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

	2017															2016															% Change
	1Q			2Q			3Q			4Q			Full Year			1Q			2Q			3Q			4Q			Full Year			4Q		Full Year
Sales	$	9,434		$	9,930		$	10,325		$	10,433		$	40,122		$	9,312		$	9,844		$	10,536		$	10,115		$	39,807		3	%	1	%
Costs, Expenses and Other
Materials and production	3,015			3,080			3,274			3,406			12,775			3,572			3,578			3,409			3,332			13,891			2	%	-8	%
Marketing and administrative	2,411			2,438			2,401			2,580			9,830			2,318			2,458			2,393			2,593			9,762			-1	%	1	%
Research and development	1,796			1,749			4,383			2,055			9,982			1,659			2,151			1,664			4,650			10,124			-56	%	-1	%
Restructuring costs	151			166			153			306			776			91			134			161			265			651			15	%	19	%
Other (income) expense, net	58			58			(86		)	(19		)	12			48			19			22			631			720			*		-98	%
Income (Loss) Before Taxes	2,003			2,439			200			2,105			6,747			1,624			1,504			2,887			(1,356		)	4,659			*		45	%
Income Tax Provision (Benefit)	447			488			251			2,969			4,155			494			295			699			(769		)	718
Net Income (Loss)	1,556			1,951			(51		)	(864		)	2,592			1,130			1,209			2,188			(587		)	3,941			47	%	-34	%
Less: Net Income Attributable to Noncontrolling Interests	5			5			5			8			24			5			4			4			7			21
Net Income (Loss) Attributable to Merck & Co., Inc.	$	1,551		$	1,946		$	(56	)	$	(872	)	$	2,568		$	1,125		$	1,205		$	2,184		$	(594	)	$	3,920		47	%	-34	%
Earnings (Loss) per Common Share Assuming Dilution (1)	$	0.56		$	0.71		$	(0.02	)	$	(0.32	)	$	0.93		$	0.40		$	0.43		$	0.78		$	(0.22	)	$	1.41		45	%	-34	%
Average Shares Outstanding Assuming Dilution (1)	2,766			2,752			2,727			2,715			2,748			2,795			2,789			2,786			2,755			2,787
Tax Rate	22.3		%	20.0		%	125.5		%	141.0		%	61.6		%	30.4		%	19.6		%	24.2		%	56.7		%	15.4		%

* 100% or greater

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

(1) Because the company recorded a net loss in the third and fourth quarter of 2017 and fourth quarter of 2016, no potential dilutive common shares were used in the computations of loss per common share assuming dilution as the effects would have been anti-dilutive.

MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
FOURTH QUARTER 2016
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2c

				Acquisition and
				Divestiture-Related		Restructuring		Certain Other		Adjustment
	GAAP			Costs (1)		Costs (2)		Items (3)		Subtotal		Non-GAAP
Materials and production	$	3,332		756		32				788		$	2,544
Marketing and administrative	2,593			22		4				26		2,567
Research and development	4,650			2,897		9				2,906		1,744
Restructuring costs	265					265				265		—
Other (income) expense, net	631			35				564		599		32
(Loss) Income Before Taxes	(1,356		)	(3,710	)	(310	)	(564	)	(4,584	)	3,228
Income Tax (Benefit) Provision	(769		)	(1,303	)(4)	(60	)(4)	(157	)(4)	(1,520	)	751
Net (Loss) Income	(587		)	(2,407	)	(250	)	(407	)	(3,064	)	2,477
Net (Loss) Income Attributable to Merck & Co., Inc.	(594		)	(2,407	)	(250	)	(407	)	(3,064	)	2,470
(Loss) Earnings per Common Share Assuming Dilution	$	(0.22	)	(0.87	)	(0.09	)	(0.15	)	(1.11	)	$	0.89
Tax Rate	56.7		%									23.3		%

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

Merck is providing certain 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 results and permits investors to understand how management assesses performance. Management uses these measures 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 expenses for the amortization of intangible assets recognized as a result of business acquisitions. Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions and divestitures. Amounts included in research and development expenses reflect $3.3 billion of in-process research and development (IPR&D) impairment charges, partially offset by a reduction of expenses of $432 million related to a decrease in the estimated fair value measurement of liabilities for contingent consideration. Amount included in other (income) expense, net represents a goodwill impairment charge related to a business within the Healthcare Services segment.

(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 reflects a $625 million charge to settle worldwide patent litigation related to KEYTRUDA.

(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.

MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
FULL YEAR 2016
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2d

				Acquisition and
				Divestiture-Related		Restructuring		Certain Other		Adjustment
	GAAP			Costs (1)		Costs (2)		Items (3)		Subtotal		Non-GAAP
Materials and production	$	13,891		4,035		181				4,216		$	9,675
Marketing and administrative	9,762			78		95				173		9,589
Research and development	10,124			3,152		142				3,294		6,830
Restructuring costs	651					651				651		—
Other (income) expense, net	720			47				558		605		115
Income Before Taxes	4,659			(7,312	)	(1,069	)	(558	)	(8,939	)	13,598
Income Tax Provision (Benefit)	718			(1,936	)(4)	(229	)(4)	(156	)(4)	(2,321	)	3,039
Net Income	3,941			(5,376	)	(840	)	(402	)	(6,618	)	10,559
Net Income Attributable to Merck & Co., Inc.	3,920			(5,376	)	(840	)	(402	)	(6,618	)	10,538
Earnings per Common Share Assuming Dilution	$	1.41		(1.93	)	(0.30	)	(0.14	)	(2.37	)	$	3.78
Tax Rate	15.4		%									22.3		%

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

Merck is providing certain 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 results and permits investors to understand how management assesses performance. Management uses these measures 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 primarily reflect $3.7 billion of expenses for the amortization of intangible assets recognized as a result of business acquisitions, as well as $347 million of intangible asset impairment charges. Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions and divestitures. Amounts included in research and development expenses reflect $3.6 billion of in-process research and development (IPR&D) impairment charges, partially offset by a reduction of expenses of $402 million related to a decrease in the estimated fair value measurement of liabilities for contingent consideration. Amounts included in other (income) expense, net represent goodwill impairment charges related to businesses within the Healthcare Services segment.

(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 reflects a $625 million charge to settle worldwide patent litigation related to KEYTRUDA.

(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.

MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
FOURTH QUARTER 2017
(AMOUNTS IN MILLIONS)
Table 3a

	Global					U.S.						International
	4Q 2017		4Q 2016		% Change	4Q 2017			4Q 2016		% Change	4Q 2017		4Q 2016		% Change
TOTAL SALES (1)	$	10,433	$	10,115	3	$	4,328		$	4,686	-8	$	6,105	$	5,429	12
PHARMACEUTICAL	9,290		8,904		4	3,967			4,282		-7	5,323		4,622		15
Primary Care and Women’s Health
Cardiovascular
Zetia	323		575		-44	54			335		-84	269		240		12
Vytorin	186		299		-38	11			132		-92	176		167		5
Atozet	54		50		7				1		-97	54		49		9
Adempas	79		49		63							79		49		63
Diabetes
Januvia	938		932		1	508			538		-6	430		394		9
Janumet	586		577		2	223			259		-14	363		318		14
General Medicine & Women’s Health
NuvaRing	188		207		-9	139			155		-10	49		52		-6
Implanon / Nexplanon	183		160		14	129			112		15	54		48		12
Follistim AQ	66		87		-25	19			36		-48	47		51		-9
Hospital and Specialty
Hepatitis
Zepatier	296		229		29	88			180		-51	208		49		*
HIV
Isentress / Isentress HD	308		337		-9	143			175		-19	165		162		2
Hospital Acute Care
Bridion	209		139		50	76			36		114	132		104		28
Noxafil	179		161		11	89			81		10	90		80		13
Invanz	157		152		3	93			90		4	64		63		2
Cancidas	95		152		-37	3			6		-48	92		146		-37
Cubicin	92		119		-22	40			82		-51	52		36		43
Primaxin	74		66		12	3			1		*	71		65		9
Immunology
Simponi	217		186		17							217		186		17
Remicade	186		269		-31							186		269		-31
Oncology
Keytruda	1,297		483		169	787			311		153	510		172		196
Emend	143		144		-1	85			90		-6	58		53		8
Temodar	73		67		10	12			6		101	62		61		1
Diversified Brands
Respiratory
Singulair	182		210		-13	12			11		15	170		199		-15
Nasonex	120		112		8	37			23		60	83		88		-6
Dulera	77		105		-26	70			99		-29	7		6		14
Other
Cozaar / Hyzaar	125		121		3	3			3		18	121		118		3
Arcoxia	91		108		-16							91		108		-16
Fosamax	62		68		-9	(1		)	2		-138	62		65		-4
Vaccines (2)
Gardasil / Gardasil 9	633		542		17	370			409		-9	262		134		96
ProQuad / M-M-R II / Varivax	403		405			316			308		2	88		97		-9
Pneumovax 23	263		238		11	189			180		5	74		57		28
RotaTeq	160		162		-1	104			126		-17	56		36		55
Zostavax	121		221		-45	66			155		-57	55		66		-17
Other Pharmaceutical (3)	1,124		1,172		-4	299			340		-12	826		834		-1
ANIMAL HEALTH	981		884		11	248			263		-6	733		620		18
Other Revenues (4)	162		327		-51	113			141		-19	49		187		-74

* 200% or greater

(1)Only select products are shown.

(2)Vaccine sales in 2017 include sales in the European markets that were previously part of the Sanofi Pasteur MSD (SPMSD) joint venture that was terminated on December 31, 2016. Amounts for 2016 reflect supply sales to SPMSD.

(3)Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $123 million and $126 million on a global basis for fourth quarter 2017 and 2016, 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.
FRANCHISE / KEY PRODUCT SALES
FULL YEAR 2017
(AMOUNTS IN MILLIONS)
Table 3b

	Global					U.S.					International
	Full Year		Full Year			Full Year		Full Year			Full Year		Full Year
	2017		2016		% Change	2017		2016		% Change	2017		2016		% Change
TOTAL SALES (1)	$	40,122	$	39,807	1	$	17,424	$	18,478	-6	$	22,698	$	21,329	6
PHARMACEUTICAL	35,390		35,151		1	15,854		17,073		-7	19,536		18,077		8
Primary Care and Women’s Health
Cardiovascular
Zetia	1,344		2,560		-48	352		1,588		-78	992		972		2
Vytorin	751		1,141		-34	124		473		-74	627		668		-6
Atozet	225		146		54			1		-98	225		146		55
Adempas	300		169		78						300		169		78
Diabetes
Januvia	3,737		3,908		-4	2,153		2,286		-6	1,584		1,622		-2
Janumet	2,158		2,201		-2	863		984		-12	1,296		1,217		6
General Medicine & Women’s Health
NuvaRing	761		777		-2	564		576		-2	197		202		-2
Implanon / Nexplanon	686		606		13	496		420		18	191		186		2
Follistim AQ	298		355		-16	123		157		-22	174		197		-12
Hospital and Specialty
Hepatitis
Zepatier	1,660		555		199	771		488		58	888		67		*
HIV
Isentress / Isentress HD	1,204		1,387		-13	565		721		-22	639		666		-4
Hospital Acute Care
Bridion	704		482		46	239		77		*	465		405		15
Noxafil	636		595		7	309		284		9	327		312		5
Invanz	602		561		7	361		329		10	241		233		4
Cancidas	422		558		-24	20		25		-16	402		533		-25
Cubicin	382		1,087		-65	189		906		-79	193		181		7
Primaxin	280		297		-6	10		4		151	270		293		-8
Immunology
Remicade	837		1,268		-34						837		1,268		-34
Simponi	819		766		7						819		766		7
Oncology
Keytruda	3,809		1,402		172	2,309		792		192	1,500		610		146
Emend	556		549		1	342		356		-4	213		193		11
Temodar	271		283		-4	16		15		2	256		268		-4
Diversified Brands
Respiratory
Singulair	732		915		-20	40		40			692		874		-21
Nasonex	387		537		-28	54		184		-71	333		352		-5
Dulera	287		436		-34	261		412		-37	26		24		9
Other
Cozaar / Hyzaar	484		511		-5	18		16		10	466		494		-6
Arcoxia	363		450		-19						363		450		-19
Fosamax	241		284		-15	6		5		21	235		279		-16
Vaccines (2)
Gardasil / Gardasil 9	2,308		2,173		6	1,565		1,780		-12	743		393		89
ProQuad / M-M-R II / Varivax	1,676		1,640		2	1,374		1,362		1	303		279		9
Pneumovax 23	821		641		28	581		447		30	240		193		24
RotaTeq	686		652		5	481		482			204		169		21
Zostavax	668		685		-2	422		518		-18	246		168		47
Other Pharmaceutical (3)	4,295		4,574		-6	1,246		1,345		-7	3,049		3,228		-6
ANIMAL HEALTH	3,875		3,478		11	1,090		989		10	2,785		2,489		12
Other Revenues (4)	857		1,178		-27	480		416		15	377		763		-51

* 200% or greater

(1)Only select products are shown.

(2)Vaccine sales in 2017 include sales in the European markets that were previously part of the Sanofi Pasteur MSD (SPMSD) joint venture that was terminated on December 31, 2016. Amounts for 2016 reflect supply sales to SPMSD.

(3)Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $388 million and $455 million on a global basis for December Full Year 2017 and 2016, 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

	2017															2016															% Change	% Change
	1Q			2Q			3Q			4Q			Full Year			1Q			2Q			3Q			4Q			Full Year			4Q	Full Year
TOTAL PHARMACEUTICAL	$	8,185		$	8,759		$	9,156		$	9,290		$	35,390		$	8,104		$	8,700		$	9,443		$	8,904		$	35,151		4	1
United States	3,761			3,929			4,197			3,967			15,854			3,913			4,169			4,710			4,282			17,073			-7	-7
% Pharmaceutical Sales	45.9		%	44.9		%	45.8		%	42.7		%	44.8		%	48.3		%	47.9		%	49.9		%	48.1		%	48.6		%
Europe (1)	1,977			2,082			2,174			2,290			8,522			1,914			1,997			1,935			1,843			7,689			24	11
% Pharmaceutical Sales	24.2		%	23.8		%	23.7		%	24.7		%	24.1		%	23.6		%	23.0		%	20.5		%	20.7		%	21.9		%
Japan	688			818			756			780			3,043			620			673			812			659			2,764			18	10
% Pharmaceutical Sales	8.4		%	9.3		%	8.3		%	8.4		%	8.6		%	7.7		%	7.7		%	8.6		%	7.4		%	7.9		%
Asia Pacific	889			946			994			1,054			3,883			806			890			914			912			3,522			16	10
% Pharmaceutical Sales	10.9		%	10.8		%	10.9		%	11.3		%	11.0		%	9.9		%	10.2		%	9.7		%	10.2		%	10.0		%
China	328			353			377			439			1,497			337			353			350			333			1,374			32	9
Latin America	375			462			451			547			1,836			359			430			448			538			1,776			2	3
% Pharmaceutical Sales	4.6		%	5.3		%	4.9		%	5.9		%	5.2		%	4.4		%	4.9		%	4.7		%	6.0		%	5.1		%
Eastern Europe/Middle East Africa	255			314			349			397			1,314			272			314			364			429			1,379			-8	-5
% Pharmaceutical Sales	3.1		%	3.6		%	3.8		%	4.3		%	3.7		%	3.4		%	3.6		%	3.9		%	4.8		%	3.9		%
Canada	182			171			193			193			739			147			170			184			180			682			7	8
% Pharmaceutical Sales	2.2		%	2.0		%	2.1		%	2.1		%	2.1		%	1.8		%	2.0		%	1.9		%	2.0		%	1.9		%
Other	58			37			42			62			199			73			57			76			61			266			2	-25
% Pharmaceutical Sales	0.7		%	0.4		%	0.5		%	0.7		%	0.6		%	0.9		%	0.7		%	0.8		%	0.7		%	0.8		%

(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

							Full Year			Full Year
	4Q17			4Q16			2017			2016
INTEREST INCOME	$	(101	)	$	(83	)	$	(385	)	$	(328	)
INTEREST EXPENSE	191			180			754			693
EXCHANGE (GAINS) LOSSES	(17		)	95			(11		)	174
EQUITY INCOME FROM AFFILIATES	(32		)	(27		)	(42		)	(86		)
Other, net (1)	(60		)	466			(304		)	267
TOTAL	$	(19	)	$	631		$	12		$	720

(1)Other, net in the fourth quarter and full year of 2016 includes a $625 million charge to settle worldwide patent litigation related to KEYTRUDA.

MERCK & CO., INC.

EFFECTS OF ADOPTION OF NEW PENSION ACCOUNTING STANDARD

(AMOUNTS IN MILLIONS)

(UNAUDITED)

Table 5

The 2017 financial guidance for both GAAP and non-GAAP operating expenses reflects the adoption on January 1, 2018, of a new accounting standard related to defined benefit plans that requires the components of net benefit cost/credit (other than service costs) be presented in the statement of income outside of operating expenses. The new accounting standard requires that previously reported amounts be reclassified to conform to the new presentation. There is no impact to net income as a result of adopting the new standard.  The tables below provide details of the effects of adopting the standard for the full year of 2017 and by quarter as will be presented in 2018 reporting. 

	GAAP									Non-GAAP
	As Reported 2017			Reclass			As Recast 2017			As Reported 2017			Reclass			As Recast 2017
Full Year 2017
Materials and production	$	12,775		$	137		$	12,912		$	9,450		$	137		$	9,587
Marketing and administrative	9,830			244			10,074			9,784			244			10,028
Research and development	9,982			131			10,113			7,337			131			7,468
Restructuring costs	776			—			776			—			—			—
Other (income) expense, net	12			(512		)	(500		)	9			(512		)	(503		)
	$	33,375		$	—		$	33,375		$	26,580		$	—		$	26,580
First Quarter 2017
Materials and production	$	3,015		$	34		$	3,049		$	2,097		$	34		$	2,131
Marketing and administrative	2,411			61			2,472			2,390			61			2,451
Research and development	1,796			34			1,830			1,785			34			1,819
Restructuring costs	151			—			151			—			—			—
Other (income) expense, net	58			(129		)	(71		)	70			(129		)	(59		)
	$	7,431		$	—		$	7,431		$	6,342		$	—		$	6,342
Second Quarter 2017
Materials and production	$	3,080		$	36		$	3,116		$	2,220		$	36		$	2,256
Marketing and administrative	2,438			62			2,500			2,427			62			2,489
Research and development	1,749			33			1,782			1,733			33			1,766
Restructuring costs	166			—			166			—			—			—
Other (income) expense, net	58			(131		)	(73		)	19			(131		)	(112		)
	$	7,491		$	—		$	7,491		$	6,399		$	—		$	6,399
Third Quarter 2017
Materials and production	$	3,274		$	33		$	3,307		$	2,481		$	33		$	2,514
Marketing and administrative	2,401			58			2,459			2,390			58			2,448
Research and development	4,383			30			4,413			1,760			30			1,790
Restructuring costs	153			—			153			—			—			—
Other (income) expense, net	(86		)	(121		)	(207		)	(68		)	(121		)	(189		)
	$	10,125		$	—		$	10,125		$	6,563		$	—		$	6,563
Fourth Quarter 2017
Materials and production	$	3,406		$	34		$	3,440		$	2,652		$	34		$	2,686
Marketing and administrative	2,580			63			2,643			2,577			63			2,640
Research and development	2,055			33			2,088			2,060			33			2,093
Restructuring costs	306			—			306			—			—			—
Other (income) expense, net	(19		)	(130		)	(149		)	(13		)	(130		)	(143		)
	$	8,328		$	—		$	8,328		$	7,276		$	—		$	7,276