1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 1-10638
CAMBREX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-2476135
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
ONE MEADOWLANDS PLAZA, EAST RUTHERFORD, NEW JERSEY 07073
(Address of principal executive offices)
(201) 804-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of August 1, 2000, there were 25,089,828 shares outstanding of the
registrant's Common Stock, $.10 par value.
2
CAMBREX CORPORATION AND SUBSIDIARIES
FORM 10-Q
For The Quarter Ended June 30, 2000
Table of Contents
Page No.
--------
Part I Financial information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets as of
June 30, 2000 and December 31, 1999 2
Condensed consolidated income statements
for the three months and six months ended
June 30, 2000 and 1999 3
Condensed consolidated statements of comprehensive
income for the three months and six months ended
June 30, 2000 and 1999 4
Condensed consolidated statements of cash flows
for the six months ended June 30, 2000 and 1999 5
Notes to condensed consolidated financial statements 6 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 19
Part II Other information
Item 4. Matters Submitted to a Vote of Securities Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit 27 - Financial Data Schedule 22
3
Part 1 - FINANCIAL INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per-share and share data)
June 30, December 31,
2000 1999
--------- ---------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents ............................. $ 53,113 $ 39,796
Trade receivables, net ................................ 77,750 72,227
Inventories, net ...................................... 101,067 92,439
Deferred tax assets ................................... 16,422 16,422
Prepaid expenses and other current assets ............. 12,485 14,403
--------- ---------
Total current assets .............................. 260,837 235,287
Property, plant and equipment, net ........................ 292,979 280,163
Intangible assets, net .................................... 144,081 149,307
Other assets .............................................. 9,757 8,890
--------- ---------
Total assets ...................................... $ 707,654 $ 673,647
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .............. $ 68,845 $ 57,567
Income taxes payable .................................. 7,212 11,276
Short-term debt and current portion of
Long-term debt .................................... 2,491 3,279
--------- ---------
Total current liabilities ................................. 78,548 72,122
Long-term debt ............................................ 223,996 225,922
Deferred tax liabilities .................................. 59,746 55,172
Other noncurrent liabilities .............................. 28,157 25,066
--------- ---------
Total liabilities ................................. 390,447 378,282
--------- ---------
Stockholders' equity:
Common stock, $.10 par value; issued 27,077,453 and
26,719,924 shares at respective dates ............. 2,698 2,667
Additional paid-in capital ............................ 170,657 166,288
Retained earnings ..................................... 192,771 167,655
Treasury stock, at cost; 2,110,140 and 2,100,690
shares at respective dates ......................... (10,172) (10,172)
Accumulated other comprehensive loss .................. (38,747) (31,073)
--------- ---------
Total stockholders' equity ........................ 317,207 295,365
--------- ---------
Total liabilities and stockholders' equity ........ $ 707,654 $ 673,647
========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
2
4
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
(in thousands, except per-share data)
Three months ended Six months ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Gross sales ........................................................ $ 127,472 $ 123,642 $ 256,458 $ 241,161
Commissions, freight and allowances ............................ 2,360 2,300 4,670 3,515
--------- --------- --------- ---------
Net sales .......................................................... 125,112 121,342 251,788 237,646
Other revenues ................................................. 164 1,312 866 2,408
--------- --------- --------- ---------
Net revenues ....................................................... 125,276 122,654 252,654 240,054
Cost of goods sold ................................................. 76,530 79,795 157,759 156,692
--------- --------- --------- ---------
Gross Profit ....................................................... 48,746 42,859 94,895 83,362
Operating expenses:
Selling, general and administrative ............................ 20,875 19,817 41,852 39,297
Research and development ....................................... 3,504 3,291 7,235 6,900
--------- --------- --------- ---------
Total operating expenses ..................................... 24,379 23,108 49,087 46,197
Operating profit ................................................... 24,367 19,751 45,808 37,165
Other (income) expenses:
Interest expense, net .......................................... 3,146 2,050 6,022 4,227
Other (income) expense, net .................................... (142) 125 (90) 168
--------- --------- --------- ---------
Income before income taxes ......................................... 21,363 17,576 39,876 32,770
Provision for income taxes ..................................... 7,157 5,650 13,358 10,665
--------- --------- --------- ---------
Net income ......................................................... $ 14,206 $ 11,926 $ 26,518 $ 22,105
========= ========= ========= =========
Weighted average shares outstanding:
Basic .......................................................... 24,883 24,564 24,794 24,549
Effect of dilutive stock options ............................... 1,154 934 1,105 893
--------- --------- --------- ---------
Diluted ........................................................ 26,037 25,498 25,899 25,442
Earnings per share of common stock and common stock equivalents:
Basic .......................................................... $ 0.57 $ 0.49 $ 1.07 $ 0.90
========= ========= ========= =========
Diluted ........................................................ $ 0.55 $ 0.47 $ 1.02 $ 0.87
========= ========= ========= =========
Cash dividends paid per share ...................................... $ 0.03 $ 0.03 $ 0.06 $ 0.06
========= ========= ========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
3
5
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in thousands)
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net income ...................................... $ 14,206 $ 11,926 $ 26,518 $ 22,105
Other comprehensive loss
Foreign currency translation adjustments* ... (3,229) (8,120) (7,674) (16,992)
-------- -------- -------- --------
Comprehensive income ............................ $ 10,977 $ 3,806 $ 18,844 $ 5,113
======== ======== ======== ========
- ---------
* The Company does not provide for U.S. income taxes on foreign currency
translation adjustments because it does not provide for such taxes on
undistributed earnings of foreign subsidiaries.
See accompanying notes to unaudited condensed consolidated financial statements.
4
6
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six months ended
June 30,
-----------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income ............................................. $ 26,518 $ 22,105
Depreciation and amortization .......................... 23,722 20,237
Deferred income tax provision .......................... 110 269
Changes in assets and liabilities (net of assets and
liabilities acquired):
Receivables, net .................................. (3,618) (14,343)
Inventories ....................................... (7,079) 5,028
Prepaid expenses and other current assets ......... 116 (2,103)
Accounts payable and accrued liabilities .......... 10,340 16,561
Income taxes payable .............................. (3,469) (3,420)
Other noncurrent assets and liabilities ........... 561 1,786
-------- --------
Net cash provided by operating activities ......... 47,201 46,120
-------- --------
Cash flows from investing activities:
Capital expenditures ................................... (20,254) (14,302)
Acquisition of businesses (net of cash acquired) ....... (2,608) (37,336)
Other investing activities ............................. (815) (528)
-------- --------
Net cash used in investing activities ............. (23,677) (52,166)
-------- --------
Cash flows from financing activities:
Dividends .............................................. (1,482) (1,471)
Net decrease in short-term debt ........................ (2,841) (1,693)
Long-term debt activity (including current portion):
Borrowings ........................................ 28,300 6,000
Repayments ........................................ (31,067) (9,554)
Proceeds from the issuance of common stock ............. 4,401 781
Purchase of treasury stock ............................. -- (446)
-------- --------
Net cash provided by financing activities ......... (2,689) (6,383)
-------- --------
Effect of exchange rate changes on cash .................... (7,518) (13,144)
-------- --------
Net increase/(decrease) in cash and cash equivalents ....... 13,317 (25,573)
Cash and cash equivalents at beginning of period ........... 39,796 48,527
-------- --------
Cash and cash equivalents at end of period ................. $ 53,113 $ 22,954
======== ========
Supplemental disclosure:
Interest paid (net of capitalized interest) ............ $ 7,443 $ 4,392
Income taxes paid ...................................... $ 6,513 $ 12,373
Depreciation expense ................................... $ 18,520 $ 16,012
See accompanying notes to unaudited condensed consolidated financial statements.
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7
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share amounts)
(1) BASIS OF PRESENTATION
Unless otherwise indicated by the context, "Cambrex" or the "Company"
means Cambrex Corporation and subsidiaries.
The accompanying unaudited Condensed Consolidated Financial Statements
have been prepared from the records of the Company. In the opinion of
management, the financial statements include all adjustments necessary for a
fair presentation of financial position and results of operations in conformity
with generally accepted accounting principles. These interim financial
statements should be read in conjunction with the financial statements for the
year ended December 31, 1999.
The results of operations for the three months and six months ended June
30, 2000 are not necessarily indicative of the results to be expected for the
full year.
(2) INVENTORIES
Inventories at June 30, 2000 and December 31, 1999 consist of the
following:
June 30, December 31,
2000 1999
-------- --------
Finished goods ............................ $ 39,165 $ 34,509
Work in process ........................... 29,910 27,214
Raw materials ............................. 27,684 26,322
Fuel oil and supplies ..................... 4,308 4,394
-------- --------
Total ................................. $101,067 $ 92,439
======== ========
(3) ACQUISITIONS
On March 2, 2000, the Company completed the acquisition of Conti BPC NV,
a manufacturer and supplier of pharmaceutical intermediates and active
pharmaceutical ingredients, located in Landen, Belgium. The Company paid
approximately $6,200 in cash and assumed debt for the business. The acquisition
has been accounted for under the purchase method of accounting. Assets acquired
and liabilities assumed have been recorded at their estimated fair values, and
are subject to adjustment when additional information concerning asset and
liability valuations is finalized. At the time of the transaction, goodwill was
recorded at $910 and will be amortized over 20 years.
Proforma information is not presented, as the acquired company's results
of operations prior to the date of acquisition are not material to the Company.
6
8
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LONG-TERM DEBT
Long-term debt at June 30, 2000 and December 31, 1999 consists of the
following:
June 30, December 31,
2000 1999
-------- --------
Bank credit facilities ...................... $218,000 $218,500
Other ....................................... 6,450 7,888
-------- --------
Subtotal ................................ $224,450 $226,388
Less: current portion ...................... 454 466
-------- --------
Total ................................... $223,996 $225,922
======== ========
The Company was in compliance with all bank covenants for the first six
months of 2000.
(5) SEGMENT INFORMATION
Following is a summary of business segment information for the following
dates:
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Gross Sales:
Human Health .................... $ 60,784 $ 59,065 $ 122,196 $ 114,710
Biosciences ..................... 24,423 17,353 49,627 34,972
Animal Health/Agriculture ....... 15,148 15,666 27,307 31,522
Specialty and Fine Chemicals .... 27,117 31,558 57,328 59,957
--------- --------- --------- ---------
Total ........................... $ 127,472 $ 123,642 $ 256,458 $ 241,161
========= ========= ========= =========
Gross Profit:
Human Health .................... $ 25,042 $ 23,513 $ 49,589 $ 45,083
Biosciences ..................... 13,381 8,078 27,181 17,153
Animal Health/Agriculture ....... 2,994 3,514 4,612 6,404
Specialty and Fine Chemicals .... 7,329 7,754 13,513 14,722
--------- --------- --------- ---------
Total ........................... $ 48,746 $ 42,859 $ 94,895 $ 83,362
========= ========= ========= =========
Net Income:
Biosciences ..................... $ 1,541 $ (209) $ 3,321 $ 261
Human Health, Animal Health/
Agriculture & Specialty and
Fine Chemicals ................ 12,665 12,135 23,197 21,844
--------- --------- --------- ---------
Total ........................... $ 14,206 $ 11,926 $ 26,518 $ 22,105
========= ========= ========= =========
Capital Spending:
Biosciences ..................... $ 1,310 $ 469 $ 2,615 $ 953
Human Health, Animal Health/
Agriculture & Specialty and
Fine Chemicals ................ 10,819 7,603 17,639 13,349
--------- --------- --------- ---------
Total ........................... $ 12,129 $ 8,072 $ 20,254 $ 14,302
========= ========= ========= =========
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9
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) SEGMENT INFORMATION (CONTINUED)
Three months ended Six months ended
June 30, June 30,
--------------------- ----------------------
2000 1999 2000 1999
------- -------- -------- --------
Depreciation:
Biosciences ........................................................ $ 1,179 245 1,952 838
Human Health, Animal Health/
Agriculture & Specialty and
Fine Chemicals ................................................... 8,303 7,583 16,568 15,174
------- -------- -------- --------
Total .............................................................. $ 9,482 $ 7,828 $ 18,520 $ 16,012
======= ======== ======== ========
Amortization:
Biosciences ........................................................ $ 1,342 1,136 2,908 2,273
Human Health, Animal Health/
Agriculture & Specialty and
Fine Chemicals ................................................... 760 949 2,294 1,952
------- -------- -------- --------
Total .............................................................. $ 2,102 $ 2,085 $ 5,202 $ 4,225
======= ======== ======== ========
June 30, December 31,
2000 1999
-------- --------
Total Assets:
Biosciences ........................................................ $188,974 $186,405
Human Health, Animal Health/
Agriculture & Specialty and
Fine Chemicals ................................................... 518,680 487,242
-------- --------
Total .............................................................. $707,654 $673,647
======== ========
(6) CONTINGENCIES
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary course
of its business activities.
Environmental
In connection with laws and regulations pertaining to the protection of
the environment, the Company is a party to several environmental remediation
investigations and cleanups and, along with other companies, has been named a
"potentially responsible party" for certain waste disposal sites (Superfund
sites). Each of these matters is subject to various uncertainties, and it is
possible that some of these matters will be decided unfavorably against the
Company. The Company had accruals, included in current accrued liabilities and
other noncurrent liabilities, of $6,300 at June 30, 2000, and $3,400 at December
31, 1999, for costs associated with the study and remediation of Superfund sites
and current and former Company's operating sites and other potential
environmental liabilities for matters that are probable and reasonably
estimable. On March 2, 2000, the Company completed the acquisition of Conti BPC
NV in Landen, Belgium. In connection with this acquisition, the Company
established an accrual of $3,000, which is included in the $6,300 annual above.
This liability has been recorded at its estimated fair value and is subject to
adjustment
8
10
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) CONTINGENCIES (CONTINUED)
when information concerning this liability is finalized. In addition, in the
first quarter 2000, the Company settled certain environmental claims involving
the Cosan Chemical Corporation (a subsidiary) with insurance companies for
recoveries of $900. This amount was recorded in selling, general and
administrative expenses. After reviewing information currently available,
management believes any amounts paid in excess of the accrued liabilities will
not have a material effect on its financial position or results of operations.
However, these matters, if resolved in a manner different from the estimates,
could have a material adverse effect on the Company's financial condition,
operating results and cash flows when resolved in a future reporting period.
Litigation
The Company and its subsidiary, Profarmaco S.r.l. ("Profarmaco") were
named as defendants in a proceeding instituted by the Federal Trade Commission
("FTC") on December 21, 1998, in the United States District Court for the
District of Columbia. The complaint alleges that exclusive license agreements
which Profarmaco entered into with Mylan Laboratories, Inc. ("Mylan") covering
the drug master files for (and, therefore, the right to buy and use) two active
pharmaceutical ingredients ("APIs"), lorazepam and clorazepate, were part of an
effort on Mylan's part to restrict competition in the supply of lorazepam and
clorazepate and to increase the price charged for these products when Mylan sold
them as generic pharmaceuticals. The complaint further alleges that these
agreements violate the Federal Trade Commission Act, and that Mylan, Cambrex,
Profarmaco, and Gyma Laboratories of America, Inc., Profarmaco's distributor in
the United States, engaged in an unlawful restraint of trade and conspired to
monopolize and attempted to monopolize the markets for the generic
pharmaceuticals incorporating the APIs.
The FTC seeks a permanent injunction and other relief, including
disgorgement of the profits generated through the licensing arrangements, which
the FTC alleges to be in excess of $120,000 for all defendants. In accordance
with the license agreement, the Company received royalties of approximately
$19,300 and $1,000 for the years ended December 31, 1998 and 1997, respectively.
A lawsuit making similar allegations against the Company and Profarmaco,
and seeking injunctive relief and treble damages, has been filed by the
Attorneys General of several states and the District of Columbia in the United
States District Court for the District of Columbia on behalf of those states and
persons in those states who were purchasers of the generic pharmaceuticals. The
Company and Profarmaco have also been named in purported class action complaints
brought by private plaintiffs in various state courts on behalf of purchasers of
lorazepam and clorazepate in generic form, making allegations essentially
similar to those raised in the FTC's complaint and seeking various forms of
relief including treble damages.
9
11
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) CONTINGENCIES (CONTINUED)
The Company strongly believes that its licensing arrangements with Mylan
are in accordance with regulatory requirements and will vigorously defend the
FTC's actions and various other lawsuits and class actions. However, the Company
and Mylan have terminated the exclusive licenses to the drug master files as of
December 31, 1998. In entering these licensing arrangements, the Company elected
not to raise the price of its products and had no control or influence over the
pricing of the final generic product. On July 12, 2000 Mylan reached agreement
in principle for itself and on behalf of the Company, Profarmaco and Gyma, with
the FTC, the Attorneys General of the various states and most class action
litigants. Final settlement agreements are being negotiated with the FTC,
States' Attorneys General and the lawyers representing private plaintiffs. Some
private litigation will continue. Under the terms of the Agreement, Mylan has
agreed to indemnify the Company and Profarmaco against damages, losses, costs
and expenses arising from any claim, lawsuit or other action.
On May 14, 1998, the Company's Nepera subsidiary, a manufacturer and
seller of niacinamide (Vitamin B-3) received a Federal Grand Jury subpoena for
the production of documents relating to the pricing and possible customer
allocation with regard to that product. The Company understands that the
subpoena was issued as part of the Federal Government's ongoing anti-trust
investigation into various business practices in the vitamin industry generally.
In the forth quarter of 1999, the Company reached a settlement in principle with
the government concerning Nepera's alleged role in Vitamin B-3 violations from
1992 to 1995. On May 5, 2000, this government settlement was finalized with
Nepera entering into a voluntary plea agreement with the Department of Justice.
Under this agreement on August 4, 2000 Nepera entered a plea of guilty to one
count of price fixing and market allocation of Vitamin B3 from 1992 to 1995 in
violation of section one of the Sherman Act and agreed to pay a fine of $4,000.
This agreement is subject to review and approval by the United States District
Court for the Northern District of Texas. Nepera has been named as a defendant,
along with several other companies, in a number of civil actions brought on
behalf of alleged purchasers of Vitamin B-3. In the fourth quarter of 1999 the
Company accrued $6,000 to cover settlement and related litigation and legal
expenses. This accrual has been recorded in accounts payable and accrued
liabilities. The balance at June 30, 2000 is $5,833.
While it is not possible to predict with certainty the outcome of the
above litigation matters and various other lawsuits, it is the opinion of
management that the ultimate resolution of these proceedings should not have a
material adverse effect on the Company's results of operations, cash flows and
financial position. These matters, if resolved in an unfavorable manner, could
have a material effect on the operating results and cash flows when resolved in
a future reporting period.
10
12
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 was originally effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. In June 1999,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS
137). SFAS 137 defers the effective date of SFAS 133 for all fiscal quarters of
all fiscal years beginning after June 15, 2000 (January 1, 2001 for the
Company). In June 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133" (SFAS 138). SFAS 138 amends the accounting and reporting
standards of SFAS 133 for certain derivative instruments and certain hedging
activities." The Company is evaluating the impact that the adoption of these
pronouncements will have on its earnings, comprehensive income and financial
position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No 101 ("SAB 101") which provides guidelines in
applying generally accepted accounting principles to certain revenue recognition
issues. Subsequently, the SEC has issued related guidance, which has extended
the implementation date of SAB 101 until the fourth quarter of 2000. The Company
does not expect this statement to have a material impact on its financial
statements.
(8) SUBSEQUENT EVENTS
On July 24, 2000, Cambrex announced the purchase of LumiTech Limited,
located in Nottingham, U.K. for $4.3 million at closing, with additional future
performance based payments of up to $16 million over the next five years.
LumiTech provides products and services used in the high throughput screening
market for drug discovery.
11
13
CAMBREX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per-share amounts)
RESULTS OF OPERATIONS
COMPARISON OF SECOND QUARTER 2000 VERSUS SECOND QUARTER 1999
The results for the second quarter of 2000 improved upon the same period a year
ago due to increased sales in the Human Health and Biosciences Segments and the
higher gross margin on sales.
The following tables show the gross sales of the Company's four segments, in
dollars and as a percentage of the Company's total gross sales for the quarters
ended June 30, 2000 and 1999.
Quarter Ended June 30,
---------------------------------------------------
2000 1999
---------------------- ----------------------
$ % $ %
-------- -------- -------- --------
Human Health ................... $ 60,784 47.7% $ 59,065 47.8%
Biosciences .................... 24,423 19.2 17,353 14.0
Animal Health/Agriculture ...... 15,148 11.9 15,666 12.7
Specialty and Fine Chemicals ... 27,117 21.2 31,558 25.5
-------- -------- -------- --------
Total gross sales ........ $127,472 100.0% $123,642 100.0%
======== ======== ======== ========
The following table shows the gross profit of the Company's four product
segments for the second quarter 2000 and 1999.
Gross Gross Gross
Sales Profit $ Profit %
-------- -------- --------
2000
Human Health ............................ $ 60,784 $ 25,042 41.2%
Biosciences ............................. 24,423 13,381 54.8
Animal Health/Agriculture ............... 15,148 2,994 19.8
Specialty and Fine Chemicals ............ 27,117 7,329 27.0
-------- -------- --------
Total ............................. $127,472 $ 48,746 38.2%
======== ======== ========
Gross Gross Gross
Sales Profit $ Profit %
-------- -------- --------
1999
Human Health ............................ $ 59,065 $ 23,513 39.8%
Biosciences ............................. 17,353 8,078 46.6
Animal Health/Agriculture ............... 15,666 3,514 22.4
Specialty and Fine Chemicals ............ 31,558 7,754 24.6
-------- -------- --------
Total ............................. $123,642 $ 42,859 34.7%
======== ======== ========
12
14
RESULTS OF OPERATIONS (CONTINUED)
Gross sales in the second quarter 2000 increased 3.1% to $127,472 from $123,642
in the second quarter 1999. Sales in the Human Health and Biosciences Segments
increased compared to the first quarter 2000 and more than offset the decreases
in the Animal Health/Agricultural and Specialty and Fine Chemicals Segments.
The Human Health Segment gross sales of $60,784 were $1,719 (2.9%) above the
second quarter 1999. Gross sales were above the prior year primarily due to
sales generated by Conti, which was acquired in March 2000, as well as increased
demand for pharmaceuticals used in cardiovascular and central nervous system
products. Partially offsetting these increases were the impact of currency and
reduced sales of gastro-intestinal products in the European markets primarily as
the result of temporary customer overstock positions. In addition, the company
eliminated certain lower margin products in x-ray contrast media which were
under pricing pressure.
The Biosciences Segment gross sales of $24,423 were $7,070 (40.7%) above the
second quarter 1999 primarily due to the acquisition of BioWhittaker Molecular
Applications, Inc. (formerly the BioProducts business of FMC Corporation), as
well as from increased shipments of cell culture products. Media and serum sales
were impacted by the lack of available raw materials.
The Animal Health/Agriculture Segment gross sales of $15,148 in the second
quarter 2000 were $518 (3.3%) below the second quarter 1999. The second quarter
decrease was mainly due to reduced sales of Agricultural Intermediates due to
lower shipments of 2-cyanopyridine and pyridine derivatives. Sales of
2-cyanopyridine are expected to be up for all of 2000, but were lower in the
second quarter due to the timing of customer orders. Pyridine derivative
products were lower due to reduced shipments to a major customer. Animal Health
products were above the second quarter 1999 due to increased shipments of
poultry feed additive.
The Specialty and Fine Chemicals Segment gross sales of $27,117 decreased $4,441
(14.1%) from the second quarter 1999 reflecting decreased sales of encapsulants
used in the telecommunications industry as a result of customer consolidation,
specialty additives used in polycarbonate resins, and reduction of low margin
castor oil products sold to the commodity market. The sales shortfall of the
specialty additives used in polycarbonate resins was due to the timing of a
production campaign.
Export sales from U.S. businesses of $15,691 in the second quarter 2000
increased 11% from $14,085 in the second quarter 1999. International sales from
our European operations totaled $57,328 for the second quarter of 2000 as
compared with $50,288 in 1999, an increase of 14%.
The gross profit in the second quarter 2000 was $48,746 compared to $42,859 in
1999. The gross margin percentage increased to 38.2% in the second quarter 2000
from 34.7% in 1999. Gross margins improved in all segments except Animal Health
/ Agriculture. The margin for Human Health and Specialty and Fine Chemicals were
ahead of the second quarter 1999 due to the elimination of low margin products
and improved mix of products sold. The Biosciences Segment gross margin of 54.8%
improved due to operating efficiencies and the effect of the acquisition of
BioWhittaker Molecular Applications. The gross margin percent for the Animal
Health/Agriculture Segment was adversely affected by increased raw material
prices.
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RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expenses as a percentage of gross sales were
16.3% in the second quarter 2000, up from 16.1% in the second quarter 1999. The
second quarter 2000 expenses included the added administration costs of the
acquisitions of BioWhittaker Molecular Applications in July 1999 and Conti in
March 2000.
Research and development expenses of $3,504 were 2.8% of gross sales in the
second quarter 2000, and represented a 6.5% increase from 1999. This increase
was primarily due to research costs resulting from the acquisition of
BioWhittaker Molecular Applications.
The operating profit in the second quarter 2000 was $24,367, an increase of
23.4% compared to $19,751 in 1999 due to the increased sales volume and improved
gross margin.
Net interest expense of $3,146 in the second quarter 2000 reflected an increase
of $1,096 from 1999 as a result of the additional financing by the Company for
the acquisitions of BioWhittaker Molecular Applications and Conti and the
increase in the interest rate. The average interest rate was 7.0% in the second
quarter 2000 versus 5.8% in 1999.
The provision for income taxes for the second quarter 2000 resulted in an
effective rate of 33.5% as compared with 32.1% in the second quarter 1999. The
increase is due to a larger percentage of European earnings, which are taxed at
a higher rate.
The Company's net income for the second quarter 2000 increased 19.1% to $14,206
compared with a net income of $11,926 in the second quarter 1999.
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COMPARISON OF FIRST SIX MONTHS OF 2000 VERSUS FIRST SIX MONTHS OF 1999
Results in the first half of 2000 were above the comparable 1999 period due to
the increase in sales in the Human Health and Biosciences Segments, and the
higher gross margin on sales.
The following tables show the gross sales of the Company's four segments, in
dollars and as a percentage of the Company's total gross sales for the first
half 2000 and 1999.
Six Months Ended June 30
---------------------------------------------------
2000 1999
---------------------- ----------------------
$ % $ %
-------- -------- -------- --------
Human Health ................... $122,196 47.6% $114,710 47.6%
Biosciences .................... 49,627 19.4 34,972 14.5
Animal Health/Agriculture ...... 27,307 10.6 31,522 13.1
Specialty and Fine Chemicals ... 57,328 22.4 59,957 24.8
-------- -------- -------- --------
Total gross sales ........ $256,458 100.0% $241,161 100.0%
======== ======== ======== ========
The following table shows the gross profit of the Company's four product
segments for the six months 2000 and 1999.
Gross Gross Gross
Sales Profit $ Profit %
-------- -------- --------
2000
Human Health ........................ $122,196 $ 49,589 40.6%
Biosciences ......................... 49,627 27,181 54.8
Animal Health/Agriculture ........... 27,307 4,612 16.9
Specialty and Fine Chemicals ........ 57,328 13,513 23.6
-------- -------- --------
Total ......................... $256,458 $ 94,895 37.0%
======== ======== ========
Gross Gross Gross
Sales Profit $ Profit %
-------- -------- --------
1999
Human Health ........................ $114,710 $ 45,083 39.3%
Biosciences ......................... 34,972 17,153 49.0
Animal Health/Agriculture ........... 31,522 6,404 20.3
Specialty and Fine Chemical ......... 59,957 14,722 24.6
-------- -------- --------
Total ......................... $241,161 $ 83,362 34.6%
======== ======== ========
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RESULTS OF OPERATIONS (CONTINUED)
Gross sales in the first half 2000 increased 6.3% to $256,458 from $241,161 in
the first half 1999. Sales in the Human Health and Biosciences segments
increased compared to the first half 1999 and more than offset the decreases in
the Animal Health/Agriculture and Specialty and Fine Chemicals Segments.
The Human Health Segment gross sales of $122,196 were $7,486 (6.5%) above the
first half of 1999 due primarily to pharmaceuticals used in cardiovascular and
central nervous system preparations, new products, and sales generated by the
acquisitions of Irotec in Ireland in March 1999 and Conti in Belgium in March
2000. These increases were partially offset by reduced sales of
gastro-intestinal products in the European markets. The Company also eliminated
certain lower margin x-ray products which were under price pressure.
The Biosciences Segment gross sales of $49,627 were $14,655 (41.9%) above the
first half of 1999 primarily due to the acquisition of BioWhittaker Molecular
Applications, Inc. (formerly the BioProducts business of FMC Corporation), as
well as increased shipments of cell culture products. Media and serum sales were
impacted by the lack of available raw materials.
The Animal Health/Agriculture Segment gross sales of $27,307 were $4,215 (13.4%)
below the first half of 1999. This decrease was mainly due to reduced sales of
agricultural intermediates; primarily 2-Cyanopyridine and pyridine derivatives.
Animal Health products were above the first half of 1999 due to increased
shipments of a poultry feed additive.
The Specialty and Fine Chemicals Segment gross sales of $57,328 were $2,629
(4.4%) below the first half of 1999 due to lower specialty additives used in
polycarbonate resins, castor oil based products sold to the commodity markets,
and encapsulants used in telecommunications.
Export sales from U.S. businesses of $31,434 in the first half of 1999 increased
to $34,840 in 2000. International sales from our European operations totaled
$104,165 for the first six months of 2000 compared to $99,224 in 1999.
Total gross profit of $94,895 was $11,533 (13.8%) higher than 1999 due to the
improved gross margin on the Human Health Segment sales and to Biosciences
Segments' operating efficiencies and the positive effect of the acquisition of
BioWhittaker Molecular Applications. The gross margin for the first half of 2000
was 37.0% versus 34.6% in 1999.
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RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expenses as a percentage of gross sales were
16.3% in the first half of 2000, the same level as 1999. Administration costs
increased due to the acquisitions of BioWhittaker Molecular Applications in July
1999, Conti in March 2000 and Irotec in March 1999, and the shutdown of The
Humphrey Chemical Company, Inc. These increases were partially offset by the
continued benefit from the consolidation of administrative functions in the
Specialty and Fine Chemicals, and Animal Health/Agriculture businesses, as well
as a first quarter 2000 insurance recovery of $900 related to previously
incurred environmental expenses.
Research and development expenses of $7,235 were 2.8% of gross sales in the
first half of 2000, and represented a 4.9% increase from 1999, primarily due to
the acquisition of BioWhittaker Molecular Applications.
The operating profit in the first half of 2000 was $45,808, an increase of 23.3%
compared to 1999. This increase is due to increased sales and improved gross
margin.
Net interest expense of $6,022 in the first half of 2000 reflected an increase
of $1,795 from 1999 as a result of the additional financing for the acquisitions
and increased interest rates. The average interest rate was 6.7% in the first
half of 2000 versus 5.9% in 1999. The provision for income taxes for the first
half of 2000 resulted in an effective rate of 33.5% as compared with 32.5% in
the first half of 1999.
The Company's net income for the first half of 2000 increased 20% to $26,518
compared with a net income of $22,105 in 1999.
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LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2000, the Company generated cash flows from
operations totaling $47,201, an increase of $1,081 over the same period a year
ago. This increase in cash flows is due primarily to increased profitability, as
well as a decrease in receivables.
Capital expenditures were $20,254 in the six months of 2000 as compared to
$14,302 in the six months of 1999. Part of the funds were used for the purchase
of the land occupied by the Seal Sands facility in Middlesbrough, England and a
new product facility and waste treatment plant at the Nordic Synthesis AB
facility in Sweden.
During the first six months of 2000, the Company paid cash dividends of $0.06
per share, equal to last year.
The Company's primary market risk relates to exposure to foreign currency
exchange rate fluctuations on transactions entered into by our international
operations which are primarily denominated in the U.S. dollar, Swedish Krona and
Italian Lira. The Company currently uses foreign currency forward exchange
contracts to mitigate the effect of short-term foreign exchange rate movements
on the Company's operating results. The net notional amount of these contracts
is $53,347 which the Company estimates to be approximately 71% of the foreign
currency exposure during the period covered resulting in a deferred currency
loss of ($1,237) at June 30, 2000.
In March 2000, Cambrex acquired Conti BPC NV, a manufacturer and supplier of
pharmaceutical intermediates and active pharmaceutical ingredients located in
Landen, Belgium, for $6,200 in cash and assumed debt.
Management believes that existing sources of capital, together with cash flows
from operations, will be sufficient to meet foreseeable cash flow requirements.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements. Investors should be aware of
factors that could cause Cambrex actual results to vary materially from those
projected in the forward-looking statements. These factors include, but are not
limited to, global economic trends; competitive pricing or product development
activities; markets, alliances, and geographic expansions developing differently
than anticipated; government legislation and/or regulation (particularly on
environmental issues); and technology, manufacturing and legal issues.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 was originally effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. In June 1999,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS
137). SFAS 137 defers the effective date of SFAS 133 for all fiscal quarters of
all fiscal
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20
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
years beginning after June 15, 2000 (January 1, 2001 for the Company). In June
2000, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 138 "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an amendment of FASB Statement No. 133" (SFAS 138).
SFAS 138 amends the accounting and reporting standards of SFAS 133 for certain
derivative instruments and certain hedging activities. The Company is evaluating
the impact that the adoption of these pronouncements will have on its earnings,
comprehensive income and financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No 101 ("SAB 101") which provides guidelines in
applying generally accepted accounting principles to certain revenue recognition
issues. Subsequently, the SEC has issued related guidance, which has extended
the implementation date of SAB 101 until the fourth quarter of 2000. The Company
does not expect this statement to have a material impact on its financial
statements.
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PART II - OTHER INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
ITEM 4. MATTERS SUBMITTED TO A VOTE OF SECURITIES HOLDERS.
Refer to Form 10-Q for the quarterly period ended March 31, 2000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The exhibits filed as part of this report are listed below.
Exhibit No. Description
----------- -----------
27 Financial Data Schedule.
b) Reports on Form 8-K
The registrant filed no reports on Form 8-K during the six months
ended June 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMBREX CORPORATION
By /s/ Douglas MacMillan
--------------------------------
Douglas MacMillan
Vice President
(On behalf of the Registrant and
as the Registrant's Principal
Financial Officer)
Date: August 14, 2000
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