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			3Q			4Q			Full Year			1Q			2Q			3Q			4Q			Full Year			4Q		Full Year
Sales	$	9,312		$	9,844		$	10,536		$	10,115		$	39,807		$	9,425		$	9,785		$	10,073		$	10,215		$	39,498		-1	%	1	%
Costs, Expenses and Other
Materials and production	3,572			3,578			3,409			3,332			13,891			3,569			3,754			3,761			3,850			14,934			-13	%	-7	%
Marketing and administrative	2,318			2,458			2,393			2,593			9,762			2,601			2,624			2,472			2,615			10,313			-1	%	-5	%
Research and development	1,659			2,151			1,664			1,720			7,194			1,737			1,670			1,500			1,797			6,704			-4	%	7	%
Restructuring costs	91			134			161			265			651			82			191			113			233			619			14	%	5	%
Other (income) expense, net	48			19			22			721			810			55			739			(170		)	905			1,527			-20	%	-47	%
Income Before Taxes	1,624			1,504			2,887			1,484			7,499			1,381			807			2,397			815			5,401			82	%	39	%
Income Tax Provision (Benefit)	494			295			699			300			1,787			423			119			566			(166		)	942
Net Income	1,130			1,209			2,188			1,184			5,712			958			688			1,831			981			4,459			21	%	28	%
Less: Net Income Attributable to Noncontrolling Interests	5			4			4			7			21			5			1			5			5			17
Net Income Attributable to Merck & Co., Inc.	$	1,125		$	1,205		$	2,184		$	1,177		$	5,691		$	953		$	687		$	1,826		$	976		$	4,442		21	%	28	%
Earnings per Common Share Assuming Dilution	$	0.40		$	0.43		$	0.78		$	0.42		$	2.04		$	0.33		$	0.24		$	0.64		$	0.35		$	1.56		20	%	31	%
Average Shares Outstanding Assuming Dilution	2,795			2,789			2,786			2,776			2,787			2,865			2,850			2,836			2,813			2,841
Tax Rate	30.4		%	19.6		%	24.2		%	20.2		%	23.8		%	30.6		%	14.7		%	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
FOURTH 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 (3)		Subtotal		Non-GAAP
Materials and production	$	3,850		1,194		81				1,275		$	2,575
Marketing and administrative	2,615			47		8				55		2,560
Research and development	1,797			(24	)	18				(6	)	1,803
Restructuring costs	233					233				233		—
Other (income) expense, net	905			47				707		754		151
Income Before Taxes	815			(1,264	)	(340	)	(707	)	(2,311	)	3,126
Income Tax Provision (Benefit)	(166		)	(274	)(4)	(77	)(4)	(328	)(5)	(679	)	513
Net Income	981			(990	)	(263	)	(379	)	(1,632	)	2,613
Net Income Attributable to Merck & Co., Inc.	976			(990	)	(263	)	(379	)	(1,632	)	2,608
Earnings per Common Share Assuming Dilution	$	0.35		(0.35	)	(0.09	)	(0.14	)	(0.58	)	$	0.93
Tax Rate	-20.4		%									16.4		%

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 $1.1 billion of expenses for the amortization of intangible assets recognized as a result of acquisitions, as well as $29 million of amortization of purchase accounting adjustments to inventories related to the acquisition of Cubist Pharmaceuticals, Inc., and $33 million of intangible asset impairment charges. 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 business divestitures. Amounts included in research and development expenses primarily reflect a reduction of expenses of $25 million resulting from a decrease in the estimated fair value of liabilities for contingent consideration. Amounts included in other (income) expense, net represent goodwill impairment charges related to certain 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 $680 million net charge to settle VIOXX shareholder class action litigation, foreign exchange losses of $161 million to devalue the company’s net monetary assets in Venezuela and a $147 million gain on the divestiture of the company’s remaining ophthalmics business in international markets.

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

(5)   Represents the estimated tax impact of the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments, as well as a net benefit of $40 million on the settlement of certain federal income tax issues.

MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
FULL YEAR 2015
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2d

	GAAP			Acquisition and Divestiture- Related Costs (1)		Restructuring Costs (2)		Certain Other Items (3)		Adjustment Subtotal		Non-GAAP
Materials and production	$	14,934		4,869		361				5,230		$	9,704
Marketing and administrative	10,313			436		78				514		9,799
Research and development	6,704			39		52				91		6,613
Restructuring costs	619					619				619		—
Other (income) expense, net	1,527			54				1,125		1,179		348
Income Before Taxes	5,401			(5,398	)	(1,110	)	(1,125	)	(7,633	)	13,034
Income Tax Provision (Benefit)	942			(1,079	)(4)	(222	)(4)	(579	)(5)	(1,880	)	2,822
Net Income	4,459			(4,319	)	(888	)	(546	)	(5,753	)	10,212
Net Income Attributable to Merck & Co., Inc.	4,442			(4,319	)	(888	)	(546	)	(5,753	)	10,195
Earnings per Common Share Assuming Dilution	$	1.56		(1.53	)	(0.31	)	(0.19	)	(2.03	)	$	3.59
Tax Rate	17.4		%									21.7		%

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 $4.7 billion of expenses for the amortization of intangible assets recognized as a result of acquisitions, as well as $105 million of amortization of purchase accounting adjustments to inventories related to the acquisition of Cubist Pharmaceuticals, Inc., and $45 million of intangible asset impairment charges. 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 business divestitures. Amounts included in research and development expenses reflect $63 million of in-process research and development (IPR&D) impairment charges and a reduction in expenses of $24 million resulting from a decrease in the estimated fair value of liabilities for contingent consideration. Amounts included in other (income) expense, net represent goodwill impairment charges related to certain 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 foreign exchange losses of $876 million to devalue the company’s net monetary assets in Venezuela, a $680 million net charge to settle VIOXX shareholder class action litigation, a $250 million gain on the divestiture of certain migraine clinical development programs and a $147 million gain on the divestiture of the company’s remaining ophthalmics business in international markets.

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

(5)Includes the estimated tax impact of the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments, as well as a net benefit of $410 million on the settlement of certain federal income tax issues.

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

FOURTH QUARTER 2016

(AMOUNTS IN MILLIONS)

Table 3a

	Global					U.S.					International
	4Q 2016		4Q 2015		% Change	4Q 2016		4Q 2015		% Change	4Q 2016		4Q 2015		% Change
TOTAL SALES (1)	$	10,115	$	10,215	-1	$	4,686	$	4,612	2	$	5,429	$	5,603	-3
PHARMACEUTICAL	8,904		9,027		-1	4,282		4,285			4,622		4,742		-3
Primary Care and Women’s Health
Cardiovascular
Zetia	575		691		-17	335		452		-26	240		239
Vytorin	299		308		-3	132		123		7	167		185		-10
Diabetes
Januvia	932		921		1	538		486		11	394		435		-9
Janumet	577		526		10	259		227		14	318		299		6
General Medicine & Women’s Health
NuvaRing	207		193		7	155		142		9	52		51		2
Implanon / Nexplanon	160		151		6	112		102		10	48		49		-1
Dulera	105		153		-31	99		146		-33	6		7		-15
Follistim AQ	87		95		-9	36		37		-2	51		58		-12
Hospital and Specialty
Hepatitis
Zepatier	229					180					49
HIV
Isentress	337		374		-10	175		194		-10	162		180		-10
Hospital Acute Care
Noxafil	161		128		26	81		56		46	80		72		11
Cancidas	152		137		11	6		5		16	146		132		10
Invanz	152		144		6	90		87		3	63		57		9
Bridion	139		92		52	36					104		92		13
Cubicin	119		322		-63	82		308		-73	36		14		*
Primaxin	66		86		-23	1		3		-73	65		83		-21
Immunology
Remicade	269		396		-32						269		396		-32
Simponi	186		185								186		185
Oncology
Keytruda	483		214		125	311		132		135	172		82		109
Emend	144		139		4	90		80		13	53		59		-10
Temodar	67		75		-11	6		1		*	61		74		-18
Diversified Brands
Respiratory
Singulair	210		273		-23	11		14		-20	199		259		-23
Nasonex	112		231		-52	23		140		-83	88		91		-3
Other
Cozaar / Hyzaar	121		143		-15	3		6		-54	118		137		-13
Arcoxia	108		110		-2						108		110		-2
Fosamax	68		82		-18	2		2		-9	65		80		-18
Zocor	37		49		-26	2		5		-61	35		44		-20
Vaccines
Gardasil / Gardasil 9	542		497		9	409		361		13	134		136		-2
ProQuad / M-M-R II / Varivax	405		409		-1	308		354		-13	97		55		74
Pneumovax 23	238		188		27	180		128		41	57		60		-4
Zostavax	221		246		-10	155		190		-18	66		56		17
RotaTeq	162		169		-4	126		126			36		43		-15
Other Pharmaceutical (2)	1,234		1,300		-5	339		378		-10	897		922		-3
ANIMAL HEALTH (3)	884		832		6	263		237		11	620		595		4
Other Revenues (3)(4)	327		356		-8	141		90		57	187		266		-29

* 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 $126 million and $148 million on a global basis for fourth quarter 2016 and 2015, respectively.

(3) Amounts reflect a reclassification of certain revenues between Animal Health and Other Revenues.

(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 2016

(AMOUNTS IN MILLIONS)

Table 3b

	Global					U.S.					International
	Full Year		Full Year			Full Year		Full Year			Full Year		Full Year
	2016		2015		% Change	2016		2015		% Change	2016		2015		% Change
TOTAL SALES (1)	$	39,807	$	39,498	1	$	18,478	$	17,519	5	$	21,329	$	21,979	-3
PHARMACEUTICAL	35,151		34,782		1	17,073		16,238		5	18,077		18,544		-3
Primary Care and Women’s Health
Cardiovascular
Zetia	2,560		2,526		1	1,588		1,612		-1	972		914		6
Vytorin	1,141		1,251		-9	473		479		-1	668		771		-13
Diabetes
Januvia	3,908		3,863		1	2,286		2,263		1	1,622		1,601		1
Janumet	2,201		2,151		2	984		976		1	1,217		1,175		4
General Medicine & Women’s Health
NuvaRing	777		732		6	576		515		12	202		216		-7
Implanon / Nexplanon	606		588		3	420		367		14	186		221		-16
Dulera	436		536		-19	412		515		-20	24		21		13
Follistim AQ	355		383		-7	157		160		-2	197		223		-11
Hospital and Specialty
Hepatitis
Zepatier	555					488					67
HIV
Isentress	1,387		1,511		-8	721		797		-9	666		714		-7
Hospital Acute Care
Cubicin (2)	1,087		1,127		-4	906		1,030		-12	181		97		87
Noxafil	595		487		22	284		212		34	312		275		13
Invanz	561		569		-1	329		322		2	233		247		-6
Cancidas	558		573		-3	25		24		2	533		548		-3
Bridion	482		353		37	77					405		353		15
Primaxin	297		313		-5	4		8		-53	293		305		-4
Immunology
Remicade	1,268		1,794		-29						1,268		1,794		-29
Simponi	766		690		11						766		690		11
Oncology
Keytruda	1,402		566		148	792		393		101	610		173		254
Emend	549		535		3	356		326		9	193		209		-8
Temodar	283		312		-9	15		7		*	268		306		-12
Diversified Brands
Respiratory
Singulair	915		931		-2	40		39		3	874		892		-2
Nasonex	537		858		-37	184		449		-59	352		409		-14
Other
Cozaar / Hyzaar	511		667		-23	16		30		-45	494		637		-22
Arcoxia	450		471		-4						450		471		-4
Fosamax	284		359		-21	5		12		-57	279		347		-20
Zocor	186		217		-14	10		20		-48	176		197		-11
Vaccines
Gardasil / Gardasil 9	2,173		1,908		14	1,780		1,520		17	393		388		1
ProQuad / M-M-R II / Varivax	1,640		1,505		9	1,362		1,290		6	279		214		30
Zostavax	685		749		-9	518		592		-13	168		157		7
RotaTeq	652		610		7	482		447		8	169		163		4
Pneumovax 23	641		542		18	447		378		18	193		164		18
Other Pharmaceutical (3)	4,703		5,105		-8	1,336		1,455		-8	3,367		3,652		-8
ANIMAL HEALTH (4)	3,478		3,331		4	989		880		12	2,489		2,451		2
Other Revenues (4)(5)	1,178		1,385		-15	416		401		3	763		984		-23

* 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 $455 million and $401 million on a global basis for December Full Year 2016 and 2015, respectively.

(4) Amounts reflect a reclassification of certain revenues between Animal Health and Other Revenues.

(5) 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	% Change
	1Q			2Q			3Q			4Q			Full Year			1Q			2Q			3Q			4Q			Full Year			4Q	Full Year
TOTAL PHARMACEUTICAL	$	8,104		$	8,700		$	9,443		$	8,904		$	35,151		$	8,266		$	8,564		$	8,925		$	9,027		$	34,782		-1	1
United States	3,913			4,169			4,710			4,282			17,073			3,637			3,934			4,382			4,285			16,238			0	5
% Pharmaceutical Sales	48.3		%	47.9		%	49.9		%	48.1		%	48.6		%	44.0		%	45.9		%	49.1		%	47.5		%	46.7		%
Europe (1)	1,914			1,997			1,935			1,843			7,689			2,024			1,896			1,920			1,873			7,714			-2	0
% Pharmaceutical Sales	23.6		%	23.0		%	20.5		%	20.7		%	21.9		%	24.5		%	22.1		%	21.5		%	20.8		%	22.2		%
Japan	620			673			812			659			2,764			627			629			564			785			2,605			-16	6
% Pharmaceutical Sales	7.7		%	7.7		%	8.6		%	7.4		%	7.9		%	7.6		%	7.3		%	6.3		%	8.7		%	7.5		%
Asia Pacific	806			890			914			912			3,522			809			822			854			946			3,431			-4	3
% Pharmaceutical Sales	9.9		%	10.2		%	9.7		%	10.2		%	10.0		%	9.8		%	9.6		%	9.6		%	10.5		%	9.9		%
China	337			353			350			333			1,374			318			335			353			339			1,344			-2	2
Latin America	359			430			448			538			1,776			630			676			585			512			2,403			5	-26
% Pharmaceutical Sales	4.4		%	4.9		%	4.7		%	6.0		%	5.1		%	7.6		%	7.9		%	6.5		%	5.7		%	6.9		%
Eastern Europe/Middle East Africa	272			314			364			429			1,379			321			372			380			402			1,476			7	-7
% Pharmaceutical Sales	3.4		%	3.6		%	3.9		%	4.8		%	3.9		%	3.9		%	4.3		%	4.3		%	4.5		%	4.2		%
Canada	147			170			184			180			682			170			167			159			172			668			5	2
% Pharmaceutical Sales	1.8		%	2.0		%	1.9		%	2.0		%	1.9		%	2.1		%	2.0		%	1.8		%	1.9		%	1.9		%
Other	73			57			76			61			266			48			68			81			52			247			19	7
% Pharmaceutical Sales	0.9		%	0.7		%	0.8		%	0.7		%	0.8		%	0.6		%	0.8		%	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

	4Q16			4Q15			Full Year 2016			Full Year 2015
INTEREST INCOME	$	(83	)	$	(75	)	$	(328	)	$	(289	)
INTEREST EXPENSE	180			169			693			672
EXCHANGE LOSSES (1)	95			239			174			1,277
EQUITY (INCOME) LOSS FROM AFFILIATES	(27		)	5			(86		)	(205		)
Other, net (2)	556			567			357			72
TOTAL	$	721		$	905		$	810		$	1,527

(1)  Fourth quarter and full year of 2015 include foreign exchange losses of $161 million and $876 million, respectively, recorded in connection with the devaluation of the company’s net monetary assets in Venezuela.

(2)  Other, net in the fourth quarter and full year of 2016 includes a $625 million charge to settle worldwide patent litigation related to KEYTRUDA. Other, net in the fourth quarter and full year of 2015 includes a $680 million net charge related to the settlement of VIOXX shareholder class action litigation, as well as a $147 million gain on the divestiture of the company’s remaining ophthalmics business in international markets. Other, net for the full year of 2015 also includes a $250 million gain on the sale of certain migraine clinical development programs.