<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 1-9813
GENENTECH, INC. TAX REDUCTION INVESTMENT PLAN
(Full title of the Plan)
GENENTECH, INC.
(Name of issuer of the securities held pursuant to the Plan)
1 DNA Way, South San Francisco, California 94080
(Address of principal executive offices and zip code)
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Genentech, Inc. Tax Reduction Investment Plan
Index to Financial Statements
Item Page No.
---------------------------------------------------------------- --------
Statements of Net Assets Available for Benefits at
December 31, 1999 and 1998 3
Statement of Changes in Net Assets Available for
Benefits for Year Ended December 31, 1999 4
Notes to Financial Statements 5-10
Report of Ernst & Young LLP, Independent Auditors 11
Signatures 12
Supplemental Schedule for the Year Ended December 31, 1999:
Schedule H, Line 4i - Schedule of Assets Held for Investment
Purposes at End of Year 13
In this report, "Genentech," "we," "us" and "our" refer to Genentech, Inc.
"Common Stock" refers to Genentech's Common Stock, par value $0.02 per share
and "Special Common Stock" refers to Genentech's callable putable common
stock, par value $0.02 per share. All numbers related to the number of
shares, price per share and per share amounts of Common and Special Common
Stock give effect to the two-for-one split of our Common Stock in November
1999.
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Genentech, Inc. Tax Reduction Investment Plan
Statements of Net Assets Available for Benefits
December 31,
1999 1998
------------ ------------
ASSETS:
Investments, at fair value $310,035,087 $237,433,533
Contribution receivable from Genentech, Inc. 8,639,467 7,345,716
------------ ------------
Net assets available for benefits $318,674,554 $244,779,249
============ ============
See accompanying notes.
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Genentech, Inc. Tax Reduction Investment Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended
December 31, 1999
-----------------
Investment income:
Interest and dividends $ 20,711,134
Realized/unrealized gain, net 40,643,358
------------
Total investment income 61,354,492
Contributions:
Basic 19,910,219
Rollover 2,967,118
Employer match 8,639,467
------------
Total contributions 31,516,804
Distributions (18,939,204)
Administrative fees (36,787)
------------
Net change during the year 73,895,305
Net assets available for benefits:
Beginning of year 244,779,249
------------
End of year $318,674,554
============
See accompanying notes.
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Genentech, Inc. Tax Reduction Investment Plan
Notes to Financial Statements
(1) Description of the Plan
General
The following description of the Genentech, Inc. Tax Reduction Investment
Plan, or the Plan, provides only general information. Participants should
refer to the Plan document for a more complete description of the Plan's
provisions.
The Plan is a defined contribution plan and was established, effective
January 1, 1985, by Genentech, Inc. for the benefit of its eligible employees
in order to provide them with a means of supplementing their retirement
income on a tax-favored basis, an incentive to continue and increase their
efforts to contribute to our success and an opportunity to acquire an equity
interest in Genentech. The Plan accomplishes this through a savings program
that is based on systematic salary reductions. The employee's salary is
reduced by the amount elected to be saved on a pre-tax basis, or salary
deferral contributions, and is then invested by the Plan based on the
employee's investment elections. An individual employee's account is
credited with earnings or losses on a pro rata basis as the actual investment
funds report their earnings performance.
Individuals eligible to participate under the Plan must be employees of
Genentech or employees of an affiliate of Genentech that adopts the Plan with
the approval of the Board of Directors. However, the following employees or
classes of employees are not eligible to participate: (i) any employee who is
classified as temporary by Genentech, unless such employee has completed at
least 1,000 hours of service in a 12-month period beginning on his or her
hire date or any anniversary thereof; (ii) any part-time employee normally
scheduled to work less than 20 hours per week, unless such employee has
completed at least 1,000 hours of service in a 12-month period beginning on
his or her hire date or any anniversary thereof; (iii) any employee who is a
member of a collective bargaining unit and who is covered by a collective
bargaining agreement where retirement benefits were the subject of good faith
bargaining; (iv) any individual employed by any corporation or other business
entity that is merged or liquidated into Genentech, unless Genentech
designates such employees as eligible employees; (v) any employee paid from a
non-U.S. payroll; or (vi) any employee classified or treated as an
independent contractor, consultant, leased employee (as defined under the
Internal Revenue Code of 1986, as amended (the Code)), or an employee of an
employment agency or other entity, even if subsequently determined to have
been a common-law employee of Genentech.
On May 21, 1997, the Plan employee eligibility provisions were amended
(retroactively effective to January 1, 1985) to clarify that independent
contractors, consultants, leased employees (as defined in the Code), and
employees of employment agencies or other entities are not eligible to
participate in the Plan, even if subsequently determined to have been common-
law employees of Genentech. On December 31, 1997, the Plan was amended
(retroactively effective to January 1, 1985) to clarify the manner in which a
participant's Plan account is treated if and when we receive notice that a
domestic relations order is being sought specifying such account as a source
of payment.
Contributions
We match a portion of employee contributions, up to a maximum of 4% of a
participant's eligible compensation, or the Match. The Match is effective
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December 31st of each year, or the Effective Date, and contributions under
the Match are fully vested at that time. The Match is funded in the first
quarter of the subsequent year. We contributed approximately $8.6 million
for 1999 and $7.4 million for 1998 to the Plan in accordance with the terms
of the Plan.
Salary deferral contributions, or basic contributions, are accrued and vested
when deducted from employee pay; the Match is accrued and fully (100%) vested
on the Effective Date; and qualified rollover contributions are recorded and
vested when received by the Plan Trustee. All contributions are invested
pursuant to participants' directions to the Plan Trustee after receipt of
contributions by the Plan Trustee. Participants may change the amount of
contributions (as a percentage reduction of pre-tax eligible compensation) at
any time by contacting the Plan Trustee. Transfers between funds and changes
in investment allocations can be made at any time, up to ten times per year,
effective upon direction by the participant to the Plan Trustee.
Subject to limitations of the Code, each participant in the Plan could elect
to defer up to the lower of $10,000 or 15% in 1999 and 1998 of his or her
eligible compensation. For the plan years 1999 and 1998, each participant
was required to direct the investment of his or her contributions to any
available investment funds of the Plan (or any combination thereof). A more
detailed description of these investment funds is provided in the Plan
document.
Investment Options
Effective as of May 8, 1996, we changed the mechanics of the Genentech
Common Stock Fund, or the Stock Fund, to a unitized fund that assigns units
to participants rather than shares of our stock. These units represented a
proportionate interest in all of the assets of the Stock Fund, which included
shares of our then outstanding Special Common Stock and a small percentage
(approximately 2%, although the percentage may vary over time) in short-term
investments. A net asset value per unit was determined daily for each unit
outstanding in the Stock Fund. The return earned by the Stock Fund
represented a combination of the dividends paid on the shares of our Special
Common Stock (our Special Common Stock did not pay any dividend) held by the
Stock Fund, gains or losses realized on sales of our Special Common Stock,
appreciation or depreciation in the market price of those shares owned, and
interest on the short-term investments held by the Stock Fund. At June 30,
1999, this fund was liquidated as a result of the redemption of our Special
Common Stock as discussed below.
Effective at the close of business on December 31, 1998, six investment funds
were frozen. Participants are no longer able to direct contributions,
exchange or make investments into any of the Frozen Funds; exchanges out of a
Frozen Fund are permitted. The six Frozen Funds are as follows:
Fidelity Asset Manager
Fidelity Asset Manager: Growth
Fidelity Asset Manager: Income
Fidelity Balanced Fund
Fidelity Intermediate Bond Fund
Fidelity Overseas Fund
In addition, on June 30, 1999, we redeemed all of our outstanding Special
Common Stock at a price of $41.25 per share. As a result of the redemption,
our Stock Fund ceased to exist. The proceeds from the redemption were
deposited into the Retirement Money Market Fund when they were received by
the Plan Trustee on July 6, 1999. Participants may instruct the Plan Trustee
to redirect the proceeds from the redemption to another investment fund after
July 6, 1999. Participants may also instruct the Plan Trustee after July 6,
1999 to change future contributions directed to the Retirement Money Market
Fund to any of the other investment funds available in the Plan.
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Participant Accounts
Each participant's account is credited with the participant's
contribution, the Match and Plan earnings. The Plan trustee is Fidelity
Management Trust Company, or the Plan Trustee. All amounts contributed to
the Plan are deposited in a trust account with the Plan Trustee. The Plan
Trustee's fees and expenses are paid by us and are not charged to the Plan.
The benefit to which a participant is entitled is the benefit that can be
provided from the participant's vested account.
As of November 15, 1999, accounts of terminated employees who continue to
hold an account under the Plan as non-employee participants are no longer
charged an annual fee of $50.00. The Plan Trustee has blanket bond insurance
covering the full market value of the securities and investments of which it
has custody.
Vesting
Participants are vested immediately in their contributions plus actual
earnings thereon. The Match is accrued and fully vested on the Effective
Date and qualified rollover contributions are recorded and vested when
received by the Plan Trustee.
Participant Loans
Loans are made to Plan participants at fixed interest rates (presently
2% above the then-current bank prime interest rate), subject to certain
restrictions, principally related to a participant's account balance,
permissible loan amount, and repayment through payroll withholding. Loans
are repaid through monthly payroll deductions over three or five years, or
fifteen years if the purpose of the loan is to purchase a participant's
principal residence.
Conditions of Withdrawal
Distributions under the Plan are made upon a participant's death,
disability, retirement or other termination of employment with us, attainment
of age 70-1/2 (applicable only to participants who own 5% or more of the
Company's stock), or authorized exercise of his or her withdrawal rights
under the Plan. Upon termination, a participant must consent to a
distribution unless the balance credited to his or her account under the Plan
does not exceed and has not exceeded $5,000. Distributions are made upon
receipt of the participant's or beneficiary's election directing the method
of distribution.
Anytime prior to termination of employment with us, the Plan administration
committee may grant a participant's request for a withdrawal from the
participant's account if the Plan administration committee makes a
determination that such withdrawal is necessary in light of the immediate and
heavy financial needs of the participant and is in accordance with the
requirements of the Code and regulations promulgated thereunder. In
addition, a Plan participant may withdraw up to the entire balance of his or
her Plan account if over age 59-1/2 at the time of withdrawal.
Plan Termination
Our Board of Directors has the right under the Plan to alter, amend or
terminate the Plan, or any part thereof, in such a manner as it may
determine. If the Plan is terminated, the interests of all Plan members
would remain fully (100%) vested and nonforfeitable. The balances credited
to their accounts would remain with the Plan trustee until they become
distributable in accordance with the Plan.
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(2) Summary of Significant Accounting Policies:
Basis of Accounting
The financial statements have been prepared on the accrual basis of
accounting.
Investment Valuation and Income Recognition
Investments are stated at fair market value at year end. Fidelity
Magellan Fund, Fidelity Growth Company Fund, Fidelity Growth & Income
Portfolio, Fidelity Intermediate Bond Fund, Fidelity Overseas Fund, Fidelity
Balanced Fund, Fidelity Asset Manager Fund, Fidelity Asset Manager: Growth
Fund, Fidelity Asset Manager: Income Fund, Fidelity Spartan U.S. Equity Index
Portfolio, PIMCO Total Return Fund, MAS High Yield Portfolio, INVESCO Total
Return Fund, Neuberger & Berman Genesis Trust and Janus Worldwide Fund
securities are valued at the last quoted price on the last business day of
the year, which for the mutual funds represents the net asset values of
shares held by the Plan at year end. The Fidelity Retirement Money Market
Portfolio is valued on the basis of historical cost plus accrued interest
that approximates fair value. Participant loans are valued at their
outstanding balance, which approximates fair value. See Note (1) for a
description of the investment valuation of the Genentech Common Stock Fund.
All security transactions are recorded on the trade date. Gains and
losses on the disposals of investments are determined based on the average
cost of all securities. Dividend income is recorded on the effective date of
a declared dividend. Income from other investments is recorded as earned on
an accrual basis.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Reclassification
Certain amounts in 1998 financial statements have been reclassified to
conform to the 1999 presentation.
(3) Investments
The Plan Trustee holds the Plan's investments and executes all
investment transactions. During 1999, the Plan's investments (including
investments purchased, sold, as well as held during the year) appreciated
(depreciated) in fair value as determined by quoted market prices as follows:
Net Realized and Unrealized
Appreciation (Depreciation) in
Fair Value of Investments
------------------------------
Common stock $ 501,629
Mutual funds 40,141,729
-----------
$40,643,358
===========
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The fair value of individual investments that represent 5% or more of
the Plan's net assets is as follows:
December 31,
1999 1998
---------- ----------
Genentech Common Stock - 12,555,384
Fidelity Magellan Fund 77,834,461 58,505,405
Fidelity Growth Company Fund 59,767,969 28,059,164
Fidelity Growth and Income Portfolio 57,530,416 55,766,205
Fidelity Balanced Fund 18,643,174 19,871,145
Fidelity Retirement Money Market Portfolio 27,337,812 13,989,413
Spartan U.S. Equity Index Portfolio 27,629,622 21,449,600
(4) Income Tax Status
The Internal Revenue Service, or the IRS, has determined and informed us
by letter dated September 25, 1995, that the December 21, 1984 Plan, as
amended and restated, qualified in form under Section 401(a) of the Code and
the underlying trust is, therefore, exempt from federal income taxes under
Section 501(a) of the Code.
Effective as of May 8, 1996, the Plan was again amended and restated.
In May 1997 and December 1997, the amended and restated Plan was amended
(retroactively effective to January 1, 1985). The changes made in the May 8,
1996 amendment and restatement, the May 1997 amendment and the December 1997
amendment were technical in nature, and in our and our legal counsel's
opinion, did not require another determination from the IRS concerning the
Plan's tax exempt status.
We believe that the Plan is designed and is currently being operated in
compliance with the applicable requirements of the Code.
(5) Related Party Transactions
Transactions in shares of Genentech Special Common Stock qualify as
party-in-interest transactions under the provisions of ERISA. During 1999,
the Plan made purchases and sales of Genentech Special Common Stock of
approximately $9.2 million and $17.0 million, respectively.
(6) Subsequent Event
Effective February 1, 2000, the Genentech Common Stock Fund was made
available as an investment option under the Plan. This fund will consist of
shares of our Common Stock and short-term liquid investments, including
Fidelity Institutional Cash Portfolios and Money Market Portfolio, as agreed
to by us and the Plan Trustee, necessary to satisfy the fund's cash needs for
transfers and payments. For a full description of this investment option,
participants should refer to the Plan document.
Effective April 3, 2000, the RS (Robertson Stephens) Emerging Growth
Fund and the Domini Social Equity Fund were added as available investment
options under the Plan. Descriptions of these investment options are as
follows:
The RS Emerging Growth Fund is a growth mutual fund managed by RS Investment
Management, Inc. The fund primarily invests in common stocks of emerging-
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growth companies. The fund invests in companies in industry segments that
are experiencing rapid growth and in companies with proprietary advantages.
Share price and return will vary.
The Domini Social Equity Fund is a socially screened growth and income index
mutual fund advised by Domini Social Investments, LLC, and managed by Mellon
Equity Associates. The fund is an index fund and holds all the stocks that
make up the Domini 400 Social Index, trademark, in approximately the same
proportions as they are represented in the index. The fund includes
companies with positive records in community involvement, the environment,
employee relations, and hiring practices. It avoids companies with
significant revenues from alcohol, tobacco, gambling, nuclear power and
weapons contracting. Share price and return will vary.
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Report of Ernst & Young LLP, Independent Auditors
To the Participants and Plan Administration Committee of the
Genentech, Inc. Tax Reduction Investment Plan
We have audited the accompanying statements of net assets available for
benefits of the Genentech, Inc. Tax Reduction Investment Plan as of December
31, 1999 and 1998, and the related statement of changes in net assets
available for benefits for the year ended December 31, 1999. These financial
statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1999 and 1998, and the changes in its net assets available for
benefits for the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplemental
schedule of assets held for investment purposes at end of year as of December
31, 1999, is presented for purposes of additional analysis and is not a
required part of the financial statements but is supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. The
supplemental schedule is the responsibility of the Plan's management. The
supplemental schedule has been subjected to the auditing procedures applied
in our audits of the financial statements and, in our opinion, is fairly
stated in all material respects in relation to the financial statements taken
as a whole.
ERNST & YOUNG LLP
San Jose, California
May 25, 2000
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Plan administrator has duly caused this annual report to be signed by the
undersigned hereunto duly authorized.
Genentech, Inc. Tax Reduction Investment Plan
by Genentech, Inc., Plan Administrator
By: /S/LOUIS J. LAVIGNE, JR. Date: June 13, 2000
---------------------------------------
Louis J. Lavigne, Jr.
Executive Vice President and
Chief Financial Officer
and Plan Administration Committee
Member for Genentech, Inc.
Tax Reduction Investment Plan
By: /S/JUDITH A. HEYBOER Date: June 13, 2000
---------------------------------------
Judith A. Heyboer
Senior Vice President - Human Resources
and Plan Administration Committee
Member for Genentech, Inc.
Tax Reduction Investment Plan
By: /S/JAMES P. PANEK Date: June 13, 2000
---------------------------------------
James P. Panek
Senior Vice President - Product Operations
and Plan Administration Committee
Member for Genentech, Inc.
Tax Reduction Investment Plan
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Genentech, Inc. Tax Reduction Investment Plan
EIN: 94-2347624, Plan #001
Schedule H, Line 4i - Schedule of Assets Held For Investment Purposes
at End of Year
December 31, 1999
<TABLE>
<CAPTION>
Description of investment
Identity of issue, borrower, including maturity date, rate
lessor or of interest, collateral, par, Current
similar party or maturity value (2) Value
------------------------------------------------- ----------------------------- ------------
<S> <C> <C>
MUTUAL FUNDS:
* Fidelity Magellan Fund ........................ 569,673 shares $ 77,834,461
* Fidelity Growth Company Fund .................. 708,991 shares 59,767,969
* Fidelity Growth & Income Portfolio ............ 1,219,899 shares 57,530,416
* Fidelity Intermediate Bond Fund ............... 299,794 shares 2,925,989
* Fidelity Overseas Fund ........................ 131,332 shares 6,305,244
* Fidelity Balanced Fund ........................ 1,213,748 shares 18,643,174
* Fidelity Asset Manager Fund ................... 77,704 shares 1,428,207
* Fidelity Asset Manager: Growth Fund ........... 156,788 shares 3,084,024
* Fidelity Asset Manager: Income Fund ........... 40,245 shares 490,179
* Fidelity Retirement Money Market Portfolio .... 27,337,812 shares 27,337,812
* Fidelity Spartan U.S. Equity Index Portfolio .. 530,421 shares 27,629,622
PIMCO Total Return Fund ....................... 237,776 shares 2,353,984
MAS High Yield Portfolio ...................... 79,888 shares 692,631
Neuberger & Berman Genesis Trust .............. 68,456 shares 1,440,313
INVESCO Total Return Fund ..................... 149,481 shares 4,328,965
Janus Worldwide Fund .......................... 185,575 shares 14,183,464
* Participant Loans ............................. (1) 4,058,633
------------
Total Investments ............................... $310,035,087
============
</TABLE>
(1) Maturing at various dates through 2014 at interest rates ranging from
8.25 to 11.00%.
(2) Cost information is not provided as all investments are participant
directed.
* Indicates party-in-interest to the Plan.
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Genentech, Inc. Tax Reduction Investment Plan
Index of Exhibits Filed with Form 11-K
For the Year Ended December 31, 1999
Exhibit Sequential
Number Description Page Numbers
------- --------------------------------------------------- ------------
23 Consent of Ernst & Young LLP, Independent Auditors,
filed with this document 23
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1999 Form 11-K (Skeleton) 06/13/2000 @ 9:51 AM
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