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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 March 31, 2003
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
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No
As of April 30, 2003, there were 25,716,317 shares outstanding of the
registrant's Common Stock, $.10 par value.
CAMBREX CORPORATION AND SUBSIDIARIES
FORM 10-Q
For The Quarter Ended March 31, 2003
Table of Contents
Page No.
--------
Part I Financial information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets as of
March 31, 2003 and December 31, 2002 2
Condensed consolidated income statements
for the three months ended March 31, 2003 and 2002 3
Condensed consolidated statements of cash flows
for the three months ended March 31, 2003 and 2002 4
Notes to condensed consolidated financial statements 5 -16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17 - 20
Item 4. Controls and Procedures 20 - 21
Part II Other information
Item 4. Matters Submitted to a Vote of Securities Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 24-25
Part 1 - FINANCIAL INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)
March 31, December 31,
2003 2002
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 43,350 $ 33,296
Trade receivables, net ............................... 77,335 79,571
Inventories, net ..................................... 109,096 109,832
Deferred tax assets .................................. 31,627 35,612
Prepaid expenses and other current assets ............ 19,274 17,447
--------- ---------
Total current assets ............................. 280,682 275,758
Property, plant and equipment, net ....................... 314,993 310,501
Goodwill ................................................. 215,871 214,354
Other intangible assets, net ............................. 52,715 53,398
Other assets ............................................. 13,242 13,517
--------- ---------
Total assets ..................................... $ 877,503 $ 867,528
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............. $ 96,584 $ 90,412
Short-term debt and current portion of
Long-term debt ................................... 2,833 2,364
--------- ---------
Total current liabilities ................................ 99,417 92,776
Long-term debt ........................................... 255,872 267,434
Deferred tax liabilities ................................. 52,630 52,630
Other non-current liabilities ............................ 48,359 42,006
--------- ---------
Total liabilities ................................ 456,278 454,846
--------- ---------
Stockholders' equity:
Common stock, $.10 par value; issued 28,353,564 and
28,323,059 shares at respective dates ............ 2,835 2,832
Additional paid-in capital ........................... 202,840 201,883
Retained earnings .................................... 267,352 265,774
Treasury stock, at cost 2,487,247 and 2,494,803
shares at respective dates ........................ (19,781) (19,841)
Accumulated other comprehensive loss ................. (32,021) (37,966)
--------- ---------
Total stockholders' equity ....................... 421,225 412,682
--------- ---------
Total liabilities and stockholders' equity ....... $ 877,503 $ 867,528
========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
2
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
(in thousands, except per-share data)
Three months ended
March 31,
---------
2003 2002
--------- ---------
Gross sales .................................................... $ 139,920 $ 132,455
Commissions and allowances ................................. 1,089 1,468
--------- ---------
Net sales ...................................................... 138,831 130,987
Other revenues ............................................. 2,973 1,568
--------- ---------
Net revenues ................................................... 141,804 132,555
Cost of goods sold ............................................. 92,119 82,862
--------- ---------
Gross Profit ................................................... 49,685 49,693
Operating expenses:
Selling, general and administrative expenses ............... 28,058 22,608
Research and development expenses .......................... 4,642 3,935
Legal settlement (Note 10) ................................. 11,342 --
--------- ---------
Total operating expenses ................................. 44,042 26,543
Operating profit ............................................... 5,643 23,150
Other expenses (income):
Interest expense, net ...................................... 2,334 2,927
Other, net ................................................. 121 (34)
--------- ---------
Income before income taxes ..................................... 3,188 20,257
Provision for income taxes ................................. 829 5,267
--------- ---------
Net income ..................................................... $ 2,359 $ 14,990
========= =========
Weighted average shares outstanding:
Basic ...................................................... 25,853 25,888
Effect of dilutive stock options ........................... 301 703
--------- ---------
Diluted .................................................... 26,154 26,591
Earnings per share of common stock and common stock equivalents:
Basic ...................................................... $ 0.09 $ 0.58
========= =========
Diluted .................................................... $ 0.09 $ 0.56
========= =========
Cash dividends paid per share .................................. $ 0.03 $ 0.03
========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
3
CAMBREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended
March 31,
---------
2003 2002
-------- --------
Cash flows from operating activities:
Net income ............................................ $ 2,359 $ 14,990
Depreciation and amortization ......................... 10,950 8,795
Deferred income tax provision ......................... 3,984 1,685
Changes in assets and liabilities:
Provision for legal settlement .................... 11,342 --
Receivables, net .................................. 2,936 (9,535)
Inventories ....................................... 1,957 (1,822)
Prepaid expenses and other current assets ......... 1,784 659
Accounts payable and accrued liabilities .......... 1,516 (2,084)
Income taxes payable .............................. (4,192) 4,899
Other non-current assets and liabilities .......... (261) 2,998
-------- --------
Net cash provided by operating activities ......... 32,375 20,585
-------- --------
Cash flows from investing activities:
Capital expenditures .................................. (10,983) (13,092)
Other investing activities ............................ (161) (115)
-------- --------
Net cash used in investing activities ............. (11,144) (13,207)
-------- --------
Cash flows from financing activities:
Dividends ............................................. (781) (776)
Net increase in short-term debt ....................... 445 263
Long-term debt activity (including current portion):
Borrowings ........................................ 60,650 7,050
Repayments ........................................ (72,293) (7,589)
Proceeds from stock options exercised ................. 72 3,228
-------- --------
Net cash (used in) provided by financing activities (11,907) 2,176
-------- --------
Effect of exchange rate changes on cash ................... 730 (147)
-------- --------
Net increase in cash and cash equivalents ................. 10,054 9,407
Cash and cash equivalents at beginning of period .......... 33,296 23,696
-------- --------
Cash and cash equivalents at end of period ................ $ 43,350 $ 33,103
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
4
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, 2002.
The results of operations for the three months ended March 31, 2003 are
not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made in prior year amounts to conform
to the current year presentation.
(2) IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Accounting for Asset Retirement Obligations
In June 2001, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). The standard requires that legal
obligations associated with the retirement of tangible long-lived assets be
recorded at fair value when incurred and was adopted by the Company on January
1, 2003. Adoption of SFAS 143 did not have any effect on the Company's
consolidated financial position or results of operations.
Rescission of FAS No. 4, 44 and 64, Amendment of FAS 13, and Technical
Corrections as of April 2002:
In May 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of SFAS No. 4, 44 and 64, Amendment of SFAS 13, and
Technical Corrections as of April 2002" ("SFAS 145"). The statement rescinds
SFAS 4 (as amended by SFAS 64), which required extraordinary item treatment for
gains and losses on extinguishments of debt, and SFAS 44, which does not affect
the Company. Additionally, the statement amends certain provisions of SFAS 13
and other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The provisions of SFAS 145 related to extinguishments of debt are
effective for the Company beginning January 1, 2003, and all other provisions
are effective for transactions occurring or financial statements issued on or
after May 5, 2002. Adoption of SFAS 145 did not have any effect on the Company's
consolidated financial position or results of operations.
5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
Accounting for Costs Associated with Exit or Disposal Activities
In June 2002, the FASB issued Statement of Financial Accounting Standard
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"). This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This Statement eliminates the definition
and requirements for recognition of exit costs in Issue 94-3, and requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS 146 also establishes that fair
value is the objective for initial measurement of the liability. SFAS 146 is
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. Any charges associated with future
restructuring programs will be recorded in accordance with SFAS 146. This will
spread the recognition of the restructuring expenses over a number of accounting
periods as compared to EITF 94-3.
Accounting for Stock-Based Compensation - Transition and Disclosure
In December 2002, the FASB issued Statement of Financial Accounting
Standard No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" ("SFAS 148"). This Statement provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employees compensation from the intrinsic method. SFAS 148 also
amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, "Interim
Financial Reporting," to require disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported net income and earnings per
share in annual and interim financial statements. While SFAS 148 does not amend
SFAS 123 to require companies to account for employee stock options using the
fair value method, the disclosure provisions of SFAS 148 are applicable to all
companies with stock-based employee compensation, regardless of whether they
account for that compensation using the fair value method of SFAS 123 or the
intrinsic value method of APB 25. SFAS 148's amendment of the transition and
annual disclosure requirements of SFAS 123 are effective for fiscal years ending
after December 15, 2002. The Company has adopted the disclosures provision of
SFAS 148 as of December 31, 2002, and will continue to use the intrinsic value
method of APB 25. The Company is currently considering the alternatives provided
within this SFAS 148 for future periods.
Amendment of Statement 133 on Derivative Instruments and Hedging
Activities
On April 30, 2003 the Financial Accounting Standards Board issued SFAS
149 "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" which amends SFAS 133. This Statement clarifies under what
circumstances a contract with an initial net investment meets the
characteristics of a derivative, it also clarifies when a derivative contains a
financing component and amends the definition of an underling to conform it to
language used in FASB Interpretation No. 45. This statement is effective for
contracts entered into or modified after June 30, 2003, except for those
provisions of this Statement that relate to SFAS 133 implementation issues that
have been effective for fiscal quarters that began prior to June 15, 2003. The
Company is currently assessing the impact of this statement.
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
Guarantor's Accounting and Disclosure Requirements for Guarantees
In November 2002, FASB Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" was issued. FIN 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The required disclosures
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of FIN 45 did not have any effect on the
Company's consolidated financial position or results of operations.
Consolidation of Variable Interest Entities
In January 2003, FIN No. 46, "Consolidation of Variable Interest
Entities" ("FIN 46") was issued. The interpretation provides guidance on
consolidating variable interest entities and applies immediately to variable
interests created after January 31, 2003. The guidelines of the interpretation
will become applicable for the Company in its third quarter 2003 financial
statements for variable interest entities created before February 1, 2003. The
interpretation requires variable interest entities to be consolidated if the
equity investment at risk is not sufficient to permit an entity to finance its
activities without support from other parties or the equity investors lack
certain specified characteristics. The Company has reviewed FIN 46 to determine
its impact, if any, on future periods, and does not anticipate any material
accounting or disclosure requirement under the provisions of the interpretation.
Accounting for Revenue Arrangements with Multiple Deliverables
In January 2003, the Emerging Issues Task Force ("EITF") released EITF
00-21: "Accounting for Revenue Arrangements with Multiple Deliverables." EITF
00-21 clarifies the timing and recognition of revenue from certain transactions
that include the delivery and performance of multiple products or services. EITF
00-21 is effective for revenue arrangements entered into during fiscal periods
beginning after June 15, 2003. The Company is currently reviewing the impact of
this EITF.
(3) STOCK BASED COMPENSATION:
At March 31, 2003, the Company has seven stock-based employee
compensation plans currently in effect. The Company accounts for those plans
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
7
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Net income, as reported ............... $ 2,359 $ 14,990
Deduct: stock-based compensation
expenses determined using fair value
method, net of tax effects ......... (762) (339)
---------- ----------
Proforma net income ................... $ 1,597 $ 14,651
Earnings per share:
Basic - as reported ................ $ 0.09 $ 0.58
Basic - proforma ................... $ 0.06 $ 0.57
Diluted - as reported .............. $ 0.09 $ 0.56
Diluted - proforma ................. $ 0.06 $ 0.55
The pro forma compensation expense, net of tax, of $762 and $339 for the
three months ended March 31, 2003 and 2002, respectively, was calculated based
on the fair value of each option primarily using the Black-Scholes
option-pricing model for non-performance options and a path dependent model for
performance options, with the following assumptions for 2003 and 2002,
respectively: (i) average dividend yield of 0.37% and 0.30% (ii) expected
volatility of 38.87% and 33.77%, (iii) risk-free interest rate ranging from
3.74% to 3.81% and 4.25% to 4.84% and (iv) expected life of 4-6 years.
(4) GOODWILL AND INTANGIBLE ASSETS:
The Company adopted SFAS 142, "Goodwill and Other Intangible Assets" in
the first quarter of fiscal 2002. The Company has established reporting units
based on its current segment structure for purposes of testing goodwill for
impairment. Goodwill has been assigned to the reporting units to which the value
of the goodwill relates. The Company will evaluate goodwill and other intangible
assets at least on an annual basis and whenever events and changes in
circumstances suggest that the carrying amount may not be recoverable based on
the estimated future cash flows.
The changes in the carrying amount of goodwill for the quarter ended
March 31, 2003, are as follows:
Rutherford
Biosciences Human Health Chemicals
Segment Segment Segment Total
Balance as of January 1, 2003 . $177,646 $ 36,708 $ -- $214,354
Purchase Accounting Adjustments
for Contingent Payments ... 188 -- -- 188
Cumulative Translation Effect . 96 1,233 -- 1,329
-------- -------- -------- --------
Balance as of March 31, 2003 .. $177,930 $ 37,941 $ -- $215,871
======== ======== ======== ========
8
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
Other intangible assets that are not subject to amortization, consist of
the following:
As of March 31, 2003 As of December 31, 2002
-------------------- -----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------ ------------ --- ------ ------------ ---
Proprietary Process $ 4,020 $ (2,345) $ 1,675 $ 4,020 $ (2,345) $ 1,675
License Agreements 3,630 (641) 2,989 3,630 (641) 2,989
Trademarks ........ 44,038 (9,641) 34,397 44,038 (9,641) 34,397
--------- --------- --------- --------- --------- ---------
Total ........ $ 51,688 $ (12,627) $ 39,061 $ 51,688 $ (12,627) $ 39,061
========= ========= ========= ========= ========= =========
Other intangible assets, which will continue to be amortized, consist of
the following:
As of As of
March 31, 2003 December 31, 2002
Gross Carrying Gross Carrying
Amount Amount
------ ------
Patents ................. $ 2,621 $ 2,589
Proprietary Process ..... 5,841 5,841
Supply Agreements ....... 2,110 2,100
Trademarks .............. 785 785
Unpatented Technology ... 5,104 5,490
Fully Amortized Assets* . 12,347 12,347
Other ................... 1,287 1,235
-------- --------
Total .............. 30,095 30,387
-------- --------
Accumulated Amortization (16,441) (16,050)
-------- --------
Net ..................... $ 13,654 $ 14,337
======== ========
*This category includes certain fully amortized patents, proprietary
process and non-compete agreements.
Amortization expense for the quarter ended March 31, 2003 was $391.
The expected amortization expense related to intangible assets in the
future is as follows:
For the year ended December 31, 2003........................... $1,543
For the year ended December 31, 2004........................... $1,333
For the year ended December 31, 2005........................... $1,308
For the year ended December 31, 2006........................... $1,298
For the year ended December 31, 2007........................... $1,287
(5) INVENTORIES
Inventories at March 31, 2003 and December 31, 2002 consist of the
following:
March 31, December 31,
2003 2002
-------- --------
Finished goods $ 50,090 $ 55,372
Work in process 30,273 24,997
Raw materials . 23,758 24,638
Supplies ...... 4,975 4,825
-------- --------
Total ..... $109,096 $109,832
======== ========
9
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
(6) LONG-TERM DEBT
Long-term debt at March 31, 2003 and December 31, 2002 consists of the
following:
March 31, December 31,
2003 2002
--------- ---------
Bank credit facilities $ 246,300 $ 257,350
Other ................ 11,966 12,448
--------- ---------
Subtotal ......... 258,266 269,798
--------- ---------
Less: current portion (2,394) (2,364)
--------- ---------
Total ............ $ 255,872 $ 267,434
========= =========
The Company met all the bank covenants for the first three months of
2003.
(7) RESTRUCTURING AND OTHER CHARGES
In 2002, Cambrex completed its plan to realign its businesses. In 2002,
the Company recorded net special pre-tax charges of $15,087. These charges
include: Rutherford Chemicals fixed asset impairments of $7,689, closure costs
for a small manufacturing facility at one of the Rutherford Chemicals sites of
$1,800, inventory write-downs of $586 (included in cost of sales), a goodwill
impairment for Rutherford Chemicals of $3,962, and severance costs of $1,050.
None of these charges were recorded in the first quarter of 2002.
The fixed asset impairments related to certain assets at a Rutherford
Chemicals domestic site, and were based on an assessment completed in the third
quarter that indicated the return on investment was below management's
expectations. As a result, an impairment charge was recorded reflecting the
asset value associated with the planned exit of a product line. The closure
costs relate to another domestic Rutherford Chemicals facility and include asset
write-downs, disposal, and other related costs.
Severance charges, which apply to a Rutherford Chemicals domestic site
and the Corporate office, relate to the termination of approximately 19
employees. As of January 31, 2003, all these employees have been terminated.
The accrual balance related to the 2002 actions for severance and other
costs included above was approximately $2,077 and $2,600 at March 31, 2003 and
December 31, 2002, respectively.
The following table displays the activity related to the 2002
restructuring accruals through March 31, 2003 (in millions):
2002 2003
Activity Activity
-------- --------
December March
31, 2002 31, 2003
Total Non-Cash Cash Reserve Cash Reserve
Charges Write-offs Payments Balance Payments Balance
------- ---------- -------- ------- -------- -------
Restructuring, Impairments
and Other Charges:
Fixed asset impairments ........ $ 7.7 $ (7.7) $ -- $ -- $ -- $ --
Goodwill impairment ............ 4.0 (4.0) -- -- -- --
Employee severance ............. 1.0 -- -- 1.0 (0.3) 0.7
Facility closure costs ......... 1.8 -- (0.2) 1.6 (0.2) 1.4
--------- --------- --------- --------- --------- ---------
Total restructuring, impairments
and other charges ............ 14.5 (11.7) (0.2) 2.6 (0.5) 2.1
Inventory write-offs ........... 0.6 (0.6) -- -- -- --
--------- --------- --------- --------- --------- ---------
Total .......................... $ 15.1 $ (12.3) $ (0.2) $ 2.6 $ (0.5) $ 2.1
========= ========= ========= ========= ========= =========
10
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
Facility closure costs are expected to be paid by fiscal year end.
Severance costs are expected to be paid within the next 2 years.
(8) COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 2003 was $8,304
compared to comprehensive income of $15,915 in the prior year comparable period.
The decrease in comprehensive income was due primarily to lower net income,
partially offset by higher foreign currency translation.
(9) SEGMENT INFORMATION
The Company is involved principally in the manufacturing and marketing of
products and services which consists of: Human Health segment, which include
Active Pharmaceutical Ingredients and Pharmaceutical Intermediates produced
under Food and Drug Administration cGMP for use in the production of
prescription and over-the-counter drug products, and imaging chemicals used in
x-ray media; Biosciences segment, consisting of cell culture and endotoxin
detection products, electrophoresis and chromatography products and contract
biopharmaceutical manufacturing; Rutherford Chemicals segment consisting of
Vitamin B-3 used in feed additives, Agricultural Intermediates used in crop
protection, Performance Enhancing Chemicals used in photography, pigments,
specialty polymers, fuel/oil additives, catalysts, and other specialty
additives, Polymer Systems products used in coatings, telecommunications,
electronics and engineering plastics and Personal Care ingredients; All Other
segment, which includes Specialty and Fine Chemicals and Animal and Health
Products not manufactured at the Rutherford Chemicals facilities. The Company
allocates certain Corporate expenses and interest to each of its subsidiaries.
The interest allocation is based on 12% of subsidiary working capital and 9% of
net property, plant and equipment. No customer accounts for more than 10% of
consolidated revenues.
The Company announced in late November 2001 a plan to realign its
businesses in recognition of the Company's strategic emphasis on the growing
opportunities in the life sciences industry. Effective January 1, 2002, the
operating units that primarily produce specialty and fine chemicals, and animal
health and agriculture products were combined under a new subsidiary, Rutherford
Chemicals, Inc. The chemical company manages CasChem, Inc., Bayonne, New Jersey;
Cosan Chemical Corporation, Carlstadt, New Jersey; Heico Chemicals, Inc.,
Delaware Water Gap, Pennsylvania; Nepera, Inc., Harriman, New York; Zeeland
Chemicals, Inc., Zeeland, Michigan; and Seal Sands Ltd., Teeside, United
Kingdom.
With this realignment, the Company began reporting four operating
segments in the first quarter 2002: Human Health, Biosciences, Rutherford
Chemicals and All Other.
11
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
Following is a summary of business segment results for the following
dates:
Three months ended
March 31,
---------
2003 2002
---- ----
Gross Sales:
Human Health ................ $ 55,423 $ 56,220
Biosciences ................. 44,105 37,195
Rutherford Chemicals ........ 34,725 33,261
All Other ................... 5,667 5,779
--------- ---------
$ 139,920 $ 132,455
========= =========
Gross Profit:
Human Health ................ $ 23,269 $ 25,846
Biosciences ................. 21,940 17,648
Rutherford Chemicals ........ 3,688 5,174
All Other ................... 788 1,025
--------- ---------
$ 49,685 $ 49,693
========= =========
Operating Profit:*
Human Health and All Other .. $ 17,068 $ 20,994
Biosciences ................. 9,312 6,415
Rutherford Chemicals ........ 698 2,152
Corporate ................... (21,435) (6,411)
--------- ---------
Total Operating Profit ...... $ 5,643 23,150
--------- ---------
Reconciliation to Net Income:
Interest Expense, net ....... $ 2,334 $ 2,927
Other Expenses (Income), net 121 (34)
Taxes ....................... 829 5,267
--------- ---------
Net Income .................. $ 2,359 $ 14,990
========= =========
Capital Spending:
Human Health and All Other .. $ 3,328 $ 4,604
Biosciences ................. 6,436 4,016
Rutherford Chemicals ........ 980 4,415
Corporate ................... 239 57
--------- ---------
$ 10,983 $ 13,092
========= =========
Depreciation:
Human Health and All Other .. $ 5,893 $ 4,350
Biosciences ................. 1,730 1,033
Rutherford Chemicals ........ 2,612 2,545
Corporate ................... 324 477
--------- ---------
$ 10,559 $ 8,405
========= =========
*The operating segments include charges for certain corporate allocations
reflecting services provided. Unallocated corporate spending is included in
"Corporate."
12
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
Three months ended
March 31,
---------
2003 2002
---- ----
Amortization:
Human Health and All Other $ 3 $ 3
Biosciences .............. 388 387
Rutherford Chemicals ..... -- --
------- -------
$ 391 $ 390
======= =======
March 31, December 31,
2003 2002
-------- --------
Total Assets:
Human Health and All Other $316,661 $308,572
Biosciences .............. 363,648 360,713
Rutherford Chemicals ..... 134,743 139,101
Corporate ................ 62,451 59,142
-------- --------
$877,503 $867,528
======== ========
(10) 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 other non-current liabilities, of
$4,580 and $4,542 at March 31, 2003 and December 31, 2002, respectively, for
costs associated with the study and remediation of Superfund sites and the
Company's current and former operating sites for matters that are probable and
reasonably estimable. These reserve amounts include a $3,000 estimated liability
that was included in Accounts payable and accrued liabilities at December 31,
2002. The increase in the accrual is due to currency fluctuation of $120,
partially offset by $82 in payments. Based on currently available information
and analysis, the Company's accrual represents management's best estimate of
what it believes are the probable and reasonably estimable environmental cleanup
related costs of a non-capital nature. 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
those assumed in the current estimates could have a material adverse effect on
financial condition, operating results and cash flows when resolved in a future
reporting period.
13
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
Litigation
The Company and its subsidiary Profarmaco S.r.l. (currently known as
Cambrex Profarmaco Milano S.r.l.) 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 alleged
that exclusive license agreements which Cambrex Profarmaco Milano S.r.l. 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 alleged that these agreements violated
the Federal Trade Commission Act, and that Mylan, Cambrex, Cambrex Profarmaco
Milano, S.r.l., and Gyma Laboratories of America, Inc., Cambrex Profarmaco
Milano S.r.l'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. A lawsuit making
similar allegations against the same parties including the Company and Cambrex
Profarmaco Milano S.r.l., and seeking injunctive relief and treble damages, was
filed by the Attorneys General of 31 states in the United States District Court
for the District of Columbia on behalf of those states and persons in those
states who were purchasers of the generic pharmaceuticals.
The same parties including the Company and Cambrex Profarmaco Milano
S.r.l. have also been named in purported class action complaints brought by
private plaintiffs in various state courts on behalf of purchasers of lorazepam
and clorazepate in generic form, making allegations essentially similar to those
raised in the FTC's complaint and seeking various forms of relief including
treble damages.
On February 9, 2001, a federal court in Washington, DC entered an Order
and Stipulated Permanent Injunction as part of a settlement of the FTC and
Attorneys General's suits. Under these settlement documents Mylan agreed to pay
over $140,000 on its own behalf and on behalf of most of the other defendant
companies including Cambrex and Cambrex Profarmaco Milano S.r.l. In the Order
and Injunction, the settling defendants also agreed to monitor certain future
conduct. The private litigation continues.
The Company strongly believes that its licensing arrangements with Mylan
are in accordance with regulatory requirements. However, the Company and Mylan
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
its final generic product. Mylan had been fully covering the costs for the
defense and indemnity of Cambrex and Cambrex Profarmaco Milano S.r.l. under
certain obligations set forth in the license agreements. Cambrex agreed to cover
separate legal defense costs incurred for Cambrex and Cambrex Profarmaco Milano
S.r.l. on a going forward basis beginning August 1, 2000.
On April 7, 2003, Cambrex reached an agreement with Mylan Laboratories under
which Cambrex would contribute $12,415 to the settlement of consolidated
litigation brought by a class of direct purchasers. In exchange, Cambrex and its
operating subsidiary, Cambrex Profarmaco Milano S.r.l., received from Mylan a
release and full indemnity against future costs or liabilities in related
litigation brought by purchasers, as well as potential future claims related to
this matter. Approximately $4,415 was paid in April 2003 in accordance with the
agreement, with the remaining $8,000 to be paid over the next five years.
Cambrex recorded an $11,342 charge (discounted to the present value due to the
five year pay-out) in the first quarter of 2003 as a result of this settlement.
14
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
On May 14, 1998, the Company's subsidiary Nepera, a manufacturer and
seller of niacinamide (Vitamin B-3), received a Federal Grand Jury subpoena for
the production of documents relating to the pricing and possible customer
allocation with regard to that product. The Company understands that the
subpoena was issued as part of the Federal Government's ongoing anti-trust
investigation into various business practices in the vitamin industry generally.
In the fourth quarter of 1999, the Company reached a settlement with the
Government concerning Nepera's alleged role in Vitamin B-3 violations from 1992
to 1995. On October 13, 2000, the Government settlement was finalized with
Nepera entering into a voluntary plea agreement with the Department of Justice.
Under this agreement, Nepera has entered a plea of guilty to one count of price
fixing and market allocation of Vitamin B-3 from 1992 to 1995 in violation of
section one of the Sherman Act and paid a fine of approximately $4,000. Under
the plea agreement, Nepera was placed on probation for a period of one year
which has ended. The fine was paid in February 2001. Nepera has been named as a
defendant, along with several other companies, in a number of private civil
actions brought on behalf of alleged purchasers of Vitamin B-3.
An accrual of $6,000 was recorded in the fourth quarter 1999 to cover the
anticipated government settlements, related litigation, and legal expenses.
Based on discussions with various plaintiffs' counsel, as well as then current
estimates of expenditures for legal fees, an additional accrual of $4,400 was
established in the fourth quarter of 2001. The Company believed that the current
reserves would be sufficient to cover resolution of the remaining related
litigation matters. However, during 2002, based on information developed during
the year, the Company determined that the remaining litigation matters would be
more costly than previously anticipated. Therefore, during 2002, the Company
increased reserves by $10,000. The balance of this accrual as of March 31, 2003
was approximately $8,761. This accrual has been recorded in accounts payable and
accrued liabilities.
Other
The Company has a $5,000 investment in a privately owned, emerging
biotechnology company that has therapeutic products in various stages of
clinical trials. The investment is monitored on a continual basis to evaluate
whether any changes in value become other than temporary. No impairment has been
recognized to date.
The Company enters into standard indemnification agreements in the
ordinary course of business including contract provisions for indemnification
protecting its customers and suppliers, etc. against third party liability for
manufacture and sale of Company products that fail to meet product
specifications and contract provisions for indemnification protecting licensees
against intellectual property infringement related to licensed Company
technology or processes. Due to the lack of historical obligations related to
these items and the existence of associated insurance coverage, the Company has
no liabilities recorded for these items as of March 31, 2003.
As permitted under Delaware law, the Company has agreements whereby we
indemnify our officers and directors for certain events or occurrences while the
officer or director is, or was serving, at our request in such capacity. The
term of the indemnification period is for the officer's or director's lifetime.
The maximum potential amount of future payments we could be required to make
under these indemnification agreements is unlimited; however, we have a Director
and Officer insurance policy that covers a portion of any potential exposure.
The Company believes the estimated fair value of these indemnification
agreements is minimal, and as such, the Company has no liabilities recorded for
these agreements as of March 31, 2003.
15
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per-share amounts)
The Securities and Exchange Commission has advised the Company that the
SEC's informal inquiry into the Company's previously announced inter-company
accounting matter has now become a formal investigation. The SEC's informal
inquiry began earlier this year after the Company voluntarily disclosed certain
discrepancies related to inter-company accounts for the five year period ending
December 31, 2001 that resulted in the restatement of the Company's financial
statements for those years. To Cambrex's knowledge, the formal investigation is
limited to this inter-company accounting matter, and the Company does not expect
further revisions to its historical financial statements relating to these
discrepancies. The Company will continue to fully cooperate with the SEC.
While it is not possible to predict with certainty the outcome of the
litigation and other matters discussed above 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.
16
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 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 March 31, 2003 and 2002.
Quarter Ended March 31,
-----------------------
2003 2002
---- ----
$ % $ %
-------- ------- -------- -------
Human Health ......... $ 55,423 39.6% $ 56,220 42.4%
Biosciences .......... 44,105 31.5 37,195 28.1
Rutherford Chemicals . 34,725 24.8 33,261 25.1
All Other ............ 5,667 4.1 5,779 4.4
-------- ------- -------- -------
Total gross sales $139,920 100.0% $132,455 100.0%
======== ======= ======== =======
The following table shows the sales and gross profit of the Company's four
product segments for the first quarter 2003 and 2002.
Gross Gross Gross
Sales Profit $ Profit %
-------- -------- ------
2003
Human Health ....... $ 55,423 $ 23,269 42.0%
Biosciences ........ 44,105 21,940 49.7
Rutherford Chemicals 34,725 3,688 10.6
All Other .......... 5,667 788 13.9
-------- --------
Total ........ $139,920 $ 49,685 35.5%
======== ======== ======
Gross Gross Gross
Sales Profit $ Profit %
-------- -------- ------
2002
Human Health ....... $ 56,220 $ 25,846 46.0%
Biosciences ........ 37,195 17,648 47.4
Rutherford Chemicals 33,261 5,174 15.6
All Other .......... 5,779 1,025 17.7
-------- --------
Total ........ $132,455 $ 49,693 37.5%
======== ======== ======
COMPARISON OF FIRST QUARTER 2003 VERSUS FIRST QUARTER 2002
Gross sales in the first quarter 2003 increased 5.6% to $139,920 from $132,455
in the first quarter 2002. Increased sales in the Biosciences segment and
Rutherford Chemicals were partly offset by lower sales in Human Health and All
Other Segments. The currency impact of the weaker U.S. dollar favorably impacted
sales by 6.2% in the first quarter of 2003 versus 2002.
The Human Health Segment gross sales of $55,423 were $797 or 1.4% below the
first quarter 2002. The currency impact of the weaker U.S. dollar favorably
impacted Human Health sales by 10.1% in the first quarter 2003 vs. 2002. The
decrease reflects lower sales of generic cardiovascular and central nervous
system active ingredients due to reduced U.S. demand, shipment delays related to
a customer's regulatory issues, selling price reductions due to competitive
conditions and timing of shipments. These decreases were partly offset by higher
sales of gastrointestinal active pharmaceutical ingredients mainly reflecting
higher U.S. demand in support of a new dosage formulation for a major customer.
In addition, the Company had higher shipments of an antihistamine intermediate
product which was delayed in 2002 due to customer supply issues, initial
shipments of a generic API used to treat hypoglycemia in support of a
17
new application approved in the U.S., and initial shipments of an API used in an
arteriosclerosis drug which has entered clinical stage III trials.
The Biosciences Segment gross sales of $44,105 were $6,910 or 18.6% above the
first quarter 2002. The currency impact of the weaker U.S. dollar favorably
impacted Biosciences sales by 4.6% in the first quarter 2003 versus 2002. This
increase was also due primarily to higher sales in the biopharmaceutical
contract manufacturing facilities, increased sales of endotoxin detection
products reflecting the introduction of FDA compliant software in July 2002,
improved prices for media and sera, and increased sales of cell culture products
due to higher demand from existing customers and addition of new customers
reflecting the continued improvement in product supply and quality. These
increases were partly offset by the impact of the divestiture of the in vitro
Diagnostics business in the first quarter 2002.
Rutherford Chemicals Segment gross sales of $34,725 in the first quarter 2003
increased $1,464 or 4.4% from the first quarter 2002. The currency impact of the
weaker U.S. dollar favorably impacted Rutherford Chemicals sales by 1.7% in the
first quarter 2003. The increase in sales also reflects higher feed additive and
agricultural intermediate sales due to timing of campaigns and improved product
availability. These increases were partly offset by continued weakness in the
telecommunications and industrial coatings industries.
The All Other Segment gross sales of $5,667 were down $112 or 1.9% from the
first quarter 2002 primarily reflecting lower animal feed additive sales due
primarily to a customer inventory reductions, partly offset by the impact of
increased sales of a performance enhancing chemical product due to customers
stocking up in anticipation of a planned discontinuance of the product by our
facility in Sweden.
Export sales from U.S. businesses of $13,889 in the first quarter 2003 increased
12.5% from the first quarter 2002. International sales from our European
operations totaled $65,237 for the first quarter of 2003 as compared with
$59,934 in 2002, an increase of 8.8%. The $139,920 of sales in the first quarter
of 2003 consisted of $75,866, $54,603, $6,650 and $2,801 to North America,
Europe, Asia and the rest of the world, respectively. The $132,455 of sales in
the first quarter of 2002 consisted of $77,534, $46,841, $5,402 and $2,678 to
North America, Europe, Asia and the rest of the world, respectively.
Gross profit in the first quarter 2003 of $49,685 was flat compared to $49,693
in 2002. Gross margin decreased to 35.5% from 37.5% in the first quarter of
2002. The Bioscience segment experienced higher margins driven by increased
suite utilization and increased ancillary biopharmaceutical services in the
biopharmaceutical contract manufacturing sites, as well as higher production and
lower spending in certain U.S. and European Biosciences facilities, favorable
foreign currency effects, partly offset by higher plant insurance costs. Human
Health segment margins decreased due to unfavorable product mix, lower
production volumes, price pressure on certain generic products, and higher plant
insurance premiums, partly offset by favorable currency effects, including hedge
contract gains due to the weak U.S. dollar. The hedge gains are reflected in
Other Revenue. Rutherford Chemicals margins declined due to unfavorable product
mix and certain higher raw material, energy and insurance costs as well as lower
production volumes at certain facilities. All Other segment margins declined
reflecting lower production levels in the U.S. for feed additives.
Selling, general and administrative expenses of $28,058 or 20.1% of gross sales
in the first quarter 2003, increased from $22,608 or 17.1% of gross sales in the
first quarter 2002. Higher administrative costs were due primarily to increased
benefit plan expenses, the impact of currency translation due to the weaker U.S.
dollar, the costs incurred in the first quarter 2003 of the internal
investigation into the restatement of results disclosed in the fourth quarter of
2002 and higher insurance premiums reflected in administrative expenses.
Increased sales and marketing expenses reflect an investment made in the
Biosciences sales force and the impact of currency translation.
18
Research and development expenses of $4,642 were 3.3% of gross sales in the
first quarter 2003, compared to $3,935 or 3.0% of gross sales in 2002. The
increase primarily reflects higher spending on Biosciences in the U.S. and the
impact of currency translation.
The 2003 results include a pre-tax provision of $11,342 (discounted to the
present value due to the five year pay-out) related to an agreement reached with
Mylan Laboratories under which Cambrex will contribute $12,415 to the settlement
of consolidated litigation brought by a class of direct purchasers. Of this
amount, $4,415 was paid in April 2003 with the balance due in equal installments
over a five-year period. In exchange, Cambrex received from Mylan a release and
full indemnity against future costs or liabilities in related litigation brought
by the purchasers, as well as potential future claims related to this matter.
The operating profit in the first quarter 2003 was $5,643 compared to $23,150 in
2002. The decrease is due to the $11,342 pretax charge for the Mylan settlement
discussed above, lower sales and gross margins in the Human Health and All Other
Segments, lower gross margins in the Rutherford Chemicals segment and higher
operating expenses, partially offset by higher sales and gross margins in the
Biosciences segment.
Net interest expense of $2,334 in the first quarter 2003 decreased $593 from
2002 primarily reflecting lower average debt balance and lower average interest
rates. The average interest rate was 3.9% in the first quarter 2003 versus 4.1%
in 2002.
The effective tax rate for the first quarter 2003 was 26%, which was consistent
with a provision of 26% for the first quarter 2002. The 2003 effective rate
includes the impact of the legal settlement discussed above, which reduced the
overall effective rate for the year by approximately 2%. Excluding this impact,
the higher tax rate is primarily the result of changes in geographic mix and
reduction of estimated foreign tax credits, partly offset by the continuing R&D
tax credit programs.
The net income in the first quarter of 2003 was $2,359 versus $14,990 in the
same period a year ago. Diluted earnings per share were $.09 in 2003 versus
$0.56 in 2002. The impact of the Mylan settlement discussed above was
approximately $0.31 per share in the first quarter 2003. The impact of this
settlement on the full years results is expected to be approximately $0.28 per
share, as the related tax benefit from the settlement will benefit earnings per
share by approximately $0.03 for the balance of the year.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2003, the Company generated cash flows
from operations totaling $32,375, an increase of $11,790 versus the same period
a year ago. This increase in cash flows is due primarily to lower trade
receivables due to better collections and the timing of collections on certain
large receivables, lower inventory due to better inventory management, and the
timing of trade accounts payable. The increase in 2003 would have been higher if
not for the collection of a portion of an insurance claim receivable related to
a Rutherford Chemicals site in the first quarter 2002.
Capital expenditures were $10,983 in the three months of 2003 as compared to
$13,092 in 2002. Part of the funds were used for process development facility
expansion at a Biopharmaceutical manufacturing plant in Baltimore, Maryland,
expansion of LAL and cell therapy manufacturing capabilities at a Bioscience
facility in Walkersville, Maryland, as well as for new small scale production
equipment for generic pharmaceuticals at the Charles City, Iowa facility.
Cash flow used in financing activities of $11,907 for the three months ended
March 31, 2003 includes net repayments of debt of $11,198 and the payment of
dividends of $781, partially offset by proceeds from the exercise of stock
options of $72.
19
During the first three months of 2003, the Company paid cash dividends of $0.03
per share.
As discussed in Footnote 10, the Company has reached an agreement with Mylan
Laboratories under which Cambrex will contribute $12,415 to the settlement of
consolidated litigation brought by a class of direct purchasers. Of this amount,
$4,415 was paid in April 2003 with the balance due in equal installments over a
five-year period.
Management believes that existing sources of capital, together with cash flows
from operations, will be sufficient to meet foreseeable cash flow requirements.
Effective January 1, 2002, the operating units that primarily produce specialty
and fine chemicals and animal health and agriculture products were combined
under a new business unit, Rutherford Chemicals, Inc. Rutherford Chemicals, Inc.
includes CasChem, Inc., Bayonne, New Jersey; Cosan Chemical Corporation,
Carlstadt, New Jersey; Heico Chemicals, Inc., Delaware Water Gap, Pennsylvania;
Nepera, Inc., Harriman, New York; Zeeland Chemicals, Inc., Zeeland, Michigan;
and Seal Sands Chemicals, Limited, Middlesbrough, United Kingdom. In the fourth
quarter 2002, the Company announced that it had engaged a financial advisor to
assist the Company in investigating strategic alternatives for the Rutherford
Chemicals segment. The financial advisor contacted certain parties regarding the
Rutherford Chemicals business and the Company has made initial management
presentations to certain of these parties. At this time, the outcome of these
management presentations cannot be determined.
FORWARD-LOOKING STATEMENTS
This document may contain "forward-looking statements" for the purposes of the
Securities and Exchange Commission's "safe harbor" provisions under the Private
Securities Litigation Reform Act of 1995 and Rule 3B-6 under the Exchange Act,
without limitation, statements regarding expected performance, especially
expectations with respect to sales, research and development expenditures,
earnings per share, capital expenditures, acquisitions, divestitures,
collaborations, or other expansion opportunities.
The forward-looking statements contained herein involve risks and uncertainties
that may cause results to differ materially from the Company's expectations
including but not limited to, global economic trends, pharmaceutical outsourcing
trends, competitive pricing or product developments, government legislation
and/or regulations (particularly environmental issues), technology,
manufacturing and legal issues, unfavorable results from FDA inspections, delays
in FDA approval of customers' new products, timing of shipments, changes in
foreign exchange rates, performance of minority investments, uncollectable
receivables, loss on disposition of assets, cancellation or delays in renewal of
contracts, and lack of suitable raw materials or packing materials.
ITEM 4. CONTROLS AND PROCEDURES
a) Evaluation of disclosure controls and procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's "disclosure controls and procedures" (as
defined in Rules 13a-14(c) and under the Securities Exchange Act of 1934
(the "Exchange Act")) as of a date (the "Evaluation Date") within 90 days
before the filing date of this quarterly report. Based on such
evaluation, they have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures were effective to ensure
that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the rules
and forms of the Securities and Exchange Commission.
20
b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly
affect these controls during the period covered by this quarterly report.
As disclosed in Note 2 in the Company's 2002 Form 10-K, the Company
restated its results for prior periods due to certain discrepancies in
the inter-company accounts. Effective December 31, 2002, the Company has
implemented a revised policy and procedure with respect to inter-company
transactions and accounts to ensure monthly reconciliations are
performed.
21
PART II - OTHER INFORMATION
CAMBREX CORPORATION AND SUBSIDIARIES
ITEM 4. MATTERS SUBMITTED TO A VOTE OF SECURITIES HOLDERS
1. At the Annual Meeting of Stockholders held on April 24, 2003, two
Directors in Class I were elected to hold office as Directors of
the Company until the 2006 Annual Meeting of Stockholders.
2. Also, the Stockholders voted for the appointment of
PricewaterhouseCoopers LLP as the Company's Independent
Accountants for 2003.
3. Also, the Stockholders voted for the approval of the 2003
Performance Stock Option Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 99.1 - CEO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit 99.2 - CFO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K
Report on Form 8-K filed on April 3, 2003 regarding a reduction in
the Company's 2003 earnings forecast and a settlement and
indemnity agreement with Mylan Laboratories.
Report on Form 8-K filed on April 24, 2003 regarding the first
quarter 2003 earnings release issued by Cambrex Corporation dated
April 24, 2003.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMBREX CORPORATION
By /s/ Luke M. Beshar
-----------------------------------
Luke M. Beshar
Sr. Vice President and
Chief Financial Officer
(On behalf of the Registrant and
as the Registrant's Principal
Financial Officer)
Date: May 9, 2003
23
CAMBREX CORPORATION
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, James A. Mack, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cambrex Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ James A. Mack
-----------------------------------
James A. Mack, President
Chairman of the Board and
Chief Executive Officer
Date: May 9, 2003
24
CAMBREX CORPORATION
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, Luke M. Beshar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cambrex Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ Luke M. Beshar
-------------------------------------
Luke M. Beshar
Senior Vice President and
Chief Financial Officer
Date: May 9, 2003
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