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Applied Analytics in an Organizational Context Module 3 Applied Analytics Program February 1, 2022

Module 3: In Class Case Study

Disclosure of Cyber-attack in Q3 Financials “As we had cautioned in July, the June cyber event negatively impacted third-quarter results, including an unfavorable revenue impact of approximately $135 million from lost sales and approximately $175 million in additional costs spread across the cost of goods sold and the operating expense lines . We anticipate a similar impact to revenues and expenses in the fourth quarter, which is reflected in our updated guidance” - Source: CFO Robert Davis, earnings call “In addition, the Company recorded manufacturing-related expenses, primarily unfavorable manufacturing variances, in Materials and Production costs, as well as expenses related to remediation efforts in Marketing and Administrative expenses and Research and Development expenses, which aggregated $175 million for the third quarter and first nine months of 2017.” - Source: Form 10-Q

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Disclosure of Cyber-attack in Q3 Financials “Sales in the third quarter of 2017 were reduced by approximately $240 million due to a borrowing from the U.S. Centers for Disease Control and Prevention Pediatric Vaccine Stockpile of GARDASIL 9, a vaccine to prevent certain cancers and other diseases caused by HPV, driven in part by the temporary production shutdown resulting from the cyber- attack , as well as overall higher demand than originally planned.” - Source: Q3 2017 Press Release “As a result of the borrowing, the Company reversed the sales related to the borrowed doses , which reduced revenues by approximately $240 million, and recognized a corresponding liability . The Company anticipates it will replenish the stockpile in the second half of 2018, which will result in the recognition of sales and a reversal of the liability.” - Source: Form 10-Q

Merck Q3 2017 Earnings Report

In-Class Activity (15 Minutes) Breakout Questions: What would Q3 financials results have been without the impact of the cyber-attack (one-time event)? Would you have valued the stock differently? Do you have all the information you need to estimate the impact?

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