<PAGE> 1
CONFORMED
UNITED STATES
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 March 31, 1998
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 |_|
As of May 1, 1998, there were 12,078,582 shares outstanding of the
registrant's Common Stock, $.10 par value.
<PAGE> 2
CAMBREX CORPORATION AND SUBSIDIARIES
Form 10-Q
For The Quarter Ended March 31, 1998
Table of Contents
Page No.
--------
Part I Financial information
Item 1. Financial Statements
Condensed consolidated balance sheets as of
March 31, 1998 and December 31, 1997 2
Condensed consolidated income statements
for the three months ended March 31, 1998 and 1997 3
Condensed consolidated statements of comprehensive
income for the three months ended March 31, 1998 and 1997 4
Condensed consolidated statements of cash flows
for the three months ended March 31, 1998 and 1997 5
Notes to condensed consolidated financial
statements 6 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 15
Part II Other information
Item 4. Matters Submitted to a Vote of Securities
Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit 27 - Financial Data Schedule 18
<PAGE> 3
Part 1 - FINANCIAL INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 28,516 $ 21,469
Trade accounts and other receivables, less allowances
for doubtful accounts of $1,457 and $1,705
at respective dates ............................... 71,570 61,883
Inventories, net .................................... 95,917 91,733
Deferred tax assets ................................. 6,364 5,947
Prepaid expenses and other current assets ........... 4,363 3,622
--------- ---------
Total current assets .............................. 206,730 184,654
Property, plant and equipment, net ..................... 237,692 237,342
Intangible assets, net ................................. 132,450 127,003
Other assets ........................................... 3,214 3,427
--------- ---------
Total assets ...................................... $ 580,086 $ 552,426
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............ $ 55,511 $ 58,471
Income taxes payable ................................ 9,508 4,857
Short-term debt ..................................... 2,448 3,597
Current portion of long-term debt ................... 855 986
--------- ---------
Total current liabilities ......................... 68,322 67,911
Long-term debt ......................................... 207,994 194,325
Deferred tax liabilities ............................... 44,255 43,436
Other noncurrent liabilities ........................... 24,300 20,800
--------- ---------
Total liabilities ................................. 344,871 326,472
--------- ---------
Stockholders' equity:
Common stock, $.10 par value; issued 13,069,187 and
12,967,287 shares at respective dates ........... 1,302 1,295
Additional paid-in capital .......................... 156,399 154,406
Retained earnings ................................... 104,574 96,027
Treasury stock, at cost; 1,034,305 and 1,040,561
shares at respective dates ....................... (9,377) (9,458)
Shares held in trust, at cost; 179,154, and 180,277
at respective dates .............................. (1,261) (1,275)
Cumulative other comprehensive income ............... (16,422) (15,041)
--------- ---------
Total stockholders' equity ........................ 235,215 225,954
--------- ---------
Total liabilities and stockholders' equity ........ $ 580,086 $ 552,426
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
(in thousands, except per-share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Gross sales ...................................... $113,770 $ 93,141
Commissions & freight ........................ 1,585 1,859
Sales, returns and allowances ................. 154 424
-------- --------
Net sales ........................................ 112,031 90,858
Other revenues ................................ 1,571 1,036
-------- --------
Net revenues ..................................... 113,602 91,894
Cost of goods sold ............................... 74,652 64,155
-------- --------
Gross Profit ..................................... 38,950 27,739
Operating expenses:
Selling, general and administrative
expenses .................................... 18,221 13,244
Research and development ...................... 3,313 2,204
-------- --------
Total operating expenses .................... 21,534 15,448
-------- --------
Operating profit ................................. 17,416 12,291
Other (income) expenses:
Interest expense - net ........................ 2,955 1,132
Other - net ................................... 175 206
-------- --------
Income before income taxes ....................... 14,286 10,953
Provision for income taxes ....................... 5,143 3,505
-------- --------
Net income ....................................... $ 9,143 $ 7,448
======== ========
Weighted average shares outstanding:
Basic ....................................... 11,955 11,738
Diluted ..................................... 12,526 11,994
Earnings per share of common stock and common
stock equivalents:
Basic ....................................... $ 0.76 $ 0.63
======== ========
Diluted ..................................... $ 0.73 $ 0.62
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Net income ....................................... $ 9,143 $ 7,448
Other comprehensive income/(loss):
Foreign currency translation adjustments* .... (1,381) (15,713)
-------- --------
Other comprehensive income/(loss) ................ (1,381) (15,713)
-------- --------
Comprehensive income/(loss) ...................... $ 7,762 ($ 8,265)
======== ========
</TABLE>
- ----------
* The Company does not provide for U.S. income taxes on foreign currency
translation adjustments because it does not provide for such taxes on
undistributed earnings of foreign subsidiaries.
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 9,143 $ 7,448
Depreciation and amortization ....................... 10,264 7,733
Deferred income taxes ............................... 403 463
Changes in assets and liabilities (net of assets and
liabilities acquired):
Receivables, net .................................. (10,002) (5,451)
Inventories ....................................... (4,392) (6,576)
Prepaid expense and Other current assets ....... (747) (1,434)
Accounts payable and accrued liabilities ....... (221) (5,239)
Income taxes payable ........................... 4,825 3,121
Other noncurrent assets and liabilities ........ 3,869 174
-------- --------
Net cash provided from operating activities ....... 13,142 239
-------- --------
Cash flows from investing activities:
Capital expenditures ................................ (6,632) (8,261)
Acquisition of businesses (net of cash acquired) .... (11,328) --
Other investing activities .......................... (270) --
-------- --------
Net cash (used in) investing activities ........... (18,230) (8,261)
-------- --------
Cash flows from financing activities:
Dividends ........................................... (596) (586)
Net (decrease) increase in short-term debt .......... (1,059) 4,502
Long-term debt activity (including current portion):
Borrowings ........................................ 20,700 14,800
Repayments ........................................ (7,137) (8,431)
Proceeds from the issuance of common stock .......... 1,797 281
Proceeds from the sale of treasury stock ............ 284 263
-------- --------
Net cash provided from financing activities ....... 13,989 10,829
-------- --------
Effect of exchange rate changes on cash ................ (1,854) (2,605)
-------- --------
Net increase in cash and cash equivalents .............. 7,047 202
Cash and cash equivalents at beginning of period ....... 21,469 7,353
-------- --------
Cash and cash equivalents at end of period ............. $ 28,516 $ 7,555
======== ========
Supplemental disclosure:
Interest paid (net of capitalized interest) ......... $ 3,885 $ 1,284
Income taxes paid ................................... $ 293 $ 169
Depreciation expense ................................ $ 7,550 $ 6,216
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 7
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, 1997.
The results of operations for the three months ended March 31, 1998 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 March 31, 1998 and December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Finished goods......................... $ 44,932 $ 42,974
Work in process........................ 26,247 25,217
Raw materials.......................... 19,318 18,254
Fuel oil and supplies.................. 5,420 5,288
-------- --------
Total............................. $ 95,917 $ 91,733
======== ========
</TABLE>
(3) Earnings Per Common Share
Earnings per common share of common stock are calculated in accordance
with SFAS No. 128, "Earnings per Share." All diluted earnings per share amounts
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.
6
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(3) Earnings Per Common Share (continued)
Earnings per share calculations are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Numerator:
Income available to common stockholders .............. $ 9,143 $ 7,448
Denominator:
Basic weighted average shares outstanding ............ 11,955 11,738
Effect of dilutive stock options ..................... 571 256
------- -------
Diluted weighted average shares outstanding .......... 12,526 11,994
Basic earnings per share ............................. $ 0.76 $ 0.63
Diluted earnings per share ........................... $ 0.73 $ 0.62
</TABLE>
(4) Mergers and Acquisitions
On January 9, 1998, Cambrex acquired substantially all of the assets of
the chiral intermediate business of Celgene Corporation (hereinafter renamed
Chiragene). The total purchase price was $11,328, which has been accounted for
using the purchase method of accounting and has resulted in residual goodwill of
$5,032 to be amortized over 15 years. The purchase agreement includes an upfront
payment of $7,500 payable at closing, plus an additional $78 in acquisition
expenses, as well as minimum future royalties of $3,750 based upon sales, which
are payable over the next five years. In addition, the Company may be required
to pay additional consideration of up to $3.7 million based upon future revenues
of the business.
Assets acquired are as follows (giving effect to the total purchase
price):
<TABLE>
<S> <C>
Receivables...................... $ 80
Inventory........................ 156
Equipment........................ 1,880
Identifiable Intangibles......... 4,260
Residual Goodwill................ 5,032
Deferred Revenue................. (80)
-------
Purchase Price................... $11,328
=======
</TABLE>
The proforma information has not been included in these financial
statements, as they were deemed to be immaterial.
7
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5) Future Impact of Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 132 "Employers'
Disclosures About Pensions and Other Postretirement Benefits" changes current
financial statement disclosure requirements from those that were required under
Financial Accounting Standard No. 87, "Employers' Accounting for Pension,"
Financial Accounting Standard No. 88, "Employers' Accounting for Settlement and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and
Financial Accounting Standard No. 106, "Employers' Accounting for Postretirement
Benefit Other Pensions." The Company will adopt this standard in the fourth
quarter of 1998.
(6) Short-term Debt
Short-term debt at March 31, 1998 and December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Export financing facility, Italy....... $ 2,448 $ 3,597
======= =======
</TABLE>
(7) Long-term Debt
Long-term debt at March 31, 1998 and December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Bank credit facilities................. $ 206,300 $ 192,600
Capital lease.......................... 87 100
Notes payable.......................... 2,462 2,611
--------- ---------
Subtotal.......................... 208,849 195,311
Less: current portion.................. 855 986
--------- ---------
Total............................. $ 207,994 $ 194,325
========= =========
</TABLE>
On January 9, 1998, the Company borrowed $8,200 from the existing Credit
Agreement with Chase Manhattan Bank, of which $7,500 was used to finance the
acquisition of Chiragene.
The Company met all the bank covenants for the first quarter of 1998.
(8) 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 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 $1,261 and $1,275 which is included in
other noncurrent liabilities at March 31, 1998 and December 31, 1997,
respectively.
8
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(9) 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 of 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.
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.
Foreign exchange instruments for the first quarter 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
Notional Fair Unrealized
Amounts Values Gains Losses
------- ------ ----- ------
<S> <C> <C> <C> <C>
1998
Forward exchange contracts.... $26,665 $27,459 $165 $ 959
1997
Forward exchange contracts.... $28,765 $30,303 $105 $1,643
</TABLE>
9
<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(10) Segment Information
Following is a summary of business segment information as of March 31,
1998:
<TABLE>
<S> <C>
Gross Sales
Biotechnology................................... $ 15,536
Pharmaceutical specialty and fine chemicals..... 98,234
--------
$113,770
========
Operating Profit
Biotechnology................................... $ 2,706
Pharmaceutical specialty and fine chemicals..... 14,710
--------
$ 17,416
========
Net Income
Biotechnology.................................. $ 834
Pharmaceutical specialty and fine chemicals.... 8,309
--------
$ 9,143
========
Indentifiable Assets
Biotechnology................................... $147,120
Pharmaceutical specialty and fine chemicals..... 407,096
Corporate....................................... 25,870
--------
$580,086
========
</TABLE>
(11) Contingencies
Refer to Form 10-K for the fiscal year ended December 31, 1997, for
disclosure of existing contingencies related to environmental issues.
(12) Subsequent Events
a) During April, 1998, Cambrex's Italian subsidiary, Profarmaco, filed
their 1997 statutory financial statements using the Italian Substitute Tax
election. This election allows previously non-deductible goodwill to be deducted
and is projected to save the Company over $3.7 million in cash tax payments
during the next eight years. Use of FAS 109 requires that the Company recognize
a $3.6 million net tax expense which will be reported in the second quarter of
1998 when the election is made. This accounting treatment does not permit the
recognition of the future deductions of $7.3 million, which will be recorded as
income when actually deducted for tax purposes. At no time will the Company's
actual cash flow from the Substitute Tax election be more than a negative
$100,000.
10
<PAGE> 12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(12) Subsequent Events (continued)
b) Cambrex expects to receive significant royalties during the second
quarter from a license agreement signed in late 1997 with a major customer for
the use of intellectual property. This agreement is expected to generate income
of $3.8 million or more after taxes in the second quarter. It is a multi-year
agreement and is likely to result in additional royalty payments in future
quarters. Management is unable at this time to estimate the benefit to income,
but the amounts may not be as large as the initial payments.
c) In April 1998, Cambrex agreed to acquire the assets of the
biopharmaceutical manufacturing and distribution business of Boehringer
Ingelheim Bioproduct Partnership (BIBP) for approximately $3.5 million. The
assets being acquired include a state-of-the-art cell culture and media
manufacturing facility in Verviers, Belgium, an established distribution network
in Germany, France, Belgium and Italy, and inventory for certain cell culture,
endotoxin detection and molecular biology products. The acquisition is not
expected to result in goodwill.
11
<PAGE> 13
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
Results in the first quarter 1998 were better than the first quarter 1997 due to
the increased sales, improved gross margins, and the effect of the fourth
quarter 1997 acquisition of BioWhittaker. Increased selling, general and
administrative expenses, research and development expenses, and interest expense
are directly related to the addition of BioWhittaker to Cambrex. The effective
tax rate for the quarter ended March 1998 was 36% as compared with 32% in the
same period in 1997.
The following table shows the gross sales of the Company's six product
categories included in two product segments: Biotechnology and Pharmaceutical
and fine chemicals. The table is presented in dollars and as a percentage of the
Company's total gross sales, as well as the net revenues and gross profit for
the first quarter 1998 and 1997.
<TABLE>
<CAPTION>
First Quarter Ended March 31,
--------------------------------------------
1998 1997
-------------------- --------------------
$ % $ %
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Biotechnology ......................... $ 15,536 13.7% $ -- --
-------- --------- -------- ---------
Pharmaceutical and fine chemicals:
Active pharmaceutical ingredients . $ 29,432 25.9% $ 27,152 29.2%
Pharmaceutical intermediates ...... 19,840 17.4 18,964 20.4
Organic intermediates ............. 19,135 16.8 18,320 19.7
Performance enhancers ............. 17,989 15.8 17,812 19.1
Polymer systems ................... 11,838 10.4 10,893 11.6
-------- --------- -------- ---------
Total Pharmaceutical and fine chemicals $ 98,234 86.3% $ 93,141 100.0%
-------- --------- -------- ---------
Total gross sales ............... $113,770 100.0% $ 93,141 100.0%
======== ========= ======== =========
Total net revenues .............. $113,602 $ 91,894
======== ========
Total gross profit .............. $ 38,950 $ 27,739
======== ========
</TABLE>
The following table shows the gross sales and gross profit of the Company's six
product categories included in two product segments, and gross profit as a
percentage of each product category, for the first quarter 1998 and 1997.
<TABLE>
<CAPTION>
Gross Gross Gross
Sales Profit $ Profit %
----- -------- --------
<S> <C> <C> <C>
1998
- ----
Biotechnology: ................................ $ 15,536 $ 8,340 53.7%
-------- -------- ----
Pharmaceutical and fine chemicals:
Active pharmaceutical ingredients ......... $ 29,432 $ 12,595 42.8%
Pharmaceutical intermediates .............. 19,840 6,107 30.8
Organic intermediates ..................... 19,135 4,328 22.6
Performance enhancers ..................... 17,989 5,286 29.4
Polymer systems ........................... 11,838 2,294 19.4
-------- -------- ----
Total pharmaceutical and fine chemicals ....... $ 98,234 $ 30,610 31.2%
-------- -------- ----
Total .................................... $113,770 $ 38,950 34.2%
======== ======== ====
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
Gross Gross Gross
Sales Profit $ Profit %
----- -------- --------
<S> <C> <C> <C>
1997
- ----
Biotechnology: ............................... $ -- $ -- --%
------- ------- ----
Pharmaceutical and fine chemicals:
Active pharmaceutical ingredients ........ $27,152 $11,597 42.7%
Pharmaceutical intermediates ............. 18,964 4,858 25.6
Organic intermediates .................... 18,320 2,751 15.0
Performance enhancers .................... 17,812 5,048 28.3
Polymer systems .......................... 10,893 3,485 32.0
------- ------- ----
Total pharmaceutical and fine chemicals ...... $93,141 $27,739 29.8%
------- ------- ----
Total ................................... $93,141 $27,739 29.8%
======= ======= ====
</TABLE>
Gross sales in the first quarter 1998 increased 22% to $113,770 compared to
$93,141 in the first quarter 1997. The increase included the benefit of the
BioWhittaker acquisition of $15,536 as well as growth in all of the Company's
product categories.
The effect of foreign currency exchange rates on gross sales for the first
quarter 1998 shows a reduction in sales of $1,509 compared to the exchange rates
used in 1997. The 1998 first quarter gross sales would have been $115,279 using
1997 exchange rates compared to the 1997 first quarter sales of $93,141.
Biotechnology includes the sales from BioWhittaker of $15,536. This category
consists principally of cell culture products, including living cell cultures,
cell culture media and cell culture media supplements, as well as endotoxin
detection products. First quarter 1998 sales from cell culture products were
$10,610 and sales from endotoxin detection products were $4,001.
Active pharmaceutical ingredients of $29,432 were $2,280 (8%) above the first
quarter 1997. Sales in the first quarter were favorably affected by Diltiazem, a
cardiovascular used as an anti-anginal, and Difloxacin, an anti-bacterial.
Additionally, there was continued strong demand for our gastro-intestinal
products used for treating ulcerative colitis and for treatment as an
anti-ulcerative. However, sales were negatively impacted by changes in foreign
currency which reduced the first quarter 1998 sales by approximately 4%,
compared to 1997.
Pharmaceutical intermediates of $19,840 were $876 (5%) above the first quarter
1997 primarily due to the continued shipments of an intermediate for a protease
inhibitor used in the treatment of AIDS, as well as increased sales of an
intermediate for a new molecular compound in cooperation with a major ethical
pharmaceutical company. The pharmaceutical intermediates category was negatively
impacted by lower USP Vitamin B3 sales as a result of unusually high sales in
the first quarter of 1997. Additionally, sales were negatively impacted by
changes in foreign currency by approximately 1% compared to the same period last
year.
13
<PAGE> 15
Organic intermediates of $19,135 were $815 (4%) above the first quarter 1997 due
to higher sales of 3-Nitro (a poultry feed additive) attributed to excess
inventories held by our customer at the end of 1996 that suppressed sales in the
first quarter 1997. Sales of pyridine for herbicides was at the 1997 level, but
2-cyanopyridine (used in herbicides) was lower as a customer was reducing
inventory levels.
Performance enhancers of $17,989 were $177 (1%) above the first quarter 1997.
Sales of THPE, a polycarbonate additive, were higher due to the timing of
production campaigns and increased export demand. This increase was offset by
reduced sales of photographic products and fuel/oil additives.
Polymer systems of $11,838 were $945 (9%) above the first quarter 1997 due to
increased demand for a monomer used in high performance plastics by a major
customer. The castor oil based coatings and telecommunications products remained
at 1997 levels.
Export sales from U.S. businesses of $14,877 in the first quarter 1998 compared
to $11,251 in the first quarter 1997. International sales from our European
operations totaled $43,405 for the same period in 1998 as compared with $39,010
in 1997.
Total gross profit of $38,950 increased by $11,211, or 40%, from the first
quarter 1997 due mainly to the inclusion of the biotechnology segment, which
resulted in additional gross profit of $8,340. The gross margin improved to
34.2% of gross sales, up from 29.8% in the first quarter of 1997. Excluding the
contribution of the high margin biotechnology segment, the gross margin
percentage improved to 31.2%. The gross margins in the polymer systems category
were adversely affected by disruptions in key material supplies, reduced plant
efficiencies, and planned inventory reductions.
Selling, general and administrative and research and development expenses as a
percentage of gross sales was 18.9%, up from 16.6% in the first quarter 1997.
However, the first quarter 1998 expense of $21,534 included $5,608 in expense
for the biotechnology segment acquired in the fourth quarter 1997. Excluding the
biotechnology segment, the percent to gross sales was 16.2%.
Net interest expense of $2,955 reflected an increase of $1,823 from 1997. This
increase was due to the financing of the acquisition of BioWhittaker and
Chiragene. The average interest rate was 6.4% in the first quarter 1998 versus
7.5% for the same period in 1997.
Other income of $175 for the quarter ended March 31, 1998 compares to $206 of
other income in the same period in 1997.
The provision for income taxes for the first quarter resulted in an effective
rate of 36% versus 32% for the comparable period in 1997. This increase was due
to the effect of the BioWhittaker amortization expense not deductible for tax
purposes.
The Company's first quarter net income increased 23% to $9,143 compared with a
net income of $7,448 in 1997.
14
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, the Company generated cash flows
from operations totaling $13,142, an increase of $12.9 million over the
comparable period in 1997. This increase in cash flows is due primarily to
increased revenues, an increase in accounts payable and accrued liabilities, and
an increase in other noncurrent assets and liabilities. The increase in other
noncurrent assets and liabilities is due to minimum future royalties payable to
Celgene in the amount of $3,750 as the result of the acquisition of their chiral
intermediates business, renamed Chiragene. The increase in the cash balance for
the first quarter 1998 was $7,047.
Capital expenditures were $6,632 in the first three months of 1998 as compared
to $8,261 in the first three months of 1997. The major portion of the funds were
used for new business projects including the construction of a pilot plant to
incorporate cGMP capabilities at Salsbury Chemicals, which has been completed,
as well as various other projects for new product development. Other
expenditures for plant upgrades includes additional batch still capabilities at
our Harriman facility. This facility has also begun construction on a new
niacinamide (Vitamin B3) plant which is expected to lower operating/product
costs.
During the first quarter 1998, the Company paid cash dividends of $0.05 per
share.
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 and
put and call option 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 $26,665 which the Company estimates to be approximately
62% of the foreign currency exposure during the period covered resulting in a
deferred currency loss of $794 at March 31, 1998. An additional $2,448 of the
foreign currency exposure is protected through export financing.
15
<PAGE> 17
PART II - OTHER INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
Item 4. Matters Submitted to a Vote of Securities Holders.
1) At the annual meeting of stockholders held on April 23, 1998, Rosina B.
Dixon, M.D., Leon J. Hendrix, Jr., and Ilan Kaufthal were elected to
hold office as directors in Class II of the Company until the 2001
annual meeting of stockholders.
2) The stockholders ratified the authorization of an additional 40,000,000
shares of Common stock of the Corporation, par value ($.10) per share.
Of the 10,815,981 shares represented at the meeting, 8,353,073 votes
were cast in favor of the ratification, 2,453,687 votes were cast
against, and 9,221 abstained.
3) The shareholders also approved the 1998 Performance Stock Option Plan.
Of the 10,815,981 shares represented, 9,917,903 voted for the Plan,
863,973 against, and 16,195 abstained.
4) In addition, the stockholders voted for the appointment of Coopers &
Lybrand L.L.P. as the Company's independent accountants for 1998. Of
the 10,815,981 shares represented at the meeting, 10,802,771 votes were
cast in favor of the appointment of Coopers & Lybrand L.L.P. as
auditors, 7,779 votes were cast against, and 5,431 abstained.
Item 6. Exhibits and Reports on Form 8-K
a) The exhibits filed as part of this report are listed below.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
b) Reports on Form 8-K
The registrant filed no reports on Form 8-K during the first quarter of
the year ended December 31, 1998.
16
<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: May 14, 1998
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 28,516
<SECURITIES> 0
<RECEIVABLES> 67,649
<ALLOWANCES> 1,457
<INVENTORY> 95,917
<CURRENT-ASSETS> 206,730
<PP&E> 376,345
<DEPRECIATION> 138,653
<TOTAL-ASSETS> 580,086
<CURRENT-LIABILITIES> 68,322
<BONDS> 276,549
1,302
0
<COMMON> 0
<OTHER-SE> 233,913
<TOTAL-LIABILITY-AND-EQUITY> 580,086
<SALES> 112,031
<TOTAL-REVENUES> 113,602
<CGS> 74,652
<TOTAL-COSTS> 21,534
<OTHER-EXPENSES> 175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,955
<INCOME-PRETAX> 14,286
<INCOME-TAX> 5,143
<INCOME-CONTINUING> 9,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,143
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.73
</TABLE>
