-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KlvmjFQRV28KRe0if/eN5s47K2aP0IHcXYoj4EOow2oWa3splHwI9FPFFWKTo+f2 4NR0ufRcHUUcC/u93B4h8g== 0000912057-02-039643.txt : 20021024 0000912057-02-039643.hdr.sgml : 20021024 20021024170116 ACCESSION NUMBER: 0000912057-02-039643 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20021024 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20021024 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENZYME CORP CENTRAL INDEX KEY: 0000732485 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 061047163 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14680 FILM NUMBER: 02797632 BUSINESS ADDRESS: STREET 1: ONE KENDALL SQ CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6172527500 MAIL ADDRESS: STREET 1: ONE KENDALL SQUARE CITY: CAMBRIDGE STATE: MA ZIP: 02139 8-K 1 a2090083z8-k.txt 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 24, 2002 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 incorporation or organization) identification 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 5. OTHER EVENTS. As reported on our current report on Form 8-K dated and effective June 1, 2001 (filed June 6, 2001), we completed the acquisition of Wyntek Diagnostics, Inc. through the purchase of all the issued and outstanding capital stock of Wyntek pursuant to a Stock Purchase Agreement, dated as of April 30, 2001, among Wyntek, all of the shareholders of Wyntek, and a representative and alternative representatives of the shareholders of Wyntek. As reported on our current report on Form 8-K dated and effective June 30, 2001 (filed July 12, 2001), we completed the acquisition of Focal, Inc. The acquisition was structured as a merger of one of our wholly-owned subsidiaries with and into Focal pursuant to an Agreement and Plan of Merger dated as of April 25, 2001 among Genzyme, Sammy Merger Corp. and Focal. As reported on our current report on Form 8-K dated and effective September 26, 2001 (filed October 9, 2001), we completed the acquisition of Novazyme Pharmaceuticals, Inc. The acquisition was structured as a merger of one of our wholly-owned subsidiaries with and into Novazyme pursuant to an Agreement and Plan of Merger dated as of August 6, 2002 among Genzyme, Rodeo Merger Corp. and Novazyme. In July 2001, we transferred our 50% interest in ATIII LLC, our joint venture with GTC Biotherapeutics, Inc. (formerly Genzyme Transgenics Corporation), which we refer to as GTC, for the development and commercialization of ATIII to GTC. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of any of GTC's products based on ATIII beginning three years after the first commercial sale of each such product up to a cumulative maximum amount of $30.0 million. We will allocate any royalty amounts that we receive to Genzyme General. Prior to the transfer, we consolidated the results of ATIII LLC because we had control of ATIII LLC through our combined, direct and indirect ownership interest in the joint venture. This current report on Form 8-K is being filed to include the unaudited pro forma combined financial information set forth in Exhibit 99.1 hereto which describes the pro forma effect of our acquisitions of Wyntek, Focal and Novazyme and the disposition of our 50% ownership interest in ATIII LLC on the statements of operations for the year ended December 31, 2001 of Genzyme Corporation, Genzyme General, the division to which we allocated the assets, liabilities and operations of Wyntek and Novazyme and the disposition of ATIII LLC, and Genzyme Biosurgery, the division to which we allocated the assets, liabilities and operations of Focal. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) Exhibits: 99.1 Unaudited pro forma combined financial information which describes the pro forma effect of our acquisitions of Wyntek, Focal and Novazyme and the disposition of our 50% ownership interest in ATIII LLC on the statements of operations for the year ended December 31, 2001 of Genzyme Corporation, Genzyme General, the division to which we allocated the assets, liabilities and operations of Wyntek and Novazyme and the disposition of ATIII LLC, and Genzyme Biosurgery, the division to which we allocated the assets, liabilities and operations of Focal. 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 thereunto duly authorized. GENZYME CORPORATION Dated: October 24, 2002 By: /s/ MICHAEL S. WYZGA ------------------------------------ Michael S. Wyzga Senior Vice President, Finance; Chief Financial Officer; and Chief Accounting Officer EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ------- ----------- 99.1 Unaudited pro forma combined financial information which describes the pro forma effect of our acquisitions of Wyntek, Focal and Novazyme and the disposition of our 50% ownership interest in ATIII LLC on the statements of operations for the year ended December 31, 2001 of Genzyme Corporation, Genzyme General, the division to which we allocated the assets, liabilities and operations of Wyntek and Novazyme and the disposition of ATIII LLC, and Genzyme Biosurgery, the division to which we allocated the assets, liabilities and operations of Focal. EX-99.1 3 a2090083zex-99_1.txt EXHIBIT 99.1 Exhibit 99.1 NOTE REGARDING GENZYME DIVISIONS Throughout this exhibit, the words "we," "us," "our" and "Genzyme" refer to Genzyme Corporation and all of its operating divisions taken as a whole and "our board of directors" refers to the board of directors of Genzyme Corporation. In addition, we refer to our three operating divisions as: o Genzyme General Division = "Genzyme General;" o Genzyme Biosurgery Division = "Genzyme Biosurgery;" and o Genzyme Molecular Oncology Division = "Genzyme Molecular Oncology." NOTE REGARDING GENZYME STOCKS We have three series of common stock-Genzyme General Division common stock, which we refer to as "Genzyme General Stock," Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock" and Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock." We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specific subset of our business operations and its allocated assets, rather than the operations and assets of our entire company. The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. Under these provisions, our charter: o factors the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock; and o requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to those corresponding divisions are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale. Shares of Biosurgery Stock and Molecular Oncology Stock are subject to certain exchange and redemption provisions as set forth in our charter. One of the exchange provisions allows our board of directors to exchange, at any time, shares of Biosurgery Stock and/or Molecular Oncology Stock for cash, shares of Genzyme General Stock, or a combination of both, valued at a 30% premium to the fair market value (as defined in our charter) of the series of stock being exchanged. We encourage you to read our charter for a more complete discussion of the mandatory and optional exchange and redemption provisions of our common stock. To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with accounting principles generally accepted in the United States of America, U.S., and as adjusted for tax benefits allocated to or from the division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among the divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to each series of stock are based on the income or losses attributable to each corresponding division, we have included our unaudited pro forma financial statements, the unaudited pro forma financial statements of Genzyme General, the division to which we allocated our acquisitions of Wyntek Diagnostics, Inc. and Novazyme Pharmaceuticals, Inc. and the disposition of our 50% ownership interest in ATIII LLC, and the unaudited pro forma financial statements of Genzyme Biosurgery, the division to which we allocated our acquisition of Focal, Inc., to aid investors in evaluating our performance and the performance of each division. While each tracking stock is designed to reflect a division's performance, it is common stock of Genzyme Corporation and not of a division. Our divisions are not separate companies or legal entities, and therefore do not and cannot issue stock. Holders of tracking stock have no specific rights to assets allocated to the corresponding division. We continue to hold title to all of the assets allocated to the corresponding division and are responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to any division. Holders of each tracking stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of each tracking stock would only have the rights of common stock holders in the combined assets of Genzyme. UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The following unaudited pro forma combined financial information describes the pro forma effect of our acquisitions of Wyntek, Focal and Novazyme and the disposition of our 50% ownership interest in ATIII LLC on our statements of operations and the statements of operations of Genzyme General and Genzyme Biosurgery for the year ended December 31, 2001 as if these transactions took place on January 1, 2001. We allocated our acquisitions of Wyntek and Novazyme and the disposition of our 50% ownership interest in ATIII LLC to Genzyme General. We allocated our acquisition of Focal to Genzyme Biosurgery. The results of operations of Wyntek, Focal and Novazyme are included in our results beginning on the respective dates of acquisition and the results of ATIII LLC are excluded from our results as of the date of disposition. Additional information regarding our acquisitions of Wyntek, Focal and Novazyme and the disposition of our 50% ownership interest in ATIII LLC is included in our annual report on Form 10-K for the year ended December 31, 2001 filed with the U.S. Securities and Exchange Commission, commonly referred to as the SEC, on April 1, 2002. ACQUISITION OF WYNTEK In June 2001, we acquired all of the outstanding capital stock of privately-held Wyntek, for $65.0 million in cash. We assumed no options or warrants to purchase Wyntek common stock in the purchase. ACQUISITION OF FOCAL In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase, we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated this investment to Genzyme Biosurgery. On June 30, 2001, we acquired the remaining 78% of the outstanding Focal common stock that we had not previously acquired. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as consideration valued at $9.5 million. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. The conversion of options to purchase Focal common stock was accounted for in accordance Financial Accounting Standards Board, or FASB, Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," which we refer to as FIN 44. ACQUISITION OF NOVAZYME In September 2001, we acquired all of the outstanding capital stock of Novazyme for an initial payment of approximately 2.6 million shares of Genzyme General Stock. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products to treat lysosomal storage disorders, or LSDs, that employ certain of Novazyme's technologies. In connection with the merger, we also assumed all of the outstanding options, warrants and Series B Preferred Stock rights to purchase Novazyme common stock and exchanged them for options, warrants and rights to purchase Genzyme General Stock on an as-converted basis. The staff of the U.S. Federal Trade Commission, commonly refered to as the FTC, is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there will be costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses. DISPOSITION OF 50% OWNERSHIP INTEREST IN ATIII LLC In July 2001, we transferred our 50% interest in ATIII LLC, our joint venture with GTC Biotherapeutics, Inc. (formerly Genzyme Transgenics Corporation), which we refer to as GTC, for the development and commercialization of ATIII to GTC. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of any of GTC's products based on ATIII beginning three years after the first commercial sale of each such product up to a cumulative maximum amount of $30.0 million. We will allocate any royalty amounts that we receive to Genzyme General. Prior to the transfer, we consolidated the results of ATIII LLC because we had control of ATIII LLC through our combined, direct and indirect ownership interest in the joint venture. 1 PURCHASE ACCOUNTING We have prepared the unaudited pro forma financial information using the purchase method of accounting for all three acquisitions. We expect to have reorganization and restructuring expenses as well as potential operating efficiencies as a result of the acquisitions of Wyntek, Focal and Novazyme. The unaudited pro forma financial statements and related notes do not reflect these potential expenses and efficiencies. In July 2001, the FASB issued Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations." SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. Accordingly, because the provisions of SFAS No. 141 and SFAS No. 142 apply to our acquisition of Novazyme, there is no pro forma adjustment to our unaudited, combined pro forma statement of operations or the unaudited, combined pro forma statement of operations of Genzyme General for amortization of goodwill or acquired unpatented technology for the year ended December 31, 2001 resulting from the acquisition of Novazyme. 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 transactions been completed on the assumed date, the results that were obtained, or the results that may be obtained in the future. The unaudited pro forma statements of operations should be read in conjunction with our historical consolidated financial statements, including the notes thereto, and the consolidated financial statements, including the notes thereto, of each of Wyntek, Focal and Novazyme. Our financial statements are included in our annual report on Form 10-K for the year ended December 31, 2001 filed with the SEC on April 1, 2002. 2 Wyntek's financial statements are included in our current report on Form 8-K filed with the SEC on May 18, 2001. Focal's financial statements are included in its annual report on Form 10-K for the year ended December 31, 2000 filed with the SEC on April 2, 2001, as amended on April 30, 2001 and its quarterly report on Form 10-Q for the quarter ended March 31, 2001 filed with the SEC on May 9, 2001. Novazyme's financial statements are included our current report on Form 8-K filed with the SEC on September 7, 2001. 3 GENZYME CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECECMBER 31, 2001 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL GENZYME CORPORATION AND HISTORICAL PRO FORMA FOOTNOTE SUBSIDIARIES WYNTEK ADJUSTMENTS REFERENCE ------------------- ------------------ ------------------- -------------- Revenues: Net product sales .............................. $ 1,110,254 $ 8,412 $ - Net service sales .............................. 98,370 - - Collaborative research and development revenue - - - Revenues from research and development contracts: Related parties ........................... 3,279 - - Other ..................................... 11,727 - - ------------------- ------------------ ------------------- Total revenues ............................ 1,223,630 8,412 - ------------------- ------------------ ------------------- Operating costs and expenses: Cost of products sold .......................... 307,425 3,224 - Cost of services sold .......................... 56,173 - - Selling, general and administrative ............ 424,640 1,438 - Research and development (including research and development relating to contracts) ........ 264,004 759 - Amortization of intangibles .................... 121,124 - 2,599 W1 Purchase of in-process research and development 95,568 - (8,768) W2 ------------------- ------------------ ------------------- Total operating costs and expenses ........ 1,268,934 5,421 (6,169) ------------------- ------------------ ------------------- Operating income (loss) .............................. (45,304) 2,991 6,169 ------------------- ------------------ ------------------- Other income (expenses): Equity in net loss of unconsolidated affiliates ................................ (35,681) - - Gain on affiliate sale of stock ................ 212 Gain (loss) on investments in equity securities ................................ (25,996) - - Loss on sale of product line ................... (24,999) Minority interest in net loss of subsidiary .... 2,259 - - Other .......................................... (2,205) (7,729) - Investment income .............................. 50,504 108 (1,476) W3 Interest expense ............................... (37,133) - - ------------------- ------------------ ------------------- Total other income (expenses) ............. (73,039) (7,621) (1,476) ------------------- ------------------ ------------------- Income (loss) before income taxes .................... (118,343) (4,630) 4,693 Benefit from (provision for) income taxes ............ 2,020 1,692 1,200 W4 ------------------- ------------------ ------------------- Net income (loss) from continuing operations ......... $ (116,323) $ (2,938) $ 5,893 =================== ================== =================== NET INCOME (LOSS) PER SHARE: ALLOCATED TO GENZYME GENERAL STOCK: Genzyme General net income from continuing operations ................................ $ 3,879 $ 2,955 W5 Tax benefit allocated from Genzyme Biosurgery .. 24,593 - Tax benefit allocated from Genzyme Molecular Oncology ................................... 11,904 - ------------------- ------------------- Net income allocated to Genzyme General Stock .. $ 40,376 $ 2,955 =================== =================== Net income per share allocated to Genzyme General Stock: Basic ...................................... $ 0.20 =================== Diluted .................................... $ 0.19 =================== Weighted average shares outstanding Basic ...................................... 202,221 =================== Diluted .................................... 211,176 =================== ALLOCATED TO BIOSURGERY STOCK: Genzyme Biosurgery net loss .................... $ (145,170) Allocated tax benefit .......................... $ 18,189 ------------------- Net loss allocated to Biosurgery Stock ......... $ (126,981) =================== Net loss per share of Biosurgery Stock--basic and diluted ................................ $ (3.34) =================== Weighted average shares outstanding ............ 37,982 =================== ALLOCATED TO MOLECULAR ONCOLOGY STOCK: Molecular Oncology net loss .................... $ (29,718) =================== Net loss per share of Molecular Oncology Stock--basic and diluted ................... $ (1.82) =================== Weighted average shares outstanding ............ 16,350 ===================
4
HISTORICAL PRO FORMA FOOTNOTE FOCAL ADJUSTMENTS REFERENCE ------------------ --------------- ------------------ Revenues: Net product sales .............................. $ 1,050 $ (903) F1 Net service sales .............................. - - Collaborative research and development revenue ................................... 469 (469) F2 Revenues from research and development contracts: Related parties ........................... - - Other ..................................... - - ------------------ --------------- Total revenues ............................ 1,519 (1,372) ------------------ --------------- Operating costs and expenses: Cost of products sold .......................... 1,520 (634) F1 1,430 F3 Cost of services sold .......................... - - Selling, general and administrative ............ 3,330 - Research and development (including research and development relating to contracts) ........ 2,820 - Amortization of intangibles .................... - 604 F4 Purchase of in-process research and development ............................... - - ------------------ --------------- Total operating costs and expenses ........ 7,670 1,400 ------------------ --------------- Operating income (loss) .............................. (6,151) (2,772) ------------------ --------------- Other income (expenses): Equity in net loss of unconsolidated affiliates ................................ - 1,316 F1 Gain on affiliate sale of stock ................ - - Gain (loss) on investments in equity securities ................................ - - Loss on sale of product line ................... - - Minority interest in net loss of subsidiary .... - - Other .......................................... 10 - Investment income .............................. 119 - Interest expense ............................... - - ------------------ --------------- Total other income (expenses) ............. 129 1,316 ------------------ --------------- Income (loss) before income taxes .................... (6,022) (1,456) Benefit from (provision for) income taxes ............ - 2,731 F5 ------------------ --------------- Net income (loss) from continuing operations ......... $ (6,022) $ 1,275 ================== =============== NET INCOME (LOSS) PER SHARE: ALLOCATED TO GENZYME GENERAL STOCK: Genzyme General net income from continuing operations ................................ $ - Tax benefit allocated from Genzyme Biosurgery .. 2,731 F6 Tax benefit allocated from Genzyme Molecular Oncology .................................. - --------------- Net income allocated to Genzyme General Stock .. $ 2,731 =============== Net income per share allocated to Genzyme General Stock: Basic ...................................... Diluted .................................... Weighted average shares outstanding Basic ...................................... Diluted .................................... ALLOCATED TO BIOSURGERY STOCK: Genzyme Biosurgery net loss .................... $ (7,478) F7 Allocated tax benefit .......................... - --------------- Net loss allocated to Biosurgery Stock ......... $ (7,478) =============== Net loss per share of Biosurgery Stock--basic and diluted ................................. Weighted average shares outstanding ............ ALLOCATED TO MOLECULAR ONCOLOGY STOCK: Molecular Oncology net loss .................... Net loss per share of Molecular Oncology Stock--basic and diluted ....................... Weighted average shares outstanding .........
DISPOSITION OF 50% OWNERSHIP INTEREST IN FOOTNOTE HISTORICAL ATIII LLC REFERENCE NOVAZYME ------------------ --------------- ------------------ Revenues: Net product sales .............................. $ - $ - Net service sales .............................. - - Collaborative research and development revenue ................................... - - Revenues from research and development contracts: Related parties ........................... - 1 Other ..................................... - - ------------------ -------------- Total revenues ............................ - 1 ------------------ -------------- Operating costs and expenses: Cost of products sold .......................... - - - Cost of services sold .......................... - - Selling, general and administrative ............ (1,482) (A1) 9,719 Research and development (including research and development relating to contracts) ........ (3,107) (A1) 7,093 Amortization of intangibles .................... - - Purchase of in-process research and development ............................... - 2,540 ------------------ -------------- Total operating costs and expenses ........ (4,589) 19,352 ------------------ -------------- Operating income (loss) .............................. 4,589 (19,351) ------------------ -------------- Other income (expenses): Equity in net loss of unconsolidated affiliates ................................ (598) (A2) - Gain on affiliate sale of stock ................ - - Gain (loss) on investments in equity securities ................................ - - Loss on sale of product line ................... - - Minority interest in net loss of subsidiary .... (2,259) (A3) - Other .......................................... - - Investment income .............................. - 193 Interest expense ............................... - (119) ------------------ ------------ Total other income (expenses) ............. (2,857) 74 ------------------ ------------ Income (loss) before income taxes .................... 1,732 (19,277) Benefit from (provision for) income taxes ............ (637) (A4) - ------------------ -------------- Net income (loss) from continuing operations ......... $ 1,095 $ (19,277) ================== ============== NET INCOME (LOSS) PER SHARE: ALLOCATED TO GENZYME GENERAL STOCK: Genzyme General net income from continuing operations ................................ $ 1,095 Tax benefit allocated from Genzyme Biosurgery .. - Tax benefit allocated from Genzyme Molecular Oncology .................................. - ------------------ Net income allocated to Genzyme General Stock .. $ 1,095 ================== Net income per share allocated to Genzyme General Stock: Basic ...................................... Diluted .................................... Weighted average shares outstanding Basic ...................................... Diluted .................................... ALLOCATED TO BIOSURGERY STOCK: Genzyme Biosurgery net loss .................... Allocated tax benefit .......................... Net loss allocated to Biosurgery Stock ......... Net loss per share of Biosurgery Stock--basic and diluted ................................. Weighted average shares outstanding ............ ALLOCATED TO MOLECULAR ONCOLOGY STOCK: Molecular Oncology net loss .................... Net loss per share of Molecular Oncology Stock--basic and diluted ....................... Weighted average shares outstanding .........
5
PRO FORMA GENZYME CORPORATION PRO FORMA FOOTNOTE AND ADJUSTMENTS REFERENCE SUBSIDIARIES -------------------- ----------------- -------------------- Revenues: Net product sales .............................. $ - $ 1,118,813 Net service sales .............................. - 98,370 Collaborative research and development revenue ..................................... - - Revenues from research and development contracts: Related parties ........................... - 3,280 Other ..................................... - 11,727 -------------------- -------------------- Total revenues ............................ - 1,232,190 -------------------- -------------------- Operating costs and expenses: Cost of products sold .......................... - - 312,965 Cost of services sold .......................... - 56,173 Selling, general and administrative ............ 581 N1 438,226 Research and development (including research and development relating to contracts) ........ 479 N1 272,048 Amortization of intangibles .................... - 124,327 Purchase of in-process research and development ............................... (86,800) N2 2,540 -------------------- -------------------- Total operating costs and expenses ........ (85,740) 1,206,279 -------------------- -------------------- Operating income (loss) .............................. 85,740 25,911 -------------------- -------------------- Other income (expenses): Equity in net loss of unconsolidated affiliates ................................ - (34,963) Gain on affiliate sale of stock ................ - 212 Gain (loss) on investments in equity securities ................................ - (25,996) Loss on sale of product line ................... - (24,999) Minority interest in net loss of subsidiary .... - -- Other .......................................... - (9,924) Investment income .............................. - 49,448 Interest expense ............................... - (37,252) -------------------- -------------------- Total other income (expenses) ............. - (83,474) -------------------- -------------------- Income (loss) before income taxes .................... 85,740 (57,563) Benefit from (provision for) income taxes ............ 7,484 N3 14,490 -------------------- -------------------- Income (loss) from continuing operations ............. $ 93,224 $ (43,073) ==================== ==================== NET INCOME (LOSS) PER SHARE: ALLOCATED TO GENZYME GENERAL STOCK: Genzyme General net income from continuing operations ................................ $ 73,947 $ 81,876 Tax benefit allocated from Genzyme Biosurgery .. - 27,324 Tax benefit allocated from Genzyme Molecular Oncology .................................. - 11,904 -------------------- -------------------- Net income allocated to Genzyme General Stock .. $ 73,947 $ 121,104 ==================== ==================== Net income per share allocated to Genzyme General Stock: Basic ...................................... $ 0.59 ==================== Diluted .................................... $ 0.57 ==================== Weighted average shares outstanding Basic ...................................... 204,107 ==================== Diluted .................................... 213,313 ==================== ALLOCATED TO BIOSURGERY STOCK: Genzyme Biosurgery net loss .................... $ (152,648) Allocated tax benefit .......................... 18,189 -------------------- Net loss allocated to Biosurgery Stock ......... $ (134,459) ==================== Net loss per share of Biosurgery Stock--basic and diluted ................................. $ (3.45) ==================== Weighted average shares outstanding ............ 39,019 ==================== ALLOCATED TO MOLECULAR ONCOLOGY STOCK: Molecular Oncology net loss .................... $ (29,718) -------------------- Net loss per share of Molecular Oncology Stock-basic and diluted ..................... (1.82) ==================== Weighted average shares outstanding ............ 16,350 ====================
See Notes to Unaudited Pro Forma Financial Statements 6 GENZYME GENERAL A DIVISION OF GENZYME CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECECMBER 31, 2001 (AMOUNTS IN THOUSANDS)
HISTORICAL GENZYME HISTORICAL PRO FORMA FOOTNOTE GENERAL WYNTEK ADJUSTMENTS REFERENCE ------------------ ------------------ ------------------- -------------- Revenues: Net product sales .............................. $ 898,731 $ 8,412 $ - Net service sales .............................. 74,056 - - Revenues from research and development contracts: Related parties .......................... 3,279 - - Other .................................... 5,860 - - ------------------ ------------------ ------------------- Total revenues ........................... 981,926 8,412 - ------------------ ------------------ ------------------- Operating costs and expenses: Cost of products sold .......................... 194,175 3,224 - Cost of services sold .......................... 43,167 - - Selling, general and administrative ............ 295,068 1,438 - Research and development (including research and development relating to contracts) ....... 187,502 759 - Amortization of intangibles .................... 74,296 - 2,599 W1 Purchase of in-process research and development ............................... 95,568 - (8,768) W2 ------------------ ------------------ ------------------- Total operating costs and expenses ....... 889,776 5,421 (6,169) ------------------ ------------------ ------------------- Operating income (loss) .............................. 92,150 2,991 6,169 ------------------ ------------------ ------------------- Other income (expenses): Equity in net loss of unconsolidated affiliates ................................ (34,365) - - Gain on affiliate sale of stock ................ 212 - - Gain (loss) on investments in equity securities ................................ (25,996) - - Minority interest in net loss of subsidiary .... 2,259 - - Other .......................................... (2,329) (7,729) - Investment income .............................. 47,806 108 (1,476) W3 Interest expense ............................... (23,192) - - ------------------ ------------------ ------------------- Total other income (expenses) ............ (35,605) (7,621) (1,476) ------------------ ------------------ ------------------- Income (loss) before income taxes .................... 56,545 (4,630) 4,693 (Provision for) benefit from income taxes ............ (52,666) 1,692 1,200 W4 ------------------ ------------------ ------------------- Division net income (loss) from continuing operations ............................... $ 3,879 $ (2,938) $ 5,893 ================== ================== ===================
7
DISPOSITION OF 50% OWNERSHIP INTEREST IN FOOTNOTE HISTORICAL PRO FORMA ATIII LLC REFERENCE NOVAZYME ADJUSTMENTS ----------- ---------- ------------------ -------------------- Revenues: Net product sales .............................. $ - $ - $ - Net service sales .............................. - - - Revenues from research and development contracts: Related parties .......................... - 1 - Other .................................... - - - ---------- ------------------ -------------------- Total revenues ........................... - 1 - ---------- ------------------ -------------------- Operating costs and expenses: Cost of products sold .......................... - - - Cost of services sold .......................... - - - Selling, general and administrative ............ (1,482) (A1) 9,719 581 N1 Research and development (including research and development relating to contracts) ....... (3,107) (A1) 7,093 479 N1 Amortization of intangibles .................... - - - Purchase of in-process research and development .............................. - 2,540 (86,800) N2 ---------- ------------------ -------------------- Total operating costs and expenses ....... (4,589) 19,352 (85,740) ---------- ------------------ -------------------- Operating income (loss) .............................. 4,589 (19,351) 85,740 ---------- ------------------ -------------------- Other income (expenses): Equity in net loss of unconsolidated affiliates ............................... (598) (A2) - - Gain on affiliate sale of stock ................ - - - Gain (loss) on investments in equity securities ............................... - - - Minority interest in net loss of subsidiary .... (2,259) (A3) - - Other .......................................... - - - Investment income .............................. - 193 - Interest expense ............................... - (119) - ---------- ------------------ -------------------- Total other income (expenses) ............ (2,857) 74 - ---------- ------------------ -------------------- Income (loss) before income taxes .................... 1,732 (19,277) 85,740 (Provision for) benefit from income taxes ............ (637) (A4) - 7,484 N3 ---------- ------------------ -------------------- Division net income (loss) from continuing operations ............................... $ 1,095 $ (19,277) $ 93,224 ========== ================== ====================
PRO FORMA FOOTNOTE GENZYME REFERENCE GENERAL -------------------- ------------------ Revenues: Net product sales .............................. $ 907,143 Net service sales .............................. 74,056 Revenues from research and development contracts: Related parties .......................... 3,280 Other .................................... 5,860 -------------------- Total revenues ........................... 990,339 -------------------- Operating costs and expenses: Cost of products sold .......................... 197,399 Cost of services sold .......................... 43,167 Selling, general and administrative ............ 305,324 Research and development (including research and development relating to contracts) ....... 192,726 Amortization of intangibles .................... 76,895 Purchase of in-process research and development .............................. 2,540 -------------------- Total operating costs and expenses ....... 818,051 -------------------- Operating income (loss) .............................. 172,288 -------------------- Other income (expenses): Equity in net loss of unconsolidated affiliates ............................... (34,963) Gain on affiliate sale of stock ................ 212 Gain (loss) on investments in equity securities ............................... (25,996) Minority interest in net loss of subsidiary .... - Other .......................................... (10,058) Investment income .............................. 46,631 Interest expense ............................... (23,311) -------------------- Total other income (expenses) ............ (47,485) -------------------- Income (loss) before income taxes .................... 124,803 (Provision for) benefit from income taxes ............ (42,927) -------------------- Division net income (loss) from continuing operations ............................... $ 81,876 ====================
See Notes to Unaudited Pro Forma Financial Statements 8 GENZYME BIOSURGERY A DIVISION OF GENZYME CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECECMBER 31, 2001 (AMOUNTS IN THOUSANDS)
HISTORICAL PRO FORMA GENZYME HISTORICAL PRO FORMA NOTE GENZYME BIOSURGERY FOCAL, INC. ADJUSTMENTS REFERENCE BIOSURGERY -------------------- -------------------- -------------------- ---------- ----------------- Revenues: Net product sales .......... $ 211,523 $ 1,050 $ (903) F1 $ 211,670 Net service sales .......... 23,614 - - 23,614 Collaborative R&D Revenue .. - 469 (469) F2 - Revenues from research and development contracts: ..... 5 - - 5 -------------------- -------------------- -------------------- ----------------- Total revenues ........ 235,142 1,519 (1,372) 235,289 -------------------- -------------------- -------------------- ----------------- Operating costs and expenses: Cost of products sold ...... 113,250 1,520 (634) F1 1,430 F3 115,566 Cost of services sold ...... 12,733 - - 12,733 Selling, general and administrative ............. 122,020 3,330 - 125,350 Research and development.... 47,159 2,820 - 49,979 Amortization of intangibles ............ 46,828 - 604 F4 47,432 -------------------- -------------------- -------------------- ----------------- Total operating costs and expenses .......... 341,990 7,670 1,400 351,060 -------------------- -------------------- -------------------- ----------------- Operating loss .................... (106,848) (6,151) (2,772) (115,771) -------------------- -------------------- -------------------- ----------------- Other income (expenses): Equity in net loss of unconsolidated affiliates .. (1,316) - 1,316 F1 - Loss on sale of product line .................... (24,999) (24,999) Other ...................... 124 10 - 134 Investment income .......... 1,753 119 - 1,872 Interest expense ........... (13,884) - - (13,884) -------------------- -------------------- -------------------- ----------------- Total other income (expenses) ............ (38,322) 129 1,316 (36,877) -------------------- -------------------- -------------------- ----------------- Division net loss ................. $ (145,170) $ (6,022) $ (1,456) $ (152,648) ==================== ==================== ==================== =================
9 See Notes to Unaudited Pro Forma Financial Statements NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (1) ACCOUNTING POLICIES AND PRO FORMA INFORMATION The unaudited pro forma combined financial information contained herein describes the pro forma effect of our acquisitions of Wyntek, Focal and Novazyme and the disposition of our 50% ownership interest in ATIII LLC on our unaudited pro forma combined statements of operations and the unaudited pro forma combined statements of operations of Genzyme General and Genzyme Biosurgery for the year ended December 31, 2001 as if these transactions took place on January 1, 2001. We allocated our acquisitions of Wyntek and Novazyme and the disposition of our 50% ownership interest in ATIII LLC to Genzyme General. We allocated our acquisition of Focal to Genzyme Biosurgery. The results of operations of Wyntek, Focal and Novazyme are included in our results beginning on the respective dates of acquisition and the results of operations of ATIII LLC are excluded from our results as of the date of disposition. (2) GENZYME'S ACQUISITIONS AND DISPOSITION (A) ACQUISITION OF WYNTEK We acquired Wyntek on June 1, 2001 for $65.0 million in cash. We assumed no options or warrants to purchase Wyntek common stock in the transaction. The historical financial information presented for Wyntek represents Wyntek's results of operations for the five months ended May 31, 2001. (B) ACQUISITION OF FOCAL We acquired Focal on June 30, 2001. We issued approximately 2.1 million shares of Biosurgery Stock for all of the outstanding shares of Focal common stock, excluding shares we already owned which were canceled in the merger. Using the price of Biosurgery Stock based on the average trading price over three days before and after April 25, 2001, the date of announcement of the merger, the value of the shares of Biosurgery Stock was approximately $9.5 million. In addition, options to purchase approximately 1.5 million shares of Focal common stock and warrants to purchase approximately 43,782 shares of Focal common stock were exchanged for options to purchase approximately 232,000 shares of Biosurgery Stock and warrants to purchase approximately 7,000 shares of Biosurgery Stock. Using the acquisition price of Focal common stock and certain other assumptions in the Black-Scholes option valuation model, the Biosurgery options and warrants issued in exchange for the Focal options were valued at approximately $0.4 million. There was no intrinsic value for the portion of the unvested options related to the future service period. 10 NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (Continued) (C) DISPOSITION OF OUR 50% OWNERSHIP INTEREST IN ATIII LLC In July 2001, we transferred our 50% interest in ATIII LLC, our joint venture with GTC for the development and commercialization of ATIII to GTC. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of any of GTC's products based on ATIII beginning three years after the first commercial sale of each such product up to a cumulative maximum amount of $30.0 million. We will allocate any royalty amounts that we receive to Genzyme General. Prior to the transfer, we consolidated the results of ATIII LLC because we had control of ATIII LLC through our combined, direct and indirect ownership interest in the joint venture. (D) ACQUISITION OF NOVAZYME In September 2001, we acquired all of the outstanding capital stock of Novazyme for an initial payment of approximately 2.6 million shares of Genzyme General Stock. Novazyme shareholders received 0.5174 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products to treat LSDs that employ certain of Novazyme's technologies. The 2.6 million shares of Genzyme General Stock that we issued to Novazyme's shareholders were valued at $110.6 million using the average trading price of Genzyme General Stock for the 4 day trading period ending on September 26, 2001, the date of acquisition. Options, warrants and rights to purchase shares of Genzyme General Stock were valued at $9.0 million using the Black-Scholes option valuation model. In accordance with FIN 44, at the date of acquisition we allocated the $2.6 million intrinsic value of the portion of the unvested options related to the future service period to deferred compensation in our stockholders' equity and the division equity of Genzyme General. We are amortizing the unvested portion to operating expense over the remaining vesting period of approximately 22 months. 11 NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (Continued) (3) PURCHASE PRICE ALLOCATION (A) WYNTEK The aggregate purchase price of $65.4 million was allocated to the acquired tangible and intangible assets and liabilities based on their estimated respective fair values as of June 1, 2001 (amounts in thousands): Cash and cash equivalents.............................................. $ 4,974 Other current assets................................................... 4,966 Property, plant and equipment.......................................... 1,843 Intangible assets (to be amortized straight-line over 5 to 10 years)... 39,444 Goodwill .............................................................. 20,316 In-process research and development.................................... 8,768 Deferred tax assets.................................................... 2,255 Assumed liabilities.................................................... (2,784) Deferred tax liability................................................. (14,432) ---------- Allocated purchase price............................................. $ 65,350 ==========
In connection with the acquisition of Wyntek we allocated approximately $8.8 million of the purchase price to IPR&D. We estimated the fair value assigned to purchased IPR&D by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility. We applied a discount rate of 25% to estimate the present value of these cash flows, which was consistent with the risks of the project. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased IPR&D was the amount attributable to the efforts of Wyntek up to the time of acquisition. In the allocation of purchase price to IPR&D, the concept of alternative future use was specifically considered for the program under development. The acquired IPR&D consists of Wyntek's work to complete the program. There are no alternative uses for the in-process program in the event that the program fails in clinical trials or is otherwise not feasible. The development effort for the acquired IPR&D does not possess an alternative future use for us as defined by accounting principles generally accepted in the U.S. Consequently, in accordance with accounting principles generally accepted in the U.S., the amount allocated to IPR&D was charged as an expense for the year ended December 31, 2001. We are amortizing the remaining acquired intangible assets arising from the acquisition on a straight-line basis over their estimated lives, which range from 5 years to 10 years. Wyntek is currently developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. These are the leading markers for the diagnosis of acute myocardial infarction. The product consists of a mobile, stand-alone, quantitative diagnostic device and a reaction strip that detects disease specific marker proteins. The device is intended to be used to read reaction strips at the patient's bedside or in an emergency room setting. As of September 30, 2002, the technological feasibility of the acquired programs had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred. In September 2002, we filed a 510(k) submission with the FDA for Wyntek's cardiovascular product. Upon successful completion of the regulatory review process, we will begin selling the product. 12 NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (Continued) (B) FOCAL The aggregate purchase price of $15.9 million was allocated to the acquired tangible and intangible assets and liabilities based on their estimated respective fair values as of June 30, 2001 (amounts in thousands): Cash and cash equivalents............................................. $ 2,331 Other current assets.................................................. 6,003 Property, plant and equipment......................................... 1,568 Intangible assets (to be amortized over 3 to 12 years)................ 7,909 Goodwill ............................................................. 1,365 Assumed liabilities................................................... (3,773) Notes receivable from stockholders.................................... 535 ---------- Allocated purchase price............................................ $ 15,938 ==========
No portion of the purchase price was allocated to IPR&D. (C) NOVAZYME The aggregate purchase price of $120.5 million was allocated to the acquired tangible and intangible assets and liabilities based on their estimated respective fair values as of September 26, 2001 (amounts in thousands): Cash and cash equivalents............................................. $ 5,194 Other assets.......................................................... 125 Property, plant and equipment......................................... 4,475 Goodwill.............................................................. 17,177 In-process research and development................................... 86,800 Deferred tax asset.................................................... 8,328 Assumed liabilities................................................... (2,795) Liabilities for exit activities and integration....................... (1,740) Notes receivable from stockholders.................................... 1,316 Deferred compensation................................................. 2,630 Deferred tax liability................................................ (968) ----------- Allocated purchase price............................................ $ 120,542 ===========
Because our acquisition of Novazyme was completed after June 30, 2001, the provisions of SFAS No. 141 and certain provisions of SFAS No. 142 apply from the date of acquisition. Accordingly, we will not ratably amortize the goodwill resulting from the acquisition of Novazyme. Instead, we will test the goodwill's impairment on a periodic basis in accordance with the provisions of SFAS No. 142. In connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly, we allocated to IPR&D and charged to expense $86.8 million, representing the portion of the purchase price to be attributable to this technology platform. 13 NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (Continued) Our management assumes responsibility for determining the IPR&D valuation and engaged an independent third-party appraisal company to assist in the valuation of the intangible assets acquired. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the probability-adjusted net cash flows expected to result once the technology has reached technological feasibility and is utilized in the treatment of certain LSDs. A discount rate of 16% was applied to estimate the present value of these cash flows and is consistent with the overall risks of the platform technology. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology and adjusted the future cash flows to reflect the contribution of value from these assets. In the allocation of purchase price to the IPR&D, the concept of alternative future use was specifically considered. The platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the treatment of LSDs. As of December 31, 2001, the technological feasibility for the acquired platform technology had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred. We currently estimate that it will take approximately four to six years and an investment of approximately $75 million to $100 million to complete development of, obtain approval for, and commercialize the first product based on this technology platform. (4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF WYNTEK The following adjustments reflect our acquisition of Wyntek for cash. We assumed no options or warrants to purchase Wyntek common stock in the transaction. The aggregate purchase price is comprised of the following (amounts in thousands): Cash payment............................................ $ 65,000 Acquisition costs....................................... 350 ---------- Aggregate purchase price................................ $ 65,350 ==========
14 NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (Continued) The results of operations of Wyntek are included in our consolidated financial statements and the combined financial statements of Genzyme General beginning on June 1, 2001, the date of acquisition. I. PRO FORMA ADJUSTMENTS TO OUR UNAUDITED, COMBINED STATEMENTS OF OPERATIONS AND THE UNAUDITED, COMBINED STATEMENTS OF OPERATIONS OF GENZYME GENERAL (W1) To record the amortization of acquired intangible assets and goodwill for the year ended December 31, 2001 (amounts in thousands):
ASSIGNED ANNUAL 5 MONTH VALUE AMORTIZATION AMORTIZATION INTANGIBLE ASSETS: Workforce (to be amortized straight-line over 3 years)..... $ 1,125 $ 375 $ 156 Patented core technology (to be amortized straight-line over 10 years)........................................... 796 80 33 Current products technology (to be amortized straight- line over 10 years)...................................... 37,523 3,752 1,563 Goodwill (to be amortized straight-line over 10 years)..... 20,316 2,032 847 --------- --------- --------- Total.................................................. $ 59,760 $ 6,239 $ 2,599 ========= ========= =========
(W2) To eliminate the charge for acquired IPR&D we recorded in June 2001 in connection with the Wyntek acquisition. This amount was eliminated as it reflects a material non-recurring charge directly resulting from the acquisition. (W3) To reduce investment income for the period from January 1, 2001 through May 31, 2001 to reflect the payment of $65 million of cash at a rate of return of 5.45% per annum. (W4) To adjust the tax provision for the impact of the historical net loss incurred by Wyntek and for the pro forma adjustments related to the acquisition of Wyntek. (W5) The net income of Wyntek has been re-allocated to the calculation of net income per share allocated to Genzyme General Stock. The adjustment to Genzyme General's division net income in the calculation of income allocated to Genzyme General Stock reflects the aggregate impact of all pro forma adjustments on Genzyme General's division net income. 15 NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (Continued) (5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF FOCAL The following adjustments reflect our acquisition of Focal. We acquired the outstanding Focal common stock that we did not already own for a combination of cash and stock and the exchange of Focal options and warrants with options and warrants to purchase Biosurgery Stock. The aggregate purchase price is comprised of the following (amounts in thousands): Issuance of 2,086,151 shares of Biosurgery Stock......... $ 9,450 Issuance of options to purchase 231,566 shares of Biosurgery Stock...................................... 351 Acquisition costs........................................ 638 Existing equity investment in Focal...................... 5,488 Cash paid to selling securityholder...................... 11 --------- Allocated purchase price............................... $ 15,938 =========
The results of operations of Focal are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery beginning on June 30, 2001, the date of acquisition. I. PRO FORMA ADJUSTMENTS TO OUR UNAUDITED, COMBINED STATEMENTS OF OPERATIONS AND THE UNAUDITED, COMBINED STATEMENTS OF OPERATIONS OF GENZYME BIOSURGERY (F1) To eliminate sales and cost of sales related to product revenue transactions between Focal and us. Also to eliminate charges of $1.3 million to equity in net loss of unconsolidated affiliates, representing our portion of the net losses of Focal for the six months ended June 30, 2001. (F2) To reverse the collaborative research and development revenue recorded as a result of the amortization of deferred revenue during the six months ended June 30, 2001. (F3) To record the impact of the additional expense associated with the increased basis for the Focal inventory for the six months ended June 30, 2001. 16 NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (Continued) (F4) To record the amortization of acquired intangible assets and goodwill (amounts in thousands):
SEMI ASSIGNED ANNUAL ANNUAL VALUE AMORTIZATION AMORTIZATION INTANGIBLE ASSETS: Patented core technology (to be amortized straight-line over 12 years)............................................ $ 4,928 $ 411 $ 205 Favorable lease (to be amortized straight-line over 3 years).................................................. 1,556 519 259 Patent (to be amortized straight-line over 12 years)........ 1,013 84 42 Workforce (to be amortized straight-line over 5 years)...... 412 82 41 Goodwill (to be amortized straight-line over 12 years)...... 1,365 114 57 ---------- ---------- ---------- Total..................................................... $ 9,274 $ 1,210 $ 604 ========== ========== ==========
(F5) To adjust the tax provision for the net loss incurred by Focal and for the pro forma adjustments related to the Focal merger. (F6) To allocate the pro forma tax benefits of the Focal net losses and pro forma adjustments to Genzyme General. Our management and accounting policies provide that, if as of the end of any fiscal quarter, a division cannot use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we 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. (F7) To give effect to the issuance of Biosurgery Stock for Focal common stock as though the merger occurred on January 1, 2001. The net loss of Focal has been re-allocated to the calculation of net loss per share allocated to Biosurgery Stock. The adjustment to Genzyme Biosurgery net loss in the calculation of income allocated to Biosurgery Stock reflects the aggregate impact of all pro forma adjustments on the Genzyme Biosurgery division net loss. (6) PRO FORMA ADJUSTMENTS RELATED TO THE DISPOSITION OF OUR 50% OWNERSHIP INTEREST IN ATIII LLC In July 2001, we transferred our 50% interest in ATIII LLC, our joint venture with GTC for the development and commercialization of ATIII to GTC. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of any of GTC's products based on ATIII beginning three years after the first commercial sale of each such product up to a cumulative maximum amount of $30.0 million. We will allocate any royalty amounts that we receive to Genzyme General. Prior to the transfer, we consolidated the results of ATIII LLC because we had control of ATIII LLC through our combined, direct and indirect ownership interest in the joint venture. The following adjustments reflect the disposition of our 50% ownership interest in ATIII LLC as of July 31, 2001, the date of disposition. I. PRO FORMA ADJUSTMENTS TO OUR UNAUDITED COMBINED STATEMENTS OF OPERATIONS AND THE UNAUDITED, COMBINED STATEMENTS OF GENZYME GENERAL (A1) To eliminate ATIII LLC's historical results of operations. (A2) To adjust our equity in the net losses of GTC to reflect GTC's assumption of our portion of the losses of ATIII LLC (amounts in thousands):
For the Year Ended December 31, 2001 ------------ ATIII LLC's historical losses........................ $(4,589) Genzyme's historical share of net loss............... (2,330) Genzyme's ownership interest in GTC.................. 25.65% Pro forma adjustment to equity in net loss of GTC.... (598)
(A3) To eliminate our historical minority interest recorded in connection with our consolidation of the results of ATIII LLC. (A4) To adjust the tax provision for the impact of the elimination of the historical losses of ATIII LLC and for the pro forma adjustments related to the disposition of our 50% ownership interest in ATIII LLC. (7) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF NOVAZYME The following adjustments reflect our acquisition of Novazyme for shares of Genzyme General Stock and the exchange of Novazyme options, warrants and Series B Preferred Stock purchase rights with options, warrants and stock purchase rights to purchase shares of Genzyme General Stock. The results of operations of Novazyme are included in our consolidated financial statements and the combined financial statements of Genzyme General beginning on September 26, 2001, the date of acquisition. 17 NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (Continued) The aggregate purchase price is comprised of the following (amounts in thousands): Issuance of 2,562,182 shares of Genzyme General Stock................ $110,584 Issuance of options to purchase 158,840 shares of Genzyme General Stock.............................................................. 6,274 Issuance of warrants to purchase 25,338 shares of Genzyme General Stock.............................................................. 894 Issuance of rights to purchase 66,846 shares of Genzyme General Stock.............................................................. 1,839 Acquisition costs.................................................... 951 ---------- Aggregate purchase price ........................................ $120,542 ==========
We issued approximately 2.6 million shares of Genzyme General Stock to Novazyme's shareholders. These shares were valued at $110.6 million using an average trading price of Genzyme General Stock for the four day trading period ending on September 26, 2001, the date of acquisition. Options, warrants and rights to purchase shares of Genzyme General Stock were valued at $9.0 million using the Black-Scholes option valuation model. In accordance with FIN 44, at the date of acquisition we allocated the $2.6 million intrinsic value of the portion of the unvested options related to the future service period to deferred compensation within our stockholders' equity and the division equity of Genzyme General. We are amortizing the unvested portion to operating expense over the remaining vesting period of approximately 22 months. I. PRO FORMA ADJUSTMENTS TO OUR UNAUDITED, COMBINED STATEMENTS OF OPERATIONS AND THE UNAUDITED, COMBINED STATEMENTS OF OPERATIONS OF GENZYME GENERAL (N1) Amortization of deferred compensation associated with Genzyme General options that were issued in exchange for Novazyme unvested options. (N2) To eliminate the charge for acquired IPR&D that we recorded in September 2001 in connection with the acquisition of Novazyme and allocated to Genzyme General. This amount was eliminated as it reflects a material non-recurring charge directly resulting from the acquisition. (N3) To adjust the tax provision for the impact of the historical losses of Novazyme and the pro forma adjustments related to the acquisition of Novazyme. 18 -----END PRIVACY-ENHANCED MESSAGE-----