Merck & Co Inc · 10-K405 · For 12/31/95 · EX-13

Filed On 3/20/96   ·   SEC File 1-03305   ·   Accession Number 950130-96-896

Annual Report -- [X] Reg. S-K Item 405   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Form 10-K                                             24    102K 
 2: EX-10.(A)   Executive Incentive Plan                               6     20K 
 3: EX-10.(F)   1996 Incentive Stock Plan                              7     33K 
 4: EX-10.(L)   Medco Class A Non-Qualified Stock Option Agreement     6     25K 
 5: EX-10.(O)   Amendment - Employee Agreement Bwt Lofberg & Medco     2     14K 
 6: EX-11       Computation of Earnings                                1      9K 
 7: EX-12       Computation of Ratios of Earnings to Fixed Charges     1      9K 
 8: EX-13       Pages 28-51 1995 Annual Report                        47±   189K 
 9: EX-21       List of Subsidiaries                                   5     16K 
10: EX-24       Power of Attorney                                      2     12K 
11: EX-27       Financial Data Schedule                                2      8K 

EX-13   ·   Pages 28-51 1995 Annual Report
Exhibit Table of Contents

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FINANCIAL                                                                       
REVIEW                                                                          

DESCRIPTION OF MERCK'S BUSINESS                                                 

Merck is a leading research-driven pharmaceutical company that discovers,       
develops, manufactures and markets a broad range of human and animal health     
products and services.                                                          

SALES                                                                           
----------------------------------------------------------------                
($ in millions)                    1995       1994       1993                   
----------------------------------------------------------------                
Cardiovasculars.................. $ 6,232.4  $ 5,351.6  $4,820.8                
Anti-ulcerants...................   1,019.8    1,565.7   1,324.0                
Antibiotics......................     848.3      827.4     868.7                
Ophthalmologicals................     570.6      482.3     454.6                
Vaccines/biologicals.............     529.9      485.3     522.9                
Benign prostate hypertrophy......     405.8      322.7     187.4                
Other Merck human health.........     266.5      381.3     596.2                
Other human health...............   5,726.7    4,103.9     296.6                
Animal health/crop protection....   1,041.9    1,027.4     916.7                
Specialty chemical...............      39.2      422.2     510.3                
----------------------------------------------------------------                
                  $16,681.1  $14,969.8 $10,498.2
================================================================                
    Human health products include therapeutic and preventive agents, generally
sold by prescription, for the treatment of human disorders. Among these are     
cardiovascular products, of which Vasotec, Zocor, Mevacor, Prinivil and         
Vaseretic are the largest-selling and which include Cozaar and Hyzaar launched  
in 1995; anti-ulcerants, of which Pepcid is the largest-selling in 1995,        
succeeding Prilosec, the largest-selling prior to its 1994 transfer to the Astra
Merck joint venture; antibiotics, of which Primaxin and Noroxin are the largest-
selling; ophthalmologicals, of which Timoptic, Timoptic-XE and Trusopt are the  
largest-selling; vaccines/biologicals, of which M-M-R II, a pediatric vaccine   
for measles, mumps and rubella, Recombivax HB (hepatitis B vaccine recombinant) 
and Varivax, a live virus vaccine for the prevention of chickenpox launched in  
1995, are the largest-selling; benign prostate hypertrophy, which includes      
Proscar, a treatment for symptomatic benign prostate enlargement; and other     
Merck human health products, which include Fosamax, a treatment for osteoporosis
in postmenopausal women, which was cleared for marketing in the United States by
the U.S. Food and Drug Administration (F.D.A.) in late September 1995, and      
launched in mid-October, anti-inflammatory/analgesics, psychotherapeutics and a 
muscle relaxant. Also included in this category are rebates and discounts on    
Merck pharmaceutical products. Other human health primarily includes Merck-Medco
Managed Care (Medco) sales of non-Merck products and Medco human health         
services, principally managed prescription drug programs.                       

   Animal health/crop protection products include animal medicinals used for
control and alleviation of disease in livestock, small animals and poultry.     
These products are primarily antiparasitics, of which Ivomec for the control of 
internal and external parasites in livestock, and Heartgard-30 for the          
prevention of canine heartworm disease, are the largest-selling; crop protection
products; coccidiostats for the treatment of poultry diseases, and poultry      
breeding stock.                                                                 

   Specialty chemical products are used in health care, food processing, oil
exploration, paper, textiles and personal care. All specialty chemical          
businesses were divested by the first quarter of 1995.                          

  Promotion of the Company's human and animal health products is generally
made by professional representatives. Customers for human health products       
include drug wholesalers and retailers, hospitals, clinics, governmental        
agencies and managed health-care providers such as health maintenance           
organizations and other institutions. Customers for human health services       
include corporations, labor unions, insurance companies, Blue Cross and Blue    
Shield organizations, Federal and state employee plans, health maintenance and  
other similar organizations. Customers for animal health/crop protection        
products include veterinarians, distributors, wholesalers, retailers, feed      
manufacturers, veterinary suppliers and laboratories.                           

The markets in which the Company's business is conducted are highly   
competitive and, in many cases, highly regulated. The introduction of new,      
technologically innovative products and processes by competitors may result in  
price reductions and product substitutions, even for products protected by      
patents. Global efforts toward health-care cost containment continue to exert   
pressure on product pricing. In the United States, government efforts to slow   
the increase of health-care costs and the demand for price discounts from       
managed-care groups have limited the Company's ability to mitigate the effect of
inflation on costs and expenses through pricing. Outside of the United States,  
government mandated cost containment programs have required the Company to      
similarly limit selling prices. Additionally, government actions to reduce      
patient reimbursement, restrict physician prescribing levels and increase the   
use of generic products have significantly reduced the sales growth of certain  
products. It is anticipated that the worldwide trend for cost containment and   
competitive pricing will continue for the balance of the 1990's and result in   
continued pricing pressures.                                                    

Merck is responding to this new environment in a number of ways. In   
November 1993, the Company acquired Medco Containment Services, Inc. to enhance 
its competitive position in the emerging area of managed care. Medco provides   
services to managed-care organizations designed to reduce prescription          

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drug benefit costs through managed prescription drug programs. Managed-care     
organizations are expected to deliver a major portion of the nation's future    
health-care services. The Company is also developing a series of health         
management programs which use patient and physician communication to improve    
drug therapy, promote better health outcomes and lower the long-term cost of    
care associated with certain chronic diseases. The Company is also responding to
the new environment by developing innovative sales, marketing and education     
techniques, by developing health-care alliances with large pharmaceutical buyers
and by continuing efforts to become more productive throughout the entire       
organization.                                                                   

    In the United States, legislative bodies are working to expand health-care
access and reduce the costs associated therewith. The debate to reform the      
health-care system has been and will continue to be protracted and intense.     
Although the Company cannot fully predict the outcome of legislation to         
accomplish the goals of reform, it is well positioned to respond to evolving    
market forces resulting from legislative changes to the system. The Company     
believes that its current policies and strategies will enable it to maintain a  
strong position in this changing economic environment.                          

Since early 1990, the Company has voluntarily committed to a policy of
constraining price increases. The policy limits the net weighted average price  
increases for all human health pharmaceutical products to the general rate of   
inflation as measured by the U.S. Consumer Price Index (CPI). In early 1993, the
policy was extended to provide further savings to the health-care system by     
limiting price increases on individual products to the projected CPI plus 1% on 
an annual basis. Since its inception, this policy has yielded a cumulative net  
price increase that is significantly below the cumulative increase in the       
general rate of U.S. inflation. This policy is supported by our strategy to grow
through volume and not price, given stable market conditions and government     
policies that foster innovation.                                                

     Also in 1990, Merck introduced its Equal Access to Medicines Program in a
number of states. Under this program, Merck voluntarily granted its best price  
discounts to state Medicaid programs in exchange for full patient access to our 
products. This innovative program served as a model for national legislation    
applicable to all prescription drug manufacturers.                              

  Other principal strategies for remaining competitive in this environment
include investing in research and development (R&D) directed toward the         
discovery and development of technologically innovative products and new        
indications for existing products, acquisitions, joint ventures, licensing      
agreements and other strategic alliances. Continuous improvement in productivity
gains has become a permanent strategy. Productivity gains in 1995 continued to  
offset inflation at the manufacturing level, and the Company seeks to achieve   
the same goal in 1996. Actions undertaken include plant optimization,           
implementing lowest cost processes, improving integration and technology        
transfer between research and manufacturing, re-engineering of core and         
administrative processes and delayering the organization. The Company put       
additional resources into its sales force in 1995, in large part by reallocating
resources from staff positions into the field. This served the dual purpose of  
optimizing the organization and driving revenue growth by directing more        
resources to product launches.                                                  

    In 1989, Merck and E. I. du Pont de Nemours and Company (DuPont) agreed to
form a long-term research and marketing collaboration to further develop a new  
class of therapeutic agents for high blood pressure and heart disease,          
discovered and developed by DuPont, called angiotensin II receptor antagonists. 
In return, Merck provided DuPont marketing rights in the United States and      
Canada to the Merck prescription medicines, Sinemet and SinemetCR. In 1994,     
Cozaar, the first of the angiotensin II receptor antagonists, was cleared for   
Merck to market in several European countries. In 1995, Cozaar and Hyzaar, a    
combination of Cozaar and the diuretic hydrochlorothiazide, were cleared for    
Merck to market in the United States and many international markets.            

 To further enhance the Company's access to research products, Merck and
DuPont created an independent, research-driven, worldwide pharmaceutical joint  
venture, equally owned by each party, which began operations on January 1, 1991.
DuPont contributed its entire pharmaceutical and radiopharmaceutical imaging    
agents businesses and is providing administrative services. Merck is providing  
research and development expertise, development funds, certain European         
marketing rights to several of its prescription medicines, international        
industry expertise and cash. The joint venture's R&D effort is not expected to  
produce significant commercial results in the near term. In January 1995, the   
joint venture began co-promotion of Merck's prescription medicines, Prinivil and
Prinzide, in the United States. Joint venture sales for 1995 were $1.2 billion, 
consisting primarily of cardiovascular, radiopharmaceutical and central nervous 
system products.                                                                

In December 1994, the Company agreed to arrangements that, among other
things, eliminated the Company's right to offset the consequences of            
disproportionate allocations of the DuPont Merck joint venture income and       
expense against the Company's right to receive a disproportionate share of      
income arising from its 1989 long-term research and marketing agreement with    
DuPont. Accordingly, the Company recorded a $499.6 million provision for an     
obligation to the joint venture. This obligation is a function of the favorable 
performance of assets contributed by DuPont to the joint venture through        
December 31, 1994, and certain Merck contractual commitments. This obligation   
will be discharged by the end of 1996. The elimination of the offset resulting  
from the December 1994 agreement will have no material effect on the Company's  
liquidity or future cash flows. The anticipated favorable results from the 1989 
agreement are being reported when realized.                                     

    In 1989, Merck and Johnson & Johnson formed a joint venture to develop and
market a broad range of non-prescription medicines for U.S. consumers. In       
January 1990, the joint venture acquired the U.S. self-medication business of   
ICI Americas, Inc. (ICI), with ICI obtaining the U.S. rights to Elavil, one of  
the Company's products. In January 1993, Merck and Johnson & Johnson extended   
their U.S. joint venture agreement to market and sell over-the-counter (OTC)    
pharmaceutical products in Europe. Also in January 1993,                        

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Merck contributed its existing OTC medications business in Spain to a new joint 
venture company. In September 1993, the European joint venture established a new
company in the United Kingdom to market Merck and Johnson & Johnson OTC         
medications. In January 1994, Merck and Johnson & Johnson acquired Laboratoires 
J. P. Martin, a leading self-medication business in France. In April 1995, the  
joint venture obtained F.D.A. clearance in the United States for marketing      
Pepcid AC Acid Controller, a non-prescription formulation of Pepcid, Merck's H2-
receptor antagonist. Sales of product marketed by the joint venture were $403.5 
million for 1995, consisting primarily of gastrointestinal products.            

   In 1991, Merck formed a separate vaccine division to enhance its existing
vaccine business and also to expand its presence through acquisitions, licensing
agreements and outside research collaborations. In 1992, Merck and Connaught    
Laboratories, Inc., an affiliate of Pasteur Merieux Serums et Vaccines          
(Pasteur), finalized an agreement to collaborate on the development and         
marketing of combination pediatric vaccines and to promote selected vaccine     
products in the United States. In November 1994, Merck and Pasteur formed a     
joint venture to market vaccines and to collaborate in the development of       
combination vaccines for distribution in Europe. This joint venture is not      
expected to have a significant impact on comparability of net income in the near
term. Joint venture vaccine sales for 1995 were $598.6 million.                 

 In 1982, the Company entered into an agreement with Astra AB (Astra) to
develop and market Astra products in the United States. Under the first phase of
the agreement, Merck marketed three Astra products, Prilosec, Plendil and       
Tonocard, in exchange for a royalty. In July 1993, the Company's total sales of 
Astra products reached a level that triggered the first step in the             
establishment of a separate entity for operations related to Astra products. On 
November 1, 1994, Astra paid Merck $820.0 million for an interest in a joint    
venture that is carried on in a company called Astra Merck Inc., in which Merck 
and Astra each own a 50% share. This joint venture develops and markets in the  
United States most new prescription medicines from Astra's research. The        
formation of the joint venture has not had a material impact on comparability of
net income. As of November 1, 1994, Astra Merck product sales are no longer     
reported in consolidated sales. Sales for 1994 prior to November 1 were $733.2  
million. Joint venture sales for 1995 were $1.3 billion, consisting primarily of
Prilosec, for which the joint venture received F.D.A. approval in 1995 to market
in the United States as the first and only acid pump inhibitor to maintain      
healing of erosive esophagitis.                                                 

During 1995, Medco entered into a joint venture with the Wyeth-Ayerst 
Division of American Home Products Corporation to develop, market and implement 
health management programs for women's health and certain other important       
therapeutic areas. The joint venture company commenced operations during the    
year and will introduce its first health management programs in 1996. The       
formation of this joint venture is not expected to have a significant impact on 
the Company's financial position and will not significantly impact ongoing      
results of operations.                                                          

The Company completed the sale of its remaining specialty chemical    
businesses in 1995. In January, the Company sold its Calgon Vestal Laboratories 
business for $261.5 million to Bristol-Myers Squibb. In February, the Company   
sold its Kelco business to Monsanto for $1.075 billion. These divestitures      
resulted in pretax gains of $682.9 million recorded in the first quarter. These 
specialty chemical businesses were not significant to the Company's financial   
position or results of operations.                                              

   In its continued effort to focus on core businesses, in October 1995, the
Company sold Medco Behavioral Care (MBC), a managed mental health-care service  
business, to MBC management and Kohlberg Kravis Roberts & Co. for $340.0        
million. The sale of this business did not have a significant impact on the     
Company's financial position and will not significantly affect ongoing results  
of operations.                                                                  

FOREIGN OPERATIONS                                                              

The Company's operations outside the United States are conducted primarily      
through subsidiaries. Sales by subsidiaries outside the United States were 32%  
of sales in 1995 and 1994, and 44% in 1993. The decline in the percentage of    
sales outside the United States since 1993 is due primarily to higher domestic  
sales resulting from the Medco acquisition.                                     

($ in Millions) 

Year             Domestic Sales        Total Sales                  
----             --------------        -----------                  

1986                 2,105                4,129                     
1987                 2,500                5,061                     
1988                 2,996                5,940                     
1989                 3,487                6,550                     
1990                 4,039                7,671                     
1991                 4,617                8,603                     
1992                 5,180                9,663                     
1993                 5,914               10,498                     
1994                10,150               14,970                     
1995                11,321               16,681                     

Amounts after 1992 include the impact of Medco from the date of acquisition on  
November 18, 1993.  Amounts after 1993 include the impact of the formation of a 
joint venture with Astra on November 1, 1994.                                   

The Company's worldwide business is subject to risks of currency      
fluctuations and governmental actions. The Company does not regard these risks  
as a deterrent to further expansion of its operations abroad. However, the      
Company closely reviews its methods of operations, particularly in less         
developed countries, and adopts strategies responsive to changing economic and  
political conditions.                                                           

The ongoing integration of the European market is affecting businesses
operating within the European Union (EU), particularly companies such as Merck  
that maintain research facilities, manufacturing plants and marketing and sales 
organizations in several countries. Merck is in the process of rationalizing its
EU operations.                                                                  

 Over the years, the Company has divested and restructured to reduce its
operational exposure in countries where economic conditions or government       
policies make it difficult to earn fair                                         

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returns. At the same time, Merck is actively pursuing opportunities in countries
located in Latin America, Eastern Europe, Asia Pacific and other countries where
changes in government and in fiscal and regulatory policies are making it       
possible for Merck to earn fair, economic returns. While none of these actions  
individually has significantly affected operations, the overall impact has been 
favorable.                                                                      

OPERATING RESULTS                                                               

Total sales for 1995 increased 11% from 1994. The effect of a weakening U.S.    
dollar against foreign currencies increased 1995 sales growth by two percentage 
points, while price changes reduced growth by one percentage point. Sales for   
1995 were affected by the formation of a joint venture with Astra and the       
divestiture of Synetic (a Medco subsidiary) in 1994, as well as the divestitures
of Calgon Vestal Laboratories, Kelco and MBC in 1995. Adjusting for these       
effects, 1995 sales grew 21%, with unit volume up 20%. Total sales for 1994     
increased 43%. Sales for 1994 reflect a full year's impact of the Medco         
acquisition in 1993 and the effect of the formation of the Astra Merck joint    
venture in 1994. Excluding Medco sales of non-Merck products and including Medco
sales of Merck products for the full year 1993 to achieve comparability, and    
adjusting for the effects of the joint venture formation and the sale of the    
Calgon Water Management business in 1993, 1994 sales grew 9%, with unit volume  
up 8%. Foreign exchange increased 1994 sales growth by one percentage point,    
while price changes had essentially no impact. The effects of changes in the    
value of foreign currencies are measured net of price increases in              
hyperinflationary countries, principally in Latin America.                      

COMPONENTS OF SALES GROWTH
------------------------- 

      TOTAL SALES       SALES VOLUME      NET PRICING      FOREIGN
              GROWTH            GROWTH           ACTIONS      EXCHANGE RATES
            ------------      -------------    ------------   ----------------

1991            12.1%              9.8%            2.2%            0.1%         
1992            12.3              10.3             1.2             0.8          
1993             6.8               8.6             0.1            -1.9          
1994             8.6               8.4            -0.6             0.8          
1995            20.9              19.9            -0.7             1.7          

 This chart illustrates the effects of price, volume and exchange on the
Company's sales. Growth for 1995 has been adjusted for the effect of the Astra  
Merck joint venture formation and the sale of Synetic (a Medco subsidiary) in   
1994, as well as the sales of Calgon Vestal Laboratories, Kelco, and Medco      
Behavioral Care in 1995. Growth for 1994 has been adjusted to exclude Medco     
sales of non-Merck products and include Medco sales of Merck products for the   
full year 1993 to achieve comparability, as well as for the effect of the Astra 
Merck joint venture formation. Growth for 1993 has been adjusted to exclude the 
effects of the sale of the Calgon Water Management business and the acquisition 
of Medco in 1993. The Company has grown predominantly through sales volume over 
the last five years. The unfavorable effect of price on sales growth in 1995    
reflects a continual decline from a 2.2% favorable effect in 1991, while the    
effect of exchange has varied over the same period.                             

   In 1995, sales of human and animal health products and services grew 14%.
Favorable foreign exchange rates increased this sales growth by two percentage  
points, and price changes had a one point unfavorable effect. Adjusting for the 
effects of the Astra Merck joint venture formation and the Synetic divestiture  
in 1994, as well as the MBC divestiture in 1995, sales in this category grew 21%
in total and 20% on a volume basis in 1995. Domestic sales growth was 15%, or   
25% adjusted for the aforementioned effects. Foreign sales grew 14%, including a
five percentage point increase from the effect of exchange. The unit volume     
growth from the sales of Merck's human and animal health products was paced by  
Vasotec, Vaseretic, Prinivil, Zocor, Pepcid, Primaxin and Proscar. The          
introduction of Varivax, Cozaar, Hyzaar, Fosamax and Trusopt also added to the  
sales growth.                                                                   

     Vasotec, Merck's angiotensin converting enzyme (ACE) inhibitor for reducing
high blood pressure and treating heart failure, recorded solid growth. During   
1995, it again established a new Merck product sales record, and retained its   
position as the leading branded product in the worldwide cardiovascular market. 
Vasotec is also indicated to decrease the rate of development of overt heart    
failure and to reduce hospitalizations for heart failure in people with left    
ventricular dysfunction - a weakening of the heart's main pumping chamber (as   
measured by an ejection fraction of 35% or less) - but with no heart failure    
symptoms. Vaseretic, a combination of Vasotec and hydrochlorothiazide, also     
prescribed for the treatment of high blood pressure, continued strong growth.   
Prinivil, which also treats high blood pressure and acts as an adjunctive       
therapy for treatment of heart failure, recorded solid growth as well. In 1995, 
Prinivil received a new label indication in the United States to improve        
survival after acute heart attack.                                              

   Together, Merck's cholesterol-lowering agents, Zocor and Mevacor, the two
leading drugs in the U.S. cholesterol-lowering market, continued their          
outstanding performance, holding about 40% of the worldwide market. Zocor,      
Merck's second cholesterol-lowering agent, and the leading cholesterol reducer  
in Europe, continued its exceptional performance and became the fastest growing 
lipid-lowering medicine in 1995. The significant growth was primarily driven by 
the results of the landmark Scandinavian Simvastatin Survival Study (4S). The   
study was presented at the American Heart Association in 1994 and showed that   
Zocor reduced the overall risk of death by 30% and the risk of coronary death by
42%. Based on the 4S results, several countries have approved a new indication  
for Zocor and in June 1995, the F.D.A. cleared Zocor as the first and only      
cholesterol-lowering medication indicated to save lives and prevent heart       
attacks in people with heart disease and high cholesterol. With fewer than one- 
third of patients who have coronary disease currently receiving cholesterol-    
lowering therapy, there remains a strong potential for the continued growth of  
Zocor. Unit sales of Mevacor were down in 1995 primarily in the United States   
due to strong competition. In early 1995, Merck received clearance from the     
F.D.A. to market Mevacor as the only lipid-lowering drug indicated to slow the  
progression of atherosclerosis (clogging of the arteries) in patients with      
coronary artery disease and elevated cholesterol, as part of the treatment plan 
to reduce elevated cholesterol levels.                                          

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    Pepcid, an H2-receptor antagonist for treatment of duodenal ulcers and the
short-term treatment of gastric ulcers and gastroesophageal reflux disease      
(GERD), continues its solid performance despite competition from generic        
cimetidine, newer antisecretory agents and the introduction of OTC H2           
antagonists. In April 1995, the Merck and Johnson & Johnson joint venture       
obtained F.D.A. clearance in the United States for marketing Pepcid AC Acid     
Controller (Pepcid AC), a non-prescription formulation of Pepcid. Pepcid AC is  
the first OTC product that has been shown to both relieve and prevent heartburn 
and acid indigestion. Strong sales can be attributed to consumer satisfaction   
and acceptance of the product by doctors and pharmacists.                       

 Proscar recorded significant volume growth in 1995. It is the only drug
indicated to treat the symptoms of benign prostate enlargement that also shrinks
the prostate. In early 1995, the F.D.A. granted clearance for revised           
prescribing information for Proscar, citing clinical evidence that the majority 
of men taking Proscar experience statistically significant improvement in       
urinary symptoms as measured by total symptom score, some in as little as two   
weeks after beginning therapy. Information added to the updated prescribing     
information for Proscar was based on the analysis of patients treated in the 12-
month, placebo-controlled clinical trials with Proscar and open extensions      
providing data for 36 months and, in a smaller group of patients, for 48 months.
In October 1995, the results of the Scandinavian Reduction of the Prostate Study
(SCARP), the first long-term, placebo-controlled study with Proscar, were       
released. The results confirmed that treatment not only provides symptomatic    
relief, but that it can also halt and even reverse the progression of benign    
prostate enlargement, and that the improvement is maintained over an extended   
period of time.                                                                 

  In March 1995, the F.D.A. licensed Merck to market Varivax, a live-virus
vaccine, for protection against chickenpox in healthy individuals (12 months of 
age and older) who have not had the disease. The American Academy of Pediatrics 
(A.A.P.) and the Advisory Committee on Immunization Practices to the Centers for
Disease Control and Prevention recommended the universal use of Varivax in early
childhood, and for susceptible older children and adolescents. The A.A.P. also  
indicated that Varivax will become a standard part of their recommended         
childhood immunization schedule. By the end of 1995, more than 1.5 million      
Americans had received Varivax, making it the most rapidly accepted vaccine     
since Merck introduced the measles vaccine in 1963.                             

   Cozaar, Merck's new antihypertensive, and Hyzaar, a combination of Cozaar
and the diuretic hydrochlorothiazide, were both cleared for marketing in the    
United States by the F.D.A. in April 1995, and were both launched in the United 
States in May. These products have also been launched in several international  
markets, and are the first in a new class of drugs that block a potent hormone  
called angiotensin II, resulting in gradual, smooth, 24-hour blood pressure     
reduction. In clinical studies, Cozaar and Hyzaar had excellent tolerability    
profiles and were highly effective. Those patients taking Cozaar had a low      
incidence of certain adverse reactions that are characteristic of other         
antihypertensive treatments.                                                    

Fosamax, a breakthrough prescription medicine to treat osteoporosis in
women after menopause, was cleared for marketing in the United States by the    
F.D.A. in late September 1995, and was launched in mid-October. By the end of   
1995, Fosamax was also cleared for marketing in more than 30 countries,         
including the United Kingdom, Italy, Sweden and Mexico. Fosamax builds healthy  
bone, restoring some of the bone lost as a result of osteoporosis. Fosamax is a 
new treatment choice and the first non-hormonal medicine for women after        
menopause who have osteoporosis. About one-in-three women over the age of 50    
suffer from this bone-weakening disease.                                        

Results from two three-year pivotal studies support the conclusion that 
Fosamax builds healthy bone at the spine and hip and significantly increases    
bone mineral density at other sites, suggesting that the gains in bone mineral  
density at the spine and hip did not occur because of a loss of bone mineral    
density elsewhere in the skeleton. While these studies were not designed to     
detect fracture risk, further analysis showed that Fosamax reduced by 48% the   
number of women who suffered new spinal fractures compared with women treated   
with placebo.                                                                   

     Trusopt, the first carbonic anhydrase inhibitor made in a topical (eyedrop)
formulation, was launched in May 1995 in the United States. It has also been    
launched in many European countries and initial sales are very strong everywhere
it has been launched. Trusopt is indicated for the treatment of elevated        
intraocular pressure in patients with ocular hypertension or open-angle         
glaucoma. Trusopt has been proven effective in the consistent lowering of       
intraocular pressure in most patients and may be used both as monotherapy and   
adjunctive therapy.                                                             

     Sales of other human health products and services contributed significantly
to 1995 sales growth. Other human health principally includes sales of non-Merck
products by Medco, which currently manages pharmaceutical benefits for          
approximately 47 million plan participants, up from 41 million at the end of    
1994. For three quarters of those individuals, Medco manages both their retail  
pharmacy and mail service prescriptions, providing fully integrated drug benefit
services. As a result, the number of prescriptions managed by Medco grew to 171 
million in 1995, up from 131 million prescriptions in 1994.Sales of ivermectin, 
a broad-spectrum antiparasitic, were down modestly in 1995 primarily due to     
depressed cattle and swine economies in the United States. A group of longer-   
established products, including Noroxin, Mefoxin, Aldomet, Indocin, Clinoril and
Dolobid, while still producing strong revenues, also continued to decline in    
unit volume due to generic and therapeutic competition.                         

   In 1994, sales of human and animal health products and services grew 46%.
Favorable foreign exchange rates increased sales growth by one percentage point.
Price changes had essentially no impact. Excluding Medco sales of non-Merck     
products and including Medco sales of Merck products for the full year 1993 to  
achieve comparability, and adjusting for the effect of the Astra Merck joint    
venture formation, sales grew 9% in total and on a volume basis in 1994.        
Domestic sales growth was 78%, or 11% excluding the aforementioned effects.     
Foreign sales grew 6%, including a two percentage                               

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point increase from the effect of exchange. The unit volume gain from the sale  
of Merck's human and animal health products was paced by Vasotec, Vaseretic,    
Prinivil, Zocor, Pepcid, Prilosec, Proscar and ivermectin.                      

The decline in specialty chemical sales in 1995 reflects the sales of 
Calgon Vestal Laboratories and Kelco in the first quarter of 1995. The decline  
in specialty chemical sales in 1994 principally reflects the sale of the Calgon 
Water Management business in the second quarter of 1993.                        

COSTS, EXPENSES AND OTHER                                                       
--------------------------------------------------------------------------------
($ in millions)              1995      Change        1994      Change   1993    
--------------------------------------------------------------------------------
Materials and                                                                   
 production ..............   $7,456.3  +25%          $5,962.7  +139%    $2,497.6
Marketing and                                                                   
 administrative ..........    3,297.8   +4%           3,177.5    +9%     2,913.9
Research and development..    1,331.4   +8%           1,230.6    +5%     1,172.8
Gains on sales of                                                               
specialty chemical                                                            
businesses ..............     (682.9)  *             --          *        --  
Restructuring charge .....      175.0   *             --          *        775.0
Gain on joint venture                                                           
formation ...............        --    *              (492.0)    *        --  
Provision for joint venture                                                     
obligation ..............        --    *               499.6     *        --  
Other (income)                                                                  
 expense, net ............      306.3  +74%             176.2   +387%       36.2
--------------------------------------------------------------------------------
                            $11,883.9  +13%         $10,554.6   +43%    $7,395.5
================================================================================
*Not applicable                                                                 

  In 1995, materials and production costs increased 25%. Adjusting for the
effects of the 1994 Astra Merck joint venture formation and sale of Synetic, as 
well as the 1995 sales of Calgon Vestal Laboratories, Kelco and MBC, materials  
and production costs increased 34%, compared to a 21% sales growth rate on the  
same basis. Adjusting for the aforementioned effects, and excluding exchange and
inflation, these costs increased 29%, compared to a 20% unit sales volume gain  
in 1995. The higher growth rate in these costs over the sales volume growth is  
primarily attributable to growth in Medco's historically lower-margin business. 
The increase driven by Medco is partially offset by cost controls and           
productivity improvements from the Company's continuing efforts to streamline   
and restructure operations. In 1994, materials and production costs increased   
139%, primarily due to the inclusion of a full year's impact of the Medco       
acquisition. Excluding Medco's cost of non-Merck products and including the cost
of Medco sales of Merck products for the full year 1993 to achieve              
comparability, and adjusting for the effect of the 1994 Astra Merck joint       
venture formation, materials and production costs increased 10%, compared to a  
9% sales growth rate on the same basis. Excluding the aforementioned effects,   
exchange and inflation, these costs increased 7%, compared to an 8% unit sales  
volume gain in 1994, also reflecting cost controls and productivity             
improvements.                                                                   

   Marketing and administrative expenses increased 4% in 1995. Adjusting for
the effects of the 1994 Astra Merck joint venture formation and the sale of     
Synetic, as well as the 1995 sales of Calgon Vestal Laboratories, Kelco and MBC,
marketing and administrative expenses increased 12%. Adjusting for the          
aforementioned effects, and excluding exchange and inflation, these expenses    
increased 6%. The increase in marketing and administrative expenses in 1995     
primarily reflects the commitment of resources to support the launches of       
several new products in 1995. Marketing and administrative expenses increased 9%
in 1994. Excluding the effects of exchange and inflation, these expenses        
increased 5%, primarily due to the inclusion of a full year's impact of the     
Medco acquisition. Marketing and administrative expenses as a percentage of     
sales were 20% in 1995, 21% in 1994 and 28% in 1993. The improvement in these   
ratios reflects the lower marketing and administrative costs relative to sales  
of Medco, continuing cost controls, productivity improvements and the beneficial
effects from the restructuring programs.                                        

Research and development expenses increased 8% in 1995. Excluding the 
effects of exchange and inflation, these expenses increased 3%. Research and    
development expenses increased 5% in 1994. Excluding the effects of exchange and
inflation, these expenses were essentially level with 1993. Not included in     
consolidated research and development expenses are costs incurred by the        
Company's joint ventures, which totaled $376.9 million in 1995 and $319.4       
million in 1994.                                                                

 Research and development in the pharmaceutical industry is inherently a
long-term process. The data below show an unbroken trend of year-to-year        
increases in research and development spending. For the period 1986 to 1995, the
compounded annual growth rate in research and development was 12%.              

EXPENDITURES  
------------  
($ in Millions) 

Year                 Total R & D Expenditures 
------               -------------------------- 
1986                        480               

1987                        566               

1988                        669               

1989                        751               

1990                        854               

1991                        988               

1992                      1,112               

1993                      1,173               

1994                      1,231               

1995                      1,331               

This chart excludes research and development costs incurred by the    
Company's joint ventures, which were $376.9 milion in 1995.                     

    In the first quarter of 1995, the Company recorded gains of $682.9 million
on the sales of Calgon Vestal Laboratories and Kelco. (See Note 3 to the        
financial statements for further information.)                                  

     In the first quarter of 1995, the Company recorded a pretax restructuring
charge of $175.0 million. The restructuring actions involve manufacturing       
facility consolidation, rationalization and work-force reduction in Europe and  
the United States. The consolidation and rationalization actions, which will be 
completed by 1999, involve fixed asset write-off and                            

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closure costs. The restructuring charge includes $31.0 million directly related 
to the elimination of approximately 450 positions. This work-force reduction is 
expected to reduce annual employment costs by approximately $29.0 million. The  
total initiative is expected to result in substantial additional production-    
related savings and will not materially impact the Company's liquidity.         

    In the second quarter of 1993, the Company recorded a pretax restructuring
charge of $775.0 million. The restructuring charge is the sum of two distinct   
programs one near term and the other longer term. The near-term initiative      
reduced the work force by approximately 2,100 positions, a substantial number of
which were permanently eliminated. Work-force reductions were achieved through  
an early retirement program in the United States and appropriate programs       
elsewhere at a cost of $450.0 million. This program proceeded as planned and was
completed in 1994. The longer-term initiative involves the consolidation and    
rationalization of manufacturing facilities and distribution centers, further   
reducing the work force, primarily outside the United States, at a cost of an   
additional $325.0 million. Future cash outlays resulting from these initiatives 
are not expected to have a material impact on the Company's liquidity. These    
initiatives have reduced annual employment costs by approximately $165.0 million
and will result in substantial additional production-related savings.           

     In 1994, the Company recorded a gain of $492.0 million on the sale to Astra
of an interest in a joint venture and a provision of $499.6 million in          
recognition of an obligation to the DuPont Merck joint venture. (See Note 4 to  
the financial statements for further information.)                              

In 1995, other expense, net, increased primarily as a result of $500.5
million of nonrecurring charges consisting of $278.5 million for losses on sales
of assets, $161.2 million for endowment of The Merck Company Foundation and     
$60.8 million for settlement of claims. This effect was partially offset by a   
$289.7 million increase in equity income from affiliates, primarily resulting   
from the formation of the Astra Merck joint venture, as well as higher interest 
income, lower interest expense and favorable exchange resulting from the        
translation of the Company's balance sheet. In 1994, other expense, net,        
increased primarily due to a full year's effect of amortization of goodwill and 
other intangibles and interest expense resulting from the Medco acquisition as  
well as higher income applicable to minority interests. This effect was         
partially offset by higher equity income from affiliates and lower exchange     
losses resulting from translation of the Company's balance sheet. (See Note 15  
to the financial statements for further information.)                           

EARNINGS                                                                        
----------------------------------------------------------------------------    
($ in millions except                                                           
per share amounts)         1995     Change     1994     Change/(1)/  1993       
----------------------------------------------------------------------------    
Net income               $3,335.2      +11%  $2,997.0      +38%    $2,166.2     
As a % of sales            20.0%               20.0%                 20.6%  
As a % of average                                                           
total assets               14.6%               14.3%                 14.0%  
Earnings per                                                                    
common share               $2.70     +13%      $2.38     +27%        $1.87  
============================================================================    

(1) Excluding the 1993 restructuring charge, 1994 net income and earnings per   
share growth rates would have been 12% and 3%, respectively.            

Net income was up 11% in 1995 and up 38% in 1994. Excluding the 1993  
restructuring charge, 1994 net income increased 12%. Net income as a percentage 
of sales was 20.0% in 1995 and 1994, compared to 20.6% in 1993. The decline in  
the ratio for 1995 and 1994 from 1993, is principally due to the inclusion of a 
full year's impact of the Medco acquisition and reflects Medco's historically   
lower-margin business. The impact of the Medco acquisition on this ratio was    
mitigated by unit sales volume growth, favorable product mix in Merck's human   
and animal health business, productivity improvements and continuing cost       
controls. Foreign currency exchange had a favorable impact in 1995 and 1994. The
Company's effective income tax rate in 1995 was 30.5%, compared with 32.1% in   
1994. The lower effective tax rate in 1995 primarily relates to joint ventures, 
which also affected pretax income growth. Specifically, pretax income growth was
reduced by the inclusion of the Company's share of taxes related to the Astra   
Merck joint venture and the European vaccine joint venture with Pasteur, both   
formed in the fourth quarter of 1994. Prior to the formation of these joint     
ventures, the taxes related to these businesses were included in the Company's  
tax provision. Therefore, the reduction in pretax growth is offset by           
a corresponding reduction in the Company's tax rate in 1995, resulting in no    
effect on net income growth. Net income as a percentage of average total assets 
was 14.6% in 1995, 14.3% in 1994 and 14.0% in 1993, with the improvements       
attributed to the continued growth in operations and the Company's asset        
management efforts. Earnings per share grew 13% in 1995, compared to 3% in 1994,
excluding the 1993 restructuring charge. In 1995, earnings per share increased  
at a faster rate than net income as a result of treasury stock purchases. The   
dilution in 1994 earnings per share growth, as compared to net income growth, is
principally due to the additional shares issued in November 1993 to complete the
Medco acquisition.                                                              

DISTRIBUTION OF INCOME  
----------------------  
($ in Millions) 

ADDITION        ADDITION TO                ADDITION TO
      TO         RETAINED EARNINGS         RETAINED EARNINGS
RETAINED              +                         +     
Year       EARNINGS          DIVIDENDS        DIVIDENDS + TAXES ON INCOME   
----       --------      ------------------   ---------------------------   
1986           397               676                      1,073               

1987           541               906                      1,405               

1988           660             1,207                      1,871               

1989           814             1,495                      2,283               

1990           993             1,781                      2,699               

1991         1,201             2,122                      3,167               

1992         1,340             2,447                      3,564               

1993           927             2,166                      3,103               

1994         1,534             2,997                      4,415               

1995         1,757             3,335                      4,797               

   Amounts for 1994 include a full year's impact of the Medco acquisition in
1993 and the impact of the formation of the Astra Merck joint venture in 1994.  
Amounts for 1993 include the impact of the acquisition of Medco and a           
restructuring charge. Amounts for 1992 exclude the cumulative effect of         
accounting changes.                                                             

  Pricing pressures have made it increasingly difficult for the Company to
recover the effect of inflation on costs and expenses. To the extent possible,  
the Company's objective is                                                      

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to offset the impact of inflation through productivity and technological        
improvements, business restructuring, cost containment programs and price       
increases.                                                                      

  In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived  
Assets to Be Disposed Of, which requires adoption no later than fiscal 1996.    
This Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company will adopt this Statement as of January 1, 1996, 
which will have no effect on results of operations.                             

    In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation, which requires adoption no    
later than fiscal 1996. The Statement provides a choice of accounting methods,  
the fair value method or the current intrinsic value method, with disclosure of 
the fair value impact. Both methods require the Company to estimate, using an   
option pricing model, the fair value of equity instruments issued to employees  
at the date of grant. The fair value method requires recognition of compensation
cost ratably over the vesting period of the underlying equity instruments. The  
intrinsic value method requires disclosure of pro forma net income and earnings 
per share as if the fair value method had been applied. The Company will adopt  
this Statement as of January 1, 1996, using the current intrinsic value method. 

     The Company believes that it is in compliance in all material respects with
applicable environmental laws and regulations. The Company has maintained a     
leadership role in supporting environmental initiatives and fostering pollution 
prevention by actions including the elimination of, or the application of best  
available technology to reduce air emissions of known or suspect carcinogens at 
its facilities worldwide. At the end of 1995, projects were in place that are   
expected to reduce all environmental releases of toxic chemicals by 90% from    
1987 levels. In 1995, the Company incurred capital expenditures of approximately
$87.0 million for environmental protection facilities. Capital expenditures for 
this purpose are forecasted to exceed $300.0 million for the years 1996 through 
2000. In addition, the Company's operating and maintenance expenditures for     
pollution control were approximately $68.5 million in 1995. Expenditures for    
this purpose for the years 1996 through 2000 are forecasted to exceed $420.0    
million. The Company is a party to a number of proceedings brought under the    
Comprehensive Environmental Response, Compensation and Liability Act, commonly  
known as Superfund, as well as under other Federal and state statutes. While it 
is not feasible to predict or determine the outcome of these                    
proceedings, management does not believe that they should result in a materially
adverse effect on the Company's financial position, results of operations,      
liquidity or capital resources. The Company is also remediating environmental   
contamination resulting from past industrial activity at certain of its sites.  
Expenditures for environmental purposes were $17.7 million in 1995, and are     
estimated at $145.0 million for the years 1996 through 2000. The Company has    
taken an active role in identifying and providing for these costs; and,         
therefore, management does not believe that these expenditures should result in 
a materially adverse effect on the Company's financial position, results of     
operations, liquidity or capital resources.                                     

 Along with other pharmaceutical manufacturers and pharmaceutical benefits
managers (PBMs), the Company has received notice from the Federal Trade         
Commission (F.T.C.) that it intends to investigate agreements, alliances,       
activities and acquisitions involving pharmaceutical manufacturers and PBMs. The
Company has cooperated fully with the F.T.C. investigation, and believes that it
is currently operating in all material respects in accordance with applicable   
standards. While it is not feasible to predict or determine the outcome of the  
investigation, management does not believe that it should result in a materially
adverse effect on the Company's financial position, results of operations or    
liquidity.                                                                      

CAPITAL EXPENDITURES                                                            

  Capital expenditures were $1.0 billion in 1995 and 1994. Expenditures in
the United States were $793.5 million in 1995 and $772.1 million in 1994.       
Expenditures during 1995 included $533.2 million for production facilities,     
$83.2 million for research and development facilities, $92.7 million for safety 
and environmental projects and $296.4 million for administrative and general    
site projects. Not included above are capital expenditures incurred by the      
Company's joint ventures, which totaled $154.3 million in 1995, including $66.1 
million for research and development facilities.                                

   Capital authorizations in 1995 were $1.1 billion, an increase of 62% from
1994's level of $682.6 million. This increase is driven by investment in        
manufacturing facilities to support new and in-line products. Capital           
expenditures approved but not yet spent at December 31, 1995, were $595.5       
million. These commitments include investments in production facilities ($274.0 
million), research and development facilities ($93.7 million), safety and       
environmental projects ($58.9 million) and administrative and general site      
projects ($168.9 million).                                                      

Depreciation was $463.3 million in 1995 and $475.6 million in 1994, of
which $332.8 million and $345.7 million, respectively, applied to locations in  
the United States.                                                              

CAPITAL EXPENDITURES  
--------------------  
($ in Millions) 

YEAR                 TOTAL CAPITAL EXPENDITURES           
----                 --------------------------           

1986                             211                      

1987                             254                      

1988                             373                      

1989                             433                      

1990                             671                      

1991                           1,042                      

1992                           1,067                      

1993                           1,013                      

1994                           1,009                      

1995                           1,005                      

  This chart excludes capital expenditures incurred by the Company's joint
ventures, which were $154.3 million in 1995.                                    

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ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES                                     

     Cash provided by operations continues to be the Company's primary source of
funds to finance operating needs and capital expenditures. Pretax cash flows    
from operations for 1995 were essentially equivalent to 1994 and reflect the    
impact of the endowment of The Merck Company Foundation, increased pension      
funding and timing of receipts and disbursements. In 1995, cash from operations 
was used to fund capital expenditures of $1.0 billion, to pay Company dividends 
of $1.5 billion and to partially fund the purchase of treasury shares. At       
December 31, 1995, the total of worldwide cash and investments was $5.3 billion,
including $3.3 billion in cash, cash equivalents and short-term investments and 
$2.0 billion of long-term investments. The above totals include $1.3 billion in 
cash and investments held by Banyu Pharmaceutical Co., Ltd., in which the       
Company has a 50.87% ownership interest.                                        

SELECTED DATA                                                                   
--------------------------------------------------------------                  
($ in millions)                  1995       1994       1993                     
--------------------------------------------------------------                  
Working capital............... $2,928.0   $1,473.1   $(161.1)                   
Total debt to total                                                             
liabilities and equity......      7.5%       5.9%     14.3%                 
Cash provided by operations                                                     
to total debt...............    1.6:1      3.2:1     1.1:1                  
==============================================================                  

Working capital levels are more than adequate to meet the operating   
requirements of the Company. The increase in working capital in 1995 reflects   
both continued normal growth of the Company as well as proceeds from the sales  
of the Company's specialty chemical businesses. Also, in December 1995, the     
Company's wholly-owned subsidiary, Merck Sharp & Dohme Overseas Finance, S.A.,  
issued $1.0 billion par value of variable rate nonconvertible Preferred Equity  
Certificates. These proceeds will be used to fund a portion of the Company's    
stock repurchase program and for other general corporate purposes. The increase 
in the ratio of total debt to total liabilities and equity in 1995 reflects     
increased debt issued during the year.                                          

  In 1994, improvements in working capital and the ratios of total debt to
total liabilities and equity and cash provided by operations to total debt      
reflect both normal growth of the Company and the reduction in commercial paper 
borrowings used to finance the Medco acquisition. The repayment of commercial   
paper borrowings was funded by operating cash flows and proceeds received from  
Astra on the sale of an interest in a joint venture.                            

    The 1993 ratios were impacted by the acquisition of Medco in November 1993
for approximately $6.6 billion. The Company issued $4.2 billion of equity       
securities and paid $2.4 billion in cash, of which $1.8 billion was financed    
with commercial paper and $250.0 million was financed with long-term debt. The  
balance of the purchase price paid in cash was financed from internal sources.  

  From 1993 to 1995, the Company purchased $2.6 billion of treasury shares
under two programs authorized by the Board of Directors in 1993 and 1994. The   
1993 program was completed in 1994. In November 1995, the Board of Directors    
approved purchases of up to an additional $3.0 billion of Merck shares. Through 
December 31, 1995, $1.6 billion of shares had been purchased under the 1994     
program. Since 1984, the Company has purchased 292.4 million shares at a total  
cost of $6.6 billion.                                                           

From 1993 to 1995, short-term borrowings were affected by purchases of
treasury shares resulting in periodic reductions in working capital and         
increases in the ratio of total debt to total liabilities and equity. The       
favorable ratio of cash provided by operations to total debt is an indication of
the ability of the Company to cover its debt obligations.                       

A significant portion of the Company's cash flows are denominated in  
foreign currencies. The Company relies on sustained cash flows generated from   
foreign sources to support its long-term commitment to U.S. dollar-based        
research and development. To the extent the dollar value of cash flows is       
diminished as a result of a strengthening dollar, the Company's ability to fund 
research and other dollar-based strategic initiatives at a consistent level may 
be impaired. To protect against the reduction in value of foreign currency cash 
flows, the Company has instituted balance sheet and revenue hedging programs to 
partially hedge this risk.                                                      

   The objective of the balance sheet hedging 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. To achieve this objective, the Company will         
hedge foreign currency risk on monetary assets and liabilities where hedging is 
cost beneficial. The Company seeks to fully hedge exposure denominated in       
developed country currencies, such as those of Japan, Europe and Canada, and    
will either partially hedge or not hedge at all, exposure in other currencies,  
particularly exposure in hyperinflationary countries where hedging instruments  
may not be available at any cost. The Company will minimize the effect of       
exchange on unhedged exposure, principally by managing operating activities and 
net asset positions at the local level. The Company manages its net asset       
exposure principally with forward exchange contracts. These contracts enable the
Company to buy and sell foreign currencies in the future at fixed exchange      
rates. On net monetary assets hedged, forward contracts offset the consequences 
of changes in foreign exchange on the amount of U.S. dollar cash flows derived  
from the net assets. Contracts used to hedge net monetary asset exposure have   
average maturities at inception of less than one year. The cash flows generated 
from these forward contracts are reported as arising from operating activities  
in the Consolidated Statement of Cash Flows. The balance sheet hedging program  
has significantly reduced the volatility of U.S. dollar cash flows derived from 
foreign currency denominated net monetary assets.                               

     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                                                      

36                                                                              

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derived from foreign currency denominated sales. To achieve this objective, the 
Company will partially hedge forecasted 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. 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 Company manages its forecasted         
transaction exposure principally with purchased local currency put options. On  
the forecasted transactions hedged, these option contracts effectively reduce   
the potential for a strengthening U.S. dollar to decrease the future U.S. dollar
cash flows derived from foreign currency denominated sales. Purchased           
local currency put options provide the Company with a right, but not an         
obligation, to sell foreign currencies in the future at a pre-determined price. 
If the value of the U.S. dollar weakens relative to other major currencies      
when the options mature, the options would expire unexercised, enabling the     
Company to benefit from favorable movements in exchange, except to the extent of
premiums paid for the contracts. Over the last three years the program has had a
minimal cumulative effect on cash flows, principally because of the prevailing  
weakness in the U.S. dollar compared with other major currencies. However, the  
program has prevented a loss in value of cash flows during interim periods of   
relative strength in the U.S. dollar for the portion of revenues hedged. The    
cash flows associated with these contracts are reported as arising from         
operating activities in the Consolidated Statement of Cash Flows.               

The Company's strong financial position, as evidenced by its triple-A 
credit ratings from Moody's and Standard & Poor's on outstanding debt issues,   
provides a high degree of flexibility in obtaining funds on competitive terms.  
The ability to finance ongoing operations primarily from internally generated   
funds is desirable because of the high risks inherent in research and           
development required to develop and market innovative new products and the      
highly competitive nature of the pharmaceutical industry.                       

   In September 1995, the Company issued $500.0 million of 10-year euronotes
bearing a coupon of 6.8% payable annually. Proceeds from the sale of these      
securities will be used for general corporate purposes.                         

    In 1993, Merck filed a shelf registration with the Securities and Exchange
Commission under which the Company could issue up to $1.0 billion of debt       
securities. Proceeds from the sale of these securities are to be used for       
general corporate purposes. In 1993, the Company initiated a medium-term note   
program under this shelf and issued $80.0 million of structured floating rate   
medium-term notes. In January 1996, the Company issued $250.0 million of 30-year
debentures under the shelf, bearing a coupon of 6.3% payable semi-annually. The 
1993 shelf registration, together with $85.0 million unused capacity from a     
$500.0 million 1991 shelf registration, provide $755.0 million of shelf         
capacity.                                                                       

CONDENSED INTERIM FINANCIAL DATA                                                
-----------------------------------------------------------------------------   
($ in millions except                                                           
per share amounts)                    4th Q      3rd Q      2nd Q      1st Q    
-----------------------------------------------------------------------------   
1995                                                                            
-----------------------------------------------------------------------------   
Sales.............................  $4,556.9   $4,171.1   $4,135.7   $3,817.3   
Materials and                                                                   
production costs................   2,125.9    1,858.2    1,746.0    1,726.2 
Marketing/administrative                                                        
expenses........................     910.9      767.2      849.6      770.0 
Research/development                                                            
expenses........................     381.1      332.5      329.7      288.2 
Other income, net.................     (73.9)     (33.8)     (31.1)     (62.9)  
Income before taxes...............   1,212.9    1,247.0    1,241.5    1,095.8   
Net income........................     857.8      861.9      858.1      757.4   
Earnings per common share.........  $    .70   $    .70   $    .69   $    .61   
=============================================================================   
1994                                                                            
-----------------------------------------------------------------------------   
Sales.............................  $3,871.5   $3,792.0   $3,792.0   $3,514.3   
Materials and                                                                   
production costs................   1,526.5    1,451.9    1,528.7    1,455.6 
Marketing/administrative                                                        
expenses........................     874.2      820.7      726.7      755.9 
Research/development                                                            
expenses........................     365.0      308.4      290.9      266.3 
Other expense, net................      20.0       39.3      100.2       24.2   
Income before taxes...............   1,085.8    1,171.7    1,145.5    1,012.3   
Net income........................     773.0      784.8      764.1      675.2   
Earnings per common share.........  $    .61   $    .62   $    .61   $    .54   
=============================================================================   

    In the chart above, sales for the fourth quarter of 1994 and the full year
1995 were reduced as a result of the fourth quarter 1994 formation of the Astra 
Merck joint venture and the sale of Synetic. Sales for 1995 were also reduced by
the first quarter 1995 sales of Calgon Vestal Laboratories and Kelco and the    
fourth quarter 1995 sale of MBC.                                                

DIVIDENDS PAID PER COMMON SHARE                                                 
                              Year     4th Q    3rd Q    2nd Q     1st Q

1995 ............................ $1.24    $.34    $.30      $.30      $.30     
1994 ............................  1.14     .30     .28       .28       .28     
==============================================================================  

COMMON STOCK MARKET PRICES                                                      
------------------------------------------------------------------------------  
1995                                       4th Q    3rd Q    2nd Q     1st Q    
------------------------------------------------------------------------------  
High ....................................  $67 1/4   $57 7/8  $51 1/4  $45 1/8  
Low  ....................................   55 5/8    47 1/4   41 1/4   36 3/8  
------------------------------------------------------------------------------  
1994                                                                            
------------------------------------------------------------------------------  
High ....................................  $39 1/2   $36 1/8  $32 1/4  $38      
Low .....................................   34        29       28 1/8   28 3/4  
==============================================================================  

    The principal market for trading of the common stock is the New York Stock
Exchange under the symbol MRK.                                                  

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CONSOLIDATED                                 Merck & Co., Inc. and Subsidiaries 
STATEMENT OF INCOME                                                             
------------------------------------------------------------------------------  
Years Ended December 31                                                         
($ in millions except per share amounts)  1995          1994         1993       
------------------------------------------------------------------------------  
SALES ................................. $16,681.1     $14,969.8    $10,498.2    
COSTS, EXPENSES AND OTHER                                                       
Materials and production ..............   7,456.3       5,962.7      2,497.6    
Marketing and administrative ..........   3,297.8       3,177.5      2,913.9    
Research and development ..............   1,331.4       1,230.6      1,172.8    
Gains on sales of specialty chemical                                            
businesses ............................    (682.9)         --            --     
Restructuring charge ..................     175.0          --          775.0    
Gain on joint venture formation .......      --          (492.0)         --     
Provision for joint venture obligation       --           499.6          --     
Other (income) expense, net ...........     306.3         176.2         36.2    
------------------------------------------------------------------------------  
                                     11,883.9      10,554.6      7,395.5
------------------------------------------------------------------------------  
INCOME BEFORE TAXES ...................   4,797.2      $4,415.2      3,102.7    
TAXES ON INCOME .......................   1,462.0      $1,418.2        936.5    
------------------------------------------------------------------------------  
Net Income ............................ $ 3,335.2     $ 2,997.0    $ 2,166.2    
==============================================================================  
EARNINGS PER COMMON SHARE ............. $    2.70     $    2.38    $    1.87    
==============================================================================  

CONSOLIDATED STATEMENT                        Merck & Co., Inc. and Subsidiaries
OF RETAINED EARNINGS                                                            

Years Ended December 31                                                         
($ in millions)                           1995          1994          1993      
------------------------------------------------------------------------------  
BALANCE, JANUARY 1 .................... $10,942.0     $ 9,393.2     $ 8,466.0   
------------------------------------------------------------------------------  
NET INCOME ............................   3,335.2       2,997.0       2,166.2   
COMMON STOCK DIVIDENDS DECLARED .......  (1,578.0)     (1,463.1)     (1,239.0)  
NET UNREALIZED GAIN ON INVESTMENTS ....      41.4          14.9          --     
------------------------------------------------------------------------------  
BALANCE, DECEMBER 31 .................. $12,740.6     $10,942.0     $ 9,393.2   
==============================================================================  

The accompanying notes are an integral part of these financial statements.      

38                                                                              

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CONSOLIDATED STATEMENT                       Merck & Co., Inc. and Subsidiaries 
OF BALANCED SHEET                                                               

December 31                                                                     
($ in millions)                                             1995         1994   
------------------------------------------------------------------------------- 
ASSETS                                                                          
------------------------------------------------------------------------------- 
CURRENT ASSETS                                                                  
Cash and cash equivalents ............................. $  1,847.4    $ 1,604.0 
Short-term investments ................................    1,502.4        665.7 
Accounts receivable ...................................    2,495.7      2,351.5 
Inventories ...........................................    1,872.5      1,660.9 
Prepaid expenses and taxes ............................      899.5        639.6 
------------------------------------------------------------------------------- 
Total current assets ..................................    8,617.5      6,921.7 
------------------------------------------------------------------------------- 
INVESTMENTS ...........................................    1,969.6      1,416.9 
------------------------------------------------------------------------------- 
PROPERTY, PLANT AND EQUIPMENT (at cost)                                         
Land ..................................................      206.3        212.6 
Buildings .............................................    2,783.2      2,604.5 
Machinery, equipment and office furnishings ...........    4,055.9      4,029.4 
Construction in progress ..............................      663.6        826.4 
------------------------------------------------------------------------------- 
                                                          7,709.0      7,672.9
Less allowance for depreciation .......................    2,439.9      2,376.6 
------------------------------------------------------------------------------- 
                                                          5,269.1      5,296.3
------------------------------------------------------------------------------- 
GOODWILL AND OTHER INTANGIBLES (net of accumulated                              
amortization of $411.5 million in 1995 and $291.1 million                       
in 1994) ................................................. 6,826.3      7,212.3 
------------------------------------------------------------------------------- 
OTHER ASSETS                                               1,149.3      1,009.4 
------------------------------------------------------------------------------- 
                                                        $23,831.8    $21,856.6
=============================================================================== 
LIABILITIES AND STOCKHOLDERS' EQUITY                                            
------------------------------------------------------------------------------- 
CURRENT LIABILITIES                                                             
Accounts payable and accrued liabilities ............... $ 3,105.2    $ 2,715.4 
Loans payable and current portion of long-term debt ....     423.1        146.7 
Income taxes payable ...................................   1,743.0      2,206.5 
Dividends payable ......................................     418.2        380.0 
------------------------------------------------------------------------------- 
Total current liabilities ..............................   5,689.5      5,448.6 
------------------------------------------------------------------------------- 
LONG-TERM DEBT .........................................   1,372.8      1,145.9 
------------------------------------------------------------------------------- 
DEFERRED INCOME TAXES AND NONCURRENT LIABILITIES .......   2,747.5      2,914.3 
------------------------------------------------------------------------------- 
MINORITY INTERESTS .....................................   2,286.3      1,208.8 
------------------------------------------------------------------------------- 
STOCKHOLDERS' EQUITY                                                            
Common stock                                                                    
Authorized - 2,700,000,000 shares                                             
Issued - 1,483,463,327 shares - 1995                                          
       - 1,483,167,594 shares - 1994 ...................  4,742.5      4,667.8
Retained earnings ....................................... 12,740.6     10,942.0 
------------------------------------------------------------------------------- 
                                                         17,483.1     15,609.8

Less treasury stock, at cost                                                    
254,614,794 shares - 1995                                                     
235,341,571 shares - 1994 ..............................  5,747.4      4,470.8
------------------------------------------------------------------------------- 
Total stockholders' equity .............................. 11,735.7     11,139.0 
------------------------------------------------------------------------------- 
                                                        $23,831.8    $21,856.6
=============================================================================== 

The accompanying notes are an integral part of this financial statement.  

                                                                              39

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CONSOLIDATED STATEMENT                        Merck & Co., Inc. and Subsidiaries
OF RETAINED EARNINGS                                                            

Years Ended December 31                                                         
($ in millions)                              1995         1994            1993  
------------------------------------------------------------------------------- 
CASH FLOWS FROM OPERATING ACTIVITIES                                            
Income before taxes ........................ $ 4,797.2   $ 4,415.2    $ 3,102.7 
Adjustments to reconcile income before taxes                                    
to cash provided from operations before taxes:                                  
Gains on sales of specialty chemical                                        
businesses ................................   (682.9)      --            -- 
 Restructuring charge ......................    175.0       --           775.0
Gain on joint venture formation ...........     --        (492.0)        -- 
Provision for joint venture obligation ....     --         499.6         -- 
 Depreciation and amortization .............    667.2       681.6        386.5
  Other .....................................    483.9       (10.7)       (62.9)
Net changes in assets and liabilities:                                      
   Accounts receivable ......................   (244.1)      (265.0)     (263.1)
   Inventories ..............................   (271.8)       (26.2)      (46.6)
   Accounts payable and accrued liabilities..    383.1        290.6      (122.9)
  Noncurrent liabilities ...................   (290.8)      (123.5)       67.9
  Other ....................................    (43.0)        28.1        71.8
------------------------------------------------------------------------------- 
CASH PROVIDED BY OPERATING ACTIVITIES                                           
BEFORE TAXES ................................  4,973.8      4,997.7     3,908.4 
INCOME TAXES PAID ........................... (2,029.6)      (857.8)     (859.9)
------------------------------------------------------------------------------- 
NET CASH PROVIDED BY OPERATING ACTIVITIES ...  2,944.2      4,139.9     3,048.5 
------------------------------------------------------------------------------- 
CASH FLOWS FROM INVESTING ACTIVITIES                                            
Capital expenditures ........................ (1,005.5)    (1,009.3)   (1,012.7)
Purchase of Medco, net of cash and cash                                         
 equivalents acquired .......................     --           --      (1,869.4)
Purchase of securities, subsidiaries and                                        
 other investments ......................... (13,772.3)   (14,814.5)   (9,521.4)
Proceeds from joint venture formation, net of                                   
cash transferred ..........................      --          759.3       --   
Proceeds from sale of securities, subsidiaries                                  
and other investments ...................... 12,430.1     15,082.3     9,863.5
Proceeds from sales of specialty chemical                                       
businesses, net of cash transferred ........  1,321.1         --          --  
Other .......................................   (295.7)       (50.2)      (47.7)
------------------------------------------------------------------------------- 
NET CASH USED BY INVESTING ACTIVITIES ....... (1,322.3)       (32.4)   (2,587.7)
------------------------------------------------------------------------------- 
CASH FLOWS FROM FINANCING ACTIVITIES                                            
Net change in short-term borrowings .........     40.5     (1,580.2)      910.8 
Proceeds from issuance of debt ..............    549.5        336.6       353.8 
Payments on debt ............................   (108.2)      (152.4)      (39.4)
Proceeds from issuance of preferred stock of                                    
subsidiaries ...............................  1,019.6         --            --
Purchase of treasury stock .................. (1,570.9)      (704.5)     (371.0)
Dividends paid to stockholders .............. (1,539.8)    (1,434.1)   (1,174.4)
Proceeds from exercise of stock options .....    264.0        138.6        83.4 
Other .......................................    (56.1)        (6.2)       22.6 
------------------------------------------------------------------------------- 
NET CASH USED BY FINANCING ACTIVITIES ....... (1,401.4)    (3,402.2)     (214.2)
------------------------------------------------------------------------------- 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND                                     
CASH EQUIVALENTS ...........................     22.9         69.3         7.7
------------------------------------------------------------------------------- 
Net Increase in Cash and Cash Equivalents ...    243.4        774.6       254.3 
Cash and Cash Equivalents at Beginning of Year 1,604.0        829.4       575.1 
------------------------------------------------------------------------------- 
CASH AND CASH EQUIVALENTS AT END OF YEAR ...  $ 1,847.4  $  1,604.0   $   829.4 
=============================================================================== 

The accompanying notes are an integral part of this financial statement.        

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NOTES TO                                      Merck & Co., Inc. and Subsidiaries
FINANCIAL STATEMENTS                    ($ in millions except per share amounts)

1. NATURE OF OPERATIONS                                                         
Merck is a leading research-driven pharmaceutical company that discovers,       
develops, manufactures and markets a broad range of human and animal health     
products and services. Human health products include therapeutic and preventive 
agents, generally sold by prescription, for the treatment of human disorders.   
Human health services include primarily managed prescription drug programs.     
Animal health/crop protection products include animal medicinals, used for      
control and alleviation of disease in livestock, small animals and poultry, and 
agricultural insecticides.                                                      

   Customers for human health products and services include drug wholesalers
and retailers, hospitals, clinics, governmental agencies, corporations, labor   
unions, retirement systems, insurance carriers, managed health-care providers   
such as health maintenance organizations and other institutions. Customers for  
the Company's animal health/crop protection products include veterinarians,     
distributors, wholesalers, retailers, feed manufacturers, veterinary suppliers  
and laboratories.                                                               

2. SUMMARY OF ACCOUNTING POLICIES                                               
Principles of Consolidation -- The consolidated financial statements include the
accounts of the Company and all of its subsidiaries. For those consolidated     
subsidiaries where Company ownership is less than 100%, the outside             
stockholders' interest in each of the Company's accounts is shown as Minority   
interests in the consolidated financial statements. The Company follows the     
equity method for 20% or more owned affiliates.                                 

Foreign Currency Translation -- The U.S. dollar is the functional currency for  
the Company's foreign subsidiaries.                                             

Cash and Cash Equivalents -- Cash equivalents are comprised of certain highly   
liquid investments with original maturities of less than three months.          

Inventories -- The majority of domestic inventories are valued at the lower of  
last-in, first-out (LIFO) cost or market. Remaining inventories are valued at   
the lower of first-in, first-out (FIFO) cost or market.                         

Depreciation -- Depreciation is provided over the estimated useful lives of the 
assets, principally using the straight-line method. For tax purposes,           
accelerated methods are used.                                                   

Earnings Per Share -- Earnings per common share are based on the weighted       
average number of shares outstanding. These weighted averages were 1,236.1      
million, 1,257.2 million and 1,156.5 million in 1995, 1994 and 1993,            
respectively. Common stock equivalents do not have a significant dilutive       
effect.                                                                         

Goodwill and Other Intangibles -- Goodwill of $3.8 billion in 1995 and $4.1     
billion in 1994 (net of accumulated amortization) represents the excess of      
acquisition costs over the fair value of net assets of businesses purchased and 
is amortized on a straight-line basis over periods up to 40 years. Other        
acquired intangibles principally include customer relationships of $3.0 billion 
in 1995 and $3.1 billion in 1994 (net of accumulated amortization) that arose in
connection with the acquisition of Medco Containment Services, Inc. Other       
acquired intangibles are recorded at cost and are amortized on a straight-line  
basis over their estimated useful lives ranging from predominantly 28 to 40     
years. The Company continually reviews goodwill and other intangibles to assess 
recoverability from future operations using undiscounted cash flows. Impairments
would be recognized in operating results if a permanent diminution in value     
occurred.                                                                       

Use of Estimates -- The financial statements are prepared in conformity with    
generally accepted accounting principles and, accordingly, include amounts that 
are based on management's best estimates and judgments.                         

Reclassifications -- Certain reclassifications have been made to prior year     
amounts to conform with current year presentation.                              

3. ACQUISITION, DIVESTITURES AND RESTRUCTURINGS                                 
On November 18, 1993, the Company acquired all the outstanding shares of Medco  
Containment Services, Inc. for approximately $6.6 billion. Merck-Medco Managed  
Care (Medco) principally provides services designed to reduce prescription drug 
benefit costs through managed prescription drug programs. The purchase price    
consisted of $2.4 billion in cash, 114.0 million common shares with a market    
value of $3.8 billion, and 36.1 million options valued at $387.1 million, net of
tax. The acquisition was accounted for by the purchase method and, accordingly, 
Medco's results of operations have been included with the Company's since the   
acquisition date. The fair value of assets acquired and liabilities assumed     
totaled $5.0 billion and $2.4 billion, respectively. The excess of the purchase 
price over the fair value of net assets acquired is being amortized on a        
straight-line basis over 40 years.                                              

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     Summarized below are unaudited pro forma combined results of operations for
the year ended December 31, 1993 assuming the acquisition occurred at the       
beginning of the year:                                                          

                                                              1993
-------------------------------------------------------------------------       
Sales ......................................................... $13,047.1       
Net income ....................................................   2,170.9       
Earnings per common share ..................................... $    1.73       
=========================================================================       

    The unaudited pro forma combined results of operations are not necessarily
indicative of the results of operations that would have occurred had the two    
companies actually combined during the period presented or of future results of 
operations of the combined companies.                                           

 In June 1993, the Company sold its Calgon Water Management business for
$307.5 million to English China Clays plc. The gain from the sale is included in
Other (income) expense, net. (See Note 15 for further information.) The Company 
completed the sale of its remaining specialty chemical businesses in 1995. In   
January, the Company sold its Calgon Vestal Laboratories business for $261.5    
million to Bristol-Myers Squibb. In February, the Company sold its Kelco        
business to Monsanto for $1.075 billion. These divestitures resulted in pretax  
gains of $682.9 million recorded in the first quarter. These specialty chemical 
businesses were not significant to the Company's financial position or results  
of operations.                                                                  

   In its continued effort to focus on core businesses, in October 1995, the
Company sold Medco Behavioral Care (MBC), a managed mental health-care service  
business, to MBC management and Kohlberg Kravis Roberts & Co. for $340.0        
million. The sale of this business did not have a significant impact on the     
Company's financial position and will not significantly affect ongoing results  
of operations.                                                                  

 The Company recorded a pretax restructuring charge of $775.0 million in
1993 in connection with an initiative to streamline and restructure worldwide   
operations through staff reductions and consolidation of manufacturing and      
distribution facilities.                                                        

   In the first quarter of 1995, the Company recorded a pretax restructuring
charge of $175.0 million. The restructuring actions involve manufacturing       
facility consolidation, rationalization and work-force reduction in Europe and  
the United States.                                                              

4. STRATEGIC ALLIANCES                                                          
In 1989, the Company entered into an agreement with DuPont to form a long-term  
research and marketing collaboration. Effective January 1, 1991, the Company    
formed a 50%-owned joint venture with DuPont, creating an independent, research-
driven, worldwide pharmaceutical firm. DuPont contributed its entire            
pharmaceutical and radiopharmaceutical imaging agents businesses and is         
providing administrative services. The Company is providing research and        
development expertise, development funds, certain European marketing rights to  
several of its prescription medicines, international industry expertise and     
cash. In January 1995, the joint venture began co-promotion of Merck's          
prescription medicines, Prinivil and Prinzide,in the United States. Joint       
venture sales for 1995 were $1.2 billion, consisting primarily of               
cardiovascular, radiopharmaceutical and central nervous system products.        

In December 1994, the Company agreed to arrangements that, among other
things, eliminated the Company's right to offset the consequences of            
disproportionate allocations of the DuPont Merck joint venture income and       
expense against the Company's right to receive a disproportionate share of      
income arising from its 1989 long-term research and marketing agreement with    
DuPont. Accordingly, the Company recorded a $499.6 million provision for an     
obligation to the joint venture. This obligation is a function of the favorable 
performance of assets contributed by DuPont to the joint venture through        
December 31, 1994, and certain Merck contractual commitments. This obligation   
will be discharged by the end of 1996. The elimination of the offset resulting  
from the December 1994 agreement will have no material effect on the Company's  
liquidity or future cash flows. The anticipated favorable results from the 1989 
agreement are being reported when realized.                                     

In 1989, the Company formed a joint venture with Johnson & Johnson to 
develop and market a broad range of non-prescription medicines for U.S.         
consumers. In January 1990, the joint venture acquired the U.S. self-           
medication business of ICI Americas, Inc. (ICI), and ICI acquired the U.S.rights
to the Company's antidepressant Elavil, along with other considerations. In     
January 1993, Merck and Johnson & Johnson extended their U.S. joint venture     
agreement to include Europe. Also in January 1993, Merck contributed its        
existing over-the-counter (OTC) medications business in Spain to a new joint    
venture company. In September 1993, the European joint venture established a new
company in the United Kingdom to market Merck and Johnson & Johnson OTC         
medications. In January 1994, Merck and Johnson & Johnson acquired Laboratoires 
J.P. Martin, a leading self-medication business in France. In April 1995, the   
joint venture obtained F.D.A. clearance in the United States for marketing      
Pepcid AC Acid Controller, a non-prescription formulation of Pepcid, Merck's    
H2-receptor antagonist. Sales of product marketed by the joint venture were     
$403.5 million for 1995, consisting primarily of gastrointestinal products.     

   In 1991, Merck formed a separate vaccine division to enhance its existing
vaccine business and also to expand its presence through acquisitions, licensing
agreements and outside research collaborations. In 1992, Merck and Connaught    
Laboratories, Inc., an affiliate of Pasteur Merieux Serums et Vaccins           
(Pasteur), finalized an agreement to collaborate on the development and         
marketing of combination pediatric vaccines and to promote selected vaccine     
products in the United States. In November 1994, Merck and Pasteur formed a     
joint venture to market vaccines and to collaborate in the development of       
combination vaccines for distribution in Europe. This joint venture is not      
expected to have a significant impact on comparability of net income in the near
term. Joint venture vaccine sales for 1995 were $598.6 million.                 

 In 1982, the Company entered into an agreement with Astra AB (Astra) to
develop and market Astra products in the United States. Under the first phase of
the agreement, Merck marketed three Astra products, Prilosec, Plendil and       
Tonocard,                                                                       

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in exchange for a royalty. In July 1993, the Company's total sales of Astra     
products reached a level that triggered the first step in the establishment of a
separate entity for operations related to Astra products. On November 1, 1994,  
Astra paid Merck $820.0 million for an interest in a joint venture that is      
carried on in a company called Astra Merck Inc., in which Merck and Astra each  
own a 50% share. The Company recorded a $492.0 million gain from this           
transaction. This joint venture develops and markets in the United States most  
new prescription medicines from Astra's research. The formation of the joint    
venture has not had a material impact on comparability of net income. As of     
November 1, 1994, Astra Merck product sales are no longer reported in           
consolidated sales. Sales for 1994 prior to November 1 were $733.2 million.     
Joint venture sales for 1995 were $1.3 billion, consisting primarily of         
Prilosec, for which the joint venture received F.D.A. approval in the United    
States as the first and only acid pump inhibitor to maintain healing of erosive 
esophagitis.                                                                    

During 1995, Medco entered into a joint venture with the Wyeth-Ayerst 
Division of American Home Products Corporation to develop, market and implement 
health management programs for women's health and certain other important       
therapeutic areas. The joint venture company commenced operations during the    
year and will introduce its first health management programs in 1996. The       
formation of this joint venture is not expected to have a significant impact on 
the Company's financial position or ongoing results of operations.              

Summarized below are net sales by therapeutic class for these joint   
ventures for the year ended December 31, 1995:                                  

                                                                      1995
-----------------------------------------------------------------------------   
Gastrointestinals                                                               
Ethical .......................................................... $1,223.4 
OTC ..............................................................    307.2 
-----------------------------------------------------------------------------   
                                                                   1,530.6
-----------------------------------------------------------------------------   
Vaccines ...........................................................    598.6   
Cardiovasculars ....................................................    521.9   
Radiopharmaceuticals ................................................   304.0   
Central nervous system ..............................................   247.5   
Other ...............................................................   289.2   
-----------------------------------------------------------------------------   
                                                                  $3,491.8
=============================================================================   

5. AFFILIATES ACCOUNTED FOR USING THE EQUITY METHOD                             
Investments in affiliates accounted for using the equity method are included in 
Other assets and were $737.8 million at December 31, 1995 and $604.5 million at 
December 31, 1994. Affiliates accounted for using the equity method did not     
constitute a significant component of the Company's financial position or       
results of operations prior to 1995. Summarized information for these affiliates
for 1995 is as follows:                                                         

Year Ended December 31                                                   1995   
-----------------------------------------------------------------------------   
Sales .............................................................. $3,632.9   
Materials and production costs .....................................    873.4   
Other expense, net .................................................  1,493.8   
Income before taxes ................................................  1,265.7   
=============================================================================   
December 31                                                                     
-----------------------------------------------------------------------------   
Current assets ..................................................... $1,326.0   
Noncurrent assets ..................................................  2,914.3   
Current liabilities ................................................    897.5   
Noncurrent liabilities .............................................  1,163.6   
=============================================================================   

6. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES                                
Summarized below are the carrying values and fair values of the Company's       
financial instruments at December 31, 1995 and 1994. Fair values were estimated 
based on market prices, where available, or dealer quotes.                      

                                       1995               1994
                                        -----------------  -------------------
                                        Carrying     Fair  Carrying       Fair
                                           Value    Value     Value      Value
------------------------------------------------------------------------------- 
ASSETS                                                                          
------------------------------------------------------------------------------- 
Cash and cash equivalents ............... $1,847.4  $1,847.4  $1,604.0 $1,604.0 
Short-term investments ..................  1,502.4   1,502.4     665.7    665.9 
Long-term investments ...................  1,969.6   1,965.6   1,416.9  1,405.8 
Purchased currency options ..............    122.1     110.8      97.6     42.5 
Forward exchange contracts                                                      
 and currency swaps ....................     80.3      80.3      27.2     27.2
Interest rate swaps .....................     14.4      27.2      --      --    
------------------------------------------------------------------------------- 
LIABILITIES                                                                     
------------------------------------------------------------------------------- 
Loans payable and current portion                                               
of long-term debt ...................... $  423.1  $  425.4  $  146.7  $ 143.4
Long-term debt ..........................  1,372.8   1,424.7   1,145.9  1,114.0 
Written currency options ................       .2        .2        .5       .5 
Forward exchange contracts                                                      
and currency swap ......................      6.1       6.1      45.2     45.2
Interest rate swaps .....................     --        --        --        9.4 
=============================================================================== 

   The Company has established revenue and balance sheet hedging programs to
protect against reductions in value and volatility of future foreign currency   
cash flows caused by changes in foreign exchange rates. The objectives and      
strategies of these programs are described in the Analysis of Liquidity and     
Capital Resources section of the Financial Review.                              

  The Company hedges forecasted revenues denominated in foreign currencies
with purchased currency options. When the dollar strengthens against foreign    
currencies, the decline in the value of future foreign currency cash flows is   
partially offset by the recognition of gains in the value of purchased currency 
options designated as hedges of the period. Conversely, when the dollar weakens,
the increase in the value of future foreign currency cash flows is reduced only 
by the recognition of the premium paid to acquire the options designated as     
hedges of the period. Market value gains and premiums on these contracts are    
recognized in Sales when the hedged transaction is recognized. The carrying     
value of purchased currency options is reported in Prepaid expenses and taxes or
Other assets.                                                                   

 The Company continuously reviews its portfolio of purchased options and
will adjust its portfolio to accommodate changes in exposure to forecasted      
revenues. The most cost-effective means of decreasing coverage provided by      
purchased options is to write options with terms identical to purchased options 
that are no longer necessary. Deferred gains or losses that accumulate on       
purchased options prior to writing an offsetting position will remain deferred  
and are recognized when the hedged transaction occurs. Subsequent changes in the
market value of the written options and related purchased options are recorded  
in earnings. Because the changes in market value of the purchased options       
equally offset the written                                                      

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options, there is no net impact on earnings. The carrying value of written      
currency options is reported in Accounts payable and accrued liabilities or     
Deferred income taxes and noncurrent liabilities.                               

Deferred gains and losses on currency options used to hedge forecasted
revenues amounted to $27.2 million and $38.5 million at December 31, 1995 and   
$3.2 million and $58.3 million at December 31, 1994, respectively.              

The Company also hedges certain exposures to fluctuations in foreign  
currency exchange rates that occur prior to conversion of foreign currency      
denominated monetary assets and liabilities into U.S. dollars. Prior to         
conversion to U.S. dollars, these assets and liabilities are translated at spot 
rates in effect on the balance sheet date. The effects of changes in spot rates 
are reported in earnings and included in Other (income) expense, net. The       
Company hedges its exposure to changes in foreign exchange with forward         
contracts. Because monetary assets and liabilities are marked to spot and       
recorded in earnings, forward contracts designated as hedges of the monetary    
assets and liabilities are also marked to spot with the resulting gains and     
losses similarly recognized in earnings. Gains and losses on forward contracts  
are included in Other (income) expense, net and offset losses and gains on the  
net monetary assets and liabilities hedged. The carrying value of forward       
exchange contracts is reported in Accounts receivable, Other assets, Accounts   
payable and accrued liabilities or Deferred income taxes and noncurrent         
liabilities.                                                                    

At December 31, 1995 and 1994, the Company had contracts to exchange  
foreign currencies, principally the Japanese yen, French franc and Deutschemark,
for U.S. dollars in the following notional amounts:                             

                                                       1995           1994
-----------------------------------------------------------------------------   
Purchased currency options .............................   $2,453.4  $1,793.8   
Written currency options ...............................       48.3     114.6   
Forward sale contracts .................................    1,469.9   1,463.6   
Forward purchase contracts .............................      422.3     404.5   
=============================================================================   

The Company uses interest rate swap contracts on certain borrowing and  
investing transactions. Interest rate swap contracts are intended to be an      
integral part of borrowing and investing transactions and, therefore, are not   
recognized at fair value. Interest differentials paid or received under these   
contracts are recognized as adjustments to the effective yield of the underlying
financial instruments hedged. Interest rate swap contracts would only be        
recognized at fair value if the hedged relationship is terminated. Gains or     
losses accumulated prior to termination of the relationship would be amortized  
as a yield adjustment over the shorter of the remaining life of the contract or 
the remaining period to maturity of the underlying instrument hedged. If the    
contract remained outstanding after termination of the hedged relationship,     
subsequent changes in market value of the contract would be recognized in       
earnings. The Company does not use leveraged swaps and, in general, does not use
leverage in any of its investment activities that would put principal capital at
risk.                                                                           

 At December 31, 1995, the Company had an interest rate swap contract with
a notional amount of $82.0 million to convert a portion of its variable rate    
investments to fixed rates. This contract matures in 1996. The Company also had 
a combined interest rate and currency swap contract with a notional amount of   
$279.6 million to convert a variable rate Dutch guilder investment to a variable
rate U.S. dollar investment. The market value of this five-year contract is     
reported in Other assets with unrealized gains and losses recorded, net of tax, 
in Stockholders' equity.                                                        

  The Company also had two interest rate swap contracts outstanding with a
combined notional amount of $352.3 million to convert fixed rates on debt issues
to floating rates slightly below commercial paper rates. The maturities of these
contracts coincide with the maturities of the underlying debt instruments       
hedged. The debt issues include $200.0 million in zero coupon euronotes and     
200.0 million in Swiss franc eurobonds. Concurrent with the issuance of the     
Swiss franc eurobonds, the Company entered into an interest rate and currency   
swap. The currency swap is accounted for similar to forward exchange contracts. 
(See Note 8 for further information.) The interest rate and currency swaps on   
the debt issues described above essentially provide the Company with variable   
rate, U.S. dollar denominated debt at rates of interest lower than rates the    
Company could otherwise obtain had it actually issued variable rate U.S. dollar 
debt.                                                                           

As part of its ongoing control procedures, the Company monitors       
concentrations of credit risk associated with financial institutions with which 
it conducts business. Credit risk is minimal as credit exposure limits are      
established to avoid a concentration with any single financial institution. The 
Company also monitors the credit worthiness of its customers to which it grants 
credit terms in the normal course of business. Concentrations of credit risk    
associated with these trade receivables are considered minimal due to the       
Company's diverse customer base. Bad debts have been minimal. The Company does  
not normally require collateral or other security to support credit sales.      

    Effective January 1, 1994, the Company adopted the provisions of Statement
No. 115, Accounting for Certain Investments in Debt and Equity Securities, which
requires certain investments to be recorded at fair value or amortized cost. In 
accordance with this Statement, the Company has classified its investments as   
available-for-sale and held-to-maturity. Available-for-sale investments are     
carried at fair value with unrealized gains and losses recorded, net of tax and 
minority interests, in Stockholders' equity. Held-to-maturity investments are   
carried at amortized cost. Prior to 1994, these investments were carried at the 
lower of cost or market. Adoption of this Statement did not materially impact   
the Company's financial position and had no impact on operating results. At     
January 1, 1994, the unrealized gain associated with available-for-sale         
investments of $37.5 million, net of tax and minority interests, was included in
Retained earnings.                                                              

At December 31, 1995, available-for-sale investments include debt and 
equity securities carried at their fair values of $2.0 billion ($1.3 billion of 
which mature within one year) and                                               

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$820.6 million, respectively. Gross unrealized gains and losses amounted to     
$11.9 million and $3.5 million for debt securities and $230.0 million and $24.3 
million for equity securities, respectively. Held-to-maturity investments are   
carried at amortized cost of $700.0 million ($200.0 million of which mature     
within one year) and have a fair value of $696.0 million.                       

7. INVENTORIES                                                                  
Inventories at December 31 consisted of:                                        
                                    1995              1994
---------------------------------------------------------------------           
Finished goods ............................. $1,078.3        $  926.7           
Raw materials and work in process ..........    716.2           684.7           
Supplies ...................................     78.0            65.6           
---------------------------------------------------------------------           
Total (approximates current cost) ..........  1,872.5         1,677.0           
Reduction to LIFO cost .....................     --              16.1           
---------------------------------------------------------------------           
                                  $1,872.5        $1,660.9
=====================================================================           
Inventories valued at LIFO comprised approximately 44% and 42% of       
inventories at December 31, 1995 and 1994, respectively.                        

8. LOANS PAYABLE AND LONG-TERM DEBT                                             
Loans payable at December 31, 1995 consisted primarily of the current portion of
long-term debt. The remainder was principally borrowings by foreign             
subsidiaries. The weighted average interest rate for these borrowings was 7.3%  
and 5.3% at December 31, 1995 and 1994, respectively.                           

Long-term debt at December 31 consisted of:                                 
                                    1995              1994
---------------------------------------------------------------------           
6.8% euronotes due 2005...................... $ 498.8          $  --            
5.3% euronotes due 1998 .....................   251.8           252.4           
7.8% notes due 1996 .........................    --             249.6           
Zero coupon euronotes due 1997 ..............   181.3           170.9           
5.4% Swiss franc eurobonds due 1997 .........   174.0           153.5           
6.0% medium-term note due 1997 ..............    99.9            99.8           
Other .......................................   167.0           219.7           
---------------------------------------------------------------------           
                                  $1,372.8        $1,145.9
=====================================================================           

 At December 31, 1995, the Company had an interest rate swap contract to
convert the 6.1% fixed rate on the zero coupon euronotes to a variable rate     
slightly below commercial paper rates. In addition, the Company entered into an 
interest rate and currency swap concurrent with the issuance of the Swiss franc 
eurobonds. The contract converts the fixed rate on the eurobonds to a variable  
rate slightly below commercial paper rates, payable in U.S. dollars, and enables
the Company to buy 200 million Swiss francs at maturity at a fixed exchange     
rate. Accordingly, any exchange gain or loss on these bonds will be entirely    
offset by the change in the carrying value of the contract.                     

     Other consists primarily of pollution control, industrial revenue financing
and foreign borrowings at varying rates up to 9.3%.                             

    The aggregate maturities of long-term debt for each of the next five years
are as follows: 1996, $297.5 million; 1997, $462.8 million; 1998, $264.6        
million; 1999, $8.3 million; and 2000, $10.3 million.                           

9. CONTINGENT LIABILITIES                                                       
The Company is involved in various claims and legal proceedings of a nature     
considered normal to its business, principally product liability and            
intellectual property cases. Additionally, the Company, along with numerous     
other defendants, is a party in several antitrust actions brought by retail     
pharmacies and consumers, alleging conspiracies in restraint of trade and price 
discrimination, one of which has been certified as a Federal class action and   
three of which have been certified as state class actions. The Company and      
several other defendants have entered into an agreement, subject to court       
approval, to settle the Federal class action alleging conspiracy, pursuant to   
which the Company would pay $51.8 million, payable in four equal annual         
installments. The Company has not engaged in any conspiracy and no admission of 
wrongdoing has been made or is included in the agreement, which was entered into
in order to avoid the cost of litigation and the risk of an inaccurate adverse  
verdict by a jury presented by a case of this size and complexity. While it is  
not feasible to predict or determine the final outcome of these proceedings,    
management does not believe that they should result in a materially adverse     
effect on the Company's financial position, results of operations or            
liquidity.                                                                      

The Company is also a party to a number of proceedings brought under  
the Comprehensive Environmental Response, Compensation and Liability Act,       
commonly known as Superfund, as well as under other Federal and state statutes. 
While it is not feasible to predict or determine the outcome of these           
proceedings, management does not believe that they should result in a materially
adverse effect on the Company's financial position, results of operations or    
liquidity. The Company is also remediating environmental contamination resulting
from past industrial activity at certain of its sites. The Company has taken an 
active role in identifying and providing for these costs; and, therefore,       
management does not believe that these expenditures should result in a          
materially adverse effect on the Company's financial position, results          
of operations, liquidity or capital resources.                                  

10. PREFERRED STOCK OF SUBSIDIARY COMPANY                                       
In December 1995, the Company's wholly-owned subsidiary, Merck Sharp & Dohme    
Overseas Finance, S.A., issued $1.0 billion par value of variable rate          
nonconvertible Preferred Equity Certificates (PECs). The proceeds will be used  
to fund a portion of the Company's stock repurchase program and for other       
general corporate purposes. Beginning in January 1997 to the date fixed for     
redemption in 2094, the PECs are redeemable at the option of the issuer at the  
par value plus accumulated and unpaid dividends. The PECs are included in       
Minority interests in the consolidated financial statements.                    

11. STOCKHOLDERS' EQUITY                                                        
In 1995, common stock increased by $74.7 million, principally as a result of    
issuances of treasury stock for exercises of stock options and distributions    
under incentive plans. In 1994,common stock increased by $91.3 million,         
principally as a result of conversions of subordinated debentures assumed in    

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conjunction with the Medco acquisition into 2.6 million shares of Merck common  
stock. In 1993, the increase of $4.4 billion was principally due to shares      
issued and employee stock options converted to Merck options in connection with 
the acquisition of Medco.                                                       

 A summary of treasury stock transactions (shares in thousands) follows:

                                                        [Enlarge/Download Table]

                            1995                   1994                      1993       
                     -----------------       -----------------         ---------------- 
                       Shares    Cost         Shares      Cost          Shares    Cost  
                     ------------------------------------------------------------------ 
                                                                                        
Balance,                                                                                
  January 1 ........ 235,341.6   $4,470.8   226,676.6   $3,948.0   221,878.1   $3,667.8 
Purchases             33,377.2    1,570.9    18,975.0      704.5    10,040.4      371.0 
Issued primarily                                                                        
  under stock                                                                           
  option and                                                                            
  incentive plans .. (14,104.0)    (294.3)  (10,310.0)    (181.7)   (5,241.9)     (90.8)
                     ---------   --------   ---------   --------   ---------   -------- 
Balance,                                                                                
  December 31        254,614.8   $5,747.4   235,341.6   $4,470.8   226,676.6   $3,948.0 
                     =========   ========   =========   ========   =========   ======== 

    At December 31, 1995, 1994 and 1993, 10 million shares of preferred stock,
without par value, were authorized; none were issued.                           

12. STOCK OPTION AND INCENTIVE PLANS                                            
The Company has stock option plans under which employees and non-employee       
directors may be granted options to purchase shares of Company common stock at  
the fair market value at the time of the grant. The Company has also adopted    
several of the Medco employee stock option plans. In connection with the Medco  
acquisition, stock options outstanding on the date of acquisition were converted
into options to purchase shares of Company common stock with an equivalent      
value. In addition, in September 1991 and October 1993, the Company made special
grants of options to substantially all employees worldwide to purchase 300      
shares of stock under each grant. A total of approximately 20.6 million options 
were granted.                                                                   
A summary of information relative to the Company's stock option plans 
follows:                                                                        

                Number     Average
             of Shares     Price
---------------------------------------------------------                       
Outstanding at January 1, 1993       40,384,535    $32.40                       
Equivalent options assumed           36,108,076     16.51                       
Granted                              15,854,640     34.25                       
Exercised                            (4,985,266)    16.73                       
Forfeited                              (948,262)    38.89                       
---------------------------------------------------------                       
Outstanding at December 31, 1993     86,413,723     26.93                       
Granted                              19,973,017     31.53                       
Exercised                            (9,878,486)    14.01                       
Forfeited                            (2,843,918)    34.41                       
---------------------------------------------------------                       
Outstanding at December 31, 1994     93,664,336     29.05                       
GRANTED                              14,193,077     43.38                       
EXERCISED                           (13,955,704)    18.96                       
FORFEITED                            (2,480,703)    34.89                       
---------------------------------------------------------                       
OUTSTANDING AT DECEMBER 31, 1995     91,421,006    $32.65                       
EXERCISABLE AT DECEMBER 31, 1995     29,272,456    $26.46                       
=========================================================                       

 At December 31, 1995 and 1994, 15,842,665 shares and 11,607,626 shares,
respectively, were available for future grants under the terms of these plans.  

  The Company has incentive compensation plans that provide cash awards to
employees and may provide deferred awards to certain executives and other key   
employees. For 1995, total awards under the plans were $95.1 million.           

13. RETIREMENT PLANS                                                            
In addition to required governmental retirement plans, the Company and certain  
of its subsidiaries have retirement plans for eligible employees that provide   
benefits based upon age, years of service and compensation. Certain plans also  
consider primary social security payments in calculating benefits. The expenses 
for these governmental, Company and subsidiary plans were $285.6 million in     
1995, $301.3 million in 1994 and $262.3 million in 1993. Expenses for Company   
and subsidiary plans were $109.0 million in 1995, $140.1 million in 1994 and    
$97.0 million in 1993.                                                          

     Net pension cost for the Company's plans includes the following components:

               1995      1994       1993
------------------------------------------------------------                    
Service cost - benefits                                                         
earned during the year ....... $  98.7   $ 109.8   $  97.4                  
Interest cost on projected                                                      
benefit obligation ...........   139.8     134.7     135.7                  
Net amortization and deferral ..   185.9    (105.9)     74.4                    
Actual return on assets ........  (315.4)      1.5    (210.5)                   
------------------------------------------------------------                    
Net pension cost ............... $ 109.0   $ 140.1   $  97.0                    
============================================================                    
     The net pension cost attributable to international plans and included above
was $47.2 million in 1995, $42.5 million in 1994 and $41.8 million in 1993.     

   In 1993, net losses of $254.8 million were recorded pursuant to Statement
No. 88, Employers' Accounting for Settlements and Curtailments of Defined       
Benefit Pension Plans and for Termination Benefits, due to work-force reduction 
programs associated with the 1993 restructuring efforts and sale of the Calgon  
Water Management business.                                                      

    The Company's funding policy for Employee Retirement Income Security Act
of 1974 and foreign plans is to contribute amounts to maintain assets in excess 
of the projected benefit obligations. Company contributions over the next       
several years are expected to continue to improve the funded status of the      
worldwide plans. The plans' assets are diversified in stocks, bonds, short-term 
and other investments.                                                          

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The plans' funded status at December 31 was as follows:             

                                         1995                 1994
                                         -----------------     -----------------
                                         OVER       UNDER      Over      Under
                                         FUNDED     FUNDED     Funded     Funded
--------------------------------------------------------------------------------
Plan assets at market value ........... $1,726.2   $   19.5   $1,328.7  $  42.5 
--------------------------------------------------------------------------------
Accumulated benefit obligation                                                  
 Vested ..............................  1,197.5       62.3    1,051.6     86.6
 Nonvested ...........................    250.5       27.8      178.4     33.1
--------------------------------------------------------------------------------
                                        1,448.0       90.1    1,230.0    119.7
--------------------------------------------------------------------------------
Plan assets in excess of (less than)                                            
  accumulated benefit obligation ......    278.2      (70.6)      98.7    (77.2)
Projected compensation increases ......    466.4      132.6      297.1     95.2 
--------------------------------------------------------------------------------
Projected benefit obligation in                                                 
  excess of plan assets ...............   (188.2)    (203.2)    (198.4)  (172.4)
Unamortized transitional net                                                    
 (asset) obligation ..................    (97.4)       8.9     (117.8)     9.1
Unrecognized net loss .................    380.3       43.6      216.6     24.9 
Unrecognized prior service cost .......     48.9       14.3       92.2     19.2 
--------------------------------------------------------------------------------
Net pension asset (liability) ......... $  143.6   $ (136.4)  $   (7.4) $(119.2)
================================================================================

 International plan assets at market value, included in the above table,
were $592.9 million in 1995 and $544.0 million in 1994. The accumulated benefit 
obligation of international plans, included in this table, was $545.8 million in
1995 and $484.0 million in 1994.                                                

    The discount rate used in determining the projected benefit obligation and
costs was 7% at December 31, 1995, 8.5% at December 31, 1994 and 7.5% at        
December 31, 1993. The rate of future compensation increases used in determining
the projected benefit obligation and costs was 4.5% at December 31, 1995, and 5%
at December 31, 1994 and 1993. The expected long-term rate of return on plan    
assets was 10% at December 31, 1995, 1994 and 1993.                             

In the aggregate, average international plan assumptions do not vary  
significantly from U.S. assumptions.                                            

14. OTHER POSTRETIRMENT BENEFITS                                                
The Company provides health-care (in excess of Medicare) and life insurance     
benefits for eligible active and retired employees, principally in the United   
States. The Company reserves the right to modify such benefits in the future.   
The expected costs of providing postretirement health-care and life insurance   
benefits are accrued over the employee service period. The cost of              
postretirement benefits other than pensions was $7.6 million In 1995, $42.1     
million in 1994 and $79.9 million in 1993. The cost of health-care and life     
insurance benefits for active employees was $125.0 million in 1995, $130.4      
million in 1994 and $122.5 million in 1993.                                     

Net postretirement benefit cost includes the following components:    

                                                  1995      1994      1993
-----------------------------------------------------------------------------   
Service cost - benefits                                                         
earned during the year .......................... $  16.8   $ 31.7   $ 31.0 
Interest cost on accumulated                                                    
postretirement benefit obligation ...............    44.0     58.4     69.2 
Net amortization and deferral .....................    54.1    (52.4)     2.1   
Actual return on assets ...........................  (107.3)     4.4    (22.4)  
------------------------------------------------------------------------------  
Net postretirement benefit cost ...................  $  7.6   $ 42.1   $ 79.9   
==============================================================================  

  Net postretirement benefit cost in 1995 and 1994 includes the effects of
changes in certain cost-sharing provisions and the Company's method of providing
certain benefits.                                                               

     In addition to net postretirement benefit cost, net losses of $71.7 million
were recorded in 1993 pursuant to Statement No. 106, Employers' Accounting for  
Postretirement Benefits Other Than Pensions, due to work-force reduction        
programs associated with the 1993 restructuring efforts and sale of the Calgon  
Water Management business.                                                      

    The Company contributes to a retiree health-care qualified trust that will
be used to pay a portion of its postretirement benefit liability. The plans'    
assets are diversified in stocks, bonds and short-term and other investments.   

The plans' funded status at December 31 was as follows:                         
                                            1995                1994
--------------------------------------------------------------------------      
Plan assets at market value                      $ 473.8           $ 363.6      
--------------------------------------------------------------------------      
Accumulated postretirement benefit obligation                                   
Retirees ......................................  392.4             363.3    
Other fully eligible participants .............   45.3              90.4    
Other active participants .....................  231.0             295.0    
--------------------------------------------------------------------------      
                                             668.7             748.7
--------------------------------------------------------------------------      
Accumulated postretirement benefit obligation                                   
in excess of plan assets ...................... (194.9)           (385.1)   
Unrecognized net (gain) loss ....................  (98.4)             41.9      
Unrecognized plan changes ....................... (154.2)           (163.0)     
--------------------------------------------------------------------------      
Net postretirement benefit liability ........... $(447.5)          $(506.2)     
==========================================================================      

The discount rate used in determining the accumulated postretirement  
benefit obligation and costs was 7% at December 31, 1995, 8.5% at December 31,  
1994 and 7.5% at December 31, 1993. The expected long-term rate of return on    
plan assets was 10% in 1995, 1994 and 1993. The health-care cost trend rate was 
9.3% at December 31, 1995. The rate will                                        

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gradually decline to 5.0% over an 8-year period. The effect of increasing the   
health-care cost trend rate by one percentage point in each year would increase 
the accumulated post retirement benefit obligation at December 31, 1995 by $70.5
million and the total service and interest cost components of the 1995 net      
postretirement benefit cost by $9.0 million.                                    

15. OTHER (INCOME) EXPENSE, NET                                                 
                   1995      1994       1993
--------------------------------------------------------------                  
Interest income                    $(191.0)  $(153.9)  $(138.9)                 
Interest expense                      98.7     124.4      84.7                  
Exchange (gains) losses               (7.8)     26.2      68.2                  
Minority interests                    91.9      93.4      50.3                  
Equity (income) loss                                                            
from affiliates                   (346.3)    (56.6)     26.1                
Amortization of goodwill and                                                    
other intangibles                  192.0     193.9      28.2                
Other, net                           468.8     (51.2)    (82.4)                 
--------------------------------------------------------------                  
                  $306.3   $ 176.2   $  36.2
==============================================================                  

The improving trend in exchange (gains) losses primarily reflects a   
reduction in exchange losses from Brazilian operations. Such losses were largely
offset by local pricing actions.                                                

Minority interests include third parties' share of exchange gains and 
losses arising from translation of the financial statements into U.S. dollars.  

The improving trend in equity (income) loss from affiliates primarily 
reflects the 1994 formation of the Astra Merck joint venture. Dividends and     
distributions received from affiliates accounted for using the equity method    
were $296.1 million in 1995.                                                    

  Amortization of goodwill and other intangibles in 1995 and 1994 reflects
the full year's impact of the Medco acquisition.                                

In 1995, other, net, includes $500.5 million of nonrecurring charges  
consisting of $278.5 million for losses on sales of assets, $161.2 million for  
endowment of The Merck Company Foundation and $60.8 million for settlement of   
claims.                                                                         

   In 1993, other, net, includes a gain of $148.8 million from the Company's
sale of its Calgon Water Management business. This gain was largely offset by a 
$78.8 million provision for environmental costs and a $60.0 million provision   
for the funding of The Merck Company Foundation.                                

   Interest paid was $85.5 million in 1995, $144.0 million in 1994 and $89.1
million in 1993.                                                                

16. TAXES ON INCOME                                                             

A reconciliation between the Company's effective tax rate and the U.S. statutory
rate follows:                                                                   

                                                  Tax Rate
                                           1995   --------------------------
                                          Amount      1995      1994    1993
------------------------------------------------------------------------------  
U.S. statutory rate applied                                                     
 to pretax income .....................   $1,679.0       35.0%    35.0%  35.0%
Differential arising from:                                                      
Tax exemption for Puerto Rico                                               
 operations ...........................      (86.4)      (1.8)    (3.8)  (5.1)
 Equity income from affiliates ........      (70.9)      (1.5)     (.2)   (.1)
 Foreign operations ...................      (44.2)       (.9)    (1.1)  (1.4)
State taxes ..........................       73.0        1.5      2.2    2.8
Other, including                                                            
 minority interests ...................      (88.5)      (1.8)     --    (1.0)
------------------------------------------------------------------------------  
                                          $1,462.0       30.5%    32.1%  30.2%
==============================================================================  

 Domestic companies contributed approximately 76% in 1995, 73% in 1994 and 78%
in 1993 to consolidated pretax income.                                          
Taxes on income consisted of:                                               
            1995       1994       1993
------------------------------------------------------------                    
Current provision                                                               
Federal ..................... $1,043.4   $1,003.1   $668.2                  
Foreign .....................    455.1      359.0    311.4                  
State .......................    149.4      152.6    123.9                  
------------------------------------------------------------                    
             1,647.9    1,514.7  1,103.5
------------------------------------------------------------                    
Deferred provision                                                              
Federal .....................    (64.3)    (166.6)   (84.0)                 
Foreign .....................    (95.9)      72.2    (89.7)                 
State .......................    (25.7)      (2.1)     6.7                  
------------------------------------------------------------                    
               (185.9)     (96.5)  (167.0)
------------------------------------------------------------                    
            $1,462.0   $1,418.2 $  936.5
============================================================                    

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Deferred income taxes at December 31 consisted of:                    

                           1995                   1994
                            -------------------    -------------------
                            Assets  Liabilities    Assets  Liabilities
---------------------------------------------------------------------------     
Other intangibles .............  $ --     $1,243.1        $ --   $1,305.1       
Accelerated depreciation ......    --        524.9          --      480.5       
Inventory related .............    463.6     180.3        337.7     176.4       
Other postretirement benefits .    183.4       --         199.5       --        
Provision for joint venture                                                     
obligation ..................    174.4       --         174.9       --      
Restructuring charge               155.3       --         123.9       --        
Equity investments                 --        153.4          --       82.4       
Equivalent Medco                                                                
options assumed                   92.4       --         139.5       --      
Environmental related               81.7       --          85.7       --        
Compensation related                70.5       --          59.1       --        
Pension benefits                    28.3      65.2         68.8      52.5       
Leasing activity                   --         40.7          --       53.1       
Other                              663.5     428.7        574.5     412.7       
---------------------------------------------------------------------------     
                          1,913.1   2,636.3      1,763.6   2,562.7
Valuation allowance                (15.0)      --          (3.8)      --        
---------------------------------------------------------------------------     
                         $1,898.1  $2,636.3     $1,759.8  $2,562.7
===========================================================================     

At December 31, 1995 and 1994, current deferred tax assets of $722.8  
million and $481.1 million, respectively, were included in Prepaid expenses and 
taxes and current deferred tax liabilities of $98.0 million and $74.6 million,  
respectively, were included in Income taxes payable. In addition, at December   
31, 1995 and 1994, noncurrent deferred tax assets of $26.3 million and $32.2    
million, respectively, were included in Other assets and noncurrent deferred tax
liabilities of $1.4 billion and $1.2 billion, respectively, were included in    
Deferred income taxes and noncurrent liabilities. Income taxes paid in 1995,    
1994 and 1993 were $2.0 billion, $857.8 million and $859.9 million,             
respectively. The increase in 1995 primarily reflects taxes paid on the 1994    
gain resulting from the sale to Astra of an interest in a joint venture, the    
1995 gains on sales of subsidiaries and a change in law affecting the           
calculation of Federal estimated payments.                                      

At December 31, 1995, foreign earnings of $4.8 billion and domestic   
earnings of $880.9 million have been retained indefinitely by subsidiary        
companies for reinvestment. No provision is made for income taxes that would be 
payable upon the distribution of such earnings, and it is not practicable to    
determine the amount of the related unrecognized deferred income tax liability. 
These earnings include income from manufacturing operations in Ireland, that    
were tax exempt through 1990 and are taxed at 10% thereafter. In addition,the   
Company has domestic subsidiaries operating in Puerto Rico under a tax incentive
grant that expires in 2008.                                                     

  The Company's Federal income tax returns have been audited through 1989.

17. GEOGRAPHIC SEGMENT REPORTING                                                
                            1995            1994            1993
----------------------------------------------------------------------------    
CUSTOMER SALES                                                                  
North America .................... $11,704.3       $10,561.6       $ 6,431.8    
Europe ...........................   2,894.3         2,552.6         2,397.8    
Asia Pacific .....................   1,753.2         1,586.7         1,425.0    
Other Foreign ....................     329.3           268.9           243.5    
AFFILIATE SALES                                                                 
North America ....................   1,640.3         1,390.2         1,224.9    
Europe ...........................     798.8           611.3           573.8    
Asia Pacific .....................      59.1            44.8            37.2    
Other Foreign ....................       1.5              .6              .8    
Eliminations .....................  (2,499.7)       (2,046.9)       (1,836.6)   
----------------------------------------------------------------------------    
                               $16,681.1       $14,969.8       $10,498.2
============================================================================    
INCOME BEFORE TAXES(1)                                                          
North America ...................  $ 3,442.1       $ 3,182.7       $ 2,488.7    
Europe ..........................      925.2         1,021.4           379.3    
Asia Pacific ....................      323.4           277.3           241.9    
Other Foreign ...................      (17.4)            1.9           (34.3)   
Eliminations ....................     (259.4)         (102.7)          (23.1)   
----------------------------------------------------------------------------    
                               $ 4,413.9         4,380.6         3,052.5
Non-operating income ............      383.3            34.6            50.2    
----------------------------------------------------------------------------    
                               $ 4,797.2       $ 4,415.2       $ 3,102.7
============================================================================    
ASSETS                                                                          
North America ...................  $14,563.3       $14,538.9       $13,185.5    
Europe ..........................    2,202.4         2,158.2         1,956.5    
Asia Pacific ....................    1,542.3         1,310.3         1,277.6    
Other Foreign ...................      196.9           151.6           112.2    
Cash and Investments ............    5,319.4         3,686.6         3,322.2    
Other Corporate Assets ..........    1,513.3         1,147.9         1,016.2    
Eliminations ....................   (1,505.8)       (1,136.9)         (942.7)   
----------------------------------------------------------------------------    
                               $23,831.8       $21,856.6       $19,927.5
============================================================================    
(1) Amounts for 1993 include a restructuring charge of $538.6 million for North 
America, $222.8 million for Europe, $1.7 million for Asia Pacific and $11.9     
million for Other Foreign.                                                      

   Sales to affiliates by North America include products manufactured in the
United States that are shipped to facilities in foreign countries for           
manufacture into finished products. Sales to affiliates are at negotiated prices
based on specific market conditions. Profits are shown within the geographic    
areas at the time of sale; such profits, however, are included in consolidated  
income when a sale is made to a customer. Research and development expenses are 
included in the geographic area in which the expenses were incurred. Investments
in affiliates accounted for using the equity method are included in Other       
Corporate Assets and earnings from these investments are included in Non-       
operating income. These affiliates primarily operate in North America.          

The Company's worldwide business is subject to risks of currency      
fluctuations, governmental actions and other governmental proceedings abroad.   
The Company does not regard these risks as a deterrent to further expansion of  
its operations abroad. However, the Company closely reviews its methods of      
operations, particularly in less developed countries, and adopts strategies     
responsive to changing economic and political conditions.                       

                                                                              49

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MANAGEMENT'S REPORT                                                             

   Primary responsibility for the integrity and objectivity of the Company's
financial statements rests with management. The financial statements report on  
management's stewardship of Company assets. These statements are prepared in    
conformity with generally accepted accounting principles and, accordingly,      
include amounts that are based on management's best estimates and judgments.    
Nonfinancial information included in the Annual Report has also been prepared by
management and is consistent with the financial statements.                     

To assure that financial information is reliable and assets are       
safeguarded, management maintains an effective system of internal controls and  
procedures, important elements of which include: careful selection, training and
development of operating and financial managers; an organization that provides  
appropriate division of responsibility; and communications aimed at assuring    
that Company policies and procedures are understood throughout the organization.
In establishing internal controls, management weighs the costs of such systems  
against the benefits it believes such systems will provide. A staff of internal 
auditors regularly monitors the adequacy and application of internal controls on
a worldwide basis.                                                              

To insure that personnel continue to understand the system of internal
controls and procedures, and policies concerning good and prudent business      
practices, the Company periodically conducts the Management's Stewardship       
Program for key management and financial personnel. This program reinforces the 
importance and understanding of internal controls by reviewing key corporate    
policies, procedures and systems. In addition, an ethical business practices    
program has been implemented to reinforce the Company's long-standing commitment
to high ethical standards in the conduct of its business.                       

    The independent public accountants have audited the Company's consolidated
financial statements as described in their report. Although their audits were   
not designed for the purpose of forming an opinion on internal controls, the    
Company's accounting systems, procedures and internal controls were subject to  
testing and other auditing procedures sufficient to enable the independent      
public accountants to render their opinion on the Company's financial           
statements.                                                                     

The recommendations of the internal auditors and independent public   
accountants are reviewed by management. Control procedures have been implemented
or revised as appropriate to respond to these recommendations. No material      
control weaknesses have been brought to the attention of management. In         
management's opinion, for the year ended December 31, 1995, the internal control
system was strong and accomplished the objectives discussed herein.             

/s/ Raymond V. Gilmartin                /s/ Judy C. Lewent                      

Raymond V. Gilmartin                    Judy C. Lewent                          
Chairman, President and                 Senior Vice President and               
Chief Executive Officer                 Chief Financial Officer                 

REPORT OF                                                                       
INDEPENDENT                                                                     
PUBLIC ACCOUNTANTS                                                              

To the Stockholders and                                                         
Board of Directors of Merck & Co., Inc.:                                        

We have audited the accompanying consolidated balance sheets of Merck & Co.,    
Inc. (a New Jersey corporation) and subsidiaries as of December 31, 1995 and    
1994, and the related consolidated statements of income, retained earnings and  
cash flows for each of the three years in the period ended December 31, 1995.   
These financial statements are the responsibility of the Company's management.  
Our responsibility is to express an opinion on these financial statements based 
on our audits.                                                                  

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,evidence supporting  
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Merck & Co., Inc. and       
subsidiaries as of December 31, 1995 and 1994, and the results of their         
operations and their cash flows for each of the three years in the period ended 
December 31, 1995, in conformity with generally accepted accounting principles. 

                                       /s/ Arthur Andersen LLP

New York, New York                              ARTHUR ANDERSEN LLP             
January 23, 1996                                                                

50                                                                              

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AUDIT                                                                           
COMMITTEE'S REPORT                                                              

The Audit Committee of the Board of Directors is comprised of six outside       
directors. The members of the Committee are: Charles E. Exley Jr., Chairman;    
Carolyne K. Davis, Ph.D., Vice Chairman; Sir Derek Birkin; William N. Kelley,   
M.D.; Samuel O. Thier, M.D., and Dennis Weatherstone. The Committee held three  
meetings during 1995.                                                           

The Audit Committee meets with the independent public accountants,    
management and internal auditors to assure that all are carrying out their      
respective responsibilities. The Audit Committee reviews the performance and    
fees of the independent public accountants prior to recommending their          
appointment, and meets with them, without management present, to discuss the    
scope and results of their audit work, including the adequacy of internal       
controls and the quality of financial reporting. Both the independent public    
accountants and the internal auditors have full access to the Audit Committee.  

                                        /s/ Charles E. Exley Jr.

                                    Charles E. Exley Jr.
                                         Chairman, Audit Committee

COMPENSATION                                                                    
AND BENEFITS                                                                    
COMMITTEE'S REPORT                                                              

The Compensation and Benefits Committee is comprised of five outside directors. 
The members of the Committee are: H. Brewster Atwater Jr., Chairman; Lawrence A.
Bossidy, Vice Chairman; William G. Bowen, Ph.D.; Johnnetta B. Cole, Ph.D., and  
Lloyd C. Elam, M.D. The Committee held five meetings during 1995.               

  The Compensation and Benefits Committee's major responsibilities include
providing for senior management succession and overseeing the Company's         
compensation and benefit programs. The Committee seeks to provide rewards which 
are highly leveraged to performance and clearly linked to Company and individual
results. The objective is to ensure that compensation and benefits are at levels
which enable Merck to attract and retain high quality employees. The Committee  
views stock ownership as a vehicle to align the interests of employees with     
those of the stockholders. A long-term focus is essential for success in the    
pharmaceutical industry and is encouraged by making a high proportion of        
executive officer compensation dependent on long-term performance and on        
enhancing stockholder value.                                                    

   /s/ H. Brewster Atwater Jr.

H. Brewster Atwater Jr. 
                     Chairman, Compensation and Benefits Committee

                                                        [Enlarge/Download Table]


SELECTED FINANCIAL DATA/(1)/                                                          Merck & Co., Inc. and Subsidiaries      
($ in millions except per share amount)  1995         1994        1993/(2)/     1992/(3)/     1991            1990       1989 
----------------------------------------------------------------------------------------------------------------------------- 
                                                                                                                              
Results for Year:                                                                                                             
Sales.................................. $16,681.1    $14,969.8    $10,498.2     $ 9,662.5    $8,602.7     $7,671.5   $6,550.5 
Materials and production costs.........   7,456.3      5,962.7      2,497.6       2,096.1     1,934.9      1,778.1    1,550.3 
Marketing/administrative expenses......   3,297.8      3,177.5      2,913.9       2,963.3     2,570.3      2,388.0    2,013.4 
Research/development expenses..........   1,331.4      1,230.6      1,172.8       1,111.6       987.8        854.0      750.5 
Gains on sales of specialty                                                                                                   
  chemical businesses..................    (682.9)        --           --            --           --          --         --   
Restructuring charge...................     175.0         --          775.0          --           --          --         --   
Gain on joint venture formation........      --         (492.0)        --            --           --          --         --   
Provision for joint venture obligation.      --          499.6         --            --           --          --         --   
Other (income) expense, net............     306.3        176.2         36.2         (72.1)      (57.0)       (47.4)     (46.7)
Income before taxes....................   4,797.2      4,415.2      3,102.7       3,563.6     3,166.7      2,698.8    2,283.0 
Taxes on income........................   1,462.0      1,418.2        936.5       1,117.0     1,045.0        917.6      787.6 
Net income.............................   3,335.2      2,997.0      2,166.2       2,446.6     2,121.7      1,781.2    1,495.4 
Earnings per common share..............     $2.70        $2.38        $1.87         $2.12       $1.83        $1.52      $1.26 
Dividends declared.....................   1,578.0      1,463.1      1,239.0       1,106.9       920.3        788.1      681.5 
Dividends paid per common share........     $1.24        $1.14        $1.03          $.92        $.77         $.64       $.55 
Capital expenditures...................   1,005.5      1,009.3      1,012.7       1,066.6     1,041.5        670.8      433.0 
Depreciation...........................     463.3        475.6        348.4         290.3       242.7        231.4      206.4 
----------------------------------------------------------------------------------------------------------------------------- 
YEAR-END POSITION:                                                                                                            
Working capital........................ $ 2,928.0    $ 1,473.1    $  (161.1)    $   782.4    $1,496.5     $  939.2   $1,502.5 
Property, plant and equipment (net)....   5,269.1      5,296.3      4,894.6       4,271.1     3,504.5      2,721.7    2,292.5 
Total assets...........................  23,831.8     21,856.6     19,927.5      11,086.0     9,498.5      8,029.8    6,756.7 
Long-term debt.........................   1,372.8      1,145.9      1,120.8         495.7       493.7        124.1      117.8 
Stockholders' equity...................  11,735.7     11,139.0     10,021.7       5,002.9     4,916.2      3,834.4    3,520.6 
----------------------------------------------------------------------------------------------------------------------------- 
FINANCIAL RATIOS:                                                                                                             
Net income as a % of:                                                                                                         
  Sales................................     20.0%        20.0%        20.6%         25.3%       24.7%        23.2%      22.8% 
  Average total assets.................     14.6%        14.3%        14.0%         24.1%       24.2%        24.1%      23.2% 
----------------------------------------------------------------------------------------------------------------------------- 
YEAR-END STATISTICS:                                                                                                          
Average common shares                                                                                                         
 outstanding (millions)................   1,236.1      1,257.2     1,156.5        1,153.5     1,159.9      1,172.1    1,188.3 
Number of stockholders.................   243,000      244,700      231,300       161,200      91,100       82,300     75,600 
Number of employees....................    45,200       47,500       47,100/(4)/   38,400      37,700       36,900     34,400 
============================================================================================================================= 

                                                        [Enlarge/Download Table]

                                         1988       1987        1986       1985                                              
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                                             
Results for Year:                                                                                                            
Sales................................. $5,939.5      $5,061.3   $4,128.9    $3,547.5                                         
Materials and production costs........  1,526.1       1,444.3    1,338.0     1,272.4                                         
Marketing/administrative expenses.....  1,877.8       1,682.1    1,269.9     1,009.0                                         
Research/development expenses.........    668.8         565.7      479.8       426.3                                         
Gains on sales of specialty                                                                                                  
  chemical businesses.................     --            --         --           --                                          
Restructuring charge..................     --            --         --           --                                          
Gain on joint venture formation.......     --            --         --           --                                          
Provision for joint venture obligation     --            --         --           --                                          
Other (income) expense, net...........     (4.2)         (36.0)     (32.1)      (17.2)                                       
Income before taxes...................  1,871.0        1,405.2    1,073.3       857.0                                        
Taxes on income.......................    664.2          498.8      397.6       317.1                                        
Net income............................  1,206.8          906.4      675.7       539.9                                        
Earnings per common share.............    $1.02           $.74       $.54        $.42                                        
Dividends declared....................    546.3          365.2      278.5       235.1                                        
Dividends paid per common share.......     $.43           $.27       $.21        $.18                                        
Capital expenditures..................    372.7          253.7      210.6       237.6                                        
Depreciation..........................    189.0          188.5      167.2       163.6                                        
-----------------------------------------------------------------------------------------------------------------------------
YEAR-END POSITION:                                                                                                           
Working capital....................... $1,480.3       $  798.3   $1,094.3    $1,106.6                                        
Property, plant and equipment (net)...  2,070.7        1,948.0    1,906.2     1,882.8                                        
Total assets..........................  6,127.5        5,680.0    5,105.2     4,902.2                                        
Long-term debt........................    142.8          167.4      167.5       170.8                                        
Stockholders' equity..................  2,855.8        2,116.7    2,541.2     2,607.7                                        
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS:                                                                                                            
Net income as a % of:                                                                                                        
  Sales...............................     20.3%         17.9%       16.4%      15.2%                                        
  Average total assets................     20.4%         16.8%       13.5%      11.4%                                        
-----------------------------------------------------------------------------------------------------------------------------
YEAR-END STATISTICS:                                                                                                         
Average common shares                                                                                                        
 outstanding (millions)...............  1,186.9        1,221.2    1,253.9     1,282.7                                        
Number of stockholders................   68,500         56,900     48,300      47,000                                        
Number of employees...................   32,000         31,100     30,700      30,900                                        
=============================================================================================================================

(1)  Amounts after 1992 include the impact of Medco from the date of acquisition
on November 18, 1993.                                                 
(2)  Amounts for 1993 include a restructuring charge of $.45 per share.         
(3)  Results of operations for 1992 exclude the cumulative effect of accounting 
changes.                                                              
(4)  Increase in 1993 is due to the inclusion of 10,300 Medco employees.        

                                                                              51

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10-K405 Filing		Date		First		Last			Other Filings
		11/18/93		3		24			8-K/A
		12/31/93		15		20			10-K, 10-K/A
		1/1/94		17
		11/1/94		3		16			8-K
		12/31/94		2		23			10-K
For The Period Ended		12/31/95		8		23			10-K/A, 11-K
		1/1/96		8
		1/23/96		23
Filed On / Filed As Of		3/20/96
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