<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
APRIL 1, 1997
GENZYME CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 0-14680 06-1047163
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(617) 252-7500
Total number of page in document - 26
Exhibit Index located on page - 4
<PAGE> 2
ITEM 5. OTHER.
------
In order to update the information previously filed with the Securities
and Exchange Commission at pages F-2 to F-17 to the Current Report of Genzyme on
Form 8-K (Commission File No. 0-14680) filed on February 4, 1997, Genzyme hereby
files as Exhibit 99.1 unaudited pro forma financial statements and the related
notes thereto for both Genzyme and Genzyme General Division (the "General
Division") giving effect to the acquisition by Genzyme of Genetrix, Inc.
("Genetrix") on May 1, 1996 (the "Genetrix Acquisition"), the acquisition of
Deknatel Snowden Pencer, Inc. ("DSP") on July 1, 1996 (the "DSP Acquisition"),
and the acquisition of Neozyme II (the "Neozyme II Acquisition") on December 6,
1996 (collectively, the "Acquisitions"). Pro forma condensed statements of
operations have been presented for both Genzyme and the General Division
assuming that the Acquisitions occurred as of January 1, 1996, using the
purchase accounting method. The historical Genzyme and General Division balance
sheets as of December 31, 1996, which are included in the Company's Annual
Report on Form 10-K, reflects the effect of the Genetrix Acquisition which was
completed on May 1, 1996, the DSP Acquisition which was completed on July 1,
1996, and the acquisition of Neozyme II which was completed on December 6,
1996. Therefore, pro forma balance sheets for Genzyme and the General Division
are not included herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
---------------------------------
<TABLE>
<CAPTION>
(c) Exhibits.
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
99.1 Unaudited pro forma statements of operations
(and related notes) for the year ended December
31, 1996 for Genzyme and the General
Division, giving effect to the Acquisitions.
Filed herewith.
</TABLE>
<PAGE> 3
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 hereunto duly authorized.
Date: April 1, 1997 GENZYME CORPORATION
By:/s/ David J. McLachlan
------------------------------------
David J. McLachlan
Executive Vice President, Finance;
Chief Financial Officer
<PAGE> 4
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
--- ----------- --------
99.1 Unaudited pro forma statements of operations (and related notes)
for the year ended December 31, 1996 for Genzyme and
the General Division, giving effect to the Acquisitions.
Filed herewith.
<PAGE> 1
Exhibit 99.1
------------
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION:
These unaudited condensed pro forma financial statements and the related
notes are presented to give effect to the Genetrix Acquisition using shares of
General Division Stock (as described in Note 3), the DSP Acquisition (as
described in Note 4) and the Neozyme II Acquisition (as described in Note 5).
Pro forma condensed statements of operations have been presented for both
Genzyme and the General Division assuming that the Acquisitions each occurred as
of January 1, 1996, using the purchase accounting method. The historical Genzyme
and General Division balance sheets as of December 31, 1996, which are included
in the Company's Annual Report on Form 10-K, reflect the effect of the Genetrix
Acquisition, which was completed on May 1, 1996, the DSP Acquisition, which was
completed on July 1, 1996, and the Neozyme II Acquisition which was completed on
December 6, 1996. Therefore, pro forma balance sheets for Genzyme and the
General Division are not included herein. To distinguish the effect of each
transaction, the pro forma statements of operations include subtotal columns
which give effect to the Genetrix Acquisition, after certain pro forma
adjustments, and the DSP Acquisition, after certain pro forma adjustments,
before consideration of the Neozyme II Acquisition. The notes to the unaudited
pro forma financial statements are defined as related either to the Genetrix
Acquisition, the DSP Acquisition or the Neozyme II Acquisition.
F-2
<PAGE> 2
<PAGE> 3
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<CAPTION>
PRO
FORMA
HISTORICAL FOOT- HISTORICAL PRO FOOT- GENZYME PRO FOOT-
GENZYME NOTE GENETRIX, FORMA NOTE CORP. AND HISTORICAL FORMA NOTE
CORP. REF. INC. ADJS. REF. GENETRIX DSP ADJS. REF.
---------- ----- ---------- ----- ----- --------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............................ $ 518,754 $7,239 $ -- $525,993 $ 54,138 $ --
Operating costs and expenses:
Cost of products sold................. 155,930 -- -- 155,930 26,138 --
Cost of services sold................. 54,082 5,631 -- 59,713 -- --
Selling, general and administrative
expenses............................ 162,264 1,634 -- 163,898 18,189 --
Research and development expenses..... 80,849 -- -- 80,849 1,365 --
Amortization of intangibles........... 8,849 187 867 [A] 9,903 3,532 (548) [E]
Charge for junior stock options....... -- -- -- -- 12,090 (12,090) [G]
Charge for in-process technology...... 130,639 [4,5] -- -- 130,639 -- --
Restructuring charges................. 1,465 -- 1,465 546 --
-------- ------ ----- -------- -------- -------
Total operating costs and expenses...... 594,078 7,452 867 602,397 61,860 (12,638)
-------- ------ ----- -------- -------- -------
Operating income (loss)................. (75,324) (213) (867) (76,404) (7,722) 12,638
Other income and (expenses):
Equity in net loss of unconsolidated
subsidiaries........................ (4,360) -- -- (4,360) -- --
Gain on investments................... 1,711 -- -- 1,711 -- --
Investment income..................... 15,341 -- -- 15,341 -- --
Interest expense...................... (6,990) [F] (115) 59 [B] (7,046) (3,039) (3,121) [F]
Other non operating expenses.......... -- (43) -- (43) (894) --
-------- ------ ----- -------- -------- -------
5,702 (158) 59 5,603 (3,933) (3,121)
-------- ------ ----- -------- -------- -------
Income (loss) before income taxes....... (69,622) (371) (808) (70,801) (11,655) 9,517
(Provision) benefit for income taxes.... (3,195) -- 133 [C] (3,062) 96 1,326 [H]
-------- ------ ----- -------- -------- -------
Net income (loss)....................... $(72,817) $ (371) $(675) $(73,863) $(11,559) $10,843
======== ====== ===== ======== ======== =======
Attributable to the General Division:
Net loss.............................. $(47,513) $(48,559)
Tax benefit allocated from Tissue
Repair Division................... 17,011 17,011
-------- --------
Net loss attributable to General
Division Stock........................ $(30,502) $(31,548)
======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME PRO
CORP., PRO FOOT- FORMA
GENETRIX HISTORICAL FORMA NOTE GENZYME
AND DSP NEOZYME II ADJS. REF. CORP.
-------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Net revenues............................ $580,131 $ -- $(19,805) [I] $560,326
Operating costs and expenses:
Cost of products sold................. 182,068 -- -- 182,068
Cost of services sold................. 59,713 -- -- 59,713
Selling, general and administrative
expenses............................ 182,087 412 (64) [I] 182,435
Research and development expenses..... 82,214 19,747 (19,747) [I] 82,214
Amortization of intangibles........... 12,887 -- -- 12,887
Charge for junior stock options....... -- -- -- --
Charge for in-process technology...... 130,639 -- -- 130,639
Restructuring charges................. 2,011 -- -- 2,011
-------- -------- -------- --------
Total operating costs and expenses...... 651,619 20,159 (19,811) 651,967
-------- -------- -------- --------
Operating income (loss)................. (71,488) (20,159) 6 (91,641)
Other income and (expenses):
Equity in net loss of unconsolidated
subsidiaries........................ (4,360) -- -- (4,360)
Gain on investments................... 1,711 -- -- 1,711
Investment income..................... 15,341 624 (5,416) [I,J] 10,549
Interest expense...................... (13,206) -- -- (13,206)
Other non-operating expenses.......... (937) -- -- (937)
-------- -------- -------- --------
(1,451) 624 (5,416) (6,243)
-------- -------- -------- --------
Income (loss) before income taxes....... (72,939) $(19,535) (5,410) (97,884)
(Provision) benefit for income taxes.... (1,640) -- 10,602 [K] 8,962
-------- -------- -------- --------
Net income (loss)....................... $(74,579) $(19,535) $ 5,192 $(88,922)
======== ======== ======== ========
Attributable to the General Division:
Net loss.............................. $(49,275) $(63,618)
Tax benefit allocated from Tissue
Repair Division................... 17,011 17,011
-------- --------
Net loss attributable to General
Division Stock........................ $(32,264) $(46,607)
======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-3
<PAGE> 4
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<CAPTION>
PRO
FORMA
HISTORICAL HISTORICAL PRO FOOT- GENZYME PRO FOOT-
GENZYME GENETRIX, FORMA NOTE CORP. AND HISTORICAL FORMA NOTE
CORP. INC. ADJS. REF. GENETRIX DSP ADJS. REF.
---------- ---------- ----- ----- --------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss per General Division common
and common equivalent share.............. $ (0.45) $ (0.46)
======== ========
Pro forma weighted average shares
outstanding.............................. 68,289 454 [D] 68,743
======== === ========
Loss per General Division common and
common equivalent share assuming full
dilution................................. $ (0.45) $ (0.46)
======== ========
Pro forma fully diluted weighted average
shares outstanding....................... 68,289 454 [D] 68,743
======== === ========
Attributable to the Tissue Repair Division:
Net loss................................. $(42,315) $(42,315)
======== ========
Loss per Tissue Repair Division common
share.................................. $ (3.38) $ (3.38)
======== ========
Historical weighted average shares
outstanding............................ 12,525 12,525
======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME PRO
CORP., PRO FOOT- FORMA
GENETRIX HISTORICAL FORMA NOTE GENZYME
AND DSP NEOZYME II ADJS. REF. CORP.
-------- ---------- ----- ----- --------
<S> <C> <C> <C> <C> <C>
Loss per General Division common
and common equivalent share.............. $ (0.47) $ (0.68)
======== ========
Pro forma weighted average shares
outstanding.............................. 68,743 68,743
======== ========
Loss per General Division common and
common equivalent share assuming full
dilution................................. $ (0.47) $ (0.68)
======== ========
Pro forma fully diluted weighted average
shares outstanding....................... 68,743 68,743
======== ========
Attributable to the Tissue Repair Division:
Net loss................................. $(42,315) $(42,315)
======== ========
Loss per Tissue Repair Division common
share.................................. $ (3.38) $ (3.38)
======== ========
Historical weighted average shares
outstanding............................ 12,525 12,525
======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-4
<PAGE> 5
GENZYME GENERAL DIVISION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME
HISTORICAL GENERAL
GENZYME FOOT- HISTORICAL PRO FOOT- DIVISION PRO FOOT-
GENERAL NOTE GENETRIX, FORMA NOTE AND HISTORICAL FORMA NOTE
DIVISION REF. INC. ADJS. REF. GENETRIX DSP ADJS. REF.
---------- ----- ---------- ------- ----- --------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.......................... $511,442 $7,239 $ -- $518,681 $54,138 $ --
Operating costs and expenses:
Cost of products sold............... 155,930 -- -- 155,930 26,138 --
Cost of services sold............... 42,889 5,631 -- 48,520 -- --
Selling, general and administrative
expenses.......................... 135,153 1,634 -- 136,787 18,189 --
Research and development expenses... 69,969 -- -- 69,969 1,365 --
Amortization of intangibles......... 8,849 187 867 [L] 9,903 3,532 (548) [P]
Charge for junior stock options..... -- -- -- -- 12,090 (12,090) [R]
Charge for in-process technology.... 130,639 [4,5] -- -- 130,639 -- --
Other expenses...................... 1,465 -- -- 1,465 546 --
-------- ------ ----- -------- -------- --------
Total operating costs and expenses.... 544,894 7,452 867 553,213 61,860 (12,638)
-------- ------ ----- -------- -------- --------
Operating income (loss)............... (33,452) (213) (867) (34,532) (7,722) 12,638
Other income and (expenses):
Equity in net loss of unconsolidated
subsidiaries...................... (2,633) -- -- (2,633) -- --
Gain on investments................. 1,711 -- -- 1,711 -- --
Investment income................... 13,909 -- -- 13,909 -- --
Interest expense.................... (6,842) [Q] (115) 59 [M] (6,898) (3,039) (3,121) [Q]
Restructuring charges............... -- (43) -- (43) (894) --
-------- ------ ----- -------- -------- --------
6,145 (158) 59 6,046 (3,933) (3,121)
-------- ------ ----- -------- -------- --------
Income (loss) before income taxes..... (27,307) (371) (808) (28,486) (11,655) 9,517
(Provision) benefit for income taxes.. (20,206) -- 133 [N] (20,073) 96 1,326 [S]
-------- ------ ----- -------- -------- --------
Net income (loss)..................... (47,513) (371) (675) (48,559) (11,559) 10,843
Tax benefit allocated from Tissue
Repair Division..................... 17,011 -- -- 17,011 -- --
-------- ------ ----- -------- -------- --------
Net income attributable to General
Division Stock...................... $(30,502) $ (371) $(675) $(31,548) $(11,559) $ 10,843
======== ====== ===== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME PRO
GENERAL FORMA
DIVISION, PRO FOOT- GENZYME
GENETRIX HISTORICAL FORMA NOTE GENERAL
AND DSP NEOZYME II ADJS. REF. DIVISION
-------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $572,819 $ -- $(19,805) [T] $553,014
Operating costs and expenses:
Cost of products sold............... 182,068 -- -- 182,068
Cost of services sold............... 48,520 -- -- 48,520
Selling, general and administrative
expenses.......................... 154,976 412 (64) [T] 155,324
Research and development expenses... 71,334 19,747 (19,747) [T] 71,334
Amortization of intangibles......... 12,887 -- -- 12,887
Charge for junior stock options..... -- -- -- --
Charge for in-process technology ... 130,639 -- -- 130,639
Restructuring charges............... 2,011 -- -- 2,011
-------- -------- -------- --------
Total operating costs and expenses.... 602,435 20,159 (19,811) 602,783
-------- -------- -------- --------
Operating income (loss)............... (29,616) (20,159) 6 (49,769)
Other income and (expenses):
Equity in net loss of unconsolidated
subsidiaries...................... (2,633) -- -- (2,633)
Gain on investments................. 1,711 -- -- 1,711
Investment income................... 13,909 624 (5,416) [T,V] 9,117
Interest expense.................... (13,058) -- -- (13,058)
Restructuring charges............... (937) -- -- (937)
-------- -------- -------- --------
(1,008) 624 (5,416) (5,800)
-------- -------- -------- --------
Income (loss) before income taxes..... (30,624) (19,535) (5,410) (55,569)
(Provision) benefit for income taxes.. (18,651) -- 10,602 [U] (8,049)
-------- -------- -------- --------
Net income (loss)..................... (49,275) (19,535) 5,192 (63,618)
Tax benefit allocated from Tissue
Repair Division..................... 17,011 -- -- 17,011
-------- -------- -------- --------
Net income attributable to General
Division Stock...................... $(32,264) $(19,535) $ 5,192 $(46,607)
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-5
<PAGE> 6
GENZYME GENERAL DIVISION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS --
(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME
HISTORICAL GENERAL
GENZYME HISTORICAL PRO FOOT- DIVISION PRO FOOT-
GENERAL GENETRIX, FORMA NOTE AND HISTORICAL FORMA NOTE
DIVISION INC. ADJS. REF. GENETRIX DSP ADJS. REF.
---------- ---------- ----- ----- --------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss per General Division
common and common equivalent share.... $ (0.45) $ (0.46)
======= =======
Pro forma weighted average shares
outstanding........................... 68,289 454 [O] 68,743
======= === =======
Loss per General Division common and
common equivalent share assuming full
dilution.............................. $ (0.45) $ (0.46)
======= =======
Pro forma fully diluted weighted average
shares outstanding.................... 68,289 454 [O] 68,743
======= === =======
</TABLE>
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME PRO
GENERAL FORMA
DIVISION, PRO FOOT- GENZYME
GENETRIX HISTORICAL FORMA NOTE GENERAL
AND DSP NEOZYME II ADJS. REF. DIVISION
-------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Loss per General Division
common and common equivalent share.... $ (0.47) $ (0.68)
======= =======
Pro forma weighted average shares
outstanding........................... 68,743 68,743
======= =======
Loss per General Division common and
common equivalent share assuming full
dilution.............................. $ (0.47) $ (0.68)
======= =======
Pro forma fully diluted weighted average
shares outstanding.................... 68,743 68,743
======= =======
</TABLE>
See notes to unaudited pro forma financial statements.
F-6
<PAGE> 7
<PAGE> 8
<PAGE> 9
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND PROCEDURES:
The accounting policies and procedures for Genzyme, Genetrix, DSP and
Neozyme II are in conformity in all material respects. The pro forma financial
statements include both Genzyme, the registrant, and the General Division,
the stock of which was used to effect the Genetrix Acquisition. The General
Division is also the borrower of the $200 million under Genzyme's revolving
credit facility which was used to effect the DSP Acquisition and the Neozyme II
Acquisition and owner of the cash used to effect the Neozyme II Acquisition.
2. THE GENERAL DIVISION'S 2-FOR-1 STOCK SPLIT:
In June 1996, the Board of Directors declared a 2-for-1 stock split of
shares of General Division Stock to be effected by means of a 100% stock
dividend payable on July 25, 1996 to stockholders of record on July 11, 1996,
subject to increasing the authorized shares of General Division Stock from
100,000,000 to 200,000,000 shares (the "Amendment"). The Amendment was approved
by holders of a majority in interest of the outstanding General Division Stock
and TR Stock, voting together as a single class, at a special meeting of the
stockholders held on July 24, 1996. On July 25, 1996, a total of 34,669,435
shares of General Division Stock were distributed to stockholders in connection
with the dividend. All General Division shares and per share amounts included
herein reflect this split.
3. GENZYME'S ACQUISITION OF GENETRIX:
On May 1, 1996, Genzyme acquired Genetrix, a privately held genetic testing
laboratory based in Phoenix, Arizona, in a tax-free exchange of General Division
Stock. In the aggregate, approximately 1,380,000 shares of General Division
Stock, valued at approximately $36.5 million, were issued for all the
outstanding shares of Genetrix preferred stock and Genetrix common stock. The
acquisition was accounted for as a purchase.
The total purchase price was $45.5 million and consisted of $36.5 million
for the value of the General Division Stock issued to effect the transaction,
acquisition costs of approximately $3.2 million and restructuring charges of
approximately $5.8 million. The following is a summary of the allocation of the
purchase price to the net assets acquired as a result of the Genetrix
acquisition (amounts in thousands):
<TABLE>
Allocation of Purchase Price:
<S> <C>
Current assets $ 5,224
Property and equipment 3,530
Goodwill 39,022
Deferred income taxes 2,725
Other assets 237
Current liabilites (4,701)
Long-term liabilities (546)
-------
$45,491
=======
</TABLE>
The purchase price was allocated to the assets and liabilities of Genetrix
based on their estimated respective fair values.
The pro forma statements of operations for the year ended December 31, 1996
include pro forma amounts for Genetrix for the four month period ended April 30,
1996 and actual results thereafter.
4. GENZYME'S ACQUISITION OF DSP:
On July 1, 1996, Genzyme completed the acquisition of DSP, a privately held
specialty surgical products company.
The purchase price was $252.2 million and consisted of cash of $192.0
million and acquisition costs of $4.6 million and assumed debt DSP of
approximately $55.6 million. The following is a summary of the allocation of the
purchase price to net assets acquired as a result of the DSP Acquisition
(amounts in thousands):
Allocation of Purchase Price:
Current assets.......................................... $ 47,269
Property and Equipment.................................. 17,475
Patents................................................. 15,319
Trade Names............................................. 45,878
In-process technology................................... 24,170
Goodwill................................................ 128,434
Current Liabilities..................................... (25,508)
Deferred income taxes................................... (837)
--------
$252,200
========
The purchase price was allocated to the assets and liabilities of DSP
based on their estimated respective fair values. Completed technology that has
reached technological feasibility is valued using a risk adjusted cash flow
model under which future cash flows were discounted, taking into account risks
related to existing and future markets and assessments of the life expectancy of
the completed technology. In-process technology that has not reached
technological feasibility and that has no alternative future use is valued
using the same method. Expected future cash flows associated with in-process
technology are discounted considering risks and uncertainties related to the
viability of and to the potential changes in future target markets and to the
completion of the products expected to be ultimately marketed by Genzyme.
Amounts allocated to in-process technology are charged to operations at the
time of the acquisition.
The pro forma statements of operations for the year ended December 31, 1996
include pro forma amounts for DSP for the six month period ended June 30, 1996
and actual results thereafter.
The nonrecurring charge for in-process technology in the amount of $24.2
million which was charged to operations upon consummation of the DSP Acquisition
on July 1, 1996 is reflected in the historical results for Genzyme and the
General Division for the year ended December 31, 1996.
F-7
<PAGE> 10
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
5. GENZYME'S ACQUISITION OF NEOZYME II:
On October 28, 1996, Genzyme completed its tender offer for outstanding
Units of Neozyme II for $45 per Unit in cash. A total of 2,385,686 Units, or
98.8 percent, were tendered and accepted for payment. Each Neozyme II Unit
consists of one share of Callable Common Stock and one Callable Warrant to
purchase two shares of General Division Stock and 0.135 share of TR Stock.
The tender offer was made pursuant to an agreement entered into by Genzyme
and Neozyme II announced on September 23, 1996. Pursuant to this agreement, on
December 6, 1996, Neozyme II was merged with and into Acquisition Corp. and,
as a result of the merger, all outstanding shares of Callable Common Stock
(other than shares held by Genzyme and its subsidiaries) were cancelled and
converted into the right to receive $29.00 per share. The Callable Warrants
included in the untendered Units separated form the shares of Callable Common
Stock converted in the merger and became exercisable on December 6, 1996. The
exercise price of the Callable Warrants is $44.202 per Callable Warrant and was
determined by the average closing price of two shares of General Division Stock
and .135 share of TR Stock for the 20 trading days prior to December 6, 1996.
The Callable Warrants will expire on December 31, 1998.
<TABLE>
The pro forma financial statements reflect the 98.8% of the 2,415,000
shares of Callable Common Stock that were purchased under the tender offer at
$45 per share and the remaining 1.2% of the shares that were acquired in the
merger for $29 per share. Funds for the tender offer and the merger were
provided, as follows: $80 million from borrowings under a revolving credit
facility from Fleet National Bank, and the balance from the General Division's
cash balances. In addition, a $0.5 million increase to additional paid-in
capital has been recorded in effecting the merger to reflect the value of the
Callable Warrants ($16 per Callable Warrant) included in the untendered Units
which became exercisable on December 6, 1996, the effective date of the merger,
and remain outstanding after the merger. The aggregate purchase price of $108.7
million of the Neozyme II Acquisition plus estimated acquisition costs of $2.6
million has been allocated to the net assets acquired based on their estimated
respective fair values (amounts in thousands):
<S> <C>
Cash $ 903
Short-term investments 5,094
Assumed liabilities (292)
Note payable to Genzyme (100)
Research and development payable to Genzyme (735)
In-process technology 106,469
--------
$111,339
========
</TABLE>
The excess purchase price of $106.5 million was allocated to Neozyme II's
only remaining assets which were technologies that were still in the development
stage. These technologies consisted of specific programs for the treatment of
cystic fibrosis and have no alternative future use. The historical statements
of operations for Genzyme and the General Division give effect to the charge for
in-process technology of $106.5 million and related deferred tax benefit of
$21.7 million which were recorded upon consummation of the acquisition.
The pro forma statements of operations for Genzyme and the General
Division for the year ended December 31, 1996 include pro forma amounts for
Neozyme II for the ten months ended October 31, 1996 and actual results
thereafter.
6. PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITIONS:
These adjustments reflect the retirement of all DSP Common Stock and the
retirement of all Callable Common Stock.
F-8
<PAGE> 11
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
I. PRO FORMA ADJUSTMENTS TO GENZYME'S CONSOLIDATED STATEMENTS OF
OPERATIONS:
Related to the Genetrix Acquisition:
A. Record amortization expense of $867,000 for the four months
ended April 30, 1996 based on $39.0 million of goodwill
being amortized over 15 years.
B. Eliminate interest expense related to debt of Genetrix assumed by
Genzyme and subsequently repaid.
C. Record incremental income tax (provision) benefit.
D. To adjust the historical General Division primary and fully diluted
weighted average shares to reflect the issuance of approximately
1,380,000 shares of General Division Stock used to effect the
Genetrix acquisition as if the stock had been issued on January 1,
1996. The historical General Division primary and fully diluted
weighted average shares for the year ended December, 1996 include
the 1,380,000 shares as of May 1, 1996, the date of completion of
the Genetrix acquisition. For the year ended December 31, 1996, a
pro forma adjustment of approximately 454,000 shares (1,380,000
shares x 120/365 days), is required to account for the shares
during the four months ended April 30, 1996.
Related to the DSP Acquisition:
E. Record the adjustment to historical amortization expense based on
amortization of patents, tradenames and goodwill over 12 years,
40 years and 40 years, respectively, a reduction of $0.5 million
to amortization expense for the year ended December 31, 1996.
F. Reverse interest expense of DSP long-term debt, which was assumed
and repaid, in the amounts of $3.0 million for the year ended
December 31, 1996 and record interest expense related to the $200
million borrowed under a revolving credit line with Fleet National
Bank
F-9
<PAGE> 12
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
at LIBOR plus 5/8% . Interest expense under the $200 million
borrowing is $12.3 million for the year ended December 31, 1996.
Historical Genzyme interest expense for the year ended December 31,
1996 includes $6.2 million of the actual interest expense incurred
in the six months ended December 31, 1996 related to the $200
million borrowing.
G. To record the reversal of a $12.1 million pre-acquisition charge
for junior stock options recorded in the year ended December 31,
1996.
H. Record incremental income tax (provision) benefit.
Related to the Neozyme II Acquisition:
I. Eliminate intercompany research and development revenue
(Genzyme)/expense (Neozyme II) of $19.7 million for the year ended
December 31, 1996; intercompany service fees of $58,000 for the
year ended December 31, 1996; and intercompany interest
income/expense related to Series 1992 note payable of $5,800 for
the year ended December 31, 1996.
J. Reduce investment income related to $108.2 million of cash and cash
equivalents used to finance the Neozyme II Acquisition. Interest
expense has not been adjusted to reflect the repayment of $80
million borrowed at an interest rate of LIBOR plus 5/8% to finance
the DSP Acquisition (Note D) as an additional $80 million was
borrowed under the same revolving credit line at an interest rate
of 6.1% per annum thereafter to finance the Neozyme II Acquisition.
The resulting decrease in interest expense is not considered
material to the pro forma financial statements.
K. Record incremental income tax (provision) benefit.
F-10
<PAGE> 13
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
II. PRO FORMA ADJUSTMENTS TO THE GENERAL DIVISION'S COMBINED STATEMENTS OF
OPERATIONS:
Related to the Genetrix Acquisition:
L. Record amortization expense, of $867,000 for the four months
ended April 30, 1996, based on $39.0 million of goodwill
being amortized over 15 years.
M. Eliminate interest expense related to debt of Genetrix assumed by
Genzyme and subsequently repaid.
N. Record income tax (provision) benefit.
O. To adjust the historical General Division primary and fully diluted
weighted average shares to reflect approximately 1,380,000 shares
of General Division Stock used to effect the Genetrix acquisition
as if issued on January 1, 1996. The historical General Division
primary and fully diluted weighted average shares for the year
ended December 31, 1996 include the 1,380,000 shares as of May 1,
1996, the date of completion of the Genetrix acquisition. For the
year ended December 31, 1996, a pro forma adjustment to General
Division primary and fully diluted weighted average shares for the
four months ended April 30, 1996 of approximately 454,000 shares
(1,380,000 shares x 120/365 days) is required.
Related to the DSP Acquisition:
P. Record the adjustment to historical amortization expense based on
amortization of patents, tradenames and goodwill over 12 years, 40
years and 40 years, respectively, a reduction of $0.5 million to
amortization expense for the year ended December 31, 1996.
Q. Reverse interest expense of DSP long-term debt, which was assumed
and repaid, in the amounts of $3.0 million for the year ended
December 31, 1996 and record interest expense related to the $200
million borrowed under a revolving credit line with Fleet National
Bank at LIBOR plus 5/8%. For the year ended December 31, 1996
interest expense is $12.2 million. Historical General Division
interest expense for the year ended December 31, 1996 includes $6.2
million of the actual interest expense incurred in the year ended
December 31, 1996 related to the $200 million borrowing.
R. To record the reversal of a $12.1 million pre-acquisition charge
for junior stock options recorded in the year ended December 31,
1996.
S. Record incremental income tax (provision) benefit.
Related to the Neozyme II Acquisition:
T. Eliminate intercompany research and development revenue
(Genzyme)/expense (Neozyme II) and service fees of $19.7 million
for the year ended December 31, 1996; intercompany service fees of
$58,000 for the year ended December 31, 1996; and intercompany
interest income/expense related to Series 1992 note payable of
$5,800 for the year ended December 31, 1996.
U. Record incremental income tax (provision) benefit.
V. Reduce investment income related to $108.2 million cash and cash
equivalents used to finance the Neozyme II Acquisition. Interest
expense has not been adjusted to reflect the repayment of $80
million borrowed at an interest rate of LIBOR plus 5/8%
to finance the DSP Acquisition (Note Q) as an additional $80
million was borrowed under the same revolving credit line at an
interest rate of 6.1% per annum to finance the Neozyme II
Acquisition. The resulting decrease in interest expense is not
considered material to these pro forma financial statements.
F-11
