<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):
DECEMBER 6, 1996
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.
------
On October 28, 1996, Genzyme Corporation ("Genzyme"), through Neozyme II
Acquisition Corp. ("Acquisition Corp."), its wholly-owned subsidiary, completed
its tender offer for the outstanding units (the "Units") of Neozyme II
Corporation ("Neozyme II"), each Unit consisting of (i) one share of the
Callable Common Stock (the "Callable Common Stock"), $1.00 par value per share,
of Neozyme II and (ii) one Callable Warrant (the "Callable Warrants") to
purchase two shares of General Division Common Stock ("General Division Stock"),
$0.01 par value per share, and .135 share of Tissue Repair Division Common Stock
("TR Stock"), $0.01 par value per share, of Genzyme, for $45 per Unit in cash.
2,385,686 Units, or 98.8%, were tendered and accepted for payment, resulting in
an aggregate tender offer price of $107.4 million.
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 in cash per share, for an
aggregate merger consideration of $0.9 million. The Callable Warrants included
in the untendered Units separated from 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 in December 31, 1998.
Funds for the tender offer and for the merger were provided as
follows: $80.0 million from borrowings under a revolving credit facility from
Fleet National Bank, and the balance from Genzyme General Division cash
balances.
The nature and amount of the consideration paid pursuant to the tender
offer and the merger were determined by negotiation between Genzyme and a
special committee of independent directors of Neozyme II who are neither
executive officers nor directors of Genzyme.
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 November 5, 1996, 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") (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, 1995, using the purchase accounting
method. Pro forma balance sheets have been presented for both Genzyme and the
General Division assuming that the Neozyme II Acquisition occurred as of
September 30, 1996. The historical Genzyme and General Division balances
included in the pro forma balance sheets reflect the effect of the Genetrix
Acquisition which was completed on May 1, 1996 and the DSP Acquisition which was
completed on July 1, 1996. In addition, historical financial statements and
notes thereto of Neozyme II are filed herewith as Exhibit 99.2.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
---------------------------------
<TABLE>
<CAPTION>
(c) Exhibits.
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
99.1 Unaudited pro forma balance sheets as of
September 30, 1996 and statements of operations
(and related notes) for the year ended December
31, 1995 and for the nine-months ended
September 30, 1996 for Genzyme and the General
Division, giving effect to the Acquisitions.
Filed herewith.
99.2 Historical unaudited financial statements
(and related notes) of Neozyme II Corporation
including statements of operations for the nine
months ended September 30, 1995 and 1996 and
cumulative from March 2, 1992 (date of
inception) to September 30, 1996; balance
sheets as of September 30, 1996 and December
31, 1995; and statements of cash flows for the
nine months ended September 30, 1996 and 1995
and cumulative from March 2, 1992 (date of
inception) to September 30, 1996. 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: February 4, 1996 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 balance sheets as of September 30, 7
1996 and statements of operations (and related notes)
for the year ended December 31, 1995 and for the
nine-months ended September 30, 1996 for Genzyme and
the General Division, giving effect to the Acquisitions.
Filed herewith.
99.2 Historical unaudited financial statements (and related 22
notes) of Neozyme II Corporation including statements
of operations for the three and nine months ended
September 30, 1995 and 1996 and cumulative from
March 2, 1992 (date of inception) to September 30,
1996; balance sheets as of September 30, 1996 and
December 31, 1995; and statements of cash flows for the
nine months ended September 30, 1996 and cumulative from
March 2, 1992 (date of inception) to September 30, 1996.
Filed herewith.
<PAGE> 5
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
EXHIBIT 99.1
- ------------
PRO FORMA FINANCIAL STATEMENTS:
Introduction to Unaudited Pro Forma Financial Statements ......................... F-2
GENZYME CORPORATION:
Pro Forma Consolidated Balance Sheets as of September 30, 1996.................. F-3
Pro Forma Consolidated Statements of Operations for the Nine Months
Ended September 30, 1996..................................................... F-4
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1995............................................................ F-6
GENZYME GENERAL DIVISION:
Pro Forma Combined Balance Sheets as of September 30, 1996...................... F-8
Pro Forma Combined Statements of Operations for the Nine Months Ended
September 30, 1996........................................................... F-9
Pro Forma Combined Statements of Operations for the Year Ended
December 31, 1995............................................................ F-11
Notes to Unaudited Pro Forma Financial Statements................................ F-13
EXHIBIT 99.2
- ------------
NEOZYME II UNAUDITED FINANCIAL STATEMENTS:
Statements of Operations for the Three and Nine Months Ended
September 30, 1995 and 1996 and Cumulative from March 2, 1992 (date of
inception) through September 30, 1996........................................ F-18
Balance Sheets as of December 31, 1995 and September 30, 1996 .................. F-19
Statements of Cash Flows for the Nine Months Ended September 30, 1995
and 1996 and Cumulative from March 2, 1992 (date of inception) through
September 30, 1996........................................................... F-20
Notes to Unaudited Condensed Financial Statements............................... F-21
</TABLE>
F-1
<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, 1995, using the purchase accounting method. Pro forma balance
sheets have been presented for both Genzyme and the General Division assuming
that the Neozyme II Acquisition occurred as of September 30, 1996. The
historical Genzyme and General Division balances included in the pro forma
balance sheets reflect the effect of the Genetrix Acquisition, which was
completed on May 1, 1996, and the DSP Acquisition, which was completed on July
1, 1996. 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.
Year-end for Genzyme, Genetrix and Neozyme II is December 31,
while year-end for DSP prior to the acquisition by Genzyme was September 30.
The pro forma financial statements for the year ended December 31, 1995
included herein are based on the historical income statements of Genzyme,
Genetrix and Neozyme II for the year ended December 31, 1995 and the
historical income statement for DSP for the year ended September 30, 1995.
Revenues and operating costs and expenses for DSP for the three months ended
December 31, 1995 were $22.0 million and $18.3 million, respectively.
F-2
<PAGE> 2
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1996
(AMOUNTS IN THOUSANDS)
ASSETS
PRO
HISTORICAL PRO FOOT- FORMA
GENZYME HISTORICAL FORMA NOTE GENZYME
CORP. NEOZYME II ADJS. REF. CORP.
---------- ---------- --------- ------ --------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............. $ 141,522 $ 2,815 $(108,206) (C) $ 36,131
Short-term investments.... 82,941 5,069 -- 88,010
Accounts receivable, less
allowance for doubtful
accounts................ 116,072 -- -- 116,072
Inventories............... 112,664 -- -- 112,664
Prepaid expenses and other
current assets.......... 17,028 604 (635) (A) 16,997
Deferred tax
assets -- current....... 7,729 -- -- 7,729
---------- -------- --------- ----------
Total current assets.... 477,956 8,488 (108,841) 377,603
Property, plant and
equipment, net.......... 384,088 -- -- 384,088
Other Assets:
Long-term investments..... 48,396 -- -- 48,396
Intangibles, net of
accumulated
amortization............ 261,426 -- -- 261,426
Deferred tax
assets -- noncurrent.... 26,370 -- 20,548 (C) 46,918
Other noncurrent assets... 31,001(C) -- (619) (A,C) 30,382
---------- -------- --------- ----------
Total other assets........ 367,193 -- 19,929 387,122
---------- -------- --------- ----------
Total assets............ $1,229,237 $ 8,488 $ (88,912) $1,148,813
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......... $ 22,159 $ -- $ -- $ 22,159
Accrued expenses.......... 81,380 281 2,108 (A,C) 83,769
Income taxes payable...... 13,621 -- -- 13,621
Deferred revenue.......... 3,203 -- (598) (A) 2,605
Short-term borrowings..... 15,000 -- -- 15,000
Current portion of
long-term debt and
capital lease
obligations............. 817 -- -- 817
---------- -------- --------- ----------
Total current
liabilities........... 136,180 281 1,510 137,971
Noncurrent liabilities:
Long-term debt and capital
lease obligations....... 224,256 -- -- 224,256
Note payable to Genzyme... -- 100 (100) (A) --
Other noncurrent
liabilities............. 923 -- -- 923
---------- -------- --------- ----------
225,179 100 (100) 225,179
Stockholders' Equity:
General Division Stock,
$.01 par value.......... 350 -- -- 350
TR Stock, $.01 par
value................... 126 -- -- 126
Treasury Stock, at cost... (881) -- -- (881)
Neozyme II callable common
stock................... -- 2,415 (2,415) (B) --
Additional paid-in
capital................. 886,476 75,620 (75,620) (B) --
-- -- 469 (C) 886,945
Accumulated earnings
(deficit)............... (12,922) (69,908) 69,908 (B)
(103,212) (C)
20,548 (C) (95,586)
Other equity
adjustments............. (5,271) (20) -- (5,291)
---------- -------- --------- ----------
Total stockholders'
equity................ 867,878 8,107 (90,322) 785,663
---------- -------- --------- ----------
Total liabilities and
stockholders' equity.... $1,229,237 $ 8,488 $ (88,912) $1,148,813
========== ======== ========= ==========
</TABLE>
See notes to unaudited pro forma financial statements.
F-3
<PAGE> 3
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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............................ $ 372,015 $7,239 $ -- $379,254 $ 54,138 $ --
Operating costs and expenses:
Cost of products sold................. 110,399 -- -- 110,399 26,138 --
Cost of services sold................. 40,593 5,631 -- 46,224 -- --
Selling, general and administrative
expenses............................ 118,575 1,634 -- 120,209 18,189 --
Research and development expenses..... 57,493 -- -- 57,493 1,365 --
Amortization of intangibles........... 5,657 187 770 [D] 6,614 3,532 (646) [H]
Charge for junior stock options....... -- -- -- -- 12,090 (12,090) [J]
Charge for in-process technology...... 24,170 [4] -- -- 24,170 -- --
Other expenses........................ 1,465 -- 1,465 546 --
-------- ------ ----- -------- -------- -------
Total operating costs and expenses...... 358,352 7,452 770 366,574 61,860 (12,736)
-------- ------ ----- -------- -------- -------
Operating income (loss)................. 13,663 (213) (770) 12,680 (7,722) 12,736
Other income and (expenses):
Investment income..................... 12,740 -- -- 12,740 -- --
Interest expense...................... (3,582) [I] (115) 59 [E] (3,638) (3,039) (3,121) [I]
Other................................. 123 (43) -- 80 (894) --
-------- ------ ----- -------- -------- -------
9,281 (158) 59 9,182 (3,933) (3,121)
-------- ------ ----- -------- -------- -------
Income (loss) before income taxes....... 22,944 (371) (711) 21,862 (11,655) 9,615
(Provision) benefit for income taxes.... (18,708) -- 133 [F] (18,575) 96 1,326 [K]
-------- ------ ----- -------- -------- -------
Net income (loss)....................... $ 4,236 $ (371) $(578) $ 3,287 $(11,559) $10,941
======== ====== ===== ======== ======== =======
Attributable to the General Division:
Net income............................ $ 21,635 $ 20,686
Tax benefit allocated from Tissue
Repair Division................... 11,775 11,775
-------- --------
Net income attributable to General
Division Stock........................ $ 33,410 $ 32,461
======== ========
</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............................ $433,392 $ -- $(16,545) [L] $416,847
Operating costs and expenses:
Cost of products sold................. 136,537 -- -- 136,537
Cost of services sold................. 46,224 -- -- 46,224
Selling, general and administrative
expenses............................ 138,398 393 (57) [L] 138,734
Research and development expenses..... 58,858 16,493 (16,493) [L] 58,858
Amortization of intangibles........... 9,500 -- -- 9,500
Charge for junior stock options....... -- -- -- --
Charge for in-process technology...... 24,170 -- -- 24,170
Other expenses........................ 2,011 -- -- 2,011
-------- -------- -------- --------
Total operating costs and expenses...... 415,698 16,886 (16,550) 416,034
-------- -------- -------- --------
Operating income (loss)................. 17,694 (16,886) 5 813
Other income and (expenses):
Investment income..................... 12,740 591 (4,063) [L,M] 9,268
Interest expense...................... (9,798) -- -- (9,798)
Other................................. (814) -- -- (814)
-------- -------- -------- --------
2,128 591 (4,063) (1,344)
-------- -------- -------- --------
Income (loss) before income taxes....... 19,822 (16,295) (4,058) (531)
(Provision) benefit for income taxes.... (17,153) -- 8,650 [N] (8,503)
-------- -------- -------- --------
Net income (loss)....................... $ 2,669 $(16,295) $ 4,592 $ (9,034)
======== ======== ======== ========
Attributable to the General Division:
Net income............................ $ 20,068 $ 8,365
Tax benefit allocated from Tissue
Repair Division................... 11,775 11,775
-------- --------
Net income attributable to General
Division Stock........................ $ 31,843 $ 20,140
======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-4
<PAGE> 4
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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>
Income per General Division common
and common equivalent share.............. $ 0.46 $ 0.44
======== ========
Pro forma weighted average shares
outstanding.............................. 73,024 613 [G] 73,637
======== === ========
Income per General Division common and
common equivalent share assuming full
dilution................................. $ 0.45 $ 0.43
======== ========
Pro forma fully diluted weighted average
shares outstanding....................... 74,146 613 [G} 74,759
======== === ========
Attributable to the Tissue Repair Division:
Net loss................................. $(29,174) $(29,174)
======== ========
Loss per Tissue Repair Division common
share.................................. $ (2.33) $ (2.33)
======== ========
Historical weighted average shares
outstanding............................ 12,511 12,511
======== ========
</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>
Income per General Division common
and common equivalent share.............. $ 0.43 $ 0.27
======== ========
Pro forma weighted average shares
outstanding.............................. 73,637 73,637
======== ========
Income per General Division common and
common equivalent share assuming full
dilution................................. $ 0.43 $ 0.27
======== ========
Pro forma fully diluted weighted average
shares outstanding....................... 74,759 74,759
======== ========
Attributable to the Tissue Repair Division:
Net loss................................. $(29,174) $(29,174)
======== ========
Loss per Tissue Repair Division common
share.................................. $ (2.33) $ (2.33)
======== ========
Historical weighted average shares
outstanding............................ 12,511 12,511
======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-5
<PAGE> 5
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(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>
Net revenues.......................... $383,783 $ 22,006 $ -- $405,789 $ 95,259 $ --
Operating costs and expenses:
Cost of products sold............... 113,964 -- -- 113,964 48,191 5,668 (J)
Cost of services sold............... 35,868 11,328 -- 47,196 -- --
Selling, general and administrative
expenses.......................... 110,417 10,289 -- 120,706 28,984 --
Research and development expenses... 68,845 -- -- 68,845 1,971 --
Amortization of intangibles......... 4,677 534 2,310 (D) 7,521 2,750 3,021 (H)
Charge for in-process technology.... 14,216 -- -- 14,216 -- --
Other expenses...................... -- -- -- -- 3,585 --
-------- -------- ------- -------- -------- --------
Total operating costs and expenses.... 347,987 22,151 2,310 372,448 85,481 8,689
-------- -------- ------- -------- -------- --------
Operating income (loss)............... 35,796 (145) (2,310) 33,341 9,778 (8,689)
Other income and (expenses):
Investment income................... 8,814 25 -- 8,839 -- --
Interest expense.................... (1,109) (260) 178 (E) (1,191) (6,937) (5,383) (I)
Other............................... (202) -- -- (202) (1,354) --
-------- -------- ------- -------- -------- --------
7,503 (235) 178 7,446 (8,291) (5,383)
-------- -------- ------- -------- -------- --------
Income (loss) before income taxes..... 43,299 (380) (2,132) 40,787 1,487 (14,072)
(Provision) benefit for income taxes.. (21,649) -- 86 (F) (21,563) (172) 2,288 (K)
-------- -------- ------- -------- -------- --------
Net income (loss)..................... $ 21,650 $ (380) $(2,046) $ 19,224 $ 1,315 $(11,784)
======== ======== ======= ======== ======== ========
Attributable to the General Division:
Net income.......................... $ 34,823 $ 32,397
Tax benefit allocated from Tissue
Repair Division................. 8,857 8,857
-------- --------
Net income attributable to General
Division Stock...................... $ 43,680 $ 41,254
======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME PRO
CORP. PRO FOOT- FORMA
GENETRIX, HISTORICAL FORMA NOTE GENZYME
& DSP NEOZYME II ADJS. REF. CORP.
-------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $501,048 $ -- $(24,198) [L] $476,850
Operating costs and expenses:
Cost of products sold............... 167,823 -- -- 167,823
Cost of services sold............... 47,196 -- -- 47,196
Selling, general and administrative
expenses.......................... 149,690 327 (77) [L] 149,940
Research and development expenses... 70,816 24,128 (24,128) [L] 70,816
Amortization of intangibles......... 13,292 -- -- 13,292
Charge for in-process technology.... 14,216 -- -- 14,216
Other expenses...................... 3,585 -- -- 3,585
-------- -------- -------- --------
Total operating costs and expenses.... 466,618 24,455 (24,205) 466,868
-------- -------- -------- --------
Operating income...................... 34,430 (24,455) 7 9,982
Other income and (expenses):
Investment income................... 8,839 1,497 (5,417) [L,M] 4,919
Interest expense.................... (13,511) -- -- (13,511)
Other............................... (1,556) -- -- (1,556)
-------- -------- -------- --------
(6,228) 1,497 (5,417) (10,148)
-------- -------- -------- --------
Income (loss) before income taxes..... 28,202 (22,958) (5,410) (166)
(Provision) benefit for income taxes.. (19,447) -- 12,056 [N] (7,391)
-------- -------- -------- --------
Net income (loss)..................... $ 8,755 $(22,958) $ 6,646 $ (7,557)
======== ======== ======== ========
Attributable to the General Division:
Net income.......................... $ 21,928 $ 5,616
Tax benefit allocated from Tissue
Repair Division................. 8,857 8,857
-------- --------
Net income attributable to General
Division Stock...................... $ 30,785 $ 14,473
======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-6
<PAGE> 6
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS --
(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(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>
Income per General Division common
and common equivalent share.............. $ 0.73 $ 0.67
-------- --------
Pro forma weighted average shares
outstanding.............................. 60,185 1,380 [G] 61,565
======== ===== ========
Income per General Division common and
common equivalent share assuming full
dilution................................. $ 0.66 $ 0.61
======== ========
Pro forma fully diluted weighted average
shares outstanding....................... 66,621 1,380 [G] 68,001
======== ===== ========
Attributable to the Tissue Repair Division:
Net loss................................. $(22,030) $(22,030)
======== ========
Loss per Tissue Repair Division common
share.................................. $ (2.28) $ (2.28)
======== ========
Historical weighted average shares
outstanding............................ 9,659 9,659
======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME PRO
CORP. PRO FOOT- FORMA
GENETRIX HISTORICAL FORMA NOTE GENZYME
& DSP NEOZYME II ADJS. REF. CORP.
-------- ---------- ------ ----- --------
<S> <C> <C> <C> <C> <C>
Income per General Division common
and common equivalent share.............. $ 0.50 $ 0.24
-------- --------
Pro forma weighted average shares
outstanding.............................. 61,565 61,565
======== ========
Income per General Division common and
common equivalent share assuming full
dilution................................. $ 0.45 $ 0.21
======== ========
Pro forma fully diluted weighted average
shares outstanding....................... 68,001 68,001
======== ========
Attributable to the Tissue Repair Division:
Net loss................................. $(22,030) $(22,030)
======== ========
Loss per Tissue Repair Division common
share.................................. $ (2.28) $ (2.28)
======== ========
Historical weighted average shares
outstanding............................ 9,659 9,659
======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-7
<PAGE> 7
GENZYME GENERAL DIVISION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
PRO
HISTORICAL FORMA
GENZYME PRO FOOT- GENZYME
GENERAL HISTORICAL FORMA NOTE GENERAL
DIVISION NEOZYME II ADJS. REF. DIVISION
---------- ---------- --------- ----- ----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents.......... $ 116,881 $ 2,815 $(108,206) [Q] $ 11,490
Short-term
investments.......... 80,910 5,069 85,979
Accounts receivable,
less allowance for
doubtful accounts.... 114,263 -- -- 114,263
Inventories............. 110,975 -- -- 110,975
Prepaid expenses and
other current
assets............... 16,683 604 (635) [O] 16,652
Due from Tissue Repair
Division............. 3,569 -- -- 3,569
Deferred tax
assets -- current.... 7,729 -- -- 7,729
---------- ------- --------- ----------
Total current
assets........ 451,010 8,488 (108,841) 350,657
Property, plant &
equipment, net.......... 362,792 -- -- 362,792
Other Assets:
Long-term investments... 48,396 -- -- 48,396
Intangibles, net of
accumulated
amortization......... 261,426 -- -- 261,426
Deferred tax
assets -- noncurrent... 26,370 -- 20,548 [Q] 46,918
Other noncurrent
assets............... 30,877 (Q) -- (619) [O,Q] 30,258
---------- ------- --------- ----------
Total other
assets........ 367,069 -- 19,929 386,998
---------- ------- --------- ----------
Total assets.... $1,180,871 $ 8,488 $ (88,912) $1,100,447
========== ======= ========= ==========
<CAPTION>
LIABILITIES AND DIVISION EQUITY
Current Liabilities:
Accounts payable........ $ 20,852 -- -- $ 20,852
Accrued expenses........ 79,038 281 2,108 [O,Q] 81,427
Income taxes payable.... 13,621 -- 13,621
Deferred revenue........ 3,203 -- (598) [O] 2,605
Current portion of
long-term debt and
capital lease
obligations.......... 817 -- -- 817
---------- -------- --------- ----------
Total current
liabilities... 117,531 281 1,510 119,322
Noncurrent Liabilities:
Long-term debt and
capital lease
obligations.......... 224,256 -- -- 224,256
Note Payable to
Genzyme.............. -- 100 (100) [O] --
Other noncurrent
liabilities............. 208 -- -- 208
---------- -------- --------- ----------
224,464 100 (100) 224,464
Division Equity:
Division equity......... 838,876 (20) (103,212) [Q]
-- -- 20,548 [Q]
-- 469 [Q] 756,661
Neozyme II, callable
common stock......... -- 2,415 (2,415) [P] --
Additional paid-in
capital.............. --
75,620 (75,620) [P] --
Accumulated deficit..... -- (69,908) 69,908 [P] --
---------- -------- --------- ----------
Total division
equity........ 838,876 8,107 (90,322) 756,661
---------- -------- --------- ----------
Total liabilities and
division equity......... $1,180,871 $ 8,488 $ (88,912) $1,100,447
========== ======== ========= ==========
</TABLE>
See notes to unaudited pro forma financial statements.
F-8
<PAGE> 8
GENZYME GENERAL DIVISION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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.......................... $366,793 $7,239 $ -- $374,032 $54,138 $ --
Operating costs and expenses:
Cost of products sold............... 110,399 -- -- 110,399 26,138 --
Cost of services sold............... 32,195 5,631 -- 37,826 -- --
Selling, general and administrative
expenses.......................... 98,961 1,634 -- 100,595 18,189 --
Research and development expenses... 49,854 -- -- 49,854 1,365 --
Amortization of intangibles......... 5,657 187 770 [R] 6,614 3,532 (646) [V]
Charge for junior stock options..... -- -- -- -- 12,090 (12,090) [X]
Charge for in-process technology.... 24,170 [4] -- -- 24,170 -- --
Other expenses...................... 1,465 -- -- 1,465 546 --
-------- ------ ----- -------- -------- --------
Total operating costs and expenses.... 322,701 7,452 770 330,923 61,860 (12,736)
-------- ------ ----- -------- -------- --------
Operating income (loss)............... 44,092 (213) (770) 43,109 (7,722) 12,736
Other income and (expenses):
Investment income................... 11,485 -- -- 11,485 -- --
Interest expense.................... (3,582) (115) 59 [S] (3,638) (3,039) (3,121) [W]
Other............................... 123 (43) -- 80 (894) --
-------- ------ ----- -------- -------- --------
8,026 (158) 59 7,927 (3,933) (3,121)
-------- ------ ----- -------- -------- --------
Income (loss) before income taxes..... 52,118 (371) (711) 51,036 (11,655) 9,615
(Provision) benefit for income taxes.. (30,483) -- 133 [T] (30,350) 96 1,326 [Y]
-------- ------ ----- -------- -------- --------
Net income (loss)..................... 21,635 (371) (578) 20,686 (11,559) 10,941
Tax benefit allocated from Tissue
Repair Division..................... 11,775 -- -- 11,775 -- --
-------- ------ ----- -------- -------- --------
Net income attributable to General
Division Stock...................... $ 33,410 $ (371) $(578) $ 32,461 $(11,559) $ 10,941
======== ====== ===== ======== ======== ========
</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.......................... $428,170 $ -- $(16,545) [Z] $411,625
Operating costs and expenses:
Cost of products sold............... 136,537 -- -- 136,537
Cost of services sold............... 37,826 -- -- 37,826
Selling, general and administrative
expenses.......................... 118,784 393 (57) [Z] 119,120
Research and development expenses... 51,219 16,493 (16,493) [Z] 51,219
Amortization of intangibles......... 9,500 -- -- 9,500
Charge for junior stock options..... -- -- -- --
Charge for in-process technology ... 24,170 -- -- 24,170
Other expenses...................... 2,011 -- -- 2,011
-------- -------- -------- --------
Total operating costs and expenses.... 380,047 16,886 (16,550) 380,383
-------- -------- -------- --------
Operating income (loss)............... 48,123 (16,886) 5 31,242
Other income and (expenses):
Investment income................... 11,485 591 (4,063) [Z,AB] 8,013
Interest expense.................... (9,798) -- -- (9,798)
Other............................... (814) -- -- (814)
-------- -------- -------- --------
873 591 (4,063) (2,599)
-------- -------- -------- --------
Income (loss) before income taxes..... 48,996 (16,295) (4,058) 28,643
(Provision) benefit for income taxes.. (28,928) -- 8,650 [AA] (20,278)
-------- -------- -------- --------
Net income (loss)..................... 20,068 (16,295) 4,592 8,365
Tax benefit allocated from Tissue
Repair Division..................... 11,775 -- -- 11,775
-------- -------- -------- --------
Net income attributable to General
Division Stock...................... $ 31,843 $(16,295) $ 4,592 $ 20,140
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-9
<PAGE> 9
GENZYME GENERAL DIVISION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS --
(CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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>
Income per General Division
common and common equivalent share.... $ 0.46 $ 0.44
======= =======
Pro forma weighted average shares
outstanding........................... 73,024 613 [U] 73,637
======= === =======
Income per General Division common and
common equivalent share assuming full
dilution.............................. $ 0.45 $ 0.43
======= =======
Pro forma fully diluted weighted average
shares outstanding.................... 74,146 613 [U] 74,759
======= === =======
</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>
Income per General Division
common and common equivalent share.... $ 0.43 $ 0.27
======= =======
Pro forma weighted average shares
outstanding........................... 73,637 73,637
======= =======
Income per General Division common and
common equivalent share assuming full
dilution.............................. $ 0.43 $ 0.27
======= =======
Pro forma fully diluted weighted average
shares outstanding.................... 74,759 74,759
======= =======
</TABLE>
See notes to unaudited pro forma financial statements.
F-10
<PAGE> 10
GENZYME GENERAL DIVISION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(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>
Net revenues.......................... $378,563 $22,006 $ -- $400,569 $95,259 $ --
Operating costs and expenses:
Cost of products sold............... 113,964 -- -- 113,964 48,191 5,668 [X]
Cost of services sold............... 31,137 11,328 -- 42,465 -- --
Selling, general and administrative
expenses.......................... 97,490 10,289 -- 107,779 28,984 --
Research and development expenses... 57,907 -- -- 57,907 1,971 --
Amortization of intangibles......... 4,677 534 2,310 [R] 7,521 2,750 3,021 [V]
Change for in-process technology.... 14,216 -- -- 14,216 -- --
Other expenses...................... -- -- -- -- 3,585 --
-------- ------- ------- -------- ------- --------
Total operating costs and expenses.... 319,391 22,151 2,310 343,852 85,481 8,689
-------- ------- ------- -------- ------- --------
Operating income (loss)............... 59,172 (145) (2,310) 56,717 9,778 (8,689)
Other income and (expenses):
Investment income................... 7,428 25 -- 7,453 -- --
Interest expense.................... (1,069) (260) 178 [S] (1,151) (6,937) (5,383) [W]
Other............................... (202) -- -- (202) (1,354) --
-------- ------- ------- -------- ------- --------
6,157 (235) 178 6,100 (8,291) (5,383)
-------- ------- ------- -------- ------- --------
Income (loss) before income taxes..... 65,329 (380) (2,132) 62,817 1,487 (14,072)
(Provision) benefit for income taxes.. (30,506) -- 86 [T] (30,420) (172) 2,288 [Y]
-------- ------- ------- -------- ------- --------
Net income............................ 34,823 $ (380) $(2,046) 32,397 $ 1,315 $(11,784)
======= ======= ======= ========
Tax benefit allocated from Tissue
Repair Division..................... 8,857 8,857
-------- --------
Net income attributable to General
Division Stock...................... $ 43,680 $ 41,254
======== ========
</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.......................... $495,828 $ -- $(24,198) [Z] $471,630
Operating costs and expenses:
Cost of products sold............... 167,823 -- -- 167,823
Cost of services sold............... 42,465 -- -- 42,465
Selling, general and administrative
expenses.......................... 136,763 327 (77) [Z] 137,013
Research and development expenses... 59,878 24,128 (24,128) [Z] 59,878
Amortization of intangibles......... 13,292 -- -- 13,292
Change for in-process technology.... 14,216 -- -- 14,216
Other expenses...................... 3,585 -- -- 3,585
-------- -------- -------- --------
Total operating costs and expenses.... 438,022 24,455 (24,205) 438,272
-------- -------- -------- --------
Operating income...................... 57,806 (24,455) 7 33,358
Other income and (expenses):
Investment income................... 7,453 1,497 (5,417) [Z,AB] 3,533
Interest expense.................... (13,471) -- -- (13,471)
Other............................... (1,556) -- -- (1,556)
-------- -------- -------- --------
(7,574) 1,497 (5,417) (11,494)
-------- -------- -------- --------
Income (loss) before income taxes..... 50,232 (22,958) (5,410) 21,864
(Provision) benefit for income taxes.. (28,304) -- 12,056 [AA] (16,248)
-------- -------- -------- --------
Net income............................ 21,928 $(22,958) $ 6,646 5,616
======== ========
Tax benefit allocated from Tissue
Repair Division..................... 8,857 8,857
-------- --------
Net income attributable to General
Division Stock...................... $ 30,785 $ 14,473
======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-11
<PAGE> 11
GENZYME GENERAL DIVISION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(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>
Income per General Division
common and common equivalent share.... $ 0.73 $ 0.67
======= =======
Pro forma weighted average shares
outstanding........................... 60,185 1,380 [U] 61,565
======= ===== =======
Income per General Division common and
common equivalent share assuming full
dilution.............................. $ 0.66 $ 0.61
======= =======
Pro forma fully diluted weighted average
shares outstanding.................... 66,621 1,380 [U] 68,001
======= ===== =======
</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>
Income per General Division
common and common equivalent share.... $ 0.50 $ 0.24
======= =======
Pro forma weighted average shares
outstanding........................... 61,565 61,565
======= =======
Income per General Division common and
common equivalent share assuming full
dilution.............................. $ 0.45 $ 0.21
======= =======
Pro forma fully diluted weighted average
shares outstanding.................... 68,001 68,001
======= =======
</TABLE>
See notes to unaudited pro forma financial statements.
F-12
<PAGE> 12
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 $43.5 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 $3.8 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 37,022
Deferred income taxes 2,725
Other assets 237
Current liabilites (4,701)
Long-term liabilities (546)
-------
$43,491
=======
</TABLE>
The purchase price was allocated to the assets and liabilities of Genetrix
based on their estimated respective fair values.
The historical balance sheets for Genzyme and the General Division as
of September 30, 1996 reflect the acquisition of Genetrix which was completed
on May 1, 1996. The pro forma statements of operations for the period ended
September 30, 1996 include pro forma amounts for Genetrix for the four month
period ended April 30, 1996 and actual results thereafter. The pro forma
statements of operations for the year ended December 31, 1995 include pro forma
amounts for Genetrix for the twelve month period then ended.
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 $251.0 million and consisted of cash of $245
million and acquisition costs of $6.0 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.......................................... $ 47,421
Property and Equipment.................................. 17,475
Patents................................................. 15,319
Trade Names............................................. 45,878
In-process technology................................... 24,170
Goodwill................................................ 133,916
Current Liabilities..................................... (25,126)
Deferred income taxes................................... (8,103)
--------
$250,950
========
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 historical balance sheets for Genzyme and the General Division as of
September 30, 1996 reflect the acquisition of DSP, which was completed on July
1, 1996. The pro forma statements of operations for the year ended December 31,
1995 include pro forma amounts for DSP the twelve-month period ended September
30, 1995 and the pro forma statements of operations for the nine months ended
September 30, 1996 include pro forma amounts for DSP for the six month period
ended June 30, 1996 and actual results thereafter.
The pro forma adjustments to the pro forma statements of operations for
the year ended December 31, 1995 do not give effect to 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 and is
reflected in the historical results for Genzyme and the General Division for
the nine months ended September 30, 1996.
F-13
<PAGE> 13
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 $ 2,815
Short-term investments 5,089
Prepaid research and development 604
Assumed liabilities (281)
Note payable to Genzyme (100)
In-process technology 103,212
--------
$111,339
========
</TABLE>
The excess purchase price of $103.2 million was allocated to Neozyme II's
only remaining assets which were technologies that were still in the development
stage and had no alternative future use.
The pro forma adjustments to the pro forma statements of operations do not
give effect to the charge for in-process technology of $103.2 million and
related deferred tax benefit of $20.5 million which were recorded upon
consummation of the acquisition. Adjustments to the pro forma balance sheets
which give effect to the Neozyme II Acquisition reflect the repayment on October
3, 1996 of $80 million of the $200 million borrowed under a revolving credit
facility with Fleet National Bank to finance the DSP Acquisition and the
subsequent withdrawal on October 31, 1996 of $80 million under the same credit
facility to finance the tender offer.
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.
I. PRO FORMA ADJUSTMENTS TO GENZYME'S CONSOLIDATED BALANCE SHEETS:
F-14
<PAGE> 14
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
Related to the Neozyme II Acquisition:
A. Eliminate Series 1992 note payable issued by Neozyme II to Genzyme
of $100,000 and related accrued interest of $31,000, prepaid
research and development costs paid by Neozyme II to Genzyme of
$598,000 and service fee owed to Genzyme of $5,800.
B. Eliminate Callable Common Stock of $2.4 million, additional
paid-in capital of $75.6 million and accumulated deficit of $69.9
million.
C. Record the repayment on October 3, 1996 of $80 million of the $200
million borrowed under a revolving credit facility with Fleet
National Bank to finance the DSP Acquisition and the subsequent
withdrawal on October 31, 1996 of $80 million under the same credit
facility with interest payable at LIBOR plus 5/8% to finance the
tender offer. The acquisition of Neozyme II has been recorded as a
purchase of in-process technology of $103.2 million (aggregate
purchase price of $108.7 million plus estimated acquisition costs
of $2.6 million, less the fair value of the net assets acquired of
$8.1 million) and a related deferred tax benefit of $20.5 million.
The historical Genzyme Other Non Current Assets balance as of
September 30, 1996 includes $519,000 of the $2.6 million estimated
acquisition costs. The aggregate purchase price consists of cash of
$28.2 million, $80 million of short-term borrowings, and $0.5
million in equity for the value of the Callable Warrants.
II. PRO FORMA ADJUSTMENTS TO GENZYME'S CONSOLIDATED STATEMENTS OF
OPERATIONS:
Related to the Genetrix Acquisition:
D. Record amortization expense based on $35.0 million of goodwill
being amortized over 15 years, of $770,000 for the four months
ended April 30, 1996 and $2.3 million for the year ended December
31, 1995.
E. Eliminate interest expense related to debt of Genetrix assumed by
Genzyme and subsequently repaid.
F. Record incremental income tax (provision) benefit.
G. To adjust the historical General Division primary and fully diluted
weighted average shares to reflect the issuance of the 1,380,000
shares of General Division Stock used to effect the Genetrix
acquisition as if the stock had been issued on January 1, 1995. The
historical General Division primary and fully diluted weighted
average shares for the nine months ended September 30, 1996 include
the 1,380,000 shares as of May 1, 1996, the date of completion of
the Genetrix acquisition. For the nine months ended September 30,
1996, a pro forma adjustment of 613,000 shares (1,380,000 shares x
4/9 months), respectively, is required to account for the shares
during the four months ended April 30, 1996. The historical General
Division primary or fully diluted weighted average shares for the
year ended December 31, 1995 do not reflect the issuance of shares
of General Division Stock used to effect the Genetrix acquisition
and, therefore, a pro forma adjustment of 1,380,000 shares is
required.
Related to the DSP Acquisition:
H. 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 $0.6 million
to amortization expense for the nine months ended September 30,
1996 and a charge of $3.0 million for the year ended December 31,
1995.
I. Reverse interest expense of DSP long-term debt, which was assumed
and repaid, in the amounts of $3.0 million and $6.9 million for the
nine months ended September 30, 1996 and the year ended December
31, 1995, respectively, and record interest expense related to the
$200 million borrowed under a revolving credit line with Fleet
National Bank
F-15
<PAGE> 15
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 $9.2 million for the nine months ended
September 30, 1996 and $12.3 million for the year ended
December 31, 1995. Historical Genzyme interest expense for the
nine months ended September 30, 1996 includes $3.1 million of the
actual interest expense incurred in the three months ended
September 30, 1996 related to the $200 million borrowing.
J. To record the cost of sales associated with the step-up of
inventory to fair value under purchase accounting for the year
ended December 31, 1995 of $5.7 million and the reversal of a $12.1
million pre-acquisition charge for junior stock options recorded in
the nine months ended September 30, 1996.
K. Record incremental income tax (provision) benefit.
Related to the Neozyme II Acquisition:
L. Eliminate intercompany research and development revenue
(Genzyme)/expense (Neozyme II) of $16.5 million for the nine months
ended September 30, 1996 and $24.2 million for the year ended
December 31, 1995; intercompany service fees of $52,000 for the
nine months ended September 30, 1996 and $70,000 for the year ended
December 31, 1995; and intercompany interest income/expense related
to Series 1992 note payable of $5,200 for the nine months ended
September 30, 1996 and $7,000 for the year ended December 31, 1995.
M. 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 C) 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.
N. Record incremental income tax (provision) benefit.
III. PRO FORMA ADJUSTMENTS TO THE GENERAL DIVISION'S COMBINED BALANCE SHEETS:
Related to the Neozyme II Acquisition:
O. Eliminate Series 1992 note payable to Genzyme issued by Neozyme II
of $100,000, and related accrued interest of $31,000, and prepaid
research development costs paid by Neozyme II to Genzyme of
$598,000 and service fees owed to Genzyme of $5,800.
P. Eliminate Callable Common Stock of $2.4 million additional paid-in
capital of $75.6 million and accumulated deficit of $69.9 million.
F-16
<PAGE> 16
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
Q. Record the re-payment on October 3, 1996 of $80 million of the $200
million borrowed under a revolving credit facility with Fleet
National Bank to finance the DSP Acquisition and the subsequent
withdrawal on October 31, 1996 of $80 million under the same credit
facility with interest payable at LIBOR plus 5/8% to finance the
tender offer. The acquisition of Neozyme II has been recorded as a
purchase of in-process technology of $103.2 million (the aggregate
purchase price of $108.7 million plus estimated acquisition costs
of $2.6 million, less the fair value of the net assets acquired of
$8.1 million) and a related deferred tax benefit of $20.5 million.
The historical General Division Other Noncurrent Assets balance as
of September 30, 1996 includes $519,000 of the $2.6 million
estimated acquisition costs. The aggregate purchase price consists
of cash of $28.2 million, $80 million of short-term borrowings,
and $0.5 million of equity for the value of the Callable Warrants.
IV. PRO FORMA ADJUSTMENTS TO THE GENERAL DIVISION'S COMBINED STATEMENTS OF
OPERATIONS:
Related to the Genetrix Acquisition:
R. Record amortization expense, based on $35.0 million of goodwill
being amortized over 15 years, of $770,000 for the four months
ended April 30, 1996 and $2.3 million for the year ended December
31, 1996.
S. Eliminate interest expense related to debt of Genetrix assumed by
Genzyme and subsequently repaid.
T. Record income tax (provision) benefit.
U. To adjust the historical General Division primary and fully diluted
weighted average shares to reflect the 1,380,000 shares of General
Division Stock used to effect the Genetrix acquisition as if issued
on January 1, 1995. The historical General Division primary and
fully diluted weighted average shares for the nine months ended
September 30, 1996 include the 1,380,000 shares as of May 1, 1996,
the date of completion of the Genetrix acquisition. For the nine
months ended September 30, 1996, a pro forma adjustment to General
Division primary and fully diluted weighted average shares for the
four months ended April 30, 1996 of 613,000 shares (1,380,000
shares x 4/9 months), respectively, is required. The historical
General Division primary or fully diluted weighted average shares
for the year ended December 31, do not reflect the issuance of
shares of General Division Stock used to effect the Genetrix
acquisition and, therefore, a pro forma adjustment to the General
Division primary and fully diluted weighted average shares of
1,380,000 is required.
Related to the DSP Acquisition:
V. 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 $0.6 million to
amortization expense for the nine months ended September 30, 1996
and a charge of $3.0 million for the year ended December 31, 1995.
W. Reverse interest expense of DSP long-term debt, which was assumed
and repaid, in the amounts of $3.0 million and $6.9 million for the
nine months ended September 30, 1996 and the year-ended December
31, 1995, respectively, 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 nine months ended
September 30, 1996 and for the year ended December 31, 1995
interest expense is $9.2 million and $12.3 million, respectively.
Historical General Division interest expense for the nine months
ended September 30, 1996 includes $3.1 million of the actual
interest expense incurred in the three months ended September 30,
1996 related to the $200 million borrowing.
X. To record the cost of sale associated with the step-up of
inventory to fair value under purchase accounting for the year
ended December 31, 1995 of $5.7 million and the reversal of a
$12.1 million pre-acquisition charge for junior stock options
recorded in the nine months ending September 30, 1996.
Y. Record incremental income tax (provision) benefit.
Related to the Neozyme II Acquisition:
Z. Eliminate intercompany research and development revenue
(Genzyme)/expense (Neozyme II) and service fees of $16.5 million
for the nine months ended September 30, 1996 and $24.2 million for
the year ended December 31, 1995; intercompany service fees of
$52,000 for the nine months ended September 30, 1996 and $70,000
for the year ended December 31, 1995; and intercompany interest
income/expense related to Series 1992 note payable of $5,200 for
the nine months ended September 30, 1996 and $7,000 for the year
ended December 31, 1995.
AA. Record incremental income tax (provision) benefit.
AB. 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-17
<PAGE> 1
EXHIBIT 99.2
------------
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED CUMULATIVE
SEPTEMBER 30, SEPTEMBER 30, FROM
------------------ ----------------- INCEPTION
1996 1995 1996 1995 (MARCH 2, 1992)
---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C>
Investment income ....................... $ 138 $ 321 $ 591 $ 1,141 $ 12,753
Costs and expenses:
Technology license fee ................ - - - - 5,000
Research and development .............. 5,897 5,549 16,493 17,201 76,072
General and administrative ............ 231 107 393 265 1,589
------- ------- -------- -------- --------
6,128 5,656 16,886 17,466 82,661
------- ------- -------- -------- --------
Net loss ................................ $(5,990) $(5,335) $(16,295) $(16,325) $(69,908)
======= ======= ======== ======== ========
Net loss per callable common share....... $ (2.48) $ (2.21) $ (6.75) $ (6.76) $ (30.09)
======= ======= ======== ======== ========
Weighted average callable
common shares outstanding............... 2,415 2,415 2,415 2,415 2,323
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited,
condensed financial statements.
F-18
<PAGE> 2
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................. $ 2,815 $ 5,546
Short-term investments ..................................... 5,069 21,501
Prepaid research and development to Genzyme Corporation..... 604 -
-------- --------
$ 8,488 $ 27,047
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to Genzyme Corporation ............................. 37 2,469
Accrued expenses ........................................... 244 92
-------- --------
Total current liabilities ............................... 281 2,561
Note payable to Genzyme Corporation ........................... 100 100
Stockholders' Equity:
Callable common Stock, $1.00 par value; authorized 9,000,000
shares, 2,415,000 shares issued and outstanding ........... 2,415 2,415
Additional paid-in capital ................................. 75,620 75,620
Deficit accumulated during the development stage ........... (69,908) (53,613)
Unrealized loss on investments ............................. (20) (36)
-------- --------
8,107 24,386
-------- --------
$ 8,488 $ 27,047
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited,
condensed financial statements.
F-19
<PAGE> 3
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, CUMULATIVE
----------------- FROM INCEPTION
1996 1995 (MARCH 2, 1992)
---- ---- -------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss ................................................ $(16,295) $(16,325) $ (69,908)
Reconciliation of net loss to net cash
used by operating activities:
(Gain)/loss on sale of investments ................... (25) 226 (1,919)
Accrued interest/amortization on investments ......... (242) 277 919
Prepaid research and development ..................... (604) (501) (604)
Payable to Genzyme Corporation ....................... (2,432) (729) 37
Accrued expenses ..................................... 152 (24) 244
-------- -------- ---------
Net cash used by operating activities ................... (19,446) (17,076) (71,231)
Cash flow from investing activities:
Purchases of short-term investments ..................... - - (31,216)
Purchase of long-term investment ........................ - - (109,521)
Sales and maturities of short-term investments .......... 16,715 25,683 63,959
Sales and maturities of long-term investments ........... - - 72,689
-------- -------- ---------
Net cash provided (used) by investing activities ........ 16,715 25,683 (4,089)
Cash flow from financing activities:
Issuance of note payable to Genzyme Corporation ......... - - 100
Issuance of callable common stock ....................... - - 78,035
-------- -------- ---------
Net cash provided by financing activities ............... - - 78,135
-------- -------- ---------
Increase in cash and cash equivalents ....................... (2,731) 8,607 2,815
Cash and cash equivalents at beginning of period ............ 5,546 135 -
-------- -------- ---------
Cash and cash equivalents at end of period .................. $ 2,815 $ 8,742 $ 2,815
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these unaudited,
condensed financial statements.
F-20
<PAGE> 4
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
SEPTEMBER 30, 1996
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION:
Prior to acquisition by Genzyme, Neozyme II was a development stage
enterprise engaged in the research, development and clinical testing of
biotherapeutic products for the treatment of cystic fibrosis.
These unaudited condensed financial statements should be read in
conjunction with Neozyme II's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 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.
The financial statements for the three and nine months ended
September 30, 1996 and 1995 are unaudited but include, in Neozyme II'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
Neozyme II's Annual Report on Form 10-K for the year ended December 31,
1995.
F-21
<PAGE> 5
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
SEPTEMBER 30, 1996
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
3. TERMINATION OF LICENSE AND DEVELOPMENT AGREEMENT WITH NABI:
Under agreement with Genzyme, Neozyme II funds Genzyme's obligations
to provide development funding to NABI in exchange for the exclusive
rights that Genzyme has acquired to market, on a worldwide basis,
HyperGAM+[TM]CF, for the treatment of Pseudomonas lung infections in
Cystic Fibrosis patients. In June 1996, Neozyme II and NABI announced the
halt of their Phase II clinical trial for HyperGAM+[TM]CF after receiving
the results of an interim analysis of the data by an independent
statistician which showed no evidence of a reduction in the number of
acute pulmonary exacerbations in trial participants. No major issues with
the safety of the product were identified. On June 21, 1996, after review
of the interim analysis data, the Board of Directors of Neozyme II voted
unanimously to terminate the License and Development Agreement with NABI.
In the third quarter of 1996, Genzyme charged Neozyme II for $900,000 of
costs billed by NABI in connection with the wind down of the
HyperGAM+[TM]CF program, which is the agreed maximum payable to NABI under
the terms of the Agreement.
4. TENDER OFFER AND SUBSEQUENT EVENT:
On October 28, 1996, Genzyme, through Neozyme II Acquisition Corp.,
completed its tender offer for the outstanding Units of Neozyme II for $45
per Unit in cash. A total of 2,385,686 of the 2,415,000 Units outstanding
or 98.8% 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 Genzyme General Division Common Stock ("General
Division Stock") and 0.135 share of Genzyme Tissue Repair Common Stock
("TR Stock").
The tender offer was made pursuant to an agreement entered into
between Neozyme II and Genzyme on September 23, 1996. The agreement
provided that Genzyme would acquire all of the shares of Callable Common
Stock not tendered in the tender offer through a merger of Neozyme II into
Acquisition Corp. The merger was consummated on December 6, 1996, at which
time holders of the Units who did not tender their Units received $29 in
cash for each share of Callable Common Stock and the Callable Warrants
included in the untendered Units became exercisable. 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
0.135 share of TR Stock for the twenty trading days prior to December 6,
1996.
F-22
