintiffs seeking reimbursement for out-of-pocket costs relating
to <i>Vioxx. </i>The plaintiffs do not allege any personal injuries
from taking <i>Vioxx. </i>The Missouri Court of Appeals affirmed
the trial court’s certification of a class on May 12, 2009,
and Merck is seeking review from the Missouri Supreme Court. Plaintiffs have
filed a motion to certify a class of Indiana <i>Vioxx </i>purchasers
in a case pending before the Circuit Court of Marion County, Indiana; Merck
is preparing its opposition. Briefing is complete on plaintiffs’
motion to certify a class of Kentucky <i>Vioxx </i>purchasers
before the Circuit Court of Pike County, Kentucky. The court will hear oral
argument in late summer 2009. A judge in Cook County, Illinois has consolidated
three putative class actions brought by <i>Vioxx</i> purchasers.
Class certification has not yet been briefed in the consolidation action.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Plaintiffs also filed
a class action in California state court seeking certification of a class
of California third-party payors and end-users. The court denied the motion
for class certification on April 30, 2009. Plaintiffs have appealed
that decision to the California Court of Appeal. The Court of Appeal has set
a briefing schedule on plaintiffs’ appeal and will hear argument
on November 25, 2009.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>The Company has also been named as a defendant in eighteen separate
lawsuits brought by government entities, including the Attorneys General of
ten states, five counties, the City of New York, and private citizens (who
have brought <i>qui tam </i>and taxpayer derivative suits). These
actions allege that the Company misrepresented the safety of <i>Vioxx
</i>and seek: (i) recovery of the cost of <i>Vioxx </i>purchased
or reimbursed by the state and its agencies; (ii) reimbursement of
all sums paid by the state and its agencies for medical services for the treatment
of persons injured by <i>Vioxx</i>; (iii) damages under
various common law theories; and/or (iv) remedies under various state
statutory theories, including state consumer fraud and/or fair business practices
or Medicaid fraud statutes, including civil penalties. One of the lawsuits
brought by the counties is a class action filed by Santa Clara County, California
on behalf of all similarly situated California counties.</td> </tr>
<tr> <td style="font-size: 6pt"> </td> </tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>With the exception of a case
filed by the Texas Attorney General (which remains in Texas state court and
is currently scheduled for trial in January 2010) and a case filed
by the Michigan Attorney General (which was remanded to state court in January 2009),
all of the actions described in the above paragraph have been transferred
to the federal MDL proceeding. Those actions are in the discovery phase. In
the Michigan case, Merck is currently seeking appellate review of the trial
court’s order denying Merck’s motion to dismiss. The trial
court has entered a stay of proceedings (including discovery) pending the
result of that appeal. In the MDL proceeding, the parties and the court have
agreed that the Louisiana Attorney General case will be the first governmental
entity case to be tried. The Louisiana Attorney General submitted an amended
complaint on May 12, 2009, and Merck filed a motion to dismiss the
amended complaint on June 10, 2009. Judge Fallon held a hearing on
that motion on July 28, 2009. </td> </tr> <tr>
<td style="font-size: 12pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td><i>Shareholder Lawsuits</i></td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously disclosed,
in addition to the <i>Vioxx </i>Product Liability Lawsuits, the
Company and various current and former officers and directors are defendants
in various putative class actions and individual lawsuits under the federal
securities laws and state securities laws (the “<i>Vioxx </i>Securities
Lawsuits”). All of the <i>Vioxx </i>Securities Lawsuits
pending in federal court have been transferred by the Judicial Panel on Multidistrict
Litigation (the “JPML”) to the United States District
Court for the District of New Jersey before District Judge Stanley R. Chesler
for inclusion in a nationwide MDL (the “Shareholder MDL”).
Judge Chesler has consolidated the <i>Vioxx </i>Securities Lawsuits
for all purposes. The putative class action, which requested damages on behalf
of purchasers of Company stock between May 21, 1999 and October 29,
2004, alleged that the defendants made false and misleading statements regarding
<i>Vioxx </i>in violation of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, and sought unspecified compensatory damages and the
costs of suit, including attorneys’ fees. The complaint also asserted
claims under Section 20A of the Securities and Exchange Act against
certain defendants relating to their sales of Merck stock and under Sections 11,
12 and 15 of the Securities Act of 1933 against certain defendants based on
statements in a registration statement and certain prospectuses filed in connection
with the Merck Stock Investment Plan, a dividend reinvestment plan. On April 12,
2007, Judge Chesler granted defendants’ motion to dismiss the complaint
with prejudice. Plaintiffs appealed Judge Chesler’s decision to
the United States Court of Appeals for the Third Circuit. On September 9,
2008, the Third Circuit issued an opinion reversing Judge Chesler’s
order and remanding the case to the District Court. Merck filed a petition
for a writ of certiorari with the United States Supreme Court on January 15,
2009, which the Supreme Court granted on May 26, 2009. The deadline
for Merck to file its opening brief on the merits is August 10, 2009.
While Merck’s petition for certiorari was pending, the case was
remanded to the District Court, plaintiffs filed their Consolidated and Fifth
Amended Class Action Complaint, and Merck filed a motion to dismiss
that Complaint on May 1, 2009. The parties have stipulated to stay
the District Court proceedings pending the outcome of the Supreme Court appeal.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>In October 2005,
a Dutch pension fund filed a complaint in the District of New Jersey alleging
violations of federal securities laws as well as violations of state law against
the Company and certain officers. Pursuant to the Case Management Order governing
the Shareholder MDL, the case, which is based on the same allegations as the
<i>Vioxx </i>Securities Lawsuits, was consolidated with the <i>Vioxx
</i>Securities Lawsuits. Defendants’ motion to dismiss the
pension fund’s complaint was filed on August 3, 2007. In
September 2007, the Dutch pension fund filed an amended complaint
rather than responding to defendants’ motion to dismiss. In addition,
in 2007, six new complaints were filed in the District of New Jersey on behalf
of various foreign institutional investors also alleging violations of federal
securities laws as well as violations of state law against the Company and
certain officers. Defendants are not required to respond to these complaints
until after Judge Chesler resolves any motion to dismiss in the consolidated
securities action.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>As previously disclosed, various shareholder derivative actions
filed in federal court were transferred to the Shareholder MDL and consolidated
for all purposes by Judge Chesler (the “<i>Vioxx </i>Derivative
Lawsuits”). On May 5, 2006, Judge Chesler granted defendants’
motion to dismiss and denied plaintiffs’ request for leave to amend
their complaint. Plaintiffs appealed, arguing that Judge Chesler erred in
denying plaintiffs’ leave to amend their complaint with materials
acquired during discovery. On July 18, 2007, the United States Court
of Appeals for the Third Circuit reversed the District Court’s decision
on the grounds that Judge Chesler should have allowed plaintiffs to make use
of the discovery material to try to establish demand futility, and remanded
the case for the District Court’s consideration of whether, even
with the additional materials, plaintiffs’ request to amend their
complaint would still be futile. Plaintiffs filed their brief in support of
their request for leave to amend their complaint in November 2007.
The Court denied the motion in June 2008 and closed the case. Plaintiffs
have appealed Judge Chesler’s decision to the United States Court
of Appeals for the Third Circuit. Oral argument on the appeal was held on
July 15, 2009.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>In addition, as previously disclosed, various putative class actions
filed in federal court under the Employee Retirement Income Security Act (“ERISA”)
against the Company and certain current and former officers and directors
(the “<i>Vioxx </i>ERISA Lawsuits” and, together
with the <i>Vioxx </i>Securities Lawsuits and the <i>Vioxx
</i>Derivative Lawsuits, the “<i>Vioxx </i>Shareholder
Lawsuits”) have been transferred to the Shareholder MDL and consolidated
for all purposes. The consolidated complaint asserts claims on behalf of certain
of the Company’s current and former employees who are participants
in certain of the Company’s retirement plans for breach of fiduciary
duty. The lawsuits make similar allegations to the allegations contained in
the <i>Vioxx</i> Securities Lawsuits. On July 11, 2006,
Judge Chesler granted in part and denied in part defendants’ motion
to dismiss the ERISA complaint. In October 2007, plaintiffs moved
for certification of a class of individuals who were participants in and beneficiaries
of the Company’s retirement savings plans at any time between October 1,
1998 and September 30, 2004 and whose plan accounts included investments
in the Merck Common Stock Fund and/or Merck common stock. In February 2009,
the Court denied the motion for certification of a class as to one count and
granted the motion as to the remaining counts. The Court also limited the
class to those individuals who were participants in and beneficiaries of the
Company’s retirement savings plans who suffered a loss due to their
investments in Merck stock through the plans and who did not execute a settlement
releasing their claims. In March 2009, Judge Chesler denied defendants’
motion for judgment on the pleadings. On December 24, 2008, plaintiffs
filed a motion for partial summary judgment against certain individual defendants.
Judge Chesler entered an order denying the motion on May 11, 2009.
Discovery is ongoing in this litigation.</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>As previously disclosed, on
October 29, 2004, two individual shareholders made a demand on the
Company’s Board to take legal action against Mr. Raymond
Gilmartin, former Chairman, President and Chief Executive Officer, and other
individuals for allegedly causing damage to the Company with respect to the
allegedly improper marketing of <i>Vioxx</i>. In December 2004,
the Special Committee of the Board of Directors retained the Honorable John
S. Martin, Jr. of Debevoise & Plimpton LLP to conduct an independent
investigation of, among other things, the allegations set forth in the demand.
Judge Martin’s report was made public in September 2006.
Based on the Special Committee’s recommendation made after careful
consideration of the Martin report and the impact that derivative litigation
would have on the Company, the Board rejected the demand. On October 11,
2007, the shareholders filed a lawsuit in state court in Atlantic County,
New Jersey against current and former executives and directors of the Company
alleging that the Board’s rejection of their demand was unreasonable
and improper, and that the defendants breached various duties to the Company
in allowing <i>Vioxx</i> to be marketed. The current and former
executive and director defendants filed motions to dismiss the complaint in
June 2008. On October 30, 2008, proceedings in the case
were stayed through March 1, 2009. On November 21, 2008,
the pending motions to dismiss were denied without prejudice in light of the
stay. Defendants renewed their motions to dismiss on June 3, 2009.
The Court has scheduled an August 6, 2009, argument on the motions
to dismiss.</td> </tr> <tr> <td style="font-size: 12pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>International
Lawsuits</i></td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>As previously disclosed, in addition to the lawsuits discussed above,
the Company has been named as a defendant in litigation relating to <i>Vioxx
</i>in various countries (collectively, the “<i>Vioxx</i>
Foreign Lawsuits”) in Europe, as well as Canada, Brazil, Argentina,
Australia, Turkey, and Israel, as well as in The Philippines and Singapore.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>On May 30, 2008,
the provincial court of Queen’s Bench in Saskatchewan, Canada entered
an order certifying a class of <i>Vioxx </i>users in Canada, except
those in Quebec. The class includes individual purchasers who allege inducement
to purchase by unfair marketing practices; individuals who allege <i>Vioxx
</i>was not of acceptable quality, defective or not fit for the purpose
of managing pain associated with approved indications; or ingestors who claim
<i>Vioxx </i>caused or exacerbated a cardiovascular or gastrointestinal
condition. On June 17, 2008, the Court of Appeal for Saskatchewan
granted the Company leave to appeal the certification order and the appeal
was argued before that court in September and November 2008. On March 30,
2009, the Court of Appeal released its decision granting the Company’s
appeal and quashing the certification order. On May 29, 2009, plaintiffs
sought leave to appeal the judgment of the Saskatchewan Court of Appeal to
the Supreme Court of Canada, and that application is pending. On July 28,
2008, the Superior Court in Ontario denied the Company’s motion
to stay class proceedings in Ontario, which had been based on the earlier
certification order entered in Saskatchewan, and decided to certify an overlapping
class of <i>Vioxx </i>users in Canada, except those in Quebec
and Saskatchewan, who allege negligence and an entitlement to elect to waive
the tort. On November 24, 2008, the Ontario Divisional Court granted
the Company’s motion for leave to appeal the Superior Court’s
decision denying the stay of the Ontario class proceedings and denied the
Company’s motion to appeal the certification order. The Company’s
appeal was heard by the Ontario Divisional Court in February 2009.
On February 13, 2009, the Divisional Court declined to set aside
the order denying the stay. The Ontario Court of Appeal denied leave to appeal
on May 15, 2009, and on June 23, 2009, Merck sought leave
to appeal from that decision to the Supreme Court of Canada, and requested
that the Saskatchewan and Ontario applications for leave to appeal to the
Supreme Court be heard together. The appeal of the Ontario certification order
was filed on May 20, 2009, and, in accordance with that Justice’s
reasons, Merck also sought leave to appeal to the Divisional Court and is
scheduled to argue that motion on August 14, 2009. Earlier, in November 2006,
the Superior Court in Quebec authorized the institution of a class action
on behalf of all individuals who, in Quebec, consumed <i>Vioxx </i>and
suffered damages arising out of its ingestion. On May 7, 2009, the
plaintiffs served an introductory motion for a class action based upon that
authorization.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>A trial in a representative action in Australia commenced on March 30,
2009, in the Federal Court of Australia. The named plaintiff, who alleges
he suffered an MI, seeks to represent others in Australia who ingested <i>Vioxx
</i>and suffered an MI, thrombotic stroke, unstable angina, transient
ischemic attack or peripheral vascular disease. On March 30, 2009,
the trial judge entered an order directing that, in advance of all other issues
in the proceeding, the issues to be determined during the trial are those
issues of fact and law in the named plaintiff’s individual case,
and those issues of fact and law that the trial judge finds, after hearing
the evidence, are common to the claims of the group members that the named
plaintiff has alleged that he represents. The trial in this representative
action concluded on June 25, 2009, and the trial judge reserved decision.</td>
</tr> <tr> <td style="font-size: 12pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Additional Lawsuits</i></td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Based on media reports
and other sources, the Company anticipates that additional <i>Vioxx
</i>Product Liability Lawsuits, <i>Vioxx </i>Shareholder
Lawsuits and <i>Vioxx </i>Foreign Lawsuits (collectively, the
“<i>Vioxx </i>Lawsuits”) may be filed against
it and/or certain of its current and former officers and directors in the
future.</td> </tr> <tr> <td style="font-size: 12pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Insurance</i></td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously disclosed,
the Company has Directors and Officers insurance coverage applicable to the
<i>Vioxx </i>Securities Lawsuits and <i>Vioxx </i>Derivative
Lawsuits with stated upper limits of approximately $190 million.
The Company has Fiduciary and other insurance for the <i>Vioxx </i>ERISA
Lawsuits with stated upper limits of approximately $275 million.
As a result of the previously disclosed arbitration, additional insurance
coverage for these claims should also be available, if needed, under upper-level
excess policies that provide coverage for a variety of risks. There are disputes
with the insurers about the availability of some or all of the Company’s
insurance coverage for these claims and there are likely to be additional
disputes. The amounts actually recovered under the policies discussed in this
paragraph may be less than the stated upper limits.</td> </tr>
</table> </div> <div style="margin-top: 12pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><i>Investigations</i></td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously disclosed,
in November 2004, the Company was advised by the staff of the SEC
that it was commencing an informal inquiry concerning <i>Vioxx. </i>On
January 28, 2005, the Company announced that it received notice that
the SEC issued a formal notice of investigation. In the second quarter of
2009, the SEC informed the Company that it has terminated its investigation.
Also, the Company has received subpoenas from the U.S. Department of Justice
(the “DOJ”) requesting information related to the Company’s
research, marketing and selling activities with respect to <i>Vioxx
</i>in a federal health care investigation under criminal statutes.
This investigation includes subpoenas for witnesses to appear before a grand
jury. In March 2009, Merck received a letter from the U.S. Attorney’s
Office for the District of Massachusetts identifying it as a target of the
grand jury investigation regarding <i>Vioxx</i>. Further, as previously
disclosed, investigations are being conducted by local authorities in certain
cities in Europe in order to determine whether any criminal charges should
be brought concerning <i>Vioxx</i>. The Company is cooperating
with these governmental entities in their respective investigations (the “<i>Vioxx
</i>Investigations”). The Company cannot predict the outcome
of these inquiries; however, they could result in potential civil and/or criminal
dispositions.</td> </tr> </table> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>In addition, the Company received a subpoena in September 2006
from the State of California Attorney General seeking documents and information
related to the placement of <i>Vioxx </i>on California’s
Medi-Cal formulary. The Company is cooperating with the Attorney General in
responding to the subpoena.</td> </tr> </table> </div>
<div style="margin-top: 12pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td><i>Reserves</i></td> </tr> </table>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>As discussed above, on November 9,
2007, Merck entered into the Settlement Agreement with the law firms that
comprise the executive committee of the PSC of the federal <i>Vioxx
</i>MDL as well as representatives of plaintiffs’ counsel
in the Texas, New Jersey and California state coordinated proceedings to resolve
state and federal MI and IS claims filed as of that date in the United States.
The Settlement Agreement, which also applies to tolled claims, was signed
by the parties after several meetings with three of the four judges overseeing
the coordination of more than 95% of the current claims in the <i>Vioxx
</i>Litigation. The Settlement Agreement applies only to U.S. legal
residents and those who allege that their MI or IS occurred in the United
States. In 2007, as a result of entering into the Settlement Agreement, the
Company recorded a pretax charge of $4.85 billion which represents
the fixed aggregate amount to be paid to plaintiffs qualifying for payment
under the Settlement Program.</td> </tr> </table> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>There are no U.S. <i>Vioxx </i>Product Liability Lawsuit
trials scheduled in 2009, although several are currently scheduled for trial
in 2010. The Company cannot predict the timing of any other trials related
to the <i>Vioxx </i>Litigation. The Company believes that it has
meritorious defenses to the <i>Vioxx </i>Lawsuits and will vigorously
defend against them. In view of the inherent difficulty of predicting the
outcome of litigation, particularly where there are many claimants and the
claimants seek indeterminate damages, the Company is unable to predict the
outcome of these matters, and at this time cannot reasonably estimate the
possible loss or range of loss with respect to the <i>Vioxx </i>Lawsuits
not included in the Settlement Program. The Company has not established any
reserves for any potential liability relating to the <i>Vioxx </i>Lawsuits
not included in the Settlement Program, other than the $80 million
reserve for the anticipated settlement of the pending U.S. <i>Vio</i>xx
third-party payor litigation as noted above, or the <i>Vioxx </i>Investigations.
Unfavorable outcomes in the <i>Vioxx </i>Litigation could have
a material adverse effect on the Company’s financial position, liquidity
and results of operations.</td> </tr> </table> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>Legal defense costs expected to be incurred in connection with a
loss contingency are accrued when probable and reasonably estimable. As of
December 31, 2008, the Company had an aggregate reserve of approximately
$4.379 billion (the “<i>Vioxx </i>Reserve”)
for the Settlement Program and the Company’s future legal defense
costs related to the <i>Vioxx </i>Litigation.</td> </tr>
</table> </div> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>During the first six
months of 2009, the Company spent approximately $125 million in the
aggregate in legal defense costs worldwide, including $71 million
in the second quarter of 2009, related to (i) the <i>Vioxx
</i>Product Liability Lawsuits, (ii) the <i>Vioxx </i>Shareholder
Lawsuits, (iii) the <i>Vioxx </i>Foreign Lawsuits, and (iv) the
<i>Vioxx </i>Investigations (collectively, the “<i>Vioxx</i>
Litigation”). In addition, during the first six months of 2009,
the Company paid an additional $1.391 billion into the settlement
funds in connection with the Settlement Program, of which $1.376 billion
was paid in the second quarter of 2009. Also in the second quarter of 2009,
the Company recorded an $80 million charge in connection with the
anticipated settlement of the pending U.S. <i>Vioxx </i>third-party
payor litigation noted above. Consequently, as of June 30, 2009,
the aggregate amount of the <i>Vioxx </i>Reserve was approximately
$2.943 billion, which is included in Accrued and other current liabilities
on the Consolidated Balance Sheet. Some of the significant factors considered
in the review of the <i>Vioxx </i>Reserve were as follows: the
actual costs incurred by the Company; the development of the Company’s
legal defense strategy and structure in light of the scope of the <i>Vioxx
</i>Litigation, including the Settlement Agreement and the expectation
that certain lawsuits will continue to be pending; the number of cases being
brought against the Company; the costs and outcomes of completed trials and
the most current information regarding anticipated timing, progression, and
related costs of pre-trial activities and trials in the <i>Vioxx </i>Litigation.
The amount of the <i>Vioxx</i> Reserve as of June 30,
2009 allocated solely to defense costs represents the Company’s
best estimate of the minimum amount of defense costs to be incurred in connection
with the remaining aspects of the <i>Vioxx </i>Litigation; however,
events such as additional trials in the <i>Vioxx</i> Litigation
and other events that could arise in the course of the <i>Vioxx </i>Litigation
could affect the ultimate amount of defense costs to be incurred by the Company.</td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The Company will continue
to monitor its legal defense costs and review the adequacy of the associated
reserves and may determine to increase the <i>Vioxx </i>Reserve
at any time in the future if, based upon the factors set forth, it believes
it would be appropriate to do so.</td> </tr> </table> </div>
<div style="margin-top: 12pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td><b>Other Product Liability Litigation</b></td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously disclosed,
the Company is a defendant in product liability lawsuits in the United States
involving <i>Fosamax </i>(the “<i>Fosamax </i>Litigation”).
As of June 30, 2009, approximately 899 cases, which include approximately
1,280 plaintiff groups, had been filed and were pending against Merck in either
federal or state court, including one case which seeks class action certification,
as well as damages and/or medical monitoring. In these actions, plaintiffs
allege, among other things, that they have suffered osteonecrosis of the jaw,
generally subsequent to invasive dental procedures, such as tooth extraction
or dental implants and/or delayed healing, in association with the use of
<i>Fosamax</i>. On August 16, 2006, the JPML ordered
that the <i>Fosamax </i>product liability cases pending in federal
courts nationwide should be transferred and consolidated into one multidistrict
litigation (the “<i>Fosamax </i>MDL”) for
coordinated pre-trial proceedings. The <i>Fosamax </i>MDL has
been transferred to Judge John Keenan in the United States District Court
for the Southern District of New York. As a result of the JPML order, approximately
738 of the cases are before Judge Keenan. Judge Keenan has issued a Case Management
Order (and various amendments thereto) setting forth a schedule governing
the proceedings which focused primarily upon resolving the class action certification
motions in 2007 and completing fact discovery in an initial group of 25 cases
by October 1, 2008. Briefing and argument on plaintiffs’
motions for certification of medical monitoring classes were completed in
2007 and Judge Keenan issued an order denying the motions on January 3,
2008. On January 28, 2008, Judge Keenan issued a further order dismissing
with prejudice all class claims asserted in the first four class action lawsuits
filed against Merck that sought personal injury damages and/or medical monitoring
relief on a class wide basis. <i>Daubert </i>motions were filed
in May 2009 and Judge Keenan conducted a <i>Daubert </i>hearing
in July 2009. On July 27, 2009, Judge Keenan issued his
ruling on the parties’ respective <i>Daubert </i>motions.
The ruling denied the Plaintiff Steering Committee’s motion and
granted in part, and denied in part, Merck’s motion. Trials in the
first three cases in the MDL are currently scheduled for August 2009,
December 2009, and January 2010, respectively. A trial is currently
scheduled in Alabama state court in October 2009, but may be continued
until the first quarter of 2010. In addition, a Florida state court case is
expected to be tried in early 2010.</td> </tr> </table>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>In addition, in July 2008,
an application was made by the Atlantic County Superior Court of New Jersey
requesting that all of the <i>Fosamax </i>cases pending in New
Jersey be considered for mass tort designation and centralized management
before one judge in New Jersey. On October 6, 2008, the New Jersey
Supreme Court ordered that all pending and future actions filed in New Jersey
arising out of the use of <i>Fosamax </i>and seeking damages for
existing dental and jaw-related injuries, including osteonecrosis of the jaw,
but not solely seeking medical monitoring, be designated as a mass tort for
centralized management purposes before Judge Higbee in Atlantic County Superior
Court. As a result of the New Jersey Supreme Court’s order, approximately
142 cases were coordinated as of June 30, 2009 before Judge Higbee,
who began setting various case management deadlines during the second quarter
of 2009. On July 20, 2009, Judge Higbee entered a Case Management
Order setting forth a schedule that contemplates completing fact discovery
in an initial group of 15 cases by December 15, 2009, followed by
expert discovery in five of those cases, and a projected trial date of May 2010
for the first case to be tried in the New Jersey coordinated proceedings.</td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Discovery is ongoing
in both the <i>Fosamax </i>MDL litigation as well as in various
state court cases. The Company intends to defend against these lawsuits.</td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As of March 31,
2009, the Company had a remaining reserve of approximately $24 million
solely for its future legal defense costs for the <i>Fosamax </i>Litigation.
During the second quarter of 2009, the Company spent approximately $7 million.
In addition, in the second quarter, the Company added $25 million
to its reserve. Consequently, as of June 30, 2009, the Company had
a reserve of approximately $42 million solely for its future legal
defense costs for the <i>Fosamax</i> Litigation. Some of the significant
factors considered in the establishment of the reserve for the <i>Fosamax
</i>Litigation legal defense costs were as follows: the actual costs
incurred by the Company thus far; the development of the Company’s
legal defense strategy and structure in light of the creation of the <i>Fosamax
</i>MDL; the number of cases being brought against the Company; and
the anticipated timing, progression, and related costs of pre-trial activities
in the <i>Fosamax</i> Litigation. The Company will continue to
monitor its legal defense costs and review the adequacy of the associated
reserves. Due to the uncertain nature of litigation, the Company is unable
to reasonably estimate its costs beyond the completion of the above-mentioned
trials. The Company has not established any reserves for any potential liability
relating to the <i>Fosamax </i>Litigation. Unfavorable outcomes
in the <i>Fosamax </i>Litigation could have a material adverse
effect on the Company’s financial position, liquidity and results
of operations.</td> </tr> </table> </div> <!--
Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 0pt"> <u> </u> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td><b><i>Vytorin/Zetia </i></b><b>Litigation</b></td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously disclosed,
the Company and its joint venture partner, Schering-Plough, have received
several letters addressed to both companies from the House Committee on Energy
and Commerce, its Subcommittee on Oversight and Investigations (“O&I”),
and the Ranking Minority Member of the Senate Finance Committee, collectively
seeking a combination of witness interviews, documents and information on
a variety of issues related to the ENHANCE clinical trial, the sale and promotion
of <i>Vytorin</i>, as well as sales of stock by corporate officers.
In addition, since August 2008, the companies have received three
additional letters from O&I, including one dated February 19,
2009, seeking certain information and documents related to the SEAS clinical
trial. As previously disclosed, the companies have each received subpoenas
from the New York State Attorney General’s Office and a letter from
the Connecticut Attorney General seeking similar information and documents.
On July 15, 2009, the companies announced that they had reached a
civil settlement with the Attorneys General representing 35 states and the
District of Columbia to resolve a previously disclosed investigation by that
group into whether the companies violated state consumer protection laws when
marketing <i>Vytorin and Zetia</i>. As part of the settlement,
the companies agreed to reimburse the investigative costs of the 35 states
and the District of Columbia which totaled $5.4 million, and to make
voluntary assurances of compliance related to the promotion of <i>Vytorin
</i>and <i>Zetia</i>, including agreeing to continue to
comply with the Food, Drug and Cosmetic Act, the U.S. Food and Drug Administration
Amendments Act, and other laws requiring the truthful and non-misleading marketing
of pharmaceutical products. The settlement does not include any admission
of misconduct or liability by the companies. Finally, in September 2008,
the Company received a letter from the Civil Division of the DOJ informing
it that the DOJ is investigating whether the companies’ conduct
relating to the promotion of <i>Vytorin </i>caused false claims
to be submitted to federal health care programs. The Company is cooperating
with these investigations and working with Schering-Plough to respond to the
inquiries.</td> </tr> </table> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>In addition, the Company has become aware of or been served with
approximately 145 civil class action lawsuits alleging common law and state
consumer fraud claims in connection with the MSP Partnership’s sale
and promotion of <i>Vytorin and Zetia</i>. Certain of those lawsuits
allege personal injuries and/or seek medical monitoring. These actions, which
have been filed in or transferred to federal court, are coordinated in a multidistrict
litigation in the U.S. District Court for the District Court of New Jersey
before District Judge Dennis M. Cavanaugh. One similar lawsuit is pending
in Pennsylvania state court. The parties are presently engaged in motions
practice and briefing. </td> </tr> </table> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>Also, as previously disclosed, on April 3, 2008, a Merck
shareholder filed a putative class action lawsuit in federal court in the
Eastern District of Pennsylvania alleging that Merck and its Chairman, President
and Chief Executive Officer, Richard T. Clark, violated the federal securities
laws. This suit has since been withdrawn and re-filed in the District of New
Jersey and has been consolidated with another federal securities lawsuit under
the caption In re Merck & Co., Inc. <i>Vytorin </i>Securities
Litigation. An amended consolidated complaint was filed on October 6,
2008, and names as defendants Merck; Merck/Schering-Plough Pharmaceuticals,
LLC; and certain of the Company’s officers and directors. Specifically,
the complaint alleges that Merck delayed releasing unfavorable results of
a clinical study regarding the efficacy of <i>Vytorin </i>and
that Merck made false and misleading statements about expected earnings, knowing
that once the results of the <i>Vytorin </i>study were released,
sales of <i>Vytorin </i>would decline and Merck’s earnings
would suffer. On April 22, 2008, a member of a Merck ERISA plan filed
a putative class action lawsuit against the Company and certain of its officers
and directors alleging they breached their fiduciary duties under ERISA. Since
that time, there have been other similar ERISA lawsuits filed against the
Company in the District of New Jersey, and all of those lawsuits have been
consolidated under the caption In re Merck & Co., Inc. <i>Vytorin
</i>ERISA Litigation. An amended consolidated complaint was filed on
February 5, 2009, and names as defendants Merck and various members
of Merck’s Board of Directors and members of committees of Merck’s
Board of Directors. Plaintiffs allege that the ERISA plans’ investment
in Company stock was imprudent because the Company’s earnings are
dependent on the commercial success of its cholesterol drug <i>Vytorin
</i>and that defendants knew or should have known that the results of
a scientific study would cause the medical community to turn to less expensive
drugs for cholesterol management. The Company intends to defend the lawsuits
referred to in this section vigorously. Unfavorable outcomes resulting from
the government investigations or the civil litigation could have a material
adverse effect on the Company’s financial position, liquidity and
results of operations.</td> </tr> </table> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>In November 2008, the individual shareholder who had previously
delivered a letter to the Company’s Board of Directors demanding
that the Board take legal action against the responsible individuals to recover
the amounts paid by the Company in 2007 to resolve certain governmental investigations
delivered another letter to the Board demanding that the Board or a subcommittee
thereof commence an investigation into the matters raised by various civil
suits and governmental investigations relating to <i>Vytorin</i>.</td>
</tr> </table> </div> <div style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><b>Patent Litigation</b></td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>From time to time, generic
manufacturers of pharmaceutical products file Abbreviated New Drug Applications
(“ANDA’s”) with the FDA seeking to market generic
forms of the Company’s products prior to the expiration of relevant
patents owned by the Company. Generic pharmaceutical manufacturers have submitted
ANDA’s to the FDA seeking to market in the United States a generic
form of <i>Fosamax, Nexium, Singulair, Primaxin </i>and <i>Emend
</i>prior to the expiration of the Company’s (and AstraZeneca’s
in the case of <i>Nexium</i>) patents concerning these products.
In addition, an ANDA has been submitted to the FDA seeking to market in the
United States a generic form of <i>Zetia </i>prior to the expiration
of Schering-Plough’s patent concerning that product. The generic
companies’ ANDA’s generally include allegations of non-infringement,
invalidity and unenforceability of the patents. The Company has filed patent
infringement suits in federal court against companies filing ANDA’s
for generic alendronate (<i>Fosamax</i>), montelukast (<i>Singulair</i>),
imipenem/cilastatin (<i>Primaxin</i>) and AstraZeneca and the
Company have filed patent infringement suits in federal court against companies
filing ANDA’s for generic esomeprazole (<i>Nexium</i>).
Also, the Company and Schering-Plough have filed a patent infringement suit
in federal court against companies filing ANDA’s for generic ezetimibe
(<i>Zetia</i>). Similar patent challenges exist in certain foreign
jurisdictions. 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, there can be no assurance of the outcomes, which, if adverse,
could result in significantly shortened periods of exclusivity for these products.</td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously disclosed,
in February 2007, the Company received a notice from Teva Pharmaceuticals,
Inc. (“Teva”), a generic company, indicating that it had
filed an ANDA for montelukast and that it is challenging the U.S. patent that
is listed for <i>Singulair</i>. On April 2, 2007, the Company
filed a patent infringement action against Teva. The lawsuit automatically
stays FDA approval of Teva’s ANDA until August 2009 or
until an adverse court decision, if any, whichever may occur earlier. A trial
in this matter was held in February 2009. The Company is awaiting
the court’s decision which the Company expects to receive before
the stay expires on August 22, 2009.</td> </tr> </table>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>In January 2009, the
Company received notice that an ANDA was filed with the FDA for aprepitant
which contained a Paragraph IV challenge to patents on <i>Emend</i>.
In February 2009, the Company filed a patent infringement suit against
Sandoz Inc. (“Sandoz”). The lawsuit automatically stays
FDA approval of Sandoz’s ANDA until July 2011 or until
an adverse court decision, if any, whichever may occur earlier.</td>
</tr> </table> </div> <div style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td><b>Legal Proceedings
Related to the Proposed Merger with Schering-Plough</b></td> </tr>
</table> </div> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>On July 24,
2009, the Company announced a proposed settlement, subject to Court approval,
to resolve litigation challenging the planned merger between Merck and Schering-Plough
and seeking other forms of relief. The consolidated class action lawsuit,
which was noted in Merck’s June 25, 2009, definitive merger proxy
statement/prospectus, was filed in the Chancery Division of the Superior Court
of New Jersey in Hunterdon County and named Merck, its directors and Schering-Plough
as defendants.</td> </tr> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>The proposed settlement references additional disclosures made by
Merck and Schering-Plough related to the proposed merger, including information
about Merck’s financial advisor (J.P. Morgan), its fairness opinion
and certain other details. All of these additional disclosures already have
been made in the joint proxy/prospectus filed with the SEC. Under the proposed
settlement, no damages would be paid by Merck or Schering-Plough. In addition,
the parties have agreed that plaintiffs’ counsel may apply to the
Court for an award of attorneys’ fees and costs to be paid by Merck.</td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The proposed settlement
is not in any way an admission of any wrongdoing or liability in connection
with plaintiffs’ allegations. The Company agreed to settle the suit
in order to avoid the further costs and inherent uncertainty of litigation.</td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>This settlement, if approved
by the Court, and the separate settlement announced by Schering-Plough, will
resolve and release all claims that were or could have been brought by any
shareholder of Merck or Schering-Plough challenging any aspect of the proposed
merger, including any merger disclosure claims.</td> </tr> </table>
</div> <div style="margin-top: 12pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td><b>Other Litigation</b></td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>There are various other
legal proceedings, principally product liability and intellectual property
suits involving the Company, that are pending. While it is not feasible to
predict the outcome of such proceedings or the proceedings discussed in this
Note, in the opinion of the Company, all 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, other than proceedings
for which a separate assessment is provided in this Note.</td> </tr>
</table> </div> <!-- Folio --> <!-- /Folio --> </div>
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align="center" colspan="3"> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Stock</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Common</td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">Treasury</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Treasury</td> </tr>
<tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Shares</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Stock</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Other
Paid-In</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">Stock</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Stock</td> </tr>
<tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>(in
millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">Issued</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">at Cost</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Capital</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Shares</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">at Cost</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="21" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Balance at January 1,
2008 </div></td> <td> </td> <td> </td>
<td align="right">2,983.5</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">29.8</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">8,014.9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">811.0</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">28,174.7</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Employee share-based
compensation plans </div></td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">173.5</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(3.6</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(126.0</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Purchases of treasury stock </div></td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">33.6</td> <td> </td> <td> </td>
<td> </td> <td align="right">1,551.1</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="21" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Balance at June 30, 2008 </div></td>
<td> </td> <td> </td> <td align="right">2,983.5</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">29.8</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">8,188.4</td>
<td> </td> <td> </td> <td> </td>
<td align="right">841.0</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">29,599.8</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="21" align="left" style="border-top: 3px double #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Balance at January 1,
2009 </div></td> <td> </td> <td> </td>
<td align="right">2,983.5</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">29.8</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">8,319.1</td>
<td> </td> <td> </td> <td> </td>
<td align="right">875.8</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">30,735.5</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Employee share-based
compensation plans </div></td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">146.8</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(1.2</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(41.2</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Purchases of treasury stock </div></td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="21" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Balance at June 30, 2009 </div></td>
<td> </td> <td> </td> <td align="right">2,983.5</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">29.8</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">8,465.9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">874.6</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">30,694.3</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="21" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>The accumulated balances related to each component of other comprehensive
income (loss), net of taxes, were as follows:</td> </tr> </table>
</div> <div align="right"> <table style="font-size: 10pt; text-align:
left" cellspacing="0" border="0" cellpadding="0" width="96%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="40%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">Accumulated</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">Employee</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Cumulative</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Other</td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Benefit</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Translation</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Comprehensive</td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>($ in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">Derivatives</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Investments</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Plans</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Adjustment</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3">Income
(Loss)</td> </tr> <!-- End Table Head --> <!-- Begin
Table Body --> <tr style="font-size: 1px"> <td colspan="21" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Balance at January 1,
2008 </div></td> <td> </td> <td nowrap="nowrap"
align="right">$</td> <td align="right">(39.7</td> <td
nowrap="nowrap">)</td> <td> </td> <td align="right">$</td>
<td align="right">143.6</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right">$</td> <td align="right">(992.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="right">$</td> <td align="right">62.9</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right">$</td>
<td align="right">(826.1</td> <td nowrap="nowrap">)</td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Other comprehensive income (loss) </div></td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(14.3</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(88.4</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(29.9</td> <td nowrap="nowrap">)</td>
<td> </td> <td> </td> <td align="right">23.1</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(109.5</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td colspan="21" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Balance at June 30,
2008 </div></td> <td> </td> <td nowrap="nowrap"
align="right">$</td> <td align="right">(54.0</td> <td
nowrap="nowrap">)</td> <td> </td> <td align="right">$</td>
<td align="right">55.2</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right">$</td> <td align="right">(1,022.8</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="right">$</td> <td align="right">86.0</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right">$</td>
<td align="right">(935.6</td> <td nowrap="nowrap">)</td>
</tr> <tr style="font-size: 1px"> <td colspan="21" align="left"
style="border-top: 3px double #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Balance
at January 1, 2009 </div></td> <td> </td>
<td align="right">$</td> <td align="right">111.9</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">63.1</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right">$</td> <td align="right">(2,754.6</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="right">$</td> <td align="right">25.7</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right">$</td>
<td align="right">(2,553.9</td> <td nowrap="nowrap">)</td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Other comprehensive
income (loss) </div></td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(106.3</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">52.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">45.1</td> <td> </td>
<td> </td> <td> </td> <td align="right">13.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">4.1</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="21" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px">Balance
at June 30, 2009 </div></td> <td> </td>
<td align="right">$</td> <td align="right">5.6</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">115.1</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right">$</td> <td align="right">(2,709.5</td>
<td nowrap="nowrap">)</td> <td> </td> <td
align="right">$</td> <td align="right">39.0</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right">$</td>
<td align="right">(2,549.8</td> <td nowrap="nowrap">)</td>
</tr> <tr style="font-size: 1px"> <td colspan="21" align="left"
style="border-top: 3px double #000000"> </td> </tr>
<!-- End Table Body --> </table> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>Comprehensive income was $1,479.3 million and $1,597.1 million
for the three months ended June 30, 2009 and 2008, respectively,
and was $2,985.4 million and $4,961.3 million for the six
months ended June 30, 2009 and 2008, respectively.</td> </tr>
</table> </div> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The reconciliation of
noncontrolling interest was as follows:</td> </tr> </table>
</div> <div align="right"> <table style="font-size: 10pt; text-align:
left" cellspacing="0" border="0" cellpadding="0" width="96%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="76%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>($ in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Balance at January
1 </div></td> <td> </td> <td align="right">$</td>
<td align="right">2,408.8</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">2,406.7</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net
income attributable to noncontrolling interest </div></td> <td> </td>
<td> </td> <td align="right">62.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">62.8</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Distributions
</div></td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(59.5</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(59.7</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px">Other </div></td>
<td> </td> <td> </td> <td align="right">0.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">0.3</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Balance at June 30 </div></td> <td> </td>
<td align="right">$</td> <td align="right">2,412.4</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">2,410.1</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="9" align="left"
style="border-top: 3px double #000000"> </td> </tr>
<!-- End Table Body --> </table> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>In connection with the 1998 restructuring of Astra Merck Inc., the
Company assumed $2.4 billion par value preferred stock with a dividend
rate of 5% per annum, which is carried by KBI and included in Noncontrolling
Interests with Stockholders’ Equity on the Consolidated Balance
Sheet. While a small portion of the preferred stock carried by KBI is convertible
into KBI common shares, none of the preferred securities are convertible into
the Company’s common shares and, therefore, are not included as
common shares issuable for purposes of computing Earnings per common share
assuming dilution (see Note 17).</td> </tr> </table> </div>
<!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK
- --> <div style="font-family: 'Times New Roman',Times,serif"> <div
style="margin-top: 0pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt"> </table> </div> <div
align="left" style="font-size: 10pt; margin-top: 0pt"> <u> </u>
</div> </div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
- --> <html> <head></head> <body> <!-- Begin Block
Tagged Note 13 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"><b>13.</b></td> <td width="1%"> </td>
<td><b>Share-Based Compensation</b></td> </tr>
</table> </div> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The Company has share-based
compensation plans under which employees, non-employee directors and employees
of certain of the Company’s equity method investees may be granted
options to purchase shares of Company common stock at the fair market value
at the time of grant. In addition to stock options, the Company grants performance
share units (“PSUs”) and restricted stock units (“RSUs”)
to certain management-level employees. The Company recognizes the fair value
of share-based compensation in net income on a straight-line basis over the
requisite service period.</td> </tr> </table> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>The following table provides amounts of share-based compensation
cost recorded in the Consolidated Statement of Income:</td> </tr>
</table> </div> <div align="right"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="96%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="52%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Three
Months Ended</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7">Six Months Ended</td> </tr> <tr
style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000">June 30,</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px
solid #000000">June 30,</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>($
in millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Pretax share-based
compensation expense </div></td> <td> </td>
<td align="right">$</td> <td align="right">83.8</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">107.7</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">197.1</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">198.7</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Income
tax benefits </div></td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(26.5</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(33.4</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(62.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(62.1</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Total share-based compensation
expense, net of tax </div></td> <td> </td>
<td align="right">$</td> <td align="right">57.3</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">74.3</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">134.2</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">136.6</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="17" align="left" style="border-top:
3px double #000000"> </td> </tr> <!-- End Table
Body --> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>During the first six
months of 2009 and 2008, the Company granted 31.9 million options
and 33.4 million options, respectively, related to its annual grant and other
grants. The weighted average fair value of options granted for the first six
months of 2009 and 2008 was $3.90 and $9.99 per option, respectively, and
was determined using the following assumptions:</td> </tr> </table>
</div> <div align="right"> <table style="font-size: 10pt; text-align:
left" cellspacing="0" border="0" cellpadding="0" width="96%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="76%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Six
Months Ended</td> </tr> <tr style="font-size: 8pt" valign="bottom">
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7" style="border-bottom: 1px solid #000000">June
30,</td> </tr> <tr style="font-size: 8pt" valign="bottom">
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Expected dividend yield
</div></td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">6.4</td>
<td nowrap="nowrap">%</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">3.4</td>
<td nowrap="nowrap">%</td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px">Risk-free
interest rate </div></td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">2.1</td>
<td nowrap="nowrap">%</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">2.7</td>
<td nowrap="nowrap">%</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Expected volatility </div></td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">34.1</td>
<td nowrap="nowrap">%</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">30.8</td>
<td nowrap="nowrap">%</td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px">Expected
life (years) </div></td> <td> </td> <td> </td>
<td align="right">6.1</td> <td> </td> <td> </td>
<td> </td> <td align="right">6.1</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="9" align="left"
style="border-top: 3px double #000000"> </td> </tr>
<!-- End Table Body --> </table> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>At June 30, 2009, there was $468.0 million of
total pretax unrecognized compensation expense related to nonvested stock
options, RSU and PSU awards which will be recognized over a weighted average
period of 2.1 years. For segment reporting, share-based compensation
costs are unallocated expenses.</td> </tr> </table> </div>
</div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
- --> <html> <head></head> <body> <!-- Begin Block
Tagged Note 14 - us-gaap:PensionAndOtherPostretirementBenefitsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div style="margin-top:
12pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"><b>14.</b></td> <td width="1%"> </td>
<td><b>Pension and Other Postretirement Benefit Plans</b></td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>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:</td> </tr> </table> </div>
<div align="right"> <table style="font-size: 10pt; text-align: left"
cellspacing="0" border="0" cellpadding="0" width="96%"> <!-- Begin Table
Head --> <tr valign="bottom"> <td width="52%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Three
Months Ended</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7">Six Months Ended</td> </tr> <tr
style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000">June 30,</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px
solid #000000">June 30,</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>($
in millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Service cost </div></td>
<td> </td> <td align="right">$</td> <td
align="right">94.6</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">80.6</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">189.9</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">173.3</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Interest cost </div></td>
<td> </td> <td> </td> <td align="right">101.9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">106.1</td> <td> </td> <td> </td>
<td> </td> <td align="right">203.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">213.4</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Expected
return on plan assets </div></td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(151.8</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(136.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(302.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(284.9</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px">Net amortization
</div></td> <td> </td> <td> </td>
<td align="right">31.6</td> <td> </td> <td> </td>
<td> </td> <td align="right">20.2</td> <td> </td>
<td> </td> <td> </td> <td align="right">62.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">42.8</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Termination benefits </div></td>
<td> </td> <td> </td> <td align="right">3.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">13.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">25.6</td> <td> </td>
<td> </td> <td> </td> <td align="right">18.5</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Curtailments </div></td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">3.2</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(3.5</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">3.2</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Settlements </div></td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">3.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td align="right">$</td>
<td align="right">79.3</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">86.2</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">178.4</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">166.3</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <!--
Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 0pt"> <u> </u> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>The Company provides medical, dental and life insurance benefits,
principally to its eligible U.S. retirees and similar benefits to their dependents,
through its other postretirement benefit plans. The net cost of such plans
consisted of the following components:</td> </tr> </table>
</div> <div align="right"> <table style="font-size: 10pt; text-align:
left" cellspacing="0" border="0" cellpadding="0" width="96%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="52%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Three
Months Ended</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7">Six Months Ended</td> </tr> <tr
style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000">June 30,</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px
solid #000000">June 30,</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>($
in millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Service cost </div></td>
<td> </td> <td align="right">$</td> <td
align="right">17.7</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">15.3</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">36.6</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">37.5</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Interest cost </div></td>
<td> </td> <td> </td> <td align="right">24.7</td>
<td> </td> <td> </td> <td> </td>
<td align="right">25.5</td> <td> </td> <td> </td>
<td> </td> <td align="right">50.4</td> <td> </td>
<td> </td> <td> </td> <td align="right">56.3</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Expected
return on plan assets </div></td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(23.3</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(29.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(47.1</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(64.5</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px">Net amortization
</div></td> <td> </td> <td> </td>
<td align="right">4.3</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(7.6</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">9.9</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(11.4</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Termination benefits </div></td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(0.1</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">3.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">6.3</td> <td> </td>
<td> </td> <td> </td> <td align="right">4.2</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Curtailments </div></td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(7.4</td> <td nowrap="nowrap">)</td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(7.1</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(0.6</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td align="right">$</td> <td
align="right">15.9</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">6.3</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">49.0</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">21.5</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>In connection with restructuring actions (see Note 3), the Company
recorded termination charges for the three and six months ended June 30,
2009 and 2008 on its pension and other postretirement benefit plans related
to expanded eligibility for certain employees exiting the Company. Also, in
connection with these restructuring actions, the Company recorded curtailments
on its pension plans for the six months ended June 30, 2009 and the
three and six months ended June 30, 2008, and on its other postretirement
benefit plans for the three and six months ended June 30, 2009 and
the six months ended June 30, 2008. In addition, the Company recorded
settlement losses on its pension plans for the six months ended June 30,
2009.</td> </tr> </table> </div> </div> </body>
</html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
- --> <html> <head></head> <body> <!-- Begin Block
Tagged Note 15 - us-gaap:OtherIncomeAndOtherExpenseDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div style="margin-top:
12pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"><b>15.</b></td> <td width="1%"> </td>
<td><b>Other (Income) Expense, Net</b></td> </tr>
</table> </div> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Other (income) expense,
net, consisted of:</td> </tr> </table> </div> <div
align="right"> <table style="font-size: 10pt; text-align: left" cellspacing="0"
border="0" cellpadding="0" width="96%"> <!-- Begin Table Head -->
<tr valign="bottom"> <td width="52%"> </td> <td
width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Three
Months Ended</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7">Six Months Ended</td> </tr> <tr
style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000">June 30,</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px
solid #000000">June 30,</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>($
in millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Interest income </div></td>
<td> </td> <td nowrap="nowrap" align="right">$</td>
<td align="right">(70.0</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right">$</td>
<td align="right">(143.4</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right">$</td>
<td align="right">(166.3</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right">$</td>
<td align="right">(313.0</td> <td nowrap="nowrap">)</td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Interest expense </div></td> <td> </td>
<td> </td> <td align="right">99.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">50.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">160.2</td> <td> </td> <td> </td>
<td> </td> <td align="right">123.2</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Exchange (gains) losses
</div></td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(20.0</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">8.7</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(3.5</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">21.3</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Other,
net </div></td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(5.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(28.7</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(54.0</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(2,153.5</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td align="right">$</td> <td
align="right">3.6</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right">$</td> <td align="right">(112.8</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right">$</td> <td align="right">(63.6</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right">$</td> <td align="right">(2,322.0</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>The change in Other (income) expense, net in the second
quarter of 2009 as compared with the second quarter of 2008 reflects lower
interest income resulting from lower interest rates and a change in the Company’s
investment portfolio mix toward cash and shorter-dated securities in anticipation
of the pending Schering-Plough merger and higher interest expense driven largely
by $50 million of commitment fees related to the financing of the
proposed Schering-Plough merger. In addition, reflected within Other, net
for the second quarter of 2009 is $82 million of recognized net gains
in the Company’s investment portfolio, largely offset by an $80 million
charge related to the anticipated settlement of the Company’s pending
<i>Vioxx </i>third-party payor litigation in the United States
(see Note 11). The decline in Other (income) expense, net in the
first six months of 2009 as compared with same period in 2008 is primarily
due to a decline in Other, net. Included in Other, net for the first six months
of 2008 is an aggregate gain from AZLP of $2.2 billion (see Note
9), a gain of $249 million related to the sale of the Company’s
remaining worldwide rights to <i>Aggrastat</i>, partially offset
by a $300 million expense for a contribution to the Merck Company
Foundation, and a $58 million charge related to the resolution of
an investigation into whether the Company violated state consumer protection
laws with respect to the sales and marketing of <i>Vioxx</i>.
Included in Other, net for the first six months of 2009 is $99 million
of recognized net gains in the Company’s investment portfolio, partially
offset by an $80 million charge related to the anticipated settlement
of the Company’s pending <i>Vioxx </i>third-party payor
litigation in the United States. In addition, lower interest income and higher
interest expense due largely to $63 million of commitment fees related
to the financing of the proposed Schering-Plough merger also contributed to
the overall decline in Other (income) expense, net for the year-to-date
period. Interest paid for the six months ended June 30, 2009 was
$208.1 million, which includes commitment fees of $104.5 million,
and for the six months ended June 30, 2008 was $116.2 million.</td>
</tr> </table> </div> <!-- Folio --> <!-- /Folio
- --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times
New Roman',Times,serif"> <div style="margin-top: 0pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt"> </table> </div> <div align="left" style="font-size:
10pt; margin-top: 0pt"> <u> </u> </div> </div>
</body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
- --> <html> <head></head> <body> <!-- Begin Block
Tagged Note 16 - us-gaap:IncomeTaxDisclosureTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"><b>16.</b></td>
<td width="1%"> </td> <td><b>Taxes on Income</b></td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>The effective tax rate
of 19.3% for the second quarter of 2009 reflects a net favorable impact of
approximately 6 percentage points resulting from tax settlements
and restructuring charges. The effective tax rate of 18.8% for the first six
months of 2009 reflects the favorable impact of approximately 6 percentage
points resulting from the second quarter tax settlements, the previously disclosed
settlement reached with the Canada Revenue Agency (“CRA”)
in the first quarter of 2009 (see below) and restructuring charges. The effective
tax rate of 13.9% for the second quarter of 2008 reflects a benefit of approximately
9 percentage points primarily relating to tax settlements that resulted
in a reduction of the Company’s liability for unrecognized tax benefits
of approximately $200 million. The effective tax rate of 21.4% for
the first six months of 2008 reflects a net favorable impact of approximately
1 percentage point which includes favorable impacts relating to the
second quarter 2008 tax settlements and the first quarter 2008 realization
of foreign tax credits, largely offset by an unfavorable impact of the AZLP
gain (see Note 9) being fully taxable in the United States at a combined federal
and state tax rate of approximately 36.3%. In the first quarter of 2008, the
Company decided to distribute certain prior years’ foreign earnings
to the United States which resulted in the utilization of foreign tax credits.
These foreign tax credits arose as a result of tax payments made outside of
the United States in prior years that became realizable based on a change
in the Company’s decision to distribute these foreign earnings.</td>
</tr> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>As previously disclosed,
in October 2006, the CRA issued the Company a notice of reassessment
containing adjustments related to certain intercompany pricing matters. In
February 2009, Merck and the CRA negotiated a settlement agreement
in regard to these matters. In accordance with the settlement, Merck paid
an additional tax of approximately $300 million (U.S. dollars) and
interest of approximately $360 million (U.S. dollars) with no additional
amounts or penalties due on this assessment. In accordance with FASB Interpretation
No. 48, <i>Accounting for Uncertainty in Income Taxes —
an interpretation of FASB Statement No. 109, </i>(“FIN
48”), the settlement was accounted for in the first quarter of 2009.
The Company had previously established reserves for these matters. A significant
portion of the taxes paid is expected to be creditable for U.S. tax purposes.
The resolution of these matters did not have a material effect on the Company’s
financial position or liquidity, other than with respect to the associated
collateral as discussed below.</td> </tr> </table> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>In addition, in July 2007 and November 2008, the
CRA proposed additional adjustments for 1999 and 2000, respectively, relating
to other intercompany pricing matters. The adjustments would increase Canadian
tax due by approximately $280 million (U.S. dollars) plus $270 million
(U.S. dollars) of interest through June 30, 2009. It is possible
that the CRA will propose similar adjustments for later years. The Company
disagrees with the positions taken by the CRA and believes they are without
merit. The Company intends to contest the assessments through the CRA appeals
process and the courts if necessary. Management believes that resolution of
these matters will not have a material effect on the Company’s financial
position or liquidity.</td> </tr> </table> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>In connection with the appeals process for the matters discussed
above, during 2007, the Company pledged collateral to two financial institutions,
one of which provided a guarantee to the CRA and the other to the Quebec Ministry
of Revenue representing a portion of the tax and interest assessed. As a result
of the settlement noted above, guarantees required to appeal the disputes
were reduced or eliminated and approximately $800 million of associated
collateral was released and reclassified from Other assets to Cash and cash
equivalents and Short-term investments. Approximately $150 million
additional cash and securities were released from collateral in April 2009.
Certain of the cash and investments continue to be collateralized for guarantees
required to appeal other Canadian tax disputes. The collateral is included
in Deferred income taxes and other current assets and Other assets in the
Consolidated Balance Sheet and totaled approximately $275 million
and $1.2 billion at June 30, 2009 and December 31,
2008, respectively.</td> </tr> </table> </div> <!--
Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div
style="font-family: 'Times New Roman',Times,serif"> <div style="margin-top:
0pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt"> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 0pt"> <u> </u> </div>
</div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
- --> <html> <head></head> <body> <!-- Begin Block
Tagged Note 17 - us-gaap:EarningsPerShareTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div style="margin-top: 6pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"><b>17.</b></td>
<td width="1%"> </td> <td><b>Earnings Per
Share</b></td> </tr> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>Effective January 1, 2009, the Company adopted FSP EITF
03-6-1<i>, </i>which states that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are considered participating securities and shall
be included in the computation of earnings per share pursuant to the two-class
method. The two-class method is an earnings allocation formula that treats
a participating security as having rights to earnings that would otherwise
have been available to common shareholders. The provisions of this FSP are
retrospective; therefore prior periods have been restated. RSUs granted by
the Company to certain management level employees (see Note 13) participate
in dividends on the same basis as common shares and are nonforfeitable by
the holder. As a result, these RSUs meet the definition of a participating
security.</td> </tr> </table> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>The calculations of earnings per share under the two-class method
are as follows:</td> </tr> </table> </div> <div
align="right"> <table style="font-size: 10pt; text-align: left" cellspacing="0"
border="0" cellpadding="0" width="96%"> <!-- Begin Table Head -->
<tr valign="bottom"> <td width="52%"> </td> <td
width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Three
Months Ended</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7">Six Months Ended</td> </tr> <tr
style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000">June 30,</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px
solid #000000">June 30,</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px"><i>Basic Earnings
per Common Share:</i> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Net Income Attributable to Merck & Co., Inc.
</div></td> <td> </td> <td align="right">$</td>
<td align="right">1,556.3</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">1,768.3</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">2,981.3</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">5,070.8</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Less: Income allocated
to participating securities </div></td> <td> </td>
<td> </td> <td align="right">4.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">4.7</td>
<td> </td> <td> </td> <td> </td>
<td align="right">9.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">13.1</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Net
income available to common shareholders </div></td> <td> </td>
<td> </td> <td align="right">1,551.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,763.6</td> <td> </td>
<td> </td> <td> </td> <td align="right">2,972.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">5,057.7</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"><!-- Blank Space --> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Average common shares
outstanding </div></td> <td> </td> <td> </td>
<td align="right">2,108.7</td> <td> </td>
<td> </td> <td> </td> <td align="right">2,144.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,108.3</td> <td> </td>
<td> </td> <td> </td> <td align="right">2,153.2</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td align="right">$</td> <td align="right">0.74</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">0.82</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">1.41</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">2.35</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="17" align="left" style="border-top:
3px double #000000"> </td> </tr> <tr valign="bottom"><!--
Blank Space --> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px"><i>Earnings per Common
Share Assuming Dilution:</i> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Net Income Attributable to Merck & Co., Inc.
</div></td> <td> </td> <td align="right">$</td>
<td align="right">1,556.3</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">1,768.3</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">2,981.3</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">5,070.8</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Less: Income allocated
to participating securities </div></td> <td> </td>
<td> </td> <td align="right">4.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">4.7</td>
<td> </td> <td> </td> <td> </td>
<td align="right">9.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">13.1</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Net
income available to common shareholders </div></td> <td> </td>
<td align="right">$</td> <td align="right">1,551.5</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">1,763.6</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">2,972.3</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">5,057.7</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"><!-- Blank Space --> <td>
<div style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Average
common shares outstanding </div></td> <td> </td>
<td> </td> <td align="right">2,108.7</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,144.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">2,108.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,153.2</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Common shares issuable <sup style="font-size: 85%;
vertical-align: text-top"><i>(1)</i></sup> </div></td>
<td> </td> <td> </td> <td align="right">1.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">7.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">1.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">10.0</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Average common shares
outstanding assuming dilution </div></td> <td> </td>
<td> </td> <td align="right">2,110.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,151.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">2,109.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,163.2</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td align="right">$</td>
<td align="right">0.74</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">0.82</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">1.41</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">2.34</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 3pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr> <td
width="4%"></td> <td width="3%"></td> <td width="1%"></td>
<td width="96"></td> </tr> <tr valign="top"> <td
width="3%"> </td> <td nowrap="nowrap" align="left"><sup
style="font-size: 85%; vertical-align: text-top"><i>(1)</i></sup></td>
<td> </td> <td><i>Issuable primarily under
share-based compensation plans.</i></td> </tr> </table>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>For the three months ended June 30,
2009 and 2008, 256.3 million and 205.5 million, respectively,
and for the six months ended June 30, 2009 and 2008, 228.5 million
and 205.3 million, respectively, of common shares issuable under the Company’s
share-based compensation plans were excluded from the computation of earnings
per common share assuming dilution because the effect would have been antidilutive.</td>
</tr> </table> </div> <!-- Folio --> <!-- /Folio
- --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times
New Roman',Times,serif"> <div style="margin-top: 0pt"> <table
width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt"> </table> </div> <div align="left" style="font-size:
10pt; margin-top: 0pt"> <u> </u> </div> </div>
</body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
- --> <html> <head></head> <body> <!-- Begin Block
Tagged Note 18 - us-gaap:SegmentReportingDisclosureTextBlock--> <div
style="font-family: 'Times New Roman',Times,serif"> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"><b>18.</b></td> <td width="1%"> </td>
<td><b>Segment Reporting</b></td> </tr> </table>
</div> <div style="margin-top: 6pt"> <table width="100%" border="0"
cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="3%" nowrap="nowrap" align="left"> </td> <td
width="1%"> </td> <td>The Company’s operations
are principally managed on a products basis and are comprised of two reportable
segments: the Pharmaceutical segment and the Vaccines and Infectious Diseases
segment. The Pharmaceutical segment includes human health pharmaceutical products
marketed either directly by Merck or through joint ventures. These products
consist of therapeutic and preventive agents, sold by prescription, for the
treatment of human disorders. Merck sells these human health pharmaceutical
products primarily to drug wholesalers and retailers, hospitals, government
agencies and managed health care providers such as health maintenance organizations,
pharmacy benefit managers and other institutions. The Vaccines and Infectious
Diseases segment includes human health vaccine and infectious disease products
marketed either directly by Merck or, in the case of vaccines, through a joint
venture. Vaccine products consist of preventive pediatric, adolescent and
adult vaccines, primarily administered at physician offices. Merck sells these
human health vaccines primarily to physicians, wholesalers, physician distributors
and government entities. A large component of pediatric and adolescent vaccines
is sold to the U.S. Centers for Disease Control and Prevention Vaccines for
Children program, which is funded by the U.S. government. Infectious disease
products consist of therapeutic agents for the treatment of infection sold
primarily to drug wholesalers and retailers, hospitals and government agencies.
The Vaccines and Infectious Diseases segment includes the majority of the
Company’s vaccine and infectious disease product sales, but excludes
sales of these products by non-U.S. subsidiaries which are included in the
Pharmaceutical segment.</td> </tr> </table> </div>
<div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>Other segments include other non-reportable human and animal health
segments.</td> </tr> </table> </div> <div style="margin-top:
6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap"
align="left"> </td> <td width="1%"> </td>
<td>Revenues and profits for these segments are as follows:</td>
</tr> </table> </div> <div align="right"> <table
style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0"
width="96%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="52%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> <td width="5%"> </td>
<td width="3%"> </td> <td width="1%"> </td>
<td width="3%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7">Three Months Ended</td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Six
Months Ended</td> </tr> <tr style="font-size: 8pt" valign="bottom">
<td> </td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7" style="border-bottom: 1px solid #000000">June
30,</td> <td> </td> <td nowrap="nowrap" align="center"
colspan="7" style="border-bottom: 1px solid #000000">June 30,</td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>($ in millions)</i></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Segment revenues: </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Pharmaceutical segment
</div></td> <td> </td> <td align="right">$</td>
<td align="right">4,930.0</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">5,006.1</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">9,415.6</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">9,817.5</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Vaccines and Infectious
Diseases segment </div></td> <td> </td> <td> </td>
<td align="right">915.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">1,026.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,774.7</td> <td> </td>
<td> </td> <td> </td> <td align="right">2,012.2</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Other segment revenues
</div></td> <td> </td> <td> </td>
<td align="right">14.5</td> <td> </td> <td> </td>
<td> </td> <td align="right">19.1</td> <td> </td>
<td> </td> <td> </td> <td align="right">25.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">44.1</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="17" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td align="right">$</td> <td align="right">5,859.5</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">6,051.8</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">11,215.8</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">11,873.8</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 3px double #000000"> </td>
</tr> <tr valign="bottom"><!-- Blank Space --> <td>
<div style="margin-left:15px; text-indent:-15px">  </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Segment profits:<sup
style="font-size: 85%; vertical-align: text-top"><i>(1)</i></sup>
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">Pharmaceutical segment </div></td>
<td> </td> <td align="right">$</td> <td
align="right">3,358.5</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">3,112.6</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">6,322.9</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">6,231.9</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Vaccines
and Infectious Diseases segment </div></td> <td> </td>
<td> </td> <td align="right">598.1</td> <td> </td>
<td> </td> <td> </td> <td align="right">645.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,176.6</td> <td> </td>
<td> </td> <td> </td> <td align="right">1,270.2</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Other
segment profits </div></td> <td> </td> <td> </td>
<td align="right">106.6</td> <td> </td> <td> </td>
<td> </td> <td align="right">119.2</td> <td> </td>
<td> </td> <td> </td> <td align="right">248.1</td>
<td> </td> <td> </td> <td> </td>
<td align="right">265.2</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="17" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td align="right">$</td>
<td align="right">4,063.2</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">3,877.4</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">7,747.6</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">7,767.3</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 3px double #000000"> </td> </tr>
<!-- End Table Body --> </table> </div> <div style="margin-top:
3pt" align="right"> <table width="96%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr> <td width="3%"></td>
<td width="1%"></td> <td width="96"></td> </tr>
<tr valign="top"> <td nowrap="nowrap" align="left"><sup style="font-size:
85%; vertical-align: text-top"> <i>(1)</i> </sup></td>
<td> </td> <td><i> Includes the majority
of Equity income from affiliates.</i></td> </tr> </table>
</div> <!-- Folio --> <!-- /Folio --> </div> <!--
PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt"> <u>
</u> </div> <div style="margin-top: 6pt"> <table width="100%"
border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align:
left"> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>Sales <sup style="font-size:
85%; vertical-align: text-top"><i>(1)</i></sup> of the
Company’s products were as follows:</td> </tr> </table>
</div> <div align="right"> <table style="font-size: 10pt; text-align:
left" cellspacing="0" border="0" cellpadding="0" width="96%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="52%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Three
Months Ended</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7">Six Months Ended</td> </tr> <tr
style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000">June 30,</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px
solid #000000">June 30,</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>($
in millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px"><i>Pharmaceutical:</i>
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Singulair
</div></td> <td> </td> <td align="right">$</td>
<td align="right">1,257.4</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">1,081.6</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">2,314.7</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">2,185.3</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Cozaar/Hyzaar </div></td>
<td> </td> <td> </td> <td align="right">905.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">941.1</td> <td> </td> <td> </td>
<td> </td> <td align="right">1,744.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,788.0</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Januvia </div></td> <td> </td>
<td> </td> <td align="right">462.0</td> <td> </td>
<td> </td> <td> </td> <td align="right">333.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">873.2</td> <td> </td> <td> </td>
<td> </td> <td align="right">605.9</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Fosamax </div></td>
<td> </td> <td> </td> <td align="right">277.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">411.2</td> <td> </td> <td> </td>
<td> </td> <td align="right">538.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">881.0</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Janumet </div></td>
<td> </td> <td> </td> <td align="right">154.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">72.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">283.1</td> <td> </td>
<td> </td> <td> </td> <td align="right">130.8</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Zocor
</div></td> <td> </td> <td> </td>
<td align="right">140.8</td> <td> </td> <td> </td>
<td> </td> <td align="right">176.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">278.2</td>
<td> </td> <td> </td> <td> </td>
<td align="right">355.9</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Maxalt
</div></td> <td> </td> <td> </td>
<td align="right">140.8</td> <td> </td> <td> </td>
<td> </td> <td align="right">130.3</td> <td> </td>
<td> </td> <td> </td> <td align="right">274.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">251.9</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">Cosopt/Trusopt </div></td>
<td> </td> <td> </td> <td align="right">124.9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">217.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">246.1</td> <td> </td>
<td> </td> <td> </td> <td align="right">418.8</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Propecia </div></td>
<td> </td> <td> </td> <td align="right">105.9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">107.6</td> <td> </td> <td> </td>
<td> </td> <td align="right">208.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">212.6</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Arcoxia
</div></td> <td> </td> <td> </td>
<td align="right">88.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">103.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">169.2</td>
<td> </td> <td> </td> <td> </td>
<td align="right">197.3</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Vasotec/Vaseretic
</div></td> <td> </td> <td> </td>
<td align="right">76.1</td> <td> </td> <td> </td>
<td> </td> <td align="right">93.7</td> <td> </td>
<td> </td> <td> </td> <td align="right">153.2</td>
<td> </td> <td> </td> <td> </td>
<td align="right">189.4</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">Proscar </div></td>
<td> </td> <td> </td> <td align="right">79.2</td>
<td> </td> <td> </td> <td> </td>
<td align="right">86.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">151.3</td> <td> </td>
<td> </td> <td> </td> <td align="right">171.0</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Emend </div></td>
<td> </td> <td> </td> <td align="right">76.9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">65.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">146.0</td> <td> </td>
<td> </td> <td> </td> <td align="right">125.0</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Other
pharmaceutical<sup style="font-size: 85%; vertical-align: text-top">
<i>(2)</i></sup> </div></td> <td> </td>
<td> </td> <td align="right">500.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">625.4</td>
<td> </td> <td> </td> <td> </td>
<td align="right">970.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">1,215.2</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Vaccine and infectious
disease product sales included in the Pharmaceutical segment <sup style="font-size:
85%; vertical-align: text-top"><i>(3)</i></sup> </div></td>
<td> </td> <td> </td> <td align="right">539.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">559.5</td> <td> </td> <td> </td>
<td> </td> <td align="right">1,064.2</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,089.4</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Pharmaceutical segment revenues
</div></td> <td> </td> <td> </td>
<td align="right">4,930.0</td> <td> </td>
<td> </td> <td> </td> <td align="right">5,006.1</td>
<td> </td> <td> </td> <td> </td>
<td align="right">9,415.6</td> <td> </td>
<td> </td> <td> </td> <td align="right">9,817.5</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px"><i>Vaccines</i><sup style="font-size:
85%; vertical-align: text-top"><i>(4)</i></sup><i>
and Infectious Diseases:</i> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">ProQuad/M-M-R II/Varivax
</div></td> <td> </td> <td> </td>
<td align="right">322.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">317.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">574.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">543.5</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Gardasil
</div></td> <td> </td> <td> </td>
<td align="right">268.2</td> <td> </td> <td> </td>
<td> </td> <td align="right">325.7</td> <td> </td>
<td> </td> <td> </td> <td align="right">530.2</td>
<td> </td> <td> </td> <td> </td>
<td align="right">716.1</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">RotaTeq </div></td>
<td> </td> <td> </td> <td align="right">125.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">177.8</td> <td> </td> <td> </td>
<td> </td> <td align="right">259.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">367.9</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Zostavax </div></td>
<td> </td> <td> </td> <td align="right">42.4</td>
<td> </td> <td> </td> <td> </td>
<td align="right">66.1</td> <td> </td> <td> </td>
<td> </td> <td align="right">117.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">139.6</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Hepatitis
vaccines </div></td> <td> </td> <td> </td>
<td align="right">28.7</td> <td> </td> <td> </td>
<td> </td> <td align="right">37.9</td> <td> </td>
<td> </td> <td> </td> <td align="right">63.2</td>
<td> </td> <td> </td> <td> </td>
<td align="right">71.8</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Other
vaccines </div></td> <td> </td> <td> </td>
<td align="right">53.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">69.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">108.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">142.1</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">Primaxin </div></td>
<td> </td> <td> </td> <td align="right">160.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">201.3</td> <td> </td> <td> </td>
<td> </td> <td align="right">324.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">404.0</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Isentress </div></td>
<td> </td> <td> </td> <td align="right">172.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">77.2</td> <td> </td> <td> </td>
<td> </td> <td align="right">320.4</td> <td> </td>
<td> </td> <td> </td> <td align="right">123.7</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Cancidas
</div></td> <td> </td> <td> </td>
<td align="right">148.8</td> <td> </td> <td> </td>
<td> </td> <td align="right">160.7</td> <td> </td>
<td> </td> <td> </td> <td align="right">287.4</td>
<td> </td> <td> </td> <td> </td>
<td align="right">309.5</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Invanz
</div></td> <td> </td> <td> </td>
<td align="right">70.6</td> <td> </td> <td> </td>
<td> </td> <td align="right">70.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">132.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">126.0</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">Crixivan/Stocrin </div></td>
<td> </td> <td> </td> <td align="right">55.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">79.0</td> <td> </td> <td> </td>
<td> </td> <td align="right">104.6</td> <td> </td>
<td> </td> <td> </td> <td align="right">154.3</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Other infectious disease
</div></td> <td> </td> <td> </td>
<td align="right">7.1</td> <td> </td> <td> </td>
<td> </td> <td align="right">2.6</td> <td> </td>
<td> </td> <td> </td> <td align="right">16.1</td>
<td> </td> <td> </td> <td> </td>
<td align="right">3.1</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">Vaccine and infectious disease
product sales included in the Pharmaceutical segment <sup style="font-size:
85%; vertical-align: text-top"><i>(3)</i></sup> </div></td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(539.5</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(559.5</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(1,064.2</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(1,089.4</td> <td nowrap="nowrap">)</td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 1px solid #000000"> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Vaccines
and Infectious Diseases segment revenues </div></td> <td> </td>
<td> </td> <td align="right">915.0</td> <td> </td>
<td> </td> <td> </td> <td align="right">1,026.6</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1,774.7</td> <td> </td>
<td> </td> <td> </td> <td align="right">2,012.2</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Other segment revenues<sup
style="font-size: 85%; vertical-align: text-top"><i>(5)</i></sup>
</div></td> <td> </td> <td> </td>
<td align="right">14.5</td> <td> </td> <td> </td>
<td> </td> <td align="right">19.1</td> <td> </td>
<td> </td> <td> </td> <td align="right">25.5</td>
<td> </td> <td> </td> <td> </td>
<td align="right">44.1</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="17" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom">
<td> <div style="margin-left:30px; text-indent:-15px">Total segment
revenues </div></td> <td> </td> <td> </td>
<td align="right">5,859.5</td> <td> </td>
<td> </td> <td> </td> <td align="right">6,051.8</td>
<td> </td> <td> </td> <td> </td>
<td align="right">11,215.8</td> <td> </td>
<td> </td> <td> </td> <td align="right">11,873.8</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Other <sup style="font-size:
85%; vertical-align: text-top"><i>(6)</i></sup> </div></td>
<td> </td> <td> </td> <td align="right">40.4</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">69.3</td>
<td> </td> <td> </td> <td> </td>
<td align="right">0.1</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="17" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom">
<td> <div style="margin-left:15px; text-indent:-15px"> 
</div></td> <td> </td> <td align="right">$</td>
<td align="right">5,899.9</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">6,051.8</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">11,285.1</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">11,873.9</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td colspan="17" align="left"
style="border-top: 3px double #000000"> </td> </tr>
<!-- End Table Body --> </table> </div> <div style="margin-top:
3pt" align="right"> <table width="96%" border="0" cellpadding="0" cellspacing="0"
style="font-size: 10pt; text-align: left"> <tr> <td width="3%"></td>
<td width="1%"></td> <td width="96"></td> </tr>
<tr valign="top"> <td nowrap="nowrap" align="left"><sup style="font-size:
85%; vertical-align: text-top"><i>(1)</i></sup></td>
<td> </td> <td> <i>Presented net of discounts
and returns</i>.</td> </tr> <tr style="font-size: 3pt">
<td> </td> </tr> <tr valign="top"> <td
nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(2)</i> </sup></td> <td> </td>
<td><i> Other pharmaceutical primarily includes sales of other
human pharmaceutical products and revenue from the Company’s relationship
with AstraZeneca LP primarily relating to sales of </i>Nexium<i>,
as well as </i>Prilosec. <i>Revenue from AstraZeneca LP was $386.4 million
and $455.8 million for the second quarter of 2009 and 2008, respectively,
and was $742.1 million and $860.5 million for the first six months
of 2009 and 2008, respectively.</i></td> </tr> <tr style="font-size:
3pt"> <td> </td> </tr> <tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(3)</i></sup></td> <td> </td>
<td><i>Sales of vaccine and infectious disease products by non-U.S.
subsidiaries are included in the Pharmaceutical segment.</i></td>
</tr> <tr style="font-size: 3pt"> <td> </td>
</tr> <tr valign="top"> <td nowrap="nowrap" align="left"><sup
style="font-size: 85%; vertical-align: text-top"><i>(4)</i></sup></td>
<td> </td> <td><i>These amounts do not reflect
sales of vaccines sold in most major European markets through the Company’s
joint venture, Sanofi Pasteur MSD, the results of which are reflected in Equity
income from affiliates. These amounts do, however, reflect supply sales to
Sanofi Pasteur MSD.</i></td> </tr> <tr style="font-size:
3pt"> <td> </td> </tr> <tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(5)</i></sup></td> <td> </td>
<td> <i>Includes other non-reportable human and animal health
segments.</i></td> </tr> <tr style="font-size: 3pt">
<td> </td> </tr> <tr valign="top"> <td
nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align:
text-top"><i>(6)</i></sup></td> <td> </td>
<td><i> Other revenues are primarily comprised of miscellaneous
corporate revenues, sales related to divested products or businesses and other
supply sales not included in segment results.</i></td> </tr>
</table> </div> <!-- Folio --> <!-- /Folio --> </div>
<!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt"> <u>
</u> </div> <div style="margin-top: 6pt"> <table width="100%"
border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align:
left"> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td> <td>A reconciliation of segment
profits to Income Before Taxes is as follows:</td> </tr> </table>
</div> <div align="right"> <table style="font-size: 10pt; text-align:
left" cellspacing="0" border="0" cellpadding="0" width="96%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="52%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
<td width="5%"> </td> <td width="3%"> </td>
<td width="1%"> </td> <td width="3%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7">Three
Months Ended</td> <td> </td> <td nowrap="nowrap"
align="center" colspan="7">Six Months Ended</td> </tr> <tr
style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000">June 30,</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px
solid #000000">June 30,</td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>($
in millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2009</td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3">2008</td> </tr>
<!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Segment profits </div></td>
<td> </td> <td align="right">$</td> <td
align="right">4,063.2</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">3,877.4</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">7,747.6</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">7,767.3</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Other
profits </div></td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(0.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(15.8</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(21.3</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(27.9</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Adjustments </div></td> <td> </td>
<td> </td> <td align="right">92.0</td> <td> </td>
<td> </td> <td> </td> <td align="right">100.9</td>
<td> </td> <td> </td> <td> </td>
<td align="right">179.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">199.7</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Unallocated: </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Interest income </div></td>
<td> </td> <td> </td> <td align="right">70.0</td>
<td> </td> <td> </td> <td> </td>
<td align="right">143.4</td> <td> </td> <td> </td>
<td> </td> <td align="right">166.3</td> <td> </td>
<td> </td> <td> </td> <td align="right">313.0</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Interest expense </div></td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(99.5</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(50.6</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(160.2</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(123.2</td> <td nowrap="nowrap">)</td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Equity income from
affiliates </div></td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(16.2</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(16.3</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">7.7</td> <td> </td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(1.2</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom">
<td> <div style="margin-left:30px; text-indent:-15px">Depreciation
and amortization </div></td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(466.2</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(349.3</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(887.9</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(712.4</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:30px;
text-indent:-15px">Research and development </div></td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(1,395.3</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(1,169.3</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(2,619.5</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(2,247.6</td>
<td nowrap="nowrap">)</td> </tr> <tr valign="bottom">
<td> <div style="margin-left:30px; text-indent:-15px">Gain on
distribution from AstraZeneca LP </div></td> <td> </td>
<td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2,222.7</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Other expenses, net
</div></td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(279.8</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(431.0</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(661.8</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(858.2</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td align="right">$</td> <td align="right">1,967.3</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">2,089.4</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">3,750.3</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">6,532.2</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>Segment profits are comprised of segment revenues less certain elements
of materials and production costs and operating expenses, including the majority
of equity income from affiliates and components of depreciation and amortization
expenses. For internal management reporting presented to the chief operating
decision maker, the Company does not allocate the vast majority of research
and development expenses, general and administrative expenses, depreciation
related to fixed assets utilized by nonmanufacturing divisions, as well as
the cost of financing these activities. Separate divisions maintain responsibility
for monitoring and managing these costs and, therefore, they are not included
in segment profits.</td> </tr> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td>
<td>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,
includes expenses from corporate and manufacturing cost centers and other
miscellaneous income (expense), net.</td> </tr> </table>
</div> </div> </body> </html>
N/A false --12-31
2009-06-30
10-Q
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