Merck has announced financial results for the fourth quarter and full year of 2015.
“The past year was one of considerable progress and execution for Merck,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “I’m excited by the near-term opportunities, as we continue launching important new products like ZEPATIER and KEYTRUDA while augmenting and advancing our pipeline.”
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Financial Summary
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Fourth Quarter
|
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Year Ended
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|
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Dec. 31,
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Dec. 31,
|
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$ in millions, except EPS amounts
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2015
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2014
|
|
2015
|
|
2014
|
|
|
Sales
|
|
$10,215
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|
$10,482
|
|
$39,498
|
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$42,237
|
|
|
GAAP EPS
|
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0.35
|
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2.54
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1.56
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4.07
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Non-GAAP EPS that excludes items listed below1
|
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0.93
|
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0.87
|
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3.59
|
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3.49
|
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GAAP net income2
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976
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7,316
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4,442
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11,920
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Non-GAAP net income that excludes items listed below1,2
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2,608
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2,504
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10,195
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10,215
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Non-GAAP (generally accepted accounting principles) earnings per share (EPS) of $0.93 for the fourth quarter and $3.59 for the full year of 2015 exclude acquisition- and divestiture-related costs, restructuring costs and certain other items, as well as a net charge to settle Vioxx shareholder class action litigation.
A reconciliation of GAAP to non-GAAP net income and EPS is provided in the tables that follow.
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Fourth Quarter
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Year Ended
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Dec. 31,
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Dec. 31,
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$ in millions, except EPS amounts
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2015
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2014
|
|
2015
|
|
2014
|
|
|
EPS
|
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|
|
|
|
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|
GAAP EPS
|
|
$0.35
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|
$2.54
|
|
$1.56
|
|
$4.07
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Difference3
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0.58
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(1.67)
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2.03
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|
(0.58)
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Non-GAAP EPS that excludes items listed below1
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$ 0.93
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$0.87
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$3.59
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$3.49
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Net Income
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GAAP net income2
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$976
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$7,316
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$4,442
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$11,920
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Difference
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1,632
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(4,812)
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5,753
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(1,705)
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Non-GAAP net income that excludes items listed below1,2
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$2,608
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$2,504
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$10,195
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$10,215
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Decrease (Increase) in Net Income Due to Excluded Items:
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|
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Acquisition- and divestiture-related costs4
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$ 1,264
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$1,394
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$5,398
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$5,946
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Restructuring costs
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340
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619
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1,110
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1,978
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Net charge to settle Vioxx shareholder class action litigation
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680
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|
–
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680
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–
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Foreign exchange losses related to Venezuela
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161
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|
–
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876
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|
–
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Loss on extinguishment of debt
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–
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628
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|
–
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628
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Additional year of health care reform fee
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–
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–
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–
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193
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Gain on divestiture of certain ophthalmic products
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(147)
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(84)
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(147)
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(480)
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Gain on divestiture of certain migraine clinical development programs
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–
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–
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(250)
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–
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Gain on sale of Merck Consumer Care
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–
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(11,209)
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–
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(11,209)
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Gain on AstraZeneca option exercise
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–
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–
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–
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(741)
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Other
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13
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(14)
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(34)
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(9)
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Net decrease (increase) in income before taxes
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2,311
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(8,666)
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7,633
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(3,694)
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Income tax (benefit) expense5
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(679)
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3,854
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(1,880)
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2,045
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Acquisition- and divestiture-related costs attributable to non-controlling interests
|
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–
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–
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–
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(56)
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Decrease (increase) in net income
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|
$1,632
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$(4,812)
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$5,753
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$(1,705)
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1 Merck is providing certain 2015 and 2014 non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP. For description of the items, see Tables 2a and 2b, including the related footnotes, attached to this release.
2 Net income attributable to Merck & Co., Inc.
3 Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS, which may be different than the amount calculated by dividing the impact of the excluded items by the weighted-average shares for the period.
4 Includes expenses for the amortization of intangible assets recognized as a result of acquisitions, intangible asset impairment charges and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Also includes integration costs, as well as transaction and certain other costs related to business acquisitions and divestitures.
5 Includes the estimated tax impact on the reconciling items. In addition, amounts for fourth-quarter and full-year 2015 include net benefits of $40 million and $410 million, respectively, related to the settlement of certain federal income tax issues. Additionally, amount for full-year 2014 includes a net benefit of $517 million recorded in connection with AstraZeneca’s option exercise, as well as a benefit of approximately $300 million associated with a capital loss generated in the first quarter.
Additional Executive Commentary
“In 2016 we will build upon the strong foundation we established last year. We will continue to invest resources to launch and grow our strongest brands, support the most promising internal assets, enhance our pipeline with the best available external science and maintain a balanced and differentiated portfolio, with the goal of delivering long-term growth and shareholder value,” said Frazier.
“Global Human Health delivered a solid performance in 2015,” said Adam Schechter, president, Global Human Health, Merck. “In 2016 we will continue to prioritize resources focusing on JANUVIA, on our key launches, including KEYTRUDA and ZEPATIER, and on our hospital acute care and vaccines businesses.”
“We will pursue numerous filings and approvals in 2016,” said Dr. Roger M. Perlmutter, president, Merck Research Laboratories. “For example, we view KEYTRUDA as foundational in the next-generation treatment of malignant disease, and hence have embarked upon an exceptionally broad development program for this agent, with registration-enabling studies underway in more than a dozen tumor types. We will also pursue more than 100 studies involving combinations of KEYTRUDA with other drugs.”
“The fourth quarter was a strong finish to a solid year of execution. We expect this momentum to continue into 2016, as we further innovate in our labs, invest behind our launches and continue our focus on disciplined resource allocation and continuous productivity to deliver a leveraged P&L and shareholder returns,” said Robert Davis, chief financial officer, Merck.
Select Business Highlights
Worldwide sales were $10.2 billion for the fourth quarter of 2015, a decrease of 3 percent compared with the fourth quarter of 2014, including a 7 percent negative impact from foreign exchange and a 3 percent net positive impact primarily from the acquisition of Cubist Pharmaceuticals, Inc. (Cubist). Full-year 2015 worldwide sales were $39.5 billion, a decrease of 6 percent compared with the full year of 2014, including a 6 percent negative impact from foreign exchange and a 3 percent net negative impact resulting from the divestiture of the Consumer Care business and select products, partially offset by the Cubist acquisition.
The following table reflects sales of the company’s top pharmaceutical products, as well as total sales of Animal Health and Consumer Care products.
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$ in millions
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Fourth Quarter
|
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Change
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Change
Ex-
Exchange
|
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Year Ended
|
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Change
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Change
Ex-
Exchange
|
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|
|
2015
|
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2014
|
|
|
|
Dec. 31,
2015
|
|
Dec. 31,
2014
|
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Total Sales
|
|
$10,215
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|
$10,482
|
|
-3%
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4%
|
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$39,498
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$42,237
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|
-6%
|
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0%
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Pharmaceutical
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9,027
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9,370
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-4%
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4%
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|
34,782
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36,042
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-3%
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4%
|
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|
JANUVIA /
JANUMET
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|
1,447
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1,652
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-12%
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-6%
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6,014
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6,002
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|
0%
|
|
7%
|
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ZETIA /
VYTORIN
|
|
999
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1,032
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-3%
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4%
|
|
3,777
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|
4,166
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|
-9%
|
|
-2%
|
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|
GARDASIL /
GARDASIL 9
|
|
497
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|
356
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40%
|
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42%
|
|
1,908
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|
1,738
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|
10%
|
|
11%
|
|
|
PROQUAD, M-M-R II and VARIVAX
|
|
409
|
|
366
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12%
|
|
14%
|
|
1,505
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|
1,394
|
|
8%
|
|
10%
|
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|
REMICADE
|
|
396
|
|
557
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|
-29%
|
|
-18%
|
|
1,794
|
|
2,372
|
|
-24%
|
|
-10%
|
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|
ISENTRESS
|
|
374
|
|
418
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|
-11%
|
|
-4%
|
|
1,511
|
|
1,673
|
|
-10%
|
|
-2%
|
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|
CUBICIN
|
|
322
|
|
7*
|
|
**
|
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**
|
|
1,127
|
|
25*
|
|
**
|
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**
|
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|
SINGULAIR
|
|
273
|
|
319
|
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-14%
|
|
-7%
|
|
931
|
|
1,092
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|
-15%
|
|
-5%
|
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|
ZOSTAVAX
|
|
246
|
|
285
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|
-14%
|
|
-11%
|
|
749
|
|
765
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|
-2%
|
|
0%
|
|
|
NASONEX
|
|
231
|
|
268
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|
-14%
|
|
-8%
|
|
858
|
|
1,099
|
|
-22%
|
|
-16%
|
|
|
KEYTRUDA
|
|
214
|
|
50
|
|
**
|
|
**
|
|
566
|
|
55
|
|
**
|
|
**
|
|
|
Animal Health
|
|
830
|
|
885
|
|
-6%
|
|
8%
|
|
3,324
|
|
3,454
|
|
-4%
|
|
9%
|
|
|
Consumer Care***
|
|
–
|
|
16
|
|
**
|
|
**
|
|
3
|
|
1,547
|
|
**
|
|
**
|
|
|
Other Revenues
|
|
358
|
|
211
|
|
69%
|
|
19%
|
|
1,389
|
|
1,194
|
|
16%
|
|
-33%
|
|
|
*Reflects licensing agreement with Cubist in Japan prior to acquisition by Merck on Jan. 21, 2015
|
|
**≥100%
|
|
***divested on Oct. 1, 2014
|
Commercial and Pipeline Highlights
The company continued to make steady progress in advancing its late-stage pipeline, achieving key regulatory approvals and expanded indications for multiple products across its portfolio.
- The U.S. Food and Drug Administration (FDA) approved ZEPATIER (elbasvir and grazoprevir), a once-daily, fixed-dose combination tablet for the treatment of adult patients with chronic hepatitis C virus (HCV) genotype (GT) 1 or GT4 infection, with or without ribavirin. ZEPATIER was approved for use in a broad range of chronic HCV patients, including those with compensated cirrhosis, renal impairment of any degree and HIV-1/HCV co-infection.
- Merck significantly advanced its development program for KEYTRUDA (pembrolizumab), an anti-PD-1 therapy for the treatment of metastatic non-small cell lung cancer (NSCLC) in previously treated patients whose tumors express PD-L1, as well as advanced melanoma.
- The FDA approved KEYTRUDA for the treatment of patients with metastatic NSCLC whose tumors express PD-L1 as determined by an FDA-approved test and who have disease progression on or after platinum-containing chemotherapy across both squamous and non-squamous metastatic NSCLC.
- The FDA approved an expanded indication for KEYTRUDA for the first-line treatment of patients with unresectable or metastatic melanoma regardless of BRAF status and an update to the product labeling for KEYTRUDA for the treatment of patients with ipilimumab-refractory advanced melanoma.
- KEYTRUDA received a third Breakthrough Therapy Designation from the FDA for the treatment of patients with microsatellite instability high metastatic colorectal cancer.
- Results from the pivotal KEYNOTE-010 study were published in The Lancet and presented at the European Society for Medical Oncology Asia 2015 Congress, showing superior overall survival compared to chemotherapy in patients with previously treated advanced NSCLC whose tumors express PD-L1. Based on these data, the company has submitted a supplemental Biologics License Application to the FDA and a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA).
- During the fourth quarter of 2015, the company entered into collaborations with GSK and Amgen. Additionally, the company extended an existing collaboration with Eli Lilly and Company (Lilly) and entered into a new collaboration with Lilly to study KEYTRUDA in combination settings.
- The KEYTRUDA clinical trials program currently includes more than 30 tumor types in more than 200 clinical trials, including more than 100 trials that combine KEYTRUDA with other cancer treatments. Registration-enabling trials of KEYTRUDA are currently enrolling patients with melanoma, NSCLC, head and neck cancer, bladder cancer, gastric cancer, colorectal cancer, esophageal cancer, Hodgkin lymphoma, multiple myeloma and breast cancer, and further trials are being planned for other malignancies.
- The company strengthened its oncology pipeline by acquiring IOmet Pharma Ltd (IOmet) in early 2016. IOmet is a drug discovery company focused on the development of innovative medicines for the treatment of cancer, with a particular emphasis on the fields of cancer immunotherapy and cancer metabolism.
- BRIDION (sugammadex) Injection 100 mg/mL was approved by the FDA for the reversal of neuromuscular blockade induced by rocuronium bromide and vecuronium bromide in adults undergoing surgery.
- The Biologics License Application for bezlotoxumab, an investigational antitoxin for the prevention of Clostridium difficile (C. difficile) infection recurrence, was accepted by the FDA for priority review with a PDUFA action date of July 23, 2016. The company also has filed a MAA for bezlotoxumab with the EMA that is currently under review.
Pharmaceutical Revenue Performance
Fourth-quarter pharmaceutical sales declined 4 percent to $9.0 billion, including an 8 percent negative impact from foreign exchange. Excluding the impact of exchange, growth was driven by sales in hospital acute care, oncology and vaccines. Growth in hospital acute care was driven by the addition of the Cubist portfolio and sales growth of certain inline brands. Growth in oncology reflects higher sales of KEYTRUDA. Growth in vaccines reflects higher sales of GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant), a vaccine to prevent cancers and other diseases caused by HPV, reflecting an increase in sales in the United States primarily due to public sector purchases, and higher sales of PROQUAD (Measles, Mumps, Rubella and Varicella Vaccine Live) driven by the timing of sales activity related to the Pediatric Vaccine Stockpile of the U.S. Centers for Disease Control and Prevention.
Fourth-quarter pharmaceutical sales reflect a decrease in PNEUMOVAX 23 (pneumococcal vaccine polyvalent), due to near-term market dynamics in the United States and the timing of vaccinations linked to the National Immunization Program in Japan, as well as lower sales in the diabetes franchise of JANUVIA (sitagliptin)/JANUMET (sitagliptin and metformin HCl), medicines that help lower blood sugar in adults with type 2 diabetes, driven in large part by an expected decline due to the timing of customer purchases in the third quarter of 2015. Pharmaceutical sales also reflect declines in REMICADE (infliximab), a treatment for inflammatory diseases, due to loss of exclusivity and the accelerating impact of biosimilar competition in the company’s marketing territories in Europe, and PEGINTRON (peginterferon alfa-2b), a medicine to treat chronic HCV.
Full-year 2015 pharmaceutical sales declined 3 percent to $34.8 billion, including a 7 percent negative impact from foreign exchange. Excluding the impact of exchange, growth was driven by sales in hospital acute care, oncology, diabetes and vaccines.
Animal Health Revenue Performance
Animal Health sales totaled $830 million for the fourth quarter of 2015, a decrease of 6 percent compared with the fourth quarter of 2014, including a 14 percent negative impact from foreign exchange. Worldwide sales for the full year of 2015 were $3.3 billion, a decrease of 4 percent, including a 13 percent negative impact from foreign exchange. Excluding the impact of exchange, growth in both periods was primarily driven by an increase in sales of companion animal products, including continued strong growth from BRAVECTO (fluralaner), a chewable tablet that kills fleas and ticks in dogs for up to 12 weeks, and aqua and swine products.
Fourth-Quarter and Full-Year 2015 Expense and Other Information
The tables below present selected expense information for the fourth quarter and full year of 2015.
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|
|
|
$ in millions
|
|
Included in expenses for the period
|
|
| |
|
|
|
Acquisition- and
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
|
Divestiture-
|
|
Restructuring
|
|
|
|
|
2015
|
|
GAAP
|
|
Related Costs4
|
|
Costs
|
|
Non-GAAP(1)
|
|
|
Materials and production
|
|
$3,850
|
|
$1,194
|
|
$81
|
|
$2,575
|
|
|
Marketing and administrative
|
|
2,615
|
|
47
|
|
8
|
|
2,560
|
|
|
Research and development
|
|
1,797
|
|
(24)
|
|
18
|
|
1,803
|
|
|
Restructuring costs
|
|
233
|
|
–
|
|
233
|
|
–
|
|
|
Fourth Quarter
2014
|
|
|
|
|
|
|
|
|
|
|
Materials and production
|
|
$3,749
|
|
$984
|
|
$105
|
|
$2,660
|
|
|
Marketing and administrative
|
|
2,924
|
|
81
|
|
57
|
|
2,786
|
|
|
Research and development
|
|
2,283
|
|
329
|
|
108
|
|
1,846
|
|
|
Restructuring costs
|
|
349
|
|
–
|
|
349
|
|
–
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
$ in millions
|
|
Included in expenses for the period
|
|
| |
|
|
|
Acquisition-
|
|
|
|
|
|
|
|
| |
|
|
|
and Divestiture-
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Related
|
|
Restructuring
|
|
Certain
|
|
|
|
|
Dec. 31, 2015
|
|
GAAP
|
|
Costs4
|
|
Costs
|
|
Other Items
|
|
Non-GAAP(1)
|
|
|
Materials and production
|
|
$14,934
|
|
$4,869
|
|
$361
|
|
$–
|
|
$9,704
|
|
|
Marketing and administrative
|
|
10,313
|
|
436
|
|
78
|
|
–
|
|
9,799
|
|
|
Research and development
|
|
6,704
|
|
39
|
|
52
|
|
–
|
|
6,613
|
|
|
Restructuring costs
|
|
619
|
|
–
|
|
619
|
|
–
|
|
–
|
|
|
Year Ended
Dec. 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials and production
|
|
$16,768
|
|
$5,254
|
|
$482
|
|
$–
|
|
$ 11,032
|
|
|
Marketing and administrative
|
|
11,606
|
|
234
|
|
200
|
|
193
|
|
10,979
|
|
|
Research and development
|
|
7,180
|
|
365
|
|
283
|
|
–
|
|
6,532
|
|
|
Restructuring costs
|
|
1,013
|
|
–
|
|
1,013
|
|
–
|
|
–
|
|
| |
|
|
|
|
|
|
|
|
|
|
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The gross margin was 62.3 percent for the fourth quarter of 2015 compared to 64.2 percent for the fourth quarter of 2014, reflecting 12.5 and 10.4 unfavorable percentage point impacts, respectively, from the acquisition- and divestiture-related costs and restructuring costs noted above. The gross margin was 62.2 percent for the full year of 2015 compared to 60.3 percent for the full year of 2014, reflecting 13.2 and 13.6 unfavorable percentage point impacts, respectively, from the acquisition- and divestiture-related costs and restructuring costs noted above. The rate increases in non-GAAP gross margin for the fourth quarter and full year of 2015 reflect the favorable impact of foreign exchange and lower inventory write-offs.
Marketing and administrative expenses, on a non-GAAP basis, were $2.6 billion in the fourth quarter of 2015, a decrease from $2.8 billion in the same period of 2014, which was primarily driven by the favorable impact of foreign exchange and operational efficiencies, partially offset by investments in key brands. Full-year 2015 marketing and administrative expenses, on a non-GAAP basis, were $9.8 billion, a decrease from $11.0 billion in 2014, which was primarily driven by the favorable impact of foreign exchange and the sale of the Consumer Care business, partially offset by investments in key brands.
Research and development (R&D) expenses, on a non-GAAP basis, were $1.8 billion in the fourth quarter of 2015, a 2 percent decrease compared to the fourth quarter of 2014. Full-year R&D expenses in 2015, on a non-GAAP basis, were $6.6 billion, an increase from $6.5 billion in 2014.
Other (income) expense, net, was $905 million of expense in the fourth quarter of 2015 compared to $10.6 billion of income in the fourth quarter of 2014 and $1.5 billion of expense for the full year of 2015 compared to $11.6 billion of income for the full year of 2014. Other (income) expense, net for the fourth quarter and full year of 2015 includes $161 million and $876 million, respectively, of foreign exchange losses related to the revaluation of the company’s net monetary assets in Venezuela and a $680 million net charge to settle Vioxx shareholder class action litigation. Other (income) expense, net in both the fourth quarter and full year of 2014 includes an $11.2 billion gain on the divestiture of the Consumer Care business and a $628 million loss on the extinguishment of debt.
The GAAP effective tax rates of (20.4) percent for the fourth quarter of 2015 and 17.4 percent for the full year of 2015 reflect the impacts of acquisition- and divestiture-related costs, restructuring costs and certain other items, including the impact of the net charge to settle Vioxx shareholder class action litigation being fully deductible at combined U.S. federal and state tax rates, as well as the unfavorable impact of non-deductible foreign exchange losses related to Venezuela. In addition, the GAAP effective tax rates for the fourth quarter and full year of 2015 include net benefits of $40 million and $410 million, respectively, related to the settlement of certain federal tax issues. The non-GAAP effective tax rates, which exclude these items, were 16.4 percent for the fourth quarter and 21.7 percent for the full year of 2015. Both the GAAP and non-GAAP effective tax rates for the fourth quarter and full year of 2015 include the favorable impact of tax legislation, including the renewal of the R&D tax credit, enacted in the fourth quarter of 2015.
Financial Outlook
Merck expects its full-year 2016 GAAP EPS to be between $1.96 and $2.23. Merck expects its full-year 2016 non-GAAP EPS to be between $3.60 and $3.75, including an approximately 4 percent negative impact from foreign exchange. The non-GAAP range excludes acquisition- and divestiture-related costs and costs related to restructuring programs.
At mid-January 2016 exchange rates, Merck anticipates full-year 2016 revenues to be between $38.7 billion and $40.2 billion, including an approximately 3 percent negative impact from foreign exchange.
In addition, the company expects full-year 2016 non-GAAP marketing and administrative expenses to be below 2015 levels and R&D expenses to be modestly above 2015 levels.
The company anticipates its full-year 2016 non-GAAP tax rate will be in the range of 21.5 to 22.5 percent, including a 2016 R&D tax credit.
A reconciliation of anticipated 2016 EPS, as reported in accordance with GAAP to non-GAAP EPS that excludes certain items, is provided in the table below.
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Full Year
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$ in millions, except EPS amounts
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2016
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GAAP EPS
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$1.96 to $2.23
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Difference3
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1.64 to 1.52
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Non-GAAP EPS that excludes items listed below
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$3.60 to $3.75
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Acquisition- and divestiture-related costs
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$4,600 to $4,400
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Restructuring costs
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900 to 700
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Net decrease (increase) in income before taxes
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5,500 to 5,100
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Estimated income tax (benefit) expense
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(935) to (860)
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Decrease (increase) in net income
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$4,565 to $4,240
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Total Employees
As of Dec. 31, 2015, Merck had approximately 68,000 employees worldwide.