The values shown above are exact, which may lead to the appearance of rounding errors. (1) "Interest and other income, net" includes interest income, 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. Net income in the three and six months ended June 30, 2006 includes employee stock-based compensation expense of $47 million and $95 million, net of tax, respectively, due to our adoption of Statement of Financial Accounting Standards No. 123(R) (or "FAS 123R") on a modified prospective basis on January 1, 2006. No employee stock-based compensation expense was recognized in GAAP-reported amounts in any period prior to January 1, 2006. Based on the pro forma application of FAS 123 for the calculation of employee stock-based compensation prior to January 1, 2006 (as previously disclosed in our financial statement footnotes of our Form 10-Q for the quarter ended June 30, 2005), pro forma employee stock-based compensation expense in the second quarter of 2005 was $41 million, net of tax, (or $0.04 per diluted share), and the resulting pro forma GAAP net income was $255 million (or $0.23 per diluted share), and pro forma employee stock-based compensation expense in the six months ended June 30, 2005 was $81 million, net of tax, (or $0.09 per diluted share), and the resulting net income was $499 million (or $0.45 per diluted share).
The values shown above are exact, which may lead to the appearance of rounding errors. (1) Represents employee stock-based compensation expense associated with Genentech's adoption of FAS 123R on January 1, 2006. In the three and six months ended June 30, 2006, the employee stock-based compensation expense was allocated to the research and development and marketing, general and administrative expense lines in the income statement. (2) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock. (3) Includes accrued interest and bond costs in the second quarters and first six months of 2006 and 2005 related to the City of Hope trial judgment and amounts paid in the second quarter of 2005 related to a litigation settlement, net of amounts received in the first quarter of 2005 on a separate litigation matter. (4) Reflects the income tax benefit on employee stock-based compensation expense under FAS 123R, recurring charges related to redemption, and litigation-related special items. (5) Weighted average shares used to compute non-GAAP diluted earnings per share were computed exclusive of the methodology used to determine dilutive securities under FAS 123R. 2006 Reconciliation of GAAP and Non-GAAP EPS Our 2006 GAAP EPS would include the items listed above 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. The statements regarding the amounts relating to the 1999 Roche redemption of our stock, litigation-related special items and employee stock-based compensation expense are forward-looking and such statements are predictions and involve risks and uncertainties such that actual results may differ materially. The amounts identified above could be affected by a number of factors, including a re-valuation of certain intangible assets, greater than expected litigation-related costs, the number of options granted to employees, our stock price and certain valuation assumptions concerning our stock. We disclaim, and do not undertake, any obligation to update or revise any of these forward-looking statements.
(1) Certain reclassifications have been made at December 31, 2005 to conform to the presentation at June 30, 2006. (2) Capital expenditures exclude approximately $61 million at June 30, 2006 and $73 million at June 30, 2005 in capitalized costs related to our accounting for a construction project of which we are considered to be the owner during the construction period. We have recognized a related amount as a construction financing obligation in long-term debt. (3) Reflects operating results in accordance with U.S. generally accepted accounting principles (or "GAAP"). (4) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's stock. (5) Non-GAAP amounts exclude amortization of other intangible assets related to the 1999 redemption of Genentech's stock.
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