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 June 30, 1996
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 August 1, 1996, there were 11,636,866 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, 1996
Table of Contents
Page No.
Part I Financial information
Condensed consolidated balance sheets as of
June 30, 1996 and December 31, 1995 3
Condensed consolidated income statements
for the three months and six months ended
June 30, 1996 and 1995 4
Condensed consolidated statements of
cash flows for the six months ended
June 30, 1996 and 1995 5
Notes to condensed consolidated financial
statements 6 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 11
Part II Other information
Item 4. Matters Submitted to a Vote of Securities
Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 11 - Computation of Earnings Per Share 14
Exhibit 27 - Financial Data Schedule 15
3
Part 1 - FINANCIAL INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
June 30, December 31,
1996 1995
--------- -------------
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 5,390 $ 4,841
Trade and other receivables, less allowances
for doubtful accounts of $1,325 and $1,261
at respective dates ...................... 61,510 58,337
Inventories ................................... 71,097 71,234
Deferred tax asset ............................ 4,323 4,544
Other current assets .......................... 4,665 5,178
--------- ---------
Total current assets ..................... 146,985 144,134
Property, plant and equipment, net ................ 209,794 205,683
Intangible assets, net ............................ 51,573 51,665
Other noncurrent assets ........................... 1,102 1,071
--------- ---------
Total assets ............................. $ 409,454 $ 402,553
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities ...... $ 57,569 $ 62,444
Income taxes payable .......................... 8,254 3,012
Short-term debt ............................... 4,048 4,705
Current portion of long-term debt ............. 4,114 4,108
--------- ---------
Total current liabilities ................ 73,985 74,269
Long-term debt .................................... 84,680 99,643
Deferred taxes .................................... 18,283 19,400
Other noncurrent liabilities ...................... 23,933 19,757
--------- ---------
Total liabilities ........................ 200,881 213,069
--------- ---------
Stockholders' equity:
Common stock .................................. 834 818
Additional paid-in capital .................... 145,892 142,453
Retained earnings ............................. 67,174 54,316
Additional minimum pension liability .......... (750) (750)
Treasury stock, at cost; 718,937 and 715,447
shares at respective dates ................. (8,419) (9,160)
Shares held in trust .......................... (3,681) 0
Cumulative translation adjustment ............. 7,523 1,807
--------- ---------
Total stockholders' equity ............... 208,573 189,484
--------- ---------
Total liabilities and stockholders' equity $ 409,454 $ 402,553
========= =========
See accompanying notes to condensed consolidated financial statements.
- 3 -
4
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
(in thousands, except per-share amounts)
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
Gross sales ........................... $ 92,969 $ 90,998 $189,686 $187,076
Commission, freight, etc .......... 2,291 2,277 4,623 4,327
Sales, returns and allowances ..... 462 655 1,060 1,380
-------- -------- -------- --------
Net sales ............................. 90,216 88,066 184,003 181,369
Other revenues .................... 53 149 191 235
-------- -------- -------- --------
Net revenues .......................... 90,269 88,215 184,194 181,604
Operating expenses:
Cost of goods sold ................ 64,283 63,134 131,742 132,038
Selling, general and administrative
expenses ........................ 10,329 11,253 23,221 23,420
Research and development .......... 2,367 1,904 4,517 3,746
-------- -------- -------- --------
Total operating expenses ........ 76,979 76,291 159,480 159,204
-------- -------- -------- --------
Operating profit ...................... 13,290 11,924 24,714 22,400
Other (income) expenses:
Interest expense - net ............ 1,672 3,288 3,465 6,731
Other - net ....................... 35 568 132 398
-------- -------- -------- --------
Income before income taxes ............ 11,583 8,068 21,117 15,271
Provision for income taxes ............ 4,055 2,961 7,392 5,770
-------- -------- -------- --------
Net income ............................ $ 7,528 $ 5,107 $ 13,725 $ 9,501
======== ======== ======== ========
Weighted average shares outstanding:
Primary ...................... 7,910 5,863 7,894 5,831
Fully diluted ................ 7,928 5,865 7,918 5,848
Net income per share:
Primary ...................... $ 0.95 $ 0.87 $ 1.74 $ 1.63
======== ======== ======== ========
Fully diluted ................ $ 0.95 $ 0.87 $ 1.73 $ 1.62
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
- 4 -
5
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six months ended
June 30,
-----------------------
1996 1995
-------- --------
Cash flows from operations ................................... $ 27,675 $ 21,621
Changes in assets and liabilities:
Receivables .............................................. (1,741) (7,221)
Inventories .............................................. 775 (8,600)
Other current assets ..................................... 738 (2,726)
Accounts payable and accrued liabilities ................. (7,466) (360)
Income taxes payable ..................................... 5,206 219
Deferred taxes ........................................... (1,181)
Other noncurrent assets and liabilities .................. 4,789 553
-------- --------
Net cash provided from operations ................... 28,795 3,486
-------- --------
Cash flows from investing activities:
Capital expenditures ..................................... (13,516) (19,998)
Other investing activities ............................... (1,309) (2,235)
-------- --------
Net cash (used in) investing activities ............. (14,825) (22,233)
-------- --------
Cash flows from financing activities:
Dividends ................................................ (767) (546)
Net decrease in short-term debt .......................... (811)
Long-term debt activity (including current portion):
Borrowings .......................................... 13,700 43,974
Repayments .......................................... (28,711) (31,820)
Proceeds from the issuance of common stock ............... 2,630 2,306
Proceeds from the sale of treasury stock ................. 751 700
-------- --------
Net cash (used in) provided from financing activities (13,208) 14,614
-------- --------
Effect of exchange rate changes on cash ...................... (213) 2,124
-------- --------
Net increase (decrease) in cash .............................. 549 (2,009)
Cash at beginning of period .................................. 4,841 9,087
-------- --------
Cash at end of period ........................................ $ 5,390 $ 7,078
======== ========
Supplemental disclosure:
Interest paid ............................................ $ 3,027 $ 7,283
Income taxes paid ........................................ $ 2,856 $ 2,342
Depreciation expense ..................................... $ 11,169 $ 10,498
Non-cash financing activities:
Liabilities established in connection
with exercise of stock options ...................... $ 3,681
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 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, 1995.
The results of operations for the six months ended June 30, 1996 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 June 30, 1996 and December 31, 1995 consist of the following:
June 30, December 31,
1996 1995
-------- --------
Finished goods.............................. $ 30,561 $ 30,409
Work in process............................. 18,112 19,093
Raw materials............................... 16,187 15,931
Fuel oil and supplies....................... 6,237 5,801
-------- --------
$ 71,097 $ 71,234
======== ========
(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 equivalent
shares arising from the effect of dilutive stock options, using the treasury
stock method. Under the assumption that the July 24, 1995 public offering of
1,725,000 shares, the proceeds of which were used to reduce the Company's
outstanding debt, had occurred on January 1, 1995, the pro forma earnings per
share for the second quarter of 1995 would have been $0.77 or $1.48 for the
first six months of 1995.
- 6 -
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(4) Future Impact of Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted this standard in 1996, with no material impact
on the result of operations.
Statement of Financial Accounting Standard No. 123 "Accounting for
Stock Based Compensation" establishes financial accounting and reporting
standards for stock-based employee compensation plans. The Company has adopted
this standard during 1996 and has elected the disclosure option available under
this standard. Appropriate disclosure will be included in the 1996 Form 10-K.
(5) Short-term Debt
Short-term debt at June 30, 1996 and December 31, 1995 consists of the
following:
June 30, December 31,
1996 1995
------ ------
Export financing facility, Italy $3,096 $3,645
Overdraft protection ........... 952 1,060
------ ------
Total ..................... $4,048 $4,705
====== ======
(6) Long-term Debt
Long-term debt at June 30, 1996 and December 31, 1995 consists of the
following:
June 30, December 31,
1996 1995
---- ----
Bank credit facilities $ 87,500 $102,500
Capital lease ........ 16 25
Notes payable ........ 1,278 1,226
-------- --------
Subtotal ... 88,794 103,751
Less: current portion 4,114 4,108
-------- --------
Total ...... $ 84,680 $ 99,643
======== ========
The Company met all the bank covenants for the first six months of
1996.
- 7 -
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(7) Share 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 Company
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 $3,681 which is included in other
noncurrent liabilities at June 30, 1996.
(8) Contingencies
Refer to Form 10-K for the fiscal year ended December 31, 1995, for
disclosure of existing contingencies related to environmental issues.
(9) Subsequent Event
The Board of Directors approved a three-for-two split of the Company's common
stock, $.10 par value, in the form of a 50% stock dividend, effective July 24,
1996.
- 8 -
9
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
Results in the second quarter of 1996 were better than the second quarter of
1995 due to the growth in the gross sales of pharmaceutical intermediates,
organic intermediates, and performance enhancers sales categories, and to higher
operating margins, reduced interest expense and a lower effective tax rate.
The following table shows the gross revenues of the Company's five product
categories, in dollars and as a percentage of the Company's total gross revenues
for the second quarter 1996 and 1995. Also shown are the net revenues and gross
profit for the second quarter 1996 and 1995.
Second Quarter Ended June 30,
-------------------------------------------------
1996 1995
-------------------- --------------------
$ % $ %
------- ----- ------- -----
Pharmaceutical bulk actives $22,192 23.9% $22,390 24.6%
Pharmaceutical intermediates 18,185 19.5 16,298 17.9
Organic intermediates ...... 19,636 21.1 18,759 20.6
Performance enhancers ...... 19,199 20.7 18,891 20.8
Polymer systems ............ 13,757 14.8 14,660 16.1
------- ----- ------- -----
Total gross revenues .... $92,969 100.0% $90,998 100.0%
======= ===== ======= =====
Total net revenues ...... $90,269 $88,215
======= =======
Total gross profit ...... $25,986 $25,081
======= =======
The following table shows the gross revenues and gross profit of the Company's
five product categories and gross profit as a percentage of each product
category for the second quarter 1996.
Gross Gross Gross
Revenues Profit $ Profit %
-------- -------- --------
Pharmaceuticals bulk actives $22,192 $ 6,978 31.4%
Pharmaceutical intermediates 18,185 4,665 25.7
Organic intermediates ...... 19,636 4,325 22.0
Performance enhancers ...... 19,199 6,571 34.2
Polymer systems ............ 13,757 3,447 25.1
------- ------- ----
Total ................... $92,969 $25,986 28.0%
======= ======= ====
Gross revenues in the second quarter 1996 increased to $92,969 compared to
$90,998 in the second quarter 1995 with product growth in the pharmaceutical
intermediates, organic intermediates and performance enhancers categories.
- 9 -
10
Pharmaceutical bulk actives of $22,192 were at the same level as the second
quarter 1995. Sales of 5-ASA (a gastro-intestinal bulk active), and
sulfasalazine (used in the treatment of ulcerative colitis), were lower than the
second quarter 1995 due to postponed orders by customers to help reduce their
inventory levels. This decrease was offset by sales of bulk products used in
respiratory and central nervous system preparations.
Pharmaceutical intermediates of $18,185 were $1,887 (11%) above the second
quarter 1995 due to a $2 million (50%) increase in x-ray contrast intermediates
with some of this growth related to a customer's shift in production from Europe
to a facility in the U.S., and increases in various other actives for the
pharmaceutical industry. This growth was partially offset by the loss of the
PMPA business, which is used in cough suppressants and has accounted for 10% of
this category's sales.
Organic intermediates of $19,636 were $877 (5%) above the second quarter 1995
due to strength in feed additive and pigment intermediates which more than
offset lower shipments of crop protection intermediates. 3-Nitro, a poultry feed
additive, which had reduced shipments in the first quarter 1996 due to
production problems, was the primary increase as the major customer replenished
their inventory.
Performance Enhancers of $19,199 were $308 above the second quarter 1995.
Increased sales to photographic and specialty additives markets were offset by
reductions in catalyst and polymer products. EMA, used in instant film,
increased due to customers' additional requirements. Specialty additives
increased over last year due to the continued improvement in sales of pyridine
derivatives, including exports to China. Catalyst sales were affected by the
loss of a customer due to price competition, and the polymer intermediates were
lower following strong sales in the first quarter 1996.
Polymer systems of $13,757 were $903 (6%) lower than the second quarter 1995 due
to a loss of business from Lucent (AT&T) and continued weak sales to the
telecommunications industry. The demand for new lower cost Bufferite gel
continues to improve in the second quarter and sales of DCDPS, a plastic used in
high performance applications, continued to match production capacity.
Export sales from U.S. businesses of $13,635 in the second quarter 1996 compared
to $13,886 in the second quarter 1995. International sales from our European
operations totaled $38,151 for the same period in 1996 as compared with $34,533
in 1995.
Total gross profit of $25,986 increased by $905, or 4%, from 1995 due to the
higher gross margin percentage which increased to 28% from 27.6%. The gross
margin improvement was due to production efficiencies, increased plant
throughput and improved product mix.
Selling, general and administrative expenses as a percentage of net revenues was
13.7%, down from 14.5% in the second quarter 1995. The second quarter 1996
expense of $12,696 was $461 (3%) below 1995. This decrease was due to the
recovery of legal expenses of $1.1 million offset by the increased research
costs associated with the Oxford Asymmetry contract.
- 10 -
11
Net interest expense of $1,672 reflected a decrease of $1,616 from 1995. This
decline was due to the reduction of the outstanding debt, due to payments made
from the proceeds of the equity offering which took place in the third quarter
of 1995. Additionally, excess cash from operations was used to pay down
outstanding loans. The average interest rate was 7.3% in the second quarter 1996
vs. 7.7% in 1995.
The effective tax rate for the second quarter 1996 was 35% versus 36.7% in the
comparable period in 1995, due to continued improved management of foreign taxes
including utilization of all available foreign tax credits.
The Company's second quarter net income increased 47% to $7,528 compared with a
net income of $5,107 in the second quarter 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operations was $28,795 for the first six months 1996 compared
with $3,486 in 1995. The key to the increased cash flow was the improved
earnings and the leveling of the accounts receivable and inventory in this six
month period versus a large increase in the comparable period in 1995.
Capital expenditures were $13,516 in the first six months 1996 as compared to
$19,998 in the first six months of 1995. The largest expenditure in 1996 was for
the purchase of the headquarters office building by Profarmaco, the Cambrex
Italian subsidiary.
On July 24, 1995, the Company completed a public offering of 1,725,000 shares of
newly issued common stock at a price of $38.75 per share. The total proceeds to
the Company, net of underwriting discounts and commissions, amounted to $63,497.
Proceeds were used to reduce outstanding debt existing under the Company's bank
credit agreement.
The Company has undrawn borrowing capacity of approximately $80,265 under the
Credit Agreement as of June 30, 1996, which can be used for general corporate
purposes. Management is of the opinion that these amounts, together with other
available sources of capital, are adequate for meeting the Company's anticipated
financing and capital requirements.
During the second quarter 1996, the Company paid cash dividends of $0.05 per
share.
The Company uses foreign currency forward exchange contracts to reduce the
effect of short-term foreign exchange rate movements on the Company's operating
results. The notional amount of these contracts is $33,420 which the Company
estimates to be approximately 45% of the foreign currency exposure during the
period covered resulting in a deferred currency gain of $2,520 at June 30, 1996.
An additional 5% of the foreign currency exposure is protected through export
financing.
SUBSEQUENT EVENT
The Board of Directors approved a three-for-two split of the Company's common
stock, $.10 par value, in the form of a 50% stock dividend, effective July 24,
1996.
- 11 -
12
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, 1996.
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.
- 12 -
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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/ Peter Tracey
------------------------------------
Peter Tracey
Vice President
(On behalf of the Registrant and
as the Registrant's Principal
Financial Officer)
Date: August 13,1996
- 13 -
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EXHIBIT INDEX
- -------------
Exhibit No. Description
- ---------- -----------
EX-11 Computation of per earning shares
EX-27 Financial Data Schedule