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MRK to lay off 11% of global workforce by 2008:

[One-sixth of the 31 global manufacturing sites will be closed, producing cost savings of $3.5-4B per year when the plan is fully implemented by 2008. Restructuring charges of about $2B will be taken for the layoffs and closings, but approx. 70% of these charges will be non-cash accounting items. CC in approximately 10 minutes.]

http://biz.yahoo.com/bw/051128/20051128005373.html?.v=1

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Merck Announces Initial Steps In Global Restructuring Program

Monday November 28, 7:00 am ET

WHITEHOUSE STATION, N.J.--(BUSINESS WIRE)--Nov. 28, 2005--Merck & Co., Inc. (NYSE: MRK )

• Initial Phase of Cost Reduction Program Expected to Yield Cumulative Pretax Savings of $3.5 Billion to $4.0 Billion in 2006-2010
• Costs Associated with Restructuring Program Expected to be Substantially Complete by 2008
• Elimination of 7,000 Positions Expected by End of 2008
• Five of 31 Manufacturing Facilities Expected to be Closed or Sold
• Full-Year 2005 EPS Expected to be $2.47 to $2.51 Excluding Charges, with Reported 2005 EPS of $2.04 to $2.10
• Full-Year 2006 EPS Expected to be $2.28 to $2.36 Including Approximately $0.07 Impact from Stock Option Expensing but Excluding Restructuring Charges, with Reported 2006 EPS of $1.98 to $2.12

Merck & Co., Inc. today announced the first phase of a global restructuring program designed to reduce the Company's cost structure, increase efficiency, and enhance competitiveness. The initial steps will include the implementation of a new supply strategy by the Merck Manufacturing Division (MMD), which is intended to create a leaner, more cost-effective and customer-focused manufacturing model over the next three years.

"The actions we are announcing today are an important first step in positioning Merck to meet the challenges the Company faces now and in the future," said Richard T. Clark, chief executive officer and president of Merck & Co., Inc. "We are engaged in an ongoing effort to enhance efficiencies throughout the Company and improve the way we discover, develop, manufacture and market our medicines and vaccines and ensure that we get them to patients who need them as quickly, safely and efficiently as possible. Going forward, we also plan to pursue improved approaches to R&D, and marketing and sales. We look forward to discussing our initial plans at our Annual Business Briefing on December 15."

Merck expects the initial phase of the cost reduction program to yield cumulative pretax savings of $3.5 billion to $4.0 billion from 2006 through 2010. A significant portion of the total restructuring savings through 2010, or approximately $2 billion, will result from the implementation of the new MMD supply strategy. These savings in manufacturing should enable Merck's gross margin beyond 2008 to return to levels consistent with those seen in the period prior to the loss of U.S. market exclusivity for ZOCOR.

As part of the global restructuring program, the Company expects to eliminate approximately 7,000 positions in manufacturing and other divisions worldwide, representing about 11% of its global work force, by the end of 2008. About half of the position reductions are expected to occur in the United States, with the remainder in other countries. Merck intends to sell or close five of its 31 manufacturing facilities worldwide and to reduce operations at a number of other sites. The Company also expects to close one basic research site and two preclinical development sites. The sites identified for closure are expected to be closed by the end of 2008, subject to compliance with legal obligations.

The pretax costs of the restructuring are expected to be $350 million to $400 million in 2005 and $800 million to $1 billion in 2006. Through the end of 2008, when the initial phase of the restructuring program is substantially complete, the cumulative pretax costs of the restructuring activities announced today are expected to range from $1.8 billion to $2.2 billion. Approximately 70% of the cumulative pretax costs are non-cash, relating primarily to accelerated depreciation for those facilities scheduled for closure.

Merck will implement its new supply strategy by creating a global facility network that combines the best of Merck manufacturing with the manufacturing capabilities of key external suppliers, introducing a new production system based on lean manufacturing principles, and developing a new approach to product commercialization to enable accelerated delivery of Merck's research pipeline through the launch phase.

As part of the strategy, Merck will reconfigure its manufacturing operations to create a global network that is better aligned to current and anticipated future product demand. The manufacturing division will also drive significant efficiencies, decrease headcount, and reduce or refocus operations throughout the plant network and the entire manufacturing division. These initiatives are designed to create a leaner, more efficient global network with plants operating at optimal capacity. The Company will also enhance its relationships with key external suppliers to leverage cost efficiencies while allowing it to focus internal manufacturing resources on core activities that provide competitive advantage for Merck.

Merck is also implementing a global rollout of lean manufacturing principles, which are guidelines for reducing the time from customer order to manufacturing, and streamlining the production system to reduce manufacturing costs, inventory and cycle time significantly throughout its network. A pilot program now under way at Merck's pharmaceutical manufacturing site in Arecibo, Puerto Rico, is delivering a 50% reduction in on-site cycle time and on-site inventory reduction of greater than 30%.

Merck is bringing together units from its manufacturing and research organizations to create a new commercialization organization focused on accelerating the delivery of its pipeline. Merck will identify dedicated commercialization facilities that will support production needs from late-phase clinical trials through the launch phase, with a goal of cutting 12 to 15 months from the time it now takes to develop new production processes and manufacture launch supplies. The newly structured group will be part of the manufacturing division. This key initiative will support ongoing efforts to reduce clinical trial cycle times.

"Taken together, the initiatives of the Merck supply strategy are designed to transform manufacturing at Merck, enhancing shareholder value while increasing our ability to rapidly deliver new medicines to the marketplace," said MMD President, Willie A. Deese.

Merck has decreased its global inventory level by $400 million relative to 2003 levels. Further inventory reductions are planned as part of the new manufacturing strategy.

Merck anticipates capital expenditures of approximately $1.4 billion in 2005, a $100 million reduction from the $1.5 billion previously disclosed. Capital expenditures for 2006 are estimated to be $1.3 billion. As Merck continues its initiatives in managing capital, the total reduction over the 2005 to 2008 period is expected to be $1.3 billion versus the Company's expectations for long-range capital spending at the end of 2004. This reduction in capital is in addition to the $600 million reduction in spending previously announced. Merck continues on track to generate $1.2 billion in aggregate procurement savings across the Company by 2008.

Merck's 2005 free operating cash flow, after capital expenditures, is expected to be in excess of $5 billion. The Company's 2006 free operating cash flow, after capital expenditures, is expected to be approximately $5 billion, including the one time impact of the tax payment related to repatriation of funds under the American Jobs Creation Act. Excluding the impact of the AJCA-related tax payment, free operating cash flow after capital expenditures in 2006 is expected to exceed $5 billion.

2005 Guidance

Merck anticipates 2005 earnings per share (EPS) of $2.47 to $2.51, excluding the impact of net tax charges and the restructuring charges related to headcount reductions and site closures. Merck anticipates reported full-year 2005 EPS of $2.04 to $2.10.

2006 Guidance

Merck anticipates 2006 EPS of $2.28 to $2.36, including the approximately $0.07 impact of stock option expensing but excluding the restructuring charges related to site closure and position eliminations. Merck anticipates reported 2006 EPS of $1.98 to $2.12.

Conference Call

The Company will host a conference call to discuss these new initiatives and the Company's financial guidance. Investors are invited to a live Web cast of Merck's conference call today at 8:30 a.m. EST, by visiting the Newsroom section of the Merck Web site (www.merck.com/newsroom/webcast/). Institutional investors and analysts can participate in the call by dialing [phone]. Journalists are invited to listen by calling [phone]. A replay of the Web cast will be available starting at 1 p.m. EST today through 5 p.m. EST on Dec. 2. To listen to the replay, dial [phone] or [phone] and enter ID # 2756546.
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