10-Q 1 e10-q.txt CAMBREX CORPORATION 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 June 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 (IRS 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 August 1, 2000, there were 25,089,828 shares outstanding of the registrant's Common Stock, $.10 par value. 2 CAMBREX CORPORATION AND SUBSIDIARIES FORM 10-Q For The Quarter Ended June 30, 2000 Table of Contents
Page No. -------- Part I Financial information Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets as of June 30, 2000 and December 31, 1999 2 Condensed consolidated income statements for the three months and six months ended June 30, 2000 and 1999 3 Condensed consolidated statements of comprehensive income for the three months and six months ended June 30, 2000 and 1999 4 Condensed consolidated statements of cash flows for the six months ended June 30, 2000 and 1999 5 Notes to condensed consolidated financial statements 6 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 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
3 Part 1 - FINANCIAL INFORMATION CAMBREX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per-share and share data)
June 30, December 31, 2000 1999 --------- --------- ASSETS (unaudited) Current assets: Cash and cash equivalents ............................. $ 53,113 $ 39,796 Trade receivables, net ................................ 77,750 72,227 Inventories, net ...................................... 101,067 92,439 Deferred tax assets ................................... 16,422 16,422 Prepaid expenses and other current assets ............. 12,485 14,403 --------- --------- Total current assets .............................. 260,837 235,287 Property, plant and equipment, net ........................ 292,979 280,163 Intangible assets, net .................................... 144,081 149,307 Other assets .............................................. 9,757 8,890 --------- --------- Total assets ...................................... $ 707,654 $ 673,647 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities .............. $ 68,845 $ 57,567 Income taxes payable .................................. 7,212 11,276 Short-term debt and current portion of Long-term debt .................................... 2,491 3,279 --------- --------- Total current liabilities ................................. 78,548 72,122 Long-term debt ............................................ 223,996 225,922 Deferred tax liabilities .................................. 59,746 55,172 Other noncurrent liabilities .............................. 28,157 25,066 --------- --------- Total liabilities ................................. 390,447 378,282 --------- --------- Stockholders' equity: Common stock, $.10 par value; issued 27,077,453 and 26,719,924 shares at respective dates ............. 2,698 2,667 Additional paid-in capital ............................ 170,657 166,288 Retained earnings ..................................... 192,771 167,655 Treasury stock, at cost; 2,110,140 and 2,100,690 shares at respective dates ......................... (10,172) (10,172) Accumulated other comprehensive loss .................. (38,747) (31,073) --------- --------- Total stockholders' equity ........................ 317,207 295,365 --------- --------- Total liabilities and stockholders' equity ........ $ 707,654 $ 673,647 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 2 4 CAMBREX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (unaudited) (in thousands, except per-share data)
Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Gross sales ........................................................ $ 127,472 $ 123,642 $ 256,458 $ 241,161 Commissions, freight and allowances ............................ 2,360 2,300 4,670 3,515 --------- --------- --------- --------- Net sales .......................................................... 125,112 121,342 251,788 237,646 Other revenues ................................................. 164 1,312 866 2,408 --------- --------- --------- --------- Net revenues ....................................................... 125,276 122,654 252,654 240,054 Cost of goods sold ................................................. 76,530 79,795 157,759 156,692 --------- --------- --------- --------- Gross Profit ....................................................... 48,746 42,859 94,895 83,362 Operating expenses: Selling, general and administrative ............................ 20,875 19,817 41,852 39,297 Research and development ....................................... 3,504 3,291 7,235 6,900 --------- --------- --------- --------- Total operating expenses ..................................... 24,379 23,108 49,087 46,197 Operating profit ................................................... 24,367 19,751 45,808 37,165 Other (income) expenses: Interest expense, net .......................................... 3,146 2,050 6,022 4,227 Other (income) expense, net .................................... (142) 125 (90) 168 --------- --------- --------- --------- Income before income taxes ......................................... 21,363 17,576 39,876 32,770 Provision for income taxes ..................................... 7,157 5,650 13,358 10,665 --------- --------- --------- --------- Net income ......................................................... $ 14,206 $ 11,926 $ 26,518 $ 22,105 ========= ========= ========= ========= Weighted average shares outstanding: Basic .......................................................... 24,883 24,564 24,794 24,549 Effect of dilutive stock options ............................... 1,154 934 1,105 893 --------- --------- --------- --------- Diluted ........................................................ 26,037 25,498 25,899 25,442 Earnings per share of common stock and common stock equivalents: Basic .......................................................... $ 0.57 $ 0.49 $ 1.07 $ 0.90 ========= ========= ========= ========= Diluted ........................................................ $ 0.55 $ 0.47 $ 1.02 $ 0.87 ========= ========= ========= ========= Cash dividends paid per share ...................................... $ 0.03 $ 0.03 $ 0.06 $ 0.06 ========= ========= ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 3 5 CAMBREX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) (in thousands)
Three months ended Six months ended June 30, June 30, ----------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net income ...................................... $ 14,206 $ 11,926 $ 26,518 $ 22,105 Other comprehensive loss Foreign currency translation adjustments* ... (3,229) (8,120) (7,674) (16,992) -------- -------- -------- -------- Comprehensive income ............................ $ 10,977 $ 3,806 $ 18,844 $ 5,113 ======== ======== ======== ========
--------- * 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 6 CAMBREX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Six months ended June 30, ----------------------- 2000 1999 -------- -------- Cash flows from operating activities: Net income ............................................. $ 26,518 $ 22,105 Depreciation and amortization .......................... 23,722 20,237 Deferred income tax provision .......................... 110 269 Changes in assets and liabilities (net of assets and liabilities acquired): Receivables, net .................................. (3,618) (14,343) Inventories ....................................... (7,079) 5,028 Prepaid expenses and other current assets ......... 116 (2,103) Accounts payable and accrued liabilities .......... 10,340 16,561 Income taxes payable .............................. (3,469) (3,420) Other noncurrent assets and liabilities ........... 561 1,786 -------- -------- Net cash provided by operating activities ......... 47,201 46,120 -------- -------- Cash flows from investing activities: Capital expenditures ................................... (20,254) (14,302) Acquisition of businesses (net of cash acquired) ....... (2,608) (37,336) Other investing activities ............................. (815) (528) -------- -------- Net cash used in investing activities ............. (23,677) (52,166) -------- -------- Cash flows from financing activities: Dividends .............................................. (1,482) (1,471) Net decrease in short-term debt ........................ (2,841) (1,693) Long-term debt activity (including current portion): Borrowings ........................................ 28,300 6,000 Repayments ........................................ (31,067) (9,554) Proceeds from the issuance of common stock ............. 4,401 781 Purchase of treasury stock ............................. -- (446) -------- -------- Net cash provided by financing activities ......... (2,689) (6,383) -------- -------- Effect of exchange rate changes on cash .................... (7,518) (13,144) -------- -------- Net increase/(decrease) in cash and cash equivalents ....... 13,317 (25,573) Cash and cash equivalents at beginning of period ........... 39,796 48,527 -------- -------- Cash and cash equivalents at end of period ................. $ 53,113 $ 22,954 ======== ======== Supplemental disclosure: Interest paid (net of capitalized interest) ............ $ 7,443 $ 4,392 Income taxes paid ...................................... $ 6,513 $ 12,373 Depreciation expense ................................... $ 18,520 $ 16,012
See accompanying notes to unaudited condensed consolidated financial statements. 5 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 three months and six months ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year. (2) INVENTORIES Inventories at June 30, 2000 and December 31, 1999 consist of the following:
June 30, December 31, 2000 1999 -------- -------- Finished goods ............................ $ 39,165 $ 34,509 Work in process ........................... 29,910 27,214 Raw materials ............................. 27,684 26,322 Fuel oil and supplies ..................... 4,308 4,394 -------- -------- Total ................................. $101,067 $ 92,439 ======== ========
(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. The acquisition has 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. At the time of the transaction, goodwill was recorded at $910 and will be amortized over 20 years. Proforma information is not presented, as the acquired company's results of operations prior to the date of acquisition are not material to the Company. 6 8 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (4) LONG-TERM DEBT Long-term debt at June 30, 2000 and December 31, 1999 consists of the following:
June 30, December 31, 2000 1999 -------- -------- Bank credit facilities ...................... $218,000 $218,500 Other ....................................... 6,450 7,888 -------- -------- Subtotal ................................ $224,450 $226,388 Less: current portion ...................... 454 466 -------- -------- Total ................................... $223,996 $225,922 ======== ========
The Company was in compliance with all bank covenants for the first six months of 2000. (5) SEGMENT INFORMATION Following is a summary of business segment information for the following dates:
Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- Gross Sales: Human Health .................... $ 60,784 $ 59,065 $ 122,196 $ 114,710 Biosciences ..................... 24,423 17,353 49,627 34,972 Animal Health/Agriculture ....... 15,148 15,666 27,307 31,522 Specialty and Fine Chemicals .... 27,117 31,558 57,328 59,957 --------- --------- --------- --------- Total ........................... $ 127,472 $ 123,642 $ 256,458 $ 241,161 ========= ========= ========= ========= Gross Profit: Human Health .................... $ 25,042 $ 23,513 $ 49,589 $ 45,083 Biosciences ..................... 13,381 8,078 27,181 17,153 Animal Health/Agriculture ....... 2,994 3,514 4,612 6,404 Specialty and Fine Chemicals .... 7,329 7,754 13,513 14,722 --------- --------- --------- --------- Total ........................... $ 48,746 $ 42,859 $ 94,895 $ 83,362 ========= ========= ========= ========= Net Income: Biosciences ..................... $ 1,541 $ (209) $ 3,321 $ 261 Human Health, Animal Health/ Agriculture & Specialty and Fine Chemicals ................ 12,665 12,135 23,197 21,844 --------- --------- --------- --------- Total ........................... $ 14,206 $ 11,926 $ 26,518 $ 22,105 ========= ========= ========= ========= Capital Spending: Biosciences ..................... $ 1,310 $ 469 $ 2,615 $ 953 Human Health, Animal Health/ Agriculture & Specialty and Fine Chemicals ................ 10,819 7,603 17,639 13,349 --------- --------- --------- --------- Total ........................... $ 12,129 $ 8,072 $ 20,254 $ 14,302 ========= ========= ========= =========
7 9 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (5) SEGMENT INFORMATION (CONTINUED)
Three months ended Six months ended June 30, June 30, --------------------- ---------------------- 2000 1999 2000 1999 ------- -------- -------- -------- Depreciation: Biosciences ........................................................ $ 1,179 245 1,952 838 Human Health, Animal Health/ Agriculture & Specialty and Fine Chemicals ................................................... 8,303 7,583 16,568 15,174 ------- -------- -------- -------- Total .............................................................. $ 9,482 $ 7,828 $ 18,520 $ 16,012 ======= ======== ======== ======== Amortization: Biosciences ........................................................ $ 1,342 1,136 2,908 2,273 Human Health, Animal Health/ Agriculture & Specialty and Fine Chemicals ................................................... 760 949 2,294 1,952 ------- -------- -------- -------- Total .............................................................. $ 2,102 $ 2,085 $ 5,202 $ 4,225 ======= ======== ======== ========
June 30, December 31, 2000 1999 -------- -------- Total Assets: Biosciences ........................................................ $188,974 $186,405 Human Health, Animal Health/ Agriculture & Specialty and Fine Chemicals ................................................... 518,680 487,242 -------- -------- Total .............................................................. $707,654 $673,647 ======== ========
(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 $6,300 at June 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 $6,300 annual above. This liability has been recorded at its estimated fair value and is subject to adjustment 8 10 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) CONTINGENCIES (CONTINUED) when information concerning this liability is finalized. In addition, in the first quarter 2000, the Company settled certain environmental claims involving the Cosan Chemical Corporation (a subsidiary) with insurance companies for recoveries of $900. 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. 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 several 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. 9 11 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) CONTINGENCIES (CONTINUED) 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. 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 forth 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 on August 4, 2000 Nepera 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 agreed to pay a fine of $4,000. This agreement is subject to review and approval by the United States District Court for the Northern District of Texas. 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 June 30, 2000 is $5,833. 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. 10 12 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (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. 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. (8) SUBSEQUENT EVENTS On July 24, 2000, Cambrex announced the purchase of LumiTech Limited, located in Nottingham, U.K. for $4.3 million at closing, with additional future performance based payments of up to $16 million over the next five years. LumiTech provides products and services used in the high throughput screening market for drug discovery. 11 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 COMPARISON OF SECOND QUARTER 2000 VERSUS SECOND QUARTER 1999 The results for the second quarter of 2000 improved upon the same period a year ago due to increased sales in the Human Health and Biosciences Segments and the higher gross margin on sales. 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 June 30, 2000 and 1999.
Quarter Ended June 30, --------------------------------------------------- 2000 1999 ---------------------- ---------------------- $ % $ % -------- -------- -------- -------- Human Health ................... $ 60,784 47.7% $ 59,065 47.8% Biosciences .................... 24,423 19.2 17,353 14.0 Animal Health/Agriculture ...... 15,148 11.9 15,666 12.7 Specialty and Fine Chemicals ... 27,117 21.2 31,558 25.5 -------- -------- -------- -------- Total gross sales ........ $127,472 100.0% $123,642 100.0% ======== ======== ======== ========
The following table shows the gross profit of the Company's four product segments for the second quarter 2000 and 1999.
Gross Gross Gross Sales Profit $ Profit % -------- -------- -------- 2000 Human Health ............................ $ 60,784 $ 25,042 41.2% Biosciences ............................. 24,423 13,381 54.8 Animal Health/Agriculture ............... 15,148 2,994 19.8 Specialty and Fine Chemicals ............ 27,117 7,329 27.0 -------- -------- -------- Total ............................. $127,472 $ 48,746 38.2% ======== ======== ========
Gross Gross Gross Sales Profit $ Profit % -------- -------- -------- 1999 Human Health ............................ $ 59,065 $ 23,513 39.8% Biosciences ............................. 17,353 8,078 46.6 Animal Health/Agriculture ............... 15,666 3,514 22.4 Specialty and Fine Chemicals ............ 31,558 7,754 24.6 -------- -------- -------- Total ............................. $123,642 $ 42,859 34.7% ======== ======== ========
12 14 RESULTS OF OPERATIONS (CONTINUED) Gross sales in the second quarter 2000 increased 3.1% to $127,472 from $123,642 in the second quarter 1999. Sales in the Human Health and Biosciences Segments increased compared to the first quarter 2000 and more than offset the decreases in the Animal Health/Agricultural and Specialty and Fine Chemicals Segments. The Human Health Segment gross sales of $60,784 were $1,719 (2.9%) above the second quarter 1999. Gross sales were above the prior year primarily due to sales generated by Conti, which was acquired in March 2000, as well as increased demand for pharmaceuticals used in cardiovascular and central nervous system products. Partially offsetting these increases were the impact of currency and reduced sales of gastro-intestinal products in the European markets primarily as the result of temporary customer overstock positions. In addition, the company eliminated certain lower margin products in x-ray contrast media which were under pricing pressure. The Biosciences Segment gross sales of $24,423 were $7,070 (40.7%) above the second quarter 1999 primarily due to the acquisition of BioWhittaker Molecular Applications, Inc. (formerly the BioProducts business of FMC Corporation), as well as from increased shipments of cell culture products. Media and serum sales were impacted by the lack of available raw materials. The Animal Health/Agriculture Segment gross sales of $15,148 in the second quarter 2000 were $518 (3.3%) below the second quarter 1999. The second quarter decrease was mainly due to reduced sales of Agricultural Intermediates due to lower shipments of 2-cyanopyridine and pyridine derivatives. Sales of 2-cyanopyridine are expected to be up for all of 2000, but were lower in the second quarter due to the timing of customer orders. Pyridine derivative products were lower due to reduced shipments to a major customer. Animal Health products were above the second quarter 1999 due to increased shipments of poultry feed additive. The Specialty and Fine Chemicals Segment gross sales of $27,117 decreased $4,441 (14.1%) from the second quarter 1999 reflecting decreased sales of encapsulants used in the telecommunications industry as a result of customer consolidation, specialty additives used in polycarbonate resins, and reduction of low margin castor oil products sold to the commodity market. The sales shortfall of the specialty additives used in polycarbonate resins was due to the timing of a production campaign. Export sales from U.S. businesses of $15,691 in the second quarter 2000 increased 11% from $14,085 in the second quarter 1999. International sales from our European operations totaled $57,328 for the second quarter of 2000 as compared with $50,288 in 1999, an increase of 14%. The gross profit in the second quarter 2000 was $48,746 compared to $42,859 in 1999. The gross margin percentage increased to 38.2% in the second quarter 2000 from 34.7% in 1999. Gross margins improved in all segments except Animal Health / Agriculture. The margin for Human Health and Specialty and Fine Chemicals were ahead of the second quarter 1999 due to the elimination of low margin products and improved mix of products sold. The Biosciences Segment gross margin of 54.8% improved due to operating efficiencies and the effect of the acquisition of BioWhittaker Molecular Applications. The gross margin percent for the Animal Health/Agriculture Segment was adversely affected by increased raw material prices. 13 15 RESULTS OF OPERATIONS (CONTINUED) Selling, general and administrative expenses as a percentage of gross sales were 16.3% in the second quarter 2000, up from 16.1% in the second quarter 1999. The second quarter 2000 expenses included the added administration costs of the acquisitions of BioWhittaker Molecular Applications in July 1999 and Conti in March 2000. Research and development expenses of $3,504 were 2.8% of gross sales in the second quarter 2000, and represented a 6.5% increase from 1999. This increase was primarily due to research costs resulting from the acquisition of BioWhittaker Molecular Applications. The operating profit in the second quarter 2000 was $24,367, an increase of 23.4% compared to $19,751 in 1999 due to the increased sales volume and improved gross margin. Net interest expense of $3,146 in the second quarter 2000 reflected an increase of $1,096 from 1999 as a result of the additional financing by the Company for the acquisitions of BioWhittaker Molecular Applications and Conti and the increase in the interest rate. The average interest rate was 7.0% in the second quarter 2000 versus 5.8% in 1999. The provision for income taxes for the second quarter 2000 resulted in an effective rate of 33.5% as compared with 32.1% in the second quarter 1999. The increase is due to a larger percentage of European earnings, which are taxed at a higher rate. The Company's net income for the second quarter 2000 increased 19.1% to $14,206 compared with a net income of $11,926 in the second quarter 1999. 14 16 COMPARISON OF FIRST SIX MONTHS OF 2000 VERSUS FIRST SIX MONTHS OF 1999 Results in the first half 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. 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 half 2000 and 1999.
Six Months Ended June 30 --------------------------------------------------- 2000 1999 ---------------------- ---------------------- $ % $ % -------- -------- -------- -------- Human Health ................... $122,196 47.6% $114,710 47.6% Biosciences .................... 49,627 19.4 34,972 14.5 Animal Health/Agriculture ...... 27,307 10.6 31,522 13.1 Specialty and Fine Chemicals ... 57,328 22.4 59,957 24.8 -------- -------- -------- -------- Total gross sales ........ $256,458 100.0% $241,161 100.0% ======== ======== ======== ========
The following table shows the gross profit of the Company's four product segments for the six months 2000 and 1999.
Gross Gross Gross Sales Profit $ Profit % -------- -------- -------- 2000 Human Health ........................ $122,196 $ 49,589 40.6% Biosciences ......................... 49,627 27,181 54.8 Animal Health/Agriculture ........... 27,307 4,612 16.9 Specialty and Fine Chemicals ........ 57,328 13,513 23.6 -------- -------- -------- Total ......................... $256,458 $ 94,895 37.0% ======== ======== ========
Gross Gross Gross Sales Profit $ Profit % -------- -------- -------- 1999 Human Health ........................ $114,710 $ 45,083 39.3% Biosciences ......................... 34,972 17,153 49.0 Animal Health/Agriculture ........... 31,522 6,404 20.3 Specialty and Fine Chemical ......... 59,957 14,722 24.6 -------- -------- -------- Total ......................... $241,161 $ 83,362 34.6% ======== ======== ========
15 17 RESULTS OF OPERATIONS (CONTINUED) Gross sales in the first half 2000 increased 6.3% to $256,458 from $241,161 in the first half 1999. Sales in the Human Health and Biosciences segments increased compared to the first half 1999 and more than offset the decreases in the Animal Health/Agriculture and Specialty and Fine Chemicals Segments. The Human Health Segment gross sales of $122,196 were $7,486 (6.5%) above the first half of 1999 due primarily to pharmaceuticals used in cardiovascular and central nervous system preparations, new products, and sales generated by the acquisitions 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 Biosciences Segment gross sales of $49,627 were $14,655 (41.9%) above the first half of 1999 primarily due to the acquisition of BioWhittaker Molecular Applications, Inc. (formerly the BioProducts business of FMC Corporation), as well as increased shipments of cell culture products. Media and serum sales were impacted by the lack of available raw materials. The Animal Health/Agriculture Segment gross sales of $27,307 were $4,215 (13.4%) below the first half 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 half of 1999 due to increased shipments of a poultry feed additive. The Specialty and Fine Chemicals Segment gross sales of $57,328 were $2,629 (4.4%) below the first half 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 $31,434 in the first half of 1999 increased to $34,840 in 2000. International sales from our European operations totaled $104,165 for the first six months of 2000 compared to $99,224 in 1999. Total gross profit of $94,895 was $11,533 (13.8%) higher than 1999 due to the improved gross margin on the Human Health Segment sales and to Biosciences Segments' operating efficiencies and the positive effect of the acquisition of BioWhittaker Molecular Applications. The gross margin for the first half of 2000 was 37.0% versus 34.6% in 1999. 16 18 RESULTS OF OPERATIONS (CONTINUED) Selling, general and administrative expenses as a percentage of gross sales were 16.3% in the first half of 2000, the same level as 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 a first quarter 2000 insurance recovery of $900 related to previously incurred environmental expenses. Research and development expenses of $7,235 were 2.8% of gross sales in the first half of 2000, and represented a 4.9% increase from 1999, primarily due to the acquisition of BioWhittaker Molecular Applications. The operating profit in the first half of 2000 was $45,808, an increase of 23.3% compared to 1999. This increase is due to increased sales and improved gross margin. Net interest expense of $6,022 in the first half of 2000 reflected an increase of $1,795 from 1999 as a result of the additional financing for the acquisitions and increased interest rates. The average interest rate was 6.7% in the first half of 2000 versus 5.9% in 1999. The provision for income taxes for the first half of 2000 resulted in an effective rate of 33.5% as compared with 32.5% in the first half of 1999. The Company's net income for the first half of 2000 increased 20% to $26,518 compared with a net income of $22,105 in 1999. 17 19 LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 2000, the Company generated cash flows from operations totaling $47,201, an increase of $1,081 over the same period a year ago. This increase in cash flows is due primarily to increased profitability, as well as a decrease in receivables. Capital expenditures were $20,254 in the six months of 2000 as compared to $14,302 in the six months of 1999. Part of the funds were used for the purchase of the land occupied by the Seal Sands facility in Middlesbrough, England and a new product facility and waste treatment plant at the Nordic Synthesis AB facility in Sweden. During the first six months of 2000, the Company paid cash dividends of $0.06 per share, equal to last year. 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 $53,347 which the Company estimates to be approximately 71% of the foreign currency exposure during the period covered resulting in a deferred currency loss of ($1,237) at June 30, 2000. In March 2000, Cambrex acquired Conti BPC NV, a manufacturer and supplier of pharmaceutical intermediates and active pharmaceutical ingredients located in Landen, Belgium, for $6,200 in cash and assumed debt. 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. 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 18 20 IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) 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. 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. 19 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 March 31, 2000 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) The exhibits filed as part of this report are listed below.
Exhibit No. Description ----------- ----------- 27 Financial Data Schedule.
b) Reports on Form 8-K The registrant filed no reports on Form 8-K during the six months ended June 30, 2000. 20 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: August 14, 2000 21