<PAGE> 1
CONFORMED
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, 1997
------------------
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, 1997, there were 11,913,932 shares outstanding of the
registrant's Common Stock, $.10 par value.
Page 1 of 20
<PAGE> 2
CAMBREX CORPORATION AND SUBSIDIARIES
Form 10-Q
For The Quarter Ended September 30, 1997
Table of Contents
Page No.
--------
Part I Financial information
Condensed consolidated balance sheets as of
September 30, 1997 and December 31, 1996 3
Condensed consolidated income statements
for the three months and nine months ended
September 30, 1997 and 1996 4
Condensed consolidated statements of
cash flows for the nine months ended
September 30, 1997 and 1996 5
Notes to condensed consolidated financial
statements 6-11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-16
Part II Other information
Item 4. Matters Submitted to a Vote of Securities
Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit 11 - Computation of Earnings Per Share 19
Exhibit 27 - Financial Data Schedule 20
-2-
<PAGE> 3
Part 1 - FINANCIAL INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 29,726 $ 7,353
Trade and other receivables, less allowances
for doubtful accounts of $1,454 and $1,453
at respective dates .......................... 55,141 56,750
Inventories ...................................... 93,261 64,209
Deferred tax assets .............................. 5,325 5,009
Other current assets ............................. 5,603 3,541
--------- ---------
Total current assets ......................... 189,056 136,862
Property, plant and equipment, net ................... 236,111 216,481
Intangible assets, net ............................... 108,226 49,573
Other noncurrent assets .............................. 3,788 1,528
--------- ---------
Total assets ................................. $ 537,181 $ 404,444
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ......... $ 57,395 $ 54,754
Income taxes payable ............................. 8,588 8,085
Short-term debt .................................. 2,531 3,880
Current portion of long-term debt ................ 766 7,231
--------- ---------
Total current liabilities .................... 69,280 73,950
Long-term debt ....................................... 187,503 60,152
Deferred tax liabilities ............................. 24,685 21,587
Other noncurrent liabilities ......................... 20,803 19,710
--------- ---------
Total liabilities ............................ 302,271 175,399
--------- ---------
Stockholders' equity:
Common stock ..................................... 1,293 1,275
Additional paid-in capital ....................... 153,005 149,191
Retained earnings ................................ 102,677 80,608
Additional minimum pension liability ............. (553) (553)
Treasury stock, at cost; 1,052,641 and 1,049,895
shares at respective dates .................... (9,613) (9,449)
Shares held in trust, at cost, 180,277 and
132,126 shares at respective dates ........... (1,235) (718)
Cumulative translation adjustment ................ (10,664) 8,691
--------- ---------
Total stockholders' equity ................... 234,910 229,045
--------- ---------
Total liabilities and stockholders' equity ... $ 537,181 $ 404,444
========= =========
</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 data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross sales ........................... $ 82,638 $ 88,318 $ 276,552 $ 278,004
Commissions & freight ............ 1,546 2,070 5,470 6,693
Sales, returns and allowances ..... 382 184 1,252 1,244
-------- -------- --------- ---------
Net sales ............................. 80,710 86,064 269,830 270,067
Other revenues .................... 655 (18) 2,148 173
-------- -------- --------- ---------
Net revenues .......................... 81,365 86,046 271,978 270,240
Operating expenses:
Cost of goods sold ................ 56,807 61,044 189,611 192,787
Selling, general and administrative
expenses ........................ 11,556 12,112 38,137 35,332
Research and development .......... 2,418 2,180 7,057 6,697
-------- -------- --------- ---------
Total operating expenses ........ 70,781 75,336 234,805 234,816
-------- -------- --------- ---------
Operating profit ...................... 10,584 10,710 37,173 35,424
Other (income) expenses:
Interest expense - net ............ 525 1,508 2,763 4,974
Other - net ....................... (966) (183) (586) (52)
-------- -------- --------- ---------
Income before income taxes ............ 11,025 9,385 34,996 30,502
Provision for income taxes ............ 3,494 3,284 11,165 10,676
-------- -------- --------- ---------
Net income ............................ $ 7,531 $ 6,101 $ 23,831 $ 19,826
======== ======== ========= =========
Weighted average shares outstanding:
Primary ....................... 12,405 11,907 12,097 11,864
Fully diluted ................. 12,405 11,918 12,145 11,889
Net income per share:
Primary ....................... $ 0.61 $ 0.51 $ 1.97 $ 1.67
======== ======== ========= =========
Fully diluted ................. $ 0.61 $ 0.51 $ 1.96 $ 1.67
======== ======== ========= =========
</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>
Nine months ended
September 30,
-----------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 23,831 $ 19,826
Depreciation and amortization ....................... 22,450 21,088
Deferred income taxes ............................... 1,366 (832)
Changes in assets and liabilities:
Receivables ......................................... 6,502 6,240
Inventories ......................................... (7,276) 5,892
Other current assets ................................ (148) 79
Accounts payable and accrued liabilities ............ (5,862) (11,638)
Income taxes payable ................................ 1,004 7,282
Other noncurrent assets and liabilities ............. (324) 2,965
--------- --------
Net cash provided from operating activities ..... 41,543 50,902
--------- --------
Cash flows from investing activities:
Capital expenditures ................................ (25,395) (21,080)
Acquisition of business, net of cash acquired ....... (111,400) --
Other investing activities .......................... -- (1,320)
--------- --------
Net cash (used in) investing activities ......... (136,795) (22,400)
--------- --------
Cash flows from financing activities:
Dividends ........................................... (1,762) (1,349)
Net increase (decrease) in short-term debt .......... (752) (2,427)
Long-term debt activity (including current portion):
Borrowings ...................................... 224,000 28,100
Repayments ...................................... (104,861) (55,207)
Proceeds from the issuance of common stock .......... 3,289 3,161
Proceeds from the sale of treasury stock ............ 379 1,195
--------- --------
Net cash provided from financing activities ..... 120,293 (26,527)
--------- --------
Effect of exchange rate changes on cash ................. (2,668) 1,526
--------- --------
Net increase in cash .................................... 22,373 3,501
Cash at beginning of period ............................. 7,353 4,841
--------- --------
Cash at end of period ................................... $ 29,726 $ 8,342
========= ========
Supplemental disclosure:
Interest paid ....................................... $ 4,166 $ 5,527
Income taxes paid ................................... $ 2,820 $ 3,600
Depreciation expense ................................ $ 18,477 $ 17,090
Non-cash financing activities:
Liabilities established in connection with exercise
of stock options ................................. $ 517 $ 718
Debt assumed in conjunction with the acquisition of
BioWhittaker ..................................... $ 1,755
</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, results of operations and cash flows in conformity with generally
accepted accounting principles. These interim financial statements should be
read in conjunction with the consolidated financial statements for the year
ended December 31, 1996.
The Consolidated Balance Sheet of Cambrex Corporation for the period ended
September 30, 1997 reflects the acquisition of 93% of the outstanding common
stock of BioWhittaker, Inc. ("BioWhittaker") as of that date (see note (4)).
The results of operations for the nine months ended September 30, 1997 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, 1997 and December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Finished goods ............................... $40,266 $29,443
Work in process .............................. 23,592 15,463
Raw materials ................................ 23,809 13,179
Fuel oil and supplies ........................ 5,594 6,124
------- -------
Total .................................... $93,261 $64,209
======= =======
</TABLE>
(3) Earnings Per Common Share
Earnings per common share of common stock are computed on the basis of the
weighted average shares of common stock outstanding plus common stock equivalent
shares arising from the effect of dilutive stock options, using the treasury
stock method.
-6-
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(4) Mergers and Acquisition
On September 30, 1997, Cambrex acquired approximately 93% of the
outstanding common stock of BioWhittaker for approximately $116,000 ($111,000,
net of cash acquired). The remaining 7% of the outstanding common stock was
subsequently acquired on October 3, 1997. The total purchase price was
approximately $135,000 which was financed by the Company's new Credit Agreement.
The acquisition has been accounted for as a purchase transaction and as such,
the financial statements as of September 30, 1997, reflect the preliminary
allocation of the purchase price which is subject to revision when final
analyses of such values are completed. The excess of the purchase price over the
fair value of the net assets acquired was approximately $89,000 and has been
recorded as goodwill and, accordingly, will be amortized over 20 years. The
goodwill reflected in the Company's September 30, 1997 consolidated balance
sheet was approximately $68,000 which represents approximately 93% of the value
associated with the outstanding common stock of BioWhittaker owned by the
Company as of that date. Management is currently reviewing the assets and
liabilities of BioWhittaker to determine what amount, if any, of the purchase
price should be allocated to in-process research and development. This amount
would represent the value of BioWhittaker's research and development efforts
which had not reached commercial viability with no alternative future use and
would, therefore, be immediately expensed as required by generally accepted
accounting principles.
Unaudited pro forma results of operations of the Company and BioWhittaker
for the nine months ended September 30, 1997 and 1996, as if it had occurred on
January 1, 1996 are listed below.
<TABLE>
<CAPTION>
9 months ended September 30,
1997 1996
-------------- --------------
<S> <C> <C>
Net revenues ......................... $ 314,634 $ 308,841
Net income ........................... 23,831 14,787
Earnings per share
Primary .......................... 1.91 1.25
Fully diluted .................... 1.91 1.24
</TABLE>
The unaudited pro forma adjustments give effect to the depreciation of property,
plant and equipment, amortization of the goodwill, interest on the debt assumed
to finance the acquisition, and the tax effects of each of these items. The
unaudited pro forma information is not necessarily indicative of the results of
operations that would have occurred had the combination been in effect at
January 1, 1997, nor of future results of operations of the combined companies.
-7-
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assets acquired and liabilities assumed are as follows (giving effect to the
total purchase price):
<TABLE>
<CAPTION>
<S> <C>
Cash .................................................... $ 4,557
Receivables ............................................. 6,795
Inventories ............................................. 25,081
Deferred tax asset ...................................... 224
Other current assets .................................... 2,202
Property, plant & equipment ............................. 24,190
Goodwill ................................................ 89,108
Other assets ............................................ 89
Accounts payable and accrued liabilities ................ (9,905)
Income taxes payable .................................... (1,493)
Long term debt .......................................... (1,755)
Deferred tax liabilities ................................ (4,325)
---------
$ 134,768
</TABLE>
(5) Future Impact of Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
changes the reporting requirements for earnings per share (EPS) for publicly
traded companies by replacing primary EPS with basic EPS and changing the
disclosures associated with this change. The Company is required to adopt this
standard in the fourth quarter of 1997 and is currently evaluating the impact of
this standard.
Statement of Financial Accounting Standards No. 129 "Disclosure of
Information About Capital Structure" requires all companies to disclose specific
information concerning the entity's capital structure. The Company is required
to adopt this standard in the fourth quarter of 1997 and anticipates that the
adoption of this standard will not have an effect on the current presentation of
such information.
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" requires that comprehensive income and its components be
reported in the financial statements. The Company is required to adopt this
standard in 1998 and is currently evaluating this standard.
Statement of Financial Accounting Standards No. 131 "Disclosures About
Segments of an Enterprise and Related Information" requires that publicly traded
companies report financial and descriptive information about its reportable
operating segments. The Company is required to adopt this standard in 1998 and
is currently evaluating the impact of this standard.
-8-
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(6) Short-term Debt
Short-term debt at September 30, 1997 and December 31, 1996 consists of
the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Export financing facility, Italy ............... $2,531 $2,760
Overdraft protection ........................... -- 1,120
------ ------
Total ...................................... $2,531 $3,880
====== ======
</TABLE>
(7) Long-term Debt
Long-term debt at September 30, 1997 and December 31, 1996 consists of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Bank credit facilities ...................... $185,400 $66,000
Capital lease ............................... -- 13
Notes payable ............................... 2,869 1,370
-------- -------
Subtotal .................................. 188,269 67,383
Less: current portion ...................... 766 7,231
-------- -------
Total ................................... $187,503 $60,152
======== =======
</TABLE>
On September 16, 1997, the Company entered into a new five year Credit
Agreement (the "Agreement") with a bank group headed by The Chase Manhattan Bank
as Administrative Agent and The First National Bank of Chicago as Documentation
Agent. The bank group has a total of 13 domestic banks and 7 international
banks. The Agreement provides the Company with a $400,000 borrowing facility.
The new Agreement replaces the existing Revolving Credit Agreement with NBD
Bank, N.A.
The Company has pledged 66% of the common stock of the Company's foreign
subsidiaries as collateral. The Agreement permits the Company to choose between
various interest rate options and to specify the portion of the borrowing to be
covered by specific interest rate options. Under the Agreement, the interest
rate options available to the Company are: (a) U.S. Prime rate or (b) LIBOR plus
the applicable margin (ranging from .225% of 1% to .5% of 1%) or (c) Competitive
Bid at a LIBOR Rate Borrowing or a Fixed Rate Borrowing to be determined by
auction. The applicable margin is adjusted based upon the Funded Indebtedness to
Cash Flow Ratio of the Company. Additionally, the Company pays a commitment fee
of between .15% of 1% to .25% of 1% on the entire portion of the Agreement.
-9-
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
On September 16, 1997, the Company utilized $60,000 of the Agreement in
order to repay the outstanding balance under the existing Revolving Credit
Agreement. On September 30, 1997, the Company borrowed $126,000 to finance the
acquisition of the outstanding common stock of BioWhittaker. Of this amount,
approximately $116,000 was utilized on September 30, 1997 to acquire the 93% of
BioWhittaker common stock which had been tendered at that date. The undrawn
borrowing availability under the Agreement as of September 30, 1997 was
$214,600.
The Agreement is subject to financial covenants requiring the Company to
maintain certain levels of net worth and an interest coverage ratio, as well as
a limitation on indebtedness. The Company met all of the bank covenants for the
first nine months of 1997.
(8) Derivative Financial Instruments
The Company uses derivative financial instruments to reduce exposures to
market risks resulting from fluctuations in interest rates and foreign exchange.
The Company does not enter into financial instruments for trading or speculative
purposes. The Company is exposed to credit loss in the event of nonperformance
by the other parties to the interest rate swap and forward exchange contracts.
However, the Company does not anticipate nonperformance by the counterparties.
Gains and losses on foreign currency forward exchange contracts pertaining
to existing assets or liabilities, or hedges of firm commitments are deferred
and are recognized in income as part of the related transactions.
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements to reduce the impact
of changes in interest rates on its floating rate debt. The swap agreements are
contracts to exchange floating rate for fixed interest payments periodically
over the life of the agreements without the exchange of the underlying notional
amounts. Notional amounts provide an indication of the extent of the Company's
involvement in such agreements but do not represent its exposure to market risk.
Interest expense under these agreements, and the respective debt instruments
that they hedge, are recorded at the net effective interest rate of the hedged
transactions.
-10-
<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Foreign Exchange Instruments
The Company's policy is to enter into forward exchange contracts to hedge
foreign currency transactions. This hedging mitigates the impact of short-term
foreign exchange rate movements on the Company's operating results primarily in
the United Kingdom, Sweden and Italy. The Company's primary market risk relates
to exposure to foreign currency exchange rate fluctuations on transactions
entered into by these foreign operations which are denominated primarily in U.S.
dollars, Deutsche marks and British pound sterling. As a matter of policy, the
Company does not hedge to protect the translated results of foreign operations.
Generally, the Company's forward exchange contracts do not subject the Company's
results of operations to risk due to exchange rate movements because gains and
losses on these contracts generally offset gains and losses on the transactions
being hedged. The forward exchange contracts have varying maturities with none
exceeding twelve months. The Company makes net settlements for forward exchange
contracts at maturity, based upon negotiated rates at inception of the
contracts.
<TABLE>
<CAPTION>
9 Months Ended September 30, 1997
---------------------------------
Notional Fair Unrealized
Amounts Values Gains Losses
-------- ------ ----- ----------
<S> <C> <C> <C> <C>
Forward exchange contracts ........... $33,302 $33,478 $377 $452
</TABLE>
(9) Shares 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 the
Company's 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 $1,235 and $718 which is included in
other noncurrent liabilities at September 30, 1997 and December 31, 1996,
respectively.
(10) Other Income/Expense
Other income of $966 for the quarter ended September 30, 1997 compares to
$183 in the same period in 1996. The 1997 Other Income includes a $954 gain on
foreign currency as a result of the settlement of a foreign denominated loan.
(11) Contingencies
Refer to Form 10-K for the fiscal year ended December 31, 1996, for
disclosure of existing contingencies related to environmental issues.
During November 1997, the Company reached a favorable settlement
concerning the remediation of two locations for which a Company subsidiary had
been identified to remediate under various Federal and State statutes. This
settlement will result in funds being placed in a trust dedicated to remediation
of the sites. The Company is currently evaluating the effects of this settlement
on its environmental contingency reserves.
-11-
<PAGE> 12
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 1997 results were higher than the third quarter 1996 due to
the higher gross margins, reduced operating expenses, reduced interest costs,
and a gain on foreign exchange included in other income. The effective tax rate
for the quarter ended September 1997 was 32% as compared with 35% for the same
period in 1996.
The following table shows the gross sales of the Company's five product
categories, in dollars and as a percentage of the Company's total gross sales,
as well as the net revenues and gross profit for the third quarter 1997 and
1996.
<TABLE>
<CAPTION>
Third Quarter Ended September 30,
---------------------------------
1997 1996
---- ----
$ % $ %
--- --- --- ---
<S> <C> <C> <C> <C>
Pharmaceutical bulk actives .. $25,985 31.4% $23,993 27.2%
Pharmaceutical intermediates . 18,743 22.7 15,199 17.2
Organic intermediates ........ 10,722 13.0 15,746 17.8
Performance enhancers ........ 15,811 19.1 19,432 22.0
Polymer systems .............. 11,377 13.8 13,948 15.8
------- ------- ------- -------
Total gross sales ...... $82,638 100.0% $88,318 100.0%
======= ======= ======= =======
Total net revenues ..... $81,365 $86,046
======= =======
Total gross profit ...... $24,558 $25,002
======= =======
</TABLE>
The following table shows the gross sales and gross profit of the Company's five
product categories, and gross profit as a percentage of each product category,
for the third quarter 1997 and 1996.
<TABLE>
<CAPTION>
Gross Gross Gross
Sales Profit $ Profit %
----- -------- --------
<S> <C> <C> <C>
1997
- ----
Pharmaceutical bulk actives ....... $25,985 $10,375 39.9%
Pharmaceutical intermediates ...... 18,743 5,216 27.8
Organic intermediates ............. 10,722 969 9.0
Performance enhancers ............. 15,811 4,521 28.6
Polymer systems ................... 11,377 3,477 30.6
------- ------- ------
Total ........................ $82,638 $24,558 29.7%
======= ======= ======
</TABLE>
-12-
<PAGE> 13
<TABLE>
<CAPTION>
Gross Gross Gross
Sales Profit $ Profit %
----- -------- --------
<S> <C> <C> <C>
1996
- ----
Pharmaceutical 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%
======= ======= ======
</TABLE>
Gross sales in the third quarter 1997 decreased to $82,638 compared to $88,318
in the third quarter 1996 due to decreases in Organic Intermediates, Performance
Enhancers and Polymer Systems product categories, partially offset by increases
in the Pharmaceutical Bulk Actives and Pharmaceutical Intermediates product
categories.
The effect of foreign currency exchange rates on gross sales for the third
quarter 1997 shows a reduction in sales of $2,481 compared to the exchange rates
used in 1996. 1997 third quarter gross sales would have been $85,119 using 1996
exchange rates compared to 1996 third quarter sales of $88,318.
Pharmaceutical bulk actives of $25,985 were $1,992 (8%) above the third quarter
1996. Sales of Glipizide, an anti-diabetic, was favorably affected by the
increase in customer demand while 1996 was affected by the availability of raw
materials. Sales of Sulfasalazine, used for ulcerative colitis, was above last
year after a 1996 disruption in the order patterns. Additionally, a product for
treating ulcers, which was introduced in the second quarter of 1997, amounted to
sales of $4.0 million in the third quarter 1997. Sales were negatively impacted
by changes in foreign currency which reduced the sales by approximately 7%.
Pharmaceutical intermediates of $18,743 were $3,544 (23%) above the third
quarter 1996 primarily due to the continued shipments of an intermediate for a
protease inhibitor used in the treatment of AIDS, as well as amino-pyridines
used in various pharmaceutical products. Additionally, new products used as
intermediates for health actives generated $1.1 million in sales.
Organic intermediates of $10,722 were $5,024 (32%) below the third quarter 1996
due to lower pyridine shipments to a major customer who has been reducing
on-hand inventory. Additionally, Feed Grade Vitamin B3 was adversely affected by
both price pressure and lower demand. Sales of 3-Nitro (a poultry food additive)
decreased due to reduced production as equipment replacement projects were
completed in the quarter.
Performance enhancers of $15,811 were $3,621 (19%) below the third quarter 1996.
Key decreases occurred in photographic products which were impacted by reduced
demand from a large customer, and by a timing difference in production campaigns
of a polycarbonate additive.
-13-
<PAGE> 14
Polymer systems of $11,377 were $2,571 (18%) lower than the third quarter 1996
primarily due to reduced demand from a major customer who is switching over to a
new encapsulant product developed by Cambrex. Coating products were also reduced
as a result of management's continued focus on eliminating marginal product
lines.
Export sales from U.S. businesses of $9,100 in the third quarter 1997 compared
to $11,670 in the third quarter 1996. This decrease was the result of lower
pricing and volume in the feedgrade niacinamide market. International sales from
our European operations totaled $36,165 for the same period in 1997 as compared
with $37,515 in 1996.
Total gross profit of $24,558 decreased $444 or 2%, from the third quarter 1996
due to the reduced sales, foreign exchange impact on sales, costs associated
with scheduled plant downtime and higher raw materials in our organic
intermediates businesses. The gross margin as a percentage of gross sales
increased to 29.7%, up from 28.3% in the third quarter of 1996. This margin
improvement was due to the higher pharmaceutical bulk and intermediates sales.
Selling, general and administrative and research and development expenses as a
percentage of gross sales was 16.9%, up from 16.2% in the third quarter 1996.
However, the third quarter 1997 expense of $13,974 was $0.3 million below 1996.
Net interest expense of $525 reflected a decrease of $983 from 1996. This
decline was due to the additional cash flow from operations used to pay down
outstanding loans from September, 1996. The average interest rate was 6.9% in
the third quarter 1997 vs. 7.6% for the same period in 1996.
Other income of $966 for the quarter ended September 30, 1997 compares to $183
of other income in the same period in 1996. The 1997 income included $0.9
million in exchange on the settlement of a foreign denominated loan.
The provision for income taxes for the third quarter resulted in an effective
rate of 32% versus 35% in the comparable period in 1996. This was due to the
implementation of tax planning strategies and the projected composition of
taxable income between domestic and international operations. However, actual
results may differ in the event of changes in tax regulations or deviations from
projections.
The Company's third quarter net income increased 23% to $7,531 compared with a
net income of $6,101 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997, the Company generated cash
flows from operations totaling $41,543, a decrease of $9,359 over the comparable
period in 1996. The decrease is attributable to a reduction in income taxes
payable due to 1997 tax payments, as well as an increase in inventories and
receivables after removing the impact of exchange rate fluctuations. This
decrease from these factors was offset by the increased earnings in 1997.
-14-
<PAGE> 15
Capital expenditures were $25,395 in the first nine months of 1997 as compared
to $21,080 in the first nine months of 1996. The major portion of the funds were
used for construction of the pilot plants at our Salsbury, Iowa and Zeeland,
Michigan facilities.
Acquisition of Business was approximately $116,000 ($111,400, net of cash
acquired) for the nine months ended September 30, 1997. This was for the
acquisition of 93% of the common stock of BioWhittaker, Inc. in the third
quarter, 1997.
On September 16, 1997, the Company entered into a new five year Credit Agreement
(the "Agreement") with a bank group headed by The Chase Manhattan Bank as
Administrative Agent and The First National Bank of Chicago as Documentation
Agent. The bank group has a total of 13 domestic banks and 7 international
banks. The Agreement provides the Company with a $400,000 borrowing facility.
The new Agreement replaces the existing Revolving Credit Agreement with NBD
Bank, N.A.
The Company has pledged 66% of the common stock of the Company's foreign
subsidiaries as collateral. The Agreement permits the Company to choose between
various interest rate options and to specify the portion of the borrowing to be
covered by specific interest rate options. Under the Agreement, the interest
rate options available to the Company are: (a) U.S. Prime rate of (b) LIBOR plus
the applicable margin (ranging from .225% of 1% to .5% of 1%) or (c) Competitive
Bid at a LIBOR Rate Borrowing or a Fixed Rate Borrowing to be determined by
auction. The applicable margin is adjusted based upon the Funded Indebtedness to
Cash Flow Ratio of the Company. Additionally, the Company pays a commitment fee
of between .15% of 1% to.25% of 1% on the entire portion of the Agreement.
On September 16, 1997, the Company utilized $60,000 of the Agreement in order to
repay the outstanding balance under the existing Revolving Credit Agreement. On
September 30, 1997, the Company borrowed $126,000 to finance the acquisition of
the outstanding common stock of BioWhittaker. Of this amount, $116,000 was
utilized on September 30, 1997 to acquire the 93% of BioWhittaker shares which
had been tendered at that date. The undrawn borrowing availability under the
Agreement as of September 30, 1997 was $214,600. There is $184,500 outstanding
as of September 30, 1997.
During October 1997, the Company entered into an additional interest rate swap
agreement to exchange variable interest for fixed interest in the notional
amount of $10,000. This agreement matures during the year 2000 and brings the
notional amount of the Company's borrowings which are subject to interest rate
swap agreement to $50,000.
During the third quarter 1997, the Company paid cash dividends of $0.05 per
share.
-15-
<PAGE> 16
The Company's primary market risk relates to exposure to foreign currency
exchange rate fluctuations on transactions entered into by our foreign
operations which are primarily denominated in the U.S. dollar, Deutsche mark and
British pound sterling. The Company uses foreign currency forward exchange
contracts to mitigate the effect of short-term foreign exchange rate movements
on the Company's operating results. The notional amount of these contracts is
$33,302 which the Company estimates to be approximately 45% of the foreign
currency exposure during the period covered. As of September 30, 1997, the
deferred currency loss on these contracts is $74. An additional $2,531 (3%) of
the foreign currency exposure is protected through export financing.
-16-
<PAGE> 17
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, 1997.
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) Reports on Form 8-K
On October 8, 1997, the Company filed a Form 8-K in relation to its
acquisition of BioWhittaker, Inc.
-17-
<PAGE> 18
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/ Douglas MacMillan
--------------------------------
Douglas MacMillan
Vice President
(On behalf of the Registrant and
as the Registrant's Principal
Financial Officer)
Date: November 14, 1997
-18-
<PAGE> 19
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
Douglas MacMillan
Vice President
(On behalf of the Registrant and
as the Registrant's Principal
Financial Officer)
Date: November 14, 1997
-18-
<PAGE> 20
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
Douglas MacMillan
Vice President
(On behalf of the Registrant and
as the Registrant's Principal
Financial Officer)
Date: November 14, 1997
-18-
<PAGE> 21
EXHIBIT INDEX
Exhibit No. Description
11 Statement of computation of per share earnings.
27 Financial Data Schedule.
<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,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income applicable to common shares:
Primary earnings ............................ $ 7,531 $ 6,101 $23,831 $19,826
======= ======= ======= =======
Fully diluted earnings ...................... $ 7,531 $ 6,101 $23,831 $19,826
======= ======= ======= =======
Weighted average number of common
shares and common share equivalents
outstanding during the period:
Common Stock ............................ 11,829 11,647 11,773 11,576
Stock Options ........................... 576 260 324 288
------- ------- ------- -------
Shares outstanding - primary ................ 12,405 11,907 12,097 11,864
Additional stock options ................ 0 11 48 25
------- ------- ------- -------
Shares outstanding - fully diluted .......... 12,405 11,918 12,145 11,889
======= ======= ======= =======
</TABLE>
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 29,726
<SECURITIES> 0
<RECEIVABLES> 53,937
<ALLOWANCES> 1,454
<INVENTORY> 93,261
<CURRENT-ASSETS> 189,056
<PP&E> 373,936
<DEPRECIATION> 126,727
<TOTAL-ASSETS> 537,181
<CURRENT-LIABILITIES> 69,280
<BONDS> 187,503
0
0
<COMMON> 1,293
<OTHER-SE> 233,617
<TOTAL-LIABILITY-AND-EQUITY> 537,181
<SALES> 269,830
<TOTAL-REVENUES> 271,978
<CGS> 189,611
<TOTAL-COSTS> 189,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,078
<INCOME-PRETAX> 34,996
<INCOME-TAX> 11,165
<INCOME-CONTINUING> 23,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,831
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.96
</TABLE>
