Merck & Co. (MRK) 8-K Results of Operations and Financial Condition

Exhibit 99.2

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF INCOME - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1a

	2016									2015																		% Change
	1Q			2Q			June YTD			1Q			2Q			June YTD			3Q			4Q			Dec YTD			2Q		June YTD
Sales	$	9,312		$	9,844		$	19,156		$	9,425		$	9,785		$	19,210		$	10,073		$	10,215		$	39,498		1	%	—
Costs, Expenses and Other
Materials and production	3,572			3,578			7,150			3,569			3,754			7,323			3,761			3,850			14,934			-5	%	-2	%
Marketing and administrative	2,318			2,458			4,776			2,601			2,624			5,226			2,472			2,615			10,313			-6	%	-9	%
Research and development	1,659			2,151			3,810			1,737			1,670			3,407			1,500			1,797			6,704			29	%	12	%
Restructuring costs	91			134			225			82			191			273			113			233			619			-30	%	-18	%
Other (income) expense, net	48			19			67			55			739			793			(170		)	905			1,527			-97	%	-92	%
Income Before Taxes	1,624			1,504			3,128			1,381			807			2,188			2,397			815			5,401			86	%	43	%
Income Tax Provision (Benefit)	494			295			789			423			119			542			566			(166		)	942
Net Income	1,130			1,209			2,339			958			688			1,646			1,831			981			4,459			76	%	42	%
Less: Net Income Attributable to Noncontrolling Interests	5			4			9			5			1			7			5			5			17
Net Income Attributable to Merck & Co., Inc.	$	1,125		$	1,205		$	2,330		$	953		$	687		$	1,639		$	1,826		$	976		$	4,442		75	%	42	%
Earnings per Common Share Assuming Dilution	$	0.40		$	0.43		$	0.83		$	0.33		$	0.24		$	0.57		$	0.64		$	0.35		$	1.56		79	%	46	%
Average Shares Outstanding Assuming Dilution	2,795			2,789			2,792			2,865			2,850			2,856			2,836			2,813			2,841
Tax Rate	30.4		%	19.6		%	25.2		%	30.6		%	14.7		%	24.8		%	23.6		%	-20.4		%	17.4		%

Sum of quarterly amounts may not equal year-to-date amounts due to rounding.

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

SECOND QUARTER 2015

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2c

				Acquisition and
				Divestiture-		Restructuring		Certain Other		Adjustment
	GAAP			Related Costs (1)		Costs (2)		Items		Subtotal		Non-GAAP
Materials and production	$	3,754		1,241		105				1,346		$	2,408
Marketing and administrative	2,624			136		17				153		2,471
Research and development	1,670			71		15				86		1,584
Restructuring costs	191					191				191		—
Other (income) expense, net	739							715	(3)	715		24
Income Before Taxes	807			(1,448	)	(328	)	(715	)	(2,491	)	3,298
Tax Provision (Benefit)	119			(314	)(4)	(53	)(4)	(370	)(5)	(737	)	856
Net Income	688			(1,134	)	(275	)	(345	)	(1,754	)	2,442
Net Income Attributable to Merck & Co., Inc.	687			(1,134	)	(275	)	(345	)	(1,754	)	2,441
Earnings per Common Share Assuming Dilution	$	0.24		(0.40	)	(0.10	)	(0.12	)	(0.62	)	$	0.86
Tax Rate	14.7		%									26.0		%

Only the line items that are affected by non-GAAP adjustments are shown.

Merck is providing 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.  Management uses this information internally for planning and forecasting purposes and to measure the performance of the company along with other metrics.  Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS.  This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP.

(1) Amounts included in materials and production costs reflect $1.2 billion of expenses for the amortization of intangible assets recognized as a result of acquisitions, as well as $44 million of amortization of purchase accounting adjustments to inventories as a result of the Cubist acquisition.  Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions, including severance costs which are not part of the company’s formal restructuring programs, as well as transaction and certain other costs related to divestitures.  Amounts included in research and development expenses reflect $59 million of in-process research and development (“IPR&D”) impairment charges, as well as $12 million of charges to increase the fair value of liabilities for contingent consideration. 

(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to activities under the company’s formal restructuring programs.

(3) Represents non-deductible foreign exchange losses to devalue the company’s net monetary assets in Venezuela.

(4) Represents the estimated tax impact on the reconciling items, based on applying the statutory rate of the originating territory of the non-GAAP adjustments.

(5) Represents a net benefit related to the settlement of certain federal income tax issues.

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

SIX MONTHS ENDED JUNE 30, 2015

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2d

				Acquisition and
				Divestiture-		Restructuring		Certain Other		Adjustment
	GAAP			Related Costs (1)		Costs (2)		Items		Subtotal		Non-GAAP
Materials and production	$	7,323		2,491		210				2,701		$	4,622
Marketing and administrative	5,226			363		53				416		4,810
Research and development	3,407			134		17				151		3,256
Restructuring costs	273					273				273		—
Other (income) expense, net	793							701	(3)	701		92
Income Before Taxes	2,188			(2,988	)	(553	)	(701	)	(4,242	)	6,430
Tax Provision (Benefit)	542			(557	)(4)	(88	)(4)	(370	)(5)	(1,015	)	1,557
Net Income	1,646			(2,431	)	(465	)	(331	)	(3,227	)	4,873
Net Income Attributable to Merck & Co., Inc.	1,639			(2,431	)	(465	)	(331	)	(3,227	)	4,866
Earnings per Common Share Assuming Dilution	$	0.57		(0.85	)	(0.16	)	(0.12	)	(1.13	)	$	1.70
Tax Rate	24.8		%									24.2		%

Only the line items that are affected by non-GAAP adjustments are shown.

Merck is providing 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.  Management uses this information internally for planning and forecasting purposes and to measure the performance of the company along with other metrics.  Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS.  This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP.

(1) Amounts included in materials and production costs reflect $2.4 billion of expenses for the amortization of intangible assets recognized as a result of acquisitions, as well as $65 million of amortization of purchase accounting adjustments to inventories as a result of the Cubist acquisition.  Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions, including severance costs which are not part of the company’s formal restructuring programs, as well as transaction and certain other costs related to divestitures.  Amounts included in research and development expenses reflect $73 million of charges to increase the fair value of liabilities for contingent consideration, as well as $61 million of in-process research and development (“IPR&D”) impairment charges.

(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to activities under the company’s formal restructuring programs.

(3) Primarily includes non-deductible foreign exchange losses of $715 million to devalue the company’s net monetary assets in Venezuela.

(4) Represents the estimated tax impact on the reconciling items, based on applying the statutory rate of the originating territory of the non-GAAP adjustments.

(5) Represents a net benefit related to the settlement of certain federal income tax issues.

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

SECOND QUARTER 2016

(AMOUNTS IN MILLIONS)

Table 3a

	Global					U.S.					International
	2Q 2016		2Q 2015		% Change	2Q 2016		2Q 2015		% Change	2Q 2016		2Q 2015		% Change
TOTAL SALES (1)	$	9,844	$	9,785	1	$	4,507	$	4,265	6	$	5,337	$	5,520	-3
PHARMACEUTICAL	8,700		8,564		2	4,169		3,934		6	4,531		4,631		-2
Primary Care and Women’s Health
Cardiovascular
Zetia	702		635		11	457		409		12	245		226		8
Vytorin	293		320		-9	123		123			170		197		-14
Diabetes
Januvia	1,064		1,044		2	631		648		-3	433		396		9
Janumet	569		554		3	258		263		-2	312		292		7
General Medicine & Women’s Health
NuvaRing	200		182		10	149		126		18	51		56		-9
Implanon / Nexplanon	164		124		32	112		74		51	52		50		4
Dulera	121		120		1	115		116		-1	6		5		27
Follistim AQ	73		111		-35	20		52		-62	53		60		-11
Hospital and Specialty
Hepatitis
Zepatier	112				*	107				*	4				*
HIV
Isentress	338		375		-10	169		212		-20	169		163		4
Hospital Acute Care
Cubicin	357		293		22	304		266		14	53		27		97
Invanz	143		139		3	81		79		3	61		60		2
Noxafil	143		117		22	67		50		33	76		67		14
Cancidas	131		134		-2	6		7		-16	125		127		-1
Bridion	113		87		30	13				*	100		87		15
Primaxin	81		88		-8	2		1		22	79		87		-8
Immunology
Remicade	339		455		-26						339		455		-26
Simponi	199		169		18						199		169		18
Oncology
Keytruda	314		110		*	160		86		87	154		24		*
Emend	143		134		7	93		79		17	50		55		-8
Temodar	73		80		-9	1		2		-47	72		78		-8
Diversified Brands
Respiratory
Singulair	229		212		8	7		10		-31	222		201		10
Nasonex	101		215		-53	29		124		-77	72		91		-20
Other
Cozaar / Hyzaar	132		189		-30	4		9		-59	128		180		-29
Arcoxia	117		115		2						117		115		2
Fosamax	73		96		-24			3		-88	73		93		-21
Zocor	50		63		-21	2		5		-60	48		58		-17
Vaccines
Gardasil / Gardasil 9	393		427		-8	315		308		2	78		118		-34
ProQuad / M-M-R II / Varivax	383		358		7	324		301		8	58		57		2
Zostavax	149		149			116		107		9	33		43		-22
RotaTeq	130		89		46	85		48		76	45		41		11
Pneumovax 23	120		106		14	78		70		10	43		35		21
Other Pharmaceutical (2)	1,151		1,274		-9	341		356		-4	811		918		-12
ANIMAL HEALTH	898		840		7	256		215		19	643		625		3
Other Revenues (3)	246		381		-36	82		116		-29	163		264		-38

* 100% or greater

(1)  Only select products are shown.

(2)  Includes Pharmaceutical products not individually shown above.  Other Vaccines sales included in Other Pharmaceutical were $91 million and $76 million on a global basis for second quarter 2016 and 2015, respectively.

(3)  Other revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

JUNE YEAR-TO-DATE 2016

(AMOUNTS IN MILLIONS)

Table 3b

	Global						U.S.					International
	June YTD		June YTD				June YTD		June YTD			June YTD		June YTD
	2016		2015		% Change		2016		2015		% Change	2016		2015		% Change
TOTAL SALES (1)	$	19,156	$	19,210			$	8,728	$	8,218	6	$	10,427	$	10,992	-5
PHARMACEUTICAL	16,804		16,830				8,082		7,571		7	8,722		9,259		-6
Primary Care and Women’s Health
Cardiovascular
Zetia	1,314		1,202		9		843		754		12	471		448		5
Vytorin	570		640		-11		232		234		-1	337		406		-17
Diabetes
Januvia	1,970		1,928		2		1,180		1,149		3	790		779		1
Janumet	1,075		1,063		1		483		475		2	592		589		1
General Medicine & Women’s Health
NuvaRing	376		348		8		277		238		16	99		110		-10
Implanon / Nexplanon	298		261		14		211		158		34	87		103		-16
Dulera	234		251		-7		222		241		-8	12		10		19
Follistim AQ	167		193		-13		73		86		-16	94		107		-12
Hospital and Specialty
Hepatitis
Zepatier	161				*		156				*	5				*
HIV
Isentress	678		760		-11		331		399		-17	347		362		-4
Hospital Acute Care
Cubicin (2)	649		480		35		559		432		30	89		48		87
Noxafil	288		228		26		137		95		44	150		133		13
Cancidas	263		297		-11		10		13		-25	254		284		-11
Invanz	257		271		-5		147		146			110		125		-12
Bridion	204		172		18		18				*	186		172		8
Primaxin	154		153		1		2		4		-43	152		149		2
Immunology
Remicade	688		956		-28							688		956		-28
Simponi	387		327		19							387		327		19
Oncology
Keytruda	563		192		*		293		152		93	270		40		*
Emend	268		255		5		175		157		11	94		98		-4
Temodar	139		155		-10		5				*	134		155		-14
Diversified Brands
Respiratory
Singulair	465		457		2		24		16		52	442		441
Nasonex	331		504		-34		141		267		-47	190		237		-20
Other
Cozaar / Hyzaar	258		374		-31		9		17		-44	248		357		-31
Arcoxia	228		238		-4							228		238		-4
Fosamax	148		190		-22		1		6		-82	147		184		-20
Zocor	96		112		-15		5		10		-44	90		102		-12
Vaccines
Gardasil / Gardasil 9	770		785		-2		635		603		5	136		182		-26
ProQuad / M-M-R II / Varivax	739		705		5		634		609		4	105		96		9
RotaTeq	318		281		13		233		205		14	85		76		11
Zostavax	274		324		-15		225		257		-13	49		67		-26
Pneumovax 23	228		216		5		145		147		-2	83		69		21
Other Pharmaceutical (3)	2,246		2,512		-11		676		701		-4	1,571		1,809		-13
ANIMAL HEALTH	1,727		1,669		4		489		417		17	1,239		1,251		-1
Other Revenues (4)	625		711		(12	)	157		230		-32	466		482		-3

* 100% or greater

(1) Only select products are shown.

(2) Reflects sales following the acquisition of Cubist Pharmaceuticals, Inc. by Merck on January 21, 2015.

(3) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $195 million and $156 million on a global basis for June YTD 2016 and 2015, respectively.

(4) Other revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.

MERCK & CO., INC.

PHARMACEUTICAL GEOGRAPHIC SALES

(AMOUNTS IN MILLIONS)

(UNAUDITED)

Table 3c

																												%
	2016									2015																		Change
	1Q			2Q			June YTD			1Q			2Q			June YTD			3Q			4Q			Full Year			2Q
TOTAL PHARMACEUTICAL	$	8,104		$	8,700		$	16,804		$	8,266		$	8,564		$	16,830		$	8,925		$	9,027		$	34,782		2
United States	3,913			4,169			8,082			3,637			3,934			7,571			4,382			4,285			16,238			6
% Pharmaceutical Sales	48.3		%	47.9		%	48.1		%	44.0		%	45.9		%	45.0		%	49.1		%	47.5		%	46.7		%
Europe (1)	1,914			1,997			3,911			2,024			1,896			3,920			1,920			1,873			7,714			5
% Pharmaceutical Sales	23.6		%	23.0		%	23.3		%	24.5		%	22.1		%	23.3		%	21.5		%	20.8		%	22.2		%
Japan	620			673			1,293			627			629			1,256			564			785			2,605			7
% Pharmaceutical Sales	7.7		%	7.7		%	7.7		%	7.6		%	7.3		%	7.5		%	6.3		%	8.7		%	7.5		%
Asia Pacific	806			890			1,696			809			822			1,630			854			946			3,431			8
% Pharmaceutical Sales	9.9		%	10.2		%	10.1		%	9.8		%	9.6		%	9.7		%	9.6		%	10.5		%	9.9		%
China	337			353			690			318			335			653			353			339			1,344			5
Latin America	359			430			789			630			676			1,306			585			512			2,403			-36
% Pharmaceutical Sales	4.4		%	4.9		%	4.7		%	7.6		%	7.9		%	7.8		%	6.5		%	5.7		%	6.9		%
Eastern Europe/Middle East Africa	272			314			586			321			372			693			380			402			1,476			-16
% Pharmaceutical Sales	3.4		%	3.6		%	3.5		%	3.9		%	4.3		%	4.1		%	4.3		%	4.5		%	4.2		%
Canada	147			170			318			170			167			337			159			172			668			2
% Pharmaceutical Sales	1.8		%	2.0		%	1.9		%	2.1		%	2.0		%	2.0		%	1.8		%	1.9		%	1.9		%
Other	73			57			129			48			68			117			81			52			247			-16
% Pharmaceutical Sales	0.9		%	0.7		%	0.8		%	0.6		%	0.8		%	0.7		%	0.9		%	0.6		%	0.7		%

(1) Europe primarily represents all European Union countries and the European Union accession markets.

MERCK & CO., INC.

OTHER (INCOME) EXPENSE, NET - GAAP

(AMOUNTS IN MILLIONS)

(UNAUDITED)

Table 4

OTHER (INCOME) EXPENSE, NET

							JUNE YTD			JUNE YTD
	2Q16			2Q15			2016			2015
INTEREST INCOME	$	(78	)	$	(71	)	$	(157	)	$	(146	)
INTEREST EXPENSE	171			174			343			338
EXCHANGE LOSSES (1)	37			716			76			810
EQUITY INCOME FROM AFFILIATES	(4		)	(2		)	(38		)	(147		)
Other, net	(107		)	(78		)	(157		)	(62		)
TOTAL	$	19		$	739		$	67		$	793

(1) Includes foreign exchange losses of $715 million in the second quarter and first six months of 2015 recorded in connection with the devaluation of the company’s net monetary assets in Venezuela.