-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LVOyQEvISR/zBPalnSPqW/3Ta5z9J7hk0Wzkw4cx/bhc4Oy29ZBIQpFYVgCMm1+j oXbia+Sl6UCRcM1WmqCB+Q== 0000950123-97-009635.txt : 19971117 0000950123-97-009635.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950123-97-009635 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBREX CORP CENTRAL INDEX KEY: 0000820081 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 222476135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10638 FILM NUMBER: 97720343 BUSINESS ADDRESS: STREET 1: ONE MEADOWLANDS PLZ CITY: E RUTHERFORD STATE: NJ ZIP: 07073 BUSINESS PHONE: 2018043000 MAIL ADDRESS: STREET 1: ONE MEADOWLANDS PLAZA CITY: E. RUTHERFORD STATE: NJ ZIP: 07073 10-Q 1 CAMBREX CORP 1 CONFORMED SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 1997 ------------------ OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ________ to ________ Commission file number 1-10638 CAMBREX CORPORATION ------------------- (Exact name of registrant as specified in its charter) DELAWARE 22-2476135 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE MEADOWLANDS PLAZA, EAST RUTHERFORD, NEW JERSEY 07073 -------------------------------------------------------- (Address of principal executive offices) (201) 804-3000 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| APPLICABLE ONLY TO CORPORATE ISSUERS As of November 1, 1997, there were 11,913,932 shares outstanding of the registrant's Common Stock, $.10 par value. Page 1 of 20 2 CAMBREX CORPORATION AND SUBSIDIARIES Form 10-Q For The Quarter Ended September 30, 1997 Table of Contents Page No. -------- Part I Financial information Condensed consolidated balance sheets as of September 30, 1997 and December 31, 1996 3 Condensed consolidated income statements for the three months and nine months ended September 30, 1997 and 1996 4 Condensed consolidated statements of cash flows for the nine months ended September 30, 1997 and 1996 5 Notes to condensed consolidated financial statements 6-11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 Part II Other information Item 4. Matters Submitted to a Vote of Securities Holders 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 Exhibit 11 - Computation of Earnings Per Share 19 Exhibit 27 - Financial Data Schedule 20 -2- 3 Part 1 - FINANCIAL INFORMATION CAMBREX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except share data)
September 30, December 31, 1997 1996 ---- ---- ASSETS Current assets: Cash and cash equivalents ........................ $ 29,726 $ 7,353 Trade and other receivables, less allowances for doubtful accounts of $1,454 and $1,453 at respective dates .......................... 55,141 56,750 Inventories ...................................... 93,261 64,209 Deferred tax assets .............................. 5,325 5,009 Other current assets ............................. 5,603 3,541 --------- --------- Total current assets ......................... 189,056 136,862 Property, plant and equipment, net ................... 236,111 216,481 Intangible assets, net ............................... 108,226 49,573 Other noncurrent assets .............................. 3,788 1,528 --------- --------- Total assets ................................. $ 537,181 $ 404,444 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities ......... $ 57,395 $ 54,754 Income taxes payable ............................. 8,588 8,085 Short-term debt .................................. 2,531 3,880 Current portion of long-term debt ................ 766 7,231 --------- --------- Total current liabilities .................... 69,280 73,950 Long-term debt ....................................... 187,503 60,152 Deferred tax liabilities ............................. 24,685 21,587 Other noncurrent liabilities ......................... 20,803 19,710 --------- --------- Total liabilities ............................ 302,271 175,399 --------- --------- Stockholders' equity: Common stock ..................................... 1,293 1,275 Additional paid-in capital ....................... 153,005 149,191 Retained earnings ................................ 102,677 80,608 Additional minimum pension liability ............. (553) (553) Treasury stock, at cost; 1,052,641 and 1,049,895 shares at respective dates .................... (9,613) (9,449) Shares held in trust, at cost, 180,277 and 132,126 shares at respective dates ........... (1,235) (718) Cumulative translation adjustment ................ (10,664) 8,691 --------- --------- Total stockholders' equity ................... 234,910 229,045 --------- --------- Total liabilities and stockholders' equity ... $ 537,181 $ 404,444 ========= =========
See accompanying notes to condensed consolidated financial statements. -3- 4 CAMBREX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (unaudited) (in thousands, except per-share data)
Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- Gross sales ........................... $ 82,638 $ 88,318 $ 276,552 $ 278,004 Commissions & freight ............ 1,546 2,070 5,470 6,693 Sales, returns and allowances ..... 382 184 1,252 1,244 -------- -------- --------- --------- Net sales ............................. 80,710 86,064 269,830 270,067 Other revenues .................... 655 (18) 2,148 173 -------- -------- --------- --------- Net revenues .......................... 81,365 86,046 271,978 270,240 Operating expenses: Cost of goods sold ................ 56,807 61,044 189,611 192,787 Selling, general and administrative expenses ........................ 11,556 12,112 38,137 35,332 Research and development .......... 2,418 2,180 7,057 6,697 -------- -------- --------- --------- Total operating expenses ........ 70,781 75,336 234,805 234,816 -------- -------- --------- --------- Operating profit ...................... 10,584 10,710 37,173 35,424 Other (income) expenses: Interest expense - net ............ 525 1,508 2,763 4,974 Other - net ....................... (966) (183) (586) (52) -------- -------- --------- --------- Income before income taxes ............ 11,025 9,385 34,996 30,502 Provision for income taxes ............ 3,494 3,284 11,165 10,676 -------- -------- --------- --------- Net income ............................ $ 7,531 $ 6,101 $ 23,831 $ 19,826 ======== ======== ========= ========= Weighted average shares outstanding: Primary ....................... 12,405 11,907 12,097 11,864 Fully diluted ................. 12,405 11,918 12,145 11,889 Net income per share: Primary ....................... $ 0.61 $ 0.51 $ 1.97 $ 1.67 ======== ======== ========= ========= Fully diluted ................. $ 0.61 $ 0.51 $ 1.96 $ 1.67 ======== ======== ========= =========
See accompanying notes to condensed consolidated financial statements. -4- 5 CAMBREX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Nine months ended September 30, ----------------- 1997 1996 ---- ---- Cash flows from operating activities: Net income .......................................... $ 23,831 $ 19,826 Depreciation and amortization ....................... 22,450 21,088 Deferred income taxes ............................... 1,366 (832) Changes in assets and liabilities: Receivables ......................................... 6,502 6,240 Inventories ......................................... (7,276) 5,892 Other current assets ................................ (148) 79 Accounts payable and accrued liabilities ............ (5,862) (11,638) Income taxes payable ................................ 1,004 7,282 Other noncurrent assets and liabilities ............. (324) 2,965 --------- -------- Net cash provided from operating activities ..... 41,543 50,902 --------- -------- Cash flows from investing activities: Capital expenditures ................................ (25,395) (21,080) Acquisition of business, net of cash acquired ....... (111,400) -- Other investing activities .......................... -- (1,320) --------- -------- Net cash (used in) investing activities ......... (136,795) (22,400) --------- -------- Cash flows from financing activities: Dividends ........................................... (1,762) (1,349) Net increase (decrease) in short-term debt .......... (752) (2,427) Long-term debt activity (including current portion): Borrowings ...................................... 224,000 28,100 Repayments ...................................... (104,861) (55,207) Proceeds from the issuance of common stock .......... 3,289 3,161 Proceeds from the sale of treasury stock ............ 379 1,195 --------- -------- Net cash provided from financing activities ..... 120,293 (26,527) --------- -------- Effect of exchange rate changes on cash ................. (2,668) 1,526 --------- -------- Net increase in cash .................................... 22,373 3,501 Cash at beginning of period ............................. 7,353 4,841 --------- -------- Cash at end of period ................................... $ 29,726 $ 8,342 ========= ======== Supplemental disclosure: Interest paid ....................................... $ 4,166 $ 5,527 Income taxes paid ................................... $ 2,820 $ 3,600 Depreciation expense ................................ $ 18,477 $ 17,090 Non-cash financing activities: Liabilities established in connection with exercise of stock options ................................. $ 517 $ 718 Debt assumed in conjunction with the acquisition of BioWhittaker ..................................... $ 1,755
See accompanying notes to condensed consolidated financial statements. -5- 6 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per-share amounts) (1) Basis of Presentation Unless otherwise indicated by the context, "Cambrex" or the "Company" means Cambrex Corporation and subsidiaries. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared from the records of the Company. In the opinion of management, the financial statements include all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 1996. The Consolidated Balance Sheet of Cambrex Corporation for the period ended September 30, 1997 reflects the acquisition of 93% of the outstanding common stock of BioWhittaker, Inc. ("BioWhittaker") as of that date (see note (4)). The results of operations for the nine months ended September 30, 1997 are not necessarily indicative of the results to be expected for the full year. (2) Inventories Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market and include material, labor, and overhead. Inventories at September 30, 1997 and December 31, 1996 consist of the following:
September 30, December 31, 1997 1996 ---- ---- Finished goods ............................... $40,266 $29,443 Work in process .............................. 23,592 15,463 Raw materials ................................ 23,809 13,179 Fuel oil and supplies ........................ 5,594 6,124 ------- ------- Total .................................... $93,261 $64,209 ======= =======
(3) Earnings Per Common Share Earnings per common share of common stock are computed on the basis of the weighted average shares of common stock outstanding plus common stock equivalent shares arising from the effect of dilutive stock options, using the treasury stock method. -6- 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (4) Mergers and Acquisition On September 30, 1997, Cambrex acquired approximately 93% of the outstanding common stock of BioWhittaker for approximately $116,000 ($111,000, net of cash acquired). The remaining 7% of the outstanding common stock was subsequently acquired on October 3, 1997. The total purchase price was approximately $135,000 which was financed by the Company's new Credit Agreement. The acquisition has been accounted for as a purchase transaction and as such, the financial statements as of September 30, 1997, reflect the preliminary allocation of the purchase price which is subject to revision when final analyses of such values are completed. The excess of the purchase price over the fair value of the net assets acquired was approximately $89,000 and has been recorded as goodwill and, accordingly, will be amortized over 20 years. The goodwill reflected in the Company's September 30, 1997 consolidated balance sheet was approximately $68,000 which represents approximately 93% of the value associated with the outstanding common stock of BioWhittaker owned by the Company as of that date. Management is currently reviewing the assets and liabilities of BioWhittaker to determine what amount, if any, of the purchase price should be allocated to in-process research and development. This amount would represent the value of BioWhittaker's research and development efforts which had not reached commercial viability with no alternative future use and would, therefore, be immediately expensed as required by generally accepted accounting principles. Unaudited pro forma results of operations of the Company and BioWhittaker for the nine months ended September 30, 1997 and 1996, as if it had occurred on January 1, 1996 are listed below.
9 months ended September 30, 1997 1996 -------------- -------------- Net revenues ......................... $ 314,634 $ 308,841 Net income ........................... 23,831 14,787 Earnings per share Primary .......................... 1.91 1.25 Fully diluted .................... 1.91 1.24
The unaudited pro forma adjustments give effect to the depreciation of property, plant and equipment, amortization of the goodwill, interest on the debt assumed to finance the acquisition, and the tax effects of each of these items. The unaudited pro forma information is not necessarily indicative of the results of operations that would have occurred had the combination been in effect at January 1, 1997, nor of future results of operations of the combined companies. -7- 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) Assets acquired and liabilities assumed are as follows (giving effect to the total purchase price):
Cash .................................................... $ 4,557 Receivables ............................................. 6,795 Inventories ............................................. 25,081 Deferred tax asset ...................................... 224 Other current assets .................................... 2,202 Property, plant & equipment ............................. 24,190 Goodwill ................................................ 89,108 Other assets ............................................ 89 Accounts payable and accrued liabilities ................ (9,905) Income taxes payable .................................... (1,493) Long term debt .......................................... (1,755) Deferred tax liabilities ................................ (4,325) --------- $ 134,768
(5) Future Impact of Recent Accounting Pronouncements Statement of Financial Accounting Standards No. 128 "Earnings Per Share" changes the reporting requirements for earnings per share (EPS) for publicly traded companies by replacing primary EPS with basic EPS and changing the disclosures associated with this change. The Company is required to adopt this standard in the fourth quarter of 1997 and is currently evaluating the impact of this standard. Statement of Financial Accounting Standards No. 129 "Disclosure of Information About Capital Structure" requires all companies to disclose specific information concerning the entity's capital structure. The Company is required to adopt this standard in the fourth quarter of 1997 and anticipates that the adoption of this standard will not have an effect on the current presentation of such information. Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" requires that comprehensive income and its components be reported in the financial statements. The Company is required to adopt this standard in 1998 and is currently evaluating this standard. Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" requires that publicly traded companies report financial and descriptive information about its reportable operating segments. The Company is required to adopt this standard in 1998 and is currently evaluating the impact of this standard. -8- 9 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (6) Short-term Debt Short-term debt at September 30, 1997 and December 31, 1996 consists of the following:
September 30, December 31, 1997 1996 ---- ---- Export financing facility, Italy ............... $2,531 $2,760 Overdraft protection ........................... -- 1,120 ------ ------ Total ...................................... $2,531 $3,880 ====== ======
(7) Long-term Debt Long-term debt at September 30, 1997 and December 31, 1996 consists of the following:
September 30, December 31, 1997 1996 ---- ---- Bank credit facilities ...................... $185,400 $66,000 Capital lease ............................... -- 13 Notes payable ............................... 2,869 1,370 -------- ------- Subtotal .................................. 188,269 67,383 Less: current portion ...................... 766 7,231 -------- ------- Total ................................... $187,503 $60,152 ======== =======
On September 16, 1997, the Company entered into a new five year Credit Agreement (the "Agreement") with a bank group headed by The Chase Manhattan Bank as Administrative Agent and The First National Bank of Chicago as Documentation Agent. The bank group has a total of 13 domestic banks and 7 international banks. The Agreement provides the Company with a $400,000 borrowing facility. The new Agreement replaces the existing Revolving Credit Agreement with NBD Bank, N.A. The Company has pledged 66% of the common stock of the Company's foreign subsidiaries as collateral. The Agreement permits the Company to choose between various interest rate options and to specify the portion of the borrowing to be covered by specific interest rate options. Under the Agreement, the interest rate options available to the Company are: (a) U.S. Prime rate or (b) LIBOR plus the applicable margin (ranging from .225% of 1% to .5% of 1%) or (c) Competitive Bid at a LIBOR Rate Borrowing or a Fixed Rate Borrowing to be determined by auction. The applicable margin is adjusted based upon the Funded Indebtedness to Cash Flow Ratio of the Company. Additionally, the Company pays a commitment fee of between .15% of 1% to .25% of 1% on the entire portion of the Agreement. -9- 10 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) On September 16, 1997, the Company utilized $60,000 of the Agreement in order to repay the outstanding balance under the existing Revolving Credit Agreement. On September 30, 1997, the Company borrowed $126,000 to finance the acquisition of the outstanding common stock of BioWhittaker. Of this amount, approximately $116,000 was utilized on September 30, 1997 to acquire the 93% of BioWhittaker common stock which had been tendered at that date. The undrawn borrowing availability under the Agreement as of September 30, 1997 was $214,600. The Agreement is subject to financial covenants requiring the Company to maintain certain levels of net worth and an interest coverage ratio, as well as a limitation on indebtedness. The Company met all of the bank covenants for the first nine months of 1997. (8) Derivative Financial Instruments The Company uses derivative financial instruments to reduce exposures to market risks resulting from fluctuations in interest rates and foreign exchange. The Company does not enter into financial instruments for trading or speculative purposes. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap and forward exchange contracts. However, the Company does not anticipate nonperformance by the counterparties. Gains and losses on foreign currency forward exchange contracts pertaining to existing assets or liabilities, or hedges of firm commitments are deferred and are recognized in income as part of the related transactions. Interest Rate Swap Agreements The Company enters into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt. The swap agreements are contracts to exchange floating rate for fixed interest payments periodically over the life of the agreements without the exchange of the underlying notional amounts. Notional amounts provide an indication of the extent of the Company's involvement in such agreements but do not represent its exposure to market risk. Interest expense under these agreements, and the respective debt instruments that they hedge, are recorded at the net effective interest rate of the hedged transactions. -10- 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) Foreign Exchange Instruments The Company's policy is to enter into forward exchange contracts to hedge foreign currency transactions. This hedging mitigates the impact of short-term foreign exchange rate movements on the Company's operating results primarily in the United Kingdom, Sweden and Italy. The Company's primary market risk relates to exposure to foreign currency exchange rate fluctuations on transactions entered into by these foreign operations which are denominated primarily in U.S. dollars, Deutsche marks and British pound sterling. As a matter of policy, the Company does not hedge to protect the translated results of foreign operations. Generally, the Company's forward exchange contracts do not subject the Company's results of operations to risk due to exchange rate movements because gains and losses on these contracts generally offset gains and losses on the transactions being hedged. The forward exchange contracts have varying maturities with none exceeding twelve months. The Company makes net settlements for forward exchange contracts at maturity, based upon negotiated rates at inception of the contracts.
9 Months Ended September 30, 1997 --------------------------------- Notional Fair Unrealized Amounts Values Gains Losses -------- ------ ----- ---------- Forward exchange contracts ........... $33,302 $33,478 $377 $452
(9) Shares Held in Trust In 1995, the Company amended its non-qualified deferred compensation plan to permit plan participants to defer receipt of Company stock which would otherwise have been issued to the participants upon the exercise of the Company's stock options. Such shares are held in trust and thus are included as a reduction of equity. The Company has established a corresponding liability to the plan participants in the amount of $1,235 and $718 which is included in other noncurrent liabilities at September 30, 1997 and December 31, 1996, respectively. (10) Other Income/Expense Other income of $966 for the quarter ended September 30, 1997 compares to $183 in the same period in 1996. The 1997 Other Income includes a $954 gain on foreign currency as a result of the settlement of a foreign denominated loan. (11) Contingencies Refer to Form 10-K for the fiscal year ended December 31, 1996, for disclosure of existing contingencies related to environmental issues. During November 1997, the Company reached a favorable settlement concerning the remediation of two locations for which a Company subsidiary had been identified to remediate under various Federal and State statutes. This settlement will result in funds being placed in a trust dedicated to remediation of the sites. The Company is currently evaluating the effects of this settlement on its environmental contingency reserves. -11- 12 CAMBREX CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per-share amounts) RESULTS OF OPERATIONS The third quarter 1997 results were higher than the third quarter 1996 due to the higher gross margins, reduced operating expenses, reduced interest costs, and a gain on foreign exchange included in other income. The effective tax rate for the quarter ended September 1997 was 32% as compared with 35% for the same period in 1996. The following table shows the gross sales of the Company's five product categories, in dollars and as a percentage of the Company's total gross sales, as well as the net revenues and gross profit for the third quarter 1997 and 1996.
Third Quarter Ended September 30, --------------------------------- 1997 1996 ---- ---- $ % $ % --- --- --- --- Pharmaceutical bulk actives .. $25,985 31.4% $23,993 27.2% Pharmaceutical intermediates . 18,743 22.7 15,199 17.2 Organic intermediates ........ 10,722 13.0 15,746 17.8 Performance enhancers ........ 15,811 19.1 19,432 22.0 Polymer systems .............. 11,377 13.8 13,948 15.8 ------- ------- ------- ------- Total gross sales ...... $82,638 100.0% $88,318 100.0% ======= ======= ======= ======= Total net revenues ..... $81,365 $86,046 ======= ======= Total gross profit ...... $24,558 $25,002 ======= =======
The following table shows the gross sales and gross profit of the Company's five product categories, and gross profit as a percentage of each product category, for the third quarter 1997 and 1996.
Gross Gross Gross Sales Profit $ Profit % ----- -------- -------- 1997 - ---- Pharmaceutical bulk actives ....... $25,985 $10,375 39.9% Pharmaceutical intermediates ...... 18,743 5,216 27.8 Organic intermediates ............. 10,722 969 9.0 Performance enhancers ............. 15,811 4,521 28.6 Polymer systems ................... 11,377 3,477 30.6 ------- ------- ------ Total ........................ $82,638 $24,558 29.7% ======= ======= ======
-12- 13
Gross Gross Gross Sales Profit $ Profit % ----- -------- -------- 1996 - ---- Pharmaceutical bulk actives ....... $23,993 $ 7,655 31.9% Pharmaceutical intermediates ...... 15,199 3,371 22.2 Organic intermediates ............. 15,746 3,272 20.8 Performance enhancers ............. 19,432 6,246 32.1 Polymer systems ................... 13,948 4,458 32.0 ------- ------- ------ Total ........................ $88,318 $25,002 28.3% ======= ======= ======
Gross sales in the third quarter 1997 decreased to $82,638 compared to $88,318 in the third quarter 1996 due to decreases in Organic Intermediates, Performance Enhancers and Polymer Systems product categories, partially offset by increases in the Pharmaceutical Bulk Actives and Pharmaceutical Intermediates product categories. The effect of foreign currency exchange rates on gross sales for the third quarter 1997 shows a reduction in sales of $2,481 compared to the exchange rates used in 1996. 1997 third quarter gross sales would have been $85,119 using 1996 exchange rates compared to 1996 third quarter sales of $88,318. Pharmaceutical bulk actives of $25,985 were $1,992 (8%) above the third quarter 1996. Sales of Glipizide, an anti-diabetic, was favorably affected by the increase in customer demand while 1996 was affected by the availability of raw materials. Sales of Sulfasalazine, used for ulcerative colitis, was above last year after a 1996 disruption in the order patterns. Additionally, a product for treating ulcers, which was introduced in the second quarter of 1997, amounted to sales of $4.0 million in the third quarter 1997. Sales were negatively impacted by changes in foreign currency which reduced the sales by approximately 7%. Pharmaceutical intermediates of $18,743 were $3,544 (23%) above the third quarter 1996 primarily due to the continued shipments of an intermediate for a protease inhibitor used in the treatment of AIDS, as well as amino-pyridines used in various pharmaceutical products. Additionally, new products used as intermediates for health actives generated $1.1 million in sales. Organic intermediates of $10,722 were $5,024 (32%) below the third quarter 1996 due to lower pyridine shipments to a major customer who has been reducing on-hand inventory. Additionally, Feed Grade Vitamin B3 was adversely affected by both price pressure and lower demand. Sales of 3-Nitro (a poultry food additive) decreased due to reduced production as equipment replacement projects were completed in the quarter. Performance enhancers of $15,811 were $3,621 (19%) below the third quarter 1996. Key decreases occurred in photographic products which were impacted by reduced demand from a large customer, and by a timing difference in production campaigns of a polycarbonate additive. -13- 14 Polymer systems of $11,377 were $2,571 (18%) lower than the third quarter 1996 primarily due to reduced demand from a major customer who is switching over to a new encapsulant product developed by Cambrex. Coating products were also reduced as a result of management's continued focus on eliminating marginal product lines. Export sales from U.S. businesses of $9,100 in the third quarter 1997 compared to $11,670 in the third quarter 1996. This decrease was the result of lower pricing and volume in the feedgrade niacinamide market. International sales from our European operations totaled $36,165 for the same period in 1997 as compared with $37,515 in 1996. Total gross profit of $24,558 decreased $444 or 2%, from the third quarter 1996 due to the reduced sales, foreign exchange impact on sales, costs associated with scheduled plant downtime and higher raw materials in our organic intermediates businesses. The gross margin as a percentage of gross sales increased to 29.7%, up from 28.3% in the third quarter of 1996. This margin improvement was due to the higher pharmaceutical bulk and intermediates sales. Selling, general and administrative and research and development expenses as a percentage of gross sales was 16.9%, up from 16.2% in the third quarter 1996. However, the third quarter 1997 expense of $13,974 was $0.3 million below 1996. Net interest expense of $525 reflected a decrease of $983 from 1996. This decline was due to the additional cash flow from operations used to pay down outstanding loans from September, 1996. The average interest rate was 6.9% in the third quarter 1997 vs. 7.6% for the same period in 1996. Other income of $966 for the quarter ended September 30, 1997 compares to $183 of other income in the same period in 1996. The 1997 income included $0.9 million in exchange on the settlement of a foreign denominated loan. The provision for income taxes for the third quarter resulted in an effective rate of 32% versus 35% in the comparable period in 1996. This was due to the implementation of tax planning strategies and the projected composition of taxable income between domestic and international operations. However, actual results may differ in the event of changes in tax regulations or deviations from projections. The Company's third quarter net income increased 23% to $7,531 compared with a net income of $6,101 in 1996. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended September 30, 1997, the Company generated cash flows from operations totaling $41,543, a decrease of $9,359 over the comparable period in 1996. The decrease is attributable to a reduction in income taxes payable due to 1997 tax payments, as well as an increase in inventories and receivables after removing the impact of exchange rate fluctuations. This decrease from these factors was offset by the increased earnings in 1997. -14- 15 Capital expenditures were $25,395 in the first nine months of 1997 as compared to $21,080 in the first nine months of 1996. The major portion of the funds were used for construction of the pilot plants at our Salsbury, Iowa and Zeeland, Michigan facilities. Acquisition of Business was approximately $116,000 ($111,400, net of cash acquired) for the nine months ended September 30, 1997. This was for the acquisition of 93% of the common stock of BioWhittaker, Inc. in the third quarter, 1997. On September 16, 1997, the Company entered into a new five year Credit Agreement (the "Agreement") with a bank group headed by The Chase Manhattan Bank as Administrative Agent and The First National Bank of Chicago as Documentation Agent. The bank group has a total of 13 domestic banks and 7 international banks. The Agreement provides the Company with a $400,000 borrowing facility. The new Agreement replaces the existing Revolving Credit Agreement with NBD Bank, N.A. The Company has pledged 66% of the common stock of the Company's foreign subsidiaries as collateral. The Agreement permits the Company to choose between various interest rate options and to specify the portion of the borrowing to be covered by specific interest rate options. Under the Agreement, the interest rate options available to the Company are: (a) U.S. Prime rate of (b) LIBOR plus the applicable margin (ranging from .225% of 1% to .5% of 1%) or (c) Competitive Bid at a LIBOR Rate Borrowing or a Fixed Rate Borrowing to be determined by auction. The applicable margin is adjusted based upon the Funded Indebtedness to Cash Flow Ratio of the Company. Additionally, the Company pays a commitment fee of between .15% of 1% to.25% of 1% on the entire portion of the Agreement. On September 16, 1997, the Company utilized $60,000 of the Agreement in order to repay the outstanding balance under the existing Revolving Credit Agreement. On September 30, 1997, the Company borrowed $126,000 to finance the acquisition of the outstanding common stock of BioWhittaker. Of this amount, $116,000 was utilized on September 30, 1997 to acquire the 93% of BioWhittaker shares which had been tendered at that date. The undrawn borrowing availability under the Agreement as of September 30, 1997 was $214,600. There is $184,500 outstanding as of September 30, 1997. During October 1997, the Company entered into an additional interest rate swap agreement to exchange variable interest for fixed interest in the notional amount of $10,000. This agreement matures during the year 2000 and brings the notional amount of the Company's borrowings which are subject to interest rate swap agreement to $50,000. During the third quarter 1997, the Company paid cash dividends of $0.05 per share. -15- 16 The Company's primary market risk relates to exposure to foreign currency exchange rate fluctuations on transactions entered into by our foreign operations which are primarily denominated in the U.S. dollar, Deutsche mark and British pound sterling. The Company uses foreign currency forward exchange contracts to mitigate the effect of short-term foreign exchange rate movements on the Company's operating results. The notional amount of these contracts is $33,302 which the Company estimates to be approximately 45% of the foreign currency exposure during the period covered. As of September 30, 1997, the deferred currency loss on these contracts is $74. An additional $2,531 (3%) of the foreign currency exposure is protected through export financing. -16- 17 PART II - OTHER INFORMATION CAMBREX CORPORATION AND SUBSIDIARIES Item 4. Matters Submitted to a Vote of Securities Holders. Refer to Form 10-Q for the quarterly period ended March 31, 1997. Item 6. Exhibits and Reports on Form 8-K a) The exhibits filed as part of this report are listed below. Exhibit No. Description 11 Statement of computation of per share earnings. 27 Financial Data Schedule. b) Reports on Form 8-K On October 8, 1997, the Company filed a Form 8-K in relation to its acquisition of BioWhittaker, Inc. -17- 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMBREX CORPORATION By /s/ Douglas MacMillan -------------------------------- Douglas MacMillan Vice President (On behalf of the Registrant and as the Registrant's Principal Financial Officer) Date: November 14, 1997 -18- 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMBREX CORPORATION By Douglas MacMillan Vice President (On behalf of the Registrant and as the Registrant's Principal Financial Officer) Date: November 14, 1997 -18- 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMBREX CORPORATION By Douglas MacMillan Vice President (On behalf of the Registrant and as the Registrant's Principal Financial Officer) Date: November 14, 1997 -18- 21 EXHIBIT INDEX Exhibit No. Description 11 Statement of computation of per share earnings. 27 Financial Data Schedule. EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 CAMBREX CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (in thousands)
Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- Income applicable to common shares: Primary earnings ............................ $ 7,531 $ 6,101 $23,831 $19,826 ======= ======= ======= ======= Fully diluted earnings ...................... $ 7,531 $ 6,101 $23,831 $19,826 ======= ======= ======= ======= Weighted average number of common shares and common share equivalents outstanding during the period: Common Stock ............................ 11,829 11,647 11,773 11,576 Stock Options ........................... 576 260 324 288 ------- ------- ------- ------- Shares outstanding - primary ................ 12,405 11,907 12,097 11,864 Additional stock options ................ 0 11 48 25 ------- ------- ------- ------- Shares outstanding - fully diluted .......... 12,405 11,918 12,145 11,889 ======= ======= ======= =======
-19- EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 SEP-30-1997 29,726 0 53,937 1,454 93,261 189,056 373,936 126,727 537,181 69,280 187,503 0 0 1,293 233,617 537,181 269,830 271,978 189,611 189,611 0 0 3,078 34,996 11,165 23,831 0 0 0 23,831 1.97 1.96
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