10-K 1 y46251e10-k.txt CAMBREX CORPORATION 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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, 07073 EAST RUTHERFORD, NEW JERSEY (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201)-804-3000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE
(SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE) 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 12 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $990,722,740 as of February 28, 2001. APPLICABLE ONLY TO CORPORATE REGISTRANTS As of February 28, 2001, there were 25,471,853 shares outstanding of the registrant's Common Stock, $.10 par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement for the 2001 Annual Meeting are incorporated by reference into Part III of this report. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 PART I ITEM 1 BUSINESS. GENERAL Cambrex Corporation (the "Company" or "Cambrex"), a Delaware corporation, began business in December 1981. The Company primarily provides products and services worldwide to the life sciences industry. Cambrex operates in four segments, Human Health, Biosciences, Animal Health/Agriculture, and Specialty and Fine Chemicals. Each of these segments include various product categories. The Human Health, Biosciences, and Animal Health/Agriculture segments facilitate all the ongoing analysis of the business in the area of life sciences. Currently, the Company's overall strategy for these segments is to focus on niche markets that have global opportunities, build on strong customer relations to enhance our new products pipeline, and support state-of-the-art technology, while being a leader in environmental, health and safety performance. Within each of the segments, the Company uses a consistent business approach: 1. Focus on niche products requiring significant technical expertise. 2. Be a leading supplier of core products, for which price competition is not the primary market determinant. 3. Review products on a continuing basis and eliminate those not meeting operating profit goals and replace those products with ones generating higher returns. Important objectives of the Company are to expand its operations through internal growth and make strategic acquisitions of product lines, technology and companies that increase its position in niche markets. On October 3, 1997, the Company completed the acquisition of all of the outstanding common stock of BioWhittaker, Inc. ("BioWhittaker") for approximately $133,500. BioWhittaker, which is located on 116 acres in Walkersville, Maryland, develops, produces and sells cell culture and endotoxin detection products to the biotechnology and pharmaceutical industries for research and for the commercial manufacture of biopharmaceutical products. On May 12, 1998, Cambrex purchased the assets of the biopharmaceutical manufacturing and distribution business of Boehringer Ingelheim Bioproduct Partnership. The assets acquired include a state-of-the-art cell culture and media manufacturing facility in Verviers, Belgium, and inventory for certain cell culture, endotoxin detection and molecular biology products. On January 9, 1998, the Company completed the acquisition of the chiral intermediates business of Celgene Corporation for approximately $11,328 plus future royalties of up to $7,500 based upon sales. The product line, which has been re-named Chiragene, produces optically active, complex, organic compounds that are critical to the production of modern active pharmaceutical ingredients. On January 4, 1999, the Company acquired Poietic Technologies, Inc., the leading supplier of normal human cells of hematopoietic origin. Terms of the transaction are $2,500 in cash and future consideration based on the performance of the business. On March 12, 1999, the Company completed the purchase of Irotec Laboratories, Ltd., a manufacturer of active pharmaceutical ingredients located in Cork, Ireland. Cambrex paid approximately $37,560 for the business, which included a new $15,000 cGMP pharmaceutical manufacturing plant that came on line in the third quarter of 1999. In connection with the purchase, the Company signed a long-term agreement with Hexal AG, Germany's second largest generic pharmaceutical producer. The agreement covers the supply of an expected $50,000 to $75,000 of Active Pharmaceutical Ingredients (API) over the next five years. On July 12, 1999, the Company acquired BioWhittaker Molecular Applications, Inc. (formerly the BioProducts division of the FMC Corporation) for approximately $38,000. The business, which serves the life sciences industry, is the world's largest manufacturer of electrophoresis media based on the natural polymer --------------- (dollars in thousands, except share data) 1 3 agarose. Electrophoresis media products are used to separate and analyze proteins and sequence DNA, work critical to the development and manufacture of new biopharmaceuticals. High purity agarose is also used to make chromatography media for large-scale separation and purification of biologicals, important in pharmaceutical applications. The transaction, structured as a purchase of assets, includes two operating facilities located in Rockland, Maine and Copenhagen, Denmark, and a number of U.S. and foreign patents associated with the business. On March 2, 2000, the Company completed the acquisition of Conti BC 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 $451 and is being 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 are being amortized over 15-20 years. On August 29, 2000, Cambrex Corporation announced that its CasChem, Inc. subsidiary had licensed the castor oil based ester products business from Arizona Chemical, Jacksonville, FL through a perpetual licensing agreement for approximately $4.5 million. The agreement provides CasChem with process technologies, customer lists, and supply of raw materials. The ester products are used in personal care and coatings applications. The acquisition cost is included in intangible assets at December 31, 2000 and is being amortized over 10 years. As part of the transaction, CasChem has also entered into a five-year supply agreement with Arizona Chemical to manufacture a line of tall oil based products used in the lubricant and lithographic ink markets. It is estimated that the aggregate revenue contribution to CasChem will be approximately $10 million per year. PRODUCTS The Company uses its technical expertise in a wide range of chemical and biological processes to meet the needs of its customers for high quality products for specialized applications. The following table sets forth for the periods indicated information concerning gross sales from the Company's four segments:
YEARS ENDED DECEMBER 31, -------------------------------- 2000(2) 1999(1) 1998 -------- -------- -------- Human Health....................................... $233,886 $225,660 $194,766 Biosciences........................................ 96,232 83,887 65,968 Animal Health/Agriculture.......................... 56,220 55,695 56,285 Specialty and Fine Chemicals....................... 106,206 119,318 124,664 -------- -------- -------- Gross Sales...................................... $492,544 $484,560 $441,683 ======== ======== ========
--------------- (1) Sales from Irotec Laboratories, acquired in March 1999, and BioWhittaker Molecular Applications, acquired in July 1999, are included from the dates of acquisition. (2) Sales from Conti BC NV acquired in March 2000, and Lumitech Limited, acquired July 2000, are included from dates of acquisition. Human Health: The Human Health Segment is classified into eight principal product groups: (1) Active Pharmaceutical Ingredients, (2) Pharmaceutical Intermediates, (3) Imaging Chemicals, (4) Personal Care Ingredients, (5) Biomedical Urethanes, (6) Catalysts, (7) Chiral Technology and (8) Nutraceuticals. These products are sold to a diverse group of more than 1,100 customers, with one customer, a distributor --------------- (dollars in thousands, except share data) 2 4 representing multiple customers, accounting for 15% of 2000 sales in this segment. Many of these products are also sold through agents. This table summarizes the gross sales for this product segment.
$ % 2000 1999 CHANGE CHANGE -------- -------- ------- ------ Active Pharmaceutical Ingredients.......... $171,174 $161,282 $ 9,892 6% Pharmaceutical Intermediates............... 29,527 25,995 3,532 14 Personal Care Ingredients.................. 15,512 14,706 806 5 Imaging Chemicals.......................... 7,842 13,568 (5,726) (42) Biomedical Urethanes....................... 2,784 3,050 (266) (9) Catalysts.................................. 7,035 6,950 85 1 Nutraceuticals............................. 12 109 (97) (89) -------- -------- ------- Total Human Health............... $233,886 $225,660 $ 8,226 4% ======== ======== ======= ===
Human Health sales of $233,886 increased $8,226 (4%) despite the unfavorable effects of foreign currency which reduced sales by 5.0%. Active Pharmaceutical Ingredients are manufactured under FDA regulation (cGMP -- current Good Manufacturing Practices) for use as the active ingredients in prescription and over-the-counter drugs. Active Pharmaceutical Ingredients sales of $171,174 were $9,892 (6%) above the prior year due primarily to sales from the acquisition of Conti in March 2000 of approximately $15,000, a new U.S. cardiovascular introduction and a full year of sales from the March 1999 acquisition of Irotec partially offset by lower sales of gastro-intestinal productions due to customer 1999 inventory buildups. Active Pharmaceutical Ingredients includes active ingredients used in products for gastro-intestinal, cardiovascular, endocrine, central nervous system, respiratory, diuretics, anti-infective, anti-inflammatory, immunology and various other uses. Pharmaceutical Intermediates sales of $29,527 were $3,532 (14%) above 1999 due to a new contract for cyclohexenylethylamine, a cough suppressant ingredient, new products, as well as a full year of sales from the March 1999 acquisition of Irotec. Imaging chemicals sales of $7,842 were $5,726 (42%) below 1999 due to lost business from competitive pricing in the industry. Other product category changes from prior year were not significant. Biosciences: This segment consists of cell culture products, including living cell cultures, cell culture media and cell culture media supplements, endotoxin detection products, and electrophoresis and chromatography products supplied to the biotechnology and pharmaceutical industries. The Company manufactures more than 1,800 products which are sold to more than 14,000 customers worldwide with no one customer accounting for more than 10% of sales in this category. This table summarizes the gross sales for this product segment:
$ % 2000 1999 CHANGE CHANGE ------- ------- ------- ------ Cells and Media.............................. $50,590 $47,434 $ 3,156 7% Endotoxin Detection.......................... 21,391 21,864 (473) (2) Electrophoresis, Chromatography & Other...... 24,251 14,589 9,662 66 ------- ------- ------- Total Biosciences.................. $96,232 $83,887 $12,345 15% ======= ======= ======= ==
Gross sales of $96,232 were $12,345 (15%) above 1999 due to increased shipments of cell culture and electrophoresis products. The effect of full year sales from the acquisition of BioWhittaker Molecular --------------- (dollars in thousands, except share data) 3 5 Applications, Inc. (formerly the BioProducts Business of FMC Corporation) in July 1999 added $11,652 in sales to this segment, and includes products for fragment analysis, sequencing, gel bond film and chromatography. Animal Health/Agriculture: This segment consists of three product groups: (1) Vitamin B-3 used in feed additives and for veterinary products, (2) Animal Health products used in disease prevention and (3) Agricultural Intermediates used in crop protection. These products are sold to approximately 200 customers. Two customers accounted for 29.0% and 26.9% of 2000 sales in this segment. This table summarizes the gross sales for this product segment:
$ % 2000 1999 CHANGE CHANGE ------- ------- ------- ------ Vitamin B-3.................................. $ 6,910 $ 9,155 $(2,245) (25)% Animal Health................................ 16,140 15,013 1,127 8 Agricultural Intermediates................... 33,170 31,527 1,643 5 ------- ------- ------- Total Animal Health/Agriculture.... $56,220 $55,695 $ 525 1% ======= ======= ======= ===
Vitamin B-3 sales of $6,910 were $2,245 (25%) below 1999 due to reduced shipments to the animal feed markets and lower prices compared to 1999. Animal Health sales of $16,140 were $1,127 (8%) above 1999 due to inventory adjustments made by a major customer and moderate feed additive market growth. Agricultural Intermediate sales of $33,170 were up $1,643 (5%) due to requirements in crop protection and the timing of significant customer campaigns. Specialty and Fine Chemicals: This segment consists of two product groups: (1) Performance Enhancing Chemicals and (2) Polymer Systems. Performance Enhancing Chemicals are complex chemicals designed to impart special properties when small quantities are included in the formulation of specific products. These chemicals, which include over 100 products, are used in photography, pigments, polymers, fuel/oil addition, catalysts and other specialty additives. Polymer Systems are monomers or two component polymer systems for use in small volume, high performance applications. These polymers include applications used in coatings, telecommunications, electronics and engineering plastics. These products are sold to approximately 1,100 customers with no one customer accounting for over 10% of 2000 sales. This table summarizes the gross sales for this product category:
$ % 2000 1999 CHANGE CHANGE -------- -------- -------- ------ Performance Enhancing Chemicals........... $ 67,004 $ 76,441 $ (9,437) (12)% Polymer Systems........................... 39,202 42,877 (3,675) (9) -------- -------- -------- Total Specialty and Fine Chemicals..................... $106,206 $119,318 $(13,112) 11% ======== ======== ======== ===
Performance Enhancing Chemicals sales of $67,004 were $9,437 (12%) below 1999 levels. Key decreases were in sales of Suconox (used as an anti-oxidant in plastic resins) and ASA's (alkenyl succinic anhydrides used in the fuel oil industries as additives). Polymer Systems sales of $39,202 were down $3,675 (9%) due primarily to lower sales of encapsulants used in telecommunications. MARKETING AND DISTRIBUTION The Company's Human Health segment generally includes high value, low volume products requiring significant technical expertise for their development and manufacture. Marketing generally requires significant cooperative effort among a small highly trained marketing staff, a technical staff who can assess the technical --------------- (dollars in thousands, except share data) 4 6 fit and estimate manufacturing economics, and the business unit management to determine the strategic and business fit. Such a process may take from two to five years before a commercial product is fully established. Because of this long lead time and the complexity of the technical efforts, there are usually long-term relationships with major corporations who become significant customers. Sales of established products may be handled by agents in those areas where direct sales efforts are uneconomical. For the Biosciences segment, the Company markets and sells its products in the United States and Europe principally through its own direct sales force. The Company directly serves the European markets through its wholly-owned subsidiaries, BioWhittaker UK LTD, located outside London, and BioWhittaker, Europe located in Belgium, and BioWhittaker Molecular Applications located in Denmark. The remaining international markets are served principally through an extensive network of independent distributors. The Company is currently implementing e-commerce software to market these products. For the Specialty and Fine Chemicals segment and some Animal Health/Agriculture segment products, marketing and distribution is more typical of specialty chemical companies, with products being sold to customers from inventory in volumes ranging from rail cars to five gallon containers. Sales may be handled by Company salespeople, distributors or agents, as appropriate. RAW MATERIALS The Company uses a wide array of raw materials in the conduct of its businesses. The Company uses significant amounts of castor oil and compounds derived from petroleum feedstocks in manufacturing a limited number of its products. The Company believes it is one of the largest purchasers of castor oil in the United States, and has the ability to take delivery and store a large quantity of castor oil. Castor oil is used primarily in the manufacture of the Company's polymer systems for coatings, telecommunication, and electronic applications. Under advantageous market conditions, the Company sells this commodity in bulk quantities as simple castor oil derivatives. Castor oil, which is not produced in the United States, is an agricultural product, the market price of which is affected by natural factors relating to the castor bean crop from which the oil is produced. Castor oil is produced commercially in a few foreign countries, with India currently being the largest exporter. The Company has been generally able to obtain adequate supplies of castor oil at acceptable prices in the past and expects to be able to continue to do so in the future. Pyridine, which accounted for approximately 5%, 6% and 6% of gross revenues in 2000, 1999 and 1998, respectively, is produced by the Company by a process involving the high temperature reaction of acetaldehyde, formalin and ammonia. Acetaldehyde is available from one supplier in North America. The average price of acetaldehyde increased approximately 32% during 2000 after decreasing 9% in 1999. While formaldehyde is available from multiple sources, a majority is obtained from a local supplier in the U.S. at competitive prices. The average price of formaldehyde in 2000 increased approximately 18% from 1999. The Company obtains acetaldehyde and formalin pursuant to long-term supply contracts under which the price for the raw material adjusts to market conditions. For its biosciences products, the Company buys materials from many suppliers and is generally not dependent on any one supplier or group of suppliers. Nonetheless, although there is a well-established market for raw fetal bovine serum, its price and supply are cyclical and fluctuate. The Company also is dependent on one company for the raw materials used to make Agarose products (used by BioWhittaker Molecular Applications in electrophoeresis media products). A long term contract is in effect for this supply. The other key raw materials used by the Company are advanced organic intermediates and generally have been in adequate supply from multiple suppliers. RESEARCH AND DEVELOPMENT The Company's research and development program is designed to increase the Company's competitiveness through improving its technology and developing processes for the manufacture of new products to meet --------------- (dollars in thousands, except share data) 5 7 customer requirements. The goals are to improve the Company's manufacturing processes to reduce costs, improve quality and increase capacity; and to identify market opportunities which warrant a significant technical effort, and offer the prospects of a long-term, profitable business relationship. Research and development activities are performed at most of the Company's manufacturing facilities in both the United States and Europe. Approximately 150 employees are involved directly in research and development activities worldwide. At the end of 2000, the Company completed its initial investment in the Cambrex Center of Technical Excellence, a new research and development organization. The 42,000 square foot site is located in The Technology Centre of New Jersey in North Brunswick. The new facility helps to place the Company in a unique position to be a full-service resource for pharmaceutical and biotechnology companies throughout the drug development cycle. The Company spent approximately $14,300, $14,300 and $14,000 in 2000, 1999 and 1998, respectively, on research and development efforts. PATENTS AND TRADEMARKS The Company has patent protection in some of its product areas. However, the Company relies primarily on know-how in many of its manufacturing processes and techniques not generally known to other chemical companies, for developing and maintaining its market position. The Company currently owns approximately 160 United States patents which have various expiration dates beginning in 2001 through 2018 and which cover selected items in each of the Company's major product areas. The Company also owns the foreign equivalent of many of its United States patents. In addition, the Company has applied for patents for various concepts and is in the process of preparing patent applications for other concepts. In conjunction with the acquisition of BioWhittaker, the Company acquired patent and other proprietary rights, which are material to the endotoxin detection products, allergy tests kits and the ELVIS(R) cell culture products. The Company has trademarks registered in the United States and a number of foreign countries for use in connection with the Company's products and business. The Company believes that many of its trademarks are generally recognized in its industry. Such trademarks include Naturechem(R), Bufferite(R), Poietics(R), Clonetics(R), Auto-LAL(TM) and ELVIS(R). The Company requires employees to sign confidentiality and non-compete agreements where appropriate. COMPETITION Because of the nature of the Company's products in its Human Health and Animal Health/Agriculture segments and its strategic approach, it is not possible to identify a group of direct competitors. Where competition exists, it is typically specific to a certain product, or is focused early in the process, when an initial market position is being established. If the Company perceives significant competitive risk and a need for large technical or financial commitment, it generally negotiates long-term contracts or capital guarantees from its targeted customer before proceeding. In the Biosciences segment, no one company is known to compete with the Company in all of its product groups, but in each group competition is offered by a number of companies, including, in some cases, firms substantially larger and with greater financial resources than the Company. The markets in which the Company competes are generally concentrated and are highly competitive, with competition centering on product specifications, quality, depth of product line, price, technical support, timely product development and speed of delivery. Competition for the Company's Specialty and Fine Chemicals segment is more typical of chemical markets. Competition exists from other producers of the Company's products and from other products that --------------- (dollars in thousands, except share data) 6 8 may offer equivalent properties. Competition in these areas is generally based on customer service, product quality and pricing. ENVIRONMENTAL AND SAFETY REGULATIONS AND PROCEEDINGS General: Production of certain of the Company's products involves the use, storage and transportation of toxic and hazardous materials. The Company's operations are subject to extensive international and domestic federal, state and local laws and regulations relating to the storage, handling, emission, transportation and discharge of materials into the environment and the maintenance of safe conditions in the work place. The Company maintains environmental and industrial safety and health compliance programs at its plants, and believes that its manufacturing operations are in general compliance with all applicable safety, health and environmental laws. The Company's acquisitions were made subject to known environmental conditions. Also, as with other companies engaged in the chemical business, risks of substantial costs and liabilities are inherent in certain plant operations and certain products produced at the Company's plants. Additionally, prevailing legislation tends to hold chemical companies primarily responsible for the proper disposal of their chemical wastes even after transferal to third party waste disposal facilities. Moreover, other future developments, such as increasingly strict environmental, safety and health laws and regulations, and enforcement policies thereunder, could result in substantial costs and liabilities to the Company and could subject the Company's handling, manufacture, use, reuse, or disposal of substances or pollutants at its plants to more rigorous scrutiny than at present. Although the Company has no direct operations and conducts its business through subsidiaries, certain legal principles that provide the basis for the assertion against a parent company of liability for the actions of its subsidiaries may support the direct assertion against the Company of environmental liabilities of its subsidiaries. Known environmental matters which may result in liabilities to the Company and the related estimates and accruals are summarized in Note #22 to the Cambrex Corporation and Subsidiaries Consolidated Financial Statements. Present and Future Environmental Expenditures: The Company's policy is to comply with all legal requirements of applicable environmental, health and safety laws and regulations. The Company believes it is in general compliance with such requirements and has adequate professional staff and systems in place to remain in compliance. In some cases, compliance can only be achieved by capital expenditures, and the Company made capital expenditures of approximately $5,300 in 2000, $5,600 in 1999, and $2,900 in 1998 for environmental projects. The Company anticipates that capital requirements will increase in subsequent years as a result of the Clean Air Act Amendments and other pending environmental laws. Additionally, as the environmental proceedings in which the Company is involved progress from the remedial investigation and feasibility study stage to implementation of remedial measures, related expenditures will most likely increase. The Company considers costs for environmental compliance to be a normal cost of doing business, and includes such costs in pricing decisions. EMPLOYEES At December 31, 2000 the Company had 1,852 employees worldwide (834 of whom were from international operations) compared with 1,860 employees at December 31, 1999 and 1,750 at December 31, 1998. All hourly plant employees at the Bayonne, New Jersey facility are represented by Local 8-406 of the Oil, Chemical and Atomic Workers International Union under a contract expiring September 17, 2001; the hourly plant employees at the Carlstadt, New Jersey plant are represented by the Amalgamated Industrial Union of East Orange, New Jersey under a contract expiring November 30, 2003; and the hourly plant employees at the Harriman, New York facility are represented by Local 810 of the International Brotherhood of Teamsters under a contract expiring June 30, 2001. Nordic, Profarmaco, Conti and Irotec production, administration, --------------- (dollars in thousands, except share data) 7 9 scientific and technical employees are represented by various local and national unions. Production, administration, scientific and technical employees at our site in Denmark are members of a national union. The contracts with these unions expire at various times through December 31, 2001. The Company believes its labor relations are satisfactory, and will begin negotiations for the renewal of contracts expiring in 2001. SEASONALITY Like many other businesses in the life sciences and specialty chemicals industry, the Company experiences some seasonality primarily due to plant shutdowns in the third quarter. Operating results for any quarter, however, are not necessarily indicative of results for any future period. In particular, as a result of various factors such as acquisitions and plant shutdowns, the Company believes that period-to-period comparisons of its operating results should not be relied upon as an indication of future performance. EXPORT AND INTERNATIONAL SALES The Company exports numerous products to various areas, principally Western Europe, Asia and Latin America. Export sales from the Company's domestic operations in 2000, 1999 and 1998 amounted to $50,910, $40,610 and $42,722, respectively. Sales from international operations were $230,476 in 2000, $218,389 in 1999, and $178,296 in 1998. Refer to Note #20 to the Cambrex Corporation and Subsidiaries Consolidated Financial Statements. ITEM 2 PROPERTIES. Set forth below is information relating to the Company's manufacturing facilities:
OPERATING LOCATION ACREAGE SUBSIDIARY PRODUCT LINES MANUFACTURED -------- ------- ---------- -------------------------- Bayonne, NJ 8 acres CasChem Personal Care Ingredients; Biomedical Urethanes; Performance Enhancers; Polymer Systems Carlstadt, NJ 3 acres Cosan Performance Enhancing Chemicals; Polymer Systems Harriman, NY 29 acres Nepera Active Pharmaceutical Ingredients Personal Care Ingredients; Vitamin B-3; Agricultural Intermediates; Performance Enhancing Chemicals Delaware Water Gap, PA 12 acres Heico Active Pharmaceutical Ingredients; Chiral Technology; Performance Enhancing Chemicals; Polymer Systems Charles City, IA 57 acres Salsbury Active Pharmaceutical Ingredients; Pharmaceutical Intermediates; Imaging Chemicals; Animal Health Products Performance Enhancing Chemicals Zeeland, MI 14 acres Zeeland Pharmaceutical Intermediates; Personal Care Ingredients; Chiral Technology; Catalysts Performance Enhancing Chemicals Middlesbrough, England 12 acres Seal Sands Pharmaceutical Intermediates; Personal Care Ingredients; Catalysts; Agricultural Intermediates; Performance Enhancing Chemicals; Polymer Systems Karlskoga, Sweden 42 acres Nordic Active Pharmaceutical Ingredients; Pharmaceutical Intermediates; Imaging Chemicals; Personal Care Ingredients; Catalysts; Agricultural Intermediates; Performance Enhancing Chemicals
--------------- (dollars in thousands, except share data) 8 10
OPERATING LOCATION ACREAGE SUBSIDIARY PRODUCT LINES MANUFACTURED -------- ------- ---------- -------------------------- Paullo (Milan), Italy 13 acres Profarmaco Active Pharmaceutical Ingredients Walkersville, MD 116 acres BioWhittaker Biosciences Verviers, Belgium 9 acres BioWhittaker Biosciences Europe Cork, Ireland 21 acres Irotec Active Pharmaceutical Ingredients; Pharmaceutical Intermediates Rockland, Maine 93 acres BMA Biosciences Copenhagen, Denmark Leased BMA Biosciences Landen, Belgium 40 acres Conti Active Pharmaceutical Ingredients Nottinghamshire, Leased Lumitech Biosciences England
The Company owns all the above facilities and properties, with the exception of the leased facilities in Nottinghampshire, England and Copenhagen, Denmark. The Company also leases 31,000 square feet in North Brunswick, New Jersey for its Center of Technical Excellence, which has a 10 year term ending March 27, 2010. In addition, the Company owns a four acre site and buildings in North Haven, CT and thirty-one acres of undeveloped land adjacent to the North Haven facility, one hundred and three acres of undeveloped land adjacent to the Harriman facility, sixty-six acres of undeveloped land adjacent to the Zeeland facility and eighty-one acres used as grazing fields in Walkersville, Maryland. The Company believes its facilities to be in good condition, well-maintained and adequate for its current needs. Most of the Company's products are manufactured in multi-purpose facilities. Each product has a unique requirement for equipment, and occupies such equipment for varying amounts of time. This, combined with the variations in demand for individual products, makes it difficult to estimate actual overall capacity subject to regulatory approval. It is generally possible to transfer the manufacturing of a particular product to another facility should capacity constraints dictate. However, the Company's pyridine and arsenical feed additive product groups are each manufactured at a single facility, and production of such products would not be transferable to another site. The Company plans to continue to expand capacity to meet growing needs by process improvements and construction of new facilities where needed. ITEM 3 LEGAL PROCEEDINGS. See "Environmental and Safety Regulations and Proceedings" under Item 1 and Note #22 to the Cambrex Corporation and Subsidiaries Consolidated Financial Statements with respect to various proceedings involving the Company in connection with environmental matters. The Company is party to a number of other proceedings also discussed in Note #22. Management is of the opinion that while the ultimate liability resulting from those proceedings, as well as environmental matters, may have a material effect upon the results of operations in any given year, they will not have a material adverse effect upon the Company's liquidity nor its financial position. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None --------------- (dollars in thousands, except share data) 9 11 ITEM 10 EXECUTIVE OFFICERS OF THE REGISTRANT. The following table lists the executive officers of the Company:
NAME AGE OFFICE ---- --- ------ James A. Mack............................. 63 Chairman of the Board, President and Chief Executive Officer Douglas H. MacMillan...................... 54 Vice President and Chief Financial Officer Peter E. Thauer........................... 61 Senior Vice President, Law & Environment General Counsel & Corporate Secretary Steven M. Klosk........................... 43 Executive Vice President, Administration Claes Glassell............................ 49 Executive Vice President and Chief Operating Officer Salvatore J. Guccione..................... 38 Senior Vice President, Corporate Development Ronnie D. Carroll......................... 60 Vice President, Technology Thomas N. Bird............................ 56 Vice President, Business Development/Life Sciences John A. Antonelli, Jr. ................... 45 Vice President, Treasurer John P. Hopkins........................... 40 Vice President, Controller Keith Hendersen........................... 48 President, Cambrex Fine Chemical Business Unit Robert J. Congiusti....................... 47 Vice President, Information Systems Paulo Russolo............................. 56 President, Cambrex Generic Business and Managing Director of Profarmaco Monika Lekander........................... 47 President, Innovator Pharmaceutical Business Cyril C. Baldwin, Jr. .................... 73 Chairman Emeritus
The Company's executive officers are elected by the Board of Directors and serve at the Board's discretion. Mr. Mack was elected Chairman of the Board of Directors on October 28, 1999. He also retains his position as President and Chief Executive Officer. Mr. Mack has been Chief Executive Officer since Mr. Baldwin's retirement on April 1, 1995. Mr. Mack was appointed President and Chief Operating Officer and a director of the Company in February 1990. For five years prior thereto he was Vice President in charge of the worldwide Performance Chemicals businesses of Olin Corporation, a manufacturer of chemical products, metal products, and ammunition and defense-related products. Mr. Mack was Executive Vice President of Oakite Products, Inc. from 1982 to 1984. Prior to joining Oakite, he held various positions with The Sherwin-Williams Company, most recently as President and General Manager of the Chemicals Division from 1977 to 1981. Mr. Mack is a past Chairman of the Board of Governors of the Synthetic Organic Chemical Manufacturing Association and is a member of the Board of Trustees of the Michigan Tech Alumni Fund. Mr. MacMillan was appointed Vice President and Chief Financial Officer in April 1997. He was most recently Vice President, Chief Financial Officer for Morgan Products, Ltd., a manufacturer and distributor of building products traded on the New York Stock Exchange. Prior to his work with Morgan Products, he was Chief Financial Officer of Varlen Corporation, a manufacturer of petroleum analysis and automotive and scientific instruments. Mr. Thauer was appointed Senior Vice President, Law & Environment in January 2001. Mr. Thauer was previously appointed Vice President, Law & Environment in December 1992, and General Counsel and Corporate Secretary in August 1989. From 1987 until he joined Cambrex, he was Counsel to the business and finance group of the firm of Crummy, Del Deo, Dolan, Griffinger and Vecchione. From 1971 to 1987, --------------- (dollars in thousands, except share data) 10 12 Mr. Thauer had held various positions with Avon Products, Inc., including U. S. Legal Department Head and Corporate Assistant Secretary. Mr. Klosk was appointed Executive Vice President, Administration in October 1996. Mr. Klosk joined the Company in October 1992 as Vice President, Administration. From February 1988 until he joined Cambrex, he was Vice President, Administration and Corporate Secretary for The Genlyte Group, Inc., a lighting fixture manufacturer. From 1985 to January 1988, he was Vice President, Administration for Lightolier, Inc., a subsidiary of The Genlyte Group, Inc. Mr. Glassell was appointed Executive Vice President and Chief Operating Officer in July 2000. Mr. Glassell assumed the position of President, Pharmaceutical Group in July 1998. Mr. Glassell was appointed President, International in November 1997. Mr. Glassell was appointed Vice President of Cambrex in November 1994. After extensive management experience at Nordic and Profarmaco, he joined Cambrex as a result of the 1994 acquisition of Nordic and Profarmaco. In 1989, he joined Nordic as President and CEO for Nordic's Chemistry Business. From 1986 to 1989, he worked for the agricultural division of Berol Europe Ltd. Mr. Guccione was appointed Senior Vice President, Corporate Development in January 2001. Mr. Guccione joined the Company in December 1995 as Vice President, Corporate Development. Prior to joining the Company, from 1993 to 1995, he held the position of Vice President and General Manager of the International Specialty Products (ISP) Personal Care Division. He also served as Director of Corporate Development for ISP. Dr. Carroll joined the Company in September 1997 as Vice President, Technology. Mr. Carroll had been with Bristol-Myers Squibb for 14 years, most recently as Vice President, Chemical Development for Bristol-Myers Squibb Technical Operations. Prior to working for Bristol-Myers Squibb, Dr. Carroll was with Pfizer, Inc. in Groton, CT. Mr. Bird was appointed Vice President, Business Development, Life Sciences in January 2001. Prior to that, Mr. Bird served as President, Biosciences Group since July 1998. Mr. Bird joined the Company in June 1997, as President of Nepera, Inc. He was previously President of the consulting firm of Bavier, Bulgar and Goodyear since 1994. Prior to that, Mr. Bird maintained various vice presidential positions with Commercial Intertech Corporation in their Fluid Purification Group. Mr. Antonelli was appointed Vice President and Treasurer in April 1999. Mr. Antonelli was promoted to the position of Treasurer in April 1998. He joined the Company in June 1995 as Director of Taxes. Prior to joining the Company, Mr. Antonelli was Corporate Tax Manager at InterMetro Industries, a worldwide manufacturer and distributor of storage and shelving systems. Mr. Antonelli is a Certified Public Accountant who has worked for PriceWaterhouse, KPMG and Parente Randolph. Mr. Hopkins joined the Company in January 1999 as Vice President and Controller. Prior to joining the Company, from 1988 to 1998, he held various senior financial positions with ARCO Chemical Company, a manufacturer and marketer of specialty chemicals and chemical intermediates. Mr. Hopkins is a Certified Public Accountant and was an Audit Manager for Coopers & Lybrand prior to joining ARCO Chemical. Dr. Henderson was appointed President of the Cambrex Fine Chemical Business Unit in October of 2000. Dr. Henderson joined the Company in July 1994 as Managing Director of Seal Sands Chemicals Limited. He has also held the position of Managing Director of both Irotec Laboratories and Conti BPC. Prior to joining Cambrex, Dr. Henderson had been with Pentagon Chemicals Limited, a manufacturer of fine and specialty chemicals, for 14 years holding various positions including Technical Director, Operations Director and Managing Director. Mr. Congiusti was appointed Vice President, Information Services in November 1998. Mr. Congiusti joined the Company in September 1994 as Director, Information Services. Prior to joining the Company, from --------------- (dollars in thousands, except share data) 11 13 1984 to 1994, he held various senior information systems management positions at International Specialty Products and American Cyanamid Company. Mr. Russolo was appointed President, Cambrex Generic Business Unit in November 2000 in addition to his responsibilities as Managing Director of Profarmaco, a position he has held since January 1982. Before 1982, he held positions within Profarmaco since 1971 with different charges in the technical area. Mrs. Lekander was appointed President, Innovator Pharmaceutical Business Unit in January 2000. She was promoted to Managing Director of Nordic Synthesis in 1996. Previous to that she held a position as General Manager, Pharma Chemicals Division. From 1980 when Mrs. Lekander joined Nordic Synthesis until 1994, when the Company was acquired by Cambrex, Mrs. Lekander held several positions in marketing, business development and general management. Mr. Baldwin was named Chairman Emeritus on October 28, 1999. Mr. Baldwin was Chairman of the Board from July 1991 to October 28, 1999, and a Director of the Company since it began business in December 1981. On January 26, 1995, Mr. Baldwin announced his retirement, effective April 1, 1995, as Chief Executive Officer of the Company, a position he also held since December 1981. Mr. Baldwin retired as an employee of the Company effective April 30, 1995. He is a member of the Environmental and Governance Committees of the Company's Board of Directors, and he is a director of Church & Dwight Co., Inc. and Congoleum Corporation. PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Effective March 5, 1998 the Company's Common Stock, $.10 par value, was listed on the New York Stock Exchange (NYSE), continuing under the symbol CBM. From November 15, 1990 to March 5, 1998, the Company's Common Stock had been traded on the American Stock Exchange (AMEX). The following table sets forth the closing high and low sales price of the Common Stock as reported on the NYSE:
2000 HIGH LOW ---- ------ ------ First Quarter.............................................. $43.50 $31.81 Second Quarter............................................. 45.02 37.88 Third Quarter.............................................. 49.44 31.50 Fourth Quarter............................................. 47.94 33.19
1999 HIGH LOW ---- ------ ------ First Quarter.............................................. $24.81 $20.56 Second Quarter............................................. 26.25 22.06 Third Quarter.............................................. 28.31 23.81 Fourth Quarter............................................. 34.44 24.63
As of March 15, 2001, the Company estimates that there were approximately 5,700 beneficial holders of the outstanding Common Stock of the Company. The quarterly dividend on common stock was $0.03 for 2000 and 1999. ITEM 6 SELECTED FINANCIAL DATA. The following selected consolidated financial data of the Company for each of the years in the five year period ended December 31, 2000 are derived from the audited financial statements. The consolidated financial statements of the Company as of December 31, 2000 and December 31, 1999 and for each of the years in the three year period ended December 31, 2000 and the report of independent accountants thereon are included elsewhere in this annual report. The data presented below should be read in conjunction with the financial --------------- (dollars in thousands, except share data) 12 14 statements of the Company and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
YEARS ENDED DECEMBER 31, ------------------------------------------------------ 2000(1) 1999(2) 1998(3) 1997(4)(5) 1996 -------- -------- -------- ---------- -------- (IN THOUSANDS, EXCEPT PER-SHARE DATA) INCOME DATA: Gross sales................................. $492,544 $484,560 $441,683 $380,083 $369,479 Net revenues................................ 484,246 481,388 457,241 374,215 359,385 Gross profit................................ 177,495 167,163 163,417 113,962 101,336 Selling, general and administrative......... 82,204 77,729 76,594 52,688 45,879 Research and development.................... 14,267 14,255 13,956 10,600 9,183 Vitamin B-3 provision....................... -- 6,000 -- -- -- Non-recurring in-process R&D charge......... -- -- -- 14,000 -- Operating profit............................ 81,024 69,179 72,867 36,674 46,274 Interest expense, net....................... 11,487 9,723 10,227 5,330 5,799 Other (income) expense, net................. (329) 555 945 (1,263) (194) Income before taxes......................... 69,866 58,901 61,695 32,607 40,669 Net income.................................. 49,605 38,132 39,102 17,776 28,225 EARNINGS PER SHARE DATA: Earnings per common share and common share equivalents: Basic..................................... 1.98 $ 1.55 $ 1.62 $ 0.75 $ 1.22 Diluted................................... 1.90 $ 1.49 $ 1.54 $ 0.73 $ 1.19 Weighted average shares outstanding: Basic..................................... 25,015 24,572 24,194 23,627 23,214 Diluted................................... 26,157 25,613 25,412 24,419 23,792 DIVIDENDS PER COMMON SHARE.................. $ 0.12 $ 0.12 $ 0.11 $ 0.10 $ 0.09 BALANCE SHEET DATA: (AT END OF PERIOD) Working capital........................... $143,948 $163,165 $156,297 $116,743 $ 62,912 Total assets.............................. 681,100 673,647 617,054 552,426 404,444 Long-term obligations..................... 168,591 225,922 191,372 194,325 60,152 Total stockholders' equity................ 337,621 295,365 276,853 225,954 229,045
--------------- (1) Includes the results of Conti BC NV from the date of acquisition effective March 2000, the results of Lumitech Limited from the date of acquisition effective July 24, 2000 and the results of the Arizona Chemical products from the date of license effective August 2000. (2) Includes the results of Irotec Laboratories, Ltd. from the date of acquisition effective March 1999 and the results of BioWhittaker Molecular Applications, Inc. from the date of acquisition effective July 1999. (3) Includes royalty income of $19,298 in net revenues related to a technology license agreement with Mylan Laboratories for the use of intellectual property. (4) Includes the results of BioWhittaker, Inc. from the date of acquisition effective October 1997. (5) Includes the non-recurring charge for in-process research and development associated with the acquisition of BioWhittaker. --------------- (dollars in thousands, except share data) 13 15 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items from the selected consolidated financial information as a percentage of gross sales.
YEARS ENDED DECEMBER 31, ------------------------- 2000 1999 1998 ----- ------ ------ Gross sales................................................. 100% 100.0% 100.0% Net revenues................................................ 98.3 99.3 103.5* Gross profit(1)............................................. 36.0 34.5 37.0 Selling, general and administrative......................... 16.7 16.1 17.3 Research and development.................................... 2.9 2.9 3.2 Vitamin B-3 accrual......................................... -- 1.2 -- Operating profit............................................ 16.5 14.3 16.5 Interest expense............................................ 2.3 2.0 2.3 Other (income) expense, net................................. -- 0.1 0.2 Net income.................................................. 10.1 7.9 8.9
--------------- * Includes royalty income of $19,298 (1) Gross profit percentage is based on Gross 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 years ended December 31, 2000, 1999 and 1998, as well as the gross profit by product segment for 2000 and 1999.
YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- GROSS SALES Human Health............................................. $233,886 $225,660 $194,766 Biosciences.............................................. 96,232 83,887 65,968 Animal Health/Agriculture................................ 56,220 55,695 56,285 Specialty and Fine Chemicals............................. 106,206 119,318 124,664 -------- -------- -------- Total Gross Sales.......................................... $492,544 $484,560 $441,683 ======== ======== ======== Total Net Revenues......................................... $484,246 $481,388 $457,241* ======== ======== ======== Total Gross Profit......................................... $177,495 $167,163 $163,417 ======== ======== ========
--------------- * Includes royalty income of $19,298
YEARS ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ GROSS SALES DISTRIBUTION Human Health.............................................. 47.5% 46.6% 44.1% Biosciences............................................... 19.5% 17.3% 14.9% Animal Health/Agriculture................................. 11.4% 11.5% 12.8% Specialty and Fine Chemicals.............................. 21.6% 24.6% 28.2% ----- ----- ----- Total Gross Sales Distribution.............................. 100.0% 100.0% 100.0% ===== ===== =====
--------------- (dollars in thousands, except share data) 14 16 2000-1999 GROSS SALES & GROSS PROFIT BY PRODUCT SEGMENT
2000 1999 ------------------------------ ------------------------------ GROSS GROSS GROSS GROSS GROSS GROSS SALES PROFIT PROFIT % SALES PROFIT PROFIT % -------- -------- -------- -------- -------- -------- Human Health.......................... $233,886 $ 91,145 39.0% $225,660 $ 83,603 37.0% Biosciences........................... 96,232 50,815 52.8% 83,887 42,088 50.2% Animal Health/Agriculture............. 56,220 9,829 17.5% 55,695 12,045 21.6% Specialty and Fine Chemicals.......... 106,206 25,706 24.2% 119,318 29,427 24.7% -------- -------- -------- -------- Total....................... $492,544 $177,495 36.0% $484,560 $167,163 34.5% ======== ======== ======== ========
2000 COMPARED TO 1999 Gross sales in 2000 increased 1.6% to $492,544 from $484,560 in 1999. Sales in the Human Health (up 3.6%), Biosciences (up 14.7%), and Animal Health/Agriculture (up 1%) segments increased compared to 1999 and more than offset the decrease in the Specialty and Fine Chemicals Segment (down 11%). The effect of foreign currency exchange rates on gross sales for the year resulted in a negative impact on sales of 3.4% or $16,658 compared to 1999. Gross sales would have been $509,202 using 1999 exchange rates compared to 1999 sales of $484,560. The unfavorable effects of foreign currencies are attributable primarily to significant exchange rate fluctuations in the Italian Lira, Swedish Krona, Pound Sterling and Irish Punt against the U.S. dollar in 2000. The Human Health Segment gross sales of $233,886 were $8,226 (3.6%) above 1999 due primarily to sales generated by the acquisition of Irotec in Ireland in March 1999 and Conti in Belgium in March 2000, new U.S. business related to a cardiovascular reformulation, as well as other new products, and increased sales of a cough suppressant ingredient. These increases were partially offset by lower sales of gastro-intestinal products and the unfavorable impact of foreign currency which reduced segment sales 5.0%. The Company also eliminated certain lower margin x-ray products which were under pricing pressure. The BioSciences Segment gross sales of $96,232 were $12,345 (14.7%) above 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 and electrophoresis products. The segment sales were lower as a result of decreased emphasis on serum and allergy/diagnostic sales coupled with supply issues for LAL (endotoxin detection) and certain cell products. The Animal Health/Agriculture Segment gross sales of $56,220 were $525 (1%) above 1999. This increase was mainly due to increased sales of agricultural intermediates; primarily 2-Cyanopyridine and pyridine derivatives. Animal Health products were also above 1999 due to increased shipments of a poultry feed additive. These increases were partially offset by lower Vitamin B-3 sales due to reduced shipments to the animal feed markets and lower prices compared to 1999. The Specialty and Fine Chemicals Segment gross sales of $106,206 were $13,112 (11%) below 1999 due to lower specialty additive revenues used in plastic resins and fuel oil, castor oil based products sold to the commodity markets, and encapsulants used in telecommunications. Export sales from U.S. businesses of $50,910 in 2000 compared to $40,610 in 1999. International sales from our European operations totaled $230,476 in 2000 compared to $218,389 in 1999. Total gross profit of $177,495 was $10,332 above 1999 due to the improved gross margin on the Human Health Segment sales due primarily to increased volume, favorable product mix and lower spending, the Biosciences Segments' operating efficiencies and full year impact of the second quarter 1999 acquisition of BioWhittaker Molecular Applications. These increases were partially offset by declines in the Animal health/ Agriculture Segment, due to plant operational problems, higher raw material and energy costs, and the --------------- (dollars in thousands, except share data) 15 17 Specialty and Fine Chemicals segment due primarily to lower plant volume. The gross margin for 2000 was 36.0% versus 34.5% in 1999. Selling, general and administrative expenses as a percentage of gross sales were 16.7% in 2000 versus 16.1% 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 Chemical, and Animal Health/Agriculture businesses, as well as a first quarter insurance recovery related to previously incurred environmental expenses. Research and development expenses of $14,267 were 2.9% of gross sales in 2000, and were at the same levels as 1999. The operating profit in 2000 was $81,024, an increase of 17.1% (7.7% excluding the effect of Vitamin B-3 accrual) compared to 1999. This increase is due to the increased sales and improved gross margin. Net interest expense of $11,487 in 2000 reflected an increase of $1,764 from 1999 as a result of the additional financing for acquisitions and increased interest rates. The average interest rate was 6.7% in 2000 versus 6.1% in 1999. The provision for income taxes in 2000 resulted in an effective rate of 29% versus 32% (excluding the effect of the $6,000 Vitamin B-3 accrual in 1999). The decrease in the tax rate was due to the favorable outcome of tax audits, R&D tax credit programs and reconciliation of actual tax filings with previous accruals. In addition, the Company continues to benefit from international tax treaties and foreign income taxed at a lower overall effective tax rate as compared to the U.S. statutory rate. The Company's net income in 2000 increased to $49,605 compared with net income of $44,132 in 1999 (excluding the impact of the $6,000 Vitamin B-3 accrual in 1999). 1999 COMPARED TO 1998 Gross sales in 1999 were $42,877 (10%) above 1998. Increases occurred in Human Health and Biosciences. Specialty and Fine Chemicals decreased compared to 1998, and Animal Health/Agriculture was at the same level as the prior year. The effect of foreign currency exchange rates on gross sales for the year resulted in a negative impact on sales of $2,482 compared to 1998. Gross sales for 1999 would have been $487,042 using 1998 exchange rates compared to 1998 sales of $441,683. The unfavorable effects of foreign currencies are attributable primarily to significant exchange rate fluctuations in the Italian Lire against the U.S. dollar in 1999. The Swedish Krona, Pound Sterling and Irish Punt were also negatively affected in 1999. The Human Health Segment gross sales of $225,660 were $30,894 (16%) above 1998. This segment's increase was in Active Pharmaceutical Ingredients, which were up $34,791 (29%). Personal Care Ingredients were down $2,071 (12%) and Catalysts were down $1,331 (16%) from 1998. Active Pharmaceutical Ingredient sales of $155,250 were $34,791 (29%) above the prior year due to strong demand for our gastro-intestinal products used for treating ulcerative colitis, increased shipments of central nervous system and cardiovasular preparations, new products, and sales from the acquisition of Irotec in March 1999 of $14,587. Active Pharmaceutical Ingredients include active ingredients used in products for gastro-intestinal, cardiovascular, endocrine, central nervous system, respiratory, diuretics, anti-infective, anti- inflammatory, immunology and various other uses. Pharmaceutical Intermediate sales of $25,995 were roughly at the same level as 1998 with new products used for a cholesterol reducing drug and central nervous system applications, as well as additional products from the Irotec acquisition, offsetting no sales of aminodioxepin (AOA) ($7,600 in 1998), a drug intermediate used in the production of a protease inhibitor --------------- (dollars in thousands, except share data) 16 18 for the treatment of AIDS, due to the customer changing their production method. Personal Care Ingredients of $14,706 were $2,071 (12%) below 1998 due to reduced Pyridine sales for the pharmaceutical market both in the U.S. and for the export market. Catalyst sales used in the pharmaceutical market of $6,950 were $1,331 (16%) below 1998 levels due to lower sales of Vitride. The Biosciences Segment gross sales of $83,887 were $17,919 (27%) above 1998 due to increased shipments of cell culture and endotoxin detection products. The acquisition of BioWhittaker Molecular Applications, Inc. (formerly the BioProducts Business of FMC Corporation) in July 1999 added $11,652 in sales to this segment, and includes products for fragment analysis, sequencing, gel bond film and chromatography. This segment consists principally of cell culture products, including living cell cultures, cell culture media and cell culture media supplements, as well as endotoxin detection products. Sales for 1999 from cell culture products of $47,434 were $3,659 (8%) above the prior year, and sales from endotoxin detection products of $21,864 were $3,012 (16%) above the prior year due to increased shipments. The Animal Health/Agriculture Segment gross sales of $55,695 were $590 (1%) below the 1998 level. Sales of Vitamin B-3 decreased $3,659 (29%) and Animal Health products decreased $2,601 (15%). These decreases were offset by agricultural intermediate sales, which increased $5,670 (22%). Vitamin B-3 sales of $9,155 were $3,659 (29%) below 1998 due to reduced shipments to the animal feed markets and lower prices compared to 1998. Animal Health product sales of $15,013 were $2,601 (15%) below 1998, due to slower exports made by a major customer caused by the continued economic slowdown in Pacific Rim countries. Agricultural Intermediate sales of $31,527 were up $5,670 (22%) due to new applications by a major customer for use in crop protection. The Specialty and Fine Chemicals Segment gross sales of $119,318 were $5,346 (4%) below 1998. Sales of Performance Enhancing Chemicals were $5,412 (7%) below 1998 levels and Polymer Systems remained at 1998 levels. Performance Enhancing Chemical sales of $76,441 were $5,412 (7%) below 1998 levels. Key decreases were in sales of pyridine products used in specialty additives, Suconox (used as an anti-oxidant in plastic resins), and ASA's (alkenyl succinic anhydrides used in the fuel oil industries as additives). Polymer system sales of $42,877 were up $66 due to additional customers for encapsulants used in telecommunications. These increases were offset by reduced demand for castor based polymer and telecommunication products, and the Company's decision not to sell into low margin resale markets. Export sales from U.S. businesses were $40,610 compared with $42,722 in 1998. International sales, comprised of all sites from our operations in Europe, totaled $192,038 compared with $156,844 in 1998. Total gross profit of $167,163 was $3,746 above 1998 due to improved gross margins in Biosciences, Animal Health/Agriculture and the Specialty Fine Chemicals, The Human Health segment gross profit was lower than 1998 due to the inclusion in 1998 of $19,298 in royalty income. This royalty income ended in December 1998 with the termination of the exclusive portion of the License Agreement with Mylan Laboratories. The Company's gross margin percentage in 1999 was 34.5% versus 37.0% in 1998. Excluding the royalty income, the gross margin percentage in 1998 was 32.6%. Selling, general and administrative expenses as a percentage of gross sales was 16.1% in 1999, compared to 17.3% in 1998. This decrease was mainly due to the reduction of $3.3 million in 1999 compared to 1998 for administrative costs at the Corporate group and a reorganization at some of the Specialty Chemical sites which was started in 1998. Increases in marketing and sales were due to additional promotional and compensation expenses attributed to upgrading biosciences marketing efforts in the U.S. and Europe. In 1999, the Company incurred an additional $194 in environmental expenses and reversed $1,200 from the reserve, thereby decreasing the total reserve by $1,394. In addition, the Company settled certain environmental claims involving the Cosan Chemical Company (a subsidiary) with insurance companies for $1,150. The Company --------------- (dollars in thousands, except share data) 17 19 conducts periodic reviews of its environmental and litigation matters, prepares estimates of the range of potential future costs of each matter wherever possible, and adjusts the accruals for environmental contingencies as circumstances warrant. Research and Development expenses of $14,255 were 2.9% of gross sales in 1999 versus $13,956 (3.2% of gross sales) in 1998. The decreased percentage was due to reduced contract research and reduced R&D spending by the Zeeland, Michigan facility due to a reorganization of the Specialty Chemical sites. Total spending increased due to the biosciences spending at BioWhittaker Molecular Applications, Inc. (formerly the BioProducts division of FMC Corporation). An accrual of $6,000 was recorded as of December 31, 1999 to cover the anticipated government settlements, related litigation, and legal expenses associated with Cambrex's subsidiary, Nepera, alleged role in Vitamin B-3 anti-trust violations from 1992 to 1995. Vitamin B-3 sales during this period account for approximately 2% of Cambrex volume at low gross margins. The operating profit in 1999 was $75,179 versus $72,867 in 1998 (excluding the effect of the Vitamin B-3 accrual of $6,000). Net interest expense of $9,723 in 1999 reflected a decrease of $504 from 1998. This decrease was due to the reduced interest rate in 1999. The average interest in 1999 was 6.1% versus 6.5% in 1998. Other expense of $555 for 1999 was lower than the $945 in 1998. Included in other expense for 1998 were asset write-offs at our Zeeland, Michigan facility of $522. The provision for income taxes for 1999 resulted in an effective rate of 32% (excluding the effect of the Vitamin B-3 provision of $6,000, including a benefit of $1,493 for the Italian Substitute Tax) versus 31% in 1998 (excluding the Italian Substitute Tax expense of $3,420). The Company's net income for 1999 increased to $44,132 (excluding the effect of the Vitamin B-3 accrual of $6,000) compared with a net income of $39,102 in 1998. Net income in 1999, including the Vitamin B-3 accrual, was $38,132. LIQUIDITY AND CAPITAL RESOURCES Net cash flow from operations was $88,672 for the year ended December 31, 2000 compared with $88,011 in 1999. The increase in cash flow is primarily due to increased revenues, as well as increased current liabilities and lower payments for income taxes, partially offset by higher inventories. Cash flows used in investing activities included capital expenditures of $39,456, and the acquisition of Conti BC NV, Lumitech Limited and Arizona Chemical product line. Cash flows used in financing activities of $53,300 included net repayment of debt of $55,147 and payment of $2,991 in dividends partially offset by $11,150 in proceeds from the exercise of stock options. Capital expenditures were $39,456 in 2000, $30,529 in 1999 and $43,007 in 1998. 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, a new Q.C. laboratory at Profarmaco Srl in Italy and the new Technical Center of Excellence in New Jersey. On September 16, 1997, the Company entered into a new five year Credit Agreement (the "Agreement") with a bank group headed by The Chase Manhattan Bank as Administrative Agent and The First National Bank of Chicago as Documentation Agent. The bank group has a total of 13 domestic banks and 8 international banks. The Agreement provides the Company with a $400,000 borrowing facility. The new Agreement replaces the previously existing Revolving Credit Agreement with NBD Bank, N.A. Under this agreement, the Company has pledged 66% of the common stock of the Company's foreign subsidiaries as collateral. The Agreement permits the Company to choose between various interest rate options. Under the Agreement, the interest rate options available to the Company are: (a) U.S. Prime rate or --------------- (dollars in thousands, except share data) 18 20 (b) LIBOR plus the applicable margin (ranging from .225% to .5% or (c) Competitive Bid at a LIBOR Rate Borrowing or a Fixed Rate Borrowing to be determined by auction. The applicable margin is adjusted based upon the Funded Indebtedness to Cash Flow Ratio of the Company. Additionally, the Company pays a commitment fee of between .15% to .25% on the entire portion of the Agreement. On September 18, 1997, the Company utilized $60,000 of the Agreement in order to repay the then outstanding balance under the previously existing Revolving Credit Agreement. On September 30, 1997, the Company borrowed $126,000 to finance the acquisition of the outstanding common stock of BioWhittaker. Of this amount, $116,000 was utilized on September 30, 1997 to acquire the 93% of BioWhittaker shares which had been tendered at that date. The Company subsequently utilized the remaining portion to finance the acquisition of the remaining 7% of BioWhittaker on October 3, 1997. The undrawn borrowing availability under the Agreement as of December 31, 2000 and 1999 was $235,500 and $181,500 respectively. There is $164,500 outstanding as of December 31, 2000. Management is of the opinion that these amounts, together with cash flows from operations, are adequate for meeting the Company's operating, financing and capital requirements. Management believes that existing sources of capital, together with cash flows from operations, will be sufficient to meet foreseeable cash flow requirements. FINANCIAL INSTRUMENTS The Company is exposed to market risks arising from adverse changes in interest rates and foreign currency exchange rates. In the normal course of business, the Company uses a variety of techniques and instruments, including derivatives, as part of its overall risk management strategy. Currency Risk Management 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, Euro currency, and British pound sterling. The Company currently uses foreign currency exchange forward 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 at December 31, 2000, excluding $7,213 of inter-company contracts, was $41,495, which the Company estimates to be approximately 60% of the non-local currency exposure during the period. Unrealized foreign exchange contract losses do not subject the Company's actual results to risk as gains or losses on these contracts generally offset gains or losses on the transactions that are hedged. Given the unlikely scenario that the operating companies' non-local currency collections match their forecast, and that all collections move 10% against their local currencies, no more than $3,200 of pre-tax profits for a twelve-month period would be at risk. This is based on a non-hedged risk of $32,292. This residual risk allows for an over-forecasting margin of error and prevents over hedging of actual operating risk. As of December 31, 2000, the combined non-local currency forecasted net collections amounted to $112,000. Offsetting this exposure are the expected $31,000 U.S. dollar inter-company payments from the combined European sites. The remaining $81,000 forecasted exposure was partially hedged ($48,708) with major banks to reduce the non-hedged risk to $32,292. Interest Rate Management The Company's interest paid to support the debt increased over the past year due primarily to higher rates. Each of the interest rate options in the Revolving Credit Agreement includes floating rates. This arrangement has the advantage of making lower interest rates available in a declining market. However, it also exposes the company to any upward swings in interest rates. For example, based on the company's current net debt outstanding, an annual interest rate increase of 100 basis points would increase interest expense and thus --------------- (dollars in thousands, except share data) 19 21 decrease the company's after-tax profitability by $975 after tax. Fortunately, movement in interest rates is a risk that can be controlled. The Company has employed a plan to control interest rate risk. To limit the risk of interest rates rising above a tolerable level, the Company would pay a premium now in order to obtain a fixed interest rate at a predetermined cost in the future. That premium, or Swap, stabilizes interest costs by converting floating or variable rates to fixed rates through a contract with a financial institution. We monitor the Company's debt position and market trends to protect it from any unforeseen shifts in interest rates. As of December 31, 2000, the Company had eight interest rate Swaps in place with an aggregate notional value of $85,000, at an average rate of 5.92%, and with varying maturity dates through the year 2003. The Company's strategy has been to cover approximately 40% of outstanding bank debt with interest rate protection. 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 $2,300 and $3,400 at December 31, 2000 and 1999, respectively, for costs associated with the study and remediation of Superfund sites and the Company's current and former operating sites for matters that are probable and reasonably estimable. Based on currently available information and analysis, the Company's accrual represents management's best estimate of what it believes are the reasonably possible environmental cleanup related costs of a non-capital nature. During the past three-year period, cash payments for environmental cleanup related matters were $0, $200 and $1,800 for 2000, 1999 and 1998, respectively. There were no provisions for environmental contingencies during the past three-year period. The Company reduced reserves by approximately $1,100 and $1,200 during the third quarters of 2000 and 1999, respectively, as a result of revised estimates. In addition, the Company settled certain environmental claims involving the Cosan Chemical Corporation (a subsidiary) with insurance companies for $1,812 in 2000 and $1,150 in 1999. 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 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. 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 --------------- (dollars in thousands, except share data) 20 22 31 states 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. On February 9, 2001, a federal court in Washington, DC entered an Order and Stipulated Permanent Injunction as part of a settlement of the FTC and Attorneys General's suits. Under these settlement documents Mylan has agreed to pay over $140 million on its own behalf and on behalf of most of the other defendant companies including Cambrex and Profarmaco. In the Order and Injunction, the settling defendants also agreed to monitor certain future conduct. The Company strongly believes that its licensing arrangements with Mylan are in accordance with regulatory requirements and will vigorously defend the various other lawsuits and class actions. However, the Company and Mylan have terminated the exclusive license 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 its final generic product. Some private litigation will continue. Until recently, Mylan had been fully covering the costs for the defense and indemnity of Cambrex and Profarmaco under certain obligations set forth in the license agreements. Cambrex has now agreed to cover separate legal defense costs incurred for Cambrex and Profarmaco on a going forward basis beginning August 1, 2000. These costs are not expected to be significant. 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 with the Government concerning Nepera's alleged role in Vitamin B-3 violations from 1992 to 1995. On October 13, 2000, the 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 B-3 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, was paid in February 2001. Nepera has been named as a defendant, along with several other companies, in a number of private civil actions brought on behalf of alleged purchasers of Vitamin B-3. An accrual of $6,000 was recorded in the fourth quarter 1999 to cover the anticipated government settlement, related litigation, and legal expenses. The balance of this accrual as of December 31, 2000 was $5,301. This accrual has been recorded in Accounts Payable and Accrued Liabilities. 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. 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 --------------- (dollars in thousands, except share data) 21 23 Statement No. 133" (SFAS 137). SFAS 137 defers the effective date of FASB 133 for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). In addition, Statement of Financial Accounting Standard No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities" was issued in June 2000 which amended certain accounting and reporting standards of SFAS 133. SFAS 133, as amended, requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The fair value hedge transactions in which the Company is hedging changes in an asset's, liability's or firm commitment's fair value; changes in the fair value of the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the period in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current-period earnings. Adoption of this statement is not expected to have a material impact on the Company's financial statements. 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. SAB 101 did not have a material impact on the Company's financial statements. 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. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following consolidated financial statements and selected quarterly financial data of the Company are filed under this item:
PAGE NUMBER (IN THIS REPORT) ---------------- Report of Independent Accountants........................... 23 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... 24 Consolidated Income Statements for the Years Ended December 31, 2000, 1999 and 1998................................... 25 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998.............. 26 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.......................... 27 Notes to Consolidated Financial Statements.................. 28 Consolidated Quarterly Financial Data (unaudited) for the Years Ended December 31, 2000 and 1999.................... 53
The consolidated financial statements and financial statement schedule are filed pursuant to Item 14 of this report. --------------- (dollars in thousands, except share data) 22 24 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cambrex Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Cambrex Corporation and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP January 19, 2001 23 25 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, -------------------- 2000 1999 -------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 21,721 $ 39,796 Trade receivables, less allowances of $1,354 and $799 at respective dates....................................... 76,394 72,227 Inventories, net.......................................... 107,616 92,439 Deferred tax assets....................................... 14,743 16,422 Prepaid expenses and other current assets................. 12,380 14,403 -------- -------- Total current assets.............................. 232,854 235,287 Property, plant and equipment, net.......................... 287,338 280,163 Intangible assets, net...................................... 149,199 149,307 Other assets................................................ 11,709 8,890 -------- -------- Total assets...................................... $681,100 $673,647 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities.................. $ 78,198 $ 57,567 Income taxes payable...................................... 9,224 11,276 Short-term debt and current portion of long-term debt..... 1,484 3,279 -------- -------- Total current liabilities................................... 88,906 72,122 Long-term debt.............................................. 168,591 225,922 Deferred tax liabilities.................................... 61,531 55,172 Other noncurrent liabilities................................ 24,451 25,066 -------- -------- Total liabilities................................. 343,479 378,282 Commitments and contingencies Stockholders' equity: Common Stock, $.10 par value; issued 27,433,170 and 26,719,924 shares at respective dates.................. 2,769 2,667 Additional paid-in capital................................ 181,698 166,288 Retained earnings......................................... 214,269 167,655 Treasury stock, at cost; 2,193,945 and 2,100,690 shares at respective dates....................................... (13,010) (10,172) Accumulated other comprehensive income/(loss)............. (48,105) (31,073) -------- -------- Total stockholders' equity........................ 337,621 295,365 -------- -------- Total liabilities and stockholders' equity........ $681,100 $673,647 ======== ========
See accompanying notes to consolidated financial statements. 24 26 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Gross sales................................................ $492,544 $484,560 $441,683 Net revenues............................................... 484,246 481,388 457,241 Cost of goods sold....................................... 306,751 314,225 293,824 -------- -------- -------- Gross profit............................................... 177,495 167,163 163,417 Selling, general and administrative...................... 82,204 77,729 76,594 Research and development................................. 14,267 14,255 13,956 Vitamin B-3 provision.................................... -- 6,000 -- -------- -------- -------- Operating profit........................................... 81,024 69,179 72,867 Other (income) expenses Interest income.......................................... (2,217) (2,286) (2,073) Interest expense......................................... 13,704 12,009 12,300 Other -- net............................................. (329) 555 945 -------- -------- -------- Income before income taxes................................. 69,866 58,901 61,695 Provision for income taxes................................. 20,261 20,769 22,593 -------- -------- -------- Net income................................................. $ 49,605 $ 38,132 $ 39,102 ======== ======== ======== Earnings per share of common stock and common stock equivalents: Basic.................................................... $ 1.98 $ 1.55 $ 1.62 Diluted.................................................. $ 1.90 $ 1.49 $ 1.54 Weighted average shares outstanding: Basic.................................................... 25,015 24,572 24,194 Diluted.................................................. 26,157 25,613 25,412
See accompanying notes to consolidated financial statements. 25 27 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ACCUMULATED ---------------------- ADDITIONAL OTHER SHARES PAR VALUE PAID-IN RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE ISSUED ($.10) CAPITAL EARNINGS STOCK INCOME/(LOSS) INCOME/(LOSS) ---------- --------- ---------- -------- -------- ------------- ------------- BALANCE AT DECEMBER 31, 1997........... 12,967,287 $1,295 $154,406 $ 96,027 $ (9,458) $(15,041) Comprehensive income/(loss) Net Income......................... 39,102 $ 39,102 -------- Other comprehensive income/(loss).................... Foreign currency translation adjustments.................... 5,522 Minimum pension liability adjustment..................... (2,031) -------- Other comprehensive income/(loss).................... 3,491 3,491 -------- Comprehensive income................. $ 42,593 ======== Cash dividends at $0.11 per share............................ (2,658) Exercise of stock options.......... 472,575 47 7,148 (462) Tax benefit of stock options exercised........................ 2,977 Shares issued to Board of Directors........................ 104 Shares issued under savings plan... 203 79 Two-for-one split.................. 13,133,462 1,313 (1,313) ---------- ------ -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1998........... 26,573,324 $2,655 $163,525 $132,471 $ (9,841) $(11,550) Comprehensive income/(loss) Net Income......................... 38,132 $ 38,132 -------- Other comprehensive income/(loss).................... Foreign currency translation adjustments.................... (19,889) Minimum pension liability adjustment..................... 366 -------- Other comprehensive income/(loss).................... (19,523) (19,523) -------- Comprehensive income/(loss).......... $ 18,609 ======== Cash dividends at $0.12 per share............................ (2,948) Exercise of stock options.......... 146,600 12 2,134 (447) Tax benefit of stock options exercised........................ 548 Shares issued to Board of Directors........................ 81 116 ---------- ------ -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1999........... 26,719,924 $2,667 $166,288 $167,655 $(10,172) $(31,073) Comprehensive income/(loss) Net Income......................... 49,605 $ 49,605 -------- Other comprehensive income/loss.... Foreign currency translation adjustments.................... (17,511) Minimum pension liability adjustment..................... 479 -------- Other comprehensive income/(loss).................... (17,032) (17,032) -------- Comprehensive income/(loss).......... $ 32,573 ======== Cash dividends at $0.12 per share............................ (2,991) Exercise of stock options.......... 713,246 102 11,150 (2,838) Tax benefit of stock options exercised........................ 4,260 ---------- ------ -------- -------- -------- -------- BALANCE AT DECEMBER 31, 2000........... 27,433,170 $2,769 $181,698 $214,269 $(13,010) $(48,105) ========== ====== ======== ======== ======== ======== TOTAL STOCKHOLDERS' EQUITY ------------- BALANCE AT DECEMBER 31, 1997........... $227,229 Comprehensive income/(loss) Net Income......................... 39,102 Other comprehensive income/(loss).................... Foreign currency translation adjustments.................... Minimum pension liability adjustment..................... Other comprehensive income/(loss).................... 3,491 Comprehensive income................. Cash dividends at $0.11 per share............................ (2,658) Exercise of stock options.......... 6,733 Tax benefit of stock options exercised........................ 2,977 Shares issued to Board of Directors........................ 104 Shares issued under savings plan... 282 Two-for-one split.................. -- -------- BALANCE AT DECEMBER 31, 1998........... $277,260 Comprehensive income/(loss) Net Income......................... 38,132 Other comprehensive income/(loss).................... Foreign currency translation adjustments.................... Minimum pension liability adjustment..................... Other comprehensive income/(loss).................... (19,523) Comprehensive income/(loss).......... Cash dividends at $0.12 per share............................ (2,948) Exercise of stock options.......... 1,699 Tax benefit of stock options exercised........................ 548 Shares issued to Board of Directors........................ 197 -------- BALANCE AT DECEMBER 31, 1999........... $295,365 Comprehensive income/(loss) Net Income......................... 49,605 Other comprehensive income/loss.... Foreign currency translation adjustments.................... Minimum pension liability adjustment..................... Other comprehensive income/(loss).................... (17,032) Comprehensive income/(loss).......... Cash dividends at $0.12 per share............................ (2,991) Exercise of stock options.......... 8,414 Tax benefit of stock options exercised........................ 4,260 -------- BALANCE AT DECEMBER 31, 2000........... $337,621 ========
See accompanying notes to consolidated financial statements. 26 28 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 --------- --------- -------- Cash flows from operations: Net income................................................ $ 49,605 $ 38,132 $ 39,102 Depreciation and amortization............................. 42,094 42,328 40,132 Vitamin B-3 provision..................................... -- 6,000 -- Reimbursement/reversal of environmental contingencies..... (2,912) (2,350) (800) Provision for inventories................................. 2,599 4,486 6,046 Deferred income tax provision............................. (5,981) (181) 2,189 Changes in assets and liabilities (net of assets and liabilities acquired): Receivables............................................ (5,260) (8,881) (2,274) Inventories............................................ (17,263) 8,893 (10,867) Prepaid expenses and other current assets.............. 2,112 (149) (2,711) Accounts payable and accrued liabilities............... 13,364 (6,036) 3,383 Income taxes payable................................... 13,873 2,366 4,407 Other noncurrent assets and liabilities................ (3,559) 3,403 2,079 --------- --------- -------- Net cash provided from operations...................... 88,672 88,011 80,686 --------- --------- -------- Cash flows from investing activities: Capital expenditures...................................... (39,456) (30,529) (43,007) Acquisition of businesses (net of cash acquired).......... (12,488) (75,336) (15,199) Other investing activities................................ 111 (841) 1,948 --------- --------- -------- Net cash (used in) investing activities................ (51,833) (106,706) (56,258) --------- --------- -------- Cash flows from financing activities: Dividends................................................. (2,991) (2,946) (2,658) Net (decrease) increase in short-term debt................ (3,754) 1,761 (1,406) Long-term debt activity (including current portion): Borrowings............................................. 45,800 52,500 37,000 Repayments............................................. (100,947) (24,291) (40,430) Proceeds from the issuance of common stock................ 11,150 2,775 10,325 Purchase of treasury stock................................ (2,838) (331) (229) Other..................................................... 280 366 (2,031) --------- --------- -------- Net cash (used in) provided from financing activities........................................... (53,300) 29,834 571 --------- --------- -------- Effect of exchange rate changes on cash..................... (1,614) (19,870) 2,059 --------- --------- -------- Net (decrease) increase in cash and cash equivalents........ (18,075) (8,731) 27,058 Cash and cash equivalents at beginning of year.............. 39,796 48,527 21,469 --------- --------- -------- Cash and cash equivalents at end of year.................... $ 21,721 $ 39,796 $ 48,527 ========= ========= ======== Supplemental disclosure: Interest paid (net of capitalized interest)............... $ 14,909 $ 11,105 $ 13,660 Income taxes paid......................................... $ 16,578 $ 20,277 $ 16,767 Noncash transactions: Additional minimum pension liability (eliminated from) charged to stockholders' equity........................ $ (479) $ (366) $ 2,031 Liabilities established under deferred compensation plan................................................... $ (1,292) $ (467) $ (868) Tax benefit on stock options exercised.................... $ 4,260 $ 548 $ 2,977 Liabilities assumed in connection with acquisition........ $ 10,454 $ 5,436 $ --
See accompanying notes to consolidated financial statements. 27 29 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (1) THE COMPANY Cambrex Corporation and Subsidiaries (the "Company" or "Cambrex") primarily provides products and services worldwide to the lifesciences industry. The Company operates in four segments, Human Health, Biosciences, Animal Health/Agriculture, and Specialty and Fine Chemicals. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Cash Equivalents Temporary cash investments with an original maturity of less than three months and virtually no risk of loss in value are considered cash equivalents. Derivative Instruments Derivative financial instruments are used by the Company primarily for hedging purposes to mitigate a variety of working capital, investment and borrowing risks. The use and mix of hedging instruments can vary depending on business and economic conditions and management's risk assessments. The Company uses a variety of strategies, including foreign currency forward contracts and transaction hedging, to minimize or eliminate foreign currency exchange rate risk associated with substantially all of its foreign currency transactions. Gains and losses on these hedging transaction are generally recorded in earnings in the same period as they are realized, which is usually the same period as the settlement of the underlying transactions. The Company uses interest rate derivative instruments only as hedges or as an integral part of borrowings. As such, the differential to be paid or received in connection with these instruments is accrued and recognized in income as an adjustment to interest expense. Inventories Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. Property, Plant and Equipment Property, plant and equipment is stated at cost, net of accumulated depreciation. Plant and equipment are depreciated on a straight-line basis over the estimated useful lives for each applicable asset group as follows: Buildings and improvements............................ 15 to 20 years Machinery and equipment............................... 5 to 10 years Furniture and fixtures................................ 3 to 5 years
When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in other (income) expense, net. Interest is capitalized in connection with the construction and acquisition of assets. The capitalized interest is recorded as part of the cost of the asset to which it relates and is amortized over the asset's estimated useful life. Total interest capitalized in connection with ongoing construction activities in 2000, 1999 and 1998 amounted to $1,307, $1,670 and $533, respectively. 28 30 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Intangible Assets Intangible assets are recorded at cost and amortized on a straight-line basis as follows: Patents................................. Amortized over the remaining life of individual patents (average 5 years) Goodwill................................ 4 to 20 years Product technology...................... 5 to 17 years Non-compete agreements.................. 5 years Trademarks and other.................... 1 to 40 years
The Company continually evaluates the reasonableness of its amortization of intangibles. If it becomes probable that expected future undiscounted cash flows associated with intangible assets are less than their carrying value, the assets are written down to their fair value. Impairment of Long-Lived Assets The Company assesses the impairment of its long-lived assets, including intangible assets, and property, plant and equipment, whenever economic events or changes in circumstances indicate that the carrying amounts of the assets may not recoverable. Long lived assets are considered to be impaired when the sum of the undiscounted expected future operating cash flows is less than the carrying amounts of the related assets. Revenue Recognition Revenues are recognized when products are shipped and title has passed to the customer. Royalties are recognized as earned in accordance with royalty agreements. Income Taxes Deferred income taxes reflect the differences between assets and liabilities recognized for financial reporting purposes and amounts recognized for tax purposes. Deferred taxes are based on tax laws currently enacted. The Company and its eligible subsidiaries file a consolidated U.S. income tax return. Certain subsidiaries which are consolidated for financial reporting are not eligible to be included in the consolidated U.S. income tax return. U.S. income taxes are provided on a repatriation of a portion of current and accumulated foreign earnings and consider applicable foreign tax credits. The repatriation of dividends occurred due to an expected tax law change, and there is no plan to repatriate dividends in the future. Cambrex has adopted a policy to indefinitely reinvest the unremitted earnings of certain non-U.S. subsidiaries, and as such, separate provisions for income taxes have been determined for these entities and U.S. taxes have not been provided on their unremitted earnings. At December 31, 2000, 1999 and 1998, the cumulative amount of unremitted earnings of non-U.S. subsidiaries was $0, $49,427, and $28,850, respectively. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the 29 31 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Environmental Costs In the ordinary course of business, like most other industrial companies, the Company is subject to extensive and changing federal, state, local and foreign environmental laws and regulations, and has made provisions for the estimated financial impact of environmental cleanup related costs. The Company's policy is to accrue environmental cleanup related costs of a noncapital nature when those costs are believed to be probable and can be reasonably estimated. The quantification of environmental exposures requires an assessment of many factors, including changing laws and regulations, advancements in environmental technologies, the quality of information available related to specific sites, the assessment stage of each site investigation, preliminary findings and the length of time involved in remediation or settlement. Such accruals are adjusted as further information develops or circumstances change. For certain matters, the Company expects to share costs with other parties. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed certain. Foreign Currency The functional currency of the Company's foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts and cash flows using average rates of exchange prevailing during the year. Adjustments resulting from the translation of foreign currency financial statements are accumulated in a separate component of stockholders' equity until the entity is sold or substantially liquidated. Gains or losses relating to transactions of a long-term investment nature are accumulated in stockholders' equity. Gains or losses resulting from foreign currency transactions are included in the results of operations as a component of other revenues in 2000, 1999 and 1998. Foreign currency net transaction gains (losses) were $(4,095), $83 and $2,019 in 2000, 1999 and 1998, respectively. Earnings Per Common Share All diluted earnings per share are computed on the basis of the weighted average shares of common stock outstanding plus common equivalent shares arising from the effect of dilutive stock options, using the treasury stock method. Earnings per share calculations are as follows:
FOR THE YEARS ENDED, ----------------------------- 2000 1999 1998 ------- ------- ------- Numerator: Income available to common stockholders............... $49,605 $38,132 $39,102 Denominator: Basic weighted average shares outstanding............. 25,015 24,572 24,194 Effect of dilutive stock options...................... 1,142 1,041 1,218 ------- ------- ------- Diluted weighted average shares outstanding........... 26,157 25,613 25,412 Basic earnings per share.............................. $ 1.98 $ 1.55 $ 1.62 Diluted earnings per share............................ $ 1.90 $ 1.49 $ 1.54
30 32 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Freight Billing and Costs The Company bills a substantial portion of freight cost incurred on shipments to customers. Freight costs and amounts billed to customers are recorded within net revenues. These amounts are not material to the Company's operating results. (3) ACQUISITIONS On March 2, 2000, the Company completed the acquisition of Conti BC 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 $451 and is being 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 are being amortized over 15-20 years. On August 29, 2000, Cambrex Corporation announced that its CasChem, Inc. subsidiary had licensed the castor oil based ester products business from Arizona Chemical, Jacksonville, FL through a perpetual licensing agreement for approximately $4.5 million. The agreement provides CasChem with process technologies, customer lists, and supply of raw materials. The ester products are used in personal care and coatings applications. The acquisition cost is included in intangible assets at December 31, 2000 and is being amortized over 10 years. As part of the transaction, CasChem entered into a five-year supply agreement with Arizona Chemical to manufacture a line of tall oil based products used in the lubricant and lithographic ink markets. On January 4, 1999, the Company acquired Poietic Technologies, Inc. ("Poietics"), the leading supplier of normal human cells of hematopoietic origin. The Company paid $2,500 cash and will pay future consideration based on the performance of the business. On March 12, 1999, Cambrex completed the acquisition of Irotec Laboratories Ltd. ("Irotec"), a supplier of active pharmaceutical ingredients (APIs) located in Cork, Ireland. Cambrex paid approximately $37,560 for the business, net of cash acquired, which was financed through the Company's cash reserves. The excess of the purchase price over the fair value of the net assets acquired was approximately $9,330 and was recorded as goodwill and is being amortized over 20 years using the straight-line method. On July 12, 1999, Cambrex completed the acquisition of FMC Corporation's BioProducts business, which has been renamed BioWhittaker Molecular Applications ("BMA"). The business, which serves the life sciences industry, is the world's largest manufacturer of electrophoresis media based on the polymer agarose. The transaction includes two operating facilities in Rockland, Maine and Copenhagen, Denmark. Camberex paid approximately $38,000 for the business, of which $31,000 was financed through the Company's revolving credit agreement and $7,000 through the Company's cash reserves. The excess of the purchase price over the fair value of the net assets acquired was approximately $25,420 and was recorded as goodwill and will be amortized over 20 years using the straight-line method. On January 9, 1998, Chiragene, a newly formed subsidiary of Cambrex Corporation, acquired substantially all of the assets of the chiral intermediate business of Celgene Corporation for approximately $11,328. The purchase agreement included an upfront payment of $7,500 paid at closing plus future royalties based upon sales. While the present value of the potential future royalties was $7,500 based upon a formula disclosed 31 33 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (3) ACQUISITIONS -- (CONTINUED) in the purchase agreement, the amount included in the purchase allocation was $3,750 which represents the minimum guaranteed royalty payouts. Purchase price in excess of the fair value of the net assets was approximately $5,000 and was recorded as goodwill and will be amortized over 15 years. On January 9, 1998, the Company borrowed $8,200 from the existing Credit Agreement, of which $7,500 was used to finance the acquisition of Chiragene. On May 12, 1998, Cambrex completed the acquisition of certain assets of the biopharmaceutical manufacturing and distribution business of Boerhinger Ingelheim Bioproduct Partnership (BIBP) for $3,871, including acquisition cost of $621. The assets acquired include a state-of-the-art cell culture and media manufacturing facility in Verviers, Belgium, and inventory for certain cell culture, endotoxin detection and molecular biology products. The majority of the acquisition was funded through cash reserves. On September 30, 1997, the Company acquired approximately 93% of the outstanding common stock of BioWhittaker for approximately $116,000. The remaining 7% of the outstanding common stock was subsequently acquired on October 3, 1997 for an additional $10,000. The acquisition price was approximately $133,500 and was financed by the Company's Credit Agreement. The excess of the purchase price over the fair value of the net assets acquired was approximately $48,000 and was recorded as goodwill and will be amortized over 20 years using the straight-line method. The allocation to in-process research and development of $14,000 represents the value of BioWhittaker's research and development efforts which had not reached commercial viability with no alternative future use and were, therefore, immediately expensed. Certain actions were taken in the third quarter of 1998 for the acquisition reorganization plan at our BioWhittaker facility of approximately $1,400 for the termination of 28 employees. This plan was part of the final purchase accounting adjustments made in the third quarter 1998. In addition, Biowhittaker favorably concluded a patent infringement dispute and has received a cash payment of approximately $5,400 in 1998. This settlement, as well as the settlement of other acquisition contingencies of approximately $1,600, are part of the final purchase accounting adjustments in the third quarter 1998. As a result of finalizing the purchase accounting, the net impact on goodwill, including the tax effect, was a reduction of approximately $900. The above acquisitions have been accounted for under the purchase method of accounting and accordingly the results of operations of the acquisitions are included in the accompanying consolidated financial statements from the date of acquisition. Assets acquired and liabilities assessed have been recorded at their fair values. (4) IMPACT OF RECENTLY ISSUED 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 FASB 133 for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). In addition, Statement of Financial Accounting Standard No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities" was issued in June 2000 which amended certain accounting and reporting standards of SFAS 133. SFAS 133, as amended, requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The fair value hedge transactions in which the Company is hedging 32 34 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (4) IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- (CONTINUED) changes in an asset's, liability's or firm commitment's fair value; changes in the fair value of the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the period in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current-period earnings. Adoption of this statement is not expected to have a material impact on the Company's financial statements. 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. SAB 101 did not have a material impact on the Company's financial statements. (5) INVENTORIES Inventories consist of the following:
DECEMBER 31, ------------------- 2000 1999 -------- ------- Finished goods.......................................... $ 44,437 $34,509 Work in process......................................... 33,601 27,214 Raw materials........................................... 25,156 26,322 Supplies................................................ 4,422 4,394 -------- ------- Total......................................... $107,616 $92,439 ======== =======
(6) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
DECEMBER 31, ---------------------- 2000 1999 --------- --------- Land................................................. $ 19,691 $ 12,908 Buildings and improvements........................... 93,660 87,914 Machinery and equipment.............................. 334,308 328,492 Furniture and fixtures............................... 11,637 9,499 Construction in progress............................. 48,456 31,721 --------- --------- Total...................................... 507,752 470,534 Accumulated depreciation............................. (220,414) (190,371) --------- --------- Net................................................ $ 287,338 $ 280,163 ========= =========
Depreciation expense amounted to $31,939, $33,118, and $30,547 for the years ended December 31, 2000, 1999 and 1998, respectively. 33 35 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (7) INTANGIBLE ASSETS Intangible assets consist of the following:
DECEMBER 31, -------------------- 2000 1999 -------- -------- Goodwill............................................... $131,895 $135,301 Other.................................................. 71,672 60,457 -------- -------- Total........................................ 203,567 195,758 Accumulated amortization............................... (54,368) (46,451) -------- -------- Net............................................... $149,199 $149,307 ======== ========
Amortization expense amounted to $10,155, $9,210 and $9,585 for the years ended December 31, 2000, 1999 and 1998, respectively. (8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The components of accounts payable and accrued liabilities are as follows:
DECEMBER 31, ------------------ 2000 1999 ------- ------- Accounts payable......................................... $53,892 $33,650 Salaries, wages and employee benefits payable............ 9,301 9,576 Vitamin B-3 provision.................................... 5,301 6,000 Other accrued liabilities................................ 9,704 8,341 ------- ------- Total.......................................... $78,198 $57,567 ======= =======
(9) INCOME TAXES Income before taxes consisted of the following:
YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Domestic...................................... $13,892 $32,912 $31,324 International................................. 55,974 25,989 30,371 ------- ------- ------- Total............................... $69,866 $58,901 $61,695 ======= ======= =======
34 36 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (9) INCOME TAXES -- (CONTINUED) The provision for income taxes consists of the following expenses (benefits):
YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Current: Federal............................................. $ 8,359 $11,587 $14,377 State............................................... 336 178 696 International....................................... 17,547 9,185 5,331 ------- ------- ------- $26,242 20,950 20,404 ------- ------- ------- Deferred: Federal............................................. (6,959) 765 (2,481) State............................................... -- 61 (167) International....................................... 978 (1,007) 4,837 ------- ------- ------- (5,981) (181) 2,189 ------- ------- ------- Total....................................... $20,261 $20,769 $22,593 ======= ======= =======
The provision for income taxes differs from the statutory Federal income tax rate of 35% for 2000, 1999 and 1998 as follows:
YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Income tax at Federal statutory rate.................. $24,453 $20,615 $21,594 State and local taxes (benefits), net of Federal income tax benefits................................. 218 239 522 Difference between Federal statutory rate and statutory rates non-U.S. income..................... (1,233) 940 (945) Reversal of valuation allowance for international NOL carryforward........................................ -- (2,414) -- Research and experimentation credits.................. (1,458) (255) (150) Non-taxable international income accrual.............. (2,653) (2,275) -- Foreign Tax Credits................................... (2,884) (97) (311) Non-deductible provision for Vitamin B-3.............. (78) 2,014 -- Other................................................. 3,896 2,002 1,883 ------- ------- ------- $20,261 $20,769 $22,593 ======= ======= =======
35 37 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (9) INCOME TAXES -- (CONTINUED) The components of deferred tax assets and liabilities as of December 31, 2000 and 1999 relate to temporary differences and carryforwards as follows:
DECEMBER 31, ------------------ 2000 1999 ------- ------- Deferred tax assets: Acquisition reserves................................... $ 636 $ 1,284 Environmental.......................................... 846 1,228 Net operating loss carryforwards....................... 2,732 -- Inventory.............................................. 1,883 4,322 Employee benefits...................................... 3,730 3,963 Receivables............................................ 187 27 Capital Assets......................................... 2,042 3,626 Other.................................................. 5,376 1,972 ------- ------- Net current deferred tax assets........................ 17,432 16,422 Valuation allowances................................... (2,689) -- ------- ------- Total net deferred tax assets.................. $14,743 $16,422 ======= ======= Deferred tax liabilities: Depreciation........................................... $33,416 $30,967 Environmental Reserves................................. -- 796 Intangibles............................................ 11,777 14,963 Italian Intangibles.................................... 2,653 4,581 Acquisition Reserve.................................... 5,477 -- Other Benefits......................................... -- 2,143 Other.................................................. 8,208 1,722 ------- ------- Total net non-current deferred tax liabilities.................................. $61,531 $55,172 ======= =======
Included within the change in the cumulative translation adjustment for the year ended December 31, 2000 is $7,104 related to the translation of deferred tax assets and liabilities of international operations. Under the tax laws of various international countries in which the Company operates, net operating losses (NOLs) may be carried forward, subject to statutory limitations, to reduce taxable income in future years. The tax effect of such international NOL carryforwards aggregated approximately $2,732 and $0 at December 31, 2000 and 1999. The change in valuation allowance for the years ended December 31, 2000 and 1999 was $2,689 and $(2,414), respectively. A valuation allowance has been established since management believes that it is not more likely than not that the full amount of deferred tax assets will be realized. During 1998, the Company made an election which allows the Italian subsidiary to deduct for tax purposes previously non-deductible intangible assets. The result of this election was a charge to 1998 earnings of $3,420 that resulted in net favorable tax benefits of $1,928 and $1,493 for 2000 and 1999, respectively, plus $2,653 projected for future years. (10) SHORT-TERM DEBT The Company has lines of credit in Italy with five local banks (the "Facility"). The Facility is short-term and provides three types of financing with the following limits: Overdraft Protection of $2,000 (Lire 4.0 36 38 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (10) SHORT-TERM DEBT -- (CONTINUED) billion), Export Financing of $4,000 (Lire 8.0 billion) and Advances on Uncleared Deposits of $1,000 (Lire 2.0 billion). The Overdraft Protection and Export Financing facilities bear interest at varying rates when utilized, however, Advances on Uncleared Deposits (Ricevute Bancarie) bear no interest. Short-term debt at December 31, 2000 and 1999 consists of the following:
DECEMBER 31, ---------------- 2000 1999 ------ ------ Export financing facility.................................. $ 724 $2,813 Other...................................................... 323 -- ------ ------ $1,047 $2,813 ====== ======
The 2000 and 1999 average interest rates were 6.9% and 6.6%, respectively. (11) LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, -------------------- 2000 1999 -------- -------- Bank credit facilities(a).............................. $164,500 $218,500 Capitalized leases(b).................................. 4,041 5,320 Notes payable.......................................... 487 2,568 -------- -------- Subtotal..................................... 169,028 226,388 Less: current portion.................................. (437) (466) -------- -------- Total........................................ $168,591 $225,922 ======== ========
(a) On September 16, 1997, the Company entered into a five year Credit Agreement (the "Agreement"). The Agreement provides the Company with a $400,000 borrowing facility. Under this Agreement, the Company has pledged 66% of the common stock of the Company's international subsidiaries as collateral. The Agreement permits the Company to choose between various interest rate options and to specify the portion of the borrowing to be covered by specific interest rate options. Under the Agreement, the interest rate options available to the Company are: (a) U.S. Prime rate or (b) LIBOR plus the applicable margin (ranging from .225% to .5%) or (c) Competitive Bid at a LIBOR Rate Borrowing or a Fixed Rate Borrowing to be determined by auction. The applicable margin is adjusted based upon the Funded Indebtedess to Cash Flow Ratio of the Company. Additionally, the Company pays a commitment fee of between .15% to .25% on the entire portion of the Agreement. The 2000 and 1999 average interest rates were 6.7% and 6.1%, respectively. On September 18, 1997, the Company utilized $60,000 of the Agreement in order to repay the then outstanding balance under the previously existing Revolving Credit Agreement. On September 30, 1997, the Company borrowed $126,000 to finance the acquisition of the outstanding common stock of BioWhittaker. Of this amount, approximately $116,000 was utilized on September 30, 1997. On October 3, 1997, an additional $12,000 was utilized to acquire the remaining 7% of BioWhittaker's common stock. During 1999, $31,000 was utilized to fund the acquisition of BioWhittaker Molecular Applications, Inc. In 2000, $12,488 was used for various acquisition activities. The undrawn borrowing availability under the Agreement as of December 31, 2000 was $235,500. 37 39 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (11) LONG-TERM DEBT -- (CONTINUED) The Agreement is subject to financial covenants requiring the Company to maintain certain levels of net worth and an interest coverage ratio, as well as a limitation on indebtedness. The Company met all of the bank covenants during 2000. (b) The Company assumed six capital leases as part of the acquisition of Irotec in 1999 of $5,436. These leases are for various plant and equipment expiring in 2006 to be repaid in 28 equal quarterly installments. There is $4,041 outstanding at December 31, 2000. The Company assumed a note payable as part of the acquisition of BioWhittaker in 1997 of $1,253. The note, bearing interest at 8%, is payable in annual installments of $340 and expires in 2001. There is $289 and $574 outstanding as of December 31, 2000 and 1999, respectively. Aggregate maturities of long-term debt are as follows: 2001........................................................ $ 437 2002........................................................ 166,527 2003........................................................ 904 2004........................................................ 904 2005........................................................ 256 Thereafter.................................................. -- -------- Total............................................. $169,028 ========
(12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS The Company uses derivative financial instruments to reduce exposures to market risks resulting from fluctuations in interest rates and foreign exchange rates. 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, forward exchange or put and call contracts. However, the Company does not anticipate non-performance by the counterparties. 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 debt amounts. The 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. The following table shows the notional amounts outstanding, maturity dates, and the weighted average receive and pay rates of interest rate swap agreements as of December 31, 2000.
WEIGHTED AVG. RATE NOTIONAL MATURITY ------------------- AMOUNTS DATE RECEIVE PAY -------- -------- -------- ----- $10,000.......................................... 2002 6.75% 5.85% $10,000.......................................... 2003 6.50% 5.77% $10,000.......................................... 2002 6.76% 5.77% $ 5,000.......................................... 2002 6.75% 6.98% $10,000.......................................... 2001 6.75% 5.80% $10,000.......................................... 2003 6.80% 6.65% $20,000.......................................... 2001 6.50% 6.60% $10,000.......................................... 2002 6.66% 5.15%
38 40 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED) 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. The fair value of these agreements were based on quoted market prices and was ($261) at December 31, 2000. Foreign Exchange Instruments The Company's policy is to enter into forward exchange contracts and/or currency options to hedge foreign currency transactions. This hedging strategy 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 international operations which are denominated primarily in U.S. dollars, Euro currency, and British pound sterling. As a matter of policy, the Company does not hedge to protect the translated results of foreign operations. 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.
2000 1999 -------------------------------------- -------------------------------------- UNREALIZED UNREALIZED NOTIONAL FAIR --------------- NOTIONAL FAIR --------------- AMOUNTS VALUE GAINS LOSSES AMOUNTS VALUE GAINS LOSSES -------- ------- ----- ------ -------- ------- ----- ------ Forward exchange contracts.......... $41,495 $41,120 $248 $623 $39,448 $40,563 $242 $1,357
The carrying amount reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported for long-term debt approximates fair value because approximately 60% of the underlying debt is at variable rates and reprices quarterly. The remaining amount of long-term debt has fixed rates through interest swap contracts. (13) STOCKHOLDERS' EQUITY The Company has two classes of common shares designated Common Stock and Nonvoting Common Stock. Authorized shares of Common Stock were 60,000,000 at December 31, 2000 and 1999. Authorized shares of Nonvoting Common Stock were 730,746 at December 31, 2000 and 1999. At December 31, 2000, authorized shares of Common Stock were reserved for issuance as follows: Stock option plans........................................ 3,710,604 Cambrex savings plan...................................... 169,544 --------- Total shares.................................... 3,880,148 =========
On May 28, 1998, the Company's Board of Directors approved a two-for-one stock split of the Company's Common Stock, $.10 par value, effected by the distribution to stockholders of record as of the close of business on June 10, 1998 of one additional share of Common Stock for each share held. All share and per share data, including stock option plan information, have been adjusted to reflect the impact of the two-for-one stock split. The effect of the split was presented within stockholders' equity at December 31, 1998 by transferring the par value for the additional shares issued from additional paid-in capital to common stock. 39 41 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (13) STOCKHOLDERS' EQUITY -- (CONTINUED) Nonvoting Common Stock with a par value of $.10, has equal rights with Common Stock, with the exception of voting power. Nonvoting Common Stock is convertible, share for share, into Common Stock, subject to any legal requirements applicable to holders restricting the extent to which they may own voting stock. As of December 31, 2000 and 1999, no shares of Nonvoting Common Stock were outstanding. The Company held treasury stock of 2,193,945 and 2,100,690 shares at December 31, 2000 and 1999, respectively, and are used for issuance to the Cambrex Savings Plan. The Company has authorized 5,000,000 shares of Series Preferred Stock, par value $.10, issuable in series and with rights, powers and preferences as may be fixed by the Board of Directors. At December 31, 2000 and 1999, there was no preferred stock outstanding. (14) STOCK OPTIONS The Company has eight stock-based compensation plans currently in effect. The 1983 Incentive Stock Option Plan ("1983 Plan") provides for the grant of options intended to qualify as incentive stock options to management and other key employees. The 1987 Stock Option Plan ("1987 Plan") provides for the granting to key employees both non-qualified stock options and incentive stock options. The 1989 Senior Executive Stock Option Plan ("1989 Plan") provides for the grant of options intended to qualify as additional incentives to the Company's Senior Executive Officers. The 1992 Stock Option Plan ("1992 Plan") provides for the granting to key employees both non-qualified stock options and incentive stock options. The 1993 Senior Executive Stock Option Plan ("1993 Plan") provides for the grant of options intended to qualify as additional incentives to the Company's Senior Executive Officers. The 1994 Stock Option Plan ("1994 Plan") provides for the granting to key employees both non-qualified and incentive stock options. The 1994 Plan also provides for the granting of non-qualified stock options to non-employee directors. The 1996 Performance Stock Option Plan ("1996" Plan) provides for the granting of options intended to qualify as additional incentives to management and other key employees. The 1996 Plan also provides for the granting of non-qualified stock options to non-employee directors. Options granted under the above plans vest and become exercisable nine years after date of grant, subject to acceleration if the publically traded price of the Company's common stock equals or exceeds levels determined by the Committee within certain time periods or in the event of a change in control. On April 23, 1998, the Company's stockholders approved The 1998 Performance Stock Option Plan (the "1998 Plan"), which provides for the granting of options intended to qualify as additional incentives to directors and key employees. Options granted under the 1998 Plan shall vest and become exercisable nine years after the date of grant, subject to acceleration if the publicly traded price of the Company's Common Stock equals or exceeds levels determined by the Committee within certain time periods or in the event of a change in control. Options shall have a term of no more than ten years from the date of grant. On April 27, 2000, the Company's Board of Directors approved The 2000 Performance Stock Option Plan (the "2000 Plan"), which provides for the granting of options intended to qualify as additional incentives to directors and key employees. Options granted under the 2000 Plan shall vest and become exercisable nine years after the date of grant, subject to acceleration if the publicly traded price of the Company's Common Stock equals or exceeds levels determined by the Committee within certain time periods or in the event of a change in control. Options shall have a term of no more than ten years from the date of grant. In addition, stock option awards may be transferred to a member of the Participant's immediate family or to a trust or similar vehicle for the benefit of such transferee. The Company applies the provisions of APB Opinion No. 25 and related Interpretations in accounting for its stock-based compensation plans. Statement of Financial Accounting Standards No. 123 "Accounting for 40 42 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (14) STOCK OPTIONS -- (CONTINUED) Stock-Based Compensation" (SFAS 123) establishes financial accounting and reporting standards for stock-based employee compensation plans. The Company has adopted the disclosure only provisions available under SFAS 123. Accordingly, no compensation cost has been recognized for stock option plans under SFAS 123. Had compensation cost for the Company's grants for stock-based compensation plans been determined based on the fair value at the grant dates for awards under these plans consistent with SFAS 123, the Company's net income, and net income per common share for 2000, 1999 and 1998 would approximate the pro forma amounts below :
2000 1999 1998 ------- ------- ------- Net income -- as reported................................. $49,605 $38,132 $39,102 ======= ======= ======= Net income -- pro forma................................... $40,736 $34,357 $35,951 ======= ======= ======= Diluted earnings per share -- as reported................. $ 1.90 $ 1.49 $ 1.54 ======= ======= ======= Diluted earnings per share -- pro forma................... $ 1.56 $ 1.34 $ 1.41 ======= ======= =======
The pro forma compensation expense of $8,869, $3,775, and $3,151 for 2000, 1999 and 1998, respectively, was calculated based on the fair value of each option primarily using the Black-Scholes option-pricing model for non-performance options and a path dependent model for performance options, with the following assumptions for 2000, 1999 and 1998, respectively: (i) average dividend yield of 0.52%, 0.56% and 0.58% (ii) expected volatility of 28.8%, 24.1% and 24.5%, (iii) risk-free interest rate ranging from 5.31% to 6.69%, 5.32% to 5.42%, and 5.50% to 5.54% and (iv) expected life of 4-5 years. As of December 31, 2000, 4,915,896 options had been exercised. Shares of Common Stock subject to outstanding options under the stock option plans were as follows:
OPTIONS OUTSTANDING ------------------------------------------------------ OPTIONS EXERCISABLE WEIGHTED AVERAGE -------------------- ---------------------- WEIGHTED OPTION REMAINING AVERAGE AUTHORIZED PRICE PER CONTRACTUAL EXERCISE NUMBER EXERCISE FOR ISSUANCE OUTSTANDING SHARE $ LIFE (YRS.) PRICE $ OF SHARES PRICE $ ------------ ----------- --------------- ----------- -------- --------- -------- 1983 Plan.............. 648,000 -- -- -- -- -- -- 1987 Plan.............. 600,000 -- -- -- -- -- -- 1989 Plan.............. 1,200,000 -- -- -- -- -- -- 1992 Plan.............. 300,000 10,500 8.063 3.9 8.06 10,500 8.06 1993 Plan.............. 900,000 124,000 6.625 - 8.063 2.8 6.90 124,000 6.90 1994 Plan.............. 300,000 38,050 6.625 - 7.438 3.26 7.18 38,050 7.18 10,500 11.4375 4.33 11.44 10,500 11.44 1996 Plan.............. 3,000,000 963,700 12.373 - 17.500 5.1 13.91 963,700 13.91 298,004 19.813 - 29.375 7.41 25.75 288,781 25.87 610,093 30.938 - 44.188 9.37 42.52 66,500 35.18 1998 Plan.............. 1,180,000 964,049 22.063 - 29.375 7.21 22.75 964,049 22.75 160,339 34.750 - 44.188 9.53 41.83 -- -- 2000 Plan.............. 500,000 382,000 34.750 - 44.188 9.8 42.55 -- -- --------- --------- --------- Total shares..... 8,628,000 3,561,235 6.625 - 44.188 26.18 2,466,080 18.85 ========= ========= =========
41 43 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (14) STOCK OPTIONS -- (CONTINUED) Information regarding the Company's stock option plans is summarized below:
WEIGHTED AVERAGE ------------------------ NUMBER OF EXERCISE FAIR VALUE $ OPTIONS SHARES PRICE $ AT GRANT DATE EXERCISABLE --------- -------- ------------- ----------- Outstanding at December 31, 1997.................... 2,713,550 13.28 2,472,050 Granted........................................... 1,237,050 23.35 9.59 Exercised......................................... (638,750) 11.19 Cancelled......................................... (57,000) 21.84 --------- Outstanding at December 31, 1998.................... 3,254,850 17.30 2,141,800 Granted........................................... 187,549 26.81 9.31 Exercised......................................... (146,600) 9.22 Cancelled......................................... (78,750) 27.11 --------- Outstanding at December 31, 1999.................... 3,217,049 18.05 1,757,900 Granted........................................... 1,182,182 41.99 16.88 Exercised......................................... (713,246) 15.81 Cancelled......................................... (124,750) 25.42 --------- Outstanding at December 31, 2000.................... 3,561,235 26.18 2,466,080 =========
(15) RETIREMENT PLANS Pension Plans The Company maintains two U.S. defined-benefit pension plans which cover substantially all eligible employees: (1) the Nepera Hourly Pension Plan (the "Nepera Plan") which covers the union employees at the Harriman, New York plant, and (2) the Cambrex Pension Plan (the "Cambrex Plan") which covers all other eligible employees. Benefits for the salaried and certain hourly employees are based on salary and years of service, while those for employees covered by a collective bargained agreement are based on negotiated benefits and years of service. The Company's policy is to fund pension costs currently to the extent deductible for income tax purposes. Pension plan assets consist primarily of balanced mutual fund investments. The Company has a Supplemental Executive Retirement Plan for key executives. The net periodic pension expense for both 2000 and 1999 is based on a twelve month period and on valuations of the plans as of January 1. However, the reconciliation of funded status is determined as of the September 30 measurement date. The funded status of these plans, incorporating fourth quarter contributions, as of September 30, 2000 and 1999 is as follows: 42 44 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (15) RETIREMENT PLANS -- (CONTINUED)
2000 1999 ------- ------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year..................... $32,354 $33,731 Service cost................................................ 2,190 2,378 Interest cost............................................... 2,432 2,253 Amendments.................................................. -- -- Actuarial loss (gain)....................................... (2,118) (4,855) Acquisitions................................................ -- 124 Benefits paid............................................... (1,365) (1,277) ------- ------- Benefit obligation at end of year........................... 33,493 32,354 CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year.............. 28,699 25,820 Actual return on plan assets................................ 2,319 3,631 Acquisitions................................................ 250 525 Benefits paid............................................... (1,365) (1,277) ------- ------- Fair value of plan assets at end of year.................... 29,903 28,699 ------- ------- Funded status............................................... (3,590) (3,655) Unrecognized prior service cost............................. 1,145 1,194 Unrecognized net (gain)loss................................. (3,292) (1,100) Additional minimum liability................................ (1,397) (1,988) ------- ------- Prepaid (accrued) benefit at September 30,.................. (7,134) (5,549) 4th quarter contributions................................... -- -- ------- ------- Prepaid (accrued) benefit cost at December 31,.............. $(7,134) $(5,549) ======= =======
The components of net periodic pension cost is as follows:
2000 1999 1998 ------- ------- ------- COMPONENTS OF NET PERIODIC BENEFIT COST Service Cost.......................................... $ 2,190 $ 2,378 $ 1,587 Interest Cost......................................... 2,432 2,253 2,108 Expected return on plan assets........................ (2,392) (2,171) (2,201) Amortization of prior service cost.................... 49 47 36 Recognized actuarial loss............................. 61 261 195 ------- ------- ------- Net periodic benefit cost............................. $ 2,340 $ 2,768 $ 1,725 ======= ======= ======= WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31, Discount rate......................................... 8.00% 7.75% 6.75% Expected return on plan assets........................ 8.00% 8.50% 8.50% Rate of compensation increase......................... 5.00% 5.00% 5.00%
The aggregate ABO (Accumulated Benefit Obligation) for those plans with ABO's in excess of plan assets is $4,631 in 2000. The aggregate fair value of assets for those plans with ABO's in excess of plan assets is $0 in 2000. Certain foreign subsidiaries of the Company maintain pension plans for their employees which conform to the common practice in their respective countries. The funded status of these plans, incorporating fourth quarter contributions, as of December 31, 2000 and 1999 is as follows: 43 45 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (15) RETIREMENT PLANS -- (CONTINUED)
2000 1999 ------- ------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year..................... $12,062 $ 8,668 Service cost................................................ 643 702 Interest cost............................................... 673 611 Plan participants' contribution............................. (58) 13 Actuarial loss (gain)....................................... 1,002 270 Acquisitions................................................ -- 2,424 Benefits paid............................................... (207) (128) Foreign exchange............................................ (1,017) (498) ------- ------- Benefit obligation at end of year........................... $13,098 12,062 ------- ------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year.............. 6,961 2,749 Actual return on plan assets................................ 62 1,231 Company contribution........................................ 437 318 Plan participant contribution............................... 161 175 Acquisitions................................................ -- 2,811 Benefits paid............................................... (207) (128) Foreign exchange............................................ (342) (195) ------- ------- Fair value of plan assets at end of year.................... 7,072 6,961 ------- ------- Funded status............................................... (6,030) (5,101) Unrecognized actuarial loss................................. 1,274 244 Unrecognized prior service cost............................. 42 49 Unrecognized net (gain)loss................................. (1,055) (1,491) Foreign exchange............................................ (16) 20 ------- ------- Prepaid (accrued) benefit................................... $(5,785) $(6,279) ======= =======
The components of the net periodic pension cost is as follows:
2000 1999 1998 ----- ----- ----- COMPONENTS OF NET PERIODIC BENEFIT COST Service Cost............................................... $ 643 $ 702 $ 532 Interest Cost.............................................. 673 611 533 Expected return on plan assets............................. (557) (459) (236) Amortization of excess plan net............................ (28) (31) (33) Amortization of prior service cost......................... (5) (12) 3 ----- ----- ----- Net periodic benefit cost.................................. $ 726 $ 811 $ 799 ===== ===== =====
44 46 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (15) RETIREMENT PLANS -- (CONTINUED)
2000 1999 1998 ------------- ------------- ------------- WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31, Discount rate....................... 5.50% - 6.25% 5.75% - 6.50% 5.50% - 6.00% Expected return on plan assets...... 7.50% - 9.00% 9.00% 9.00% Rate of compensation increase....... 3.00% - 4.25% 3.00% - 4.50% 2.50% - 3.50%
The aggregate ABO for those plans with ABO's in excess of plan assets is $5,464 in 2000, which were not funded. The Company's net pension costs for U.S. and foreign plans included in operating results amounted to $3,066, $3,579, and $2,524 in 2000, 1999 and 1998, respectively. BioWhittaker had a noncontributory defined contribution target plan for its eligible employees. Under BioWhittaker's target plan, all domestic employees over 21 years of age who have completed one year of service with the Company participate. The target plan was 100% Company-funded, with annual contributions by the Company based on the employee's targeted benefit, determined by such factors as salary and expected years of service to age 65. Effective May, 1999, BioWhittaker no longer has a separate plan and is covered by the Cambrex plan. Total target plan expenses amounted to $171 in 1999, and $546 in 1998. Savings Plan Cambrex makes available to all employees a savings plan as permitted under Sections 401(k) and 401(a) of the Internal Revenue Code. Effective August 1998, this plan became available to all BioWhittaker employees. Employee contributions are matched in part by Cambrex. The cost of this plan amounted to $1,393, $1,391, and $1,523 in 2000, 1999 and 1998, respectively. BioWhittaker had available to all eligible employees a contributory 401(k) plan which was terminated in August 1998. Employee contributions had been matched in part by BioWhittaker. The cost of this plan amounted to $262 in 1998. Other The Company has a non-qualified Compensation Plan for Key Executives ("the Deferred Plan"). Under the Deferred Plan, officers and key employees may elect to defer all or any portion of their pre-tax annual bonus and/or annual base salary. Included within other liabilities at December 31, 2000 and 1999 there is $2,030 and $2,247, respectively, representing the Company's obligation under the plan. To assist in the funding of this obligation, the Company invests in certain mutual funds and as such, included within other assets at December 31, 2000 and 1999 is $2,030 and $2,247, respectively, representing the fair value of these funds. During 1995, the Board amended the Deferred Plan to permit officers and key employees to elect to defer receipt of Company stock which would otherwise have been issued upon the exercise of Company options. Total shares held in trust as of December 31, 2000 and 1999 are 267,559 and 283,540, respectively, and are included as a reduction of equity at cost. The value of the shares held in trust and the corresponding liability of $1,092 at December 31, 2000 have been recorded in equity. The Deferred Plan is not funded by the Company, but the Company has established a Deferred Compensation Trust Fund which holds the shares issued. 45 47 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (16) OTHER POSTRETIREMENT BENEFITS Cambrex provides postretirement health and life insurance benefits ("postretirement benefits") to all eligible retired employees. Employees who retire at or after age 55 with ten years of service are eligible to participate in the postretirement benefit plans. The Company's responsibility for such premiums for each plan participant is based upon years of service subject to an annual maximum of one thousand dollars. Such plans are self-insured and are not funded. The Company elected to amortize the transition obligation of $1,853 over twenty years. The net effect upon 2000, 1999 and 1998 pretax operating results, including the amortization of the transition obligation, resulted in a cost of $325, $323, and $321, respectively. Disclosure is presented in accordance with Statement of Financial Accounting Standards No. 132 "Employers' Disclosures About Pensions and Other Post Retirement Benefits" (SFAS 132). The periodic postretirement benefit cost includes the following components:
DECEMBER 31, ------------------ 2000 1999 ------- ------- CHANGE IN BENEFIT OBLIGATION Accumulated benefit obligation at beginning of year......... $ 2,372 $ 2,539 Service cost................................................ 54 63 Interest cost............................................... 178 167 Actuarial gain.............................................. (394) (397) ------- ------- Accumulated benefit obligation at end of year............... $ 2,210 $ 2,372 ======= ======= Unrecognized net loss (gain)................................ $ 414 $ 203 Unrecognized translation obligation......................... (1,112) (1,204) ------- ------- Accrued benefit cost at end of year......................... $ 1,512 $ 1,371 ======= =======
YEARS ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ COMPONENTS OF NET PERIODIC BENEFIT COST Service cost of benefits earned............................. $ 54 $ 63 $ 63 Interest cost............................................... 178 167 165 Amortization of transition obligation....................... 93 93 93 ---- ---- ---- Total periodic postretirement benefit cost.................. $325 $323 $321 ==== ==== ====
The discount rate used to determine the accumulated postretirement benefit obligation was 8.00% and 7.75% in 2000 and 1999, respectively. The assumed health care cost trend rate used to determine the accumulated postretirement benefit obligation is 8% in 2000 (9% in 1999), declining ratably to 6.5% in 2002 and thereafter. A one-percentage-point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation by $58 and would increase the sum of interest and service cost by $9. A one-percentage-point decrease would lower the accumulated postretirement benefit obligation by $55 and would raise the sum of interest and service cost by $9. The cost of all health and life insurance benefits is recognized as incurred and was approximately $3,716, $3,312 and $4,214 in 2000, 1999 and 1998, respectively. The cost of providing these benefits for the 241, 259 and 250 retirees in 2000, 1999 and 1998, respectively, is not separable from the cost of providing benefits for the 1,018, 1,052, and 1,105 active U.S. employees in 2000, 1999 and 1998, respectively. 46 48 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (17) RESTRUCTURING During the third quarter of 1998, the Company incurred a restructuring charge of $1,400 which includes the non-recurring costs resulting from the consolidation of administrative and management functions and resulted in the reduction of 44 employees. These costs are related to severance paid to terminated employees. The majority of these costs were incurred and paid prior to December 31, 1998 with the remainder paid in full during 1999. (18) OTHER INCOME AND EXPENSE Other (income) expense was ($329), $555 and $945 for 2000, 1999 and 1998, respectively. Included in 2000 income were gains on foreign exchange and miscellaneous non-recurring lab services. Included in 1999 expense are various costs associated with loss on sale of assets and other miscellaneous expenses. Included in 1998 other expense were asset write-offs at the Zeeland facility of $522. (19) SEGMENT INFORMATION The Company is involved principally in the manufacturing and marketing of products which include: Human Health, which include Active Pharmaceutical Ingredients produced under Food and Drug Administration (FDA) regulation for use in prescription drug products, Pharmaceutical Intermediates produced in current Good Manufacturing Practices (cGMP) facilities for use in the production of pharmaceuticals and over-the-counter drug products, Imaging Chemicals used in x-ray media, Personal Care Ingredients used in cosmetics and for the pharmaceutical market, and Nutraceuticals used in health products; Biosciences, consisting of cell culture and endotoxin detection products; Animal Health/Agriculture products including Vitamin B-3 used in feed additives, Agricultural Intermediates used in crop protection, and Animal Health products used as feed additives; and the Specialty and Fine Chemical segment which includes Performance Enhancing Chemicals used in photography, pigments, specialty polymers, fuel/oil additives, catalysts, and other specialty additives, and Polymer Systems products used in coatings, telecommunications, electronics and engineering plastics. Most of the Company's subsidiaries operate in more than one of these segments. The key exceptions are BioWhittaker and BMA, which solely comprise the biosciences segment. The Company has provided financial information in order to show Gross Sales and Gross Profit by segment. All other financial information is available only for the Biosciences Segment and for all other segments combined. The Company allocates Corporate expenses and interest to each of its subsidiaries. The interest allocation is based on 12% of subsidiary working capital and 9% of net property, plant and equipment. No customer accounts for more than 10% of consolidated revenues. The following is a summary of business segment information:
2000 1999 1998 -------- -------- -------- GROSS SALES Human Health....................................... $233,886 $225,660 $194,766 Biosciences........................................ 96,232 83,887 65,968 Animal Health/Agriculture.......................... 56,220 55,695 56,285 Specialty and Fine Chemicals....................... 106,206 119,318 124,664 -------- -------- -------- $492,544 $484,560 $441,683 ======== ======== ========
47 49 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (19) SEGMENT INFORMATION -- (CONTINUED)
2000 1999 1998 -------- -------- -------- GROSS PRODUCT SALES DETAIL FOR EACH SEGMENT Human Health: Active Pharmaceutical............................ $171,174 $161,282 $126,007 Pharmaceutical Intermediates..................... 29,527 25,995 24,844 Personal Care Ingredients........................ 15,512 14,706 16,777 Imaging Chemicals................................ 7,842 13,568 14,179 Biomedical Urethanes............................. 2,784 3,050 3,977 Catalysts........................................ 7,035 6,950 8,281 Neutraceuticals.................................. 12 109 701 -------- -------- -------- Total Human Health....................... $233,886 $225,660 $194,766 ======== ======== ======== Biosciences: Cells and Media.................................... $ 50,590 $ 47,434 $ 43,795 Endotoxin Detection................................ 21,391 21,864 18,852 Electrophoresis, Chromatography & Other............ 24,251 14,589 3,321 Total Biosciences........................ $ 96,232 $ 83,887 $ 65,968 ======== ======== ======== Animal Health/Agriculture: Vitamin B-3...................................... $ 6,910 $ 9,155 $ 12,814 Animal Health.................................... 16,140 15,013 17,614 Agricultural Intermediates....................... 33,170 31,527 25,857 -------- -------- -------- Total Animal Health/Agriculture.......... $ 56,220 $ 55,695 $ 56,285 ======== ======== ======== Specialty and Fine Chemicals: Performance Enhancing Chemicals.................. $ 67,004 $ 76,441 $ 81,853 Polymer Systems.................................. 39,202 42,877 42,811 -------- -------- -------- Total Specialty and Fine Chemicals....... $106,206 $119,318 $124,664 ======== ======== ========
2000 1999 1998 -------- -------- -------- GROSS PROFIT Human Health....................................... $ 91,145 $ 83,603 $ 92,441* Biosciences........................................ 50,815 42,088 32,321 Animal Health/Agriculture.......................... 9,829 12,045 11,557 Specialty and Fine Chemicals....................... 25,706 29,427 27,098 -------- -------- -------- $177,495 $167,163 $163,417 ======== ======== ========
--------------- * Includes royalty income of $19,298 48 50 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (19) SEGMENT INFORMATION -- (CONTINUED)
2000 1999 1998 -------- -------- -------- NET INCOME Biosciences........................................ $ 5,122 $ 3,150 $ 1,953 Human Health, Animal Health/Agriculture & Specialty and Fine Chemicals............................... 44,483 34,982 37,149 -------- -------- -------- $ 49,605 $ 38,132 $ 39,102 ======== ======== ========
2000 1999 1998 -------- -------- -------- TOTAL ASSETS Biosciences........................................ $190,770 $186,405 $154,082 Human Health, Animal Health/Agriculture & Specialty and Fine Chemicals............................... 483,083 487,242 462,972 -------- -------- -------- $673,853 $673,647 $617,054 ======== ======== ========
2000 1999 1998 ------- ------- ------- CAPITAL SPENDING Biosciences........................................... $ 4,007 $ 1,829 $ 4,215 Human Health, Animal Health/Agriculture & Specialty and Fine Chemicals.................................. 35,784 28,700 38,792 ------- ------- ------- $39,791 $30,529 $43,007 ======= ======= =======
2000 1999 1998 ------- ------- ------- DEPRECIATION Biosciences........................................... $ 3,817 $ 2,897 $ 1,997 Human Health, Animal Health/Agriculture & Specialty and Fine Chemicals.................................. 28,122 30,221 28,550 ------- ------- ------- $31,939 $33,118 $30,547 ======= ======= =======
2000 1999 1998 ------- ------- ------- AMORTIZATION Biosciences........................................... $ 6,586 $ 5,017 $ 4,358 Human Health, Animal Health/Agriculture & Specialty and Fine Chemicals.................................. 3,569 4,193 5,227 ------- ------- ------- $10,155 $ 9,210 $ 9,585 ======= ======= =======
49 51 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (20) FOREIGN OPERATIONS AND EXPORT SALES Summarized data for the Company's operations for 2000, 1999 and 1998 are as follows:
DOMESTIC EUROPEAN TOTAL -------- -------- -------- 2000 Gross sales........................................ $262,068 $230,476 $492,544 Long-lived identifiable assets..................... 272,529 164,008 436,537 1999 Gross sales........................................ $266,171 $218,389 $484,560 Long-lived identifiable assets..................... 268,669 160,801 429,470 1998 Gross sales........................................ $263,387 $178,296 $441,683 Long-lived identifiable assets..................... 241,694 140,317 382,011
Export sales, included in domestic gross sales, in 2000, 1999 and 1998 amounted to $50,910, $40,610, and $42,722, respectively. No country, in any of the given years, represents more than 10% of these export sales. (21) COMMITMENTS The Company has operating leases expiring on various dates through the year 2010. The leases are primarily for office and laboratory equipment and vehicles. At December 31, 2000, future minimum commitments under non-cancelable operating lease arrangements were as follows: Year ended December 31: 2001..................................................... $ 2,984 2002..................................................... 2,604 2003..................................................... 2,540 2004..................................................... 2,484 2005 and thereafter...................................... 6,075 ------- Net commitments.................................. $16,687 =======
Total operating lease expense was $1,897, $2,433, and $2,412 for the years ended December 31, 2000, 1999 and 1998, respectively. On August 11, 1999, the Company completed a marketing, development and media supply agreement with Osiris Therapeutics, Inc. covering adult stem cells, the progenitors of structural and connective tissues. The Company's BioWhittaker subsidiary will manufacture and market adult stem cell products for the life science research market through an exclusive worldwide license from Osiris. BioWhittaker will also become the exclusive supplier of culture media to Osiris for the production of human adult stem cells in therapeutic applications. The two companies will share development costs and Osiris will receive royalties on sales of research reagents. Cambrex also purchased $5,000 of Osiris Common Stock, which represents approximately 5% ownership interest in the Company, and has agreed to purchase an additional $2,000 of Common Stock coincident with an Osiris initial public offering. Cambrex also received preemptive rights to maintain its equity position in subsequent rounds of financing. The $5,000 paid for Osiris Common Stock is included in Other Non-current Assets. 50 52 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (22) 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 $2,300 and $3,400 at December 31, 2000 and 1999, respectively, for costs associated with the study and remediation of Superfund sites and the Company's current and former operating sites for matters that are probable and reasonably estimable. Based on currently available information and analysis, the Company's accrual represents management's best estimate of what it believes are the reasonably possible environmental cleanup related costs of a non-capital nature. During the past three-year period, cash payments for environmental cleanup related matters were $0, $200 and $1,800 for 2000, 1999 and 1998, respectively. There were no provisions for environmental contingencies during the past three-year period. The Company reversed reserves of approximately $1,100 and $1,200 during the third quarters of 2000 and 1999, respectively, as a result of revised estimates. In addition, the Company settled certain environmental claims involving the Cosan Chemical Corporation (a subsidiary) with insurance companies for $1,812 in 2000 and $1,150 in 1999. 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 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. 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 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. 51 53 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (22) CONTINGENCIES -- (CONTINUED) On February 9, 2001, a federal court in Washington, DC entered an Order and Stipulated Permanent Injunction as part of a settlement of the FTC and Attorneys General's suits. Under these settlement documents Mylan has agreed to pay over $140 million on its own behalf and on behalf of most of the other defendant companies including Cambrex and Profarmaco. In the Order and Injunction, the settling defendants also agreed to monitor certain future conduct. The Company strongly believes that its licensing arrangements with Mylan are in accordance with regulatory requirements and will vigorously defend the 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 of influence over the pricing of its final generic product. Some private litigation will continue. Until recently, Mylan had been fully covering the costs for the defense and indemnity of Cambrex and Profarmaco under certain obligations set forth in the license agreements. Cambrex has now agreed to cover separate legal defense costs incurred for Cambrex and Profarmaco on a going forward basis beginning August 1, 2000. These costs are expected to be significant. 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 with the Government concerning Nepera's alleged role in Vitamin B-3 violations from 1992 to 1995. On October 13, 2000, the 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 B-3 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, was paid in February 2001. Nepera has been named as a defendant, along with several other companies, in a number of private civil actions brought on behalf of alleged purchasers of Vitamin B-3. An accrual of $6,000 was recorded in the fourth quarter 1999 to cover the anticipated government settlements, related litigation, and legal expenses. The balance of this accrual as of December 31, 2000 was $5,301. This accrual has been recorded in the above litigation matters and Accounts Payable and Accrued Liabilities. 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. 52 54 CAMBREX CORPORATION SELECTED QUARTERLY FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER YEAR ----------- ----------- ----------- ----------- -------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 2000 Gross sales...................... $128,986 $127,472 $115,742 $120,344 $492,544 Net revenues..................... 127,378 125,276 114,075 117,517 484,246 Gross profit..................... 46,149 48,746 41,368 41,232 177,495 Net income....................... 12,312 14,206 11,251 11,836 49,605 Earnings per share:(1) Basic.......................... $ 0.50 $ 0.57 $ 0.45 $ 0.47 $ 1.98 Diluted........................ $ 0.48 $ 0.55 $ 0.43 $ 0.45 $ 1.90 Average shares: Basic.......................... 24,706 24,883 25,082 25,213 25,015 Diluted........................ 25,852 26,037 26,216 26,086 26,157 1999 Gross sales...................... $117,519 $123,642 $118,602 $124,797 $484,560 Net revenues..................... 117,399 122,654 117,450 123,885 481,388 Gross profit..................... 40,503 42,859 39,234 44,567 167,163 Net income....................... 10,180 11,925 9,673 6,354(2) 38,132(2) Earnings per share:(1) Basic.......................... $ 0.41 $ 0.49 $ 0.39 $ 0.26 $ 1.55 Diluted........................ $ 0.40 $ 0.47 $ 0.38 $ 0.25 $ 1.49 Average shares: Basic.......................... 24,533 24,564 24,583 24,607 24,572 Diluted........................ 25,384 25,498 25,654 25,896 25,613
--------------- (1) Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period, as such, the sum of the quarters may not necessarily equal the earnings per share amount for the year. (2) The fourth quarter and full year 1999 net income includes a $6,000 provision to cover government settlements, related litigation and legal expenses associated with Cambrex subsidiary Nepera's alleged role in Vitamin B-3 anti-trust matter from 1992 to 1995. 53 55 PART III ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. ITEM 11 EXECUTIVE COMPENSATION. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by Part III is hereby incorporated by reference to the information set forth under the captions "Principal Stockholders," "Board of Directors," "Election of Directors," "Related Party Transactions" and "Executive Compensation" in the registrant's definitive proxy statement for the Annual Meeting of Stockholders, to be held April 26, 2001, which meeting involves the election of directors, which definitive proxy statement is being filed with the Securities and Exchange Commission pursuant to Regulation 14A. In addition, information concerning the registrant's executive officers has been included in Part I under the caption "Executive Officers of the Registrant." PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. The following consolidated financial statements of the Company are filed as part of this report:
PAGE NUMBER (IN THIS REPORT) ---------------- Report of Independent Accounts.............................. 23 Consolidated Balance Sheets as of December 31, 2000, and 1999...................................................... 24 Consolidated Income Statements for the Years Ended December 31, 2000, 1999 and 1998................................... 25 Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998.................... 26 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.......................... 27 Notes to Consolidated Financial Statements.................. 28 Consolidated Quarterly Financial Data (unaudited) for the Years Ended December 31, 2000 and 1999.................... 53
(a) 2. (i) The following schedule to the consolidated financial statements of the Company as filed herein and the Report of Independent Certified Public Accountants on Schedule are filed as part of this report.
PAGE NUMBER (IN THIS REPORT) ---------------- Report of Independent Accountants on Financial Statement Schedule.................................................. 55 Schedule II -- Valuation and Qualifying Accounts............ 56
All other schedules are omitted because they are not applicable or not required or because the required information is included in the consolidated financial statements of the Company or the notes thereto. (a) 3. The exhibits filed in this report are listed in the Exhibit Index on pages 59-61 The registrant agrees, upon request of the Securities and Exchange Commission, to file as an exhibit each instrument defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries which has not been filed for the reason that the total amount of securities authorized thereunder does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. (b) Reports on Form 8-K The registrant filed no reports on Form 8-K during the last quarter of the year ended December 31, 2000. 54 56 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Cambrex Corporation: Our audits of the consolidated financial statements referred to in our report dated January 19, 2001 appearing in the 2000 Annual Report to Shareholders of Cambrex Corporation and its subsidiaries on Form 10-K of Cambrex Corporation and its subsidiaries also included an audit of the financial statement schedule listed in Item 14(a) (2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICEWATERHOUSECOOPERS LLP January 19, 2001 55 57 SCHEDULE II CAMBREX CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E --------- ---------- ---------- ---------- -------- ADDITIONS ----------------------- BALANCE CHARGED TO CHARGED TO BEGINNING COST AND OTHER END CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR -------------- --------- ---------- ---------- ---------- -------- Year Ended December 31, 2000: Doubtful trade receivables and returns and allowances.............................. $ 799 $ 805 $ -- $ 250 $ 1,354 Inventory and obsolescence provisions...... 18,654 $2,599 -- 3,860 17,393 Year Ended December 31, 1999: Doubtful trade receivables and returns and allowances.............................. $ 1,550 $ (347) $ 26(2) $ 430 $ 799 Inventory and obsolescence provisions...... 17,156 4,486 1,221(1) 4,209 18,654 Year Ended December 31, 1998: Doubtful trade receivables and returns and allowances.............................. $ 1,705 $ 257 $ -- $ 412 $ 1,550 Inventory and obsolescence provisions...... 15,943 6,046 -- 4,833 17,156
--------------- (1) Reserve of Irotec acquired March, 1999. (2) Reserve of BMA acquired July, 1999. 56 58 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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/ JAMES A. MACK ------------------------------------ James A. Mack Chairman of the Board of Directors Date: March 19, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES A. MACK Chairman of the Board of ) ------------------------------------------------ Directors James A. Mack /s/ DOUGLAS MACMILLAN Vice President Chief Financial ) ------------------------------------------------ Officer Douglas MacMillan /s/ CYRIL C. BALDWIN, JR. Director ) ------------------------------------------------ Cyril C. Baldwin, Jr.* /s/ ROSINA B. DIXON, M.D.* Director ) ------------------------------------------------ Rosina B. Dixon, M.D. /s/ GEORGE J. W. GOODMAN* Director ) ------------------------------------------------ George J. W. Goodman /s/ ROY W. HALEY* Director ) ------------------------------------------------ Roy W. Haley /s/ KATHRYN RUDIE HARRIGAN, PHD* Director ) ------------------------------------------------ Kathryn Rudie Harrigan, PhD /s/ LEON J. HENDRIX, JR.* Director ) March 19, 2001 ------------------------------------------------ Leon J. Hendrix, Jr. /s/ ILAN KAUFTHAL* Director ) ------------------------------------------------ Ilan Kaufthal /s/ WILLIAM KORB* Director ) ------------------------------------------------ William Korb
57 59
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT LEBUHN* Director ) ------------------------------------------------ Robert LeBuhn /s/ JOHN R. MILLER* Director ) ------------------------------------------------ John R. Miller /s/ DEAN P. PHYPERS* Director ) ------------------------------------------------ Dean P. Phypers
*By /s/ JAMES A. MACK -------------------------- James A. Mack Attorney-in-Fact 58 60 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- 3.1 -- Restated Certificate of Incorporation of registrant.(A) -- Exhibit 3(a). 3.2 -- By Laws of registrant.(E) -- Exhibit 4.2. 4.1 -- Form of Certificate for shares of Common Stock of registrant.(A) -- Exhibit 4(a). 4.2 -- Article Fourth of the Restated Certificate of Incorporation.(A) -- Exhibit 4(b). 4.3 -- Loan Agreement dated September 21, 1994 by and among the registrant, NBD Bank, N.A., United Jersey Bank, National Westminster Bank NJ, Wachovia Bank of Georgia, N.A., BHF- Bank, The First National Bank of Boston, Chemical Bank New Jersey, N.A., and National City Bank.(K). 4.4 -- Loan Agreement dated September 16, 1997 by and among the registrant, Chase Manhattan Bank as Administrative Agent and The First National Bank of Chicago as Documentation Agent. The bank group includes 13 domestic banks and 7 international banks.(Q) 10.1 -- Purchase Agreement dated July 11, 1986, as amended, between the registrant and ASAG, Inc.(A) -- Exhibit 10(r). 10.2 -- Asset Purchase Agreement dated as of June 5, 1989 between Whittaker Corporation and the registrant.(C) -- Exhibit 10(a). 10.3 -- Asset Purchase Agreement dated as of July 1, 1991 between Solvay Animal Health, Inc. and the registrant.(F). 10.4 -- Asset Purchase Agreement dated as of March 31, 1992 between Hexcel Corporation and the registrant.(H). 10.5 -- Stock Purchase Agreement dated as of September 15, 1994 between Akzo Nobel AB, Akzo Nobel NV and the registrant, for the purchase of Nobel Chemicals AB.(K). 10.6 -- Stock Purchase Agreement dated as of September 15, 1994 between Akzo Nobel AB, Akzo Nobel and the registrant, for the purchase of Profarmaco Nobel, S.r.l.(K). 10.7 -- Stock purchase agreement dated as of October 3, 1997 between BioWhittaker and the registrant.(Q) 10.10 -- 1983 Incentive Stock Option Plan, as amended.(B). 10.11 -- 1987 Long-term Incentive Plan.(A) -- Exhibit(g). 10.12 -- 1987 Stock Option Plan.(B). 10.13 -- 1989 Senior Executive Stock Option Plan.(J). 10.14 -- 1992 Stock Option Plan.(J). 10.15 -- 1993 Senior Executive Stock Option Plan.(J). 10.16 -- 1994 Stock Option Plan.(J). 10.17 -- 1996 Performance Stock Option Plan.(N). 10.20 -- Form of Employment Agreement between the registrant and its executive officers named in the Revised Schedule of Parties thereto.(D) -- Exhibit 10. A.
--------------- See legend on following page. 59 61 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- 10.21 -- Revised Schedule of Parties to Employment Agreement (exhibit 10.20 hereto).(M). 10.22 -- Cambrex Corporation Savings Plan.(I). 10.23 -- Cambrex Corporation Supplemental Retirement Plan.(L). 10.24 -- Deferred Compensation Plan of Cambrex Corporation.(L). 10.25 -- Amendment to Deferred Compensation Plan of Cambrex Corporation (Exhibit 10.24 hereto).(P). 10.26 -- Cambrex Earnings Improvement Plan.(L). 10.27 -- Consulting Agreement dated December 15, 1994 between the registrant and Arthur I. Mendolia.(L). 10.28 -- Consulting Agreement dated December 15, 1995 between the registrant and Cyril C. Baldwin, Jr.(L). 10.29 -- Consulting Agreement between the registrant and James A. Mack.(L). 10.30 -- Additional Retirement Payment Agreement dated December 15, 1994 between the registrant and Arthur I. Mendolia.(L). 10.31 -- Additional Retirement Payment Agreement dated December 15, 1994 between the registrant and Cyril C. Baldwin, Jr.(L). 10.32 -- Additional Retirement Payment Agreement between the registrant and James A. Mack.(L). 10.40 -- Registration Rights Agreement dated as of June 6, 1985 between the registrant and the purchasers of its Class D Convertible Preferred stock and 9% Convertible Subordinated Notes due 1997.(A) -- Exhibit 10(m). 10.41 -- Administrative Consent Order dated September 16, 1985 of the New Jersey Department of Environmental Protection to Cosan Chemical Corporation.(A) -- Exhibit 10(q). 10.42 -- Registration Rights Agreement dated as of June 5, 1996 between the registrant and American Stock Transfer and Trust Company.(O) -- Exhibit 1. 10.50 -- Manufacturing Agreement dated as of July 1, 1991 between the registrant and A.L. Laboratories, Inc.(G). 21 -- Subsidiaries of registrant.(M). 23 -- Consent of PricewaterhouseCoopers L.L.P. to the incorporation by reference of its report herein in Registration Statement Nos. 333-22017, 33-21374, 33-37791, 33-81780 and 33-81782 on Form S-8 of the registrant.(M). 24 -- Powers of Attorney to sign this report.(M). 27 -- Financial Data Schedule.(M).
--------------- See legend on following page 60 62 EXHIBIT INDEX (A) Incorporated by reference to the indicated Exhibit to registrant's Registration Statement on Form S-1 (Registration No. 33-16419). (B) Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 33-21374) and Amendment No. 1. (C) Incorporated by reference to registrant's Annual Report on Form 10-K dated June 5, 1989. (D) Incorporated by reference to the indicated Exhibit to registrant's Annual Report on Form 10-K for 1989. (E) Incorporated by reference to the indicated Exhibit to registrant's Registration Statement on Form S-8 (Registration No. 33-37791). (F) Incorporated by reference to registrant's Current Report on Form 8-K dated July 1, 1991. (G) Incorporated by reference to the registrant's Annual Report on Form 10-K for 1991. (H) Incorporated by reference to the registrant's Current Report on Form 8-K dated April 10, 1992 and Amendment No. 1 to its Current Report. (I) Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 33-81780) dated July 20, 1994. (J) Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 33-81782) dated July 20, 1994. (K) Incorporated by reference to registrant's Current Report on Form 8-K dated October 26, 1994. (L) Incorporated by reference to the registrant's Annual Report on Form 10-K for 1994. (M) Filed herewith. (N) Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 333-22017) dated February 19, 1997. (O) Incorporated by reference to the registrant's Current Report on Form 8-A dated June 12, 1996. (P) Incorporated by reference to the registrant's Annual Report on Form 10-K for 1995. (Q) Incorporated by reference to the registrant's Current Report on Form 8-K dated October 8, 1997.
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