Genentech: Investors: GAAP vs. Non-GAAP Q3 2005

Revenues:
			GENENTECH, INC. CONSOLIDATED STATEMENTS OF INCOME DATA (in thousands, except per share amounts) (unaudited)
			Three Months Ended September 30,

			2005			2004

			GAAP⁽¹⁾	Difference	Non-GAAP⁽²⁾	GAAP⁽¹⁾	Difference	Non-GAAP⁽²⁾
	Product sales		$ 1,450,979		$ 1,450,979	$ 1,005,511		$ 1,005,511
	Royalties		237,777		237,777	153,942		153,942
	Contract revenue		63,066		63,066	43,191		43,191
Total operating revenues			1,751,822		1,751,822	1,202,644		1,202,644

Costs and expenses:
	Cost of sales		230,127		230,127	165,990		165,990
	Research and development		328,850		328,850	234,086		234,086
	Marketing, general and administrative		349,323		349,323	264,648		264,648
	Collaboration profit sharing		219,591		219,591	151,894		151,894
	Recurring charges related to redemption		27,191	$ (27,191)⁽³⁾	-	34,534	$ (34,534)⁽³⁾	-
	Special items: litigation-related		13,507	(13,507)⁽⁴⁾	-	13,419	(13,419)⁽⁴⁾	-
Total costs and expenses			1,168,589	(40,698)	1,127,891	864,571	(47,953)	816,618

Operating margin			583,233	40,698	623,931	338,073	47,953	386,026

Other income, net⁽⁵⁾			22,391	-	22,391	23,510	-	23,510

Income before taxes			605,624	40,698	646,322	361,583	47,953	409,536
Income tax provision			246,211	16,280	262,491	130,709	19,181	149,890
Net income			$ 359,413	$ 24,418	$ 383,831	$ 230,874	$ 28,772	$ 259,646

Earnings per share:
		Basic	$ 0.34	$ 0.02	$ 0.36	$ 0.22	$ 0.03	$ 0.25
		Diluted	$ 0.33	$ 0.02	$ 0.35	$ 0.21	$ 0.03	$ 0.24

Weighted average shares used to compute earnings per share:
	Basic		1,060,539		1,060,539	1,055,140		1,055,140
	Diluted		1,086,964		1,086,964	1,077,093		1,077,093

(1) Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP).

(2) Non-GAAP amounts exclude litigation-related special items and recurring charges related to the 1999 redemption of Genentech's Special Common Stock, net of tax effects.

(3) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

(4) Represents accrued interest and bond costs in Q3 2005 and 2004 related to the City of Hope trial judgment.

(5) "Other income, net" includes interest income, interest expense, net realized gains from the sale of certain biotechnology equity securities and write-downs for other-than-temporary impairments in the fair value of certain biotechnology debt and equity securities. For further detail, refer to our web site at www.gene.com.

2005 Reconciliation of GAAP and Non-GAAP EPS
Our 2005 non-GAAP EPS estimate does not include recurring charges related to the 1999 redemption of our stock by Roche, which are estimated to be approximately $123 million on a pretax basis in 2005. In addition, the 2005 non-GAAP EPS estimate does not include litigation-related special items for accrued interest and associated bond costs on the City of Hope judgment and net amounts paid on other litigation settlements, which were approximately $44 million through the third quarter of 2005 and currently estimated to be approximately $58 million on a pretax basis in 2005. Our 2005 GAAP EPS would include the redemption-related recurring charges and the litigation-related special items as well as any other potential special charges related to existing or future litigation or its resolution, or changes in accounting principles, all of which may be significant.

Revenues:
			GENENTECH, INC. CONSOLIDATED STATEMENTS OF INCOME DATA (in thousands, except per share amounts) (unaudited)
			Nine Months Ended September 30,

			2005			2004

			GAAP⁽¹⁾	Difference	Non-GAAP⁽²⁾	GAAP⁽¹⁾	Difference	Non-GAAP⁽²⁾
	Product sales		$ 3,911,095		$ 3,911,095	$ 2,682,577		$ 2,682,577
	Royalties		670,014		670,014	459,899		459,899
	Contract revenue		159,170		159,170	163,381		163,381
Total operating revenues			4,740,279		4,740,279	3,305,857		3,305,857

Costs and expenses:
	Cost of sales		750,649		750,649	467,153		467,153
	Research and development		850,215		850,215	637,317		637,317
	Marketing, general and administrative		1,021,174		1,021,174	788,616		788,616
	Collaboration profit sharing		594,666		594,666	423,546		423,546
	Recurring charges related to redemption		96,155	$ (96,155)⁽³⁾	-	110,952	$ (110,952)⁽³⁾	-
	Special items: litigation-related		44,291	(44,291)⁽⁴⁾	-	40,276	(40,276)⁽⁴⁾	-
Total costs and expenses			3,357,150	(140,446)	3,216,704	2,467,860	(151,228)	2,316,632

Operating margin			1,383,129	140,446	1,523,575	837,997	151,228	989,225

Other income, net⁽⁵⁾			70,290	-	70,290	61,274	-	61,274

Income before taxes			1,453,419	140,446	1,593,865	899,271	151,228	1,050,499
Income tax provision			513,666	56,178	569,844	321,040	60,491	381,531
Net income			$ 939,753	$ 84,268	$ 1,024,021	$ 578,231	$ 90,737	$ 668,968

Earnings per share:
		Basic	$ 0.89	$ 0.08	$ 0.97	$ 0.55	$ 0.08	$ 0.63
		Diluted	$ 0.87	$ 0.08	$ 0.95	$ 0.53	$ 0.09	$ 0.62

Weighted average shares used to compute earnings per share:
	Basic		1,055,028		1,055,028	1,057,006		1,057,006
	Diluted		1,080,921		1,080,921	1,082,081		1,082,081

(1) Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP).

(2) Non-GAAP amounts exclude litigation-related special items and recurring charges related to the 1999 redemption of Genentech's Special Common Stock, net of tax effects.

(3) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

(4) Represents accrued interest and bond costs in 2005 and 2004 related to the City of Hope trial judgment, and net amounts paid in 2005 related to other litigation settlements.

Selected balance sheet data:

GENENTECH, INC. CONSOLIDATED BALANCE SHEETS DATA (in thousands) (unaudited)
		September 30,

		2005	2004
	Cash, cash equivalents and short-term investments	$ 2,905,543	$ 1,760,164
	Accounts receivable - product sales, net	509,465	548,555
	Accounts receivable - royalties, net	264,179	193,650
	Accounts receivable - other, net	189,341	143,622
	Inventories	621,389	559,920
	Long-term marketable debt and equity securities	1,242,866	1,310,422
	Property, plant and equipment, net	3,128,089	1,922,313
	Goodwill	1,315,019	1,315,019
	Other intangible assets	587,911	677,049
	Long-term assets	1,030,842	774,435
	Total assets	12,099,306	9,408,360
	Total current liabilities	1,354,938	1,106,656
	Total liabilities	4,376,048	2,441,064
	Total stockholders' equity	7,723,258	6,967,566
Year-to-date:
Capital expenditures		$ 1,106,930	$ 418,214

Total GAAP⁽¹⁾ depreciation and amortization expense		275,632	259,583
	Less: redemption related amortization expense⁽³⁾	(96,155)	(110,952)
Non-GAAP⁽²⁾ depreciation and amortization expense		$ 179,477	$ 148,631

(1) In accordance with U.S. generally accepted accounting principles (or GAAP).

(2) Non-GAAP amounts exclude amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

(3) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

Net U.S. Product Sales:

GENENTECH, INC. NET PRODUCT SALES DETAIL (in thousands) (unaudited)
			Three Months Ended September 30,

			2005	2004
	Rituxan		$ 456,227	$ 393,000
	Herceptin		215,148	126,300
	Avastin		325,156	183,003
	Growth Hormone		88,585	84,931
	Thrombolytics		57,903	52,867
	Pulmozyme		46,593	39,816
	Xolair		81,550	53,856
	Raptiva		20,887	16,265
	Tarceva		73,222	-
		Total U.S. product sales	1,365,271	950,038

Net product sales to collaborators			85,708	55,473
		Total Product Sales	$ 1,450,979	$ 1,005,511

			Nine Months Ended September 30,

			2005	2004
Net U.S. Product Sales:
	Rituxan		$ 1,347,125	$ 1,144,813
	Herceptin		497,205	352,996
	Avastin		773,695	354,134
	Growth Hormone		275,570	256,896
	Thrombolytics		160,105	147,133
	Pulmozyme		137,482	114,340
	Xolair		227,183	127,332
	Raptiva		58,803	35,971
	Tarceva		190,993	-
		Total U.S. product sales	3,668,161	2,533,615

Net product sales to collaborators			242,934	148,962
		Total Product Sales	$ 3,911,095	$ 2,682,577