<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 September 30, 1996
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 November 1, 1996, there were 11,686,828 shares outstanding of the
registrant's Common Stock, $.10 par value.
Page 1 of 16
<PAGE> 2
CAMBREX CORPORATION AND SUBSIDIARIES
Form 10-Q
For The Quarter Ended September 30, 1996
Table of Contents
Page No.
--------
Part I Financial information
Condensed consolidated balance sheets as of
September 30, 1996 and December 31, 1995 3
Condensed consolidated income statements
for the three months and nine months ended
September 30, 1996 and 1995 4
Condensed consolidated statements of
cash flows for the nine months ended
September 30, 1996 and 1995 5
Notes to condensed consolidated financial
statements 6 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
Part II Other information
Item 4. Matters Submitted to a Vote of Securities
Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit 11 - Computation of Earnings Per Share 15
Exhibit 27 - Financial Data Schedule 16
<PAGE> 3
Part 1 - FINANCIAL INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 8,342 $ 4,841
Trade and other receivables, less allowances
for doubtful accounts of $1,273 and $1,261
at respective dates ....................... 51,826 58,337
Inventories .................................... 66,055 71,234
Deferred tax asset ............................. 4,195 4,544
Other current assets ........................... 5,115 5,178
--------- ---------
Total current assets ...................... 135,533 144,134
Property, plant and equipment, net ................. 212,152 205,683
Intangible assets, net ............................. 50,443 51,665
Other noncurrent assets ............................ 1,529 1,071
--------- ---------
Total assets .............................. $ 399,657 $ 402,553
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities ....... $ 52,467 $ 62,444
Income taxes payable ........................... 10,357 3,012
Short-term debt ................................ 2,437 4,705
Current portion of long-term debt .............. 4,276 4,108
--------- ---------
Total current liabilities ................. 69,537 74,269
Long-term debt ..................................... 72,581 99,643
Deferred taxes ..................................... 18,258 19,400
Other noncurrent liabilities ....................... 23,239 19,757
--------- ---------
Total liabilities ......................... 183,615 213,069
--------- ---------
Stockholders' equity:
Common stock ................................... 837 818
Additional paid-in capital ..................... 145,906 142,453
Retained earnings .............................. 72,793 54,316
Additional minimum pension liability ........... (750) (750)
Treasury stock, at cost; 1,067,092 and 1,073,168
shares* at respective dates ................. (8,276) (9,160)
Shares held in trust ........................... (3,681) 0
Cumulative translation adjustment .............. 9,213 1,807
--------- ---------
Total stockholders' equity ................ 216,042 189,484
--------- ---------
Total liabilities and stockholders' equity $ 399,657 $ 402,553
========= =========
</TABLE>
*Per share data and shares outstanding reflect adjustment for 50% stock dividend
in July, 1996
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 Nine months ended
September 30, September 30,
---------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross sales ........................... $ 88,318 $ 90,138 $ 278,004 $ 277,214
Commissions, freight, etc ......... 2,070 2,264 6,693 6,591
Sales, returns and allowances ..... 184 606 1,244 1,986
--------- --------- --------- ---------
Net sales ............................. 86,064 87,268 270,067 268,637
Other revenues .................... (18) 117 173 352
--------- --------- --------- ---------
Net revenues .......................... 86,046 87,385 270,240 268,989
Operating expenses:
Cost of goods sold ................ 61,044 62,337 192,787 194,375
Selling, general and administrative
expenses ........................ 12,112 11,757 35,332 35,177
Research and development .......... 2,180 1,765 6,697 5,511
--------- --------- --------- ---------
Total operating expenses ........ 75,336 75,859 234,816 235,063
--------- --------- --------- ---------
Operating profit ...................... 10,710 11,526 35,424 33,926
Other (income) expenses:
Interest expense - net ............ 1,508 2,531 4,974 9,262
Other - net ....................... (183) 1,185 (52) 1,583
--------- --------- --------- ---------
Income before income taxes ............ 9,385 7,810 30,502 23,081
Provision for income taxes ............ 3,284 2,804 10,676 8,574
--------- --------- --------- ---------
Net income ............................ $ 6,101 $ 5,006 $ 19,826 $ 14,507
========= ========= ========= =========
Weighted average shares outstanding*:
Primary ...................... 11,907 11,016 11,864 9,500
Fully diluted ................ 11,918 11,018 11,889 9,548
Net income per share*:
Primary ...................... $ 0.51 $ 0.45 $ 1.67 $ 1.53
========= ========= ========= =========
Fully diluted ................ $ 0.51 $ 0.45 $ 1.67 $ 1.52
========= ========= ========= =========
</TABLE>
*Per share data and shares outstanding reflect adjustment for 50% stock dividend
in July, 1996.
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>
Nine months ended
September 30,
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operations ................................... $ 40,082 $ 34,347
Changes in assets and liabilities:
Receivables .............................................. 6,240 (4,458)
Inventories .............................................. 5,892 (10,570)
Other current assets ..................................... 79 55
Accounts payable and accrued liabilities ................. (11,638) 3,665
Income taxes payable ..................................... 7,282 (697)
Other noncurrent assets and liabilities .................. 2,965 (290)
--------- ---------
Net cash provided from operations ................... 50,902 22,052
--------- ---------
Cash flows from investing activities:
Capital expenditures ..................................... (21,080) (31,438)
Other investing activities ............................... (1,320) (2,018)
--------- ---------
Net cash (used in) investing activities ............. (22,400) (33,456)
--------- ---------
Cash flows from financing activities:
Dividends ................................................ (1,349) (918)
(Decrease)/increase in short-term debt ................... (2,427) 1,111
Long-term debt activity (including current portion):
Borrowings .......................................... 28,100 60,209
Repayments .......................................... (55,207) (114,601)
Proceeds from the issuance of common stock ............... 3,161 66,082
Proceeds from the sale of treasury stock ................. 1,195 1,072
--------- ---------
Net cash (used in)/provided from financing activities (26,527) 12,955
--------- ---------
Effect of exchange rate changes on cash ...................... 1,526 (3,484)
--------- ---------
Net increase/(decrease) in cash .............................. 3,501 (1,933)
Cash at beginning of period .................................. 4,841 9,087
--------- ---------
Cash at end of period ........................................ $ 8,342 $ 7,154
========= =========
Supplemental disclosure:
Interest paid ............................................ $ 5,527 $ 10,026
Income taxes paid ........................................ $ 3,600 $ 5,205
Depreciation expense ..................................... $ 17,090 $ 15,973
Non-cash financing activities:
Liabilities established in connection
with exercise of stock options ........................... $ 3,681
</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, except per-share amounts)
(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, 1995.
The results of operations for the nine months ended September 30, 1996
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 September 30, 1996 and December 31, 1995 consist of the
following:
September 30, December 31,
1996 1995
------- -------
Finished goods ............. $28,838 $30,409
Work in process ............ 14,835 19,093
Raw materials .............. 14,619 15,931
Fuel oil and supplies ...... 7,763 5,801
------- -------
$66,055 $71,234
======= =======
(3) Earnings Per Common Share
Earnings per common share are computed on the basis of the weighted
average shares of common stock outstanding plus common equivalent shares arising
from the effect of dilutive stock options, using the treasury stock method.
Under the assumption that the July 24, 1995 public offering of 2,587,500 shares,
the proceeds of which were used to reduce the Company's outstanding debt, had
occurred on January 1, 1995, the pro forma earnings per share for the third
quarter of 1995 would have been $0.44 or $1.42 for the first nine months of
1995.
The Board of Directors approved a three-for-two stock split of the Company's
stock, $.10 par value, in the form of a 50% stock dividend, effective July 24,
1996. Per share data and shares outstanding reflect this adjustment.
- 6 -
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4) Future Impact of Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted this standard in 1996, with no material impact
on the result of operations.
Statement of Financial Accounting Standard No. 123 "Accounting for
Stock Based Compensation" establishes financial accounting and reporting
standards for stock-based employee compensation plans. The Company has adopted
this standard during 1996 and has elected the disclosure option available under
this standard. Appropriate disclosure will be included in the 1996 Form 10-K.
5) Short-term Debt
Short-term debt at September 30, 1996 and December 31, 1995 consists of
the following:
September 30, December 31,
1996 1995
---- ----
Export financing facility, Italy . $2,437 $3,645
Overdraft protection ............. -- 1,060
------ ------
Total ....................... $2,437 $4,705
====== ======
6) Long-term Debt
Long-term debt at September 30, 1996 and December 31, 1995 consists of
the following:
September 30, December 31,
1996 1995
---- ----
Bank credit facilities ..... $ 75,500 $102,500
Capital lease .............. 14 25
Notes payable .............. 1,343 1,226
-------- --------
Subtotal ......... 76,857 103,751
Less: current portion ..... 4,276 4,108
-------- --------
Total ............ $ 72,581 $ 99,643
======== ========
The Company met all the bank covenants for the first nine months of
1996.
- 7 -
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7) Share Held in Trust
In 1995, the Company amended its non-qualified deferred compensation
plan to permit plan participants to defer receipt of Company stock which would
otherwise have been issued to the participants upon the exercise of Company
stock options. Such shares are held in trust and thus are included as a
reduction of equity. The Company has established a corresponding liability to
the plan participants in the amount of $3,681 which is included in other
noncurrent liabilities at September 30, 1996.
8) Contingencies
Refer to Form 10-K for the fiscal year ended December 31, 1995, for
disclosure of existing contingencies related to environmental issues.
- 8 -
<PAGE> 9
CAMBREX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
RESULTS OF OPERATIONS
The third quarter 1996 results were better than the third quarter of 1995 due to
growth in the gross sales of performance enhancers and pharmaceutical bulk
actives, which generated gross margins of 32%, and to lower interest expense and
a lower effective tax rate.
The following table shows the gross revenues of the Company's five product
categories, in dollars and as a percentage of the Company's total gross revenues
for the third quarter 1996 and 1995. Also shown are the net revenues and gross
profit for the third quarter 1996 and 1995.
<TABLE>
<CAPTION>
Third Quarter Ended September 30,
------------------------------------------
1996 1995
----------------- -------------------
$ % $ %
<S> <C> <C> <C> <C>
Pharmaceutical bulk actives................. $ 23,993 27.2% $ 23,248 25.8%
Pharmaceutical intermediates................ 15,199 17.2 18,226 20.2
Organic intermediates....................... 15,746 17.8 19,230 21.3
Performance enhancers....................... 19,432 22.0 15,400 17.1
Polymer systems............................. 13,948 15.8 14,034 15.6
------ ---- ------ ----
Total gross revenues..................... $88,318 100.0% $90,138 100.0%
====== ===== ====== =====
Total net revenues....................... $86,046 $87,385
====== ======
Total gross profit....................... $25,002 $25,048
====== ======
</TABLE>
The following table shows the gross revenues and gross profit of the Company's
five product categories and gross profit as a percentage of each product
category for the third quarter 1996.
Gross Gross Gross
Revenues Profit $ Profit %
-------- -------- --------
Pharmaceuticals bulk actives................ $23,993 $ 7,655 31.9%
Pharmaceutical intermediates................ 15,199 3,371 22.2
Organic intermediates....................... 15,746 3,272 20.8
Performance enhancers....................... 19,432 6,246 32.1
Polymer systems............................. 13,948 4,458 32.0
------ ------ ----
Total.................................... $88,318 $25,002 28.3%
====== ====== ====
- 9 -
<PAGE> 10
Gross revenues for the third quarter 1996 decreased to $88,318 compared to
$90,138 in the third quarter 1995. Decreased sales in the pharmaceutical
intermediates and organic intermediates categories offset the stronger sales in
the performance enhancers and pharmaceutical bulk actives categories.
Pharmaceuticals bulk actives of $23,993 were $745 (3%) above the third quarter
1995. Sales of 5-ASA (a gastro-intestinal bulk active) was higher than the third
quarter 1995 due to a recovery of demand by a major customer. Increased demand
for cardiovascular and respiratory bulk actives offset lower demand for
endocrine and central nervous system preparations.
Pharmaceutical intermediates of $15,199 were $3,027 (17%) below the third
quarter 1995 due to the effect of the loss of the PMPA business, which is used
in cough suppressants, and has accounted for 10% of this category's sales. In
addition, reduced demand and change in the order pattern by a major customer for
other dextromethorphan intermediates contribute to the decrease.
Organic intermediates of $15,746 were $3,484 (18%) below the third quarter 1995
due to weakness in the feed grade Vitamin B3 markets. This market continues to
be affected by competitive pricing. Sales of 2-cyanopyridine, used in crop
protection products, was lower due to a change in the order pattern of a major
customer.
Performance Enhancers of $19,432 were $4,032 (26%) above the third quarter 1995.
This product category had increased sales to the polymer, specialty additives
and catalyst markets. THPE, used as a cross linker for polycarbonate plastics,
increased due to both a timing difference in production campaigns at our
facility and wider usage of the product by a major customer. Specialty additives
increased over last year due to the continued improvement in sales of pyridine
derivatives to various export markets. Catalyst sales were affected by the
increased demand for Vitride, a reducing agent used in the pharmaceutical
industry.
Polymer systems of $13,948 were at the same level as the third quarter 1995.
Increased sales of castor based products to a major coatings manufacturer were
offset by lower sales of DCDPS, a plastic used in high performance applications.
Export sales from U.S. businesses of $11,670 in the third quarter 1996 compared
to $14,487 in the third quarter 1995 as a result of significantly lower sales to
Europe due to both the timing of customer orders and the competitive pricing in
the feed grade market. International sales from our European operations totaled
$37,515 for the same period in 1996 as compared with $35,756 in 1995.
Total gross profit of $25,002 was at the same level as the third quarter 1995,
even with a 2% reduction in sales, due to the higher gross margin percentage
which increased to 28.3% from 27.8%. The gross margin improvement was due to
increased plant throughput, improved product mix and price increases.
- 10 -
<PAGE> 11
Selling, general and administrative expenses, inclusive of research and
development, as a percentage of gross sales was 16.2%, up from 15.0% in the
third quarter 1995. The third quarter 1996 expense of $14,292 was $770 (6%)
above 1995, due to increased research costs of $0.4 million (including the
Oxford Asymmetry contract) and additional administration costs of $0.3 million
at our Nordic facility.
Net interest expense of $1,508 reflected a decrease of $1,023 from 1995 due to
the reduction of the outstanding debt from the proceeds of the equity offering
which took place in the third quarter of 1995, and to excess cash from
operations which was used to pay down outstanding loans by an additional $39
million. The average interest rate was 7.6% in the third quarter 1996 vs. 7.5%
in 1995.
Other expense in the third quarter 1995 included losses on foreign exchange. In
1996, these losses did not occur and other expense decreased by $1.2 million.
The Company's third quarter net income increased 22% to $6,101 compared with a
net income of $5,006 in the third quarter 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operations was $50,902 for the first nine months of 1996
compared with $22,052 in 1995. The increase in the cash flow is a result of
increased earnings and efforts to reduce accounts receivables and inventories.
In addition, income taxes payable has increased. The cash flow is offset by a
significant decrease in accounts payable and accrued liabilities.
Capital expenditures were $21,080 in the first nine months 1996 as compared to
$31,400 in the first nine months 1995. The largest expenditures in 1996 include
the purchase of the headquarters office building by Profarmaco, the Cambrex
Italian subsidiary, and the construction of the Tolterodine facility by Nordic
Synthesis, the Cambrex Swedish subsidiary.
On July 24, 1995, the Company completed a public offering of 2,587,500 shares of
newly issued common stock at a price of $25.83 per share. The total proceeds to
the Company, net of underwriting discounts and commissions, amounted to $63,497.
Proceeds were used to reduce outstanding debt existing under the Company's bank
credit agreement.
Effective July 24, 1996, the Board of Directors approved a three-for-two split
of the Company's common stock, $.10 par value, in the form of a 50% stock
dividend.
The Company has undrawn borrowing capacity of approximately $91,265 under the
Credit Agreement as of September 30, 1996, which can be used for general
corporate purposes. Management is of the opinion that these amounts, together
with other available sources of capital, are adequate for meeting the Company's
anticipated financing and capital requirements.
During the third quarter 1996, the Company paid cash dividends of $0.05 per
share.
-11 -
<PAGE> 12
The Company uses foreign currency forward exchange contracts to reduce the
effect of short-term foreign exchange rate movements on the Company's operating
results. The Company estimates its foreign currency exposure to be $68,284 at
September 30, 1996, of which $28,512 is hedged through forward exchange
contracts. Such forward contracts result in a deferred currency gain of $1,689
at September 30, 1996. An additional $2,437 of the foreign currency exposure is
protected through export financing.
- 12 -
<PAGE> 13
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, 1996.
Item 6. Exhibits and Reports on Form 8-K
a) The exhibits filed as part of this report are listed below.
Exhibit No. Description
11 Statement of computation of per share earnings.
27 Financial Data Schedule.
b) The registrant filed the following reports on Form 8-K during
the third quarter of 1995.
Date of Report Description
July 17, 1995 Amendment No. 2 to Form 8-K dated
October 26, 1994.
July 17, 1995 Press release discussing the
Company's financial results for the
second quarter of 1995.
- 13-
<PAGE> 14
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: November 11, 1996
- 14 -
<PAGE> 1
EXHIBIT 11
CAMBREX CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income applicable to common shares:
Primary earnings................................. $ 6,101 $ 5,006 $19,826 $14,507
====== ====== ====== ======
Fully diluted earnings........................... $ 6,101 $ 5,006 $19,826 $14,507
====== ====== ====== ======
Weighted average number of common
shares and common share equivalents
outstanding during the period*:
Common Stock................................ 11,647 10,491 11,576 8,982
Stock Options............................... 260 525 288 518
------ ------ ------ ------
Shares outstanding - primary..................... 11,907 11,016 11,864 9,500
Additional stock options.................... 11 2 25 48
------ ------ ------ ------
Shares outstanding - fully diluted............... 11,918 11,018 11,889 9,548
====== ====== ====== ======
</TABLE>
*Per share data reflect adjustment of 50% stock dividend in July, 1996.
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,342
<SECURITIES> 0
<RECEIVABLES> 48,796
<ALLOWANCES> 1,273
<INVENTORY> 66,055
<CURRENT-ASSETS> 135,533
<PP&E> 316,937
<DEPRECIATION> 104,785
<TOTAL-ASSETS> 404,169
<CURRENT-LIABILITIES> 69,537
<BONDS> 72,581
0
0
<COMMON> 837
<OTHER-SE> 215,205
<TOTAL-LIABILITY-AND-EQUITY> 404,169
<SALES> 270,067
<TOTAL-REVENUES> 270,240
<CGS> 192,787
<TOTAL-COSTS> 192,787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,974
<INCOME-PRETAX> 30,502
<INCOME-TAX> 10,676
<INCOME-CONTINUING> 19,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,826
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.67
</TABLE>
