Income Tax Accounting Policy
Income Tax Expense (Benefit)
Effective Income Tax Rate (EITR)
Components of Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities, Classification
Analyst Adjustments: Removal of Deferred Taxes
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Adjusted Current Ratio
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. Merck evaluates tax positions to determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, Merck recognizes the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not more likely than not of being sustained upon audit, Merck does not recognize any portion of the benefit in the financial statements. Merck recognizes interest and penalties associated with uncertain tax positions as a component of Taxes on income in the Consolidated Statement of Income.

Source: 10-K (filing date: 2019-02-27).

Merck & Co. Inc., income tax expense (benefit), continuing operations

US$ in millions

	12 months ended	Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Federal
	Foreign
	State
	Current provision
	Federal
	Foreign
	State
	Deferred provision
	Taxes on income

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

Item	Description	The company
Current provision	Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations.	Merck & Co. Inc.’s current provision increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.
Deferred provision	Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations.	Merck & Co. Inc.’s deferred provision declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Taxes on income	Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Merck & Co. Inc.’s taxes on income increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Merck & Co. Inc., effective income tax rate (EITR) reconciliation

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	U.S. statutory tax rate
	Valuation allowances
	Impact of purchase accounting adjustments, including amortization
	State taxes
	Restructuring
	Foreign currency devaluation related to Venezuela
	Foreign earnings
	R&D tax credit
	Tax settlements
	AstraZeneca option exercise
	Sale of Sirna Therapeutics, Inc.
	Divestiture of Merck Consumer Care
	Other
	Effective tax rate, before impact of the TCJA
	Impact of the TCJA
	Effective tax rate

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

Item	Description	The company
Effective tax rate, before impact of the TCJA	Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Merck & Co. Inc.’s effective tax rate, before impact of the TCJA increased from 2016 to 2017 and from 2017 to 2018.

Merck & Co. Inc., components of deferred tax assets and liabilities

US$ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Product intangibles and licenses
	Inventory related
	Accelerated depreciation
	Pensions and other postretirement benefits
	Compensation related
	Unrecognized tax benefits
	Net operating losses and other tax credit carryforwards
	Other
	Gross deferred tax assets
	Valuation allowance
	Deferred tax assets
	Product intangibles and licenses
	Inventory related
	Accelerated depreciation
	Pensions and other postretirement benefits
	Other
	Deferred tax liabilities
	Net deferred income taxes

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

Item	Description	The company
Gross deferred tax assets	Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Merck & Co. Inc.’s gross deferred tax assets declined from 2016 to 2017 but then slightly increased from 2017 to 2018.
Deferred tax assets	Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Merck & Co. Inc.’s deferred tax assets declined from 2016 to 2017 and from 2017 to 2018.
Net deferred income taxes	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting.	Merck & Co. Inc.’s net deferred income taxes increased from 2016 to 2017 and from 2017 to 2018.

Merck & Co. Inc., deferred tax assets and liabilities, classification

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Current deferred income tax assets (included in Deferred income taxes and other current assets)
	Noncurrent deferred income tax assets (included in Other assets)
	Current deferred income tax liabilities (included in Income taxes payable)
	Noncurrent deferred income tax liabilities

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

Item	Description	The company
Noncurrent deferred income tax assets (included in Other assets)	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent.	Merck & Co. Inc.’s noncurrent deferred income tax assets (included in Other assets) increased from 2016 to 2017 and from 2017 to 2018.
Noncurrent deferred income tax liabilities	Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent.	Merck & Co. Inc.’s noncurrent deferred income tax liabilities declined from 2016 to 2017 and from 2017 to 2018.

Merck & Co. Inc., adjustments to financial data

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Current Assets
	Current assets (as reported)
	Less: Current deferred tax assets, net
	Current assets (adjusted)
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Current deferred tax assets, net
	Less: Noncurrent deferred tax assets, net
	Total assets (adjusted)
	Adjustment to Current Liabilities
	Current liabilities (as reported)
	Less: Current deferred tax liabilities, net
	Current liabilities (adjusted)
	Adjustment to Total Liabilities
	Total liabilities (as reported)
	Less: Current deferred tax liabilities, net
	Less: Noncurrent deferred tax liabilities, net
	Total liabilities (adjusted)
	Adjustment to Total Merck & Co., Inc. Stockholders’ Equity
	Total Merck & Co., Inc. stockholders’ equity (as reported)
	Less: Net deferred tax assets (liabilities)
	Total Merck & Co., Inc. stockholders’ equity (adjusted)
	Adjustment to Net Income Attributable To Merck & Co., Inc.
	Net income attributable to Merck & Co., Inc. (as reported)
	Add: Deferred income tax expense (benefit)
	Net income attributable to Merck & Co., Inc. (adjusted)

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

Merck & Co. Inc., Financial Data: Reported vs. Adjusted

Merck & Co. Inc., adjusted ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Current Ratio
	Reported current ratio
	Adjusted current ratio
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	Merck & Co. Inc.’s adjusted current ratio deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Merck & Co. Inc.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Merck & Co. Inc.’s adjusted total asset turnover improved from 2016 to 2017 and from 2017 to 2018.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Merck & Co. Inc.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Merck & Co. Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Merck & Co. Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Merck & Co. Inc., Ratios: Reported vs. Adjusted

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Current assets
	Current liabilities
	Ratio
	Current ratio¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted current assets
	Adjusted current liabilities
	Ratio
	Adjusted current ratio²

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

2018 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

² Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	Merck & Co. Inc.’s adjusted current ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Merck & Co., Inc.
	Sales
	Ratio
	Net profit margin¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Merck & Co., Inc.
	Sales
	Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

2018 Calculations

¹ Net profit margin = 100 × Net income attributable to Merck & Co., Inc. ÷ Sales
= 100 × hidden ÷ hidden = hidden

² Adjusted net profit margin = 100 × Adjusted net income attributable to Merck & Co., Inc. ÷ Sales
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Merck & Co. Inc.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Sales
	Total assets
	Ratio
	Total asset turnover¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Sales
	Adjusted total assets
	Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

2018 Calculations

¹ Total asset turnover = Sales ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Sales ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Merck & Co. Inc.’s adjusted total asset turnover improved from 2016 to 2017 and from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Total Merck & Co., Inc. stockholders’ equity
	Ratio
	Financial leverage¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted total Merck & Co., Inc. stockholders’ equity
	Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

2018 Calculations

¹ Financial leverage = Total assets ÷ Total Merck & Co., Inc. stockholders’ equity
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Merck & Co., Inc. stockholders’ equity
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Merck & Co. Inc.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Merck & Co., Inc.
	Total Merck & Co., Inc. stockholders’ equity
	Ratio
	ROE¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Merck & Co., Inc.
	Adjusted total Merck & Co., Inc. stockholders’ equity
	Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

2018 Calculations

¹ ROE = 100 × Net income attributable to Merck & Co., Inc. ÷ Total Merck & Co., Inc. stockholders’ equity
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Adjusted net income attributable to Merck & Co., Inc. ÷ Adjusted total Merck & Co., Inc. stockholders’ equity
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Merck & Co. Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Merck & Co., Inc.
	Total assets
	Ratio
	ROA¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Merck & Co., Inc.
	Adjusted total assets
	Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

2018 Calculations

¹ ROA = 100 × Net income attributable to Merck & Co., Inc. ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Adjusted net income attributable to Merck & Co., Inc. ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Merck & Co. Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

	Merck & Co. Inc.	Other companies (not purchased previously)
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Discounted Cash Flow (DCF) Valuation
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Merck & Co. Inc. (MRK)

Analysis of Income Taxes

Income Tax Accounting Policy

Income Tax Expense (Benefit)

Effective Income Tax Rate (EITR)

Components of Deferred Tax Assets and Liabilities

Deferred Tax Assets and Liabilities, Classification

Analyst Adjustments: Removal of Deferred Taxes

Merck & Co. Inc., Financial Data: Reported vs. Adjusted

Adjusted Ratios: Removal of Deferred Taxes (Summary)

Merck & Co. Inc., Ratios: Reported vs. Adjusted

Adjusted Current Ratio

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)