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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 SEPTEMBER 30, 1996
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 ___
Number of shares outstanding of each of the registrant's classes of common
stock as of October 31, 1996:
Common Stock, $.01 par value - 84,561,517 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)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenues:
Royalties and fees $ 39,014 $ 35,506 $ 124,389 $ 103,698
Research and development 29,426 27,525 94,843 72,710
Net sales 29,444 16,377 83,756 54,383
Interest and other 16,979 6,190 36,743 18,052
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Total revenues 114,863 85,598 339,731 248,843
Costs and expenses:
Research and development 31,672 26,147 101,182 72,533
Costs of products shipped 21,413 15,422 66,971 48,582
General, administrative and marketing 11,609 7,862 33,746 24,762
Interest and other 12,876 6,774 30,269 17,949
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Total costs and expenses 77,570 56,205 232,168 163,826
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Income before income taxes 37,293 29,393 107,563 85,017
Provision for income taxes 14,186 11,170 40,917 32,307
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Net income $ 23,107 $ 18,223 $ 66,646 $ 52,710
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Net income per common and
common equivalent share* $ .27 $ .22 $ .78 $ .64
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Weighted average common and
common equivalent shares 97,263 82,843 93,092 82,548
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</TABLE>
See accompanying notes.
*The net income per common and common equivalent share calculation uses
adjusted net income of $26,186 and $72,740 for the quarter and nine months
ended September 30, 1996, respectively.
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ALZA CORPORATION
Condensed Consolidated Balance Sheet (unaudited)
(In thousands)
September 30, December 31,
ASSETS 1996 1995
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Current assets:
Cash and cash equivalents $ 339,680 $ 87,987
Short-term investments 637,480 331,037
Receivables, net 120,203 108,020
Inventories, at cost:
Raw materials 15,624 15,786
Work in process 15,748 15,251
Finished goods 4,920 3,460
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Total inventories 36,292 34,497
Prepaid expenses and other current assets 24,361 16,527
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Total current assets 1,158,016 578,068
Property, plant and equipment 391,571 359,495
Less accumulated depreciation and amortization (95,443) (82,511)
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Net property, plant and equipment 296,128 276,984
Other assets 111,413 82,163
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Total assets $ 1,565,557 $ 937,215
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,445 $ 20,043
Accrued income taxes 11,944 2,146
Accrued compensation 17,447 13,404
Accrued interest 13,240 3,325
Deferred revenue 1,329 17,630
Other current liabilities 5,406 11,400
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Total current liabilities 64,811 67,948
5% convertible subordinated debentures 500,000 -
5 1/4% zero coupon convertible subordinated
debentures 377,365 362,944
Other long-term liabilities 57,309 51,770
Stockholders' equity:
Common stock and additional paid-in capital 358,473 311,276
Net unrealized (losses) gains on available-
for-sale securities, net of tax effect (438) 1,886
Retained earnings 208,037 141,391
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Total stockholders' equity 566,072 454,553
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Total liabilities and stockholders' equity $ 1,565,557 $ 937,215
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See accompanying notes.
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ALZA CORPORATION
Condensed Consolidated Statement of Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 66,646 $ 52,710
Non-cash adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 15,821 10,957
Interest on 5 1/4% zero coupon convertible
subordinated debentures 14,421 13,712
Increase (decrease) in assets:
Receivables (12,183) (14,871)
Inventories (1,795) (567)
Prepaid expenses and other current assets (6,216) 246
(Increase) decrease in liabilities:
Accounts payable (4,598) (10,154)
Accrued income taxes 9,798 995
Accrued compensation 4,043 1,314
Accrued interest 9,915 (96)
Deferred revenue (16,301) 6,785
Other current and long-term liabilities 395 7,323
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Total adjustments 13,300 15,644
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Net cash provided by operating activities 79,946 68,354
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (32,076) (27,961)
Purchases of available-for-sale securities (736,459) (147,772)
Sales of available-for-sale securities 383,803 83,831
Maturities of available-for-sale securities 42,271 7,012
Increase in cash surrender value-life
insurance and prepaid premiums (12,102) (2,312)
(Increase) decrease in other assets (8,787) 1,730
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Net cash used in investing activities (363,350) (85,472)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (850) -
Net proceeds from 5% convertible
subordinated debentures 488,750 -
Issuances of common stock 47,197 7,324
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Net cash provided by financing activities 535,097 7,324
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Net increase (decrease) in cash and cash
equivalents 251,693 (9,794)
Cash and cash equivalents at beginning
of period 87,987 88,844
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Cash and cash equivalents at end
of period $ 339,680 $ 79,050
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</TABLE>
See accompanying notes.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The information at September 30, 1996 and for the nine months ended
September 30, 1996 and 1995 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that 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. LITIGATION
See Part II, Item 1 of this Quarterly Report on Form 10-Q.
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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 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", "expect" and similar terms.
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 Corporation'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 Corporation's
business. Risks related to ALZA Corporation's business are described in ALZA
Corporation's Annual Report on 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.
ALZA CORPORATION
ALZA Corporation ("ALZA") develops and commercializes innovative
pharmaceutical products using advanced drug delivery technologies to add
medical and economic value to
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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 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 as discussed 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
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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 U.S. for five years, with an option to
extend for one additional year. ALZA will receive residual payments after
that period. 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.
During the quarter, 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- are recorded by USB and, under the agreement,
ALZA receives 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 its marketing and clinical support for these
products.
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.
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RESULTS OF OPERATIONS
ALZA's net income was $23.1 million or $0.27 per share for the quarter
ended September 30, 1996, compared to net income of $18.2 million or $0.22
per share for the quarter ended September 30, 1995. Net income for the nine
months ended September 30, 1996 was $66.6 million or $0.78 per share ($64.4
million or $0.76 per share before non-recurring items discussed below),
compared to net income of $52.7 million or $0.64 per share for the nine
months ended September 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. The introduction of newer competitive products
could also have an adverse effect on royalties and fees. 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
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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. 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 ended September 30, 1996 increased to
$39.0 million, compared to $35.5 million (after the $2 million in additions
to the reserve established to account for a potential reduction in royalty
income from Procardia XL-Registered Trademark- (nifedipine) discussed below)
for the same period in 1995. The increase in royalties and fees during the
quarter ended September 30, 1996, as compared with the same period in 1995,
resulted from increased sales of Duragesic-Registered Trademark- by Janssen
and of Glucotrol XL-Registered Trademark- by Pfizer. Despite lower sales of
Procardia XL-Registered Trademark- during the third quarter of 1996,
royalties on this product were essentially flat compared with the quarter
ended September 30, 1995 due to a higher effective royalty rate, as discussed
below.
Royalties and fees for the nine months ended September 30, 1996 increased
to $124.4 million ($115.3 million excluding non-recurring items discussed
below) compared to $103.7 million (after the $7 million in additions to the
reserve established to account for a potential reduction in royalty income
from Procardia XL-Registered Trademark- discussed below) for the same nine
months in 1995. Royalties and fees for the nine months ended September 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-. During the second quarter of 1996, Pfizer and ALZA entered into
an agreement under which the remainder of the reserve was utilized to satisfy
ALZA's obligations related to the resolution
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of this royalty issue. Under that agreement, the royalty payable by Pfizer
to ALZA on sales of Procardia XL-Registered Trademark- was 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 13% during the nine months ended September 30, 1996
compared to the same period in 1995. Including the non-recurring benefit of
approximately $7 million from the reserve reversal, royalties from Procardia
XL-Registered Trademark- accounted for approximately 45% of ALZA's royalties
and fees for the nine months ended September 30, 1996. Excluding
non-recurring items, Procardia XL-Registered Trademark- accounted for
approximately 40% of ALZA's royalties and fees for the nine months ended
September 30, 1996. Procardia XL-Registered Trademark- accounted for
approximately 40% of royalties and fees for the quarter ended September 30,
1996.
Royalties and fees for the nine months ended September 30, 1996 also
include a non-recurring benefit of approximately $6 million in connection
with the settlement of litigation relating to patent disputes concerning
transdermal nicotine patches. Also included in royalties and fees for the
nine months ended September 30, 1996 is a non-recurring 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"). The advance payment was made in connection with ALZA's
exercise of its option to acquire all of the limited partners' interests in
the Partnership.
Research and development revenue of $29.4 million for the quarter and
$94.8 million for the nine months ended September 30, 1996 represents an
increase of 7% and 30%, respectively, over the same periods in 1995, due to
product development activities
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undertaken on behalf of TDC. Reducing research and development revenue for
the nine months ended September 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 previously billed and a charge for certain
potentially uncollectable receivables. Research and development revenue from
TDC was $22.4 million and $73.9 million for the quarter and nine months ended
September 30, 1996, respectively, and $18.4 million and $47.0 million for the
corresponding periods in 1995.
Research and development expenses for the quarter and nine months ended
September 30, 1996 increased approximately 21% and 39%, respectively, as
compared with the corresponding periods in 1995, primarily due to product
development activities on behalf of TDC. Certain TDC products have reached
later stages of development, and higher levels of expenditures are therefore
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 the discontinuation of the development of any TDC product, any
change in the number of products advancing to or continuing in later stages
of development, any adjustments in the rates of spending on products
currently in development, or any commercial arrangements with other companies.
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 stock (the "Purchase Option"). The purchase
price may be paid in cash, in ALZA common
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stock, or in any combination of the two, at the option of ALZA. If ALZA were
to exercise the Purchase Option, ALZA would incur a one-time charge due to
the acquisition of in-process technology.
If expenditures on product development by TDC continue at approximately
current levels, it can be expected that all TDC funds available for product
development will be exhausted during the second half of 1997. Once these
funds are exhausted, ALZA's research and development revenues can be expected
to decrease significantly unless the TDC revenues are replaced with research
and development revenues from other client companies. In addition, once TDC
has expended all of its funds available for product development, ALZA will be
required to determine whether or not to exercise the Purchase Option. If
ALZA were to exercise the Purchase Option, ALZA would need to fund the
continued development expenses for the TDC products. If ALZA were to choose
not to exercise the Purchase Option, but to license some or all of the TDC
products for commercialization in some or all countries, ALZA would need to
fund any additional product development necessary to commercialize each of
the licensed products in those countries. In either case, the product
development activities would result in research and development expenses
without the corresponding research and development revenues that were
previously provided by TDC.
Net sales of $29.4 million and $83.8 million for the quarter and nine
months ended September 30, 1996 increased 80% and 54% respectively, compared
to the corresponding periods in 1995, primarily due to shipments to ALZA's
client companies of launch quantities of Covera-HS-Registered Trademark-
(verapamil) and NicoDerm-Registered Trademark- CQ-TM-, the over-the-counter
version of
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Nicoderm-Registered Trademark- (nicotine transdermal system). The increase
in net sales was also due in part to sales of Ethyol-Registered Trademark-.
Excluding the non-recurring charge of $2.4 million discussed below, costs of
products shipped increased 39% and 33%, respectively, for the quarter and
nine months ended September 30, 1996 compared to the corresponding periods in
1995. Costs of products shipped for the nine months ended September 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.
ALZA's gross margin as a percent of net sales increased to 27% for the
quarter ended September 30, 1996 compared to 6% for the quarter ended
September 30, 1995. Excluding the non-recurring charge of $2.4 million
discussed above, ALZA's gross margin as a percent of net sales increased to
23% for the nine months ended September 30, 1996 compared to 11% for the
corresponding period in 1995. The increases were due to higher contract
manufacturing activities associated with the manufacturing of launch
quantities and proportionately greater shipments of higher margin products.
When ALZA's clients prepare to launch an ALZA-developed product that is
manufactured by ALZA, the clients generally order significant quantities of
product in anticipation of the launch. ALZA's shipments to fill these orders
generally result in a significant increase in net sales for the periods in
which ALZA manufactures and ships such launch quantities. Because there are
many uncertainties involved in the launch of a new product, ALZA's net sales
of launch quantities of a new product are not necessarily indicative of
future ALZA net sales of that product. Net sales therefore can be expected to
fluctuate from period to period, sometimes very
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significantly, depending on the volume, mix and timing of orders received
from client companies, which are not within ALZA's control. ALZA expects its
gross margin on net sales to increase from historical rates over the longer
term, although quarter-to-quarter fluctuations, even significant ones, can be
expected to continue to occur for the reasons discussed above. A trend of
higher than historical 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.
General, administrative and marketing expenses of $11.6 million for the
quarter and $33.7 million for the nine months ended September 30, 1996
increased 48% and 36%, 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-, amortization of the upfront
payment ALZA paid to USB for Ethyol-Registered Trademark-, and an increase in
overall general and administrative expenses in support of increased corporate
activities.
Interest and other revenue, which consists primarily of interest income,
increased 174% and 104%, respectively, for the quarter and nine months ended
September 30, 1996 compared to the same periods in 1995, primarily due to
higher average invested cash balances following ALZA's offering of $500
million of 5% convertible subordinated debentures due 2006 (the "5%
Debentures") in April 1996, and also due to realized gains on sales of
investments. Also included in interest and other revenue for the nine months
ended September 30, 1996 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 for the nine months ended September 30, 1996 was a
non-recurring charge of approximately $2.8
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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 nine months ended September 30, 1996
increased 90% and 69%, respectively, as compared with the corresponding
periods in 1995, reflecting the interest expense on ALZA's 5% Debentures and
the higher outstanding balance on ALZA's 5 1/4% zero coupon convertible
subordinated debentures due 2014 (the "5 1/4% Debentures").
ALZA's effective combined federal and state income tax rate for the year
ended 1995 and for the quarter and nine months ended September 30, 1996 was
38%.
The number of weighted average common and common equivalent shares for
the quarter and nine months ended September 30, 1996 includes 12.3 million
and 8.2 million shares, respectively, issuable upon conversion of the 5 1/4%
Debentures. Because the 5 1/4% Debentures were dilutive for the quarters
ended June 30, 1996 and September 30, 1996, only a correspondingly
proportional number of shares were included in the calculations for the nine
months ended September 30, 1996. These shares are considered common stock
equivalents, but have been excluded from the earnings per share calculations
for the quarter and nine months ended September 30, 1995 as they were
antidilutive for those periods. Earnings per share for the quarter and nine
months ended September 30, 1996 are calculated by adding to net income the
after-tax interest incurred on the 5 1/4% Debentures for the periods in which
they were dilutive ($3.1 million and $6.1 million, respectively) and dividing
by the number of weighted average common and common equivalent shares.
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LIQUIDITY AND CAPITAL RESOURCES
ALZA invested $32.1 million during the first nine 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.
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. 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 needs.
ALZA believes that its existing cash balances and investments 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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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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. During the quarter ended September 30, 1996,
the Court of Appeals of the Federal Circuit upheld the District Court's
dismissal of Cygnus' claims against ALZA. Cygnus has no further right of
appeal.
Pharmaceutical companies are subject to product liability claims from
time to time. Product liability suits have been filed against Janssen
Pharmaceutica, Inc. ("Janssen") and 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.
-18-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.2 Composite Bylaws of ALZA Corporation as restated on
February 10, 1994 and amended on August 11, 1994,
February 16, 1995, February 15, 1996 and August 13, 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
-19-
<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: November 13, 1996 By: /s/ E. Mario
----------------------------
Dr. Ernest Mario
Co-Chairman and
Chief Executive Officer
Date: November 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 Bylaws of ALZA Corporation as restated on February 10, 1994 and
amended on August 11, 1994, February 16, 1995, February 15, 1996 and
August 13, 1996
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
-21-
<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
2
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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
3
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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
4
<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
<PAGE>
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 nine 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 August 13, 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
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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.
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<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
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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
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<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)
<TABLE>
<CAPTION>
PRIMARY
----------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Common stock 84,413 82,378 84,078 82,205
Common stock options 529 465 786 343
$25 warrants - - 14 -
$65 warrants - - - -
5 1/4% zero coupon convertible
subordinated debentures 12,321 - 8,214 -
-------- -------- --------- --------
Weighted average common and
dilutive common equivalent
shares 97,263 82,843 93,092 82,548
-------- -------- --------- --------
-------- -------- --------- --------
Net income available to common
stockholders $ 23,107 $ 18,223 $ 66,646 $ 52,710
Add after-tax interest on 5 1/4% zero
coupon convertible subordinated
debentures 3,079 - 6,094 -
-------- -------- --------- --------
Adjusted net income $ 26,186 $ 18,223 $ 72,740 $ 52,710
-------- -------- --------- --------
-------- -------- --------- --------
Net income per common and
common equivalent share $ .27 $ .22 $ .78 $ .64
-------- -------- --------- --------
-------- -------- --------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULLY DILUTED
----------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Common stock 84,413 82,378 84,078 82,205
Common stock options 593 465 841 411
$25 warrants - - 16 -
$65 warrants - - - -
5 1/4% zero coupon convertible
subordinated debentures 12,321 - 8,214 -
5% convertible subordinated
debentures - - - -
------ ------ ------ ------
Weighted average common and
dilutive common equivalent
shares 97,327 82,843 93,149 82,616
------ ------ ------ ------
------ ------ ------ ------
Net income available to
common stockholders $ 23,107 $ 18,223 $ 66,646 $ 52,710
Add after-tax interest on 5 1/4% zero
coupon convertible subordinated
debentures 3,079 - 6,094 -
------- ------ ------ ------
Adjusted net income $ 26,186 $ 18,223 $ 72,740 $ 52,710
------- ------ ------ ------
------- ------ ------ ------
Net income per common and
common equivalent share $ .27 $ .22 $ .78 $ .64
------- ------ ------ ------
------- ------ ------ ------
</TABLE>
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 but have been
excluded from the earnings per share calculations for the quarter and nine
months ended September 30, 1995 as they were antidilutive for those periods.
<PAGE>
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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE
FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF FORM 10-Q DATED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 340
<SECURITIES> 637
<RECEIVABLES> 120
<ALLOWANCES> 0
<INVENTORY> 36
<CURRENT-ASSETS> 1,158
<PP&E> 392
<DEPRECIATION> 95
<TOTAL-ASSETS> 1,566
<CURRENT-LIABILITIES> 65
<BONDS> 877
0
0
<COMMON> 358
<OTHER-SE> 208
<TOTAL-LIABILITY-AND-EQUITY> 1,566
<SALES> 84
<TOTAL-REVENUES> 340
<CGS> 67
<TOTAL-COSTS> 168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 108
<INCOME-TAX> 41
<INCOME-CONTINUING> 67
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>