<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 1994
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 1-10638
CAMBREX CORPORATION
-------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-2476135
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MEADOWLANDS PLAZA, EAST RUTHERFORD, NEW JERSEY 07073
--------------------------------------------------------
(Address of principal executive offices)
(201) 804-3000
--------------
(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 twelve 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 1, 1994, there were 5,247,024 shares outstanding of the
registrant's Common Stock, $.10 par value.
Page 1 of 14
<PAGE> 2
CAMBREX CORPORATION AND SUBSIDIARIES
Form 10-Q
For The Quarter Ended June 30, 1994
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I Financial information
Condensed consolidated balance sheets as of
June 30, 1994 and December 31, 1993 3
Condensed consolidated income statements
for the three months and six months
ended June 30, 1994 and 1993 4
Condensed consolidated statements of
cash flows for the six months ended
June 30, 1994 and 1993 5
Notes to condensed consolidated financial
statements 6 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 11
Part II Other information
Item 4. Matters Submitted to a Vote of Securities
Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 11 - Computation of Earnings Per Share 14
</TABLE>
<PAGE> 3
Part 1 - FINANCIAL INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
--------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48 $ 161
Trade and other receivables, less allowances
for doubtful accounts of $430 and $355
at respective dates . . . . . . . . . . . . . . . . . . 32,815 28,015
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 39,040 33,730
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . 1,243 1,315
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 3,456 3,557
------ ------
Total current assets . . . . . . . . . . . . . . . . . . 76,602 66,778
Property, plant and equipment, net . . . . . . . . . . . . . . . 97,099 89,784
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . 11,780 7,621
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . 541 2,662
------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . $186,022 $166,845
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . $ 23,761 $ 20,872
Income taxes payable . . . . . . . . . . . . . . . . . . . . 3,305 3,409
Current portion of long-term debt . . . . . . . . . . . . . . 4,008 4,000
------- -------
Total current liabilities . . . . . . . . . . . . . . . 31,074 28,281
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 45,737 36,261
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . 6,793 5,986
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . 8,748 8,748
------- -------
Total liabilities . . . . . . . . . . . . . . . . . . . 92,352 79,276
------- -------
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 603 601
Additional paid-in capital . . . . . . . . . . . . . . . . . 73,014 72,627
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 30,846 25,859
Additional minimum pension liability . . . . . . . . . . . . (692) (1,030)
Treasury stock, at cost; 786,913 and 819,049
shares at respective dates . . . . . . . . . . . . . . . . (10,101) (10,488)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . 93,670 87,569
-------- --------
Total liabilities and stockholders' equity . . . . . . . $ 186,022 $ 166,845
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 3 -
<PAGE> 4
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . $ 58,224 $ 52,779 $109,271 $100,427
Operating expenses:
Cost of goods sold . . . . . . . . . . 43,631 38,569 83,275 74,299
Selling, general and administrative
expenses . . . . . . . . . . . . . . 7,938 7,687 14,214 14,677
Research and development . . . . . . . 1,188 1,464 2,401 2,823
------- ------- ------- -------
Total operating expenses . . . . . . 52,757 47,720 99,890 91,799
------- ------- ------- -------
Operating profit . . . . . . . . . . . . . 5,467 5,059 9,381 8,628
Other (income) expenses:
Interest expense - net . . . . . . . . 670 727 1,033 1,404
Other - net . . . . . . . . . . . . . . (219) 243 (47) 173
------- ------- ------- ------
Income before income taxes . . . . . . . . 5,016 4,089 8,395 7,051
Provision for income taxes . . . . . . . . 1,636 1,662 2,887 2,830
------- ------ ------- -------
Net income . . . . . . . . . . . . . . . $ 3,380 $ 2,427 $ 5,508 $ 4,221
======= ====== ======= =======
Weighted average shares outstanding:
Primary . . . . . . . . . . . . . 5,648 5,191 5,643 5,174
Fully diluted . . . . . . . . . . 5,648 5,466 5,643 5,468
Net income per share:
Primary . . . . . . . . . . . . . $ 0.60 $ 0.47 $ 0.98 $ 0.82
======= ======= ======= =======
Fully diluted . . . . . . . . . . $ 0.60 $ 0.45 $ 0.98 $ 0.79
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 4 -
<PAGE> 5
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------
1994 1993
------- -------
<S> <C> <C>
Cash flows from operations . . . . . . . . . . . . . . . . . . . . . . . . $ 13,057 $ 9,531
Changes in assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,561) (3,105)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,714) (3,382)
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 203 (24)
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . 623 1,946
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . (206) 928
Other noncurrent assets and liabilities . . . . . . . . . . . . . . . . 2,121 881
------- -------
Net cash provided from operations . . . . . . . . . . . . . . . . 9,523 6,775
------- -------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (7,514) (6,209)
Acquisition of businesses . . . . . . . . . . . . . . . . . . . . . . . (11,840) ( 5,800)
------ ------
Net cash (used in) investing activities . . . . . . . . . . . . . (19,354) (12,009)
------ ------
Cash flows from financing activities:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (521) (479)
Long-term debt activity (including current portion): . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,664 21,804
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,200) (16,591)
Proceeds from the issuance of common stock . . . . . . . . . . . . . . 59 217
Proceeds from the sale of treasury stock . . . . . . . . . . . . . . . 716 661
------ -------
Net cash provided from financing activities . . . . . . . . . . . 9,718 5,612
------ -------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . (113) 378
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . 161 564
------ -------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48 $ 942
====== =======
Supplemental disclosure:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,307 $ 1,344
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,289 $ 2,851
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 5 -
<PAGE> 6
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
(1) Basis of Presentation
Unless otherwise indicated by the context, "Cambrex" or the "Company"
means Cambrex Corporation and subsidiaries.
The accompanying unaudited Condensed Consolidated Financial Statements
have been prepared from the records of the Company. In the opinion of
management, the financial statements include all adjustments, consisting of
only normal recurring accruals, necessary for a fair presentation of financial
position and results of operations in conformity with generally accepted
accounting principles. These interim financial statements should be read in
conjunction with the financial statements for the year ended December 31, 1993.
The results of operations for the six months ended June 30, 1994 are
not necessarily indicative of the results to be expected for the full year.
(2) Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market and include material, labor, and overhead.
Inventories at June 30, 1994 and December 31, 1993 consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
--------- ---------------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . $19,864 $17,988
Raw materials . . . . . . . . . . . . . 17,013 13,878
Fuel oil and supplies . . . . . . . . . 2,163 1,864
------ ------
$39,040 $33,730
====== ======
</TABLE>
(3) Earnings Per Common Share
The calculation of primary earnings per common share is based on the
weighted average number of common shares and common share equivalents
outstanding during the applicable period. For 1993, fully diluted earnings per
share assumes conversion of the outstanding convertible subordinated notes that
were converted in September 1993, and the elimination of related interest
expense net of tax.
- 6 -
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4) Acquisition
On January 31, 1994, the Company completed the acquisition of the
assets of Hexcel Corporation's fine chemicals business located in
Middlesbrough, England, for approximately $7,300 and the assumption of
certain current liabilities in the amount of $2,700. The facility is
now known as Seal Sands Chemicals Ltd. On May 27, 1994, the Company
purchased the Topanol product line from Zeneca Limited to compliment
its operations at the Seal Sands facility.
5) Long-term Debt
Long-term debt at June 30, 1994 and December 31, 1993 consists of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---- ----
<S> <C> <C>
Bank credit facilities (a) . . . . . . . . . . . . . . . $ 45,575 $36,111
Capital lease . . . . . . . . . . . . . . . . . . . . . 20 0
Industrial development revenue bond . . . . . . . . . . 4,150 4,150
------ ------
Subtotal . . . . . . . . . . . . . . . . . . . 49,745 40,261
Less: current portion . . . . . . . . . . . . . . . . . 4,008 4,000
------ ------
Total . . . . . . . . . . . . . . . . . . . . $ 45,737 $ 36,261
====== ======
</TABLE>
(a) On January 31, 1994, the Company amended the Revolving Credit and
Term Loan Agreement (Credit Agreement) with NBD Bank, N.A., National
Westminster NJ, and United Jersey Bank. The new Credit Agreement provides for
additional revolving credit facility flexibility as follows: It is designed to
allow for automatic extensions of termination date. The current termination
date is January 31, 1997. It permits the Company to specify a portion of the
borrowing to be designated in various acceptable currencies. Under the Credit
Agreement, the interest rate options available approximate London Interbank
Offering Rates (LIBOR) for the appropriate currency plus no more than 1 1/2%,
or the U.S. Prime Rate. On June 30, 1994, the rate was LIBOR+1%. A commitment
fee of between 250/1000 of 1% and 125/1000 of 1% is paid on the unused portion
of the revolving credit facilities. Additionally, the restrictive covenant for
net worth was updated. All other covenants remain unchanged. The Company met
all bank covenants for the first half of 1994.
6) Postemployment Benefits
Statement of Financial Accounting Standard No. 112 "Employers'
Accounting for Postemployment Benefits" (SFAS 112) requires the recognition on
an accrual basis of all types of postemployment benefits provided to former or
inactive employees subsequent to employment but before retirement. The Company
currently provides limited benefits in this regard.
The Company will adopt SFAS 112 effective January 1, 1994. The impact
of SFAS 112 implementation upon the Company's operating results is expected to
be immaterial.
- 7 -
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(7) Contingencies
There have been no significant changes in the existing contingencies
related to environmental issues. Refer to Form 10-K for the fiscal year ended
December 31, 1993.
- 8 -
<PAGE> 9
CAMBREX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The second quarter 1994 net revenues increased 10% to $58,224,000 from
$52,779,000 in the previous year. The $5,445,000 of increased revenue included
sales from the Company's Seal Sands Chemicals Ltd. facility located in England,
acquired on January 31, 1994, and from the agricultural intermediates and
additives products, which increased by $4,228,000 over the second quarter 1993.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- -------------------
(in thousands) (in thousands)
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Health & pharmaceuticals . . . . . . . . . . . $ 14,372 $ 14,731 $ 28,610 $ 29,546
Agricultural intermediates
& additives . . . . . . . . . . . . . . . 16,745 12,517 30,659 25,074
Specialty & fine chemicals . . . . . . . . . . 16,603 13,736 29,883 25,090
Performance chemicals . . . . . . . . . . . . 8,147 9,069 15,488 14,379
Coatings . . . . . . . . . . . . . . . . . . . 4,975 4,158 8,989 9,025
------ ------ ------- -------
Total gross revenues . . . . . . . . . . . $ 60,842 $ 54,211 $ 113,629 $ 103,114
====== ====== ======= =======
Total net revenues . . . . . . . . . . . . $ 58,224 $ 52,779 109,271 100,427
====== ====== ======= =======
</TABLE>
Health and Pharmaceuticals' revenues decreased $359,000 (2%) from 1993.
Shipments of USP Vitamin B(3) and its chemical precursors declined due to
customers changing order patterns and reduced sales to foreign markets. These
decreases have been offset by a 64% increase in our generic drug used for
ulcerative colitis, and a new product under contract at our Zeeland facility,
used as an intermediate for over-the-counter cough suppressants.
Agricultural Intermediates and Additives' revenues increased by $4,228,000
(34%) over 1993. The continued growth in this market is due to a 50% increase
in shipments for feed additives used to enhance chicken growth, improve feed
performance and control disease. Feed Grade Vitamin B3 and its intermediates
had an 80% increase in sales due to a recovery in sales to the Asia/Pacific
area and the added capability of bagging the finished product that allowed
penetration of the European market.
Specialty and Fine Chemicals' revenues increased $2,867,000 (21%) over 1993.
Seal Sands Chemicals Ltd. (acquired on January 31, 1994) accounted for
$3,613,000 in sales of specialty chemicals of which $3,300,000 are new products
to Cambrex. Reduced sales in this category were due mainly to reduced domestic
and foreign shipments of photographic chemical intermediates.
- 9 -
<PAGE> 10
Performance Chemicals' revenues decreased $922,000 (10%) from prior year. The
decline was due to the elimination of a low margin fiber optic gel product, and
reduced sales of encapsulants due to loss of a major customer last year in the
U.S. and a decline in sales to a key international customer.
Coatings' revenues increased $817,000 (20%) over 1993. This improvement was
due to improved market conditions in paints and coatings demand by the
automotive and housing industries.
Gross profit in the second quarter 1994 of $14,593,000 (25.1% of sales)
compared to $14,210,000 (26.9% of sales) in the second quarter 1993. The
margin percentage was adversely affected by decreases in the price of pyridine
and its derivatives; both the domestic and foreign markets have been under
increased competitive pressure. Recent acquisitions also adversely affected
margins, as these new businesses initally generate below normal margins.
Selling, general and administrative expenses as a percentage of net revenues
was 15.7% in the second quarter 1994 versus 17.3% in 1993. The second quarter
1994 expense of $9,126,000 was $25,000 below 1993. Reduced spending in sales
and marketing and research and development was due to staff reductions, and
non-renewal of outside research contracts. Higher administrative costs
reflected the added cost of the Seal Sands acquisition, partially offset by
staff reductions.
Interest expense for the second quarter decreased $57,000 from 1993. This
decrease is due to recording the capitalization of interest costs and the
elimination in the third and fourth quarters 1993 of higher interest debt
including a capital lease and convertible 9% notes. This reduction was offset
by borrowings required for the Seal Sands acquisition.
Other income for the second quarter 1994 was $219,000 compared with $243,000 in
other expense for the second quarter 1993. The key change was an accounting
reclassification at Seal Sands to record expenses consistent with Cambrex
policies.
The provision for income taxes was reviewed during the second quarter and has
been reduced from 39.5% to approximately 34% for 1994. A favorable adjustment
of $250,000 was recorded in the second quarter.
Net income for the second quarter 1994 was $3,380,000 compared to $2,427,000
for the second quarter 1993. The earnings per share (fully diluted) in the
second quarter 1994 were 60 cents, compared with 45 cents in 1993 (33%
increase).
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources, in the opinion of management,
adequately enable the Company to meet its needs for cash. Cash flow from
operations increased by $2,748,000, when compared to the first half of 1993.
The majority of this increase is derived from higher net income and additional
depreciation and amortization charges.
- 10 -
<PAGE> 11
The key expenditures in the quarter were from investing activities. Capital
expenditures of $7,514,000 for the first half of 1994 were $1,305,000 higher
than the prior year. The major capital expenditures were for a new facility to
generate steam at our Charles City, Iowa plant and for a project at our
Zeeland, Michigan plant providing facilities to manufacture a new product for a
major customer. Funds were expended to acquire the assets of Hexcel's fine
chemicals business in Middlesbrough, England, and to subsequently acquire a
product line complimentary to this business.
The quarterly cash dividend declared on April 28, 1994 was paid on May 27,
1994. On July 28, 1994, the Board of Directors declared a quarterly cash
dividend on its common stock of 5 cents per share for all shareholders of
record as of August 12, 1994. The dividend is payable on August 26, 1994.
- 11 -
<PAGE> 12
PART II - OTHER INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
Item 4. Matters Submitted to a Vote of Securities Holders.
Refer to Form 10-Q for the quarterly period ended March 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
a) The exhibit filed as part of this report is listed below.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
11 Statement of computation of per share earnings.
</TABLE>
- 12 -
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMBREX CORPORATION
By /s/ Peter Tracey
---------------------------------
Peter Tracey
Vice President
(On behalf of the Registrant and
as the Registrant's Principal
Financial Officer)
Date: August 11, 1994
- 13 -
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
11 Statement of computation of per share earnings.
</TABLE>
<PAGE> 1
EXHIBIT 11
CAMBREX CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in thousands)
<TABLE>
<CAPTION>
Three months ended
June 30,
----------------------
1994 1993
------ ----
<S> <C> <C>
Income (loss) applicable to common shares:
Primary earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,380 $ 2,427
Add:
Interest reduction from assumed conversion of convertible
subordinated notes (net of taxes):
Notes issued June 11, 1985 . . . . . . . . . . . . . . . . . . . . 0 34
Notes issued October 3, 1985 . . . . . . . . . . . . . . . . . . . 0 20
------ ------
Fully diluted earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 3,380 $ 2,481
====== ======
Weighted average number of common shares and common share
equivalents outstanding during the period:
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,229 4,872
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . 419 319
----- -----
Shares outstanding - primary . . . . . . . . . . . . . . . . . . . . . 5,648 5,191
Notes issued June 11, 1985 . . . . . . . . . . . . . . . . . . . . 0 172
Notes issued October 3, 1985 . . . . . . . . . . . . . . . . . . . 0 103
Additional stock options . . . . . . . . . . . . . . . . . . . . . 0 0
----- -----
Shares outstanding - fully diluted . . . . . . . . . . . . . . . . . . 5,648 5,466
===== =====
</TABLE>
- 14 -
