Item 7.01 Regulation FD Disclosure.
On June 2, 2021, Merck & Co., Inc. (Merck) completed the spinoff of products
from its women's health, biosimilars and established brands businesses into a
new, independent, publicly traded company named Organon & Co. (Organon) through
a distribution of Organon's publicly traded stock to Merck shareholders.
Attached as Exhibit 99.1 hereto are consolidated statements of income that
recast the sales and expenses of the businesses that were contributed to Organon
in the spinoff as discontinued operations for the first quarter of 2021, each
quarter and full year of 2020, and full-year 2019. Also included in Exhibit 99.1
are reconciliations of certain financial information prepared in accordance with
generally accepted accounting principles in the United States (GAAP) to non-GAAP
financial information on a continuing operations basis for these same periods.
As previously disclosed, when Merck reported first quarter earnings on April 29,
2021, Merck stated that its operating margin on a continuing operations basis
would be slightly lower in 2021 versus what it was prior to the spinoff due to
the higher relative profitability of the Organon products within Merck's
portfolio and the absorption of certain overhead costs that Merck would continue
to incur after the spinoff. Merck indicated that the operating margin for the
Organon products within Merck was approximately 45%. In addition, Merck also
disclosed at that time that it would continue to incur overhead costs of
approximately $400 million annually that were previously allocated to the
Organon products, and that these costs were expected to be reduced over time.
Finally, Merck disclosed that it expected to achieve operating efficiencies as a
result of the spinoff of approximately $500 million in 2021, which were factored
into Merck's full year financial outlook provided in February 2021 and
reiterated by Merck in April.
The recast consolidated statements of income on a continuing operations,
non-GAAP basis for the first quarter of 2021 reflect the following as compared
with the originally reported figures which included both Merck and Organon:
o Sales of $10.6 billion, which exclude $1.5 billion of Organon product sales;
o Gross margin of 76.6%, an increase of 0.9% reflecting lower gross margins on
the revenue associated with the Organon products;
o Operating expenses are 42.9% of sales, an increase of 2.8% reflecting lower
operating expenses on the revenue associated with the Organon products;
o Operating margin of 33.7%, a decrease of 1.8% reflecting higher operating
margins on the revenue associated with the Organon products relative to the
overall Merck product portfolio, as well as overhead costs that Merck is
continuing to incur that were not allocated to discontinued operations;
o A de minimis impact to other income and expense; and
o A tax rate of 14.3%, an increase of 0.2%.
The recast consolidated statements of income on a continuing operations basis
and the financial information contained herein are for informational purposes
only. They do not necessarily reflect the results that would have been reported
had the spinoff actually been completed prior to the periods presented and are
not necessarily indicative of future results.
Merck intends to provide detailed financial guidance with its second quarter
earnings release scheduled for July 29, 2021. Merck will reflect the impact of
the spinoff on its consolidated statement of cash flows and consolidated balance
sheet beginning with its second quarter Form 10-Q.
This information, including the information reflected in Exhibit 99.1, is not
deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities
of that Section, and is not incorporated by reference into a filing under the
Securities Act of 1933, as amended, or the Exchange Act, except as expressly set
forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
Exhibit Historical Financial Information Reflecting Spinoff of Organon & Co.
Exhibit 104 Cover Page Interactive Data File (embedded within the Inline XBRL
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