<PAGE> 1
FORM 10-Q/A
-----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
Amendment No. 1 to
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
-------------------------------
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 0-14680
-----------------------------------------
GENZYME CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 06-1047163
--------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Kendall Square, Cambridge, Massachusetts 02139
--------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(617) 252-7500
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
<TABLE>
The number of shares outstanding of each of the issuer's classes of common
stock as of April 30, 1995:
<CAPTION>
Class Outstanding at April 30, 1995:
----- ------------------------------
<S> <C>
General Division Common Stock,
$0.01 par value ("General Division Stock") 26,610,738
Tissue Repair Division Common Stock,
$0.01 par value ("TR Stock") 8,758,271
</TABLE>
Total number of pages in document - 23
No exhibits filed herewith.
<PAGE> 2
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q/A, MARCH 31, 1995
This report on Form 10-Q/A constitutes Amendment No. 1 to the registrant's
Form 10-Q for the fiscal quarter ended March 31, 1995. The items hereby
amended are as follows:
-- Item 1 is deleted in its entirety and replaced with the following.
-2-
<PAGE> 3
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q/A, MARCH 31, 1995
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Condensed Financial Statements
GENZYME CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations for
the Three Months Ended March 31, 1995 and 1994.................... 4
Condensed Consolidated Balance Sheets as of March 31,
1995 and December 31, 1994........................................ 6
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994........................ 7
Notes to Unaudited Condensed Consolidated Financial Statements.... 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 9
GENZYME GENERAL DIVISION
Condensed Combined Statements of Operations for
the Three Months Ended March 31, 1995 and 1994.................... 11
Condensed Combined Balance Sheets as of March 31,
1995 and December 31, 1994........................................ 13
Condensed Combined Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994........................ 14
Notes to Unaudited Condensed Combined Financial Statements........ 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 16
GENZYME TISSUE REPAIR DIVISION
Condensed Combined Statements of Operations for
the Three Months Ended March 31, 1995 and 1994.................... 18
Condensed Combined Balance Sheets as of March 31,
1995 and December 31, 1994........................................ 19
Condensed Combined Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994........................ 20
Notes to Unaudited Condensed Combined Financial Statements........ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 22
Signatures............................................................. 23
</TABLE>
-3-
<PAGE> 4
<TABLE>
GENZYME CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
Net product sales.................................. $69,301 $53,475
Net service sales.................................. 12,464 13,928
Revenues from research and development contracts:
Related parties.................................. 6,326 5,578
Other............................................ 98 301
------- -------
88,189 73,282
Operating costs and expenses:
Cost of products sold.............................. 26,131 18,645
Cost of services sold.............................. 7,951 8,709
Selling, general and administrative................ 25,991 22,456
Research and development (including research
and development related to contracts)............. 16,463 12,928
------- -------
76,536 62,738
------- -------
Operating income.................................... 11,653 10,544
Other income and (expenses):
Minority interest in net loss of subsidiaries...... 365 313
Equity in net loss of unconsolidated affiliate..... (949) -
Investment income.................................. 1,765 3,738
Interest expense................................... (47) (436)
------- -------
1,134 3,615
------- -------
Income before income taxes.......................... 12,787 14,159
Provision for income taxes.......................... (4,731) (5,097)
------- -------
Net income.......................................... $ 8,056 $ 9,062
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
-4-
<PAGE> 5
<TABLE>
GENZYME CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
APPLICABLE TO GENZYME GENERAL DIVISION:
Net income.......................................... $10,371 $ 9,592
Allocated tax benefit generated by Genzyme
Tissue Repair Division............................. 1,627 285
------- -------
Net income attributable to General
Division Stock................................... $11,998 $ 9,877
======= =======
Per common and common equivalent share:
Net income (1)..................................... $ 0.43 $ 0.38
======= =======
Average shares outstanding......................... 27,945 26,045
======= =======
Per common share assuming full dilution:
Net income (1)..................................... $ 0.40 $ 0.35
======= =======
Average fully diluted shares outstanding........... 29,970 27,936
======= =======
APPLICABLE TO GENZYME TISSUE REPAIR DIVISION:
Net loss attributable to TR Stock................... $(3,942) $ (815)
======= =======
Per common share:
Net loss........................................... $ (0.45) $ (0.25)
======= =======
Average shares outstanding......................... 8,751 3,281
======= =======
<FN>
(1) General Division 1994 net income per share is pro forma.
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
-5-
<PAGE> 6
<TABLE>
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) MARCH 31, DECEMBER 31,
-----------------------------------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 23,306 $ 63,542
Short-term investments................................... 12,528 13,073
Accounts receivable, less allowance
for doubtful accounts................................... 74,662 78,127
Inventories.............................................. 41,516 36,840
Prepaid expenses and other current assets................ 11,745 11,074
Deferred tax assets - current............................ 4,072 4,072
-------- --------
Total current assets................................... 167,829 206,728
Property, plant and equipment, net........................ 308,639 296,802
Other Assets:
Long-term investments.................................... 76,431 76,845
Note receivable - affiliate.............................. 5,212 3,572
Intangibles, net of accumulated amortization............. 28,629 29,303
Deferred tax assets - noncurrent......................... 28,473 28,473
Other noncurrent assets.................................. 22,595 16,685
-------- --------
161,340 154,878
-------- --------
$637,808 $658,408
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $ 12,719 $ 21,387
Accrued expenses......................................... 38,764 30,986
Income taxes payable..................................... 4,867 6,523
Deferred revenue......................................... 1,842 2,604
Current portion of long-term debt and
capital lease obligations............................... 2,778 41,357
-------- --------
Total current liabilities.............................. 60,970 102,857
Noncurrent Liabilities:
Long-term debt and capital lease obligations............. 126,721 126,729
Other noncurrent liabilities............................. 8,750 7,548
-------- --------
135,471 134,277
Minority interest in subsidiaries......................... 1,981 2,310
Stockholders' Equity:
General Division Stock, $.01 par value................... 266 264
TR Stock, $.01 par value................................. 87 87
Treasury Stock - at cost................................. (772) (755)
Additional paid-in capital............................... 473,960 470,826
Accumulated deficit...................................... (30,752) (38,808)
Other equity adjustments................................. (3,403) (12,650)
-------- --------
439,386 418,964
-------- --------
$637,808 $658,408
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
-6-
<PAGE> 7
<TABLE>
GENZYME CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................... $ 8,056 $ 9,062
Reconciliation of net income to net
cash from operating activities:
Depreciation and amortization.................... 5,470 3,707
Provision for bad debts.......................... 1,044 1,083
(Gain)/loss on sale of investments............... 85 (1,609)
Loss on disposal of fixed assets................. 8 61
Accrued interest/amortization on bonds........... 270 (3,100)
Minority interest in net loss of subsidiaries.... (365) (313)
Equity in net loss of unconsolidated subsidiary.. 949 -
Other............................................ 575 14
Increase (decrease) in cash from working capital:
Accounts receivable............................ 4,429 (6,463)
Inventories.................................... (3,384) (5,945)
Prepaid expenses and other current assets...... (463) (325)
Accounts payable, accrued expenses
and deferred revenue.......................... (4,240) 4,358
-------- ---------
Net cash from operating activities............. 12,434 530
INVESTING ACTIVITIES:
Investment in unconsolidated affiliate............. (4,000) -
Loans to affiliate................................. (1,640) -
Purchases of investments........................... (11,014) (182,376)
Sales and maturities of investments................ 14,547 208,083
Property, plant and equipment...................... (13,224) (20,954)
Other noncurrent assets............................ (372) (238)
-------- ---------
Net cash from investing activities............. (15,703) 4,515
FINANCING ACTIVITIES:
Issuance of common stock........................... 3,102 1,092
Issuance of common stock by subsidiary............. 73 93
Issuance of debt................................... 177 138
Payments of debt and capital lease obligations..... (39,204) (200)
-------- ---------
Net cash from financing activities............. (35,852) 1,123
Effect of exchange rate changes on cash............. (1,115) 101
-------- ---------
Increase (decrease) in cash and cash
equivalents........................................ (40,236) 6,269
Cash and cash equivalents, beginning of period...... 63,542 22,975
-------- ---------
Cash and cash equivalents, end of period............ $ 23,306 $ 29,244
======== =========
Supplemental cash flow information:
Cash paid during the period for:
Interest......................................... $ 1,248 $ 559
Income taxes..................................... 6,258 617
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
-7-
<PAGE> 8
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
----------------------
These unaudited, condensed, consolidated financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and the financial statements and
footnotes included therein. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission rules and regulations.
Certain items in the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
The financial statements for the three months ended March 31, 1995 and
1994 are unaudited but include, in the Company's opinion, all adjustments
(consisting only of normally recurring accruals) necessary for a fair
presentation of the results for the periods presented.
2. Accounting Policies:
--------------------
The accounting policies underlying the quarterly financial statements
are those set forth in Note A of the financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
3. Investments:
------------
As of March 31, 1995, the Company classified all investments, consisting
primarily of debt securities, as available for sale. As a result, gross
unrealized holding losses totaling $3,236,000 were charged to Stockholders'
equity.
As of March 31, 1995, the market values of the Company's equity
investments in Argus Pharmaceuticals, Inc. and Univax Biologics, Inc.,
included in Other noncurrent assets in the combined balance sheets, exceeded
their respective carrying values at December 31, 1994 by approximately
$2,623,000 which was credited to Stockholders' equity.
<TABLE>
4. Inventories:
------------
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Raw Materials............ $ 9,723,000 $14,572,000
Work-in-process.......... 16,137,000 9,247,000
Finished products........ 15,656,000 13,021,000
----------- -----------
$41,516,000 $36,840,000
=========== ===========
</TABLE>
5. Provision for Income Taxes:
---------------------------
The tax provision for the quarter ended March 31, 1995 varies from the
U.S. statutory tax rate because of the provision for state income taxes,
losses of subsidiaries which generate no current tax benefit, tax credits
and taxes on foreign earnings. The effective tax rate was 37% for the three
months ended March 31, 1995 as compared to 36% for the corresponding period
in 1994. The increase was due primarily to the expiration of the Orphan
Drug Credit effective December 31, 1994.
-8-
<PAGE> 9
GENZYME CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
RESULTS OF OPERATIONS
Revenue
-------
Total revenues for the three months ended March 31, 1995 were $88.2 million,
an increase of 20% over the corresponding period in 1994. Product and service
revenues were $81.8 million, an increase of 21% over the same period in 1994.
Product revenues increased 30% to $69.3 million reflecting sales increases of
31%, 15% and 33%, respectively, in the Therapeutic, Diagnostic Products and
Pharmaceutical/Fine Chemical ("PFC") businesses. The increase in sales of
Therapeutic products resulted primarily from increased shipments of Ceredase[R]
enzyme, for which the rate of new patient accruals more than offset dosage
reductions, and the market introduction, in the second quarter of 1994, of
Cerezyme[TM] enzyme, the recombinant form of Ceredase[R] enzyme. The increase
in Diagnostic Product sales resulted from sales increases across all product
lines including a doubling in revenues from sales of Direct LDL tests. The
increase in PFC sales resulted from the operations of a Swiss company acquired
in July 1994. Service revenues for the first quarter of 1995 declined 11% to
$12.5 million from $13.9 million for the same period in 1994. The drop in
service revenue resulted primarily from the divestiture of two small genetic
diagnostic laboratories and an unusually large European bone marrow drive that
provided revenues in the first quarter of 1994.
International sales represented approximately 42% of product sales for the
first quarter of 1995 compared with approximately 33% for the first quarter of
1994. The increase was due primarily to a 69% increase in the combined
international sales of Ceredase[R]/Cerezyme[TM] enzyme as well as favorable
exchange rates.
Revenues from research and development contracts for the three months ended
March 31, 1995 were $6.4 million, an increase of 9% from the corresponding
period in 1994. Revenues from Neozyme II increased 33% to $5.7 million for the
first quarter of 1995 due primarily to increased activity relating to
collaborations with third parties that began in 1993 as well as increased
efforts internally. In the first quarter of 1994, the Surgical Aids
Partnership provided revenues to Genzyme of $0.9 million thereby exhausting the
funds it had available for the funding of the HAL[TM] products.
Margins and Operating Expenses
------------------------------
Total gross margin for the quarter ended March 31, 1995 was 58%, as compared
to 59% for the same period in 1994. Genzyme provides a broad range of health
care products and services, resulting in a range of gross margins depending on
the particular market conditions of each product or service. Product margins
for the quarter ended March 31, 1995 declined to 62% from 65% for the same
period in 1994 due primarily to lower margins on Ceredase[R] enzyme as a result
of the higher cost of purchased material beginning in the second quarter of
1994 and a price increase in the first quarter of 1994 prior to the cost
increase. Service margins for the three months ended March 31, 1995 decreased
to 36% from 37%.
Selling, general and administrative expenses for the three months ended
March 31, 1995 were $26 million, an increase of 16% over the same period in
1994. The increase was due primarily to increased staffing in support of the
growth in several product lines and to the ongoing expenses associated with
various operations acquired or established in 1994. As a percentage of total
revenues, selling, general and administrative expenses were 29% compared to 31%
for the corresponding period in 1994.
-9-
<PAGE> 10
Research and development expenses for the three months ended March 31, 1995
were $16.5 million, an increase of 27% over the same period in 1994 due to
increased efforts on behalf of Neozyme II, increased spending on internal
programs and research and development spending of the Tissue Repair Division,
which grew through the acquisition of BioSurface Technology, Inc.
("BioSurface") in December 1994.
Other Income and Expenses
-------------------------
Investment income for the quarter ended March 31, 1995 totaled $1.8 million,
compared with $3.7 million for the same period in 1994 which included gains of
$1.6 million on the sales of securities. Excluding the effect of the realized
gains, investment income decreased 14% due to lower average cash and investment
balances.
Interest expense for the quarter ended March 31, 1995 was $47,000, net of
capitalized interest on construction in progress of $2.5 million. Interest
relating to Genzyme's 6 3/4% convertible subordinated notes was $1.7 million,
equal to the amount incurred in the first quarter of 1994. The Company also
incurred interest expense of $0.4 million related to a $21.5 million mortgage
note issued in the second quarter of 1994, $0.1 million related to a deferred
liability established to acquire the remaining shares of a Swiss company
acquired, in part, in July 1994 and the remainder related to interest on
capitalized leases.
The tax provision for the quarter ended March 31, 1995 varies from the U.S.
statutory tax rate because of the provision for state income taxes, losses of
subsidiaries which generate no current tax benefit, tax credits and taxes on
foreign earnings. The effective tax rate was 37% for the three months ended
March 31, 1995 as compared to 36% for the corresponding period in 1994. The
increase was due primarily to the expiration of the Orphan Drug Credit
effective December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, Genzyme had cash, cash equivalents and investments in
marketable securities totaling $112.3 million, a decrease of $41.2 million from
December 31, 1994. The Company repaid a $39.0 million term loan in January
1995. In the first quarter of 1995, Genzyme spent $13.2 million on increased
manufacturing capacity and invested an additional $4.0 million in an
unconsolidated affiliate. These expenditures were financed by operations,
$12.4 million, and by the issuance of common stock through exercises of stock
options and warrants, $3.1 million.
As of March 31, 1995, the Company had accounts receivable of $74.7 million,
a decrease of $3.5 million from December 31, 1994, due primarily to accelerated
collections. Inventories increased $4.7 million, or 13%, to $41.5 million as
of March 31, 1995 as compared to December 31, 1994. The increase was due
primarily to support of increased business operations and, in part, to exchange
rate fluctuations.
In January 1995, Genzyme renewed its commitment to continue funding, until
March 1, 1996, the development of the HAL[TM] products on behalf of the
Surgical Aids Partnership whose available funds were fully expended in the
first quarter of 1994.
-10-
<PAGE> 11
<TABLE>
GENZYME GENERAL DIVISION
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
Net product sales.................................... $68,271 $53,475
Net service sales.................................... 12,464 13,928
Revenues from research and development contracts:
Related parties.................................... 6,326 5,578
Other.............................................. 98 301
------- -------
87,159 73,282
Operating costs and expenses:
Cost of products sold................................ 25,406 18,645
Cost of services sold................................ 7,951 8,709
Selling, general and administrative.................. 24,239 22,293
Research and development (including research
and development related to contracts)............... 13,649 12,276
------- -------
71,245 61,923
------- -------
Operating income...................................... 15,914 11,359
Other income and (expenses):
Minority interest in net loss of subsidiaries........ 365 313
Equity in net loss of unconsolidated affiliate....... (949) -
Investment income.................................... 1,446 3,738
Interest expense..................................... (47) (436)
------- -------
815 3,615
------- -------
Income (loss) before income taxes..................... 16,729 14,974
Provision for income taxes............................ 6,358 (5,382)
------- -------
Net income............................................ 10,371 9,592
Allocated tax benefit generated by
Tissue Repair Division............................... 1,627 285
------- -------
Net income attributable to Genzyme
General Division Stock............................... $11,998 $ 9,877
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-11-
<PAGE> 12
<TABLE>
GENZYME GENERAL DIVISION
CONDENSED COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Net income attributable to Genzyme
General Division Stock.............................. $11,998 $ 9,877
======= =======
Income per General Division Common and
common equivalent share:
Net income (1)...................................... $ 0.43 $ 0.38
======= =======
Average shares outstanding.......................... 27,945 26,045
======= =======
Income per General Division Common Share
assuming full dilution:
Net income (1)...................................... $ 0.40 $ 0.35
======= =======
Average fully diluted shares outstanding............ 29,970 27,936
======= =======
<FN>
(1) Pro forma for 1994.
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-12-
<PAGE> 13
<TABLE>
GENZYME GENERAL DIVISION
COMBINED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) MARCH 31, DECEMBER 31,
----------------------------------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 12,290 $ 46,549
Short-term investments.................................. 3,547 7,155
Accounts receivable, less allowance
for doubtful accounts.................................. 73,935 76,641
Inventories............................................. 41,432 36,764
Prepaid expenses and other current assets............... 11,521 10,790
Due from Genzyme Tissue Repair Division................. 2,189 171
Deferred tax assets - current........................... 4,072 4,072
-------- --------
Total current assets.................................. 148,986 182,142
Property, plant and equipment, net....................... 307,279 295,346
Other Assets:
Long-term investments................................... 74,449 74,948
Note receivable - affiliate............................. 5,212 3,572
Intangibles, net of accumulated amortization............ 28,629 29,303
Deferred tax assets - noncurrent........................ 28,473 28,473
Other noncurrent assets................................. 22,280 16,360
-------- --------
159,043 152,656
-------- --------
$615,308 $630,144
======== ========
LIABILITIES AND DIVISION EQUITY
Current Liabilities:
Accounts payable........................................ $ 12,402 $ 20,859
Accrued expenses........................................ 37,395 27,766
Income taxes payable.................................... 4,867 6,523
Deferred revenue........................................ 1,842 2,604
Current portion of long-term debt and
capital lease obligations.............................. 2,489 41,076
-------- --------
Total current liabilities............................. 58,995 98,828
Noncurrent Liabilities:
Long-term debt and capital lease obligations............ 126,623 126,555
Other noncurrent liabilities............................ 8,029 6,800
-------- --------
134,652 133,355
Minority interest in subsidiaries........................ 1,981 2,310
Division equity.......................................... 419,680 395,651
-------- --------
$615,308 $630,144
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-13-
<PAGE> 14
<TABLE>
GENZYME GENERAL DIVISION
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................... $ 11,998 $ 9,877
Reconciliation of net income to net
cash from operating activities:
Depreciation and amortization...................... 5,320 3,707
Provision for bad debts............................ 1,044 1,083
(Gain)/loss on sale of investments................. 85 (1,609)
Loss on disposal of fixed assets................... 8 61
Accrued interest/amortization on bonds............. 428 (3,100)
Minority interest in net loss of subsidiaries...... (365) (313)
Equity in net loss of unconsolidated subsidiary.... 949 -
Other.............................................. 575 14
Increase (decrease) in cash from working capital:
Accounts receivable.............................. 3,670 (6,463)
Inventories...................................... (3,375) (5,945)
Prepaid expenses and other current assets........ (523) (325)
Accounts payable, accrued expenses
and deferred revenue............................ (2,178) 4,358
Due from Genzyme Tissue Repair Division.......... (2,051) -
-------- ---------
Net cash from operating activities............... 15,585 1,345
INVESTING ACTIVITIES:
Investment in unconsolidated affiliate............... (4,000) -
Loans to affiliate................................... (1,640) -
Purchases of investments............................. (57) (182,376)
Sales and maturities of investments.................. 6,460 208,083
Property, plant and equipment........................ (13,170) (20,954)
Other noncurrent assets.............................. (382) (238)
-------- ---------
Net cash from investing activities............... (12,789) 4,515
FINANCING ACTIVITIES:
Issuance of common stock............................. 2,920 1,092
Issuance of common stock by subsidiary............... 73 93
Issuance of debt..................................... 177 138
Payments of debt and capital lease obligations....... (39,110) (200)
Net cash to Genzyme.................................. - (815)
-------- ---------
Net cash from financing activities............... (35,940) 308
Effect of exchange rate changes on cash............... (1,115) 101
-------- ---------
Increase (decrease) in cash and cash
equivalents.......................................... (34,259) 6,269
Cash and cash equivalents, beginning of period........ 46,549 22,975
-------- ---------
Cash and cash equivalents, end of period.............. $ 12,290 $ 29,244
======== =========
Supplemental cash flow information:
Cash paid during the period for:
Interest........................................... $ 1,248 $ 559
Income taxes....................................... 6,258 617
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-14-
<PAGE> 15
GENZYME GENERAL DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation:
----------------------
These unaudited, condensed, combined financial statements should be read
in conjunction with the Genzyme Corporation's (the "Company") Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 and the financial
statements and footnotes for Genzyme General Division included therein.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations. Certain items in the 1994
financial statements have been reclassified to conform with the 1995
presentation.
The financial statements for the three months ended March 31, 1995 and
1994 are unaudited but include, in the Company's opinion, all adjustments
(consisting only of normally recurring accruals) necessary for a fair
presentation of the results for the periods presented.
2. Accounting Policies:
--------------------
The accounting policies underlying the quarterly financial statements
are those set forth in Note A of the General Division's financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
3. Investments:
------------
As of March 31, 1995, the Division classified all investments,
consisting primarily of debt securities, as available for sale. As a
result, gross unrealized holding losses totaling $3,100,000 were charged to
Division equity.
As of March 31, 1995, the market values of the General Division's equity
investments in Argus Pharmaceuticals, Inc. and Univax Biologics, Inc.,
included in Other noncurrent assets in the combined balance sheets, exceeded
their respective carrying values at December 31, 1994 by approximately
$2,623,000 which was credited to Division equity.
<TABLE>
4. Inventories:
------------
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Raw Materials............ $ 9,657,000 $14,517,000
Work-in-process.......... 16,118,000 9,227,000
Finished products........ 15,657,000 13,020,000
----------- -----------
$41,432,000 $36,764,000
=========== ===========
</TABLE>
5. Provision for Income Taxes:
---------------------------
The tax provision for the quarter ended March 31, 1995 varies from the
U.S. statutory tax rate because of the provision for state income taxes,
losses of subsidiaries which generate no current tax benefit, tax credits
and taxes on foreign earnings. The effective tax rate was 38% for the three
months ended March 31, 1995 as compared to 36% for the corresponding period
in 1994. The increase was due primarily to the expiration of the Orphan
Drug Credit effective December 31, 1994.
-15-
<PAGE> 16
GENZYME GENERAL DIVISION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
The following discussion is a summary of the key factors management
considers necessary in reviewing the General Division's results of operations,
liquidity and capital resources. This discussion should be read in conjunction
with the financial statements and related notes of Genzyme.
RESULTS OF OPERATIONS
Revenue
-------
Total revenues for the three months ended March 31, 1995 were $87.2 million,
an increase of 19% over the corresponding period in 1994. Product and service
revenues were $80.7 million, an increase of 20% over the same period in 1994.
Product revenues increased 28% to $68.3 million reflecting sales increases of
31%, 15% and 33%, respectively, in the Therapeutic, Diagnostic Product and
Pharmaceutical/Fine Chemical ("PFC") businesses. The increase in sales of
Therapeutic products resulted primarily from increased shipments of Ceredase[R]
enzyme, for which the rate of new patient accruals more than offset dosage
reductions, and the market introduction, in the second quarter of 1994, of
Cerezyme[TM] enzyme, the recombinant form of Ceredase[R] enzyme. The increase
in Diagnostic Product sales resulted from sales increases across all product
lines including a doubling in revenues from sales of Direct LDL tests. The
increase in PFC sales resulted from the operations of a Swiss company acquired
in July 1994. Service revenues for the first quarter of 1995 declined 11% to
$12.5 million from $13.9 million for the same period in 1994. The drop in
service revenue resulted primarily from the divestiture of two small genetic
diagnostic laboratories and an unusually large European bone marrow drive that
provided revenues in the first quarter of 1994.
International sales represented approximately 42% of product sales for the
first quarter of 1995 compared with approximately 33% for the first quarter of
1994. The increase was due primarily to a 69% increase in the combined
international sales of Ceredase[R]/Cerezyme[TM] enzyme as well as favorable
exchange rates.
Revenues from research and development contracts for the three months ended
March 31, 1995 were $6.4 million, an increase of 9% from the corresponding
period in 1994. Revenues from Neozyme II increased 33% to $5.7 million for the
first quarter of 1995 due primarily to increased activity relating to
collaborations with third parties that began in 1993 as well as increased
efforts internally. In the first quarter of 1994, the Surgical Aids
Partnership provided revenues to Genzyme of $0.9 million thereby exhausting the
funds it had available for the funding of the HAL[TM] products.
Margins and Operating Expenses
------------------------------
Total gross margin for the quarters ended March 31, 1995 and 1994 was 59%.
The General Division provides a broad range of health care products and
services, resulting in a range of gross margins depending on the particular
market conditions of each product or service. Product margins for the quarter
ended March 31, 1995 declined to 63% from 65% for the same period in 1994 due
primarily to lower margins on Ceredase[R] enzyme as a result of the higher cost
of purchased material beginning in the second quarter of 1994 and a price
increase in the first quarter of 1994 prior to the cost increase. Service
margins for the three months ended March 31, 1995 decreased to 36% from 37%.
Selling, general and administrative expenses for the three months ended
March 31, 1995 were $24.2 million, an increase of 9% over the same period in
1994. The
-16-
<PAGE> 17
increase was due primarily to increased staffing in support of the growth in
several product lines and to the ongoing expenses associated with various
operations acquired or established in 1994. As a percentage of total revenues,
selling, general and administrative expenses were 28% compared to 30% for the
corresponding period in 1994.
Research and development expenses for the three months ended March 31, 1995
were $13.6 million, an increase of 11% over the same period in 1994 due to
increased efforts on behalf of Neozyme II and increased spending on internal
programs.
Other Income and Expenses
-------------------------
Investment income for the quarter ended March 31, 1995 totaled $1.4 million,
compared with $3.7 million for the same period in 1994 which included gains of
$1.6 million on the sales of securities. Excluding the effect of the realized
gains, investment income decreased 33% due to lower average cash and investment
balances.
Interest expense for the quarter ended March 31, 1995 was $47,000, net of
capitalized interest on construction in progress of $2.5 million. Interest
relating to Genzyme's 6 3/4% convertible subordinated notes was $1.7 million,
equal to the amount incurred in the first quarter of 1994. The General
Division also incurred interest expense of $0.4 million related to a $21.5
million mortgage note issued in the second quarter of 1994, $0.1 million
related to a deferred liability established to acquire the remaining shares of
a Swiss company acquired, in part, in July 1994 and the remainder related to
interest on capitalized leases.
The tax provision for the quarter ended March 31, 1995 varies from the U.S.
statutory tax rate because of the provision for state income taxes, losses of
subsidiaries which generate no current tax benefit, tax credits and taxes on
foreign earnings. The effective tax rate was 38% for the three months ended
March 31, 1995 as compared to 36% for the corresponding period in 1994. The
increase was due primarily to the repeal of the Orphan Drug Credit. The
allocated tax benefit of $1.6 million generated by GTR reduced the General
Division's tax rate to 28%.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, the General Division had cash, cash equivalents and
investments in marketable securities totaling $90.3 million, a decrease of
$38.4 million from December 31, 1994. The General Division repaid a $39.0
million term loan in January 1995. In the first quarter of 1995, the General
Division spent $13.2 million on increased manufacturing capacity and invested
an additional $4.0 million in an unconsolidated affiliate. These expenditures
were financed by operations, $15.6 million, and by the issuance of common stock
through exercises of stock options and warrants, $2.9 million.
As of March 31, 1995, the General Division had accounts receivable of $73.9
million, a decrease of $2.7 million from December 31, 1994, due primarily to
accelerated collections. Inventories increased $4.7 million, or 13%, to $41.4
million as of March 31, 1995 as compared to December 31, 1994. The increase
was due primarily to support of increased business operations and, in part, to
exchange rate fluctuations.
In January 1995, the General Division renewed its commitment to continue
funding, until March 1, 1996, the development of the HAL[TM] products on behalf
of the Surgical Aids Partnership whose available funds were fully expended in
the first quarter of 1994.
-17-
<PAGE> 18
<TABLE>
GENZYME TISSUE REPAIR DIVISION
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
Net product sales.................................. $ 1,030 $ -
Operating costs and expenses:
Cost of products sold.............................. 725 -
Selling, general and administrative................ 1,752 163
Research and development........................... 2,814 652
------- ------
5,291 815
------- ------
Operating loss...................................... (4,261) (815)
Investment income................................... 319 -
------- ------
Net loss............................................ $(3,942) $ (815)
======= ======
Per Tissue Repair Division Common share:
Net loss........................................... $ (0.45) $(0.25)
======= ======
Average shares outstanding......................... 8,751 3,281
======= ======
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-18-
<PAGE> 19
<TABLE>
GENZYME TISSUE REPAIR DIVISION
COMBINED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) MARCH 31, DECEMBER 31,
----------------------------------------------------------------------------------------
1995 1994
---- -----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $11,016 $16,993
Short-term investments................................. 8,981 5,918
Accounts receivable, less allowance
for doubtful accounts................................. 727 1,486
Inventories............................................ 84 76
Prepaid expenses and other current assets.............. 224 284
------- -------
Total current assets................................. 21,032 24,757
Property, plant and equipment, net...................... 1,360 1,456
Other Assets:
Long-term investments.................................. 1,982 1,897
Other noncurrent assets................................ 315 325
------- -------
2,297 2,222
------- -------
$24,689 $28,435
======= =======
LIABILITIES AND DIVISION EQUITY
Current Liabilities:
Accounts payable....................................... $ 317 $ 528
Accrued expenses....................................... 1,369 3,220
Payable to Genzyme General Division.................... 2,189 171
Current portion of capital lease obligations........... 289 281
------- -------
Total current liabilities............................ 4,164 4,200
Noncurrent Liabilities:
Capital lease obligations.............................. 98 174
Other noncurrent liabilities........................... 721 748
------- -------
819 922
Division equity......................................... 19,706 23,313
------- -------
$24,689 $28,435
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-19-
<PAGE> 20
<TABLE>
GENZYME TISSUE REPAIR DIVISION
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................... $ (3,942) $(815)
Reconciliation of net loss to net
cash from operating activities:
Depreciation and amortization.................... 150 -
Accrued interest/amortization on bonds........... (158) -
Increase (decrease) in cash from working capital:
Accounts receivable............................ 759 -
Inventories.................................... (9) -
Prepaid expenses and other current assets...... 60 -
Accounts payable, accrued expenses
and deferred revenue.......................... (2,062) -
Due to Genzyme General Division................ 2,051 -
-------- -----
Net cash from operating activities............. (3,151) (815)
INVESTING ACTIVITIES:
Purchases of investments........................... (10,957) -
Sales and maturities of investments................ 8,087 -
Property, plant and equipment...................... (54) -
Other noncurrent assets............................ 10 -
-------- -----
Net cash from investing activities............. (2,914) -
FINANCING ACTIVITIES:
Issuance of TR Stock............................... 182 -
Payments of capital lease obligations.............. (68) -
Net cash from Genzyme.............................. - 815
Other.............................................. (26) -
-------- -----
Net cash from financing activities............. 88 815
-------- -----
Increase (decrease) in cash and cash
equivalents........................................ (5,977) -
Cash and cash equivalents, beginning of period...... 16,993 -
-------- -----
Cash and cash equivalents, end of period............ $ 11,016 $ -
======== =====
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-20-
<PAGE> 21
GENZYME TISSUE REPAIR DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation:
----------------------
These unaudited, condensed, combined financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and the financial statements and footnotes for
Genzyme Tissue Repair Division ("GTR") included therein. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations. Certain items in the 1994
financial statements have been reclassified to conform with the 1995
presentation.
The financial statements for the three months ended March 31, 1995 and
1994 are unaudited but include, in GTR's opinion, all adjustments
(consisting only of normally recurring accruals) necessary for a fair
presentation of the results for the periods presented.
2. Accounting Policies:
--------------------
The accounting policies underlying the quarterly financial statements
are those set forth in Note A of GTR's financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
3. Investments:
------------
As of March 31, 1995, GTR classified all investments, consisting
primarily of debt securities, as available for sale. As a result, gross
unrealized holding losses totaling $136,000 were charged to Division equity.
<TABLE>
4. Inventories:
------------
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Raw Materials.............. $66,000 $55,000
Work-in-process............ 18,000 21,000
------- -------
$84,000 $76,000
======= =======
</TABLE>
-21-
<PAGE> 22
GENZYME TISSUE REPAIR DIVISION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
The following discussion is a summary of the key factors management
considers necessary in reviewing GTR's results of operations, liquidity and
capital resources. This discussion should be read in conjunction with the
financial statements and related notes of Genzyme.
RESULTS OF OPERATIONS
Revenue
-------
Product revenues for the three months ended March 31, 1995 were $1,030,000.
Revenues consisted primarily of sales of Epicel[TM] skin grafts which are
dependent upon numerous factors, many of which are not in GTR's control and, as
a result, GTR expects sales of Epicel[TM] skin grafts to fluctuate from period
to period. Also in the first quarter of 1995, initial sales of CarticelSM
service, GTR's cartilage repair service, commenced.
Margins and Operating Expenses
------------------------------
Gross margins for the quarter ended March 31, 1995 were 30%. GTR incurs
direct selling, general and administrative expenses as well as a selling,
general and administrative charge, based on actual amounts incurred, from the
General Division for selling, general and administrative work performed by the
General Division on behalf of GTR. Selling, general and administrative
expenses for the three months ended March 31, 1995 were $1,752,000 compared to
$163,000 for the corresponding period in 1994. The increase was due to
increased support of GTR by the General Division and to the acquisition of
BioSurface Technology, Inc., in the fourth quarter of 1994.
GTR incurs direct research and development expenses as well as a charge for
research and development and related overhead from the General Division, based
on actual amounts incurred, for research and development work performed by the
General Division on behalf of GTR. Research and development expenses for the
quarter ended March 31, 1995 were $2,814,000 million including $1,758,000
related to the operations of BioSurface. Excluding the effect of BioSurface,
research and development expenses increased 62% due primarily to increased
outside clinical trials and manufacturing support related to the Vianain[R]
programs.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, GTR had approximately $22.0 million of cash, cash
equivalents and investments in marketable securities, a decrease of $2.8
million from December 31, 1994. The decrease was due to GTR's net loss from
operations and working capital requirements. GTR funded working capital
requirements through additional amounts payable to the General Division
totaling $2.2 million.
-22-
<PAGE> 23
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q/A, MARCH 31, 1995
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENZYME CORPORATION
DATE: September 13, 1995 By: /s/David J. McLachlan
-----------------------------
David J. McLachlan
Duly Authorized Officer and
Chief Financial Officer
-23-
