-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, iuZKGxWMCnGQDkYqYHHVFY+gqsLwGU9X5rnS4GZQyW8KFOuYlUK+lSvd2O0WxqiJ H49EL0wIL9myASKLC439tA== 0000950135-95-001156.txt : 19950517 0000950135-95-001156.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950135-95-001156 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENZYME CORP CENTRAL INDEX KEY: 0000732485 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 061047163 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14680 FILM NUMBER: 95537651 BUSINESS ADDRESS: STREET 1: ONE KENDALL SQUARE CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6172527500 MAIL ADDRESS: STREET 1: ONE KENDALL SQUARE CITY: CAMBRIDGE STATE: MA ZIP: 02139 10-Q 1 FORM 10-Q FOR GENZYME CORPORATION 1 FORM 10-Q --------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 --------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- --------- Commission file number 0-14680 ------------------------------- GENZYME CORPORATION - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Massachusetts 06-1047163 - ------------------------------------------------------------------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Kendall Square, Cambridge, Massachusetts 02139 - ------------------------------------------------------------------------------ (Address of principal executive offices) (zip code) (617) 252-7500 - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of each of the issuer's classes of common stock as of April 30, 1995: Class Outstanding at April 30, 1995: ----- ------------------------------ General Division Common Stock, $0.01 par value ("General Division Stock") 26,610,738 Tissue Repair Division Common Stock, $0.01 par value ("TR Stock") 8,758,271 Total number of pages in document - 26 Exhibit index located on page - 24 2 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 1995 TABLE OF CONTENTS
PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1. Unaudited Condensed Financial Statements GENZYME CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Balance Sheets as of March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 6 Notes to Unaudited Condensed Consolidated Financial Statements . . . . . . . . . . . . . . 7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 GENZYME GENERAL DIVISION Condensed Combined Statements of Operations for the Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 10 Condensed Combined Balance Sheets as of March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Condensed Combined Statements of Cash Flows for the Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 13 Notes to Unaudited Condensed Combined Financial Statements . . . . . . . . . . . . . . . . 14 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 GENZYME TISSUE REPAIR DIVISION Condensed Combined Statements of Operations for the Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 17 Condensed Combined Balance Sheets as of March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Condensed Combined Statements of Cash Flows for the Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 19 Notes to Unaudited Condensed Combined Financial Statements . . . . . . . . . . . . . . . . 20 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 22 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-2- 3 GENZYME CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, - ------------------------------------------------------------------------------------------------- 1995 1994 ---- ---- Revenues: Net product sales . . . . . . . . . . . . . . . . . . . . . . $69,301 $53,475 Net service sales . . . . . . . . . . . . . . . . . . . . . . 12,464 13,928 Revenues from research and development contracts: Related parties . . . . . . . . . . . . . . . . . . . . . . 6,326 5,578 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 301 ------- ------- 88,189 73,282 Operating costs and expenses: Cost of products sold . . . . . . . . . . . . . . . . . . . . 26,131 18,645 Cost of services sold . . . . . . . . . . . . . . . . . . . . 7,951 8,709 Selling, general and administrative . . . . . . . . . . . . . 25,991 22,456 Research and development (including research and development related to contracts) . . . . . . . . . . . 16,463 12,928 ------- ------- 76,536 62,738 ------- ------- Operating income . . . . . . . . . . . . . . . . . . . . . . . 11,653 10,544 Other income and (expenses): Minority interest in net loss of subsidiaries . . . . . . . . 365 313 Equity in net loss of unconsolidated subsidiary . . . . . . . (949) - Investment income . . . . . . . . . . . . . . . . . . . . . . 1,765 3,738 Interest expense . . . . . . . . . . . . . . . . . . . . . . (47) (436) ------ ------ 1,134 3,615 ------- ------- Income before income taxes . . . . . . . . . . . . . . . . . . 12,787 14,159 Provision for income taxes . . . . . . . . . . . . . . . . . . (4,731) (5,097) ------- ------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,056 $ 9,062 ======= =======
The accompanying notes are an integral part of these unaudited, condensed, consolidated financial statements. -3- 4 GENZYME CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31, - ------------------------------------------------------------------------------------------------ 1995 1994 ---- ---- APPLICABLE TO GENZYME GENERAL DIVISION: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $10,371 $ 9,592 Allocated tax benefit generated by Genzyme Tissue Repair Division . . . . . . . . . . . . . . . . . . . 1,627 285 ------- ------- Net income attributable to General Division Stock . . . . . . . . . . . . . . . . . . . . . . $11,998 $ 9,877 ======= ======= Per common and common equivalent share: Net income (1) . . . . . . . . . . . . . . . . . . . . . . . $0.43 $0.38 ===== ===== Average shares outstanding . . . . . . . . . . . . . . . . . 27,945 26,045 ====== ====== Per common share assuming full dilution: Net income (1) . . . . . . . . . . . . . . . . . . . . . . . $0.40 $0.35 ===== ===== Average fully diluted shares outstanding . . . . . . . . . . 29,970 27,936 ====== ====== APPLICABLE TO GENZYME TISSUE REPAIR DIVISION: Net loss attributable to TR Stock . . . . . . . . . . . . . . $(3,942) $ (815) ======= ======= Per common share: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.45) $(0.25) ====== ====== Average shares outstanding . . . . . . . . . . . . . . . . . 8,751 3,281 ===== =====
(1) General Division 1994 net income per share is pro forma. The accompanying notes are an integral part of these unaudited, condensed, consolidated, financial statements. -4- 5 GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS) MARCH 31, DECEMBER 31, - ------------------------------------------------------------------------------------------------------- 1995 1994 ---- ---- ASSETS Current Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 23,306 $ 63,542 Short-term investments . . . . . . . . . . . . . . . . . . . . . . 12,528 13,073 Accounts receivable, less allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . 74,662 78,127 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,516 36,840 Prepaid expenses and other current assets . . . . . . . . . . . . 11,745 11,074 Deferred tax assets - current . . . . . . . . . . . . . . . . . . 4,072 4,072 -------- -------- Total current assets . . . . . . . . . . . . . . . . . . . . . . 167,829 206,728 Property, plant and equipment, net . . . . . . . . . . . . . . . . 308,639 296,802 Other Assets: Long-term investments . . . . . . . . . . . . . . . . . . . . . . 76,431 76,845 Note receivable - related party . . . . . . . . . . . . . . . . . 5,212 3,572 Intangibles, net of accumulated amortization . . . . . . . . . . . 28,629 29,303 Deferred tax assets - noncurrent . . . . . . . . . . . . . . . . . 28,473 28,473 Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . 22,595 16,685 -------- -------- 161,340 154,878 -------- -------- $637,808 $658,408 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,719 $ 21,387 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 38,764 30,986 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . 4,867 6,523 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . 1,842 2,604 Current portion of long-term debt and capital lease obligations . . . . . . . . . . . . . . . . . . . . 2,778 41,357 -------- -------- Total current liabilities . . . . . . . . . . . . . . . . . . . 60,970 102,857 Noncurrent Liabilities: Long-term debt and capital lease obligations . . . . . . . . . . . 126,721 126,729 Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . 8,750 7,548 -------- -------- 135,471 134,277 Minority interest in subsidiaries . . . . . . . . . . . . . . . . . 1,981 2,310 Stockholders' Equity: General Division Stock, $.01 par value . . . . . . . . . . . . . . 266 264 TR Stock, $.01 par value . . . . . . . . . . . . . . . . . . . . . 87 87 Treasury Stock - at cost . . . . . . . . . . . . . . . . . . . . . (772) (755) Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 473,960 470,826 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (30,752) (38,808) Other equity adjustments . . . . . . . . . . . . . . . . . . . . . (3,403) (12,650) -------- -------- 439,386 418,964 -------- -------- $637,808 $658,408 ======== ========
The accompanying notes are an integral part of these unaudited, condensed, consolidated financial statements. -5- 6 GENZYME CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, - ------------------------------------------------------------------------------------------------- 1995 1994 ---- ---- OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,056 $ 9,062 Reconciliation of net income to net cash from operating activities: Depreciation and amortization . . . . . . . . . . . . . . . 5,470 3,707 Provision for bad debts . . . . . . . . . . . . . . . . . . 1,044 1,083 (Gain)/loss on sale of investments . . . . . . . . . . . . 85 (1,609) Loss on disposal of fixed assets . . . . . . . . . . . . . 8 61 Accrued interest/amortization on bonds . . . . . . . . . . 270 (3,100) Minority interest in net loss of subsidiaries . . . . . . . (365) (313) Equity in net loss of unconsolidated subsidiary . . . . . . 949 - Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 575 14 Increase (decrease) in cash from working capital: Accounts receivable . . . . . . . . . . . . . . . . . . . 4,429 (6,463) Inventories . . . . . . . . . . . . . . . . . . . . . . . (3,384) (5,945) Prepaid expenses and other current assets . . . . . . . . (463) (325) Accounts payable, accrued expenses and deferred revenue . . . . . . . . . . . . . . . . . . (4,240) 4,358 -------- --------- Net cash from operating activities . . . . . . . . . . . 12,434 530 INVESTING ACTIVITIES: Investment in unconsolidated affiliate . . . . . . . . . . . (4,000) - Loans to related parties . . . . . . . . . . . . . . . . . . (1,640) - Purchases of investments . . . . . . . . . . . . . . . . . . (11,014) (182,376) Sales and maturities of investments . . . . . . . . . . . . . 14,547 208,083 Property, plant and equipment . . . . . . . . . . . . . . . . (13,224) (20,954) Other noncurrent assets . . . . . . . . . . . . . . . . . . . (372) (238) -------- --------- Net cash from investing activities . . . . . . . . . . . (15,703) 4,515 FINANCING ACTIVITIES: Issuance of common stock . . . . . . . . . . . . . . . . . . 3,102 1,092 Issuance of common stock by subsidiary . . . . . . . . . . . 73 93 Issuance of debt . . . . . . . . . . . . . . . . . . . . . . 177 138 Payments of debt and capital lease obligations . . . . . . . (39,204) (200) -------- --------- Net cash from financing activities . . . . . . . . . . . (35,852) 1,123 Effect of exchange rate changes on cash . . . . . . . . . . . . (1,115) 101 -------- --------- Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . (40,236) 6,269 Cash and cash equivalents, beginning of period . . . . . . . . 63,542 22,975 -------- --------- Cash and cash equivalents, end of period . . . . . . . . . . . $ 23,306 $ 29,244 ======== ========= Supplemental cash flow information: Cash paid during the period for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,248 $ 559 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 6,258 617
The accompanying notes are an integral part of these unaudited, condensed, consolidated, financial statements. -6- 7 GENZYME CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation: These unaudited condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and the financial statements and footnotes included therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. Certain items in the 1994 financial statements have been reclassified to conform with the 1995 presentation. The financial statements for the three months ended March 31, 1995 and 1994 are unaudited but include, in the Company's opinion, all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of the results for the periods presented. 2. Accounting Policies: The accounting policies underlying the quarterly financial statements are those set forth in Note A of the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 3. Investments: As of March 31, 1995, the Company classified all investments, consisting primarily of debt securities, as available for sale. As a result, gross unrealized holding losses totaling $3,236,000 were charged to Stockholders' equity. As of March 31, 1995, the market values of the Company's equity investments in Argus Pharmaceuticals, Inc. and Univax Biologics, Inc., included in Other noncurrent assets in the combined balance sheets, exceeded their respective carrying values at December 31, 1994 by approximately $2,623,000 which was credited to Stockholders' Equity. 4. Inventories:
March 31, 1995 December 31, 1994 -------------- ----------------- Raw Materials . . . . . . . . . . $ 9,723,000 $14,572,000 Work-in-process . . . . . . . . . 16,137,000 9,247,000 Finished products . . . . . . . . 15,657,000 13,021,000 ----------- ----------- $41,517,000 $36,840,000 =========== ===========
5. Provision for Income Taxes: The tax provision for the quarter ended March 31, 1995 varies from the U.S. statutory tax rate because of the provision for state income taxes, losses of subsidiaries which generate no current tax benefit, tax credits and taxes on foreign earnings. The effective tax rate was 37% for the three months ended March 31, 1995 as compared to 36% for the corresponding period in 1994. The increase was due primarily to the repeal of the Orphan Drug Credit effective December 31, 1994. -7- 8 (TM) = TRADEMARK GENZYME CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 RESULTS OF OPERATIONS Revenue Total revenues for the three months ended March 31, 1995 were $88.2 million, an increase of 20% over the corresponding period in 1994. Product and service revenues were $81.7 million, an increase of 21% over the same period in 1994. Product revenues increased 30% to $69.3 million reflecting sales increases of 31%, 15% and 33%, respectively, in the Therapeutic, Diagnostic Products and Pharmaceutical/Fine Chemical ("PFC") businesses. The increase in sales of Therapeutic products resulted primarily from increased shipments of Ceredase(R) enzyme, for which the rate of new patient accruals more than offset dosage reductions, and the market introduction, in the second quarter of 1994, of Cerezyme(TM) enzyme, the recombinant form of Ceredase(R) enzyme. The increase in Diagnostic Product sales resulted from sales increases across all product lines including a doubling in revenues from sales of Direct LDL tests. The increase in PFC sales resulted from the operations of a Swiss company acquired in July 1994. Service revenues for the first quarter of 1995 declined 11% to $12.5 million from $13.9 million for the same period in 1994. The drop in service revenue resulted primarily from the divestiture of two small genetic diagnostic laboratories and an unusually large European bone marrow drive that provided revenues in the first quarter of 1994. International sales represented approximately 42% of product sales for the first quarter of 1995 compared with approximately 33% for the first quarter of 1994. The increase was due primarily to a 69% increase in the combined international sales of Ceredase(R)/Cerezyme(TM) enzyme as well as favorable exchange rates. Revenues from research and development contracts for the three months ended March 31, 1995 were $6.4 million, an increase of 9% from the corresponding period in 1994. Revenues from Neozyme II increased 33% to $5.7 million for the first quarter of 1995 due primarily to increased activity relating to collaborations with third parties that began in 1993 as well as increased efforts internally. In the first quarter of 1994, the Surgical Aids Partnership provided revenues to Genzyme of $0.9 million thereby exhausting the funds it had available for the funding of the HAL(TM) products. Margins and Operating Expenses Total gross margin for the quarter ended March 31, 1995 was 58%, as compared to 59% for the same period in 1994. Genzyme provides a broad range of health care products and services, resulting in a range of gross margins depending on the particular market conditions of each product or service. Product margins for the quarter ended March 31, 1995 declined to 62% from 65% for the same period in 1994 due primarily to lower margins on Ceredase(R) enzyme as a result of the higher cost of purchased material beginning in the second quarter of 1994 and a price increase in the first quarter of 1994 prior to the cost increase. Service margins for the three months ended March 31, 1995 decreased to 36% from 37%. Selling, general and administrative expenses for the three months ended March 31, 1995 were $26 million, an increase of 16% over the same period in 1994. The increase was due primarily to increased staffing in support of the growth in several product lines and to the ongoing expenses associated with various operations acquired or established in 1994. As a percentage of total revenues, selling, -8- 9 general and administrative expenses were 29% compared to 31% for the corresponding period in 1994. Research and development expenses for the three months ended March 31, 1995 were $16.5 million, an increase of 27% over the same period in 1994 due to increased efforts on behalf of Neozyme II, increased spending on internal programs and research and development spending of the Tissue Repair Division, which grew through the acquisition of BioSurface Technology, Inc. ("BioSurface") in December 1994. Other Income and Expenses Investment income for the quarter ended March 31, 1995 totaled $1.8 million, compared with $3.7 million for the same period in 1994 which included gains of $1.5 million on the sales of securities. Excluding the effect of the realized gains, investment income decreased 22% due to lower average cash and investment balances. Interest expense for the quarter ended March 31, 1995 was $47,000, net of capitalized interest on construction in progress of $2.5 million. Interest relating to Genzyme's 6 3/4% convertible subordinated notes was $1.7 million, equal to the amount incurred in the first quarter of 1994. The Company also incurred interest expense of $0.4 million related to a $21.5 million mortgage note issued in the second quarter of 1994, $0.1 million related to a deferred liability established to acquire the remaining shares of a Swiss company acquired, in part, in July 1994 and the remainder related to interest on capitalized leases. The tax provision for the quarter ended March 31, 1995 varies from the U.S. Statutory tax rate because of the provision for state income taxes, losses of subsidiaries which generate no current tax benefit, tax credits and taxes on foreign earnings. The effective tax rate was 37% for the three months ended March 31, 1995 as compared to 36% for the corresponding period in 1994. The increase was due to primarily to the repeal of the Orphan Drug Credit effective December 31, 1994. FINANCIAL CONDITION As of March 31, 1995, Genzyme had cash, cash equivalents and investments in marketable securities totaling $112.3 million, a decrease of $41.2 from December 31, 1994. The Company repaid a $39.0 million term loan in January 1995. In the first quarter of 1995, Genzyme spent $13.2 million on increased manufacturing capacity and invested an additional $4.0 million in an unconsolidated affiliate. These expenditures were financed by operations, $12.4 million, and by the issuance of common stock through exercises of stock options and warrants, $3.1 million. As of March 31, 1995, the Company had accounts receivable of $74.7 million, a decrease of $3.4 million from December 31, 1994, due primarily to accelerated collections. Inventories increased $4.7 million, or 13%, to $41.5 million as of March 31, 1995 as compared to December 31, 1994. The increase was due primarily to support of increased business operations and, in part, to exchange rate fluctuations. In January 1995, Genzyme renewed its commitment to continue funding, until March 1, 1996, the development of the HAL(TM) products on behalf of the Surgical Aids Partnership whose available funds were fully expended in the first quarter of 1994. -9- 10 GENZYME GENERAL DIVISION CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, - ------------------------------------------------------------------------------------------------ 1995 1994 ---- ---- Revenues: Net product sales . . . . . . . . . . . . . . . . . . . . . . $68,271 $53,475 Net service sales . . . . . . . . . . . . . . . . . . . . . . 12,464 13,928 Revenues from research and development contracts: Related parties . . . . . . . . . . . . . . . . . . . . . . 6,326 5,578 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 301 ------- ------- 87,159 73,282 Operating costs and expenses: Cost of products sold . . . . . . . . . . . . . . . . . . . . 25,406 18,645 Cost of services sold . . . . . . . . . . . . . . . . . . . . 7,951 8,709 Selling, general and administrative . . . . . . . . . . . . . 24,239 22,293 Research and development (including research and development related to contracts) . . . . . . . . . . . 13,649 12,276 ------- ------- 71,245 61,923 ------- ------- Operating income . . . . . . . . . . . . . . . . . . . . . . . 15,914 11,359 Other income and (expenses): Minority interest in net loss of subsidiaries . . . . . . . . 365 313 Equity in net loss of unconsolidated subsidiary . . . . . . . (949) - Investment income . . . . . . . . . . . . . . . . . . . . . . 1,446 3,738 Interest expense . . . . . . . . . . . . . . . . . . . . . . (47) (436) ------- ------- 815 3,615 ------- ------- Income (loss) before income taxes . . . . . . . . . . . . . . . 16,729 14,974 Provision for income taxes . . . . . . . . . . . . . . . . . . (6,358) (5,382) ------- ------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . 10,371 9,592 Allocated tax benefit generated by Tissue Repair Division . . . . . . . . . . . . . . . . . . . . 1,627 285 ------- ------- Net income attributable to Genzyme General Division Stock . . . . . . . . . . . . . . . . . . . . $11,998 $ 9,877 ======= =======
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -10- 11 GENZYME GENERAL DIVISION CONDENSED COMBINED STATEMENTS OF OPERATIONS (CONTINUED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31, - ----------------------------------------------------------------------------------------------- 1995 1994 ---- ---- Net income attributable to Genzyme General Division Stock . . . . . . . . . . . . . . . . . . . . $11,998 $ 9,877 ======= ======= Income per General Division Common and common equivalent share: Net income (1) . . . . . . . . . . . . . . . . . . . . . . . $0.43 $0.38 ===== ===== Average shares outstanding . . . . . . . . . . . . . . . . . 27,945 26,045 ====== ====== Income per General Division Common Share assuming full dilution: Net income (1) . . . . . . . . . . . . . . . . . . . . . . . $0.40 $0.35 ===== ===== Average fully diluted shares outstanding . . . . . . . . . . 29,970 27,936 ====== ======
(1) Pro forma for 1994. The accompanying notes are an integral part of these unaudited, condensed, combined, financial statements. -11- 12 GENZYME GENERAL DIVISION COMBINED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS) MARCH 31, DECEMBER 31, - ------------------------------------------------------------------------------------------------------- 1995 1994 ---- ---- ASSETS Current Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 12,290 $ 46,549 Short-term investments . . . . . . . . . . . . . . . . . . . . . . 3,547 7,155 Accounts receivable, less allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . 73,935 76,641 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,432 36,764 Prepaid expenses and other current assets . . . . . . . . . . . . 11,521 10,790 Due from Genzyme Tissue Repair Division . . . . . . . . . . . . . 2,189 171 Deferred tax assets - current . . . . . . . . . . . . . . . . . . 4,072 4,072 -------- -------- Total current assets . . . . . . . . . . . . . . . . . . . . . . 148,986 182,142 Property, plant and equipment, net . . . . . . . . . . . . . . . . 307,279 295,346 Other Assets: Long-term investments . . . . . . . . . . . . . . . . . . . . . . 74,449 74,948 Note receivable - related party . . . . . . . . . . . . . . . . . 5,212 3,572 Intangibles, net of accumulated amortization . . . . . . . . . . . 28,629 29,303 Deferred tax assets - noncurrent . . . . . . . . . . . . . . . . . 28,473 28,473 Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . 22,280 16,360 -------- -------- 159,043 152,656 -------- -------- $615,308 $630,144 ======== ======== LIABILITIES AND DIVISION EQUITY Current Liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,402 $ 20,859 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 37,395 27,766 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . 4,867 6,523 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . 1,842 2,604 Current portion of long-term debt and capital lease obligations . . . . . . . . . . . . . . . . . . . . 2,489 41,076 -------- -------- Total current liabilities . . . . . . . . . . . . . . . . . . . 58,995 98,828 Noncurrent Liabilities: Long-term debt and capital lease obligations . . . . . . . . . . . 126,623 126,555 Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . 8,029 6,800 -------- -------- 134,652 133,355 Minority interest in subsidiaries . . . . . . . . . . . . . . . . . 1,981 2,310 Division equity . . . . . . . . . . . . . . . . . . . . . . . . . . 419,680 395,651 -------- -------- $615,308 $630,144 ======== ========
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -12- 13 GENZYME GENERAL DIVISION CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, - --------------------------------------------------------------------------------------------------- 1995 1994 ---- ---- OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 11,998 $ 9,877 Reconciliation of net income to net cash from operating activities: Depreciation and amortization . . . . . . . . . . . . . . 5,320 3,707 Provision for bad debts . . . . . . . . . . . . . . . . . 1,044 1,083 (Gain)/loss on sale of investments . . . . . . . . . . . 85 (1,609) Loss on disposal of fixed assets . . . . . . . . . . . . 8 61 Accrued interest/amortization on bonds . . . . . . . . . 428 (3,100) Minority interest in net loss of subsidiaries . . . . . . (365) (313) Equity in net loss of unconsolidated subsidiary . . . . . 949 - Other . . . . . . . . . . . . . . . . . . . . . . . . . . 575 14 Increase (decrease) in cash from working capital: Accounts receivable . . . . . . . . . . . . . . . . . . 3,670 (6,463) Inventories . . . . . . . . . . . . . . . . . . . . . . (3,375) (5,945) Prepaid expenses and other current assets . . . . . . . (523) (325) Accounts payable, accrued expenses and deferred revenue . . . . . . . . . . . . . . . . . (2,178) 4,358 Due from Genzyme Tissue Repair Division . . . . . . . . (2,051) - -------- --------- Net cash from operating activities . . . . . . . . . . 15,585 1,345 INVESTING ACTIVITIES: Investment in unconsolidated affiliate . . . . . . . . . . (4,000) - Loans to related parties . . . . . . . . . . . . . . . . . (1,640) - Purchases of investments . . . . . . . . . . . . . . . . . (57) (182,376) Sales and maturities of investments . . . . . . . . . . . . 6,460 208,083 Property, plant and equipment . . . . . . . . . . . . . . . (13,170) (20,954) Other noncurrent assets . . . . . . . . . . . . . . . . . . (382) (238) -------- --------- Net cash from investing activities . . . . . . . . . . (12,789) 4,515 FINANCING ACTIVITIES: Issuance of common stock . . . . . . . . . . . . . . . . . 2,920 1,092 Issuance of common stock by subsidiary . . . . . . . . . . 73 93 Issuance of debt . . . . . . . . . . . . . . . . . . . . . 177 138 Payments of debt and capital lease obligations . . . . . . (39,110) (200) Net cash to Genzyme . . . . . . . . . . . . . . . . . . . . - (815) -------- --------- Net cash from financing activities . . . . . . . . . . (35,940) 308 Effect of exchange rate changes on cash . . . . . . . . . . . (1,115) 101 -------- --------- Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . (34,259) 6,269 Cash and cash equivalents, beginning of period . . . . . . . 46,549 22,975 -------- --------- Cash and cash equivalents, end of period . . . . . . . . . . $ 12,290 $ 29,244 ======== ========= Supplemental cash flow information: Cash paid during the period for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,248 $ 559 Income taxes . . . . . . . . . . . . . . . . . . . . . . . 6,258 617
The accompanying notes are an integral part of these unaudited, condensed, combined, financial statements. -13- 14 GENZYME GENERAL DIVISION NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS 1. Basis of Presentation: These unaudited condensed combined financial statements should be read in conjunction with Genzyme Corporation's (the "Company") Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and the financial statements and footnotes for Genzyme General Division included therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. Certain items in the 1994 financial statements have been reclassified to conform with the 1995 presentation. The financial statements for the three months ended March 31, 1995 and 1994 are unaudited but include, in the Company's opinion, all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of the results for the periods presented. 2. Accounting Policies: The accounting policies underlying the quarterly financial statements are those set forth in Note A of the General Division's financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 3. Investments: As of March 31, 1995, the Division classified all investments, consisting primarily of debt securities, as available for sale. As a result, gross unrealized holding losses totaling $3,100,000 were charged to Division equity. As of March 31, 1995, the market values of the General Division's equity investments in Argus Pharmaceuticals, Inc. and Univax Biologics, Inc., included in Other noncurrent assets in the combined balance sheets, exceeded their respective carrying values at December 31, 1994 by approximately $2,623,000 which was credited to Division Equity. 4. Inventories:
March 31, 1995 December 31, 1994 -------------- ----------------- Raw Materials . . . . . . . . . . . $ 9,657,000 $14,517,000 Work-in-process . . . . . . . . . . 16,118,000 9,227,000 Finished products . . . . . . . . . 15,657,000 13,020,000 ----------- ----------- $41,432,000 $36,764,000 =========== ===========
5. Provision for Income Taxes: The tax provision for the quarter ended March 31, 1995 varies from the U.S. statutory tax rate because of the provision for state income taxes, losses of subsidiaries which generate no current tax benefit, tax credits and taxes on foreign earnings. The effective tax rate was 38% for the three months ended March 31, 1995 as compared to 36% for the corresponding period in 1994. The increase was due primarily to the repeal of the Orphan Drug Credit effective December 31, 1994. -14- 15 GENZYME GENERAL DIVISION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 The following discussion is a summary of the key factors management considers necessary in reviewing the General Division's results of operations, liquidity and capital resources. This discussion should be read in conjunction with the financial statements and related notes of Genzyme. RESULTS OF OPERATIONS Revenue Total revenues for the three months ended March 31, 1995 were $87.2 million, an increase of 19% over the corresponding period in 1994. Product and service revenues were $80.7 million, an increase of 20% over the same period in 1994. Product revenues increased 28% to $68.3 million reflecting sales increases of 31%, 15% and 33%, respectively, in the Therapeutic, Diagnostic Product and Pharmaceutical/Fine Chemical ("PFC") businesses. The increase in sales of Therapeutic products resulted primarily from increased shipments of Ceredase(R) enzyme, for which the rate of new patient accruals more than offset dosage reductions, and the market introduction, in the second quarter of 1994, of Cerezyme(TM) enzyme, the recombinant form of Ceredase(R) enzyme. The increase in Diagnostic Product sales resulted from sales increases across all product lines including a doubling in revenues from sales of Direct LDL tests. The increase in PFC sales resulted from the operations of a Swiss company acquired in July 1994. Service revenues for the first quarter of 1995 declined 11% to $12.5 million from $13.9 million for the same period in 1994. The drop in service revenue resulted primarily from the divestiture of two small genetic diagnostic laboratories and an unusually large European bone marrow drive that provided revenues in the first quarter of 1994. International sales represented approximately 42% of product sales for the first quarter of 1995 compared with approximately 33% for the first quarter of 1994. The increase was due primarily to a 69% increase in the combined international sales of Ceredase(R)/Cerezyme(TM) enzyme as well as favorable exchange rates. Revenues from research and development contracts for the three months ended March 31, 1995 were $6.4 million, an increase of 9% from the corresponding period in 1994. Revenues from Neozyme II increased 33% to $5.7 million for the first quarter of 1995 due primarily to increased activity relating to collaborations with third parties that began in 1993 as well as increased efforts internally. In the first quarter of 1994, the Surgical Aids Partnership provided revenues to Genzyme of $0.9 million thereby exhausting the funds it had available for the funding of the HAL(TM) products. Margins and Operating Expenses Total gross margin for the quarters ended March 31, 1995 and 1994 was 59%. The General Division provides a broad range of health care products and services, resulting in a range of gross margins depending on the particular market conditions of each product or service. Product margins for the quarter ended March 31, 1995 declined to 63% from 65% for the same period in 1994 due primarily to lower margins on Ceredase(R) enzyme as a result of the higher cost of purchased material beginning in the second quarter of 1994 and a price increase in the first quarter of 1994 prior to the cost increase. Service margins for the three months ended March 31, 1995 decreased to 36% from 37%. -15- 16 Selling, general and administrative expenses for the three months ended March 31, 1995 were $24.2 million, an increase of 9% over the same period in 1994. The increase was due primarily to increased staffing in support of the growth in several product lines and to the ongoing expenses associated with various operations acquired or established in 1994. As a percentage of total revenues, selling, general and administrative expenses were 28% compared to 30% for the corresponding period in 1994. Research and development expenses for the three months ended March 31, 1995 were $13.6 million, an increase of 11% over the same period in 1994 due to increased efforts on behalf of Neozyme II and increased spending on internal programs. Other Income and Expenses Investment income for the quarter ended March 31, 1995 totaled $1.4 million, compared with $3.7 million for the same period in 1994 which included gains of $1.5 million on the sales of securities. Excluding the effect of the realized gains, investment income decreased 39% due to lower average cash and investment balances. Interest expense for the quarter ended March 31, 1995 was $47,000, net of capitalized interest on construction in progress of $2.2 million. Interest relating to Genzyme's 6 3/4% convertible subordinated notes was $1.7 million, equal to the amount incurred in the first quarter of 1994. The General Division also incurred interest expense of $0.4 million related to a $21.5 million mortgage note issued in the second quarter of 1994 and $0.1 million related to a deferred liability established to acquire the remaining shares of a Swiss company acquired, in part, in July 1994 and the remainder related to interest on capitalized leases. The tax provision for the quarter ended March 31, 1995 varies from the U.S. Statutory tax rate because of the provision for state income taxes, losses of subsidiaries which generate no current tax benefit, tax credits and taxes on foreign earnings. The effective tax rate was 38% for the three months ended March 31, 1995 as compared to 36% for the corresponding period in 1994. The increase was due primarily to the repeal of the Orphan Drug Credit effective December 31, 1994. The allocated tax benefit of $1.6 million generated by GTR reduced the General Division's tax rate to 37%. FINANCIAL CONDITION As of March 31, 1995, the General Division had cash, cash equivalents and investments in marketable securities totaling $90.3 million, a decrease of $38.4 from December 31, 1994. The General Division repaid a $39.0 million term loan in January 1995. In the first quarter of 1995, the General Division spent $13.2 million on increased manufacturing capacity and invested an additional $4.0 million in an unconsolidated affiliate. These expenditures were financed primarily by operations, $15.6 million, and by the issuance of common stock through exercises of stock options and warrants, $2.9 million. As of March 31, 1995, the General Division had accounts receivable of $73.9 million, a decrease of $2.7 million from December 31, 1994, due primarily to accelerated collections. Inventories increased $4.7 million, or 13%, to $41.4 million as of March 31, 1995 as compared to December 31, 1994. The increase was due primarily to support of increased business operations and, in part, to exchange rate fluctuations. In January 1995, the General Division renewed its commitment to continue funding, until March 1, 1996, the development of the HAL(TM) products on behalf of the Surgical Aids Partnership whose available funds were fully expended in the first quarter of 1994. -16- 17 GENZYME TISSUE REPAIR DIVISION CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31, - ---------------------------------------------------------------------------------------------------- 1995 1994 ---- ---- Revenues: Net product sales . . . . . . . . . . . . . . . . . . . . . $ 1,030 $ - Operating costs and expenses: Cost of products sold . . . . . . . . . . . . . . . . . . . 725 - Selling, general and administrative . . . . . . . . . . . . 1,752 163 Research and development . . . . . . . . . . . . . . . . . 2,814 652 ------- ------- 5,291 815 ------- ------- Operating loss . . . . . . . . . . . . . . . . . . . . . . . (4,261) (815) Investment income . . . . . . . . . . . . . . . . . . . . . . 319 - ------- ------- Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,942) $ (815) ======= ======= Per Tissue Repair Division Common share: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $(0.45) $(0.25) ====== ====== Average shares outstanding . . . . . . . . . . . . . . . . 8,751 3,281 ===== =====
The accompanying notes are an integral part of these unaudited, condensed, combined, financial statements. -17- 18 GENZYME TISSUE REPAIR DIVISION COMBINED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS) MARCH 31, DECEMBER 31, - ------------------------------------------------------------------------------------------------------ 1995 1994 ---- ---- ASSETS Current Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $11,016 $16,993 Short-term investments . . . . . . . . . . . . . . . . . . . . . 8,981 5,918 Accounts receivable, less allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . 727 1,486 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 84 76 Prepaid expenses and other current assets . . . . . . . . . . . 224 284 ------- ------- Total current assets . . . . . . . . . . . . . . . . . . . . . 21,032 24,757 Property, plant and equipment, net . . . . . . . . . . . . . . . 1,360 1,456 Other Assets: Long-term investments . . . . . . . . . . . . . . . . . . . . . 1,982 1,897 Other noncurrent assets . . . . . . . . . . . . . . . . . . . . 315 325 ------- ------- 2,297 2,222 ------- ------- $24,689 $28,435 ======= ======= LIABILITIES AND DIVISION EQUITY Current Liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 317 $ 528 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,369 3,220 Payable to Genzyme General Division . . . . . . . . . . . . . . 2,189 171 Current portion of capital lease obligations . . . . . . . . . . 289 281 ------- ------- Total current liabilities . . . . . . . . . . . . . . . . . . 4,164 4,200 Noncurrent Liabilities: Capital lease obligations . . . . . . . . . . . . . . . . . . . 98 174 Other noncurrent liabilities . . . . . . . . . . . . . . . . . . 721 748 ------- ------- 819 922 Division equity . . . . . . . . . . . . . . . . . . . . . . . . . 19,706 23,313 ------- ------- $24,689 $28,435 ======= =======
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -18- 19 GENZYME TISSUE REPAIR DIVISION CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, - ----------------------------------------------------------------------------------------------------------- 1995 1994 ---- ---- OPERATING ACTIVITIES: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,942) $(815) Reconciliation of net loss to net cash from operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . 150 - Accrued interest/amortization on bonds . . . . . . . . . . . (158) - Increase (decrease) in cash from working capital: Accounts receivable . . . . . . . . . . . . . . . . . . . . 759 - Inventories . . . . . . . . . . . . . . . . . . . . . . . . (9) - Prepaid expenses and other current assets . . . . . . . . . 60 - Accounts payable, accrued expenses and deferred revenue . . . . . . . . . . . . . . . . . . . (2,062) - Due to Genzyme General Division . . . . . . . . . . . . . . 2,051 - -------- ----- Net cash from operating activities . . . . . . . . . . . . (3,151) (815) INVESTING ACTIVITIES: Purchases of investments . . . . . . . . . . . . . . . . . . . (10,957) - Sales and maturities of investments . . . . . . . . . . . . . . 8,087 - Property, plant and equipment . . . . . . . . . . . . . . . . . (54) - Other noncurrent assets . . . . . . . . . . . . . . . . . . . . 10 - -------- ----- Net cash from investing activities . . . . . . . . . . . . (2,914) - FINANCING ACTIVITIES: Issuance of TR Stock . . . . . . . . . . . . . . . . . . . . . 182 - Payments of capital lease obligations . . . . . . . . . . . . . (68) - Net cash from Genzyme . . . . . . . . . . . . . . . . . . . . . - 815 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26) - -------- ----- Net cash from financing activities . . . . . . . . . . . . 88 815 -------- ----- Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . (5,977) - Cash and cash equivalents, beginning of period . . . . . . . . . 16,993 - -------- ----- Cash and cash equivalents, end of period . . . . . . . . . . . . $ 11,016 $ - ======== =====
The accompanying notes are an integral part of these unaudited, condensed, combined, financial statements. -19- 20 GENZYME TISSUE REPAIR DIVISION NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS 1. Basis of Presentation: These unaudited condensed combined financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and the financial statements and footnotes for Genzyme Tissue Repair Division ("GTR") included therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. Certain items in the 1994 financial statements have been reclassified to conform with the 1995 presentation. The financial statements for the three months ended March 31, 1995 and 1994 are unaudited but include, in GTR's opinion, all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of the results for the periods presented. 2. Accounting Policies: The accounting policies underlying the quarterly financial statements are those set forth in Note A of GTR's financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 3. Investments: As of March 31, 1995, GTR classified all investments, consisting primarily of debt securities, as available for sale. As a result, gross unrealized holding losses totaling $136,000 were charged to Division equity. 4. Inventories:
March 31, 1995 December 31, 1994 -------------- ----------------- Raw Materials . . . . . . . . . . $66,000 $55,000 Work-in-process . . . . . . . . . 18,000 21,000 ------- ------- $84,000 $76,000 ======= =======
-20- 21 GENZYME TISSUE REPAIR DIVISION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 The following discussion is a summary of the key factors management considers necessary in reviewing GTR's results of operations, liquidity and capital resources. This discussion should be read in conjunction with the financial statements and related notes of Genzyme. RESULTS OF OPERATIONS Revenue Product revenues for the three months ended March 31, 1995 were $1,030,000. Revenues consisted primarily of sales of Epicel(TM) skin grafts which are dependent upon numerous factors, many of which are not in GTR's control and, as a result, GTR expects sales of Epicel(TM) skin grafts to fluctuate from period to period. Also in the first quarter of 1995, initial sales of Carticel(SM) Service, GTR's cartilage repair service, commenced. Margins and Operating Expenses Gross margins for the quarter ended March 31, 1995 were 30%. GTR incurs direct selling, general and administrative expenses as well as a selling, general and administrative charge, based on actual amounts incurred, from the General Division for selling, general and administrative work performed by the General Division on behalf of GTR. Selling, general and administrative expenses for the three months ended March 31, 1995 were $1,752,000 compared to $163,000 for the corresponding period in 1994. The increase was due to increased support of GTR research and development by the General Division and to the acquisition of BioSurface Technology, Inc., in the fourth quarter of 1994. GTR incurs direct research and development expenses as well as a charge for research and development and related overhead from the General Division, based on actual amounts incurred, for research and development work performed by the General Division on behalf of GTR. Research and development expenses for the quarter ended March 31, 1995 were $2,814,000 million including $1,758,000 related to the operations of BioSurface. Excluding the effect of BioSurface, research and development expenses increased 62% due primarily to increased outside clinical trials and manufacturing support related to the Vianain programs. LIQUIDITY AND FINANCIAL RESOURCES As of March 31, 1995, GTR had approximately $22.0 million of cash, cash equivalents and investments in marketable securities, a decrease of $2.8 million from December 31, 1994. The decrease was due to GTR's net loss from operations and working capital requirements. GTR funded working capital requirements through additional amounts payable to the General Division totaling $2.2 million. -21- 22 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 1995 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for Genzyme, the General Division and the Tissue Repair Division on the pages listed in the Index on Page 2 of this report. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 Computation of weighted average shares used in computing earnings per share amounts. Filed herewith. 27.1 Financial Data Schedule 27.2 Financial Data Schedule (b) Reports on Form 8-K None. -22- 23 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 1995 SIGNATURES Pursuant to the requirements of the Securities and 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 DATE: May 12, 1995 By: /s/David J. McLachlan ---------------------- David J. McLachlan Duly Authorized Officer and Chief Financial Officer -23- 24 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 1995 EXHIBIT INDEX
Exhibit No. Description Page No. - ------- ----------- ------- 11 Computation of weighted average shares used in computing earnings per share amounts. Filed herewith. 25 27.1 Financial Data Schedule. Filed herewith. 27.2 Financial Data Schedule. Filed herewith.
-24- EX-11 2 COMPUTATION OF WEIGHTED AVERAGE SHARES 1 EXHIBIT 11 GENZYME CORPORATION AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF WEIGHTED AVERAGE SHARES USED IN COMPUTING INCOME PER SHARE AMOUNTS (Unaudited, in thousands)
THREE MONTHS ENDED ----------------------------------------------------------------- MARCH 31, 1995 MARCH 31, 1994 ------------------------------ ------------------------------ COMMON COMMON AND COMMON ASSUMING AND COMMON ASSUMING EQUIVALENT FULL EQUIVALENT FULL SHARE DILUTION SHARE DILUTION ---------- -------- ---------- -------- APPLICABLE TO GENERAL DIVISION STOCK: Common stock outstanding, beginning of period . . . . . . . . 26,447 26,447 24,292 24,292 Weighted average common stock issued during the period . . . 41 41 16 16 Weighted average common stock assuming exercise of options . . . . . . . . . . . . . . . . . . . . 879 1,013 530 530 Weighted average common stock assuming exercise of warrants . . . . . . . . . . . . . . . . . . . . 578 578 1,207 1,207 Weighted average common stock assuming conversion of 6 3/4% Convertible Subordinated Notes . . . . . . . . . . . (A) 1,891 (A) 1,891 ------ ------ ------ ------ Weighted average number of shares outstanding . . . . . . . . 27,945 29,970 26,045 27,936 ====== ====== ====== ====== APPLICABLE TO TR STOCK: Common stock outstanding, beginning of period . . . . . . . . 8,675 3,279 Weighted average common stock issued during the period . . . 76 2 Weighted average common stock assuming exercise of options . . . . . . . . . . . . . . . . . . . . (B) (B) Weighted average common stock assuming exercise of warrants . . . . . . . . . . . . . . . . . . . . (B) (B) Weighted average common stock assuming conversion of 6 3/4% Convertible Subordinated Notes . . . . . . . . . . . (A) (A) ------ ------ Weighted average number of shares outstanding . . . . . . . . 8,751 3,281 ====== ======
(A) These securities are "other potentially dilutive" securities which effect is included, to the extent such effect is dilutive,in the determination of weighted average shares assuming full dilution. (B) The effect of assumed conversion is antidilutive. -25- EX-27.1 3 FDS FOR GENZYME GENERAL DIVISION WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GENZYME GENERAL DIVISION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995 AS FILED BY GENZYME CORPORATION. 1,000 U.S. DOLLARS 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 1 12,290 77,996 79,140 5,205 41,432 148,986 362,309 55,030 615,308 58,995 129,112 266 0 0 419,414 615,308 80,735 87,159 33,357 71,245 949 1,044 47 16,729 4,731 11,998 0 0 0 11,998 .43 .40
EX-27.2 4 FDS FOR GENZYME TISSUE REPAIR DIVISION
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GENZYME TISSUE REPAIR DIVISION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995 AS FILED BY GENZYME CORPORATION. 1,000 U.S. DOLLARS 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 1 11,016 10,963 904 177 84 21,032 1,536 176 24,689 4,164 387 88 0 0 19,618 24,689 1,030 1,030 725 5,291 0 0 0 (3,942) 0 (3,942) 0 0 0 (3,942) (.45) 0
-----END PRIVACY-ENHANCED MESSAGE-----