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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
__X__ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNE 30, 1996
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or
_____ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 1-6247
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ALZA CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 77-0142070
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
950 Page Mill Road, P.O. Box 10950, Palo Alto, California 94303-0802
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 494-5000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Number of shares outstanding of each of the registrant's classes of common stock
as of July 31, 1996:
Common Stock, $.01 par value - 84,380,592 shares
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALZA CORPORATION
Condensed Consolidated Statement of Income (unaudited)
(In thousands, except per share amounts)
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
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Revenues:
Royalties and fees $ 47,692 $ 34,230 $ 85,375 $ 68,192
Research and development 35,137 23,485 65,417 45,185
Net sales 33,617 19,180 54,312 38,006
Interest and other 11,620 6,110 19,764 11,862
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Total revenues 128,066 83,005 224,868 163,245
Costs and expenses:
Research and development 38,250 24,144 69,510 46,386
Costs of products shipped 29,571 16,738 45,558 33,160
General, administrative and
marketing 11,931 8,398 22,137 16,900
Interest and other 10,942 5,580 17,393 11,175
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Total costs and expenses 90,694 54,860 154,598 107,621
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Income before income taxes 37,372 28,145 70,270 55,624
Provision for income taxes 14,216 10,695 26,731 21,137
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Net income $ 23,156 $ 17,450 $ 43,539 $ 34,487
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Net income per common and
common equivalent share* $ .27 $ .21 $ .51 $ .42
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Weighted average common and
common equivalent share 97,356 82,413 90,986 82,401
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See accompanying notes.
* The net income per common and common equivalent share calculation uses
adjusted net income of $26,187 and $46,570 for the quarter and six months ended
June 30, 1996, respectively.
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ALZA CORPORATION
Condensed Consolidated Balance Sheet (unaudited)
(In thousands)
June 30, December 31,
ASSETS 1996 1995
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Current assets:
Cash and cash equivalents $ 499,388 $ 87,987
Short-term investments 449,637 331,037
Receivables, net 130,082 108,020
Inventories, at cost:
Raw materials 15,442 15,786
Work in process 15,689 15,251
Finished goods 4,793 3,460
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Total inventories 35,924 34,497
Prepaid expenses and other current assets 26,043 16,527
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Total current assets 1,141,074 578,068
Property, plant and equipment 380,487 359,495
Less accumulated depreciation and amortization (90,556) (82,511)
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Net property, plant and equipment 289,931 276,984
Other assets 101,646 82,163
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Total assets $ 1,532,651 $ 937,215
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,126 $ 20,043
Accrued income taxes 3,453 2,146
Accrued compensation 14,714 13,404
Deferred revenue 1,079 17,630
Other current liabilities 10,546 14,725
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Total current liabilities 59,918 67,948
5% convertible subordinated debentures 500,000 -
5 1/4% zero coupon convertible subordinated
debentures 372,508 362,944
Other long-term liabilities 57,319 51,770
Stockholders' equity:
Common stock and additional paid-in capital 354,206 311,276
Net unrealized gains on available-for-sale
securities, net of tax effect 3,770 1,886
Retained earnings 184,930 141,391
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Total stockholders' equity 542,906 454,553
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Total liabilities and stockholders'
equity $ 1,532,651 $ 937,215
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See accompanying notes.
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ALZA CORPORATION
Condensed Consolidated Statement of Cash Flows (unaudited)
(In thousands)
Six Months Ended June 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 43,539 $ 34,487
Non-cash adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 9,484 7,217
Interest on 5 1/4% zero coupon convertible
subordinated debentures 9,564 8,710
Increase in assets:
Receivables (22,062) (10,057)
Inventories (1,427) (1,808)
Prepaid expenses and other current assets (5,983) (2,064)
Increase (decrease) in liabilities:
Accounts payable 10,083 (7,675)
Accrued income taxes 1,307 806
Accrued compensation 1,310 (609)
Deferred revenue (16,551) 4,859
Other current and long-term liabilities 1,370 3,308
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Total adjustments (12,905) 2,687
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Net cash provided by operating activities 30,634 37,174
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,992) (17,675)
Purchases of available-for-sale securities (379,000) (111,188)
Sales of available-for-sale securities 234,510 72,356
Maturities of available-for-sale securities 24,241 1,380
(Increase) decrease in cash surrender
value-life insurance and prepaid premiums (2,562) 310
(Increase) decrease in other assets (7,110) 1,081
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Net cash used in investing activities (150,913) (53,736)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from 5% convertible
subordinated debentures 488,750 -
Issuances of common stock 42,930 5,207
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Net cash provided by financing activities 531,680 5,207
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Net increase (decrease) in cash and cash
equivalents 411,401 (11,355)
Cash and cash equivalents at beginning
of period 87,987 88,844
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Cash and cash equivalents at end
of period $ 499,388 $ 77,489
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See accompanying notes.
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ALZA CORPORATION
June 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The information at June 30, 1996 and for the three and six months ended
June 30, 1996 and 1995 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) which the management of ALZA Corporation
("ALZA") believes necessary for fair presentation of the results for the periods
presented. Interim results are not necessarily indicative of results for the
full year. The condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1995 included in ALZA's 1995 Annual Report to Stockholders.
2. SEPARATION OF UNITS
Units were issued to ALZA stockholders as a special dividend in June
1993. Each Unit consisted of one share of Therapeutic Discovery Corporation
("TDC") Class A common stock and one warrant to purchase one-eighth of one
share of ALZA common stock. On June 11, 1996, the component parts of the
Units began trading separately on the Nasdaq Stock Market. Before the
separation, the Units traded on the Nasdaq Stock Market under the symbol
TDCAZ. Since the separation, the TDC Class A common stock trades under the
symbol TDCA, and the ALZA warrants trade under the symbol ALZAW. The ALZA
warrants are exercisable at a price of $65 per share, and will expire, if not
previously exercised, on December 31, 1999.
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ALZA CORPORATION
June 30, 1996
3. DEBT OBLIGATIONS
In April 1996, ALZA completed a $500 million public offering of 5%
convertible subordinated debentures due 2006 (the "5% Debentures"). The
offering resulted in approximately $489 million of net proceeds to ALZA.
Interest is payable semi-annually on May 1 and November 1 of each year,
commencing November 1, 1996. Each 5% Debenture is convertible, at the option
of the holder, at any time prior to maturity, unless previously redeemed or
repurchased, into shares of ALZA common stock at a conversion price of $38.19
per share, subject to certain anti-dilution adjustments. The proceeds of the
offering will be used for general corporate purposes, which may include
expansion of ALZA's pharmaceutical business (including its sales and
marketing activities), expansion of its research and development and
manufacturing facilities, expenditures under existing or future joint
ventures, partnerships or other similar agreements, the completion or
continuation of the development of TDC products if ALZA exercises its right
to license any or all of the TDC products or its purchase option with respect
to TDC, the acquisition of assets, technologies, products and businesses to
expand ALZA's operations, and working capital.
4. LITIGATION
See Part II, Item 1 of this Quarterly Report on Form 10-Q.
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ALZA CORPORATION
June 30, 1996
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NOTICE CONCERNING FORWARD-LOOKING STATEMENTS
Some of the statements made in this Form 10-Q are forward-looking in
nature, including but not limited to ALZA Corporation's ("ALZA") product
development plans, plans concerning the commercialization of products, and other
statements that are not historical facts. Forward-looking statements in this
Form 10-Q include language in the form of one of the following words: "intend",
"believe", "will", "may", "anticipate" and "expect." The occurrence of the
events described, and the achievement of the intended results, are subject to
the future occurrence of many events, some or all of which are not predictable
or within ALZA's control; therefore, actual results may differ materially from
those anticipated in any forward-looking statements. Many risks and
uncertainties which could affect the possible results described in forward-
looking statements are inherent in the pharmaceutical industry; others are more
specific to ALZA's business. Risks related to ALZA's business are described in
ALZA's Form 10-K, including risks associated with technology and product
development, risks relating to clinical development and medical acceptance of
products, changes in the health care marketplace, patent and intellectual
property matters, regulatory and manufacturing issues, and risks associated with
competition from other companies.
ALZA CORPORATION
ALZA develops and commercializes innovative pharmaceutical products using
advanced drug delivery technologies to add medical and economic value to drug
therapies. ALZA's therapeutic systems can often increase efficacy, minimize
unpleasant or harmful side effects and/or provide greater patient compliance.
ALZA's development activities
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ALZA CORPORATION
June 30, 1996
currently are undertaken pursuant to joint development and commercialization
agreements with other companies. Generally, these companies reimburse ALZA for
its development costs associated with the products and market the products
developed, and ALZA receives royalties on sales of the products.
ALZA formed Therapeutic Discovery Corporation ("TDC"), which commenced
operations in mid-1993, for the purpose of selecting and developing new human
pharmaceutical products combining ALZA's proprietary drug delivery technologies
with various drug compounds, and commercializing such products, most likely
through licensing to ALZA. ALZA and TDC currently are developing a range of
products which are in various stages of development, including a number in
clinical evaluation. TDC reimburses ALZA for ALZA's development costs associated
with these products. ALZA has the right to license any or all of the products
from TDC and an option to purchase all of the shares of TDC, which is discussed
in more detail below.
ALZA markets in the United States certain products it has developed,
including Testoderm-Registered Trademark- (testosterone transdermal system)
CIII, launched by ALZA Pharmaceuticals in 1994. ALZA Pharmaceuticals also
co-promotes in the United States Duragesic-Registered Trademark- (fentanyl
transdermal system) CII with Janssen Pharmaceutica, Inc. ("Janssen"), and
Glucotrol XL-Registered Trademark-(glipizide) with Pfizer Inc. ("Pfizer").
In April 1996, ALZA began promoting Ethyol-Registered Trademark- (amifostine)
and Mycelex-Registered Trademark-(clotrimazole) Troche in the United States.
Ethyol-Registered Trademark- is a unique agent, developed by U.S. Bioscience,
Inc. ("USB"), indicated for the reduction of cumulative renal toxicity
associated with repeated administration of the chemotherapeutic drug
cisplatin in patients with advanced ovarian cancer or non-small cell lung
cancer. ALZA has exclusive rights to market Ethyol-Registered Trademark- in
the
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ALZA CORPORATION
June 30, 1996
U.S. for five years, with an option to extend for one additional year; USB co-
promotes the product with ALZA. Mycelex-Registered Trademark- Troche is an
antifungal agent for the treatment of oral thrush developed by Bayer Corporation
("Bayer"). Under the terms of the agreement with Bayer, ALZA will promote
Mycelex-Registered Trademark- Troche in the United States for three years and
will receive payments based on net sales of the product above a specified base
level.
On July 1, 1996, ALZA began co-promoting with USB in the United States
two additional products developed by USB -- Hexalen-Registered
Trademark-(altretamine), a product used in the treatment of advanced ovarian
cancer, and NeuTrexin-Registered Trademark- (trimetrexate glucuronate), a
product indicated as an alternate therapy for the treatment of
moderate-to-severe PNEUMOCYSTIS CARINII pneumonia. Sales of
Hexalen-Registered Trademark- and NeuTrexin-Registered Trademark- will be
recorded by USB and, under the agreement, ALZA will receive payments based on
net sales of the products. The term of the co-promotion period is up to five
years and ALZA will receive residual payments after that period. USB is
responsible for product manufacturing and distribution and will continue to
provide marketing and clinical support throughout the period covered by this
agreement.
ALZA manufactures all or a portion of certain clients' requirements for
products developed by ALZA, and also manufactures certain products marketed by
ALZA. Net sales include sales to clients and sales of ALZA-marketed products.
RESULTS OF OPERATIONS
ALZA's net income was $23.2 million or $0.27 per share ($20.9 million or
$0.25 per share before non-recurring items) for the quarter ended June 30, 1996,
compared to net income of $17.5 million or $0.21 per share for the quarter ended
June 30, 1995.
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ALZA CORPORATION
June 30, 1996
Net income for the six months ended June 30, 1996 was $43.5 million or $0.51
per share ($41.3 million or $0.49 per share before non-recurring items),
compared to net income of $34.5 million or $0.42 per share for the six months
ended June 30, 1995.
ALZA's net income currently results primarily from royalties and fees from
client companies. Royalties and fees, which are generally derived from sales by
client companies of products developed jointly with ALZA, will vary from quarter
to quarter as a result of changing levels of product sales by client companies
and, occasionally, the receipt by ALZA of certain one-time fees. Because ALZA's
clients generally take responsibility for obtaining necessary regulatory
approvals and make all marketing and commercialization decisions regarding such
products, most of the variables that affect ALZA's royalties and fees are not
directly within ALZA's control. In addition, with increasing pressures for cost
containment in the U.S. health care system, it can be expected that
pharmaceutical product prices, including those of products developed by ALZA,
will not increase as quickly as they have in the past, and could decrease.
During the next several years, ALZA intends to become less dependent on
royalties and fees by expanding ALZA's sales and marketing activities and by
directly marketing more products (including products developed with TDC);
however, there can be no assurance that these expanded activities will be
successful, due to factors such as the risks of product development and
clinical activities, the length of the regulatory approval process,
acceptance of products by the intended markets, and the current health care
cost containment environment.
Royalties and fees for the quarter and six months ended June 30, 1996
increased to $47.7 million and $85.4 million, respectively, compared to
$34.2 million and $68.2 million for the same periods in 1995. Excluding
non-recurring items, which are discussed below,
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ALZA CORPORATION
June 30, 1996
royalties and fees were $38.6 million and $76.3 million for the quarter and six
months ended June 30, 1996, respectively. The increase in royalties and fees
(excluding non-recurring items) resulted from increased sales of Adalat CR-
Registered Trademark- (nifedipine) by Bayer AG, increased sales of Glucotrol XL-
Registered Trademark- by Pfizer, royalties from initial sales of Covera-HS-
Registered Trademark- (verapamil hydrochloride) by G. D. Searle, revenue from
the promotion of Mycelex-Registered Trademark- Troche and a higher effective
royalty rate on Procardia XL-Registered Trademark- (nifedipine) (offsetting a
lower level of sales of Procardia XL-Registered Trademark- as discussed below),
reduced in part by lower royalties on Transderm-Nitro-Registered Trademark-
(nitroglycerin transdermal system).
ALZA expects that, in the near term, net income will continue to result
primarily from royalties on sales of currently marketed products.
Royalties and fees for the quarter and six months ended June 30, 1996
include a non-recurring benefit of approximately $7 million from the reversal
of a portion of the reserve accrued in 1994 and 1995 to account for a
potential reduction in royalty income from Procardia XL-Registered
Trademark-, marketed in the U.S. by Pfizer, due to a U.S. patent issued to
Bayer AG. Pfizer and ALZA have entered into an agreement under which the
remainder of the reserve was utilized to satisfy ALZA's obligations related
to the resolution of this royalty issue. Under this agreement, the royalty
payable by Pfizer to ALZA on sales of Procardia XL-Registered Trademark- has
been reset to 7%, retroactive to January 1, 1996. While ALZA's total
royalties from Procardia XL-Registered Trademark- increased as a result of
the higher effective royalty rate, sales of Procardia XL-Registered
Trademark-, as reported by Pfizer, decreased by 19% during the second quarter
of 1996 compared to the same period in 1995. Including the approximate $7
million benefit, royalties from Procardia XL-Registered Trademark-accounted
for approximately 50% of ALZA's royalties and fees for the quarter and six
months ended June 30, 1996.
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ALZA CORPORATION
June 30, 1996
Excluding non-recurring items, Procardia XL-Registered Trademark- accounted
for approximately 40% and 45% of ALZA's royalties and fees, respectively, for
the same periods.
Royalties and fees for the quarter and six months ended June 30, 1996 also
include an approximate $6 million benefit in connection with the settlement of
litigation relating to patent disputes concerning transdermal nicotine patches.
Under the terms of the settlement announced in June 1996, Ciba-Geigy Corporation
("Ciba") made a one-time payment to Hoechst Marion Roussel Inc. ("HMR") and
ALZA, and will pay an ongoing royalty to be shared by HMR and ALZA on Ciba's
U.S. nicotine patch sales, retroactive to January 1, 1996.
Partially offsetting the additions to royalties and fees discussed above is
a charge to establish a reserve of approximately $4 million representing the
unamortized portion of a $5 million advance payment made in 1988 to the former
limited partners of the ALZA OROS-Registered Trademark- Products Limited
Partnership (the "Partnership") in connection with ALZA's exercise of its option
to acquire all of the limited partners' interests in the Partnership. Under the
terms of the Partnership agreement, the advance payment is creditable by ALZA,
within specified limits, against payments otherwise due to the former limited
partners on sales of the OROS-Registered Trademark- cold/allergy products and
Covera-HS-Registered Trademark-. This reserve has been established due to
uncertainties regarding ALZA's ability to utilize the prepayment within the time
period specified in the Partnership agreement.
Under a 1988 license agreement, Ciba Self-Medication ("CSM"), a U.S.
subsidiary of Ciba, has marketed two of the OROS-Registered Trademark-
cold/allergy products -- Efidac 24-Registered Trademark- Pseudoephedrine
(pseudoephedrine hydrochloride) since 1993 and Efidac 24-Registered Trademark-
Chlorpheniramine (chlorpheniramine maleate) since 1995. A third OROS-Registered
Trademark- cold/allergy product,
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ALZA CORPORATION
June 30, 1996
Efidac 24-Registered Trademark- Pseudoephedrine/Brompheniramine (pseudoephedrine
hydrochloride/brompheniramine maleate), was cleared for marketing by the United
States Food and Drug Administration in March 1996. During the second quarter
of 1996, ALZA and Ciba reached an agreement whereby CSM will continue the
marketing of Efidac 24-Registered Trademark- Pseudoephedrine and Efidac
24-Registered Trademark- Chlorpheniramine, on a nonexclusive basis, through
the spring of 1997. CSM will not market the Efidac 24-Registered Trademark-
Pseudoephedrine/Brompheniramine combination product.
Subsequent to June 30, 1996, ALZA entered into a new arrangement concerning
the OROS-Registered Trademark- pseudoephedrine product with a major
pharmaceutical company that has a significant presence in the over-the-counter
cough/cold/allergy market. During the next six months, this pharmaceutical
company will review regulatory, market research and other information related to
the product. If this pharmaceutical company determines to proceed with
marketing the product, the parties intend to enter into a commercialization
agreement, the material terms of which have been negotiated. ALZA is also
discussing possible commercial arrangements for the OROS-Registered Trademark-
chlorpheniramine and OROS-Registered Trademark- pseudoephedrine/brompheniramine
products with this company and other major pharmaceutical companies.
Research and development revenue of $35.1 million for the quarter and
$65.4 million for the six months ended June 30, 1996 represents an increase of
50% and 45%, respectively, over the same periods in 1995 due to increased
product development activities undertaken on behalf of TDC. Reducing research
and development revenue for the quarter and six months ended June 30, 1996 were
approximately $2.1 million of non-recurring items consisting of a credit given
by ALZA to one of its clients for work that was
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ALZA CORPORATION
June 30, 1996
previously billed and a charge for certain potentially uncollectable
receivables. Research and development revenue from TDC was $28.6 million and
$51.5 million for the quarter and six months ended June 30, 1996, respectively,
and $14.5 million and $28.6 million for the corresponding periods in 1995.
Research and development expenses for the quarter and six months ended
June 30, 1996 increased approximately 58% and 50%, respectively, as compared
with the corresponding periods in 1995, primarily due to the increase in
product development activities on behalf of TDC. Certain TDC products have
reached later stages of development and therefore, higher levels of
expenditures are required. ALZA expects that its product development expense
for TDC products (and, correspondingly, ALZA's product development revenue
from TDC) will remain approximately at current levels during the remainder of
1996. However, several factors may impact the level and timing of TDC
expenditures, including any commercial arrangements with other companies, any
reduction in the number of projects advancing to or continuing in later
stages of development or any adjustments in rates of spending on products
currently in development. If expenditures on product development by TDC were
to continue at approximately current levels, it can be expected that the
amount of TDC funding available for product development would be exhausted
within the next 12 to 18 months. A majority of ALZA's research and
development revenue is from TDC, and the elimination of TDC funding would
significantly reduce ALZA's total revenues.
ALZA has the option, exercisable at ALZA's sole discretion, to purchase, in
accordance with a predetermined formula set forth in TDC's Restated Certificate
of Incorporation, all (but not less than all) of the outstanding shares of TDC
Class A common
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ALZA CORPORATION
June 30, 1996
stock (the "Purchase Option"). The purchase price may be paid in cash, in ALZA
common stock, or in any combination of the two, at the option of ALZA. In
connection with an exercise of the Purchase Option, ALZA may incur a one-time
charge due to the acquisition of in-process technology.
Net sales of $33.6 million and $54.3 million for the quarter and six
months ended June 30, 1996 increased 75% and 43% respectively, compared to
the corresponding periods in 1995, primarily due to increased contract
manufacturing activities related to the launch of Covera-HS-Registered
Trademark- and in anticipation of the launch of the over-the-counter version
of Nicoderm-Registered Trademark- (nicotine transdermal system). Costs of
products shipped for the quarter and six months ended June 30, 1996 include
approximately $2.4 million of non-recurring charges primarily related to
costs associated with a limited recall of two lots of the
Duragesic-Registered Trademark- product. The gross margin on net sales,
excluding the non-recurring charge of $2.4 million discussed above, increased
for the quarter and six months ended June 30, 1996 compared to the
corresponding periods in 1995 due primarily to proportionately greater
shipments of higher margin products.
Because the vast majority of ALZA's net sales are generated from
manufacturing products ordered by client companies, many factors affecting net
sales are not within ALZA's control. Revenues can be expected to fluctuate from
period to period depending on the volume, mix and timing of orders received from
client companies. ALZA expects its gross margin on net sales to increase over
the longer term, although quarter-to-quarter fluctuations can be expected to
continue to occur. Higher gross margins may ultimately be achieved through
increased utilization of capacity, greater operating efficiencies and a
proportionate increase in the sales of ALZA-marketed products.
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ALZA CORPORATION
June 30, 1996
General, administrative and marketing expenses of $11.9 million for the
quarter and $22.1 million for the six months ended June 30, 1996 increased 42%
and 31%, respectively, compared to the corresponding periods in 1995. The
increase was due in part to sales and marketing expenses related to the launch
of Ethyol-Registered Trademark- and current amortization of the upfront payment
ALZA made to USB for Ethyol-Registered Trademark-.
Interest and other revenue, which consists primarily of interest income,
increased 90% and 67%, respectively, for the quarter and six months ended
June 30, 1996 compared to the same periods in 1995, primarily due to higher
average invested cash balances following ALZA's offering of 5% convertible
subordinated debentures due 2006 (the "5% Debentures"), which resulted in
approximately $489 million in net proceeds to ALZA. Also included in interest
and other revenue was a $2.5 million non-recurring benefit resulting from the
issuance to ALZA of shares of common stock of an unrelated company for the
exclusive rights to use certain ALZA technology. Reducing interest and other
revenue was a non-recurring charge of approximately $2.8 million related to
ALZA's dental business activities and investments. Operating results of the
ALZA and Procter & Gamble partnership have not met expectations primarily due
to lower than expected sales of the Actisite-Registered Trademark-
(tetracycline hydrochloride) periodontal fiber.
Interest expense for the quarter and six months ended June 30, 1996
increased 96% and 56%, respectively, as compared with the corresponding
periods in 1995, reflecting the higher outstanding balance on ALZA's 5 1/4%
zero coupon convertible subordinated debentures due 2014 (the "5 1/4%
Debentures") and the interest expense on ALZA's
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ALZA CORPORATION
June 30, 1996
5% Debentures. It is expected that both interest income and interest expense
will increase as a result of the 5% Debentures.
ALZA's effective combined federal and state income tax rate for the year
ended 1995 and for the quarter and six months ended June 30, 1996 was 38%.
The number of weighted average common and common equivalent shares for the
quarter and six months ended June 30, 1996, includes 12.3 million and
6.2 million shares, respectively, reflecting the effect of shares issuable upon
conversion of the 5 1/4% Debentures. The 5 1/4% Debentures are considered
common stock equivalents, but have been excluded from prior earnings per
share calculations because they were antidilutive. Earnings per share for the
quarter and six months ended June 30, 1996 is calculated by adding the after-tax
interest incurred on the 5 1/4% Debentures ($3.0 million) to net income and
dividing by the number of weighted average common and common equivalent shares.
LIQUIDITY AND CAPITAL RESOURCES
ALZA invested $21.0 million during the first six months of 1996 in
additions to property, plant and equipment to support its research and
development and manufacturing activities. While ALZA believes its current
facilities and equipment are sufficient to meet its current operating
requirements, ALZA is expanding its facilities and equipment to support its
medium-term and long-term requirements.
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<PAGE>
ALZA CORPORATION
June 30, 1996
At the end of April 1996, ALZA completed a $500 million public offering of
the 5% Debentures which resulted in approximately $489 million of net proceeds
to ALZA. (See "Notes to the Condensed Consolidated Financial Statements
(unaudited)" for a description of the 5% Debentures.) The proceeds of the
offering will be used for general corporate purposes, which may include
expansion of ALZA's pharmaceutical business (including its sales and marketing
activities), expansion of its research and development and manufacturing
facilities, expenditures under existing or future joint ventures, partnerships
or other similar agreements, the completion or continuation of the development
of TDC products if ALZA exercises its right to license any or all of the TDC
products or its purchase option with respect to TDC, the acquisition of assets,
technologies, products and businesses to expand ALZA's operations, and working
capital.
ALZA believes that its existing cash balances and investments, including
the proceeds from the sale of the 5% Debentures, are adequate to fund its
current cash needs. In addition, should the need arise, ALZA believes it would
be able to raise additional capital. ALZA may also enter into strategic
alliances with third parties which could provide additional funding for research
and development, support for marketing and sales or the development of new
products.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In December 1991, a patent infringement suit was filed by Ciba-Geigy
("Ciba") against Marion Merrell Dow Inc., now Hoechst Marion Roussel Inc.
("HMR"), and ALZA in connection with the commercialization of
Nicoderm-Registered Trademark- (nicotine transdermal system). In October 1994,
the District Court granted a motion for summary judgment brought by ALZA and
HMR, ruling the Ciba patent invalid. During January 1995, ALZA and HMR filed a
separate suit against Ciba and its supplier for infringement of two U.S. patents
issued to ALZA in 1994 relating to the transdermal administration of nicotine.
During June 1996, ALZA and HMR entered into a settlement agreement with Ciba
which resolved these disputes. Ciba made a one-time settlement payment to HMR
and ALZA, and will pay an ongoing royalty on its U.S. nicotine patch sales
retroactive to January 1, 1996. ALZA and HMR will share the royalty payments in
accordance with agreements between them.
During January 1994, a suit was filed against ALZA by Cygnus Therapeutic
Systems ("Cygnus") seeking a declaration of unenforceability and invalidity of
an ALZA patent relating to the transdermal administration of fentanyl (which
patent covers the Duragesic-Registered Trademark- (fentanyl transdermal system)
CII product) and alleging violation of antitrust laws. In April 1995, the
District Court granted ALZA's motion to dismiss the lawsuit. Cygnus appealed
that ruling. Subsequent to the end of the quarter, the Court of Appeals of
the Federal Circuit upheld the District Court's dismissal of Cygnus' claims
against ALZA.
Pharmaceutical companies are subject to product liability claims from time
to time. Product liability suits have been filed against Janssen Pharmaceutica,
Inc. ("Janssen") and
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<PAGE>
ALZA from time to time relating to the Duragesic-Registered Trademark- product
which is manufactured by ALZA and marketed by Janssen. Janssen is managing the
defense of the Duragesic-Registered Trademark- suits in consultation with ALZA
under an agreement between the parties.
Historically, the cost of resolution of liability (including product
liability) claims against ALZA has not been significant, and ALZA is not aware
of any asserted or unasserted claims pending against it, including the suits
mentioned above, the resolution of which would have a material adverse impact
on the operations or financial position of ALZA.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of ALZA was held on May 23, 1996.
(b) Not applicable
(c) A total of 69,618,699 shares were represented at the annual meeting.
Stockholders approved the following proposals:
(i) Election of Class III Directors:
Votes Votes
For Withheld
---------- --------
Dr. Ernest Mario 68,687,918 930,781
Isaac Stein 68,632,700 985,999
Dr. Alejandro Zaffaroni 68,816,286 802,413
(ii) The ratification of the appointment of Ernst & Young LLP as
ALZA's independent auditors for the fiscal year ended
December 31, 1996.
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<PAGE>
There were 69,333,251 votes in favor, 126,020 votes against,
159,428 abstentions and no broker non-votes.
Stockholders did not approve a stockholder proposal to recommend that
ALZA's Board of Directors take the necessary steps to declassify the
Board of Directors so that all directors are elected annually. There
were 28,228,776 votes in favor of the recommendation, 28,050,812 votes
against, 823,663 abstentions and 12,515,448 broker non-votes.
Abstentions are counted as votes against a proposal for purposes of
determining whether or not a proposal has been approved.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.2 Composite By-laws of ALZA Corporation as restated on
February 10, 1994 and amended on August 11, 1994,
February 16, 1995 and February 15, 1996
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALZA CORPORATION
Date: August 13, 1996 By: /s/ E. Mario
-------------------
Dr. Ernest Mario
Co-Chairman and
Chief Executive Officer
Date: August 13, 1996 By: /s/ Bruce C. Cozadd
--------------------
Bruce C. Cozadd
Vice President and Chief
Financial Officer
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<PAGE>
EXHIBIT INDEX
EXHIBIT
3.2 Composite By-laws of ALZA Corporation as restated on February 10, 1994
and amended on August 11, 1994, February 16, 1995 and February 15, 1996
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
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<PAGE>
Exhibit 3.2
COMPOSITE BYLAWS
OF
ALZA CORPORATION
REGISTERED OFFICE AND REGISTERED AGENT
1. REGISTERED OFFICE. The registered office of the corporation shall be
in the City of Wilmington County of New Castle, State of Delaware.
2. OTHER OFFICES. The corporation may also have offices at such other
places, both within or without the State of Delaware, as the Board of Directors
may from time to time determine or the business of the corporation may require.
MEETINGS OF STOCKHOLDERS
3. TIME AND PLACE OF MEETINGS. All meetings of the stockholders shall be
held at such time and place, either within or without the State of Delaware, as
shall be fixed by the Board of Directors and stated in the notice or waiver of
notice of the meeting.
4. ANNUAL MEETING. An annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date and at such time and
place as the Board of Directors shall each year designate.
5. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes prescribed in the notice of meeting, may be called only by
the Board of Directors, the Chairman of the Board or the President of the
corporation.
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6. NO ACTION WITHOUT MEETING. At any time when the corporation has more
than one stockholder of any class of capital stock, no action required to be
taken or which may be taken at any annual or special meeting of the stockholders
of such class of capital stock of the corporation may be taken without a
meeting, and the power of stockholders to consent in writing without a meeting,
to the taking of any action is specifically denied.
7. NOTICE.
(a) Written notice of the place, date, and time of all meetings of the
stockholders shall be given not less than ten nor more than 60 days before the
date on which the meeting is to be held to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the corporation).
(b) When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken and the
adjournment is for not more than thirty days; provided, however, that if the
date of any adjourned meeting is more than thirty days after the date for which
the meeting was originally noticed, or if a new record date is fixed for the
adjourned meeting, written notice of the place, date and time of the adjourned
meeting shall be given in conformity herewith. At any adjourned meeting, any
business may be transacted which might have been transacted at the original
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meeting.
8. NOMINATIONS AND PROPOSALS.
(a) The Board of Directors of the corporation may nominate candidates for
election as directors of the corporation and may propose such other matters for
approval of the stockholders as the board deems necessary or appropriate.
(b) Any stockholder entitled to vote for directors may nominate candidates
for election as directors of the corporation; provided, however, that so long as
the corporation has more than one stockholder, no nominations for director of
the corporation by any person other than the Board of Directors shall be
presented to any meeting of stockholders unless the person making the nomination
is a record stockholder and shall have delivered a written notice to the
Secretary of the corporation no later than the close of business 60 days in
advance of the stockholder meeting or ten days after the date on which notice of
the meeting is first given to the stockholders, whichever is later. Such notice
shall (i) set forth the name and address of the person advancing such nomination
and the nominee, together with such information concerning the person making the
nomination and the nominee as would be required by the appropriate Rules and
Regulations of the Securities and Exchange Commission to be included in a proxy
statement soliciting proxies for the election of such nominee, and (ii) shall
include the duly executed written consent of such nominee to serve as director
if elected.
(c) No proposal by any person other than the Board of Directors shall be
submitted for the approval of the stockholders at any regular or special meeting
of the stockholders of the
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<PAGE>
corporation unless the person advancing such proposal shall have delivered a
written notice to the Secretary of the corporation no later than the close of
business 60 days in advance of the stockholder meeting or ten days after the
date on which notice of the meeting is first given to the stockholders,
whichever is later. Such notice shall set forth the name and address of the
person advancing the proposal, any material interest of such person in the
proposal, and such other information concerning the person making such proposal
and the proposal itself as would be required by the appropriate Rules and
Regulations of the Securities and Exchange Commission to be included in a proxy
statement soliciting proxies for the proposal.
9. QUORUM AND REQUIRED VOTE.
(a) At any meeting of the stockholders, the holders of a majority of all
of the shares of the stock entitled to vote on the subject matter at the
meeting, present in person or by proxy shall constitute a quorum, unless or
except to the extent that the presence of a larger number may be required by
law. Except as provided in Section 42 of these bylaws or as may be required by
law, the affirmative vote of a majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders.
(b) If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time.
(c) If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote
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<PAGE>
thereat, stating that it will be held with those present constituting a quorum,
then, except as provided in Section 42 of these bylaws or as otherwise required
by law, those present at such adjourned meeting shall constitute a quorum, and
all matters shall be determined by a majority of the votes cast at such meeting.
10. VOTE REQUIRED FOR BUSINESS COMBINATION.
(a) In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as expressly provided in Subparagraph
(b) of this Section 10, any Business Combination (as hereinafter defined) with a
Related Person (as hereinafter defined) shall require the affirmative vote of
the holders of at least eighty percent of the voting power of all of the then
outstanding shares of all classes of stock of the corporation entitled to vote
for the election of directors (the "Voting Stock"), voting together as a single
class. Such affirmative vote shall be required notwithstanding the fact that no
vote may be required, or that a lesser percentage may be specified, by law or in
any agreement.
(b) The provisions of this Section 10 shall not apply to any Business
Combination if:
(i) A majority of the Continuing Directors (as hereinafter defined)
of the corporation then in office has by resolution approved the Business
Combination either in advance of or subsequent to such Related Person's having
become a Related Person;
(ii) The Business Combination is solely between the
5
<PAGE>
corporation and another corporation, one hundred percent of the Voting Stock of
which is owned directly or indirectly by the corporation; or
(iii) The Business Combination is a merger or consolidation and the
cash or fair market value (as determined by a majority of the Continuing
Directors) of the property, securities or other consideration to be received per
share by holders of stock of the corporation in the Business Combination is not
less than the Highest Per Share Price or the Highest Equivalent Price (as these
terms are hereinafter defined) paid by the Related Person in acquiring any of
the corporation's stock.
(c) For the purpose of this Section 10:
(i) The term "Business Combination" shall mean (A) any merger or
consolidation of the corporation with or into a Related Person, (B) any sale,
lease, exchange, transfer or other disposition, including, without limitation, a
mortgage or any other security device, of assets of the corporation or any
subsidiary of the corporation, to a Related Person if such assets constitute a
Substantial Part (as hereinafter defined), (C) any merger or consolidation of a
Related Person with or into the corporation or a subsidiary of the corporation,
(D) the issuance of any securities of the corporation or a subsidiary of the
corporation to a Related Person, (E) any recapitalization that would have the
effect of increasing the voting power in the corporation of a Related Person,
and (F) any agreement, contract or other arrangement providing for any of the
transactions described in this definition of Business Combination.
6
<PAGE>
(ii) The term "Related Person" shall mean any individual,
corporation or other entity which, alone or together with (A) its "Affiliates"
and "Associates" (as defined in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934 as in effect at the date of the
adoption of this Section 10 by the stockholders of the corporation
(collectively, and as so in effect, the "Exchange Act")) or (B) members of a
"group" (as defined with reference to Section 13(d)(3) of the Exchange Act) of
which such individual, corporation or other entity is a member, "beneficially
owns" (as defined in Rule 13d-3 of the Exchange Act) shares of the outstanding
common stock of the corporation which, in the aggregate, have (or, in the case
of convertible securities, would have, if such convertible securities were, at
the time the determination is being made, convertible and had been converted) 20
percent or more of the total combined power to elect directors of the
corporation.
(iii) For the purposes of subparagraph (b)(iii) of this Section 10,
the term "other consideration to be received" shall include, without limitation,
common stock of the corporation retained by its existing stockholders in the
event of a Business Combination in which the corporation is the surviving
corporation.
(iv) The term "Continuing Director" shall mean a director who is
unaffiliated with the Related Person and who was a member of the Board of
Directors of the corporation immediately prior to the time that the Related
Person involved in a Business Combination became a Related Person.
7
<PAGE>
(v) The term "Substantial Part" shall mean assets having a book
value in excess of 30 percent of the book value of the total consolidated assets
of the corporation and its subsidiaries taken as a whole as of the end of its
most recent fiscal year ended prior to the time the determination is made.
(vi) The terms "Highest Per Share Price" and "Highest Equivalent
Price" shall mean the following: If there is only one class of capital stock of
the corporation issued and outstanding, the Highest Per Share Price shall mean
the highest price that can be determined by a majority of the Continuing
Directors then in office to have been paid at any time by the Related Person for
any share or shares of that class of capital stock. If there is more than one
class of capital stock of the corporation issued and outstanding, the Highest
Equivalent Price shall mean, with respect to each class of capital stock of the
corporation, the amount determined by a majority of the Continuing Directors
then in office, on whatever basis they believe is appropriate, to be the highest
per share price equivalent to the highest per share price that can be determined
to have been paid at any time by the Related Person for any share or shares of
any class of capital stock of the corporation. In determining the Highest Per
Share Price and Highest Equivalent Price, all purchases by the Related Person
shall be taken into account regardless of whether the shares were purchased
before or after the Related Person became a Related Person. Also, the Highest
Per Share Price and the Highest Equivalent Price shall include any brokerage
commissions, transfer taxes and soliciting dealers' fees paid by the Related
Person with respect to the shares of capital stock of the
8
<PAGE>
corporation acquired by the Related Person.
(d) A majority of the Continuing Directors of the corporation then in
office (including directors purporting, in good faith, to be Continuing
Directors) shall have the power and duty to determine, for the purposes of this
Section 10, on the basis of information then known to them, whether any
individual, corporation or other entity is a Related Person. Any such
determination made in good faith shall be conclusive and binding for all
purposes of this Section 10.
(e) The provisions set forth in this Section 10 may not be repealed or
amended in any respect without:
(i) The affirmative vote of not less than 80 percent of the Board
of Directors and of a majority of the Continuing Directors then in office, and
(ii) The affirmative vote of the holders of 80 percent or more of
the Voting Stock, voting together as a single class;
PROVIDED, HOWEVER, that the provisions of this paragraph (e) shall not apply to
any amendment or repeal of any provision of this Section 10 that is recommended
to the stockholders by a resolution adopted by (A) a majority of the Board of
Directors, and (B) not less than 80 percent of the Continuing Directors then in
office, in which case any such amendment or repeal shall require only the
affirmative vote of a majority of the Voting Stock.
11. ORGANIZATIONS. The Chairman of the Board or, in his or
her absence, the President of the corporation or, in the absence
9
<PAGE>
of both, such person as may be designated by the Board of Directors or, if there
is no such designation, such person as may be chosen by the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
shall call to order any meeting of the stockholders and act as chairman of the
meeting.
12. CONDUCT OF BUSINESS. The Chairman of any meeting of stockholders
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussion
as seem to him or her in order.
13. PROXIES AND VOTING. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedures established for
the meeting.
14. STOCK LIST. A complete list of stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order and showing the address
of each such stockholder and the number of shares of each class registered in
his or her name, shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the whole
time thereof and shall be open to the examination of any stockholder present.
10
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BOARD OF DIRECTORS
15. POWERS. The business and affairs of the corporation shall be managed
by or under the direction of its Board of Directors.
16. NUMBER, CLASSIFICATION AND TERM OF OFFICE. The number of directors of
the corporation who shall constitute the whole board shall be seven but may be
increased or decreased from time to time either by a resolution or bylaw duly
adopted by the Board of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III, which shall be as
nearly equal in number as possible. Each director shall serve for a term ending
on the date of the third annual meeting of stockholders following the annual
meeting at which the director was elected; provided, however, that each initial
director in Class I shall hold office until the annual meeting of stockholders
in 1988; each initial director in Class II shall hold office until the annual
meeting of stockholders in 1989; and each initial director in Class III shall
hold office until the annual meeting of stockholders in 1990. Notwithstanding
the foregoing, each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal.
[Section 16 amended by the Board
of Directors on February 15, 1996,
effective at the close of business
on May 22, 1996]
17. REMOVAL. Any director may be removed from office, only with cause, by
the holders of a majority of the shares entitled to vote in an election of
directors.
18. RESIGNATIONS. A director may resign at any time by giving written
notice to the corporation. Such resignation shall be effective when given
unless the director specifies a later time. The resignation shall be effective
regardless of whether
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it is accepted by the corporation.
19. NEWLY-CREATED DIRECTORSHIPS AND VACANCIES. In the event of any
increase or decrease in the authorized number of directors, any newly-created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of directors so as
to maintain such classes as nearly equal in number as possible. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director. Newly-created directorships resulting from any
increase in the number of directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other cause
shall be filled by the affirmative vote of a majority of the remaining directors
then in office (and not by stockholders), even though less than a quorum of the
Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
20. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be
held at such place or places, on such date or dates, and at such time or times
as shall have been established by the Board of Directors and publicized among
all directors. A notice of each regular meeting shall not be required.
21. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chairman of the Board, the President or any two directors.
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22. NOTICE OF MEETINGS.
(a) Special meetings, and regular meetings not fixed as provided in these
Bylaws, shall be held upon four days' notice by mail or two days' notice
delivered personally or by telephone or telegraph to each director who does not
waive such notice. The notice shall state the place, date and time of the
meeting. Unless otherwise indicated in the notice, any and all business may be
transacted at a special meeting.
(b) Notice of a reconvened meeting need not be given if the place, date
and time of the reconvened meeting are announced at the meeting at which the
adjournment is taken and the adjournment is not for more than 24 hours. If a
meeting is adjourned for more than 24 hours, notice of the reconvened meeting
shall be given prior to the time of that reconvened meeting to the directors who
were not present at the time of the adjournment.
23. ACTION WITHOUT MEETING. Except as required by law, any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting if all members of the Board
of Directors or any committee thereof, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the Board of
Directors or committee.
24. MEETING BY TELEPHONE. Except as required by law, members of the Board
of Directors or any committee thereof may participate in the meeting of the
Board of Directors or committee by means of conference telephone or similar
communications equipment if all persons who participate in the meeting can hear
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<PAGE>
each other. Such participation in a meeting shall constitute presence in person
at such meeting.
25. QUORUM AND MANNER OF ACTING. At any meeting of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for all purposes. A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the
meeting to another place, date or time, without further notice or waiver
thereof. Except as provided herein, the act of the majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors.
26. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors by a
vote of a majority of the whole Board, may from time to time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall for those
committees and any others provided for herein, elect a director or directors to
serve as the member or members, designating, if it desires, other directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any committee so designated may exercise the power
and authority of the Board of Directors to declare a dividend or to authorize
the issuance of stock if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. The
principles set forth in Sections 15
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through 25 of these Bylaws shall apply to committees of the Board of Directors
and to actions taken by such committees. All members of any Audit Committee of
this Company designated by the Board of Directors shall be directors who are not
also employees of the corporation.
27. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
or a committee thereof, and may receive fixed fees and other compensation for
their services as directors. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation for
such service.
OFFICERS
28. TITLES. The officers of the corporation shall be chosen by the Board
of Directors and shall include a Chairman of the Board or a President or both, a
Secretary and a Treasurer. The Board of Directors may also appoint one or more
Vice Presidents, Assistant Secretaries, Assistant Treasurers or other officers.
Any number of offices may be held by the same person. All officers shall perform
their duties and exercise their powers subject to the Board of Directors.
29. ELECTION, TERM OF OFFICE AND VACANCIES. The officers shall be elected
annually by the Board of Directors at its regular meeting following the annual
meeting of the stockholders,
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and each officer shall hold office until the next annual election of officers
and until the officer's successor is elected and qualified, or until the
officer's death, resignation or removal. Any officer may be removed at any
time, with or without cause, by the Board of Directors. Any vacancy occurring
in any office may be filled by the Board of Directors.
30. RESIGNATION. Any officer may resign at any time upon notice to the
corporation without prejudice to the rights, if any, of the corporation under
any contract to which the officer is a party. The resignation of an officer
shall be effective when given unless the officer specifies a later time. The
resignation shall be effective regardless of whether it is accepted by the
corporation.
31. CHIEF EXECUTIVE OFFICER. The Board of Directors shall designate
either the Chairman of the Board or the President as the chief executive officer
and may prescribe the duties and powers of the chief executive officer. In the
absence of such a designation, the Chairman of the Board shall be the chief
executive officer. If there is no Chairman of the Board, the President shall be
the chief executive officer. Subject to the provisions of these Bylaws and to
the direction of the Board of Directors, the chief executive officer shall have
the responsibility for the general management and control of the business and
affairs of the corporation and shall perform all duties and have all powers
which are commonly incident to the office of chief executive or which are
delegated to him or her by the Board of Directors. Either the Chairman of the
Board or the
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President and such other officers as may, from time to time, be expressly
designated by the Board of Directors shall have power to sign all stock
certificates, contracts and other instruments of the corporation which are
authorized.
32. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall issue all
authorized notices for, and shall keep minutes of, all meetings of the
stockholders and the Board of Directors. He or she shall have charge of the
corporate books and shall perform such other duties as the Board of Directors
may from time to time prescribe. At the request of the Secretary, or in the
Secretary's absence or disability, any Assistant Secretary shall perform any of
the duties of the Secretary and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the Secretary.
33. TREASURER AND ASSISTANT TREASURERS. Unless the Board of Directors
designates another chief financial officer, the Treasurer shall be the chief
financial officer of the corporation. Unless otherwise determined by the Board
of Directors or the chief executive officer, the Treasurer shall have custody of
the corporate funds and securities, shall keep adequate and correct accounts of
the corporation's properties and business transactions, shall disburse such
funds of the corporation as may be ordered by the Board or the chief executive
officer (taking proper vouchers for such disbursements), and shall render to the
chief executive officer and the Board, at regular meetings of the Board or
whenever the Board may require, an account of all transactions and the financial
condition of the
17
<PAGE>
corporation. At the request of the Treasurer, or in the Treasurer's absence or
disability, any Assistant Treasurer may perform any of the duties of the
Treasurer and when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the Treasurer.
34. OTHER OFFICERS. The other officers of the corporation, if any, shall
exercise such powers and perform such duties as the Board of Directors or the
chief executive officer shall prescribe.
35. COMPENSATION. The Board of Directors shall fix the compensation of
the chief executive officer and may fix the compensation of other employees of
the corporation, including the other officers. If the Board does not fix the
compensation of the other officers, the chief executive officer shall fix such
compensation.
36. ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
otherwise directed by the Board of Directors, the Chairman of the Board, the
President or any officer of the corporation authorized by the Chairman of the
Board or the President, shall have power to vote and otherwise act on behalf of
the corporation, in person or by proxy, at any meeting of stockholders of, or
with respect to any action of stockholders of, any other corporation in which
the corporation may hold securities and otherwise shall have power to exercise
any and all rights and powers which the corporation may possess by reason of its
ownership of securities in such other corporation.
18
<PAGE>
STOCK AND DIVIDENDS
37. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate signed by, or in the name of, the corporation by the Chairman, the
President or a Vice President, and by the Secretary or an Assistant Secretary,
or the Treasurer or an Assistant Treasurer, certifying the number of shares
owned by him or her. Any or all of the signatures on the certificates may be
facsimile.
38. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the
transfer books of the corporation kept at an office of the corporation or by
transfer agents designated to transfer shares of the stock of the corporation.
Except where a certificate is issued in accordance with the next sentence of
this Section, an outstanding certificate for the number of shares involved shall
be surrendered for cancellation before a new certificate is issued therefor. In
the event of the loss, theft or destruction of any certificate of stock, another
may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
39. REGULATIONS. The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations as the Board
of Directors may establish.
RECORD DATE
40. RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at
19
<PAGE>
any meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix in advance, a record date, which shall not be more than 60 nor less than
ten days before the date of such meeting, nor more than 60 days prior to any
other action. If no record date is fixed, the record date (1) for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; and (2) for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
reconvened meeting.
WAIVER OF NOTICE
41. WAIVER OF NOTICE. Whenever notice is required to be given by law or
these Bylaws, a written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting
20
<PAGE>
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Unless so required by the Certificate of Incorporation or these
Bylaws, neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
AMENDMENTS
42. AMENDMENTS. These Bylaws may be amended or repealed or new bylaws may
be adopted by the stockholders or by the Board of Directors. Notwithstanding
the foregoing, no provision of Section 10 may be amended or repealed except in
accordance with Section 10(e) and no provision of Sections 16 or 19 may be
amended or repealed except by a resolution adopted by the affirmative vote of
not less than 75% of the members of the Board of Directors or by the affirmative
vote of the holders of at least 80% of the outstanding shares of capital stock
entitled to vote in an election of directors.
MISCELLANEOUS
43. FISCAL YEAR. The fiscal year of the corporation shall be as fixed by
the Board of Directors.
44. TIME PERIODS. In applying any provision of these Bylaws which
requires that an act be done or not done within a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event,
21
<PAGE>
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
45. FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the corporation may be used
whenever and as authorized by the Board of Directors.
46. CORPORATE SEAL. The Board of Directors may provide a suitable seal,
containing the name of the corporation, which seal shall be in the charge of the
Secretary. Duplicates of the seal may be kept and used by the Treasurer or by
an Assistant Secretary or Assistant Treasurer.
47. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member
of any committee designated by the Board of Directors, and each officer of the
corporation shall, in the performance of his or her duties, be fully protected
in relying in good faith upon the books of account or other records of the
corporation, including reports made to the corporation by any of its officers,
by an independent certified public accountant or by an appraiser.
48. INDEMNIFICATION OF EMPLOYEES. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative ("a
proceeding"), because he or she is or was an employee of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee, agent or trustee of another corporation, partnership, joint venture,
trust or other enterprise (including service with respect to employee benefit
plans from the date of plan adoption), shall be indemnified and held harmless by
the corporation against all expense, liability and loss (including attorneys'
fees, judgments, penalties, fines, Employee Retirement Income Security Act of
1974 excise taxes or penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith; provided
in any event that such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation; and provided further that the corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was authorized
by the Board of Directors of the corporation. Such indemnification shall
continue as to a person who has ceased to be an employee and shall inure to the
benefit of his or her heirs, executors or administrators.
[Section 48 adopted by the Board
of Directors on August 11, 1994]
22
<PAGE>
EXHIBIT 11
Statement Regarding Computation of Per Share Earnings
(In thousands, except per share amounts)
Primary
----------------------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Common stock 84,209 82,163 83,910 82,118
Common stock options 826 250 915 283
$25 warrants - - - -
$65 warrants - - - -
5 1/4% zero coupon
convertible
subordinated
debentures 12,321 - 6,161 -
-------- -------- -------- --------
Weighted average common and
dilutive common equivalent
shares 97,356 82,413 90,986 82,401
-------- -------- -------- --------
-------- -------- -------- --------
Net income available to common
stockholders $ 23,156 $ 17,450 $ 43,539 $ 34,487
Add after-tax interest on
5 1/4% convertible
subordinated debentures 3,031 - 3,031 -
-------- -------- -------- --------
Adjusted net income $ 26,187 $ 17,450 $ 46,570 $ 34,487
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common and
common equivalent share $ .27 $ .21 $ .51 $ .42
-------- -------- -------- --------
-------- -------- -------- --------
-24-
<PAGE>
Fully Diluted
-----------------------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Common stock 84,209 82,163 83,910 82,118
Common stock options 825 451 965 384
$25 warrants - - - -
$65 warrants - - - -
5 1/4% zero coupon convertible
subordinated debentures 12,322 - 6,161 -
5% convertible subordinated
debentures - - - -
-------- -------- -------- --------
Weighted average common and
dilutive common equivalent
shares 97,356 82,614 91,036 82,502
-------- -------- -------- --------
-------- -------- -------- --------
Net income available to
common stockholders $ 23,156 $ 17,450 $ 43,539 $ 34,487
Add after-tax interest on
5 1/4% convertible
subordinated debentures 3,031 - 3,031 -
-------- -------- -------- --------
Adjusted net income $ 26,187 $ 17,450 $ 46,570 $ 34,487
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common and
common equivalent share $ .27 $ .21 $ .51 $ .42
-------- -------- -------- --------
-------- -------- -------- --------
Primary and fully diluted earnings per share are based on weighted average
shares of common stock outstanding plus dilutive common equivalent shares. The
5 1/4% zero coupon convertible subordinated debentures due 2014 (issued in July
1994) are considered common stock equivalents; they were dilutive for the
quarter and six months ended June 30, 1996 and antidilutive for the quarter and
six months ended June 30, 1995.
Fully diluted earnings per share are not presented on the face of the
condensed consolidated statement of income (unaudited) since they are not
materially different from primary earnings per share.
-25-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF FORM 10-Q DATED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 499
<SECURITIES> 450
<RECEIVABLES> 130
<ALLOWANCES> 0
<INVENTORY> 36
<CURRENT-ASSETS> 1,141
<PP&E> 380
<DEPRECIATION> 91
<TOTAL-ASSETS> 1,533
<CURRENT-LIABILITIES> 60
<BONDS> 873
0
0
<COMMON> 354
<OTHER-SE> 185
<TOTAL-LIABILITY-AND-EQUITY> 1,533
<SALES> 54
<TOTAL-REVENUES> 225
<CGS> 46
<TOTAL-COSTS> 115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 70
<INCOME-TAX> 27
<INCOME-CONTINUING> 44
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
