<PAGE> 1
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 September 30, 2000
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 November 1, 2000, there were 25,186,179 shares outstanding of the
registrant's Common Stock, $.10 par value.
<PAGE> 2
CAMBREX CORPORATION AND SUBSIDIARIES
FORM 10-Q
For The Quarter Ended September 30, 2000
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I Financial information
Item 1.Financial Statements (Unaudited)
Condensed consolidated balance sheets as of
September 30, 2000 and December 31, 1999 2
Condensed consolidated income statements
for the three months and nine months ended
September 30, 2000 and 1999 3
Condensed consolidated statements of comprehensive
income (loss) for the three months and nine months ended
September 30, 2000 and 1999 4
Condensed consolidated statements of cash flows
for the nine months ended September 30, 2000 and 1999 5
Notes to condensed consolidated financial statements 6 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 19
Part II Other information
Item 4. Matters Submitted to a Vote of Securities Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit 27 - Financial Data Schedule 22
</TABLE>
<PAGE> 3
Part 1 - FINANCIAL INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 65,472 $ 39,796
Trade receivables, net ............................ 71,099 72,227
Inventories, net .................................. 100,563 92,439
Deferred tax assets ............................... 16,422 16,422
Prepaid expenses and other current assets ......... 14,612 14,403
--------- ---------
Total current assets .......................... 268,168 235,287
Property, plant and equipment, net .................... 283,146 280,163
Intangible assets, net ................................ 144,577 149,307
Other assets .......................................... 9,754 8,890
--------- ---------
Total assets .................................. $ 705,645 $ 673,647
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .......... $ 59,824 $ 57,567
Income taxes payable .............................. 17,030 11,276
Short-term debt and current portion of
Long-term debt ................................ 1,238 3,279
--------- ---------
Total current liabilities ............................. 78,092 72,122
Long-term debt ........................................ 224,951 225,922
Deferred tax liabilities .............................. 59,460 55,172
Other noncurrent liabilities .......................... 24,277 25,066
--------- ---------
Total liabilities ............................. 386,780 378,282
--------- ---------
Stockholders' equity:
Common stock, $.10 par value; issued 27,334,045 and
26,719,924 shares at respective dates ......... 2,762 2,667
Additional paid-in capital ........................ 175,128 166,288
Retained earnings ................................. 203,189 167,655
Treasury stock, at cost 2,140,979 and 2,100,690
shares at respective dates ..................... (11,959) (10,172)
Accumulated other comprehensive loss .............. (50,255) (31,073)
--------- ---------
Total stockholders' equity .................... 318,865 295,365
--------- ---------
Total liabilities and stockholders' equity .... $ 705,645 $ 673,647
========= =========
</TABLE>
See accompanying notes to unaudited 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 Nine months ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross sales ........................... $ 115,742 $ 118,602 $ 372,200 $ 359,763
Commissions & freight ............. 2,041 1,709 6,711 5,224
--------- --------- --------- ---------
Net sales ............................. 113,701 116,893 365,489 354,539
Other revenues .................... 374 557 1,240 2,965
--------- --------- --------- ---------
NET REVENUES .......................... 114,075 117,450 366,729 357,504
Cost of goods sold .................... 72,707 78,216 230,466 234,908
--------- --------- --------- ---------
GROSS PROFIT .......................... 41,368 39,234 136,263 122,596
Operating expenses:
Selling, general and administrative 18,801 18,301 60,652 57,598
Research and development .......... 3,405 3,842 10,641 10,742
--------- --------- --------- ---------
Total operating expenses ........ 22,206 22,143 71,293 68,340
OPERATING PROFIT ...................... 19,162 17,091 64,970 54,256
Other (income) expenses:
Interest expense, net ............. 3,229 2,678 9,251 6,904
Other (income)/expense, net ....... (55) 189 (145) 358
--------- --------- --------- ---------
Income before income taxes ............ 15,988 14,224 55,864 46,994
Provision for income taxes ........ 4,737 4,551 18,095 15,216
--------- --------- --------- ---------
NET INCOME ............................ $ 11,251 $ 9,673 $ 37,769 $ 31,778
========= ========= ========= =========
Weighted average shares outstanding:
Basic ............................. 25,082 24,583 24,891 24,560
Effect of dilutive stock options .. 1,134 1,071 1,128 962
--------- --------- --------- ---------
Diluted ........................... 26,216 25,654 26,019 25,522
Earnings per share of common stock and
common stock equivalents:
Basic ............................. $ 0.45 $ 0.39 $ 1.52 $ 1.29
========= ========= ========= =========
Diluted ........................... $ 0.43 $ 0.38 $ 1.45 $ 1.25
========= ========= ========= =========
Cash dividends paid per share ......... $ 0.03 $ 0.03 $ 0.09 $ 0.09
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE> 5
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income .................................. $ 11,251 $ 9,673 $ 37,769 $ 31,778
Other comprehensive (loss) income
Foreign currency translation adjustments* (11,508) 6,589 (19,182) (10,313)
-------- -------- -------- --------
Comprehensive (loss) income ................. (257) $ 16,262 $ 18,587 $ 21,465
======== ======== ======== ========
</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 unaudited condensed consolidated financial statements.
4
<PAGE> 6
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 37,769 $ 31,778
Depreciation and amortization ...................... 35,715 31,910
Deferred income tax provision ...................... 232 296
Changes in assets and liabilities (net of assets and
liabilities acquired):
Receivables, net ............................... 953 (8,654)
Inventories .................................... (9,104) 6,783
Prepaid expenses and other current assets ..... (2,320) (1,109)
Accounts payable and accrued liabilities ...... 8,130 9,044
Income taxes payable .......................... 7,658 (2,077)
Other noncurrent assets and liabilities ....... 657 (4,367)
--------- ---------
Net cash provided by operating activities ...... 79,690 63,604
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................... (31,836) (25,617)
Acquisition of businesses (net of cash acquired) ... (8,303) (75,338)
Other investing activities ......................... -- (170)
--------- ---------
Net cash used in investing activities .......... (40,139) (101,125)
--------- ---------
Cash flows from financing activities:
Dividends .......................................... (2,235) (2,208)
Net decrease in short-term debt .................... (3,906) (1,496)
Long-term debt activity (including current portion):
Borrowings ..................................... 37,801 44,500
Repayments ..................................... (39,126) (14,363)
Proceeds from the issuance of common stock ......... 7,931 1,958
Purchase of treasury stock ......................... (788) (446)
--------- ---------
Net cash (used) provided by financing activities (323) 27,945
--------- ---------
Effect of exchange rate changes on cash ................ (13,552) (8,192)
--------- ---------
Net increase (decrease) in cash and cash equivalents ... 25,676 (17,768)
Cash and cash equivalents at beginning of period ....... 39,796 48,527
--------- ---------
Cash and cash equivalents at end of period ............. $ 65,472 $ 30,759
========= =========
Supplemental disclosure:
Interest paid (net of capitalized interest) ........ $ 11,072 $ 7,581
Income taxes paid .................................. $ 6,625 $ 13,424
Depreciation expense ............................... $ 28,276 $ 25,206
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE> 7
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 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, 1999.
The results of operations for the nine months ended September 30, 2000
are not necessarily indicative of the results to be expected for the full year.
(2) INVENTORIES
Inventories at September 30, 2000 and December 31, 1999 consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Finished goods ............... $ 37,453 $ 34,509
Work in process .............. 31,341 27,214
Raw materials ................ 27,552 26,322
Fuel oil and supplies ........ 4,217 4,394
-------- --------
Total .................... $100,563 $ 92,439
======== ========
</TABLE>
(3) ACQUISITIONS
On March 2, 2000, the Company completed the acquisition of Conti BPC NV,
a manufacturer and supplier of pharmaceutical intermediates and active
pharmaceutical ingredients, located in Landen, Belgium. The Company paid
approximately $6,200 in cash and assumed debt for the business. At the time of
the transaction, goodwill was recorded at $910 and will be amortized over 20
years.
On July 24, 2000, the Company completed the acquisition of Lumitech,
Limited, an emerging company based in Nottingham, United Kingdom, which provides
products and services used in the high throughput screening market for drug
discovery. The Company paid approximately $4,700 in cash at closing, the
majority of which was recorded as patents and other intangibles, with additional
future performance-based payments of up to $16,000 due over the next five years.
The acquired patents and other intangibles will be amortized over 15-20 years.
6
<PAGE> 8
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) ACQUISITIONS (CONTINUED)
These acquisitions have been accounted for under the purchase method of
accounting. Assets acquired and liabilities assumed have been recorded at their
estimated fair values, and are subject to adjustment when additional information
concerning asset and liability valuations is finalized. Proforma information is
not presented, as the acquired companies' results of operations prior to the
date of acquisition are not material to the Company.
(4) LONG-TERM DEBT
Long-term debt at September 30, 2000 and December 31, 1999 consists of
the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Bank credit facilities ....... $219,500 $218,500
Other ........................ 5,902 7,888
-------- --------
Subtotal ................. 225,402 226,388
Less: current portion ........ 451 466
-------- --------
Total .................... $224,951 $225,922
======== ========
</TABLE>
The Company met all the bank covenants for the first nine months of 2000.
7
<PAGE> 9
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) SEGMENT INFORMATION
Following is a summary of business segment information for the following
dates:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross Sales:
Human Health ................ $ 55,257 $ 55,851 $177,453 $170,561
Biosciences ................. 23,679 23,924 73,306 58,896
Animal Health/Agriculture ... 10,775 10,019 38,082 41,541
Specialty and Fine Chemicals 26,031 28,808 83,359 88,765
-------- -------- -------- --------
$115,742 $118,602 $372,200 $359,763
======== ======== ======== ========
Gross Profit:
Human Health ................ $ 22,064 $ 17,597 $ 71,653 $ 62,680
Bioscienses ................. 11,727 12,126 38,908 29,279
Animal Health/Agriculture ... 2,054 2,075 6,666 8,479
Specialty and Fine Chemicals 5,523 7,436 19,036 22,158
-------- -------- -------- --------
$ 41,368 $ 39,234 $136,263 $122,596
======== ======== ======== ========
Net Income:
Biosciences ................. $ 741 $ 1,216 $ 4,060 $ 1,477
Human Health, Animal Health/
Agriculture & Specialty and
FineChemicals ............. 10,510 8,457 33,709 30,301
-------- -------- -------- --------
$ 11,251 $ 9,673 $ 37,769 $ 31,778
======== ======== ======== ========
Capital Spending:
Biosciences ................. $ 484 $ 446 $ 3,099 $ 1,399
Human Health, Animal Health/
Agriculture & Specialty and
Fine Chemicals ............ 11,098 10,869 28,737 24,218
-------- -------- -------- --------
$ 11,582 $ 11,315 $ 31,836 $ 25,617
======== ======== ======== ========
Depreciation:
Biosciences ................. $ 784 $ 1,045 $ 2,736 $ 1,883
Human Health, Animal Health/
Agriculture & Specialty and
Fine Chemicals ............ 8,972 8,149 25,540 23,323
-------- -------- -------- --------
$ 9,756 $ 9,194 $ 28,276 $ 25,206
======== ======== ======== ========
Amortization:
Biosciences ................. $ 1,430 $ 1,371 $ 4,338 $ 3,644
Human Health, Animal Health/
Agriculture & Specialty and
Fine Chemicals ............ 807 1,108 3,101 3,060
-------- -------- -------- --------
$ 2,237 $ 2,479 $ 7,439 $ 6,704
======== ======== ======== ========
</TABLE>
8
<PAGE> 10
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Total Assets
Biosciences ...................... $191,003 $186,405
Human Health, Animal Health/
Agriculture & Specialty and
Fine Chemicals ................. 514,642 487,242
-------- --------
$705,645 $673,647
======== ========
</TABLE>
(6) CONTINGENCIES
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary course
of its business activities.
Environmental
In connection with laws and regulations pertaining to the protection of
the environment, the Company is a party to several environmental remediation
investigations and cleanups and, along with other companies, has been named a
"potentially responsible party" for certain waste disposal sites (Superfund
sites). Each of these matters is subject to various uncertainties, and it is
possible that some of these matters will be decided unfavorably against the
Company. The Company had accruals, included in current accrued liabilities and
other noncurrent liabilities, of $5,877 at September 30, 2000, and $3,400 at
December 31, 1999, for costs associated with the study and remediation of
Superfund sites and current and former Company's operating sites and other
potential environmental liabilities for matters that are probable and reasonably
estimable. On March 2, 2000, the Company completed the acquisition of Conti BPC
NV in Landen, Belgium. In connection with this acquisition, the Company
established an accrual of $3,000, which is included in the $5,877 accrual above.
This liability has been recorded at its estimated fair value and is subject to
adjustment when information concerning this liability is finalized. In addition,
in 2000 the Company has settled certain environmental claims involving the Cosan
Chemical Corporation (a subsidiary) with insurance companies for recoveries of
$1,075. This amount was recorded in selling, general and administrative
expenses. After reviewing information currently available, management believes
any amounts paid in excess of the accrued liabilities will not have a material
effect on its financial position or results of operations. However, these
matters, if resolved in a manner different from the estimates, could have a
material adverse effect on the Company's financial condition, operating results
and cash flows when resolved in a future reporting period.
9
<PAGE> 11
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) CONTINGENCIES (CONTINUED)
Litigation
The Company and its subsidiary, Profarmaco S.r.l. ("Profarmaco") were
named as defendants in a proceeding instituted by the Federal Trade Commission
("FTC") on December 21, 1998, in the United States District Court for the
District of Columbia. The complaint alleges that exclusive license agreements
which Profarmaco entered into with Mylan Laboratories, Inc. ("Mylan") covering
the drug master files for (and, therefore, the right to buy and use) two active
pharmaceutical ingredients ("APIs"), lorazepam and clorazepate, were part of an
effort on Mylan's part to restrict competition in the supply of lorazepam and
clorazepate and to increase the price charged for these products when Mylan sold
them as generic pharmaceuticals. The complaint further alleges that these
agreements violate the Federal Trade Commission Act, and that Mylan, Cambrex,
Profarmaco, and Gyma Laboratories of America, Inc., Profarmaco's distributor in
the United States, engaged in an unlawful restraint of trade and conspired to
monopolize and attempted to monopolize the markets for the generic
pharmaceuticals incorporating the APIs.
The FTC seeks a permanent injunction and other relief, including
disgorgement of the profits generated through the licensing arrangements, which
the FTC alleges to be in excess of $120,000 for all defendants. In accordance
with the license agreement, the Company received royalties of approximately
$19,300 and $1,000 for the years ended December 31, 1998 and 1997, respectively.
A lawsuit making similar allegations against the Company and Profarmaco,
and seeking injunctive relief and treble damages, has been filed by the
Attorneys General of 31 states and the District of Columbia in the United States
District Court for the District of Columbia on behalf of those states and
persons in those states who were purchasers of the generic pharmaceuticals. The
Company and Profarmaco have also been named in purported class action complaints
brought by private plaintiffs in various state courts on behalf of purchasers of
lorazepam and clorazepate in generic form, making allegations essentially
similar to those raised in the FTC's complaint and seeking various forms of
relief including treble damages.
The Company strongly believes that its licensing arrangements with Mylan
are in accordance with regulatory requirements and will vigorously defend the
FTC's actions and various other lawsuits and class actions. However, the Company
and Mylan have terminated the exclusive licenses to the drug master files as of
December 31, 1998. In entering these licensing arrangements, the Company elected
not to raise the price of its products and had no control or influence over the
pricing of the final generic product.
On July 12, 2000 Mylan reached agreement in principle for itself and on
behalf of the Company, Profarmaco and Gyma, with the FTC, the Attorneys General
of the various states and most class action litigants. Final settlement
agreements are being negotiated with the FTC, States' Attorneys General and the
lawyers representing private plaintiffs. Some private litigation will continue.
Under the terms of the Agreement, Mylan has agreed to indemnify the Company and
Profarmaco against damages, losses, costs and expenses arising from any claim,
lawsuit or other action.
10
<PAGE> 12
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) CONTINGENCIES (CONTINUED)
Litigation
On May 14, 1998, the Company's Nepera subsidiary, a manufacturer and
seller of niacinamide (Vitamin B-3) received a Federal Grand Jury subpoena for
the production of documents relating to the pricing and possible customer
allocation with regard to that product. The Company understands that the
subpoena was issued as part of the Federal Government's ongoing anti-trust
investigation into various business practices in the vitamin industry generally.
In the fourth quarter of 1999, the Company reached a settlement in principle
with the government concerning Nepera's alleged role in Vitamin B-3 violations
from 1992 to 1995. On May 5, 2000, this government settlement was finalized with
Nepera entering into a voluntary plea agreement with the Department of Justice.
Under this agreement Nepera has entered a plea of guilty to one count of price
fixing and market allocation of Vitamin B3 from 1992 to 1995 in violation of
section one of the Sherman Act and has agreed to pay a fine of $4,000. Nepera
will be on probation for one year. The fine, for which we are fully reserved,
will be paid in February 2001. Nepera has been named as a defendant, along with
several other companies, in a number of civil actions brought on behalf of
alleged purchasers of Vitamin B-3. In the fourth quarter of 1999 the Company
accrued $6,000 to cover settlement and related litigation and legal expenses.
This accrual has been recorded in accounts payable and accrued liabilities. The
balance at September 30, 2000 is $5,803.
While it is not possible to predict with certainty the outcome of the
above litigation matters and various other lawsuits, it is the opinion of
management that the ultimate resolution of these proceedings should not have a
material adverse effect on the Company's results of operations, cash flows and
financial position. These matters, if resolved in an unfavorable manner, could
have a material effect on the operating results and cash flows when resolved in
a future reporting period.
(7) IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 was originally effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. In June 1999,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS
137). SFAS 137 defers the effective date of SFAS 133 for all fiscal quarters of
all fiscal years beginning after June 15, 2000 (January 1, 2001 for the
Company). In June 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133" (SFAS 138). SFAS 138 amends the accounting and reporting
standards of SFAS 133 for certain derivative instruments and certain hedging
activities." The Company is evaluating the impact that the adoption of these
pronouncements will have on its earnings, comprehensive income and financial
position.
11
<PAGE> 13
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101") which provides guidelines in
applying generally accepted accounting principles to certain revenue recognition
issues. Subsequently, the SEC has issued related guidance, which has extended
the implementation date of SAB 101 until the fourth quarter of 2000. The Company
does not expect this statement to have a material impact on its financial
statements.
12
<PAGE> 14
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
COMPARISON OF THIRD QUARTER 2000 VERSUS THIRD QUARTER 1999
The results for the third quarter of 2000 were above the same period a year ago
due to increased gross profit as the Company's product mix shifted to higher
margin products.
The following tables show the gross sales of the Company's four segments, in
dollars and as a percentage of the Company's total gross sales for the quarters
ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Quarter Ended September 30,
--------------------------------------------------
2000 1999
---------------------- ----------------------
$ % $ %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Human Health ............... $ 55,257 47.7% $ 55,851 47.1%
Biosciences ................ 23,679 20.5 23,924 20.2
Animal Health/Agriculture .. 10,775 9.3 10,019 8.4
Specialty and Fine Chemicals 26,031 22.5 28,808 24.3
-------- ----- -------- -----
Total gross sales .... $115,742 100.0% $118,602 100.0%
======== ===== ======== =====
</TABLE>
The following table shows the gross profit of the Company's four product
segments for the third quarter 2000 and 1999.
<TABLE>
<CAPTION>
Gross Gross Gross
Sales Profit $ Profit %
----- -------- --------
<S> <C> <C> <C>
2000
Human Health ............... $ 55,257 $ 22,064 39.9%
Biosciences ................ 23,679 11,727 49.5
Animal Health/Agriculture .. 10,775 2,054 19.1
Specialty and Fine Chemicals 26,031 5,523 21.2
-------- -------- ----
Total ................ $115,742 $ 41,368 35.7%
======== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Gross
Sales Profit $ Profit %
----- -------- --------
<S> <C> <C> <C>
1999
Human Health ............... $ 55,851 $ 17,597 31.5%
Biosciences ................ 23,924 12,126 50.7
Animal Health/Agriculture .. 10,019 2,075 20.7
Specialty and Fine Chemicals 28,808 7,436 25.8
-------- -------- ----
Total ................ $118,602 $ 39,234 33.1%
======== ======== ====
</TABLE>
13
<PAGE> 15
RESULTS OF OPERATIONS (CONTINUED)
Gross sales in the third quarter 2000 decreased 2.4% to $115,742 from $118,602
in the third quarter 1999. Sales in the Human Health, Biosciences and Specialty
and Fine Chemicals Segments decreased compared to the third quarter 1999.
Partially offsetting these decreases was a 7.5% improvement in the Animal
Health/Agricultural Segment.
The effect of foreign currency exchange rates on gross sales for the third
quarter resulted in a negative impact on sales of $3,648 compared to the
corresponding period in 1999. Gross sales for 2000 would have been $119,390
using 1999 exchange rates compared to 1999 sales of $118,602.
The Human Health Segment gross sales of $55,257 were $594 (1.1%) below the third
quarter 1999. Gross sales were below the prior year primarily due to decreased
sales of gastrointestinal ingredients, diuretic products and x-ray contrast
media. Partially offsetting these decreases were higher sales of central nervous
system products and the contribution of sales from Conti in Belgium, acquired in
March 2000. The sales in this segment were reduced by 5.9% due to the impact of
European currencies versus the U.S. dollar.
The Bioscience Segment gross sales of $23,679 were $245 (1.0%) below the third
quarter 1999 due to decreased media and serum sales, European currency effects,
and postponed shipments of sequencing products to the fourth quarter 2000. Cell
product lines,which accounted for approximately $1,000 in the third quarter
1999, have had sourcing problems.
The Animal Health/Agriculture Segment gross sales of $10,775 in the third
quarter 2000 were $756 (7.5%) above the third quarter 1999. The third quarter
increase was mainly due to strong shipments to the Agricultural Intermediates
market. The Agricultural Intermediates increase from the third quarter 1999 was
due to higher shipments of 2-cyanopyridine and pyridine derivatives. The higher
2-cyanopyridine was due to the timing of a production campaign completed in the
third quarter 2000. Pyridine derivative products were also higher due to
shipments to a major customer and due to shipments into the China market.
The Specialty Business Segment gross sales of $26,031 decreased $2,777 (9.6%)
below the third quarter 1999 reflecting reduced sales of encapsulants used in
the telecommunications industry. In addition, the Company experienced a sales
shortfall in specialty additives used in polycarbonate resins due to a
short-term peak demand from a major customer in the third quarter 1999. There
were also decreases in products used in the photography market as customers
continue to reformulate film products. On a positive note, THPE (a polycarbonate
additive) increased due to timing of campaigns. Annual sales for THPE are
expected to be above the 1999 level.
14
<PAGE> 16
RESULTS OF OPERATIONS (CONTINUED)
Export sales from U.S. businesses of $15,862 in the third quarter 2000 decreased
from $20,080 in the third quarter 1999. International sales from our European
operations totaled $48,798 for the third quarter of 2000 as compared with
$47,954 in 1999.
The gross profit in the third quarter 2000 was $41,368 compared to $39,234 in
1999. The gross margin percentage increased to 35.7% in the third quarter 2000
from 33.1% in 1999. The reason for the increase was the improved gross profit
for Human health products, reflecting favorable product mix. The third quarter
1999 was reduced by the startup costs of a new cGMP facility in Ireland. The
Biosciences segment gross margin was below prior year mainly due to lower sales
of media products. The Animal Health/Agriculture segment gross margin was
negatively affected by increased raw material prices, higher energy costs and
delays in post-shutdown plant startups. The Specialty and Fine Chemicals segment
gross margin decreased due to the lower sales and production levels.
Selling, general and administrative expenses as a percentage of gross sales were
16.3% in the third quarter 2000, up from 15.5% in the third quarter 1999. The
third quarter 2000 included the added administration costs of Conti acquired in
March 2000. The third quarter 2000 also had increased marketing and sales
spending in the Biosciences segment to promote new product growth.
Research and development expenses of $3,405 were 2.9% of gross sales in the
third quarter 2000, and represented a 11.3% decrease from 1999. This decrease
was primarily due to the Company decision to reduce outside contract research.
The operating profit in the third quarter 2000 was $19,162, an increase of 12.1%
compared to $17,091 in 1999 due to the improved gross margin.
Net interest expense of $3,229 in the third quarter 2000 reflected an increase
of $551 from 1999 as a result of the increase in the interest rate. The average
interest rate was 7.0% in the third quarter 2000 versus 6.1% in 1999.
The provision for income taxes for the third quarter 2000 resulted in an
effective rate of 29.6% as compared with 32.0% in the third quarter 1999. The
decrease is due to $0.6 million in research and development credits taken in
2000.
The Company's net income for the third quarter 2000 increased 16.3% to $11,251
compared with a net income of $9,673 in the third quarter 1999.
15
<PAGE> 17
COMPARISON OF FIRST NINE MONTHS OF 2000 VERSUS NINE MONTHS OF 1999
Results in the first nine months of 2000 were above the comparable 1999 period
due to the increase in sales in the Human Health and Biosciences Segments, and
the higher gross margin on sales.
Sales increased by 3.5% in 2000 to $372,200 compared to the same period a year
ago. The effect of foreign currency exchange rates negatively impacted sales by
$6,685 in the first nine months of 2000 versus 1999, primarily in the Human
Health Segment.
The following tables show the gross sales of the Company's four segments, in
dollars and as a percentage of the Company's total gross sales for the first
nine months 2000 and 1999.
<TABLE>
<CAPTION>
Nine Months Ended September 30
--------------------------------------------------
2000 1999
---------------------- ----------------------
$ % $ %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Human Health ............... $177,453 47.7% $170,561 47.4%
Biosciences ................ 73,306 19.7 58,896 16.4
Animal Health/Agriculture .. 38,082 10.2 41,541 11.5
Specialty and Fine Chemicals 83,359 22.4 88,765 24.7
-------- ----- -------- -----
Total gross sales .... $372,200 100.0% $359,763 100.0%
======== ===== ======== =====
</TABLE>
The following table shows the gross profit of the Company's four product
segments for the nine month 2000 and 1999.
<TABLE>
<CAPTION>
Gross Gross Gross
Sales Profit $ Profit %
----- -------- --------
<S> <C> <C> <C>
2000
Human Health ............... $177,453 $ 71,653 40.4%
Biosciences ................ 73,306 38,908 53.1
Animal Health/Agriculture .. 38,082 6,666 17.5
Specialty and Fine Chemicals 83,359 19,036 22.8
-------- -------- ----
Total ................ $372,200 $136,263 36.6%
======== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Gross
Sales Profit $ Profit %
----- -------- --------
<S> <C> <C> <C>
1999
Human Health ............... $170,561 $ 62,680 36.7%
Biosciences ................ 58,896 29,279 49.7
Animal Health/Agriculture .. 41,541 8,479 20.4
Specialty and Fine Chemicals 88,765 22,158 25.0
-------- -------- ----
Total ................ $359,763 $122,596 34.1%
======== ======== ====
</TABLE>
16
<PAGE> 18
RESULTS OF OPERATIONS (CONTINUED)
Gross sales in the first nine months 2000 increased 3.5% to $372,200 from
$359,763 in the first nine months 1999. Sales in the Human Health (up 4.0%) and
Biosciences (up 24.5%) segments increased compared to the first nine months 1999
and more than offset the decreases in the Animal Health/Agriculture (down 8.3%)
and Specialty and Fine Chemicals Segments (down 6.1%).
The Human Health Segment gross sales of $177,453 were $6,892 (4.0%) above the
first nine months of 1999 due primarily to pharmaceuticals used in
cardiovascular and central nervous system preparations, new products, and sales
generated by the acquisition of Irotec in Ireland in March 1999 and Conti in
Belgium in March 2000. These increases were partially offset by reduced sales of
gastro-intestinal products in the European markets. The Company also eliminated
certain lower margin x-ray products which were under price pressure.
The BioScience Segment gross sales of $73,306 were $14,410 (24.5%) above the
first nine months 1999 primarily due to the acquisition of BioWhittaker
Molecular Applications, Inc. (formerly the BioProducts business of FMC
Corporation) in July 1999, as well as increased shipments of cell culture
products. Media and serum products have not increased due to the availability of
materials and due to a customer converting from liquid media to a powdered media
(less volume).
The Animal Health/Agriculture Segment gross sales of $38,082 were $3,459 (8.3%)
below the first nine months of 1999. This decrease was mainly due to reduced
sales of agricultural intermediates; primarily 2-Cyanopyridine and pyridine
derivatives. Animal Health products were above the first nine months of 1999 due
to increased shipments of a poultry feed additive.
The Specialty and Fine Chemicals Segment gross sales of $83,359 were $5,406
(6.1%) below the first nine months of 1999 due to lower specialty additives used
in polycarbonate resins, castor oil based products sold to the commodity
markets, and encapsulants used in telecommunications.
Export sales from U.S. businesses of $50,702 in the first nine months of 2000
compared to $51,514 in 1999. International sales from our European operations
totaled $160,667 for the first nine months of 2000 compared to $147,178 in 1999.
Total gross profit of $136,263 was $13,667 above 1999 due to the improved gross
margin on the Human Health Segment sales, the Biosciences Segments' operating
efficiencies and the effect of the second quarter 1999 acquisition of
BioWhittaker Molecular Applications. The gross margin for the first nine months
of 2000 was 36.6% versus 34.1% in 1999.
17
<PAGE> 19
RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expenses as a percentage of gross sales were
16.3% in the first nine months of 2000, versus 16.0% for 1999. Administration
costs increased due to the acquisitions of BioWhittaker Molecular Applications
in July 1999, Conti in March 2000 and Irotec in March 1999, and the shutdown of
The Humphrey Chemical Company, Inc. These increases were partially offset by the
continued benefit from the consolidation of administrative functions in the
Specialty and Fine Chemicals, and Animal Health/Agriculture businesses, as well
as first quarter 2000 insurance recovery related to previously incurred
environmental expenses.
Research and development expenses of $10,641 were 2.9% of gross sales in the
first nine months of 2000, and were at the same levels as 1999.
The operating profit in the first nine months of 2000 was $64,970, an increase
of 19.7% compared to 1999. This increase is due to the increased sales and
improved gross margin.
Net interest expense of $9,251 in the first nine months of 2000 reflected an
increase of $2,347 from 1999 as a result of the additional financing for
acquisitions and increased interest rates. The average interest rate was 6.8% in
the first nine months of 2000 versus 6.0% in 1999. The provision for income
taxes for the first nine months of 2000 resulted in an effective rate of 32.4%,
which was at the same level as 1999.
The Company's net income for the first nine months of 2000 increased 19% to
$37,769 compared with net income of $31,778 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2000, the Company generated cash
flows from operations totaling $79,690, an increase of $16,086 over the same
period a year ago. This increase in cash flows is due primarily to increased
profitability, as well as an increase in accounts payable, accrued liabilities
and income taxes payable
Capital expenditures were $31,836 in the nine months of 2000 as compared to
$25,617 in 1999. Part of the funds were used for the purchase of the land
occupied by the Seal Sands facility in Middlesbrough, England, a new product
facility and waste treatment plant at the Nordic Synthesis AB facility in
Sweden, and the new Technical Center in New Jersey.
During the first nine months of 2000, the Company paid cash dividends of $0.09
per share.
The Company's primary market risk relates to exposure to foreign currency
exchange rate fluctuations on transactions entered into by our international
operations which are primarily denominated in the U.S. dollar, Swedish Krona and
Italian Lira. The Company currently uses foreign currency forward exchange
contracts to mitigate the effect of short-term foreign exchange rate movements
on the Company's operating results. The net notional amount of these contracts
is $37,327, which the Company estimates to be approximately 62% of the foreign
currency exposure during the period covered resulting in a deferred currency
loss of ($2,401) at September 30, 2000.
18
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In March 2000, Cambrex acquired Conti for approximately $6,200 in cash and
assumed debt.
In July 2000, Cambrex acquired Lumitech for approximately $4,700.
Management believes that existing sources of capital, together with cash flows
from operations, will be sufficient to meet foreseeable cash flow requirements.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements. Investors should be aware of
factors that could cause Cambrex actual results to vary materially from those
projected in the forward-looking statements. These factors include, but are not
limited to, global economic trends; competitive pricing or product development
activities; markets, alliances, and geographic expansions developing differently
than anticipated; government legislation and/or regulation (particularly on
environmental issues); and technology, manufacturing and legal issues.
19
<PAGE> 21
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 June 30, 2000.
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 nine months
ended September 30, 2000.
20
<PAGE> 22
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, 2000
21
