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. 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, Titan Acquisition Corp. and GelTex Pharmaceuticals, Inc., as
amended.
An amendment to this Form 8-K was filed on February 27, 2001 to
include (1) the financial statements of GelTex Pharmaceuticals, Inc. 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.
This amendment to the Form 8-K is being filed to include the
unaudited pro forma combined financial information beginning on page 4 herein
which describes the pro forma effect of our merger with GelTex and our merger
with Biomatrix on the statements of operations for the year ended December
31, 2000 of both Genzyme Corporation and Genzyme General, the division of
Genzyme Corporation to which the assets and liabilities and operations of
GelTex were allocated.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits:
2 Agreement and Plan of Merger, dated as of September 11, 2000, among
Genzyme Corporation, Titan Acquisition Corp. and GelTex
Pharmaceuticals, Inc. 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.
2
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: May 2, 2001 By: /s/ Michael Wyzga
------------------------------------
Michael Wyzga, Senior Vice President
and Chief Financial Officer
3
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 statements of operations for the year ended
December 31, 2000 of both Genzyme and Genzyme General, the division of
Genzyme to which the assets and liabilities and operations of GelTex were
allocated. The purpose of this pro forma financial information is to
demonstrate how the combined statements of operations of these businesses
might have appeared if each of the mergers had been completed at the
beginning of the period 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
4
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 involved a change in Genzyme's methodology for
allocating its earnings to its series of common stock.
5
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 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 period 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 statements of operations
should be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of Genzyme. Those financial
statements are included in Genzyme's Annual Report on Form 10-K for the year
ended December 31, 2000 (filed on April 2, 2001).
6
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(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..................... $ 811,897 $ 65,401 $ -- $ 877,298 $ --
Net service sales..................... 84,482 -- -- 84,482 --
Collaborative joint venture project
reimbursement....................... -- -- -- -- 5,409
Revenues from research and development
contracts:
Related parties..................... 509 -- -- 509 --
Other............................... 6,432 -- -- 6,432 36,585
Income from licenses, royalties,
research contracts and grants....... -- 10,221 -- 10,221 --
--------- -------- -------- --------- --------
Total revenues...................... 903,320 75,622 -- 978,942 41,994
--------- -------- -------- --------- --------
Operating costs and expenses:
Cost of products sold................. 232,383 20,395 11,330 B2 264,108 --
Cost of services sold................. 50,177 -- -- 50,177 --
Selling, general and administrative... 264,551 33,576 21 B2
(105) B2 298,043 11,729
Collaborative joint venture project
costs............................... -- -- -- -- 5,409
Research and development (including
research and development relating to
contracts).......................... 169,478 10,184 179,662 33,727
Amortization of intangibles........... 22,974 -- 35,617 B1 58,591 --
Purchase of in-process research and
development......................... 200,191 -- (82,143) B8 118,048 --
Charge for impaired asset............. 4,321 -- -- 4,321 --
--------- -------- -------- --------- --------
Total operating costs and
expenses.......................... 944,075 64,155 (35,280) 972,950 50,865
--------- -------- -------- --------- --------
Operating income (loss)................. (40,755) 11,467 35,280 5,992 (8,871)
--------- -------- -------- --------- --------
Other income (expenses):
Equity in net loss of unconsolidated
affiliates.......................... (44,965) -- -- (44,965) 1,582
Gain on affiliate sale of stock....... 22,689 -- -- 22,689 --
Gain on sale of investment in equity
securities.......................... 23,173 -- -- 23,173 --
Minority interest..................... 4,625 -- -- 4,625 --
Charge for impaired investments....... (7,300) -- -- (7,300) --
Other................................. 5,188 (301) -- 4,887 --
Investment income..................... 45,593 3,402 (2,738) B6 46,257 6,942
Interest expense...................... (15,710) (975) (14,375) B6 (31,060) (697)
--------- -------- -------- --------- --------
Total other income (expenses)....... 33,293 2,126 (17,113) 18,306 7,827
--------- -------- -------- --------- --------
Income (loss) before income taxes....... (7,462) 13,593 18,167 24,298 (1,044)
Income tax (provision) benefit.......... (55,478) (6,513) 19,661 B5 (42,330) --
--------- -------- -------- --------- --------
Net income (loss)....................... $ (62,940) $ 7,080 $ 37,828 $ (18,032) $ (1,044)
========= ======== ======== ========= ========
PRO FORMA
GENZYME
PRO FORMA NOTE CORPORATION AND
ADJUSTMENTS REFERENCE SUBSIDIARIES
----------- --------- ---------------
Revenues:
Net product sales..................... $ 6,166 G6 $ 883,464
Net service sales..................... -- 84,482
Collaborative joint venture project
reimbursement....................... (5,409) G5 --
Revenues from research and development
contracts:
Related parties..................... -- 509
Other............................... 15 G6 43,032
Income from licenses, royalties,
research contracts and grants....... -- 10,221
--------- ---------
Total revenues...................... 772 1,021,708
--------- ---------
Operating costs and expenses:
Cost of products sold................. 8,156 G2
6,471 G6 278,735
Cost of services sold................. -- 50,177
Selling, general and administrative... 5,870 G6
1,671 G2
1,761 G2 319,074
Collaborative joint venture project
costs............................... (5,409) G5 --
Research and development (including
research and development relating to
contracts).......................... 7,042 G2
4,568 G6 224,999
Amortization of intangibles........... 59,876 G1,G6 118,467
Purchase of in-process research and
development......................... (118,048) G9 --
Charge for impaired asset............. -- 4,321
--------- ---------
Total operating costs and
expenses.......................... (28,042) 995,773
--------- ---------
Operating income (loss)................. 28,814 25,935
--------- ---------
Other income (expenses):
Equity in net loss of unconsolidated
affiliates.......................... 8,277 G6
1,812 G5
(1,582) G6 (34,876)
Gain on affiliate sale of stock....... -- 22,689
Gain on sale of investment in equity
securities.......................... -- 23,173
Minority interest..................... -- 4,625
Charge for impaired investments....... -- (7,300)
Other................................. -- 4,887
Investment income..................... (18,923) G4 34,276
Interest expense...................... 269 G4
(10,781) G4 (42,269)
--------- ---------
Total other income (expenses)....... (20,928) 5,205
--------- ---------
Income (loss) before income taxes....... 7,886 31,140
Income tax (provision) benefit.......... 27,824 G7 (14,506)
--------- ---------
Net income (loss)....................... $ 35,710 $ 16,634
========= =========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
7
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2000
(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....... $ 85,956 $ -- $ 85,956 $ 34,666
Tax benefit allocated from
Genzyme Molecular Oncology..... 7,476 7,476
Tax benefit allocated from
Genzyme Biosurgery............. 28,023 (352) B7 27,671
-------- --------- --------- ---------
Net income allocated to Genzyme
General Stock.................. $121,455 $ (352) $ 121,103 $ 34,666
======== ========= ========= =========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 1.41 $ 1.41
======== =========
Diluted........................ $ 1.35 $ 1.35
======== =========
Weighted average shares
outstanding:
Basic.......................... 86,131 86,131 7,062
======== ========= =========
Diluted........................ 89,683 89,683 14,463
======== ========= =========
ALLOCATED TO MOLECULAR ONCOLOGY
STOCK:
Net loss......................... $(23,096) $ (23,096)
======== =========
Net loss per share of Molecular
Oncology Stock -- basic and
diluted........................ $ (1.60) $ (1.60)
======== =========
Weighted average shares
outstanding.................... 14,446 14,446
======== =========
ALLOCATED TO SURGICAL PRODUCTS
STOCK:
Net loss......................... $(54,748) $ 54,748 B4 $ --
======== ========= =========
Net loss per share of Surgical
Products Stock --basic and
diluted........................ $ (3.67) $ 3.67 B4 $ --
======== ========= =========
Weighted average shares
outstanding.................... 14,900 (14,900) B3 --
======== ========= =========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss......................... $(19,833) $ 19,833 B4 $ --
======== ========= =========
Net loss per share of Tissue
Repair Stock --basic and
diluted........................ $ (0.69) $ 0.69 B4 $ --
======== ========= =========
Weighted average shares
outstanding.................... 28,716 (28,716) B3 --
======== ========= =========
BIOMATRIX, INC.:
Net income....................... $ 7,080 $ (7,080) B4 $ --
======= ========= =========
Net income per Biomatrix common
share-basic.................... $ 0.30 $ (0.30) B4 $ --
======= ========= =========
Weighted average shares
outstanding.................... 23,401 (23,401) B3 --
======= ========= =========
Net income per Biomatrix common
and common equivalent
share-diluted.................. $ 0.29 $ (0.29) B4 $ --
======= ========= =========
Adjusted weighted average shares
outstanding.................... 24,395 (24,395) B3 --
======= ========= =========
ALLOCATED TO BIOSURGERY STOCK:
Genzyme Biosurgery net loss...... $(87,636) $ (42,821) B4 $(130,457)
Allocated tax benefit............ 448 13,500 B9 13,948
-------- --------- ---------
Net loss allocated to Biosurgery
stock.......................... $(87,188) $ (29,321) B4 $(116,509)
======== ========= =========
Net loss per share of Biosurgery
Stock --basic and diluted...... $ (2.40) $ (3.27)
======== =========
Weighted average shares
outstanding.................... 36,359 (686) B3 35,673
======== ========= =========
GELTEX PHARMACEUTICALS, INC.:
Net loss......................... $ (1,044) $ 1,044
======== =========
Net loss per share of GelTex
common stock--basic and
diluted........................ $ (0.05) $ 0.05
======== =========
Weighted average shares
outstanding.................... 19,872 (19,872)
======== =========
PRO FORMA
GENZYME
CORPORATION
NOTE AND
REFERENCE SUBSIDIARIES
--------- ------------
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... G8 $ 120,622
Tax benefit allocated from
Genzyme Molecular Oncology..... 7,476
Tax benefit allocated from
Genzyme Biosurgery............. 27,671
---------
Net income allocated to Genzyme
General Stock.................. $ 155,769
=========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 1.67
=========
Diluted........................ $ 1.59
=========
Weighted average shares
outstanding:
Basic.......................... G3 93,193
=========
Diluted........................ G3 104,146
=========
ALLOCATED TO MOLECULAR ONCOLOGY
STOCK:
Net loss......................... $ (23,096)
=========
Net loss per share of Molecular
Oncology Stock -- basic and
diluted........................ $ (1.60)
=========
Weighted average shares
outstanding.................... 14,446
=========
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:
Genzyme Biosurgery net loss...... $(130,457)
Allocated tax benefit............ 13,948
---------
Net loss allocated to Biosurgery
Stock.......................... $(116,509)
=========
Net loss per share of Biosurgery
Stock --basic and diluted...... $ (3.27)
=========
Weighted average shares
outstanding.................... 35,673
=========
GELTEX PHARMACEUTICALS, INC.:
Net loss......................... G8 $ --
=========
Net loss per share of GelTex
common stock--basic and
diluted........................ G8 $ --
=========
Weighted average shares
outstanding.................... G3 --
=========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
8
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
PRO
FORMA
GENZYME HISTORICAL PRO FORMA NOTE GENZYME
GENERAL GELTEX ADJUSTMENTS REFERENCE GENERAL
--------- ---------- ----------- --------- --------
Revenues:
Net product sales.................................... $690,027 $ -- $ 6,166 G14 $696,193
Net service sales.................................... 61,161 -- -- 61,161
Collaborative joint venture project reimbursement.... -- 5,409 (5,409) G13 --
Revenues from research and development contracts:
Related parties.................................... 509 -- -- 509
Other.............................................. 786 36,585 15 G14 37,386
-------- ------- -------- --------
Total revenues..................................... 752,483 41,994 772 795,249
-------- ------- -------- --------
Operating costs and expenses:
Cost of products sold................................ 162,894 -- 8,156 G11
6,471 G14 177,521
Cost of services sold................................ 37,879 -- -- 37,879
Selling, general and administrative.................. 166,462 11,729 5,870 G14
1,671 G11
1,761 G11 187,493
Collaborative joint venture project costs............ -- 5,409 (5,409) G13 --
Research and development (including research and
development related to contracts).................. 112,792 33,727 7,042 G11
4,568 G14 158,129
Amortization of intangibles.......................... 10,928 -- 59,876 G10, G14 70,804
Purchase of in-process research and development...... 118,048 -- (118,048) G16 --
-------- ------- -------- --------
Total operating costs and expenses................. 609,003 50,865 (28,042) 631,826
-------- ------- -------- --------
Operating income (loss)................................ 143,480 (8,871) 28,814 163,423
-------- ------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated affiliates...... (44,965) 1,582 8,277 G14
1,812 G13
(1,582) G14 (34,876)
Gain on affiliate sale of stock...................... 22,689 -- -- 22,689
Gain on sale of investment in equity securities...... 23,173 -- -- 23,173
Minority interest.................................... 4,625 -- -- 4,625
Other................................................ 5,203 -- -- 5,203
Investment income.................................... 38,549 6,942 (18,923) G12 26,568
Interest expense..................................... (14,159) (697) 269 G12
(10,781) G12 (25,368)
-------- ------- -------- --------
Total other income (expenses)...................... 35,115 7,827 (20,928) 22,014
-------- ------- -------- --------
Income (loss) before income taxes...................... 178,595 (1,044) 7,886 185,437
Income tax (provision) benefits........................ (92,639) -- 27,824 G15 (64,815)
-------- ------- -------- --------
Net income (loss)...................................... $ 85,956 $(1,044) $ 35,710 $120,622
======== ======= ======== ========
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
9
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 year ended
December 31, 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 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 historical accounting basis as if such
transactions had occurred on January 1, 2000.
(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
10
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.
11
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 December 18, 2000 (amounts in thousands):
Cash and cash equivalents................................... $ 56,137
Current assets.............................................. 37,639
Property, plant & equipment................................. 38,479
Notes receivable from stockholders.......................... 14,760
Intangible assets (to be amortized over 1.5 to 11.0
years).................................................... 284,854
Goodwill (to be amortized over 11.0 years).................. 112,262
In-process research and development......................... 82,143
Deferred tax asset.......................................... 922
Deferred compensation....................................... 66
Assumed liabilities......................................... (31,099)
Liabilities for exit activities and integration............. (6,716)
Deferred tax liability...................................... (107,044)
---------
Aggregate purchase price............................ $ 482,403
=========
In connection with the purchase of Biomatrix, Genzyme allocated
approximately $82.1 million of the purchase price 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. For a complete description of the allocation of the purchase price
to the fair value of the acquired tangible and intangible assets and
liabilities, refer to Note D. "Acquisitions" to Genzyme's consolidated
financial statements included in Genzyme's Annual Report on Form 10-K for the
year ended December 31, 2000.
12
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
(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 December 14, 2000 (amounts in thousands):
Cash and investments........................................ $ 142,994
Current assets.............................................. 32,825
Property, plant & equipment................................. 45,477
Intangible assets (to be amortized over 5 to 15 years)...... 465,109
Goodwill (to be amortized over 15 years).................... 449,634
In-process research and development......................... 118,048
Deferred tax asset.......................................... 35,016
Deferred compensation....................................... 10,206
Assumed liabilities......................................... (47,789)
Deferred tax liability...................................... (175,485)
----------
Aggregate purchase price.................................... $1,076,035
==========
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 owned a 50% interest in
RenaGel LLC, the assets of RenaGel LLC were 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
13
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. For a complete description of the allocation of
the purchase price to the fair value of the acquired tangible and intangible
assets and liabilities, refer to Note D. "Acquisitions" to Genzyme's
consolidated financial statements included in Genzyme's Annual Report on Form
10-K for the year ended December 31, 2000.
(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
========
14
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
I. PRO FORMA ADJUSTMENTS TO GENZYME CORPORATION'S CONSOLIDATED STATEMENTS OF
OPERATIONS
(B1) 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)................................. 112,262 10,206
-------- -------
Pro forma adjustment for amortization of
intangibles................................... $397,116 $37,166
======== =======
(B2) 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.
(B3) To eliminate Biomatrix' weighted average shares outstanding, and to
record the cancellation of Surgical Products Stock and Tissue Repair
Stock. Also gives effect to the conversion of Surgical Products
Stock and Tissue Repair Stock into Biosurgery Stock as though the
tracking stock exchanges occurred on January 1, 2000, and to the
issuance of Biosurgery Stock for Biomatrix common stock as though
the Biomatrix acquisition occurred on January 1, 2000.
(B4) 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 $7.1 million
for the year ended December 31, 2000 reflects the elimination of the
$6.5 million tax provision because Genzyme Biosurgery incurred a pro
forma net loss for each period.
(B5) 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.
(B6) 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.
15
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
(B7) 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 Biosurgery totaled $28.0 million for the year ended
December 31, 2000. On a pro forma basis, the tax benefits allocated
to Genzyme General from Genzyme Biosurgery would have been $27.7
million for the year ended December 31, 2000. The tax benefits
generated by Genzyme Biosurgery and allocated to Genzyme General are
lower on a pro forma basis due primarily to Biomatrix' profitability
offsetting losses incurred by Genzyme Biosurgery.
(B8) To eliminate the charge for acquired in-process research and
development recorded by the Company in connection with the
acquisition. This amount was eliminated as it reflects a material
non-recurring charge directly resulting from the acquisition.
(B9) To record the tax benefits related to the Biomatrix pro forma
adjustments which are allocated to Genzyme Biosurgery.
(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.
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
==========
16
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
I. PRO FORMA ADJUSTMENTS TO GENZYME CORPORATION'S CONSOLIDATED STATEMENTS OF
OPERATIONS
(G1) 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)......................................... 449,634 29,976
-------- -------
Pro forma adjustment for amortization of intangibles........ $914,743 $62,896
======== =======
(G2) 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.
(G3) 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.
(G4) To record interest expense that would have been incurred on the
$150.0 million of debt, at a rate of 7.5% per annum; to record the
amortization of the value of acquired interest rate swaps; 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.
(G5) To eliminate intercompany transactions between Genzyme, GelTex and
RenaGel LLC.
17
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 equity in the net loss of RenaGel
LLC and to consolidate RenaGel LLC with Genzyme.
(G7) 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.
(G8) The net loss of GelTex has been transferred to the calculation of net
income per share allocated to Genzyme General Stock. The adjustment to
Genzyme General net income in the calculation of income allocated to Genzyme
General Stock reflects the aggregate impact of all pro forma adjustments on
the Genzyme General division net income.
(G9) To eliminate the charge for acquired in-process research and
development recorded by the Company in connection with the acquisition. This
amount was eliminated as it reflects a material non-recurring charge directly
resulting from the acquisition.
18
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
II. PRO FORMA ADJUSTMENTS TO GENZYME GENERAL'S COMBINED STATEMENTS OF OPERATIONS
(G10) 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)......................................... 449,634 29,976
-------- -------
Pro forma adjustment for amortization of intangibles........ $914,743 $62,896
======== =======
(G11) 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.
(G12) 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; to record the amortization of the value of acquired interest rate
swaps; 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.
(G13) To eliminate intercompany transactions between Genzyme General, GelTex
and RenaGel LLC.
(G14) To eliminate Genzyme General's and GelTex's equity in the net loss of
RenaGel LLC and to consolidate RenaGel LLC with Genzyme General.
(G15) 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.
(G16) To eliminate the charge for acquired in-process research and
development recorded by the Company in connection with the acquisition. This
amount was eliminated as it reflects a material non-recurring charge directly
resulting from the acquisition.
19
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
2 Agreement and Plan of Merger, dated as of September 11, 2000, among
Genzyme Corporation, Titan Acquisition Corp. and GelTex
Pharmaceuticals, Inc. 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.
20