SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
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 14, 2000
GENZYME CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 0-14680 06-1047163
(State or other jurisdiction of (Commission file number) (IRS employer identification
incorporation or organization) number)
ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 252-7500
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As reported on our current report on Form 8-K dated December 14,
2000 (filed December 15, 2000), effective December 14, 2000, we completed the
acquisition of GelTex Pharmaceuticals, Inc. ("GelTex"). The acquisition was
structured as a merger of GelTex with and into one of our wholly-owned
subsidiaries pursuant to an Agreement and Plan of Merger, dated as of
September 11, 2000 among Genzyme Corporation ("Genzyme"), Titan Acquisition
Corp. and GelTex, as amended.
Pursuant to Item 7(a)(4) of Form 8-K, this Form 8-K/A amends the
current report on Form 8-K dated December 14, 2000 to include (1) the
financial statements of GelTex required by Item 7(a) of this Form 8-K and (2)
the pro forma financial information required by Item 7(b) of this Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The audited financial statements of GelTex Pharmaceuticals, Inc. as of
December 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999, including the report of independent
auditors, were previously reported in the Annual Report on Form 10-K
of GelTex (the "GelTex 10-K") for the fiscal year ended December 31,
1999 (filed on March 30, 2000), as amended on November 7, 2000, on
pages F-1 to F-20 of the GelTex 10-K and are incorporated herein by
reference. These audited financial statements as reported on pages F-1
to F-20 of the GelTex 10-K are also filed herewith as Exhibit 99.1.
The unaudited financial statements of GelTex as of and for the nine
months ended September 30, 2000 and 1999 were previously reported in
the Quarterly Report on Form 10-Q of GelTex (the "GelTex 10-Q) for
the quarter ended September 30, 2000 (filed on November 14, 2000) on
pages 3 to 9 of the GelTex 10-Q and are incorporated herein by
reference. These unaudited financial statements as reported on pages
3 to 9 of the GelTex 10-Q are also filed herewith as Exhibit 99.2.
(b) PRO FORMA Financial Information.
Genzyme hereby files the pro forma financial information beginning on
page 5 herein.
(c) Exhibits:
2 Agreement and Plan of Merger, dated as of September 11, 2000,
among Genzyme, Titan Acquisition Corp. and GelTex, as
amended. Previously filed as Exhibit 99.1 to Genzyme's
Current Report on Form 8-K dated September 11, 2000
(Commission File No. 000-14680) and incorporated herein by
reference.
23.1 Consent of Ernst & Young LLP. Filed herewith.
23.2 Consent of PricewaterhouseCoopers LLP. Filed herewith.
2
99.1 The audited financial statements of GelTex as of December 31,
1999 and 1998 and for each of the three years in the period
ended December 31, 1999, including the report of independent
auditors (as reported on pages F-1 to F-20 of the Annual
Report on Form 10-K of GelTex for the fiscal year ended
December 31, 1999 (filed on March 30, 2000), as amended on
November 7, 2000)). Filed herewith.
99.2 The unaudited financial statements of GelTex as of and for
the nine months ended September 30, 2000 and 1999 (as
reported on pages 3 to 9 of the Quarterly Report on Form 10-Q
of GelTex for the quarter ended September 30, 2000 (filed on
November 14, 2000)). Filed herewith.
3
SIGNATURE
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.
GENZYME CORPORATION
Dated: February 27, 2001 By: /s/ Michael S. Wyzga
---------------------------------------
Michael S. Wyzga, Senior Vice President
Finance, Chief Financial Officer,
Corporate Controller and
Chief Accounting Officer
4
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On December 14, 2000, Genzyme completed the acquisition of GelTex. The
acquisition was structured as a merger of GelTex with and into one of Genzyme's
wholly-owned subsidiaries pursuant to an Agreement and Plan of Merger, dated as
of September 11, 2000 among Genzyme, Titan Acquisition Corp. and GelTex, as
amended.
On December 18, 2000, Genzyme completed the acquisition of Biomatrix, Inc.
("Biomatrix"). The acquisition was structured as a merger of Biomatrix with and
into one of Genzyme's wholly-owned subsidiaries pursuant to an Agreement and
Plan of Merger, dated as of March 6, 2000 among Genzyme, Seagull Merger
Corporation and Biomatrix, as amended. Concurrent with the completion of
Genzyme's acquisition of Biomatrix, Genzyme amended its charter to create
Genzyme Biosurgery Division common stock ("Biosurgery Stock") and eliminate
Genzyme Surgical Products Division common stock ("Surgical Products Stock") and
Genzyme Tissue Repair Division common stock ("Tissue Repair Stock").
The following unaudited pro forma combined financial information describes
the pro forma effect of Genzyme's merger with GelTex and Genzyme's merger with
Biomatrix on the
- unaudited statements of operations for the nine months ended
September 30, 2000 and the year ended December 31, 1999 and
- unaudited balance sheet as of September 30, 2000
of both Genzyme and Genzyme General, the division of Genzyme to which the assets
and liabilities and operations of GelTex were allocated. In addition, the
Genzyme pro forma statement of operations for the year ended December 31, 1999
reflects the change in earnings allocations resulting from the June 1999
distribution of Surgical Products Stock as if it took place on January 1, 1999.
The purpose of this pro forma financial information is to demonstrate how the
combined financial statements of these businesses might have appeared if each of
the mergers had been completed at the beginning of the periods presented.
To determine earnings per share, Genzyme allocates its earnings to each
series of its common stock based on the earnings attributable to that series of
stock. The earnings attributable to each series of stock are defined in
Genzyme's charter as the net income or loss of the corresponding division
determined in accordance with generally accepted accounting principles and as
adjusted for tax benefits allocated to or from the division in accordance with
Genzyme's management and accounting policies. Genzyme's charter also requires
that all income and expenses of Genzyme be allocated among the divisions in a
reasonable and consistent manner. Genzyme's board of directors, however, retains
considerable discretion in determining the types, magnitudes and extent of
allocations to each series of common stock without shareholder approval.
Because the earnings allocated to Genzyme General Division common stock
("Genzyme General Stock") are based on the income or losses attributable to
Genzyme General, Genzyme included pro forma financial statements of Genzyme
General to aid investors in evaluating its performance.
Holders of Genzyme General Stock have no specific rights to the assets
allocated to Genzyme General. Genzyme Corporation continues to hold title to all
of the assets allocated to Genzyme General and is responsible for all of its
liabilities, regardless of what Genzyme deems for financial statement
presentation purposes as allocated to any division. Holders of Genzyme General
Stock, as common stockholders, are therefore subject to the risks of investing
in the businesses, assets and liabilities of Genzyme, as a whole.
Genzyme has prepared the pro forma financial information using the purchase
method of accounting for both mergers. For the combination of Genzyme Surgical
Products and Genzyme Tissue
5
Repair into Genzyme Biosurgery, no adjustments were made to the book values of
their net assets because these two divisions are controlled by Genzyme.
Genzyme expects to have reorganization and restructuring expenses as well as
potential operating efficiencies as a result of combining the companies. The
unaudited pro forma information does not reflect these potential expenses and
efficiencies.
MERGER WITH GELTEX
As a result of the merger with GelTex, each share of GelTex common stock was
converted into the right to receive either $47.50 in cash or 0.7272 of a share
of Genzyme General Stock. GelTex stockholders were entitled to submit an
election form on which they indicated their preferred form of merger
consideration prior to the closing of the merger. Because under the merger
agreement with GelTex not more than 50% of the outstanding shares of GelTex
common stock were to be converted into cash or a fraction of a share of Genzyme
General Stock, and more than 50% of the GelTex stockholders elected to receive
Genzyme General Stock, the merger consideration was prorated. After proration,
each share of GelTex common stock for which a valid stock election was submitted
was converted into $22.59 in cash and 0.3813 of a share of Genzyme General
Stock. All other GelTex stockholders are entitled to receive $47.50 in cash for
each share of GelTex common stock that they own. Cash is payable in lieu of any
fractional shares of Genzyme General Stock otherwise issuable in the merger for
a price equal to the fraction times $95.5625.
Cash payments to GelTex stockholders in the merger were approximately
$515.2 million. Genzyme funded a portion of this amount through borrowings under
senior credit facilities. Genzyme allocated the amounts borrowed and the
associated interest expense to Genzyme General.
Additionally, each option and warrant to purchase shares of GelTex common
stock outstanding immediately before the effective time of the merger was
assumed by Genzyme after the merger and became an option or warrant to acquire
Genzyme General Stock. The conversion of options to purchase GelTex common stock
was accounted for in accordance with Financial Accounting Standards Board
Interpretation No. 44 ("FIN 44").
TRACKING STOCK EXCHANGES
In connection with the merger with Biomatrix, Genzyme effected an exchange
of its tracking stock whereby outstanding shares of Tissue Repair Stock and
Surgical Products Stock converted into Biosurgery Stock, the dividend and other
provisions of which are designed to track the financial performance of the
Genzyme Biosurgery division. Holders of Tissue Repair Stock and Surgical
Products Stock, therefore, remain holders of Genzyme common stock, but hold a
security whose dividend and other provisions are designed to track a different
subset of Genzyme's operations and assets. Additionally, the votes and
liquidation units per share of their holdings changed.
The earnings attributable to Biosurgery Stock are defined in Genzyme's
charter as the net income or loss of Genzyme Biosurgery determined in accordance
with generally accepted accounting principles and as adjusted for tax benefits
allocated to or from Genzyme Biosurgery in accordance with Genzyme's management
and accounting policies. Prior to the tracking stock exchange, the earnings
attributable to Surgical Products Stock and Tissue Repair Stock were defined in
Genzyme's charter as the net income or loss of Genzyme Surgical Products and
Genzyme Tissue Repair, respectively, determined in accordance with generally
accepted accounting principles and as adjusted for tax benefits allocated to or
from the division. Accordingly, the merger and tracking stock exchanges will
involve a change in Genzyme's methodology for allocating its earnings to its
series of common stock.
6
MERGER WITH BIOMATRIX
Under the Biomatrix merger agreement, Biomatrix stockholders were entitled
to submit, on or before December 6, 2000, an election form on which they
indicated their preferred form of merger consideration. A stockholder could
elect to receive for each share of Biomatrix common stock held either the
"standard consideration" of $10.50 and 0.7162 of a share of Biosurgery Stock,
the "stock consideration" of one share of Biosurgery Stock, or the "cash
consideration" of $37.00. A stockholder failing to submit a valid election would
receive the standard consideration. Under the merger agreement, the cash
consideration amount of $37.00 per share would be prorated if the final
elections would result in more than 28.38% of the outstanding shares of
Biomatrix common stock being convertible into cash. A proration was required,
and consequently each share of Biomatrix common stock that validly elected the
cash consideration converted into a right to receive $11.03 in cash and 0.7169
of a share of Genzyme Biosurgery Stock. In lieu of issuing any fractional shares
of Genzyme Biosurgery Stock, Genzyme is paying cash in an amount equal to the
share fraction multiplied by $11.79.
To ensure that the value of all Biosurgery Stock issued in the merger was at
least 45% of the total merger consideration, the number of shares of Biomatrix
common stock exchanged for shares of Biosurgery Stock in the merger was to be
increased and the number of shares of Biomatrix common stock exchanged for cash
was to be decreased if the value of Biosurgery Stock was below approximately
$12.00 per share closing. The purpose of this adjustment was to preserve the
status of the merger as a reorganization for U.S. federal income tax purposes.
The value of Biosurgery Stock at closing was determined by the Genzyme board of
directors to be $11.79 per share and, accordingly, such an adjustment occurred.
The change in the number of shares exchanged created a new measurement date for
the transaction at the closing date. The attached pro forma financial statements
reflect the impact of this new measurement date. Upon completion of the tracking
stock exchanges, each outstanding share of Surgical Products Stock converted
into the right to receive 0.6060 of a share of Biosurgery Stock and each
outstanding share of Tissue Repair Stock converted into the right to receive
0.3352 of a share of Biosurgery Stock. Additionally, all outstanding options to
purchase Surgical Products Stock, Tissue Repair Stock and Biomatrix common stock
converted into options to purchase Biosurgery Stock at the respective conversion
rates. The conversion of options to purchase Biomatrix common stock will be
accounted for in accordance with FIN 44.
These unaudited pro forma balance sheets and statements of operations are
for informational purposes only. They do not purport to indicate the results
that would have actually been obtained had the mergers been completed on the
assumed date or for the periods presented, or which may be obtained in the
future. To produce the pro forma financial information, Genzyme allocated the
purchase price using its best estimates. The unaudited pro forma balance sheets
and statements of operations should be read in conjunction with the historical
consolidated financial statements, including the notes thereto, of each of
Genzyme, GelTex and Biomatrix. For Genzyme, those financial statements are
included in Genzyme's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 (filed on November 14, 2000) and its Annual Report on Form
10-K for the year ended December 31, 1999 (filed on March 30, 2000), as amended
on June 28, 2000 and October 17, 2000. For GelTex those financial statements are
included in GelTex's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 (filed on November 14, 2000) and its Annual Report on Form
10-K for the year ended December 31, 1999 (filed on March 30, 2000), as amended
on November 7, 2000 which are filed as Exhibits 99.2 and 99.1, respectively, to
this report on Form 8-K, as amended. For Biomatrix, those financial statements
are included in Biomatrix's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 (filed on November 14, 2000) and its Annual Report on Form
10-K for the year ended December 31, 1999 (filed on March 30, 2000), as amended
on April 26, 2000 and October 26, 2000.
7
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
GENZYME
HISTORICAL CORPORATION
GENZYME HISTORICAL PRO FORMA NOTE AND HISTORICAL
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX
----------- --------------- ----------- --------- ----------- ----------
Revenues:
Net product sales..................... $ 683,482 $ 72,000 $ -- $ 755,482 $ --
Net service sales..................... 79,448 -- -- 79,448 --
Collaborative joint venture project
reimbursement....................... -- -- -- -- 5,781
Revenues from research and development
contracts:
Related parties..................... 2,012 -- -- 2,012 --
Other............................... 7,346 -- -- 7,346 10,668
Income from licenses, royalties,
research contracts and grants....... -- 7,700 -- 7,700 --
--------- -------- -------- --------- --------
Total revenues...................... 772,288 79,700 -- 851,988 16,449
--------- -------- -------- --------- --------
Operating costs and expenses:
Cost of products sold................. 182,337 21,100 11,330 B7 214,767 --
Cost of services sold................. 49,444 -- -- 49,444 --
Selling, general and administrative... 242,797 18,500 22 B7
(110) B7 261,209 6,935
Collaborative joint venture project
costs............................... -- -- -- -- 5,781
Research and development (including
research and development relating to
contracts).......................... 150,516 9,100 159,616 32,602
Amortization of intangibles........... 24,674 -- 37,080 B6 61,754 --
Purchase of in-process research and
development......................... 5,436 -- -- 5,436 9,530
--------- -------- -------- --------- --------
Total operating costs and
expenses.......................... 655,204 48,700 48,322 752,226 54,848
--------- -------- -------- --------- --------
Operating income (loss)................. 117,084 31,000 (48,322) 99,762 (38,399)
--------- -------- -------- --------- --------
Other income (expenses):
Equity in net loss of unconsolidated
affiliates.......................... (42,696) -- -- (42,696) (7,937)
Gain on affiliate sale of stock....... 6,683 -- -- 6,683 --
Gain on sale of investment in equity
securities.......................... 1,963 -- -- 1,963 --
Gain on sale of product line.......... 8,018 -- -- 8,018 --
Minority interest..................... 3,674 -- -- 3,674 --
Charge for impaired investments....... (5,712) -- -- (5,712) --
Other................................. 14,527 -- -- 14,527 --
Investment income..................... 36,158 1,500 (2,857) B11 34,801 4,372
Interest expense...................... (21,771) (1,500) (15,000) B11 (38,271) (485)
--------- -------- -------- --------- --------
Total other income (expenses)....... 844 -- (17,857) (17,013) (4,050)
--------- -------- -------- --------- --------
Income (loss) before income taxes....... 117,928 31,000 (66,179) 82,749 (42,449)
Income tax (provision) benefit.......... (46,947) (12,400) 20,338 B10 (39,009) --
--------- -------- -------- --------- --------
Net income (loss)....................... $ 70,981 $ 18,600 $(45,841) $ 43,740 $(42,449)
========= ======== ======== ========= ========
PRO FORMA
GENZYME
PRO FORMA NOTE CORPORATION AND
ADJUSTMENTS REFERENCE SUBSIDIARIES
----------- --------- ---------------
Revenues:
Net product sales..................... $ 17,676 G12 $ 773,158
Net service sales..................... -- 79,448
Collaborative joint venture project
reimbursement....................... (5,781) G11 --
Revenues from research and development
contracts:
Related parties..................... 1,557 G12 3,569
Other............................... -- 18,014
Income from licenses, royalties,
research contracts and grants....... -- 7,700
--------- ---------
Total revenues...................... 13,452 881,889
--------- ---------
Operating costs and expenses:
Cost of products sold................. 15,003 G8
G12 229,770
Cost of services sold................. -- 49,444
Selling, general and administrative...
18,624 G12
1,743 G8
1,837 G8 290,348
Collaborative joint venture project
costs............................... (5,781) G11
Research and development (including
research and development relating to
contracts).......................... 7,348 G8
11,154 G12 210,720
Amortization of intangibles........... 62,350 G7 124,104
Purchase of in-process research and
development......................... -- 14,966
--------- ---------
Total operating costs and
expenses.......................... 112,278 919,352
--------- ---------
Operating income (loss)................. (98,826) (37,463)
--------- ---------
Other income (expenses):
Equity in net loss of unconsolidated
affiliates.......................... 7,937 G12
8,107 G12 (34,589)
Gain on affiliate sale of stock....... -- 6,683
Gain on sale of investment in equity
securities.......................... -- 1,963
Gain on sale of product line.......... -- 8,018
Minority interest..................... -- 3,674
Charge for impaired investments....... -- (5,712)
Other................................. -- 14,527
Investment income..................... (19,901) G10
166 G12 19,438
Interest expense...................... (10,981) G10 (49,737)
--------- ---------
Total other income (expenses)....... (14,672) (35,735)
--------- ---------
Income (loss) before income taxes....... (113,498) (73,198)
Income tax (provision) benefit.......... 45,050 G13 6,041
--------- ---------
Net income (loss)....................... $ (68,448) $ (67,157)
========= =========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
8
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
GENZYME
HISTORICAL HISTORICAL CORPORATION
GENZYME BIOMATRIX, PRO FORMA NOTE AND HISTORICAL PRO FORMA
CORPORATION INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX ADJUSTMENTS
----------- ---------- ----------- --------- ----------- ---------- -----------
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... $142,077 $ -- $ 142,077 $(110,897)
Genzyme Surgical Products net
loss........................... (27,523) 27,523 B13 --
Tax benefit allocated from
Genzyme Molecular Oncology..... 7,812 7,812
Tax benefit allocated from
Genzyme Surgical Products...... 16,128 (16,128) B12 --
Tax benefit allocated from
Genzyme Tissue Repair.......... 10,866 (10,866) B12 --
Tax benefit allocated from
Genzyme Biosurgery............. -- 21,023 B12 21,023
-------- --------- --------- ---------
Net income allocated to Genzyme
General Stock.................. $149,360 $ 21,552 $ 170,912 $(110,897)
======== ========= ========= =========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 1.80 $ 2.06
======== =========
Diluted........................ $ 1.71 $ 1.94
======== =========
Weighted average shares
outstanding:
Basic.......................... 83,092 83,092 6,182
======== ========= =========
Diluted........................ 93,228 93,228 (537)
======== ========= =========
ALLOCATED TO MOLECULAR ONCOLOGY
STOCK:
Net loss......................... $(28,832) $ (28,832)
======== =========
Net loss per share of Molecular
Oncology Stock -- basic and
diluted........................ $ (2.25) $ (2.25)
======== =========
Weighted average shares
outstanding.................... 12,826 12,826
======== =========
ALLOCATED TO SURGICAL PRODUCTS
STOCK:
Net loss......................... $(20,514) $ 20,514 B9 $ --
======== ========= =========
Net loss per share of Surgical
Products Stock --basic and
diluted........................ $ (1.38) $ 1.38 B9 $ --
======== ========= =========
Weighted average shares
outstanding.................... 14,835 (14,835) B8 --
======== ========= =========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss......................... $(30,040) $ 30,040 B9 $ --
======== ========= =========
Net loss per share of Tissue
Repair Stock --basic and
diluted........................ $ (1.26) $ 1.26 B9 $ --
======== ========= =========
Weighted average shares
outstanding.................... 23,807 (23,807) B8 --
======== ========= =========
BIOMATRIX, INC.:
Net income....................... $18,600 $ (18,600) B9 $ --
======= ========= =========
Net income per Biomatrix common
share-basic.................... $ 0.81 $ (0.81) B9 $ --
======= ========= =========
Weighted average shares
outstanding.................... 22,959 (22,959) B8 --
======= ========= =========
Net income per Biomatrix common
and common equivalent
share-diluted.................. $ 0.76 $ (0.76) B9 $ --
======= ========= =========
Adjusted weighted average shares
outstanding.................... 24,350 (24,350) B8 --
======= ========= =========
ALLOCATED TO BIOSURGERY STOCK:
Net loss......................... $ (99,347) B9 $ (99,347)
========= =========
Net loss per share of Biosurgery
Stock --basic and diluted...... $ (2.97) B9 $ (2.97)
========= =========
Weighted average shares
outstanding.................... 33,494 B9 33,494
========= =========
GELTEX PHARMACEUTICALS, INC.:
Net loss......................... $(42,449) $ 42,449
======== =========
Net loss per share of GelTex
common stock--basic and
diluted........................ $ (2.50) $ 2.50
======== =========
Weighted average shares
outstanding.................... 17,003 (17,003)
======== =========
PRO FORMA
GENZYME
CORPORATION
NOTE AND
REFERENCE SUBSIDIARIES
--------- ------------
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... $ 31,180
Genzyme Surgical Products net
loss........................... --
Tax benefit allocated from
Genzyme Molecular Oncology..... 7,812
Tax benefit allocated from
Genzyme Surgical Products...... --
Tax benefit allocated from
Genzyme Tissue Repair.......... --
Tax benefit allocated from
Genzyme Biosurgery............. 21,023
---------
Net income allocated to Genzyme
General Stock.................. $ 60,015
=========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 0.67
=========
Diluted........................ $ 0.65
=========
Weighted average shares
outstanding:
Basic.......................... G9 89,274
=========
Diluted........................ G9 92,691
=========
ALLOCATED TO MOLECULAR ONCOLOGY
STOCK:
Net loss......................... $ (28,832)
=========
Net loss per share of Molecular
Oncology Stock -- basic and
diluted........................ $ (2.25)
=========
Weighted average shares
outstanding.................... 12,826
=========
ALLOCATED TO SURGICAL PRODUCTS
STOCK:
Net loss......................... $ --
=========
Net loss per share of Surgical
Products Stock --basic and
diluted........................ $ --
=========
Weighted average shares
outstanding.................... --
=========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss......................... $ --
=========
Net loss per share of Tissue
Repair Stock --basic and
diluted........................ $ --
=========
Weighted average shares
outstanding.................... --
=========
BIOMATRIX, INC.:
Net income....................... $ --
=========
Net income per Biomatrix common
share-basic.................... $ --
=========
Weighted average shares
outstanding.................... --
=========
Net income per Biomatrix common
and common equivalent
share-diluted.................. $ --
=========
Adjusted weighted average shares
outstanding.................... --
=========
ALLOCATED TO BIOSURGERY STOCK:
Net loss......................... $ (99,347)
=========
Net loss per share of Biosurgery
Stock --basic and diluted...... $ (2.97)
=========
Weighted average shares
outstanding.................... 33,494
=========
GELTEX PHARMACEUTICALS, INC.:
Net loss......................... G14 $ --
=========
Net loss per share of GelTex
common stock--basic and
diluted........................ G14 $ --
=========
Weighted average shares
outstanding.................... G9 --
=========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
9
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
PRO FORMA
GENZYME
HISTORICAL CORPORATION
GENZYME HISTORICAL PRO FORMA NOTE AND HISTORICAL
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX
------------- ---------------- ------------- ---------- ------------- ----------
Revenues:
Net product sales............ $ 592,505 $ 57,300 $ -- $ 649,805 $ --
Net service sales............ 62,280 -- -- 62,280 --
Collaborative joint venture
project reimbursement...... -- -- -- -- 3,841
Revenues from research and
development contracts:
Related parties............ 245 245 --
Other...................... 4,372 -- -- 4,372 33,070
Income from licenses,
royalties, research
contracts and grants....... -- 9,100 -- 9,100 --
--------- -------- -------- --------- --------
Total revenues........... 659,402 66,400 -- 725,802 36,911
--------- -------- -------- --------- --------
Operating costs and expenses:
Cost of products sold........ 165,631 17,100 182,731 --
Cost of services sold........ 35,886 -- 35,886 --
Selling, general and
administrative............. 195,358 20,800 17 B7
(83) B7 216,092 7,507
Collaborative joint venture
project costs.............. -- -- -- -- 3,841
Research and development
(including research and
development related to
contracts)................. 123,954 7,600 131,554 21,587
Amortization of
intangibles................ 15,191 27,703 B6 42,894 --
--------- -------- -------- --------- --------
Total operating costs and
expenses............... 536,020 45,500 27,637 609,157 32,935
--------- -------- -------- --------- --------
Operating income (loss)........ 123,382 20,900 (27,637) 116,645 3,976
--------- -------- -------- --------- --------
Other income (expenses):
Equity in net loss of
unconsolidated
subsidiaries............... (30,866) -- -- (30,866) 196
Gain on affiliate sale of
stock...................... 22,689 -- -- 22,689 --
Minority interest............ 3,185 -- -- 3,185 --
Gain on sale of investment in
equity securities.......... 22,709 -- -- 22,709 --
Other........................ 5,185 -- -- 5,185 --
Investment income............ 33,333 2,300 (2,143) B11 33,490 4,331
Interest expense............. (12,785) (700) (11,250) B11 (24,735) --
--------- -------- -------- --------- --------
Total other income
(expenses)............. 43,450 1,600 (13,393) 31,657 4,527
--------- -------- -------- --------- --------
Income (loss) before income
taxes........................ 166,832 22,500 (41,030) 148,302 8,503
Income tax (provision)
benefit...................... (51,101) (9,200) 12,138 B10 (48,163) --
--------- -------- -------- --------- --------
Net income (loss).............. $ 115,731 $ 13,300 $(28,892) $ 100,139 $ 8,503
========= ======== ======== ========= ========
PRO FORMA
GENZYME
CORPORATION
PRO FORMA NOTE AND
ADJUSTMENTS REFERENCE SUBSIDIARIES
------------- ---------- -------------
Revenues:
Net product sales............ $ 6,166 G12 $ 655,971
Net service sales............ -- 62,280
Collaborative joint venture
project reimbursement...... (3,841) G11 --
Revenues from research and
development contracts:
Related parties............ -- 245
Other...................... 15 G12 37,457
Income from licenses,
royalties, research
contracts and grants....... -- 9,100
--------- ---------
Total revenues........... 2,340 765,053
--------- ---------
Operating costs and expenses:
Cost of products sold........ 5,493 G12 188,224
Cost of services sold........ -- 35,886
Selling, general and
administrative............. G8
7,177 G12 230,776
Collaborative joint venture
project costs.............. (3,841) G11 --
Research and development
(including research and
development related to
contracts)................. 4,568 G12 157,709
Amortization of
intangibles................ 46,838 G7 89,732
--------- ---------
Total operating costs and
expenses............... 60,235 702,327
--------- ---------
Operating income (loss)........ (57,895) 62,726
--------- ---------
Other income (expenses):
Equity in net loss of
unconsolidated
subsidiaries............... (196) G12
1,812 G11
8,277 G12 (20,777)
Gain on affiliate sale of
stock...................... -- 22,689
Minority interest............ -- 3,185
Gain on sale of investment in
equity securities.......... -- 22,709
Other........................ -- 5,185
Investment income............ (14,777) G10 23,044
Interest expense............. (8,236) G10 (32,971)
--------- ---------
Total other income
(expenses)............. (13,120) 23,064
--------- ---------
Income (loss) before income
taxes........................ (71,015) 85,790
Income tax (provision)
benefit...................... 14,236 G13 (33,927)
--------- ---------
Net income (loss).............. $ (56,779) $ 51,863
========= =========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
10
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
PRO FORMA
GENZYME
HISTORICAL HISTORICAL CORPORATION
GENZYME BIOMATRIX, PRO FORMA NOTE AND HISTORICAL PRO FORMA
CORPORATION INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX ADJUSTMENTS
----------- ---------- ----------- --------- ----------- ---------- -----------
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... $160,272 $ -- $160,272 $(48,276)
Tax benefit allocated from
Genzyme Molecular Oncology..... 5,558 -- 5,558
Tax benefit allocated from
Genzyme Surgical Products...... 11,080 (11,080) B12 --
Tax benefit allocated from
Genzyme Tissue Repair.......... 5,211 (5,211) B12 --
Tax benefit allocated from
Genzyme Biosurgery............. -- 11,912 B12 11,912
-------- -------- -------- --------
Net income allocated to Genzyme
General Stock.................. $182,121 $ (4,379) $177,742 $(48,276)
======== ======== ======== ========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 2.14 $ 2.08
======== ========
Diluted........................ $ 1.99 $ 1.94
======== ========
Weighted average shares
outstanding:
Basic.......................... 85,277 85,277 7,225
======== ======== ========
Diluted........................ 95,614 95,614 7,684
======== ======== ========
ALLOCATED TO MOLECULAR ONCOLOGY
STOCK:
Net loss......................... $(17,924) $(17,924)
======== ========
Net loss per share of Molecular
Oncology Stock--basic and
diluted........................ $ (1.28) $ (1.28)
======== ========
Weighted average shares
outstanding.................... 14,002 14,002
======== ========
ALLOCATED TO SURGICAL PRODUCTS
STOCK:
Net loss......................... $(34,346) $ 34,346 B9 $ --
======== ======== ========
Net loss per share of Surgical
Products Stock--basic and
diluted........................ $ (2.30) $ 2.30 B9 $ --
======== ======== ========
Weighted average shares
outstanding.................... 14,907 (14,907) B8 --
======== ======== ========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss......................... $(14,590) $ 14,590 B9 $ --
======== ======== ========
Net loss per share of Tissue
Repair Stock--basic and
diluted........................ $ (0.51) $ 0.51 B9 $ --
======== ======== ========
Weighted average shares
outstanding.................... 28,664 (28,664) B8 --
======== ======== ========
BIOMATRIX, INC.:
Net income....................... $13,300 $(13,300) B9 $ --
======= ======== ========
Net income per Biomatrix common
share-basic.................... $ 0.57 $ (0.57) B9 $ --
======= ======== ========
Weighted average shares
outstanding.................... 23,401 (23,401) B8 --
======= ======== ========
Net income per Biomatrix common
and common equivalent
share-diluted.................. $ 0.55 $ (0.55) B9 $ --
======= ======== ========
Adjusted weighted average shares
outstanding.................... 24,395 (24,395) B8 --
======= ======== ========
ALLOCATED TO BIOSURGERY STOCK:
Net loss......................... $(60,149) B9 $(60,149)
======== ========
Net loss per share of Biosurgery
Stock--basic and diluted....... $ (1.70) B9 $ (1.70)
======== ========
Weighted average shares
outstanding.................... 35,484 B9 35,484
======== ========
GELTEX PHARMACEUTICALS, INC.:
Net income..................... $ 8,503 $ (8,503)
======= ========
Net income per GelTex common
share--basic................. $ 0.43 $ (0.43)
======= ========
Weighted average shares
outstanding.................. 19,872 (19,872)
======= ========
Net income per GelTex common
and equivalent share--
diluted...................... $ 0.41 $ (0.41)
======= ========
Adjusted weighted average
shares outstanding........... 20,502 (20,502)
======= ========
PRO FORMA
GENZYME
CORPORATION
NOTE AND
REFERENCE SUBSIDIARIES
--------- ------------
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... $111,996
Tax benefit allocated from
Genzyme Molecular Oncology..... 5,558
Tax benefit allocated from
Genzyme Surgical Products...... --
Tax benefit allocated from
Genzyme Tissue Repair.......... --
Tax benefit allocated from
Genzyme Biosurgery............. 11,912
--------
Net income allocated to Genzyme
General Stock.................. $129,466
========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 1.40
========
Diluted........................ $ 1.33
========
Weighted average shares
outstanding:
Basic.......................... G9 92,502
========
Diluted........................ G9 103,298
========
ALLOCATED TO MOLECULAR ONCOLOGY
STOCK:
Net loss......................... $(17,924)
========
Net loss per share of Molecular
Oncology Stock--basic and
diluted........................ $ (1.28)
========
Weighted average shares
outstanding.................... 14,002
========
ALLOCATED TO SURGICAL PRODUCTS
STOCK:
Net loss......................... $ --
========
Net loss per share of Surgical
Products Stock--basic and
diluted........................ $ --
========
Weighted average shares
outstanding.................... --
========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss......................... $ --
========
Net loss per share of Tissue
Repair Stock--basic and
diluted........................ $ --
========
Weighted average shares
outstanding.................... --
========
BIOMATRIX, INC.:
Net income....................... $ --
========
Net income per Biomatrix common
share-basic.................... $ --
========
Weighted average shares
outstanding.................... --
========
Net income per Biomatrix common
and common equivalent
share-diluted.................. $ --
========
Adjusted weighted average shares
outstanding.................... --
========
ALLOCATED TO BIOSURGERY STOCK:
Net loss......................... $(60,149)
========
Net loss per share of Biosurgery
Stock--basic and diluted....... $ (1.70)
========
Weighted average shares
outstanding.................... 35,484
========
GELTEX PHARMACEUTICALS, INC.:
Net income..................... G14 $ --
========
Net income per GelTex common
share--basic................. G14 $ --
========
Weighted average shares
outstanding.................. G9 --
========
Net income per GelTex common
and equivalent share--
diluted...................... G14 $ --
========
Adjusted weighted average
shares outstanding........... G9 --
========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
11
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
HISTORICAL PRO FORMA
GENZYME GENZYME
CORPORATION AND HISTORICAL PRO FORMA FOOTNOTE CORPORATION AND HISTORICAL PRO FORMA
SUBSIDIARIES BIOMATRIX, INC. ADJUSTMENTS REFERENCE SUBSIDIARIES GELTEX ADJUSTMENTS
--------------- --------------- ----------- --------- --------------- ---------- -----------
ASSETS
Current assets:
Cash and cash
equivalents......... $ 215,568 $ 46,700 $ (52,421) B1 $ 209,847 $ 71,179 $(100,000)
4,469
Short-term
investments......... 164,927 -- -- 164,927 68,428 (100,000)
Accounts receivable,
net................. 183,779 12,600 -- 196,379 -- (282)
Inventories........... 123,878 8,200 11,330 B5 143,408 -- 8,156
13,461
(329)
Prepaid expenses and
other current
assets.............. 29,169 5,800 -- 34,969 12,575 (295)
Deferred tax assets--
current............. 41,441 -- -- 41,441 -- --
---------- -------- --------- ---------- -------- ---------
Total current
assets.......... 758,762 73,300 (41,091) 790,971 152,182 (174,820)
Property, plant and
equipment, net........ 400,630 39,700 (549) B5 439,781 13,538 7,215
4,499
25,000
Long-term receivables,
affiliates............ -- -- -- -- 121 (121)
Long-term investments... 427,805 -- -- 427,805 -- (165,151)
Notes
receivable--related
party................. 10,175 -- -- 10,175 -- --
Intangibles, net........ 237,343 -- 284,854 B1
111,320 B1 633,517 7,743 916,062
(7,743)
Deferred tax assets--
noncurrent............ -- -- 899 B1 899 -- 35,016
Investments in equity
securities............ 186,883 -- -- 186,883 -- (4,681)
Other noncurrent
assets................ 54,948 800 -- 55,748 15,772 (22,865)
---------- -------- --------- ---------- -------- ---------
Total assets...... $2,076,546 $113,800 $ 355,433 $2,545,779 $189,356 $ 612,411
========== ======== ========= ========== ======== =========
PRO FORMA
GENZYME
NOTE CORPORATION AND
REFERENCE SUBSIDIARIES
--------- ---------------
ASSETS
Current assets:
Cash and cash
equivalents......... G1 $ --
G6 185,495
Short-term
investments......... G1 133,355
Accounts receivable,
net................. G4 196,097
Inventories........... G1
G6
G4 164,696
Prepaid expenses and
other current
assets.............. G6 47,249
Deferred tax assets--
current............. 41,441
----------
Total current
assets.......... 768,333
Property, plant and
equipment, net........ G6
G1
G1 490,033
Long-term receivables,
affiliates............ G4 --
Long-term investments... G1 262,654
Notes
receivable--related
party................. 10,175
Intangibles, net........
G1
G5 1,549,579
Deferred tax assets--
noncurrent............ G1 35,915
Investments in equity
securities............ G1 182,202
Other noncurrent
assets................ G4 48,655
----------
Total assets...... $3,347,546
==========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
12
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
AS OF SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
PRO FORMA
HISTORICAL GENZYME
GENZYME HISTORICAL PRO FORMA NOTE CORPORATION AND HISTORICAL
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX
----------- --------------- ----------- --------- --------------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.............. $ 23,262 $ 3,400 $ -- $ 26,662 $ --
Accrued expenses.............. 95,541 7,000 18,803 B2 121,344 5,910
Income taxes payable.......... 51,778 -- -- 51,778 --
Deferred revenue.............. 4,840 -- -- 4,840 --
Current portion of notes
payable and long-term debt
and capital lease
obligations................. 128 900 -- 1,028 1,467
---------- -------- --------- ---------- -------
Total current
liabilities............. 175,549 11,300 18,803 205,652 7,377
Notes payable and long-term debt
and capital lease
obligations................... 18,272 11,100 200,000 B1 229,372 5,494
Convertible notes and
debentures, net............... 273,415 273,415 --
Deferred tax
liabilities--noncurrent....... 7,329 107,044 B1 114,373 --
Other noncurrent liabilities.... 2,904 2,904 430
---------- -------- --------- ---------- -------
Total liabilities......... 477,469 22,400 325,847 825,716 13,301
---------- -------- --------- ---------- -------
Stockholders' equity:
Genzyme General Stock, $.01
par value................... 867 867 --
Molecular Oncology Stock, $.01
par value................... 153 153 --
Surgical Products Stock, $.01
par value................... 150 (150) B4 -- --
Tissue Repair Stock, $.01 par
value....................... 289 (289) B4 -- --
Biosurgery Stock, $.01 par
value....................... -- 188 B4 --
175 B1 363
Treasury Stock--at cost....... (901) (901) --
Additional paid-in capital--
Genzyme General Stock....... 524,979 524,979 --
Additional paid-in capital--
Molecular Oncology Stock.... 105,059 105,059 --
Additional paid-in capital--
Surgical Products Stock..... 543,197 (543,197) B4 -- --
Additional paid-in capital--
Tissue Repair Stock......... 228,095 (228,095) B4 -- --
Additional paid-in capital--
Biosurgery Stock............ -- 543,256 B4
228,287 B4
206,347 B1
11,373 B1
(82,143) B1
907,120
Notes receivable--related
parties..................... -- (14,700) B3 (14,700) --
PRO FORMA
GENZYME
CORPORATION
PRO FORMA NOTE AND
ADJUSTMENTS REFERENCE SUBSIDIARIES
----------- --------- ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.............. $ -- $ 26,662
Accrued expenses.............. 4,321 G2
1,300 G1
(7,936) G4
11,659 G6 136,598
Income taxes payable.......... -- 51,778
Deferred revenue.............. -- G6 4,840
Current portion of notes
payable and long-term debt
and capital lease
obligations................. -- 2,495
--------- ---------
Total current
liabilities............. 9,344 222,373
Notes payable and long-term debt
and capital lease
obligations................... 150,000 G1
25,000 G1 409,866
Convertible notes and
debentures, net............... -- 273,415
Deferred tax
liabilities--noncurrent....... 175,485 G1 289,858
Other noncurrent liabilities.... (430) G1
1,904 G1 4,808
--------- ---------
Total liabilities......... 361,303 1,200,320
--------- ---------
Stockholders' equity:
Genzyme General Stock, $.01
par value................... 79 G1 946
Molecular Oncology Stock, $.01
par value................... -- 153
Surgical Products Stock, $.01
par value................... -- --
Tissue Repair Stock, $.01 par
value....................... -- --
Biosurgery Stock, $.01 par
value....................... --
363
Treasury Stock--at cost....... -- (901)
Additional paid-in capital--
Genzyme General Stock....... 491,102 G1
62,882 G1 1,078,963
--
Additional paid-in capital--
Molecular Oncology Stock.... -- 105,059
Additional paid-in capital--
Surgical Products Stock..... -- --
Additional paid-in capital--
Tissue Repair Stock......... -- --
Additional paid-in capital--
Biosurgery Stock............
907,120
Notes receivable--related
parties..................... -- (14,700)
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
13
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
AS OF SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
PRO FORMA
HISTORICAL GENZYME
GENZYME HISTORICAL PRO FORMA NOTE CORPORATION AND HISTORICAL
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX
--------------- --------------- ----------- --------- --------------- ----------
Deferred compensation..... (66) B1 (66) --
Retained earnings
(accumulated deficit)... 172,933 172,933 --
Biomatrix, Inc. preferred
stock, none issued...... -- -- -- -- --
Biomatrix, Inc. common
stock, $.0001 par
value................... -- -- -- -- --
Biomatrix, Inc. additional
paid-in capital......... 84,600 (84,600) B3 -- --
Biomatrix, Inc. notes
receivable--related
parties................. (14,700) 14,700 B3 -- --
Biomatrix, Inc. treasury
stock, at cost.......... (900) 900 B3 -- --
Biomatrix, Inc. retained
earnings................ 24,300 (24,300) B3 -- --
GelTex Pharmaceuticals
preferred stock, none
issued.................. --
GelTex Pharmaceuticals
common stock, $.01 par
value................... 215
GelTex Pharmaceuticals
additional paid-in
capital................. 277,025
GelTex Pharmaceuticals
deferred compensation... (701)
GelTex Pharmaceuticals
accumulated deficit..... (100,458)
Accumulated other
comprehensive income
(loss).................. 24,256 (1,900) 1,900 B3 24,256 (26)
---------- -------- -------- ---------- --------
Total stockholders'
equity.............. 1,599,077 91,400 29,586 1,720,063 176,055
---------- -------- -------- ---------- --------
Total liabilities and
stockholders'
equity.............. $2,076,546 $113,800 $355,433 $2,545,779 $189,356
========== ======== ======== ========== ========
PRO FORMA
GENZYME
PRO FORMA NOTE CORPORATION AND
ADJUSTMENTS REFERENCE SUBSIDIARIES
----------- --------- ---------------
Deferred compensation..... (10,206) G1 (10,272)
Retained earnings
(accumulated deficit)... (118,048) G1
3,535 G4 58,420
Biomatrix, Inc. preferred
stock, none issued...... -- --
Biomatrix, Inc. common
stock, $.0001 par
value................... -- --
Biomatrix, Inc. additional
paid-in capital......... -- --
Biomatrix, Inc. notes
receivable--related
parties................. -- --
Biomatrix, Inc. treasury
stock, at cost.......... -- --
Biomatrix, Inc. retained
earnings................ -- --
GelTex Pharmaceuticals
preferred stock, none
issued.................. -- --
GelTex Pharmaceuticals
common stock, $.01 par
value................... (215) G3 --
GelTex Pharmaceuticals
additional paid-in
capital................. (277,025) G3 --
GelTex Pharmaceuticals
deferred compensation... 701 G3 --
GelTex Pharmaceuticals
accumulated deficit..... 100,458 G3 --
Accumulated other
comprehensive income
(loss).................. 26 G3
(2,181) G1 22,075
--------- ----------
Total stockholders'
equity.............. 251,108 2,147,226
--------- ----------
Total liabilities and
stockholders'
equity.............. $ 612,411 $3,347,546
========= ==========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
14
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
HISTORICAL PRO FORMA
GENZYME HISTORICAL PRO FORMA NOTE GENZYME
GENERAL GELTEX ADJUSTMENTS REFERENCE GENERAL
---------- ---------- ----------- --------- ----------
Revenues:
Net product sales......................................... $571,531 $ -- $ 17,676 G25 $589,207
Net service sales......................................... 57,223 -- -- 57,223
Collaborative joint venture project reimbursement......... -- 5,781 (5,781) G24 --
Revenues from research and development contracts:
Related parties......................................... 1,516 -- 1,557 G25 3,073
Other................................................... 5,096 10,668 -- 15,764
-------- -------- -------- --------
Total revenues............................................ 635,366 16,449 13,452 665,267
-------- -------- -------- --------
Operating costs and expenses:
Cost of products sold..................................... 115,125 -- 15,003 G25 130,128
Cost of services sold..................................... 35,637 -- -- 35,637
Selling, general and administrative....................... 149,427 6,935 18,624 G25
1,743 G22
1,837 G22 178,566
Collaborative joint venture project costs................. -- 5,781 (5,781) G24 --
Research and development (including research and
development contracts).................................. 97,746 32,602 7,348 G22
11,154 G25 148,850
Amortization of intangibles............................... 8,106 -- 62,350 G21 70,456
Purchase of in-process research and development........... 5,436 9,530 -- 14,966
-------- -------- -------- --------
Total operating costs and expenses...................... 411,477 54,848 112,278 578,603
-------- -------- -------- --------
Operating income (loss)..................................... 223,889 (38,399) (98,826) 86,664
-------- -------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated affiliates........... (37,423) (7,937) 7,937 G25
8,107 G25 (29,316)
Gain on affliate sale of stock............................ 6,683 -- -- 6,683
Gain on sale of investment in equity securities........... 1,963 -- -- 1,963
Minority interest......................................... 3,674 -- -- 3,674
Gain on sale of product line.............................. 8,018 -- -- 8,018
Charge for impaired investments........................... (5,712) -- -- (5,712)
Other..................................................... 14,389 -- -- 14,389
Investment income......................................... 30,881 4,372 (19,901) G23
166 G25 15,518
Interest expense.......................................... (19,885) (485) (10,981) G23 (31,351)
-------- -------- -------- --------
Total other income (expenses)........................... 2,588 (4,050) (14,672) (16,134)
-------- -------- -------- --------
Income before income taxes.................................. 226,477 (42,449) (113,498) 70,530
Income tax (provision) benefit.............................. (84,400) -- 45,050 G26 (39,350)
-------- -------- -------- --------
Division net income (loss).................................. $142,077 $(42,449) $(68,448) $ 31,180
======== ======== ======== ========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
15
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
PRO
FORMA
GENZYME HISTORICAL PRO FORMA NOTE GENZYME
GENERAL GELTEX ADJUSTMENTS REFERENCE GENERAL
--------- ---------- ----------- --------- --------
Revenues:
Net product sales.................................... $503,700 $ -- $ 6,166 G25 $509,866
Net service sales.................................... 45,296 -- -- 45,296
Collaborative joint venture project reimbursement.... -- 3,841 (3,841) G24 --
Revenues from research and development contracts:
Related parties.................................... 245 -- -- 245
Other.............................................. 244 33,070 15 G25 33,329
-------- ------- -------- --------
Total revenues..................................... 549,485 36,911 2,340 588,736
-------- ------- -------- --------
Operating costs and expenses:
Cost of products sold................................ 114,461 -- 5,493 G25 119,954
Cost of services sold................................ 26,937 -- -- 26,937
Selling, general and administrative.................. 122,974 7,507 7,177 G25 137,658
Collaborative joint venture project costs............ -- 3,841 (3,841) G24 --
Research and development (including research and
development related to contracts).................. 83,701 21,587 4,568 G25 109,856
Amortization of intangibles.......................... 5,962 -- 46,838 G21 52,800
-------- ------- -------- --------
Total operating costs and expenses................. 354,035 32,935 60,235 447,205
-------- ------- -------- --------
Operating income (loss)................................ 195,450 3,976 (57,895) 141,531
-------- ------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated subsidiaries.... (30,866) 196 (196) G25
1,812 G24
8,277 G25 (20,777)
Gain on affiliate sale of stock...................... 22,689 -- -- 22,689
Gain on sale of investment in equity securities...... 22,709 -- -- 22,709
Minority interest.................................... 3,185 -- -- 3,185
Other................................................ 5,110 -- -- 5,110
Investment income.................................... 27,798 4,331 (14,777) G23 17,352
Interest expense..................................... (11,639) -- (8,236) G23 (19,875)
-------- ------- -------- --------
Total other income (expenses)...................... 38,986 4,527 (13,120) 30,393
-------- ------- -------- --------
Income (loss) before income taxes...................... 234,436 8,503 (71,015) 171,924
Income tax (provision) benefits........................ (74,164) -- 14,236 G26 (59,928)
-------- ------- -------- --------
Net income (loss)...................................... $160,272 $ 8,503 $(56,779) $111,996
======== ======= ======== ========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
16
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
HISTORICAL PRO FORMA
GENZYME HISTORICAL PRO FORMA NOTE GENZYME
GENERAL GELTEX ADJUSTMENTS REFERENCE GENERAL
---------- ---------- ----------- --------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 176,316 $ 71,179 $(100,000) G15 $ --
4,469 G20 151,964
Short-term investments.................................... 100,288 68,428 (100,000) G15 68,716
Accounts receivable, net.................................. 157,931 -- (282) G18 157,649
Inventories............................................... 83,621 -- 8,156 G15
13,461 G20
(329) G18 104,909
Prepaid and other current assets.......................... 26,728 12,575 (295) G20 39,008
Due from Molecular Oncology............................... 4,088 -- 4,088
Due from Surgical Products................................ 9,226 -- 9,226
Due from Tissue Repair.................................... 1,272 -- 1,272
Deferred tax assets--current.............................. 41,441 -- -- 41,441
---------- -------- --------- ----------
Total current assets.................................... 600,911 152,182 (174,820) 578,273
---------- -------- --------- ----------
Property, plant & equipment, net............................ 380,474 13,538 7,215 G20
4,499 G15
25,000 G15 430,726
Long-term receivables, affiliates........................... -- 121 (121) G18 --
Long-term investments....................................... 415,301 -- (165,151) G15 250,150
Notes receivable--related party............................. 10,175 -- -- 10,175
Intangibles, net............................................ 68,938 7,743 916,062 G15
(7,743) G19 985,000
Deferred tax assets--noncurrent............................. -- -- 35,016 G15 35,016
Investments in equity securities............................ 186,883 -- (4,681) G15 182,202
Other noncurrent assets..................................... 46,544 15,772 (22,865) G18 39,451
---------- -------- --------- ----------
Total assets............................................ $1,709,226 $189,356 $ 612,411 $2,510,993
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 17,648 $ -- $ -- $ 17,648
Accrued expenses.......................................... 80,406 5,910 4,321 G16
1,300 G15
(7,936) G18
11,659 G20 95,660
Income taxes payable...................................... 51,778 -- -- 51,778
Deferred revenue.......................................... 4,404 -- -- 4,404
Current portion of notes payable and long-term debt and
capital lease obligations............................... 23 1,467 -- 1,490
---------- -------- --------- ----------
Total current liabilities............................... 154,259 7,377 9,344 170,980
---------- -------- --------- ----------
Notes payable and long-term debt and capital lease
obligations................................................. 62 5,494 150,000 G15
25,000 G15 180,556
Convertible notes and debentures, net....................... 273,415 -- -- 273,415
Deferred tax liabilities--noncurrent........................ 8,797 -- 175,485 G15 184,282
Other noncurrent liabilities................................ 2,789 430 (430) G15
1,904 G15 4,693
---------- -------- --------- ----------
Total liabilities....................................... 439,322 13,301 361,303 813,926
---------- -------- --------- ----------
Division equity:
Division Equity........................................... 1,269,904 -- 79 G15
491,102 G15
62,882 G15
(10,206) G15
(118,048) G15
(2,181) G15
3,535 G18 1,697,067
GelTex Pharmaceuticals preferred stock, none issued....... -- -- -- --
GelTex Pharmaceuticals common stock, $.01 par value....... -- 215 (215) G17 --
GelTex Pharmaceuticals additional paid-in capital......... -- 277,025 (277,025) G17 --
GelTex Pharmaceuticals deferred compensation.............. -- (701) 701 G17 --
GelTex Pharmaceuticals accumulated deficit................ -- (100,458) 100,458 G17 --
Accumulated other comprehensive income (loss)............. -- (26) 26 G17
---------- -------- --------- ----------
Total division equity................................... 1,269,904 176,055 251,108 1,697,067
---------- -------- --------- ----------
Total liabilities and division equity................... $1,709,226 $189,356 $ 612,411 $2,510,993
========== ======== ========= ==========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
17
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES AND PRO FORMA INFORMATION
The unaudited pro forma combined financial statements reflect the pro forma
effect of Genzyme's merger with GelTex and Genzyme's merger with Biomatrix on
the
- unaudited statements of operations for the nine months ended
September 30, 2000 and the year ended December 31, 1999 and
- unaudited balance sheet as of September 30, 2000
of both Genzyme and Genzyme General, the division of Genzyme to which the assets
and liabilities and operations of GelTex will be allocated.
The pro forma balance sheets give effect to the mergers of Genzyme with
Biomatrix and GelTex and the combination of Genzyme Surgical Products and
Genzyme Tissue Repair as if they occurred on September 30, 2000. The pro forma
statements of operations have been presented to give effect to the mergers of
Genzyme with both Biomatrix and GelTex using the purchase method of accounting
and the combination of Genzyme Surgical Products and Genzyme Tissue Repair using
the historical accounting basis as if such transactions had occurred January 1,
1999.
In addition to giving effect to the mergers with Biomatrix and GelTex, the
pro forma statement of operations for the year ended December 31, 1999 shows
Genzyme's earnings allocated to Genzyme General Stock and earnings per share of
Genzyme General Stock, adjusted to reflect the changes in earnings allocations
resulting from the June 1999 creation and distribution of Surgical Products
Stock as if such change took place on January 1, 1999.
(2) GENZYME'S ACQUISITIONS
(A) GENZYME'S ACQUISITION OF BIOMATRIX
Genzyme entered into the merger agreement to acquire Biomatrix on March 6,
2000. Upon consummation of the merger Biomatrix merged into a specially formed,
wholly-owned subsidiary of Genzyme. Concurrently with the merger:
- Genzyme Biosurgery was created as a new division of Genzyme;
- the businesses of Genzyme Surgical Products and Genzyme Tissue Repair were
reallocated to Genzyme Biosurgery; and
- the businesses of Biomatrix was allocated to Genzyme Biosurgery.
For the purposes of the unaudited pro forma financial statements, we used
the following exchange ratios to determine the number of shares of Biosurgery
Stock distributed:
- 0.6060 multiplied by the number of shares of Surgical Products Stock
outstanding;
- 0.3352 multiplied by the number of shares of Tissue Repair Stock
outstanding; and
- 0.7162 multiplied by the number of Biomatrix shares outstanding (based on
a one-for-one exchange ratio for 71.62% of the Biomatrix shares).
This resulted in approximately:
- 9,092,763 shares of Biosurgery Stock exchanged for 15,004,560 shares of
Surgical Products Stock;
- 9,679,769 shares of Biosurgery Stock exchanged for 28,877,593 shares of
Tissue Repair Stock; and
18
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(2) GENZYME'S ACQUISITIONS (CONTINUED)
- 17,516,712 shares of Biosurgery Stock and approximately $252.4 million of
cash, exchanged for 24,338,908 shares of Biomatrix common stock.
In addition, options to purchase:
- 3,252,386 shares of Surgical Products Stock under the Genzyme equity
plans,
- 3,923,281 shares of Tissue Repair Stock under the Genzyme equity plans,
and
- 1,706,639 shares of Biomatrix common stock under the Biomatrix equity
plans
converted to options to purchase approximately 1,970,944, 1,315,083, and
1,222,300 shares of Biosurgery Stock, respectively. Using the acquisition price
of Biomatrix common stock and certain other assumptions in the Black-Scholes
option valuation model, the Biosurgery options issued in exchange for the
Biomatrix options have been valued at approximately $11.4 million. In accordance
with FIN 44, the intrinsic value of the portion of the unvested options related
to the future service period of approximately $66,000 is allocated to deferred
compensation in stockholders' equity for Genzyme or division equity for Genzyme
Biosurgery, rather than to goodwill. The unvested portion is being amortized to
operating expense over the remaining vesting periods of generally less than four
years.
(B) GENZYME'S ACQUISITION OF GELTEX
Genzyme entered into a merger agreement to acquire GelTex on September 11,
2000. Genzyme issued approximately $515.2 million in cash and $491.2 million in
Genzyme General Stock for all of the outstanding shares of GelTex common stock,
using the stock price of Genzyme General Stock based on the average trading
price over three days before and after the September 11, 2000 announcement of
the merger. Approximately 7.9 million shares of Genzyme General Stock were
issued in exchange for shares of GelTex common stock. In addition, options and
warrants to purchase approximately 2.1 million shares of GelTex common stock
were exchanged for options and warrants to purchase approximately 1.6 million
shares of Genzyme General Stock. The vesting of GelTex options granted to
employees of GelTex before the effective date of the merger will be accelerated
as of the first anniversary of the effective date of the merger as long as they
remain employees of GelTex or Genzyme on the one year anniversary date.
Additionally, the vesting of stock options granted to directors and several
officers of GelTex were accelerated immediately upon the effective time of the
merger. Using the Black-Scholes valuation model, the options and warrants to
purchase Genzyme General Stock issued in exchange for the GelTex options and
warrants have a value of approximately $62.9 million. In accordance with FIN 44,
the intrinsic value of the portion of the unvested options related to the future
service period of $10.2 million is allocated to deferred compensation in
stockholders' equity for Genzyme. The unvested portion is being amortized to
operating expense over the remaining vesting period of approximately one year.
19
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION
(A) BIOMATRIX
The aggregate purchase price of $482.4 million was allocated to the acquired
tangible and intangible assets and liabilities based on their estimated
respective fair values as of September 30, 2000 (amounts in thousands):
Cash and cash equivalents................................... $ 46,700
Accounts receivable......................................... 12,600
Prepaid expenses and other current assets................... 5,800
Inventory................................................... 19,530
Property, plant & equipment................................. 39,151
Note receivable............................................. 14,700
Other assets................................................ 800
Intangible assets (to be amortized over 1.5 to 11.0
years).................................................... 284,854
Goodwill (to be amortized over 11.0 years).................. 111,320
In-process research and development......................... 82,143
Deferred tax asset.......................................... 899
Deferred compensation....................................... 66
Assumed liabilities......................................... (29,116)
Deferred tax liability...................................... (107,044)
---------
Aggregate purchase price............................ $ 482,403
=========
The total purchase price, the fair value of assets and liabilities acquired,
the allocation of purchase price and the lives of the goodwill and intangible
assets will be determined in connection with preparing our December 31, 2000
financial statements and may vary from the amounts presented herein.
In connection with the purchase of Biomatrix, Genzyme expects approximately
$82.1 million of the purchase price to be allocated to in-process research and
development, or IPR&D. Genzyme management assumes responsibility for determining
the IPR&D valuation. Genzyme engaged an independent third-party appraisal
company to assist in the valuation of the intangible assets acquired. The final
valuation will be completed following the closing date of the transaction.
The fair value assigned to purchased IPR&D was estimated by discounting, to
present value, the cash flows expected to result from each project once it has
reached technological feasibility. A discount rate consistent with the risks of
each project was used to estimate the present value of cash flows. In estimating
future cash flows, management considered other tangible and intangible assets
required for successful exploitation of the technology resulting from each
purchased IPR&D project and adjusted future cash flows for a charge reflecting
the contribution to value of these assets. The estimated future cash flows
resulting from purchased IPR&D were adjusted for the contribution of core
technology to the value of each IPR&D project. The value assigned to purchased
research and development was the amount attributable to the efforts of Biomatrix
up to the time of acquisition. This amount was estimated through application of
the "stage of completion" calculation by multiplying total estimated revenue for
IPR&D by the percentage of completion of each purchased research and development
project at the time of acquisition.
The nature of the efforts to develop the purchased IPR&D into commercially
viable products, principally relates to the completion and/or acceleration of
existing development programs, including
20
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
the mandatory completion of several phases of clinical trials and the general
and administrative costs necessary to manage the projects and trials. Assuming
the approval of the product by the FDA, costs related to the wide scale
manufacturing, distribution, and marketing of the products are included in the
projection. The resulting net cash flows from such projects are based on Genzyme
management's estimates of revenues, cost of sales, research and development
expenses, sales and marketing expenses, general and administrative expenses, and
the anticipated income tax effect.
The discounting of net cash flows back to their present value is based on
the weighted average cost of capital, or WACC. The WACC calculation produces the
average required rate of return of an investment in an operating enterprise,
based on various required rates of return from investments in various areas of
that enterprise. The discount rate utilized in discounting the net cash flows
from purchased IPR&D was 38%. This discount rate is higher than Genzyme's WACC
due to the inherent uncertainties surrounding the successful development of the
purchased IPR&D.
The forecast data employed in the analyses was based upon product level
forecast information obtained by Genzyme from numerous internal and external
resources. These resources included publicly available databases, external
market research consultants and internal experts. Genzyme senior management
reviewed and challenged the forecast data and related assumptions and utilized
the information in analyzing IPR&D. The forecast data and assumptions are
inherently uncertain and unpredictable. However, based upon the information
available at this time, Genzyme management believes the forecast data and
assumptions to be reasonable. These assumptions may be incomplete or inaccurate,
and no assurance can be given that unanticipated events and circumstances will
not occur. Accordingly, actual results may vary from the forecasted results. Any
such variance may result in a material adverse effect on Genzyme's financial
condition and results of operations.
In the allocation of purchase price to the IPR&D, the concept of alternative
future use was specifically considered for each of the programs under
development. The acquired IPR&D consists of Biomatrix' work to complete each of
the identified programs. The programs are very specific to the disease and
market for which they are intended. There are no alternative uses for the
in-process programs in the event that the programs fail in clinical trials or
are otherwise not feasible. The development effort for the acquired IPR&D does
not possess an alternative future use for Genzyme as defined by generally
accepted accounting principles.
Below is a brief description of IPR&D projects including an estimation of
when management believes Genzyme may realize revenues from the sale of these
products in the respective application.
VISCOSUPPLEMENTATION. Viscosupplementation is the use of elastoviscous
solutions and viscoelastic gels in disease conditions to supplement tissues and
body fluids, alleviating pain and restoring normal function. Biomatrix expects
to complete clinical studies demonstrating the efficacy of Synvisc as a
treatment for chronic hip pain during early 2001, with market approval occurring
later in 2001. Prior clinical studies have demonstrated the product's safety.
Although clinical results to date are positive, there can be no assurance that
statistically significant results will be observed in the current clinical
trial. Future costs for this program are estimated to be approximately
$9.5 million. A discount rate of 38% was utilized in discounting these estimated
cash flows. This product is already marketed for the treatment of osteoarthritis
of the knee in the United States and 38 foreign countries.
VISCOAUGMENTATION. Viscoaugmentation is the use of viscoelastic gels to
provide scaffolding for tissue regeneration or as an inert elastic filler for
tissues of the skin and the subcutaneous and intermuscular connective tissues.
Hylaform is a viscoelastic Hylan B gel for injection into facial tissue.
21
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
Clinical studies in the United States began in 2000. These studies are expected
to be completed and analyzed by early 2001. Although clinical results to date
are positive, there can be no assurance that statistically significant results
will be observed in the current clinical trials. Assuming favorable results in
these studies, we expect that approval to market this product will be obtained
by mid-to-late 2001 in the United States. Biomatrix currently expects to launch
the product in the United States before the end of 2001, although there can be
no assurance that the product will be launched or that the launch will occur
within this time period. This product is already marketed for the same
indication in 21 foreign countries.
Hylagel Uro is a viscoelastic Hylan B gel implant for the treatment of
urinary stress incontinence. It is injected intramuscularly to augment the soft
connective tissue in between the sphincter muscle of the urethra. This product
provides an important advancement in the treatment of urinary stress
incontinence, a condition that affects over one million people in the United
States. Pilot clinical studies conducted in the United States at two clinical
centers under FDA approved protocols have been successfully completed. These
initial studies demonstrated that the product is safe and has clinical utility.
A pivotal one-year study will begin in 2000 at clinical centers in the United
States. It is expected that the studies will be completed, evaluated and
submitted for FDA approval by the middle of 2002. When this study is completed,
the data will also be submitted for approval in Canada and Europe. Although
clinical results to date are positive, there can be no assurance that
statistically significant results will be observed in the current clinical
trial. Assuming favorable results in these studies, Biomatrix currently expects
that during 2003 Hylagel Uro will be marketed in the United States and Canada,
although there can be no assurance that the product will be launched or that the
launch will occur within this time period.
The future costs of these programs are estimated to be approximately
$6.8 million. A discount rate of 38% was utilized in discounting these estimated
cash flows.
VISCOSEPARATION (ANTI-ADHESION). Viscoseparation is the use of viscoelastic
gels and membranes to separate tissues and to decrease formation of adhesions
and excessive scars after surgery.
Hylagel Nuro is for spinal surgery and herniated lumbar intervertabral disc
surgery. Hylagel Nuro is a combination of Hylan A fluid and Hylan B gel for
application directly at the surgical site to reduce post surgical adhesions and
scarring which often cause chronic pain. Hylagel Nuro is classified as a device
by regulatory authorities. A multicenter clinical study started in the United
States in late 1999 and, currently, studies are being initiated in Germany,
France, the United Kingdom and Belgium. The completion of this study is expected
by the fourth quarter of 2001, and submissions for regulatory approvals in the
United States, Canada and Europe will occur shortly thereafter. Although
clinical results to date are positive, there can be no assurance that
statistically significant results will be observed in the current clinical
trial. Assuming favorable results in these studies, Biomatrix believes that
Hylagel Nuro can be launched in Europe by the second quarter of 2002 and in the
United States by the fourth quarter of the same year, although there can be no
assurance that the product will be launched or that the launch will occur within
this time period.
A discount rate of 38% was utilized in discounting these estimated cash
flows. The valuation of these programs assumes that sales of Hylagel Nuro
commence in 2002. The estimated aggregate future clinical costs to develop this
indication will be approximately $8.3 million.
22
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
The Biomatrix research and development programs currently in process were
valued as follows (amounts in thousands):
Viscosupplementation........................................ $33,850
Viscoaugmentation........................................... 8,604
Viscoseparation............................................. 39,689
-------
$82,143
=======
(B) GELTEX
The aggregate purchase price of $1,076.0 million was allocated to the
acquired tangible and intangible assets and liabilities based on their estimated
respective fair value as of September 30, 2000 (amounts in thousands):
Cash and investments........................................ $ 141,841
Prepaid expenses and other current assets................... 12,511
Inventory................................................... 14,722
Property, plant & equipment................................. 46,645
Intangible assets (to be amortized over 5 to 15 years)...... 465,109
Goodwill (to be amortized over 15 years).................... 450,953
In-process research and development......................... 118,048
Deferred tax asset.......................................... 35,016
Deferred compensation....................................... 10,206
Assumed liabilities......................................... (40,327)
Forwards.................................................... (1,300)
Swaps....................................................... (1,904)
Deferred tax liability...................................... (175,485)
----------
Aggregate purchase price.................................... $1,076,035
==========
The total purchase price, the fair value of assets and liabilities acquired,
the allocation of purchase price and the lives of the goodwill and intangible
assets will be determined in connection with preparing our December 31, 2000
financial statements and may vary from the amounts presented herein.
As part of the acquisition of GelTex, Genzyme acquired all of GelTex's
interest in RenaGel LLC, a joint venture between Genzyme and GelTex. Prior to
the acquisition of GelTex, Genzyme accounted for its investment in RenaGel LLC
under the equity method. The adjustments below also reflect the consolidation of
RenaGel LLC into Genzyme's financial statements and accounting for the purchase
by Genzyme of GelTex's 50%-interest in the joint venture using the purchase
method of accounting. The assets and liabilities of the joint venture are
reflected in the amounts above. Because Genzyme already owns a 50% interest in
RenaGel LLC, the assets of RenaGel LLC are adjusted to fair value only to the
extent of the 50%-interest Genzyme acquired.
In connection with the purchase of GelTex, Genzyme expects approximately
$118.0 million of the purchase price to be allocated to in-process research and
development, or IPR&D. Genzyme management assumes responsibility for determining
the IPR&D valuation. Genzyme engaged an
23
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
independent third-party appraisal company to assist in the valuation of the
intangible assets acquired. The final valuation will be completed following the
closing date of the transaction.
The fair value assigned to purchased IPR&D was estimated by discounting, to
present value, the cash flows expected to result from each project once it has
reached technological feasibility. A discount rate consistent with the risks of
each project was used to estimate the present value of cash flows. In estimating
future cash flows, management considered other tangible and intangible assets
required for successful exploitation of the technology resulting from each
purchased IPR&D project and adjusted future cash flows for a charge reflecting
the contribution to value of these assets. The estimated future cash flows
resulting from purchased IPR&D were adjusted for the contribution of core
technology to the value of each IPR&D project. The value assigned to purchased
research and development was the amount attributable to the efforts of GelTex up
to the time of acquisition. This amount was estimated through application of the
"stage of completion" calculation by multiplying total estimated revenue for
IPR&D by the percentage of completion of each purchased research and development
project at the time of acquisition.
Below is a brief description of the in-process research and development
projects including an estimation of when management believes Genzyme Corporation
may realize revenues from the sale of these products in the respective
application.
RENAGEL. Renagel brand phosphate binder is a non-absorbed polymer for the
treatment of hyperphosphatemia. GelTex has undertaken a series of clinical
studies that are designed to demonstrate the compound's role in the prevention
of cardiac calcification and the mortality and morbidity associated with cardiac
calcification. GelTex has also undertaken clinical studies designed to
demonstrate the compound's role in limiting the complications of
hyperphosphatemia in pre-dialysis patients. Clinical studies are scheduled for
completion in 2002, 2003 and 2004 for these various indications. Although
clinical results to date have been positive, there can be no assurance that
statistically significant results will be observed in ongoing or future clinical
trials.
Future costs for these programs are estimated at $20.0 million. A discount
rate of 35% was utilized in discounting the estimated cash flows associated with
these programs.
C. DIFFICILE. The goal of the C. DIFFICILE program is to develop a
toxin-binding polymer for the treatment and prevention of antibiotic induced
C. DIFFICILE colitis. GelTex has completed a phase I study, and expects to
initiate a phase II study in 2000. Although clinical results to date have been
positive, there can be no assurance that statistically significant results will
be observed in ongoing or future clinical trials. Assuming favorable results in
future studies, it is expected that approval to market this product will be
obtained by 2005 in the U.S., although there can be no assurance that a product
will be launched or that the launch will occur within this time period.
The future cost of this program is estimated to be approximately
$37.0 million. A discount rate of 38% was utilized in discounting these
estimated cash flows.
ORAL MUCOSITIS. Oral Mucositis is common side effect of radiation therapy
and chemotherapy. GelTex has identified a series of compounds that alone and in
combination have demonstrated efficacy in animal models of Oral Mucositis.
GelTex expects that an IND will be filed in the fourth quarter of 2001 and
product launch is expected in 2005, although there can be no assurance that an
IND will be filed or a product launched, or that the filing or launch will occur
within this time period.
24
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
The future cost of this program is estimated to be approximately
$25.0 million. A discount rate of 40% was utilized in discounting these
estimated cash flows.
DENSPM. The DENSPM program is focused on the development of a compound for
the treatment of mild to moderate psoriasis. Toxicology studies are underway and
GelTex expects to file an IND during the first quarter of 2001. Phase I safety
and dose-ranging studies are scheduled for 2001 and product launch is
anticipated in 2005, although there can be no assurance that an IND will be
filed or a product launched, or that the filing or launch will occur within this
time period.
The future cost of this program is estimated to be approximately
$30.0 million. A discount rate of 40% was utilized in discounting these
estimated cash flows.
IRON CHELATION. The iron chelator program is focused on the prevention and
treatment of transfusional or hereditary iron overload. GelTex has identified
small molecule compounds that are highly effective, orally active iron
chelators. Compounds to date display an acceptable tolerability profile for
further progression. GelTex expects to file an IND in 2001 and hopes to launch
the product in 2005, although there can be no assurance that an IND will be
filed or a product launched, or that the filing or launch will occur within this
time period.
The future cost of this program is estimated to be approximately
$31.0 million. A discount rate of 40% was utilized in discounting these
estimated cash flows.
ANTI-OBESITY. The anti-obesity program builds on GelTex's expertise in
non-absorbed polymers. The program is focused on the development of a compound
that will inhibit lipase and bind fat. GelTex expects to file an IND early in
2002 and hopes to launch a product in 2006, although there can be no assurance
that an IND will be filed or a product launched, or that the filing or launch
will occur within this time period.
The future cost of this program is estimated to be approximately
$39.0 million. A discount rate of 40% was utilized in discounting these
estimated cash flows.
GT102-279. GT102-279 is a second generation lipid-lowering compound that
has the attributes of GelTex's WelChol lipid lowering agent, but requires 50%
fewer tablets. This ease of use could result in higher compliance and greater
efficacy, resulting in broader market penetration. One Phase II study has been
completed and a second Phase II study is in progress. GelTex expects to complete
clinical studies late in 2003 with product launch in 2004. Although clinical
results to date have been positive, there can be no assurance that statistically
significant results will be observed in ongoing or future clinical trials, that
a product will be launched, or that the launch will occur within this time
period.
Under the terms of GelTex's collaboration agreement with Sankyo, Sankyo was
granted an option to license this compound. To keep this option in place, Sankyo
must fund the future development cost of this program. A discount rate of 38%
was utilized in discounting these estimated cash flows.
25
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
The GelTex research and development programs currently in process were
valued as follows (amounts in thousands):
Renagel (Calcification, pre-dialysis and M&M) $ 19,747
C. DIFFICILE 37,386
Iron Chelation 15,715
Anti-Obesity 17,788
DENSPM 3,450
Oral Mucositis 17,769
GT102-279 6,193
--------
$118,048
========
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX
These adjustments reflect the retirement of all Surgical Products Stock,
Tissue Repair Stock and Biomatrix common stock and the issuance of Biosurgery
Stock. The value ascribed to the Biosurgery Stock exchanged for Biomatrix common
stock for purchase price accounting is $11.79 per share.
The aggregate purchase price is comprised of the following (amounts in
thousands):
Issuance of 17,516,712 shares of Biosurgery Stock........... $206,522
Cash payment................................................ 252,421
--------
Subtotal.................................................. 458,943
Issuance of Biosurgery options to Biomatrix optionholders... 11,373
Acquisition costs........................................... 12,087
--------
Aggregate purchase price............................ $482,403
========
I. PRO FORMA ADJUSTMENTS TO GENZYME CORPORATION'S CONSOLIDATED BALANCE SHEET
(B1) To record the acquisition of the net assets of Biomatrix for an
aggregate purchase price of $482.4 million (see Note A). The intangible
assets of approximately $396.2 million are as follows:
USEFUL LIFE AMOUNTS
DESCRIPTION IN YEARS IN THOUSANDS
- ----------- ----------- ------------
Workforce............................................. 5.0 $ 2,017
Non-compete agreements................................ 1.5 640
Distribution agreements............................... 8.0 13,950
Trademark/trade name.................................. 11.0 48,746
Patented core technology.............................. 11.0 59,877
Current products technology........................... 11.0 159,624
Goodwill.............................................. 11.0 111,320
--------
Total............................................. $396,174
========
The $82.1 million allocated to in-process technology has been charged to
accumulated deficit for purposes of pro forma balance sheet presentation
only and was charged to expense in
26
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
Genzyme's historical financial statements upon completion of the merger
with Biomatrix. The goodwill of $111.3 million consists of the excess of
the purchase price over the fair market value of net assets acquired. A
deferred tax liability of $107.0 million has been generated from the
creation of intangible assets, excluding goodwill. An amount of
$200.0 million of debt was obtained by Genzyme in order to finance the
cash payment portion of the purchase price, and the remaining
approximately $52.4 million was paid from the existing cash balances.
The purchase price includes $11.4 million for the estimated fair value of
the Genzyme Biosurgery options that were issued in exchange for the
Biomatrix options. This estimated fair value was calculated using the
Black-Scholes option pricing model based on a stock price of $11.79,
which is the value of ascribed to the Biosurgery Stock for purchase price
accounting, and other assumptions in the Black-Scholes model. The portion
of the intrinsic value of unvested options relating to future service,
which is estimated to be $66,000, has been allocated to deferred
compensation in the pro forma consolidated balance sheet. In the pro
forma consolidated statements of operations, compensation expense has
been recorded to reflect the amortization of this deferred compensation
over the average remaining vesting period of approximately 3 years.
(B2) To record $18.8 million of accrued expenses related to the estimated
acquisition costs and liabilities for exit activities that have not been
reflected in the historical balances as of September 30, 2000.
(B3) To eliminate Biomatrix historical stockholders' equity amounts totaling
$91.4 million, except for the Biomatrix notes receivable of
$14.7 million, which remained outstanding upon completion of the
transaction. Biomatrix received these full recourse notes in exchange
for the purchase of Biomatrix common stock at fair market value by
certain officers, directors and a consultant in accordance with a
restricted stock plan. To the extent the holders receive cash, as
consideration for their restricted shares, it must be used to repay the
balance of the same quantity of shares under the notes. Therefore, the
balance of the notes could change. The quantity of the decrease to the
balance of the notes will not be known until the acquisition is
effective.
(B4) To record the cancellation of Surgical Products Stock and Tissue Repair
Stock, by eliminating the par value of common stock of $150,000 and
$289,000, respectively; and additional paid-in capital of
$543.2 million and $228.1 million, respectively; and to record the
issuance of Biosurgery Stock, with par value of $188,000 and additional
paid-in capital transferred from Surgical Products Stock and Tissue
Repair Stock of $771.5 million.
(B5) To record inventory and fixed assets of Biomatrix at fair value, by
increasing the inventory by $11.3 million and decreasing the fixed
assets by $0.5 million. The increased basis for the inventory valuation
will result in a $11.3 million decrease in gross margin as the units are
sold, after the acquisition.
27
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
II. PRO FORMA ADJUSTMENTS TO GENZYME CORPORATION'S CONSOLIDATED STATEMENTS OF
OPERATIONS
(B6) To record the amortization of acquired intangible assets and goodwill
(amounts in thousands):
ASSIGNED ANNUAL
VALUE AMORTIZATION
-------- ------------
INTANGIBLE ASSETS:
Workforce (5 years)................................. $ 2,017 $ 404
Non-compete agreements (1.5 years).................. 640 427
Distribution agreements (8 years)................... 13,950 1,744
Trademark/trade name (11 years)..................... 48,746 4,431
Patented core technology (11 years)................. 59,877 5,443
Current products technology (11 years).............. 159,624 14,511
Goodwill (11 years)................................. 111,320 10,120
-------- -------
Pro forma adjustment for amortization of
intangibles................................... $396,174 $37,080
======== =======
(B7) To record the following:
- Amortization of deferred compensation associated with Genzyme
Biosurgery options that were issued in exchange for Biomatrix options;
- Impact of the additional expense associated with the increased basis
for the Biomatrix inventory;
- Impact of the additional depreciation expense related to the increased
basis of Biomatrix's fixed assets.
(B8) To eliminate Biomatrix' weighted average shares outstanding, and to
record the cancellation of Surgical Products Stock and Tissue Repair
Stock.
(B9) To record the creation of Biosurgery Stock. Net losses for Genzyme
Surgical Products and Genzyme Tissue Repair and net income for Biomatrix
have been transferred to the calculation of loss per share allocated to
Biosurgery Stock. The net income amount for Biomatrix of $22.5 million
for the nine months ended September 30, 2000 and $31.0 million for the
year ended December 31, 1999 reflects the elimination of the
$9.2 million and $12.4 million tax provision, respectively because
Genzyme Biosurgery incurred a pro forma net loss for each period.
(B10) To adjust the tax provision for the impact of the amortization of
acquired intangibles, the reduction in investment income, the additional
interest expense and the amortization of the deferred tax liability
established in purchase accounting. Income taxes are allocated to
Genzyme Biosurgery based upon the financial statement income, taxable
income, credits and other amounts properly allocable to each division
under generally accepted accounting principles as if it were a separate
taxpayer. The realizability of deferred tax assets is assessed at the
division level.
(B11) To record interest expense that would have been incurred on the
$200.0 million of debt, at a rate of 7.5% per annum; and to reduce the
investment income balance to reflect the payment of $52.4 million of
cash at a rate of return of 5.45% per annum.
28
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
(B12) To eliminate the tax benefits of Genzyme Surgical Products and Genzyme
Tissue Repair that had been allocated to Genzyme General and to allocate
the pro forma tax benefits of Genzyme Biosurgery to Genzyme General.
Genzyme's management and accounting policies provide that, if as of the
end of any fiscal quarter, a division can not use any projected annual
tax benefit attributable to it to offset or reduce its current or
deferred income tax expense, Genzyme may allocate the tax benefit to
other divisions in proportion to their taxable income without any
compensating payments or allocation to the division generating the
benefit. The tax benefits allocated to Genzyme General from Genzyme
Surgical Products and Genzyme Tissue Repair totaled $27.0 million for
the year ended December 31, 1999 and $16.3 million in the nine months
ended September 30, 2000. On a pro forma basis, the tax benefits
allocated to Genzyme General from Genzyme Biosurgery would have been
$21.0 million for the year ended December 31, 1999 and $11.9 million
for the nine months ended September 30, 2000. The tax benefits generated
by Genzyme Biosurgery and allocated to Genzyme General are lower on a
pro forma basis due to Biomatrix' profitability offsetting losses
incurred by Genzyme Surgical Products and Genzyme Tissue Repair.
(B13) To eliminate Genzyme Surgical Products' loss from earnings allocated to
Genzyme General Stock to reflect the change in Genzyme's earnings
allocation resulting from the creation and distribution of Surgical
Products Stock in June 1999.
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX
The following adjustments reflect the acquisition of GelTex by Genzyme for a
combination of cash and stock and the replacement of GelTex options and warrants
with options and warrants to purchase Genzyme General Stock. As part of the
acquisition of GelTex, Genzyme acquired all of GelTex's interest in RenaGel LLC,
a joint venture between Genzyme and GelTex. Prior to the acquisition of GelTex,
Genzyme accounted for its investment in RenaGel LLC under the equity method. The
adjustments below reflect the consolidation of RenaGel LLC into Genzyme's
financial statements and accounting for Genzyme's purchase of GelTex' interest
in the joint venture using the purchase method of accounting.
I. PRO FORMA ADJUSTMENTS TO GENZYME CORPORATION'S CONSOLIDATED BALANCE SHEET
(G1) To record the acquisition of the net assets of GelTex for an aggregate
purchase price of $1,076.0 million. The aggregate purchase price is comprised of
the following (amounts in thousands):
Issuance of 7,886,404 shares of Genzyme General Stock....... $ 491,181
Cash payment................................................ 515,151
----------
Subtotal.................................................... 1,006,332
Basis of GelTex investment.................................. 2,500
Issuance of Genzyme General options and warrants to GelTex
option and warrant holders................................ 62,882
Acquisition costs........................................... 4,321
----------
Aggregate purchase price.................................... $1,076,035
==========
29
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
The aggregate purchase price of $1,076.0 million was allocated to the
acquired tangible and intangible assets and liabilities based on their estimated
respective fair value as of September 30, 2000 (amounts in thousands):
Cash and investments........................................ $ 141,841
Prepaid expenses and other current assets................... 12,511
Inventory................................................... 14,722
Property, plant & equipment................................. 46,645
Intangible assets (to be amortized over 5 to 15 years)...... 465,109
Goodwill (to be amortized over 15 years).................... 450,953
In-process research and development......................... 118,048
Deferred tax asset.......................................... 35,016
Deferred compensation....................................... 10,206
Assumed liabilities......................................... (40,327)
Forwards.................................................... (1,300)
Swaps....................................................... (1,904)
Deferred tax liability...................................... (175,485)
----------
Aggregate purchase price.................................... $1,076,035
==========
The $118.0 million allocated to in-process technology has been charged to
retained earnings for purposes of pro forma balance sheet presentation only and
was charged to expense in Genzyme's historical financial statements upon
completion of the merger with GelTex. The goodwill of $451.0 million consists of
the excess of the purchase price over the fair market value of net assets
acquired. A deferred tax liability of $175.5 million has been generated from the
creation of intangible assets, excluding goodwill. An amount of $150.0 million
of debt was obtained by Genzyme in order to finance the cash payment portion of
the purchase price, and the remaining approximately $365.2 million was paid from
the existing cash and investment balances. The purchase price includes
$62.9 million for the estimated fair value of the Genzyme General options and
warrants that were issued in exchange for the GelTex options and warrants. This
estimated fair value was calculated using the Black-Scholes valuation model. The
portion of the intrinsic value of unvested options relating to future service,
which is estimated to be $10.2 million, has been allocated to deferred
compensation in the pro forma consolidated balance sheet. In the pro forma
consolidated statements of operations, compensation expense has been recorded to
reflect the amortization of this deferred compensation over the average
remaining vesting period of approximately one year. This amortization expense of
approximately $10.2 million has been recorded to the appropriate expense
category based on the payroll classification of the grantee. The remaining
vesting period of approximately one year is the result of a consent granted by
Genzyme to GelTex pursuant to the merger agreement which allows GelTex to amend
GelTex options granted to employees before the effective date of the merger to
provide that vesting will be accelerated as of the first anniversary of the
effective date of the merger as long as they remain employees of GelTex or
Genzyme on the one year anniversary date.
(G2) To record $4.3 million of accrued expenses related to the estimated
acquisition costs that have not been reflected in the historical balances as of
September 30, 2000.
(G3) To eliminate GelTex's historical stockholders' equity amounts totaling
$176.1 million.
(G4) To eliminate intercompany balances between Genzyme, GelTex and RenaGel
LLC.
(G5) To eliminate GelTex's intangible assets.
30
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
(G6) To eliminate Genzyme's and GelTex's investment in RenaGel LLC and to
consolidate RenaGel LLC with Genzyme. The assets of the joint venture have been
adjusted to fair value to the extent of the percentage ownership of RenaGel LLC
acquired by Genzyme in this transaction (i.e., 50%). Assets of RenaGel LLC for
which book value does not approximate fair value are as follows (amounts in
thousands):
DESCRIPTION BOOK VALUE FAIR VALUE RECORDED VALUE
- ----------- ---------- ---------- --------------
Inventory................................. $13,461 $ 29,773 $ 21,617
Renagel Technology........................ 0 232,540 116,270
The inventory and Renagel technology are reflected in adjustment (G1) above.
The increased basis for the inventory will result in a $8.2 million decrease to
Genzyme's gross margin as the units are sold after the acquisition.
II. PRO FORMA ADJUSTMENTS TO GENZYME CORPORATION'S CONSOLIDATED STATEMENTS OF
OPERATIONS
(G7) To record the amortization of acquired intangible assets and goodwill
(amounts in thousands):
INTANGIBLE ASSETS: ASSIGNED VALUE ANNUAL AMORTIZATION
- ------------------ -------------- -------------------
Workforce (5 years)......................................... $ 2,327 $ 465
Patents (15 years).......................................... 115,772 7,718
Trademarks/trade name (15 years)............................ 6,526 435
Core technology (15 years).................................. 65,313 4,354
Current products technology (5 to 15 years)................. 275,171 19,948
Goodwill (15 years)......................................... 450,953 30,065
-------- -------
Pro forma adjustment for amortization of intangibles........ $916,062 $62,985
======== =======
(G8) To record the following:
- Amortization of deferred compensation associated with Genzyme General
options that were issued in exchange for GelTex options;
- Impact of the additional expense associated with the increased basis
for the Renagel LLC inventory of $8.2 million;
- Impact of the additional depreciation expense related to the increased
basis of GelTex's fixed assets.
(G9) To eliminate GelTex's weighted average shares outstanding, to reflect
the issuance of 7,886,404 shares of Genzyme General Stock and to reflect the
dilutive effect of the issuance of options to purchase Genzyme General Stock to
holders of GelTex options.
(G10) To record interest expense that would have been incurred on the
$150.0 million of debt, at a rate of 7.5% per annum; and to reduce the
investment income balance to reflect the payment of $365.2 million of cash at a
rate of return of 5.45% per annum.
(G11) To eliminate intercompany transactions between Genzyme, GelTex and
RenaGel LLC.
31
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
(G12) To eliminate Genzyme's and GelTex's equity in the net loss of RenaGel
LLC and to consolidate RenaGel LLC with Genzyme.
(G13) To adjust the tax provision for the impact of the reduction in
investment income, the additional interest expense and the amortization of the
deferred tax liability established in purchase accounting. These adjustments
plus the impact of including GelTex's loss in determining Genzyme's tax
provision and the effects of the Biomatrix merger would increase Genzyme's
effective tax rate from 29.9% to 44.5% for the nine months ended September 30,
2000 and would decrease Genzyme's effective tax rate from 39.8% to (4.3)% for
the year ended December 31, 1999.
(G14) The net loss of GelTex has been transferred to the calculation of net
income per share allocated to Genzyme General Stock.
III. PRO FORMA ADJUSTMENTS TO GENZYME GENERAL'S COMBINED BALANCE SHEET
(G15) To record the acquisition of the net assets of GelTex for an aggregate
purchase price of $1,076.0 million. The aggregate purchase price is comprised of
the following (amounts in thousands):
Issuance of 7,886,404 shares of Genzyme General Stock....... $ 491,181
Cash payment................................................ 515,151
----------
Subtotal.................................................... 1,006,332
Basis of GelTex investment.................................. 2,500
Issuance of Genzyme General options and warrants to GelTex
option and warrant holders................................ 62,882
Acquisition costs........................................... 4,321
----------
Aggregate purchase price.................................... $1,076,035
==========
The aggregate purchase price of $1,076.0 million was allocated to the
acquired tangible and intangible assets and liabilities based on their estimated
respective fair value as of September 30, 2000 (amounts in thousands):
Cash and investments........................................ $ 141,841
Prepaid expenses and other current assets................... 12,511
Inventory................................................... 14,722
Property, plant & equipment................................. 46,645
Intangible assets (to be amortized over 5 to 15 years)...... 465,109
Goodwill (to be amortized over 15 years).................... 450,953
In-process research and development......................... 118,048
Deferred tax asset.......................................... 35,016
Deferred compensation....................................... 10,206
Assumed liabilities......................................... (40,327)
Forwards.................................................... (1,300)
Swaps....................................................... (1,904)
Deferred tax liability...................................... (175,485)
----------
Aggregate purchase price.................................... $1,076,035
==========
The $118.0 million allocated to in-process technology has been charged to
division equity for purposes of pro forma balance sheet presentation only and
was allocated to expense in Genzyme
32
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
General's historical financial statements upon completion of the merger with
GelTex. The goodwill of $451.0 million consists of the excess of the purchase
price over the fair market value of net assets acquired. A deferred tax
liability of $175.5 million has been generated from the creation of intangible
assets, excluding goodwill. An amount of $150.0 million of debt was obtained by
Genzyme and allocated to Genzyme General in order to finance the cash payment
portion of the purchase price, and the remaining approximately $365.2 million
was paid from Genzyme General's existing cash and investment balances. The
purchase price includes $62.9 million for the estimated fair value of the
Genzyme General options and warrants that were issued in exchange for the GelTex
options and warrants. This estimated fair value was calculated using the
Black-Scholes valuation model. The portion of the intrinsic value of unvested
options relating to future service, which is estimated to be $10.2 million, has
been allocated to deferred compensation, included in division equity in the pro
forma combined balance sheet. In the pro forma combined statements of
operations, compensation expense has been recorded to reflect the amortization
of this deferred compensation over the average remaining vesting period of
approximately one year. This amortization expense of approximately
$10.2 million has been recorded to the appropriate expense category based on the
payroll classification of the grantee. The remaining vesting period of
approximately one year is the result of a consent granted by Genzyme to GelTex
pursuant to the merger agreement which allows GelTex to amend GelTex options
granted to employees before the effective date of the merger to provide that
vesting will be accelerated as of the first anniversary of the effective date of
the merger as long as they remain employees of GelTex or Genzyme on the one year
anniversary date.
(G16) To record $4.3 million of accrued expenses related to the estimated
acquisition costs that have not been reflected in the historical balances as of
September 30, 2000.
(G17) To eliminate GelTex's historical stockholders' equity amounts totaling
$176.1 million.
(G18) To eliminate intercompany balances between Genzyme General, GelTex and
RenaGel LLC.
(G19) To eliminate GelTex's intangible assets.
(G20) To eliminate Genzyme General's and GelTex's investment in RenaGel LLC
and to consolidate RenaGel LLC with Genzyme General. The assets of the joint
venture have been adjusted to fair value to the extent of the percentage
ownership of RenaGel LLC acquired by Genzyme and allocated to Genzyme General in
this transaction (i.e., 50%). Assets of RenaGel LLC for which book value does
not approximate fair value are as follows (amounts in thousands):
DESCRIPTION BOOK VALUE FAIR VALUE RECORDED VALUE
- ----------- ---------- ---------- --------------
Inventory................................. $13,461 $ 29,773 $ 21,617
Renagel Technology........................ 0 232,540 116,270
The inventory and Renagel technology are reflected in adjustment (G15)
above. The increased basis for the inventory will result in a $8.2 million
decrease to Genzyme General's gross margin as the units are sold after the
acquisition.
33
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
IV. PRO FORMA ADJUSTMENTS TO GENZYME GENERAL'S COMBINED STATEMENTS OF OPERATIONS
(G21) To record the amortization of acquired intangible assets and goodwill
(amounts in thousands):
INTANGIBLE ASSETS: ASSIGNED VALUE ANNUAL AMORTIZATION
- ------------------ -------------- -------------------
Workforce (5 years)......................................... $ 2,327 $ 465
Patents (15 years).......................................... 115,772 7,718
Trademarks/trade name (15 years)............................ 6,526 435
Core technology (15 years).................................. 65,313 4,354
Current products technology (5 to 15 years)................. 275,171 19,948
Goodwill (15 years)......................................... 450,953 30,065
-------- -------
Pro forma adjustment for amortization of intangibles........ $916,062 $62,985
======== =======
(G22) To record the following:
- Amortization of deferred compensation associated with Genzyme General
options that were issued in exchange for GelTex options;
- Impact of the additional expense associated with the increased basis
for the Renagel LLC inventory of $8.2 million;
- Impact of the additional depreciation expense related to the increased
basis of GelTex's fixed assets.
(G23) To record interest expense that would have been incurred on the
$150.0 million of debt allocated to Genzyme General, at a rate of 7.5% per
annum; and to reduce the investment income balance to reflect the payment of
$365.2 million of cash at a rate of return of 5.45% per annum.
(G24) To eliminate intercompany transactions between Genzyme General, GelTex
and RenaGel LLC.
(G25) To eliminate Genzyme General's and GelTex's equity in the net loss of
RenaGel LLC and to consolidate RenaGel LLC with Genzyme General.
(G26) To adjust the tax provision for the impact of the reduction in
investment income, the additional interest expense and the amortization of the
deferred tax liability established in purchase accounting.
34
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of September 11, 2000, among
Genzyme, Titan Acquisition Corp. and GelTex, as amended. Previously
filed as Exhibit 99.1 to Genzyme's Current Report on Form 8-K dated
September 11, 2000 (Commission File No. 000-14680) and incorporated
herein by reference.
23.1 Consent of Ernst & Young LLP. Filed herewith.
23.2 Consent of PricewaterhouseCoopers LLP. Filed herewith.
99.1 The audited financial statements of GelTex as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31,
1999, including the report of independent auditors (as reported on
pages F-1 to F-20 of the Annual Report on Form 10-K of GelTex for the
fiscal year ended December 31, 1999 (filed on March 30, 2000), as
amended on November 7, 2000)). Filed herewith.
99.2 The unaudited financial statements of GelTex as of and for the nine
months ended September 30, 2000 and 1999 (as reported on pages 3 to 9
of the Quarterly Report on Form 10-Q of GelTex for the quarter ended
September 30, 2000 (filed November 14, 2000)). Filed herewith.
35