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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE MEADOWLANDS PLAZA,
EAST RUTHERFORD, NEW JERSEY 07073
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201)-804-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE
(SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT: NONE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $532,685,089 as of February 28, 1999.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of February 28, 1999, there were 24,536,085 shares outstanding of the
registrant's Common Stock, $.10 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1998 Annual
Meeting are incorporated by reference into Part III of this report.
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PART I
ITEM 1 BUSINESS.
GENERAL
Cambrex Corporation (the "Company" or "Cambrex"), a Delaware corporation,
began business in December 1981. The Company primarily provides products and
services to the life sciences industries and operates in four segments: Human
Health, Biotechnology, Animal Health/Agriculture and Specialty Business. Each of
these segments include various product categories. The Human Health,
Biotechnology and Animal Health/Agriculture segments facilitate all the ongoing
analysis of the business in the area of life sciences. Currently, the Company's
overall strategy for these segments is to focus on niche markets that have
global opportunities, build on strong customer relations to enhance our new
products pipeline, and support state-of-the-art technology, while being a leader
in environmental, health and safety performance.
Within each of the segments, the Company uses a consistent business
approach:
1. Focus on niche products requiring significant technical expertise.
2. Be a leading supplier of core products, for which price competition is
not the primary market determinant.
3. Review products on a continuing basis and eliminate those not meeting
operating profit goals and replace those products with ones generating
higher returns.
Important objectives of the Company are to expand its operations through
internal growth and to make strategic acquisitions of product lines, technology
and companies that increase its position in niche markets.
On October 3, 1997, the Company completed the acquisition of all of the
outstanding common stock of BioWhittaker, Inc. ("BioWhittaker") for
approximately $133,500. BioWhittaker, which is located on 116 acres in
Walkersville, Maryland, develops, produces and sells cell culture and endotoxin
detection products to the biotechnology and pharmaceutical industries for
research and for the commercial manufacture of biopharmaceutical products. On
May 12, 1998, Cambrex purchased the assets of the biopharmaceutical
manufacturing and distribution business of Boehringer Ingelheim Bioproduct
Partnership. The assets acquired include a state-of-the-art cell culture and
media manufacturing facility in Verviers, Belgium, and inventory for certain
cell culture, endotoxin detection and molecular biology products.
On January 5, 1998, the Company completed the acquisition of the chiral
intermediates business of Celgene Corporation for $7,500 plus future royalties
of up to $7,500 based upon sales. The product line, which has been re-named
Chiragene, will produce optically active, complex, organic compounds that are
critical to the production of modern active pharmaceutical ingredients.
On January 4, 1999, the Company acquired Poietic Technologies, Inc., the
leading supplier of normal human cells of hemotopoietic origin. Terms of the
transaction are $2.5 million cash and future consideration based on the
performance of the business.
On March 12, 1999, the Company announced the purchase of Irotec
Laboratories, Ltd., a manufacturer of active pharmaceutical ingredients located
in Cork, Ireland. Cambrex paid approximately $40,000 for the business, which
includes a new $15,000 cGMP pharmaceutical manufacturing plant, that should come
on line in the second quarter of 1999. In connection with the purchase, the
Company signed a long-term agreement with Hexal AG, Germany's second largest
generic pharmaceutical producer. The agreement covers the supply of an expected
$50,000 to $75,000 of Active Pharmaceutical Ingredients (API) over the next five
years.
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PRODUCTS
The Company uses its technical expertise in a wide range of chemical and
biological processes to meet the needs of its customers for high quality
products for specialized applications. The following table sets forth for the
periods indicated information concerning gross sales from the Company's four
segments:
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997(1) 1996
-------- -------- --------
Human Health....................................... $194,766 $182,818 $174,398
Biotechnology...................................... 65,968 13,577 --
Animal Health/Agriculture.......................... 56,285 59,804 61,560
Specialty Business................................. 124,664 123,884 133,521
-------- -------- --------
Gross Sales...................................... $441,683 $380,083 $369,479
======== ======== ========
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(1) Sales from BioWhittaker, acquired in October 1997, are included from the
date of acquisition.
Human Health: The Human Health Segment is classified into eight principal
product groups: (1) Active Pharmaceutical Ingredients, (2) Pharmaceutical
Intermediates, (3) Imaging Chemicals, (4) Personal Care Ingredients, (5)
Biomedicals, (6) Catalysts, (7) Chiral Technology and (8) Nutraceuticals. These
products are sold to a diverse group of more than 1,000 customers, with two
customers accounting for 11% and 9% of 1998 sales in this segment. Many of these
products are also sold through agents.
This table summarizes the gross sales for this product segment.
%
1998 1997 CHANGE CHANGE
-------- -------- ------- ------
Active Pharmaceutical Ingredients.......... $120,459 $110,461 $ 9,998 9%
Pharmaceutical Intermediates............... 24,844 23,430 1,414 6
Imaging Chemicals.......................... 14,179 17,617 (3,438) (20)
Personal Care Ingredients.................. 16,777 16,453 324 2
Biomedicals................................ 3,977 4,286 (309) (7)
Catalysts.................................. 8,281 6,554 1,727 26
Chiral Technology.......................... 5,548 3,733 1,815 49
Nutraceuticals............................. 701 284 417 147
-------- -------- ------- ---
Total Human Health............... $194,766 $182,818 $11,948 7%
======== ======== ======= ===
The Active Pharmaceutical Ingredients are manufactured under FDA regulation
(cGMP -- current Good Manufacturing Practices) for use as the active ingredients
in prescription and over-the-counter drugs. Active Pharmaceutical Ingredient
sales of $120,459 were $9,998 (9%) above the prior year due to strong demand for
our gastro-intestinal products used for treating ulcerative colitis, and also
due to shipments of a new anti-asthma drug and other new products. Active
Pharmaceutical Ingredients include active ingredients used in products for
gastro-intestinal, cardiovascular, endocrine, central nervous system,
respiratory, diuretics, anti-infective, anti-inflammatory, immunology and
various other uses.
Pharmaceutical Intermediate sales of $24,844 were $1,414 (6%) above 1997
due to new products used in migraine medicine and central nervous system
applications. These increases were partially offset by lower sales of
aminodioxepin (AOA), a drug intermediate used in the production of a protease
inhibitor for the treatment of AIDS, due to the demand for the end-use drug
leveling off primarily from the filling of the distribution pipeline.
Chiral Technology product sales of $5,548 were $1,815 (49%) above 1997 due
to the sales from the acquisition of the chiral intermediates business
(Chiragene) from Celgene Corporation in January 1998.
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Imaging Chemical (X-Ray Media) sales of $14,179 were $3,438 (20%) below the
prior year due to a customer reducing inventories, and another customer deciding
to manufacture on a captive basis. A third customer established a backup
supplier, as was permitted under a 5-year supply agreement, which further
reduced sales.
Other product category changes from prior year were not significant.
Biotechnology: This segment consists of cell culture products, including
living cell cultures, cell culture media and cell culture media supplements, and
endotoxin detection products supplied to the biotechnology and pharmaceutical
industries. The Company manufactures more than 1,100 products which are sold to
more than approximately 12,000 customers worldwide with no one customer
accounting for more than 10% of sales in this category.
This table summarizes the gross sales for this product segment:
1998 1997
------- -------
Cell Culture............................................. $43,795 $ 9,126
Endotoxin Detection...................................... 18,852 3,539
Other.................................................... 3,321 912
------- -------
Total Biotechnology............................ $65,968 $13,577
======= =======
Animal Health/Agriculture: This segment consists of three product groups:
(1) Vitamin B3 used in feed additives and for veterinary products, (2) Animal
Health Products used in disease prevention and (3) Agricultural Intermediates
used in crop protection. These products are sold to approximately 200 customers.
Three customers accounted for 31%, 20% and 13% of 1998 sales in this segment.
This table summarizes the gross sales for this product segment:
%
1998 1997 CHANGE CHANGE
------- ------- ------- ------
Vitamin B3................................... $12,814 $12,163 $ 651 5%
Animal Health................................ 17,614 17,471 143 1
Agricultural Intermediates................... 25,857 30,170 (4,313) (14)
------- ------- ------- ---
Total Animal Health/Agriculture.... $56,285 $59,804 $(3,519) (6)%
======= ======= ======= ===
Vitamin B3 sales of $12,814 were $651 (5%) above 1997 due to price
increases put in place in late 1997 and volume increases to customers.
Animal Health sales of $17,614, were roughly flat with 1997. Sales of
organo-aresnical feed additives, the largest product in animal health remained
at 1997 levels.
Agricultural Intermediate sales of $25,857 were down $4,313 (14%) due to
reduced demand for crop protection products directly related to the economic
conditions in Asia.
Specialty Business: This segment consists of two product groups: (1)
Performance Enhancing Chemicals and (2) Polymer Systems. Performance Enhancing
Chemicals are complex chemicals designed to impart special properties when small
quantities are included in the formulation of specific products. These
chemicals, which include over 100 products, are used in photography, pigments,
polymers, fuel/oil additives, catalysts and other specialty additives. Polymer
Systems are monomers or two component polymer systems for use in small volume,
high performance applications. These polymers include applications used in
coatings, telecommunications, electronics and engineering plastics. These
products are sold to approximately 1,100 customers with no one customer
accounting for over 10% of 1998 sales.
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This table summarizes the gross sales for this product category:
%
1998 1997 CHANGE CHANGE
-------- -------- ------ ------
Performance Enhancing Chemicals............. $ 81,853 $ 81,640 $213 0%
Polymer Systems............................. 42,811 42,244 567 1
-------- -------- ---- --
Total Specialty Business.......... $124,664 $123,884 $780 1%
======== ======== ==== ==
Key sales increases in Performance Enhancing Chemicals resulted from
increases in THPE, a polycarbonate additive, growth in export markets, and in
castor oil based products, and were offset by decreases in photographic
products.
Polymer System sales of $42,811 were $567 (1%) above 1997, due to increased
demand for a monomer used in high performance plastics offset by decreases in
coating products.
MARKETING AND DISTRIBUTION
The Company's Human Health segment generally includes high value, low
volume products requiring significant technical expertise for their development
and manufacture. Marketing generally requires significant cooperative effort
among a small highly trained marketing staff, a technical staff who can assess
the technical fit and estimate manufacturing economics, and the business
management to determine the strategic and business fit. Such a process may take
from two to five years before a commercial product is fully established. Because
of this long lead time and the complexity of the technical efforts there are
usually long-term relationships with major corporations who become significant
customers. Sales of established products may be handled by agents in those areas
where direct sales efforts are uneconomic.
For the biotechnology segment, the Company markets and sells its products
in the United States and Europe principally through its own direct sales force.
The Company directly serves the European markets through its wholly owned
subsidiaries, BioWhittaker UK LTD, located outside London, and BioWhittaker
Europe located in Belgium. The remaining international markets are served
principally through an extensive network of independent distributors.
For the Specialty Business segment and some Animal Health/Agriculture
segment products, marketing and distribution is more typical of specialty
chemical companies, with products being sold to customers from inventory in
volumes ranging from rail cars to five gallon containers. Sales may be handled
by Company sales people, distributors or agents as appropriate.
RAW MATERIALS
The Company uses a wide array of raw materials in the conduct of its
businesses. The Company uses significant amounts of castor oil and compounds
derived from petroleum feedstocks in manufacturing a limited number of its
products. The Company believes it is one of the largest purchasers of castor oil
in the United States, and has the ability to take delivery and store a large
quantity of castor oil on site. Castor oil is used primarily in the manufacture
of the Company's polymer systems for coatings, telecommunication, and electronic
applications. Under advantageous market conditions, the Company sells this
commodity in bulk quantities as simple castor oil derivatives. Castor oil, which
is not produced in the United States, is an agricultural product, the market
price of which is affected by natural factors relating to the castor bean crop
from which the oil is produced. Castor oil is produced commercially in a few
foreign countries, with India currently being the largest exporter. The Company
has been able to obtain adequate supplies of castor oil generally at acceptable
prices in the past and expects to be able to continue to do so in the future.
Pyridine, which accounted for 6%, 7% and 8% of gross revenues in 1998, 1997
and 1996, respectively, is produced by the Company by a process involving the
high temperature reaction of acetaldehyde, formalin and ammonia. Acetaldehyde is
available from one supplier in North America. The price of acetaldehyde
decreased
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approximately 12% during 1998 after increasing 13% in 1997. Formalin's feedstock
is methanol, which experienced decreased prices in 1998 compared to 1997 due to
higher natural gas inventories caused by warmer weather (methanol is made from
natural gas). The Company obtains acetaldehyde and formalin pursuant to
long-term supply contracts under which the price for the raw material adjusts to
market conditions, with a time lag.
For the biotechnology products, the Company buys materials from many
suppliers and is generally not dependent on any one supplier or group of
suppliers. Nonetheless, although there is a well-established market for raw
fetal bovine serum, its price and supply are cyclical and fluctuate.
The other key raw materials used by the Company are advanced organic
intermediates and generally have been in adequate supply from multiple
suppliers.
RESEARCH AND DEVELOPMENT
The Company's research and development program is designed to increase the
Company's competitiveness through improving its technology and developing
processes for the manufacture of new products to meet customer requirements. The
goals are to improve the Company's manufacturing processes so as to reduce
costs, improve quality and increase capacity; and to identify market
opportunities which warrant a significant technical effort, and offer the
prospects of a long-term, profitable business relationship. Research and
development activities are performed at most of the Company's manufacturing
facilities in both the United States and Europe. Approximately 130 employees are
involved directly in research and development activities worldwide.
In February, 1997, the Company signed a cooperative agreement with Albany
Molecular Research, Inc. of Albany, New York. The Company has and will continue
to provide Albany Molecular Research financial support to develop processes
specifically designed to fit into the Company's cGMP manufacturing facilities.
In May, 1997, the Company formed an alliance with Fine Tech Ltd., of Technicon
City, Israel, in which the Company has and will continue to provide Fine Tech
funding over the next three years for process improvement on existing and
newly-developed generic drugs to be manufactured in the Company's cGMP
facilities. There have been three products brought to market as a result of
these alliances and agreements, and the Company is evaluating several other
products for possible commercialization. The estimated commitments for the
research and development agreements over the next three years is approximately
$1,300.
The Company spent approximately $14,000, $10,600 and $9,200 in 1998, 1997
and 1996, respectively, on research and development efforts. The Company also
incurred a one-time non-cash expense of $14,000 in 1997 related to the value of
in-process research and development efforts underway at the time of the
acquisition of BioWhittaker.
PATENTS AND TRADEMARKS
The Company has patent protection in some of its product areas. However,
the Company relies primarily on know-how in many of its manufacturing processes
and techniques not generally known to other chemical companies for developing
and maintaining its market position.
The Company currently owns approximately 135 United States patents which
have various expiration dates beginning in 1999 through 2015 and which cover
selected items in each of the Company's major product areas. The Company also
owns the foreign equivalent of many of its United States patents. In addition,
the Company has applied for patents for various concepts and is in the process
of preparing patent applications for other concepts. In conjunction with the
acquisition of BioWhittaker, the Company acquired patent and other proprietary
rights, which are material to the endotoxin detection products, allergy tests
kits and the ELVIS(TM) cell culture products.
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The Company has trademarks registered in the United States and a number of
foreign countries for use in connection with the Company's products and
business. The Company believes that many of its trademarks are generally
recognized in its industry. Such trademarks include Naturechem(R), Bufferite(R),
Vitride(R), Clonetics(R), Auto-LAL(TM) and ELVIS(TM).
The Company requires employees to sign confidentiality and non-compete
agreements where appropriate.
COMPETITION
Because of the nature of the Company's products in its Human Health and
Animal Health/Agriculture segments and its strategic approach, it is not
possible to identify a group of direct competitors. Where competition exists, it
is typically specific to a certain product, or is focused early in the process,
when an initial market position is being established. If the Company perceives
significant competitive risk and a need for large technical or financial
commitment, it generally negotiates long-term contracts or capital guarantees
from its targeted customer before proceeding.
In the Biotechnology segment, no one company is known to compete with the
Company in all of its product groups, but in each group competition is offered
by a number of companies, including, in some cases, firms substantially larger
and with greater financial resources than the Company. The markets in which the
Company competes are generally concentrated and are highly competitive, with
competition centering on product specifications, quality, depth of product line,
price, technical support, timely product development and speed of delivery.
Competition for the Company's Specialty Business segment is more typical of
chemical markets. Competition exists from other producers of the Company's
products and from other products that may offer equivalent properties.
Competition in these areas are generally based on customer service, product
quality and pricing.
ENVIRONMENTAL AND SAFETY REGULATIONS AND PROCEEDINGS
General: Production of certain of the Company's products involves the use,
storage and transportation of toxic and hazardous materials. The Company's
operations are subject to extensive international and domestic federal, state
and local laws and regulations relating to the storage, handling, emission,
transportation and discharge of materials into the environment and the
maintenance of safe conditions in the work place. The Company maintains
environmental and industrial safety and health compliance programs at its
plants, and believes that its manufacturing operations are in general compliance
with all applicable safety, health and environmental laws.
The Company's acquisitions were made subject to known environmental
conditions. Also, as with other companies engaged in the chemical business,
risks of substantial costs and liabilities are inherent in certain plant
operations and certain products produced at the Company's plants. Additionally,
prevailing legislation tends to hold chemical companies primarily responsible
for the proper disposal of their chemical wastes even after transferal to third
party waste disposal facilities. Moreover, other future developments, such as
increasingly strict environmental, safety and health laws and regulations, and
enforcement policies thereunder, could result in substantial costs and
liabilities to the Company and could subject the Company's handling,
manufacture, use, reuse, or disposal of substances or pollutants at its plants
to more rigorous scrutiny than at present. Although the Company has no direct
operations and conducts its business through subsidiaries, certain legal
principles that provide the basis for the assertion against a parent company of
liability for the actions of its subsidiaries may support the direct assertion
against the Company of environmental liabilities of its subsidiaries.
Known environmental matters which may result in liabilities to the Company
and the related estimates and accruals are summarized in Note #22 to the Cambrex
Corporation and Subsidiaries Consolidated Financial Statements.
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Present and Future Environmental Expenditures: The Company's policy is to
comply with all legal requirements of applicable environmental, health and
safety laws and regulations. The Company believes it is in general compliance
with such requirements and has adequate professional staff and systems in place
to remain in compliance. In some cases, compliance can only be achieved by
capital expenditures, and the Company made capital expenditures of approximately
$2,900 in 1998, $2,800 in 1997, and $4,800 in 1996 for environmental projects.
The Company anticipates that capital requirements will increase in subsequent
years as a result of the Clean Air Act Amendments and other pending
environmental laws. Additionally, as the environmental proceedings in which the
Company is involved progress from the remedial investigation and feasibility
study stage to implementation of remedial measures, related expenditures will
most likely increase. The Company considers costs for environmental compliance
to be a normal cost of doing business, and includes such costs in pricing
decisions.
EMPLOYEES
At December 31, 1998 the Company had 1,750 employees worldwide (600 of whom
were from international operations) compared with 1,790 employees at December
31, 1997 and 1,292 at December 31, 1996.
All hourly plant employees at the Bayonne, New Jersey facility are
represented by Local 8-406 of the Oil, Chemical and Atomic Workers International
Union under a contract expiring September 17, 2001; the hourly plant employees
at the Carlstadt, New Jersey plant are represented by the Amalgamated Industrial
Union of East Orange, New Jersey under a contract expiring November 30, 2000;
and the hourly plant employees at the Harriman, New York facility are
represented by Local 810 of the International Brotherhood of Teamsters under a
contract expiring June 30, 2001. Nordic and Profarmaco production,
administration, scientific and technical employees are represented by various
local and national unions. The contracts with these unions expire at various
times through December 31, 1999. The Company believes its labor relations are
satisfactory, and will begin negotiations for the renewal of contracts expiring
in 1999.
SEASONALITY
Like many other businesses in the life sciences and specialty chemicals
industry, the Company experiences some seasonality. Operating results for any
quarter, however, are not necessarily indicative of results for any future
period. In particular, as a result of various factors such as acquisitions and
plant shutdowns, the Company believes that period-to-period comparisons of its
operating results should not be relied upon as an indication of future
performance.
EXPORT AND INTERNATIONAL SALES
The Company exports numerous products to various areas, principally Western
Europe, Asia and Latin America. Export sales from the Company's domestic
operations in 1998, 1997 and 1996 amounted to $64,174, $48,852, and $50,243,
respectively. Sales from international operations were $156,844 in 1998,
$152,079 in 1997, and $151,466 in 1996. Refer to Note #20 to the Cambrex
Corporation and Subsidiaries Consolidated Financial Statements.
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ITEM 2 PROPERTIES.
Set forth below is information relating to the Company's manufacturing
facilities:
OPERATING
LOCATION ACREAGE SUBSIDIARY PRODUCT LINES MANUFACTURED
- -------- --------- ------------- ---------------------------------
Bayonne, NJ...................... 8 acres CasChem Personal Care Ingredients;
Biomedicals; Performance
Enhancers; Polymer Systems
Carlstadt, NJ.................... 3 acres Cosan Performance Enhancers; Polymer
Systems
Harriman, NY..................... 29 acres Nepera Active Pharmaceutical Ingredients
Personal Care Ingredients;
Vitamin B3; Agriculture
Ingredients;
Performance Enhancers
Delaware Water Gap, PA........... 12 acres Heico Active Pharmaceutical
Ingredients; Chiral Technology;
Performance Enhancers; Polymer
Systems
North Haven, CT.................. 4 acres Humphrey Performance Enhancers
Charles City, IA................. 57 acres Salsbury Active Pharmaceutical
Ingredients; Pharmaceutical
Intermediates; Imaging Chemicals;
Animal Health Products
Performance Enhancers
Zeeland, MI...................... 14 acres Zeeland Pharmaceutical Intermediates;
Catalysts; Chiral Technology;
Performance Enhancers
Walkersville, MD................. 116 acres BioWhittaker Biotechnology
Verviers, Belgium................ 9 acres BioWhittaker Biotechnology
Europe
Middlesbrough, England........... 12 acres Seal Sands Pharmaceutical Intermediates;
Personal Care Ingredients;
Catalysts; Agriculture
Intermediates; Performance
Enhancers; Polymer Systems
Karlskoga, Sweden................ 42 acres Nordic Active Pharmaceutical
Ingredients; Pharmaceutical
Intermediates; Imaging Chemicals;
Personal Care Ingredients;
Catalysts; Agriculture
Intermediates; Performance
Enhancers
Paullo (Milan), Italy............ 13 acres Profarmaco Active Pharmaceutical Ingredients
The Company owns all the above facilities and properties, with the
exception of the twelve acre tract it leases in Middlesbrough, England. The
Company also leases 18,000 square feet in Warren, NJ for its Chiragene facility.
In addition, the Company owns thirty-one acres of undeveloped land adjacent to
the North Haven facility, one hundred and three acres of undeveloped land
adjacent to the Harriman facility, sixty-six acres of undeveloped land adjacent
to the Zeeland facility and eighty-one acres used as grazing fields for the
Company's animals in Walkersville, Maryland. The Company believes its facilities
to be in good condition, well maintained and adequate for its current needs.
Most of the Company's products are manufactured in multi-purpose
facilities. Each product has a unique requirement for equipment, and occupies
such equipment for varying amounts of time. This, combined with the variations
in demand for individual products, makes it difficult to estimate actual overall
capacity subject to regulatory approval. It is generally possible to transfer
the manufacturing of a particular product to another facility should capacity
constraints dictate. However, the Company's pyridine and arsenical feed additive
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product groups are each manufactured at a single facility, and production of
such products would not be transferable to another site.
The Company plans to continue to expand capacity to meet growing needs by
process improvements and construction of new facilities where needed.
ITEM 3 LEGAL PROCEEDINGS.
See "Environmental and Safety Regulations and Proceedings" under Item 1 and
Note #22 to the Cambrex Corporation and Subsidiaries Consolidated Financial
Statements with respect to various proceedings involving the Company in
connection with environmental matters. The Company is party to a number of other
proceedings also discussed in Note #22. Management is of the opinion that while
the ultimate liability resulting from those proceedings, as well as
environmental matters, may have a material effect upon the results of operations
in any given year, they will not have a material adverse effect upon the
Company's liquidity nor its financial position.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 10 EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table lists the executive officers of the Company and the
group executives of the Company's operating subsidiaries:
NAME AGE OFFICE(1)
- ---- --- ------------------------------------------------------
James A. Mack.......................... 61 President and Chief Executive Officer
Douglas H. MacMillan................... 52 Vice President and Chief Financial Officer
Peter E. Thauer........................ 59 Vice President, Law & Environment General Counsel &
Corporate Secretary
Steven M. Klosk........................ 41 Executive Vice President, Administration
Claes Glassell......................... 47 Vice President, Cambrex President, Pharmaceutical and
Fine Chemicals Group
Salvatore J. Guccione.................. 36 Vice President, Corporate Development
Ronnie D. Carroll...................... 58 Vice President, Technology
Thomas N. Bird......................... 54 Vice President, Cambrex President, Biotechnology Group
John V. Van Hulle...................... 41 Vice President, Cambrex President, Specialty Chemicals
Group
Cyril C. Baldwin, Jr................... 71 Chairman of the Board
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(1) Unless otherwise indicated, positions shown are with the Company.
The Company's executive officers are elected by the Board of Directors and
serve at the Board's discretion.
Mr. Mack has been Chief Executive Officer since Mr. Baldwin's retirement on
April 1, 1995. Mr. Mack was appointed President and Chief Operating Officer and
a director of the Company in February 1990. For five years prior thereto he was
Vice President in charge of the worldwide Performance Chemicals businesses of
Olin Corporation, a manufacturer of chemical products, metal products, and
ammunition and defense-related products. Mr. Mack was Executive Vice President
of Oakite Products, Inc. from 1982 to 1984. Prior to joining Oakite, he held
various positions with The Sherwin-Williams Company, most recently as President
and General Manager of the Chemicals Division from 1977 to 1981. Mr. Mack is a
past Chairman of the Board of
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Governors of the Synthetic Organic Chemical Manufacturing Association and is a
member of the Board of Trustees of the Michigan Tech Alumni Fund.
Mr. MacMillan was appointed Vice President and Chief Financial Officer in
April 1997. He was most recently Vice President, Chief Financial Officer for
Morgan Products, Ltd., a manufacturer and distributor of building products
traded on the New York Stock Exchange. Prior to his work with Morgan Products,
he was Chief Financial Officer of Varlen Corporation, a manufacturer of
petroleum analysis and automotive and scientific instruments.
Mr. Thauer was appointed Vice President, Law & Environment in December
1992, and General Counsel and Corporate Secretary in August 1989. From 1987
until he joined Cambrex, he was Counsel to the business and finance group of the
firm of Crummy, Del Deo, Dolan, Griffinger and Vecchione. From 1971 to 1987, Mr.
Thauer had held various positions with Avon Products, Inc., including U.S. Legal
Department Head and Corporate Assistant Secretary.
Mr. Klosk was appointed Executive Vice President, Administration in October
1996. Mr. Klosk joined the Company in October 1992 as Vice President,
Administration. From February 1988 until he joined Cambrex, he was Vice
President, Administration and Corporate Secretary for The Genlyte Group, Inc., a
lighting fixture manufacturer. From 1985 to January 1988, he was Vice President,
Administration for Lightolier, Inc., a subsidiary of The Genlyte Group, Inc.
Mr. Glassell assumed the position of President, Pharmaceutical and Fine
Chemicals Group in July 1998. Mr. Glassell was appointed President,
International in November 1997. Mr. Glassell was appointed Vice President of
Cambrex in November 1994. After extensive management experience at Nordic and
Profarmaco, he joined Cambrex as a result of the 1994 acquisition of Nordic and
Profarmaco. In 1989, he joined Nordic as President and CEO for Nordic's
Chemistry Business. From 1986 to 1989, he worked for the agricultural division
of Berol Europe Ltd.
Mr. Guccione joined the Company in December 1995 as Vice President,
Corporate Development. Prior to joining the Company, from 1993 to 1995, he held
the position of Vice President and General Manager of the International
Specialty Products (ISP) Personal Care Division. He also served as Director of
Corporate Development for ISP.
Dr. Carroll joined the Company in September 1997 as Vice President,
Technology. Mr. Carroll had been with Bristol-Myers Squibb for 14 years, most
recently as Vice President, Chemical Development for Bristol-Myers Squibb
Technical Operations. Prior to working for Bristol-Myers Squibb, Dr. Carroll was
with Pfizer, Inc. in Groton, CT.
Mr. Bird was appointed President, Biotechnology Group in July 1998. Mr.
Bird joined the Company in June 1997, as President of Nepera, Inc. He was
previously President of the consulting firm of Bavier, Bulgar and Goodyear since
1994. Prior to that, Mr. Bird maintained various vice presidential positions
with Commercial Intertech Corporation in their Fluid Purification Group.
Mr. Van Hulle assumed the position President, Specialty Chemicals Group
effective July 1998. Mr. Van Hulle was appointed President of the Specialty
Chemicals Group in November 1997. Mr. Van Hulle was appointed President of
CasChem, Inc. and Cosan Chemical Corporation in December 1994. He joined CasChem
in July 1994 as Executive Vice President. For more than five years prior thereto
he was General Manager of the Fine Chemicals Group for General Chemical
Corporation, and had extensive experience with Air Products & Chemicals, Inc.
Mr. Baldwin has been Chairman of the Board since July 1991, and a director
of the Company since it began business in December 1981. On January 26, 1995,
Mr. Baldwin announced his retirement, effective April 1, 1995, as Chief
Executive Officer of the Company, a position he also held since December 1981.
Mr. Baldwin retired as an employee of the Company effective April 30, 1995. He
is a member of the
- ---------------
(dollars in thousands, except share data)
10
12
Environmental and Governance Committees of the Company's Board of Directors, and
he is a director of Church & Dwight Co., Inc. and Congoleum Corporation.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Effective March 5, 1998 the Company's Common Stock, $.10 par value, was
listed on the New York Stock Exchange (NYSE), continuing under the symbol CBM.
From November 15, 1990 to March 5, 1998, the Company's Common Stock had been
traded on the American Stock Exchange (AMEX). The Common Stock previously had
been quoted on the National Association of Securities Dealers Automated
Quotation (NASDAQ) National Market System. The following table sets forth the
closing high and low sales prices of the Common Stock as reported on NYSE:
1998 HIGH LOW
- ---- ---- ---
First Quarter............................................... $25 1/4 $21
Second Quarter.............................................. 29 7/16 25 3/8
Third Quarter............................................... 28 3/16 22 13/16
Fourth Quarter.............................................. 29 19 5/8
1997 HIGH LOW
- ---- ---- ---
First Quarter............................................... $19 1/16 $16
Second Quarter.............................................. 19 7/8 16 7/16
Third Quarter............................................... 26 3/16 19 13/16
Fourth Quarter.............................................. 24 7/8 21 13/16
As of March 13, 1999, the Company estimates that there were approximately
4,372 beneficial holders of the outstanding Common Stock of the Company.
The quarterly dividend on common stock was $0.03 and $.025 per share for
1998 and 1997.
ITEM 6 SELECTED FINANCIAL DATA.
The following selected consolidated financial data of the Company for each
of the years in the five year period ended December 31, 1998 are derived from
the audited financial statements. The consolidated financial statements of the
Company as of December 31, 1998 and December 31, 1997 and for each of the years
in the three year period ended December 31, 1998 and the accountants' reports
thereon are included elsewhere in this annual report. The data presented below
should be read in conjunction with the financial statements of the Company and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
- ---------------
(dollars in thousands, except share data)
11
13
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1998(1) 1997(2)(3) 1996 1995 1994(4)
-------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
INCOME DATA:
Gross sales......................... $441,683 $380,083 $369,479 $368,070 $249,683
Net revenues........................ 457,241 374,215 359,385 357,176 241,634
Gross profit........................ 163,417 113,962 101,336 99,780 57,881
Selling, general and
administrative.................... 76,594 52,688 45,879 47,751 31,216
Research and development............ 13,956 10,600 9,183 7,526 5,689
Non-recurring in-process R&D
charge............................ -- 14,000 -- -- --
Operating profit.................... 72,867 36,674 46,274 44,503 20,976
Interest expense, net............... 10,227 5,330 5,799 10,508 4,581
Other (income) expense, net......... 945 (1,263) (194) 2,779 (497)
Income before taxes................. 61,695 32,607 40,669 31,216 16,892
Net income.......................... 39,102 17,776 28,225 19,670 11,126
EARNINGS PER SHARE DATA:
Earnings per common share and common
share equivalents:
Basic............................. $ 1.62 $ 0.75 $ 1.22 $ 1.03 $ 0.71
Diluted........................... $ 1.54 $ 0.73 $ 1.19 $ 0.98 $ 0.66
Weighted average shares outstanding:
Basic............................. 24,194 23,627 23,214 19,078 15,750
Diluted........................... 25,412 24,419 23,792 20,106 17,022
DIVIDENDS PER COMMON
SHARE............................. $ 0.11 $ 0.10 $ 0.09 $ 0.07 $ 0.07
BALANCE SHEET DATA: (at end of
period)
Working capital................... $156,297 $116,743 $ 62,912 $ 69,865 $ 19,925
Total assets...................... 617,054 552,426 404,444 402,553 360,477
Long-term obligations............. 191,372 194,325 60,152 99,643 115,975
Total stockholders' equity........ 276,853 225,954 229,045 189,484 101,966
- ---------------
(1) Includes royalty income of $19,298 in net revenues related to a technology
license agreement with Mylan Laboratories for the use of intellectual
property.
(2) Includes the results of BioWhittaker, Inc. from the date of acquisition
effective October, 1997.
(3) Includes the non-recurring charge for in-process research and development
associated with the acquisition of BioWhittaker.
(4) Includes the results of Seal Sands, Nordic and Profarmaco from their
respective dates of acquisition, January 31, 1994 and October 12, 1994 and
October 12, 1994, through December 31, 1994.
- ---------------
(dollars in thousands, except share data)
12
14
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the selected consolidated financial information as a percentage of gross
sales.
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
----- ----- -----
Gross sales......................................... 100.0% 100.0% 100.0%
Net revenues........................................ 103.5* 98.5 97.3
Gross profit........................................ 37.0 30.0 27.4
Selling, general and administrative................. 17.3 13.9 12.4
Research and development............................ 3.2 2.8 2.5
Non-recurring in-process R&D charge................. -- 3.6 --
Operating profit.................................... 16.5 9.6 12.5
Interest expense.................................... 2.3 1.4 1.6
Other (income) expense, net......................... 0.2 (0.3) (0.1)
Net income.......................................... 8.9 4.7 7.6
- ---------------
* Includes royalty income of $19,298.
The Company's product mix has changed over the periods indicated,
principally due to the BioWhittaker acquisition and management's continued focus
on higher value pharmaceutical products.
The following tables show the gross sales of the Company's four segments,
in dollars and as a percentage of the Company's total gross sales for the years
ended December 31, 1998, 1997 and 1996, as well as the gross profit by product
category for 1998 and 1997.
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
GROSS SALES
Human Health..................................... $194,766 $182,818 $174,398
Biotechnology.................................... 65,968 13,577 --
Animal Health/Agriculture........................ 56,285 59,804 61,560
Specialty Business............................... 124,664 123,884 133,521
-------- -------- --------
Total Gross Sales.................................. $441,683 $380,083 $369,479
======== ======== ========
Total Net Revenues................................. $457,241* $374,215 $359,385
======== ======== ========
Total Gross Profit................................. $163,417 $113,962 $101,336
======== ======== ========
- ---------------
* Includes royalty income of $19,298.
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
----- ----- -----
GROSS SALES DISTRIBUTION
Human Health...................................... 44.1% 48.1% 47.2%
Biotechnology..................................... 14.9% 3.6% 0.0%
Animal Health/Agriculture......................... 12.8% 15.7% 16.7%
Specialty Business................................ 28.2% 32.6% 36.1%
----- ----- -----
Total Gross Sales Distribution...................... 100.0% 100.0% 100.0%
===== ===== =====
- ---------------
(dollars in thousands, except share data)
13
15
1998-1997 GROSS SALES & GROSS PROFIT BY PRODUCT CATEGORY
1998
GROSS GROSS
SALES PROFIT $ PROFIT %
-------- -------- --------
Human Health................................................ $194,766 $ 92,441* 47.5%
Biotechnology............................................... 65,968 32,321 49.0%
Animal Health/Agriculture................................... 56,285 11,557 20.5%
Specialty Business.......................................... 124,664 27,098 21.7%
-------- --------
Total............................................. $441,683 $163,417 37.0%
======== ========
- ---------------
*Includes royalty income of $19,298.
1997
GROSS GROSS GROSS
SALES PROFIT $ PROFIT %
-------- -------- --------
Human Health................................................ $182,818 $ 67,779 37.1%
Biotechnology............................................... 13,577 6,696 49.3%
Animal Health/Agriculture................................... 59,804 10,621 17.8%
Specialty Business.......................................... 123,884 28,866 23.3%
-------- --------
Total............................................. $380,083 $113,962 30.0%
======== ========
1998 Compared to 1997
Gross sales in 1998 were $61,600 (16%) above 1997. Increases occurred in
Human Health and Biotechnology. Animal Health/Agriculture products decreased
compared to 1997, and the Specialty Business was at the same level as the prior
year.
The effect of foreign currency exchange rates on gross sales for the year
resulted in a negative impact on sales of $2,026 compared to 1997. Gross sales
for 1998 would have been $443,709 using 1997 exchange rates compared to 1997
sales of $380,083.
The Human Health Segment gross sales of $194,766 were $11,948 (7%) above
1997. This segment's increases were in Active Pharmaceutical Ingredients, which
were up $9,998 (9%), Pharmaceutical Intermediates, up $1,414 (6%) and Chiral
Technology, up $1,815 (49%). Imaging Chemicals (X-Ray Media) were down $3,438
(20%) from 1997.
Active Pharmaceutical Ingredient sales of $120,459 were $9,998 (9%) above
the prior year due to strong demand for our gastro-intestinal products used for
treating ulcerative colitis, and also due to shipments of a new anti-asthma drug
and other new products. Active Pharmaceutical Ingredients include active
ingredients used in products for gastro-intestinal, cardiovascular, endocrine,
central nervous system, respiratory, diuretics, anti-infective,
anti-inflammatory, immunology and various other uses. Pharmaceutical
Intermediate sales of $24,844 were $1,414 (6%) above 1997 due to new products
used in migraine medicine and central nervous system applications. These
increases were partially offset by lower sales of aminodioxepin (AOA), a drug
intermediate used in the production of a protease inhibitor for the treatment of
AIDS, due to the demand for the end-use drug leveling off primarily from the
filling of the distribution pipeline. Chiral Technology product sales of $5,548
were $1,815 (49%) above 1997 due to the sales from the acquisition of the chiral
intermediates business (Chiragene) from Celgene Corporation in January 1998.
Imaging Chemical (X-Ray Media) sales of $14,179 were $3,438 (20%) below the
prior year due to a customer reducing inventories, and another customer deciding
to manufacture on a captive basis. A third customer established a backup
supplier as was permitted under a 5-year supply agreement, which further reduced
sales. Other product category changes from prior years were not significant.
- ---------------
(dollars in thousands, except share data)
14
16
The Biotechnology Segment gross sales of $65,968 are from the Company's
BioWhittaker subsidiary which was acquired in the fourth quarter of 1997, and
include their first full year sales as a Cambrex subsidiary. This segment
consists principally of cell culture products, including living cell cultures,
cell culture media and cell culture media supplements, as well as endotoxin
detection products.
Sales for 1998 from cell culture products were $43,795 and sales from
endotoxin detection products were $18,852.
The Animal Health/Agriculture Segment gross sales of $56,285 were $3,519
(6%) below the 1997 level with decreases in Agricultural Intermediates of $4,313
(down 14%). Vitamin B(3) was $651 (up 5%) above 1997 and Animal Health products
were at the same level as 1997.
Vitamin B(3) sales of $12,814 were $651 (5%) above 1997 due to price
increases put in place in late 1997 and volume increases to customers. Animal
Health sales of $17,614 was at the same level as 1997. Sales of organo-arsenical
feed additives, the largest product in Animal Health, remained at 1997 levels.
Agricultural Intermediate sales of $25,857 were down $4,313 (14%) due to reduced
demand for crop protection products directly related to the economic conditions
in Asia.
The Specialty Business Segment gross sales of $124,664 increased $780 (1%)
above 1997. Sales of Performance Enhancing Chemicals of $81,853 were at 1997
levels and Polymer System sales of $42,811 were $567 (1%) above 1997.
Performance Enhancing Chemical sales include over 100 products used in
photography, pigments, specialty polymers, fuel/or additives, catalysts, and
other specialty additives. Key sales increases resulted from increases in THPE,
a polycarbonate additive, with growth in export markets, and in castor oil based
products and were offset by decreases in photographic products. Polymer System
sales of $42,811 were $567 (1%) above 1997, due to increased demand for a
monomer used in high performance plastics offset by decreases in coating
products. Export sales from U.S. businesses of $64,174 in 1998 compared to
$48,852 in 1997.
Export sales from U.S. businesses were at $64,174 compared with $48,852 in
1997. International sales, comprised of all sites from our operations in Europe,
totaled $156,844 as compared with $152,079 in 1997.
Total gross profit of $163,417 was $49,455 above 1997 due mainly to the
inclusion of the Biotechnology Segment for a full year, and the effect of
royalty income of $19,298. (The 1997 gross profit included $1,000 in royalty
income). The gross margin for all product segments excluding the royalty income
was 32.6% up from 29.7% in 1997. The reduced gross margin in the Specialty
Business segment was due to higher sales of low margin commodity castor oil. The
gross margin for the Human Health Segment (excluding the royalty income) was
$73,143 (37.6%) in 1998 versus $66,779 (36.5%) in 1997 due to the general mix of
sales.
The royalty income discussed above relates to a technology license
agreement signed in late 1997 with Mylan Laboratories for the use of
intellectual property related to three pharmaceutical ingredients. The company
has been advised that Mylan will no longer enforce its exclusive access to the
technology. The royalty arrangements under the agreements have also concluded.
As previously reported, the company's exclusive license agreement is the subject
of various lawsuits. The company has begun to sell these products on a
non-exclusive basis in first quarter 1999. The Company anticipates that it will
be able to replace a substantial portion of royalty revenues through sales with
additional customers and price increases.
Selling, general and administrative expenses as a percentage of gross sales
was 17.3% in 1998, up from 13.9% in 1997. The increase is mainly due to the
inclusion for the full year 1998 of the Biotechnology Segment acquired in the
fourth quarter 1997, Chiragene acquired in January 1998 and the third quarter
1998 restructuring charge of $1,400. Excluding the effect of the Biotechnology
Segment for the first nine months of 1998, the restructuring charge taken in the
third quarter 1998, and the Chiragene expenses, SG&A expenses were $59,144
(13.4% of gross sales) versus $52,688 (13.7% of gross sales) in 1997. The
Company incurred a restructuring charge of $1,400 which includes the
non-recurring costs resulting from the consolidation of administrative and
management functions and resulted in the reduction of 44 employees. These costs
are
- ---------------
(dollars in thousands, except share data)
15
17
primarily related to severance paid to terminated employees. In addition,
certain actions were taken in the third quarter of 1998 for the acquisition
reorganization plan at our BioWhittaker facility of approximately $1,400 for the
termination of 28 employees. This plan was part of the final purchase accounting
adjustments made in the third quarter 1998. In addition, BioWhittaker favorably
concluded a patent infringement dispute and has received a cash payment of
approximately $5,400 in 1998. This settlement, as well as the settlement of
other acquisition contingencies of approximately $1,600, are part of the final
purchase accounting adjustments in the third quarter 1998. As a result of
finalizing the purchase accounting, the net impact on goodwill, including the
tax effect, was a reduction of approximately $900. The Company conducts periodic
reviews of its environmental and litigation matters, prepares estimates of the
range of potential future costs of each matter wherever possible, and adjusts
the accruals for environmental contingencies as circumstances warrant. In 1998,
the Company incurred an additional $1,799 in environmental costs and reversed
$800 from the reserve, thereby decreasing the total reserve by $2,599.
Research and Development expenses of $13,956 were 3.2% of gross sales in
1998, and represented a 32% increase from 1997. This increase was mainly due to
the inclusion of BioWhittaker for a full year, the acquisition of Chiragene in
January 1998, and increased corporate commitment to underwrite spending on
outside contract research.
The operating profit in 1998 was $72,867 versus $50,674 in 1997 (excluding
the effect of the non-recurring charge for in-process research and development
of $14,000 in 1997).
Net interest expense of $10,227 in 1998 reflected an increase of $4,897
from 1997. This increase was due to the financing of the acquisition of
BioWhittaker and Chiragene. The average interest rate was 6.5% in 1998 versus
6.8% in 1997.
Other expense of $945 for 1998 was $2,208 higher than the $1,263 of other
income in 1997. The year 1997 included a one-time gain of $954 on a foreign
currency denominated loan. Also included in other expense for 1998 were asset
write-offs at our Zeeland, Michigan facility of $522.
The year 1998 included a one-time charge of $3,420 in income taxes for the
Italian Substitute Tax election, which was made in the second quarter of 1998.
This election allows previously non-deductible goodwill of Cambrex's Italian
subsidiary, Profarmaco, S.r.l., to be deducted. This one-time charge will have a
total future tax benefit in the years 1999 to 2004 of approximately $8,000.
The provision for income taxes for 1998 resulted in an effective rate of
31% (excluding the Italian Substitute Tax) versus 32% in 1997 (excluding the
effect of the non-recurring charge for in-process research and development of
$14,000 in 1997).
The Company's net income for 1998 increased to $39,102 compared with a net
income of $31,776 in 1997 (excluding the effect of the non-recurring charge for
in-process research and development of $14,000 in 1997).
1997 Compared to 1996
Gross sales in 1997 were $10,604 above 1996. Increases in Human Health were
offset by lower sales in our Animal Health/Agriculture and Specialty Business
categories. Biotechnology sales (from the acquisition of BioWhittaker in the
fourth quarter 1997) were $13,577.
The effect of foreign currency exchange rates on gross sales for the year
resulted in a reduction in sales of $8,551 compared to 1996. Gross sales for
1997 would have been $388,634 using 1996 exchange rates compared to 1996 sales
of $369,479.
The Human Health Segment gross sales of $182,818 were $8,420 (5%) above
1996. Increases in Active Pharmaceutical Ingredients of $6,652, Pharmaceutical
Intermediates of $7,119, and Personal Care of $2,150, more than offset lower
Imaging Chemicals (X-Ray Media) of $5,407.
- ---------------
(dollars in thousands, except share data)
16
18
Active Pharmaceutical Ingredient sales of $110,461 were $6,652 (6%) above
1996 due mainly to the introduction of a new generic product in the Japanese
market used as an anti-ulcerative, which resulted in new product sales of $6,264
in 1997. This increase was also attributable to sales of
Isosorbide-5-mononitrate, used as a vasodilator in cardiovascular pretreatments,
which had strong volume growth in 1997. Pharmaceutical Intermediate sales of
$23,430 were $7,119 (44%) above 1996 due to the effect of sales of an advanced
intermediate of a new protease inhibitor for AIDS treatment, and the manufacture
of Aminopyridine, used in a variety of pharmaceutical products. Personal Care
Ingredient sales of $16,453 were $2,150 (15%) above 1996, due to higher sales of
several smaller products manufactured and sold to the European market.
The Biotechnology Segment gross sales of $13,577 are from BioWhittaker
since the date of acquisition. Their products include cell culture and endotoxin
detection products.
The Animal Health/Agriculture Segment gross sales of $59,804 were $1,756
(3%) below 1996. Animal Health sales decreased $678, Agricultural Intermediate
sales decreased $1,501, but Vitamin B(3) sales increased $423.
Vitamin B(3) sales of $12,163 increased 4% as compared to 1996 with volume
increases in Europe partially offset by decreased pricing due to competitive
pressure. Animal Health Product sales were $17,471, down 4% from 1996, mainly
due to a decision to exit a low margin poultry additive. Agricultural
Intermediate sales of $30,170 decreased $1,501 (5%) from 1996. The decrease was
due to the unusual amount of a pyridine derivative used in the manufacture of
herbicides shipped in 1996 under a renegotiated contract. The shipments in 1997
returned to normal levels. Pyridine, which is the largest agriculture product ,
was at 1996 levels.
The Specialty Business Segment gross sales of was $123,884, decreased
$9,637 (7%) from 1996. Performance Enhancing Chemical sales of $81,640 were down
7% compared to 1996 and Polymer System sales of $42,244 were down 8% from 1996.
Performance Enhancing Chemical sales decreased $5,755 (7%). Pyridine
derivatives returned to pre-1996 sales as the result of decreased demand in the
Asian market. Photographic product sales decreased due to the expected reduction
in volume by one-half of normal levels from a key customer. Polymer System sales
of $42,244 decreased $3,881 (8%) as compared to 1996. Sales of engineering
plastics decreased $2,000 (24%) from 1996 due to a major customer losing to a
competitor their largest market of a product used in producing high performance
plastics mainly used in the electronics industry. Coatings decreased $1,217 (6%)
from 1996 due to reduced sales of low margin castor based products as a result
of management's decision to focus on higher margin products, and
Telecommunications product sales decreased $665 (4%) from 1996 primarily as a
result of a major customer's decision to change their specification of an
encapsulant product, but it took some time for customers to reduce existing
inventories.
Export sales from U.S. businesses were at $48,852 compared with $50,243 in
1996. International sales, comprised of all sales from our operations in Europe,
totaled $152,079 as compared with $151,466 in 1996.
Total gross profit in 1997 increased to $113,962, resulting in a higher
gross margin percentage of 30.0% of gross sales compared with 27.4% in 1996. The
gross margin increase was due to an improved product mix of sales to include
higher active pharmaceutical ingredients and new pharmaceutical intermediates,
production efficiencies, and increased plant throughput, in line with
management's continued focus on higher performing, more profitable product
lines. Excluding the BioWhittaker acquisition, the gross margin would have been
29.3%.
Selling, general and administrative expenses as a percentage of gross sales
were 13.9% in 1997, up from 12.4% in 1996. The 1997 expense of $52,688 was
$6,809 (15%) above 1996 primarily due to addition of BioWhittaker in the fourth
quarter 1997 and incremental expenses associated with tax planning strategies.
Expenses were reduced by a $2,400 recovery of previously incurred environmental
costs as a result of a settlement with a prior owner of one of the Company's
operating facilities. The Company conducts periodic reviews of its environmental
and litigation matters, prepares estimates of the range of potential future
costs of
- ---------------
(dollars in thousands, except share data)
17
19
each matter wherever possible, and adjusts the accruals for environmental
contingencies as circumstances warrant. No adjustments were made to this reserve
in 1997.
Research and development expenses of $10,600 were 2.8% of gross sales in
1997, and represented a 15% increase from 1996. A portion of this increase was
due to costs associated with the Albany Molecular contract and the addition of
BioWhittaker. As previously announced in November 1997, Cambrex recorded a
charge of $14,000 in the fourth quarter 1997 for the value of in-process
research and development at the time of the acquisition of BioWhittaker, Inc.
which was completed on October 3, 1997. This charge, which is consistent with
pharmaceutical industry practice, reflects the recognition of the value of the
continuing efforts to develop new products in the biotechnology marketplace.
These research and development projects were not commercially viable and had no
alternative future use at the date of acquisition. Management intends to
continue funding these projects, which will permit BioWhittaker to maintain its
market leadership position.
The operating profit in 1997 was $36,674, including the non-recurring
charge for in-process research and development of $14,000, versus $46,274 in
1996. Excluding the charge, operating profit would have been $50,674.
Net interest expense of $5,330 in 1997 reflected a decrease of $469 (8%)
from 1996. The decrease was due to an average interest rate in 1997 of 6.8%
compared to 7.4% in 1996 offset by the additional borrowings used to finance the
BioWhittaker acquisition combined with an increase in the average outstanding
debt.
Other income in 1997 was $1,263 compared with $194 in 1996. Other income
included a gain of $954 on the settlement of a foreign denominated loan.
Additionally, 1997 other income included the final resolution and receipt of the
settlement proceeds due from the 1996 premature termination of a contract by the
customer of $766, offset by a charge of $507 for the settlement of a legal
matter reached during the year.
The provision for income taxes for 1997 resulted in an effective rate of
45.5%, which includes the $14,000 non-recurring charge for in-process research
and development, versus 30.6% in 1996. The effective tax rate in 1997 would have
been 31.8% excluding the $14,000 charge, which is not deductible for tax
purposes. The 1997 effective tax rate is the result of continued tax planning
efforts to minimize the impact of foreign taxes. In 1996, the Company recorded a
$1,500 reversal of tax reserves as a result of a settlement with the Internal
Revenue Service related to audits for the years 1988 through 1991.
The Company's net income in 1997 was $17,776, including $14,000 for the
non-recurring charge for in-process research and development, compared to
$28,225 in 1996. Excluding this charge, net income in 1997 would have been
$31,776.
1996 compared to 1995
Gross sales in 1996 were at the same level as 1995. Increases in the Human
Health and Specialty Business Segment were offset by lower sales in our Animal
Health/Agriculture Segment.
The Human Health Segment gross sales of $174,398 was $4,136 (2%) above
1995. Increased Imaging Chemicals (X-Ray Media) of $3,648, and Chiral Technology
of $2,829, offset Pharmaceuticals Intermediates which decreased $3,459.
Active Pharmaceutical Ingredient sales were $103,809, the same level as
1995. The key products in this segment included gastrointestinal actives
Sulfasalazine/mesalamin, used in the treatment of ulcerative colitis;
cardiovasculars Diltiazem HcL and Sotalil Hcl; the endocrine preparation
Glipizide; and respiratory Cromoglycate Sodium. Imaging Chemical sales (X-Ray
media product), which include 5 NIPA compounds, of $23,024 increased $3,648
(19%) with the largest increase from one of our U.S. facilities, due to a shift
in production by a major customer in 1996 from Europe to the U.S. Chiral
Technology product sales of $5,537 increased $2,829 over 1995 due to the
introduction of various new products. Pharmaceutical Intermediate sales of
$16,311, decreased $3,459 (18%) due to the effect of the loss a significant
customer contract and
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(dollars in thousands, except share data)
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reduced demand for dextromethorphan intermediates (used in over-the-counter
cough suppressants), partially offset by the initial sales of an advanced
intermediate of a new protease inhibitor for AIDS treatment.
The Animal Health/Agriculture Segment gross sales of $61,560 was down
$6,588 (10%) from 1995. This segment includes Vitamin B(3), Animal Health
Products, and Agricultural Intermediates.
Vitamin B(3) sales of $11,740 decreased $6,774 (37%) due to reduced pricing
and increased competition. Animal Health Product sales were $18,149, a decrease
of 4% from 1995. Sales of organo-arsenical feed additives, the largest product
in feed additives, was down 7% from 1995 due to escalated grain prices and
increased price competition to end-users. Agricultural Intermediate sales of
$31,671 increased $1,217 (4%) from 1995. The increase was due to the
renegotiation of a contract for a pyridine derivative used in the manufacture of
herbicides in the first quarter 1996. However, Pyridine, which is the largest
product in crop protection, was down from 1995, due to a major customer
purchasing at 1993 levels after two years (1994 and 1995) at above contract
levels.
The Specialty Business Segment was $133,521 an increase of $3,859 (3%) from
1995. This segment includes Performance Enhancing Chemical sales of $87,395 up
$7,111 (9%) from 1995 and Polymer System sales of $46,216 down $3,252 (7%) from
1995.
Performance Enhancing Chemical sales increased $7,111 over 1995. The key
increases were pyridine derivatives shipments to world markets and customers not
previously served, and gain in market share of PNBA, a pigment used in dyes and
UV protection agents. Polymer System sales of $46,126 were down $3,252 from
1995. Telecommunications products decreased $4,901 from 1995 primarily as a
result of the Company's strategic decision to no longer providing product to
AT&T.
Export sales from U.S. businesses were at $50,243 compared with $50,608 in
1995. International sales, comprised of all sales from our operations in Europe,
totaled $151,466 as compared with $144,883 in 1995.
During 1996, a contract with our U.S. facility in Zeeland, Michigan was
terminated prematurely by the customer. A settlement had been agreed upon that
entitles the Company to payments in 1996 and for the next three years.
Accordingly, the Company recognized income, net of related costs, of
approximately $1,100 during 1996.
Total gross profit in 1996 increased to $101,336, resulting in a higher
gross margin percentage of 27.4% of gross sales compared with 27.1% in 1995. The
gross margin increase was due to an improved product mix of sales, production
efficiencies, and increased plant throughput, in line with management's
continued focus on higher performing, more profitable product lines.
Selling, general and administrative expenses as a percentage of gross sales
were 12.4% in 1996, down from 13.0% in 1995. The 1996 expense of $45,879 was
$1,872 (4%) below 1995 primarily due to lower legal and environment costs. Such
reductions are the result of recoveries from third parties and reserve reversals
that exceeded our outlays related to remediation programs in 1996. The Company
conducts periodic reviews of its environmental and litigation matters, prepares
estimates of the range of potential future costs of each matter wherever
possible, and adjusts the accruals for environmental contingencies as
circumstances warrant. In 1996, this accrual was reduced by $1,000 to reflect
the Company's remaining estimated exposure.
Research and development expenses of $9,183 were 2.5% of gross sales in
1996, and represented a 22% increase from 1995. A portion of this increase was
due to costs associated with the Oxford Asymmetry contract of $1,000.
The operating profit in 1996 increased to $46,274 from $44,503 in 1995 due
to the improved gross margins and the aforementioned reductions in selling,
general and administrative expenses.
Net interest expense of $5,799 in 1996 reflected a decrease of $4,709 (45%)
from 1995. The decrease was due to strong cash flow and to the decreased
outstanding debt as a result of the equity offering in mid-1995. The interest
rate in 1996 was 7.4% compared to 7.7% in 1995.
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Other income in 1996 was $194 compared with other expense of $2,779 in
1995. The difference included 1996 foreign currency transaction gains versus
currency losses in 1995.
The provision for income taxes for 1996 resulted in an effective rate of
30.6% versus 37.0% in 1995. The Company recorded a $1,500 reversal of tax
reserves as a result of a settlement with the Internal Revenue Service related
to audits for the years 1988 through 1991. During January 1997, the Company
implemented tax strategies which, based upon projected domestic and
international taxable income, should have a favorable impact on the effective
tax rate for 1997 and beyond. However, actual results could differ in the event
of changes in tax regulations or deviations in projections.
The Company's net income increased 43.5% to $28,225 compared with a net
income of $19,670 in 1995 primarily due to increased margins and reduced
selling, general and administrative expenses and interest.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operations was $80,686 for the year ended December 31,
1998 compared with $52,579 in 1997. The increase in cash flow is primarily due
to increased revenues, as well as increased current liabilities and income taxes
payable. Cash flows used in investing activities included capital expenditures
of $43,007, the acquisition of the Chiragene facility and the acquisition of
Boehringer Ingelheim Bioproduct Partnership (BIBP). Cash flows from financing
activities included $10,325 in proceeds from the issuance of common stock due to
the exercise of stock options offset by the payment of $2,658 in dividends and
net repayment of debt of $4,836.
Capital expenditures were $43,007 in 1998, $35,935 in 1997 and $32,396 in
1996. The largest expenditures in 1998 were for new business projects and plant
upgrades. The Company completed two new business projects to construct pilot
plants at Salsbury and Zeeland which incorporate cGMP facilities. New business
projects also included additional batch still capabilities and the start of
construction of a new Niacinamide (Vitamin B(3)) plant at Nepera, as well as a
new plant for a polymer product starting up in the second quarter 1999 at
CasChem. Plant upgrades included an office relocation and expansion at Nordic
which allowed several locations to be combined and the purchase of additional
land adjacent to Profarmaco.
On September 16, 1997, the Company entered into a new five year Credit
Agreement (the "Agreement") with a bank group headed by The Chase Manhattan Bank
as Administrative Agent and The First National Bank of Chicago as Documentation
Agent. The bank group has a total of 13 domestic banks and 7 international
banks. The Agreement provides the Company with a $400,000 borrowing facility.
The new Agreement replaces the previously existing Revolving Credit Agreement
with NBD Bank, N.A.
Under this agreement, the Company has pledged 66% of the common stock of
the Company's foreign subsidiaries as collateral. The Agreement permits the
Company to choose between various interest rate options. Under the Agreement,
the interest rate options available to the Company are: (a) U.S. Prime rate or
(b) LIBOR plus the applicable margin (ranging from .225% to .5%) or (c)
Competitive Bid at a LIBOR Rate Borrowing or a Fixed Rate Borrowing to be
determined by auction. The applicable margin is adjusted based upon the Funded
Indebtedness to Cash Flow Ratio of the Company. Additionally, the Company pays a
commitment fee of between .15% to .25% on the entire portion of the Agreement.
On September 18, 1997, the Company utilized $60,000 of the Agreement in
order to repay the then outstanding balance under the previously existing
Revolving Credit Agreement. On September 30, 1997, the Company borrowed $126,000
to finance the acquisition of the outstanding common stock of BioWhittaker. Of
this amount, $116,000 was utilized on September 30, 1997 to acquire the 93% of
BioWhittaker shares which had been tendered at that date. The Company
subsequently utilized the remaining portion to finance the acquisition of the
remaining 7% of BioWhittaker on October 3, 1997.
The undrawn borrowing availability under the Agreement as of December 31,
1998 and 1997 was $210,000 and $207,400 respectively. There is $190,000
outstanding as of December 31, 1998. Management is
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22
of the opinion that these amounts, together with cash flows from operations, are
adequate for meeting the company's operating, financing and capital
requirements.
Effective May 28, 1998, the Company's Board of Directors approved a
two-for-one split of the Company's Common Stock, $0.10 par value, in the form of
one additional share of Common Stock for each share held.
Management believes that existing sources of capital, together with cash
flows from operations, will be sufficient to meet foreseeable cash flow
requirements.
FINANCIAL INSTRUMENTS
The company is exposed to market risks arising from adverse changes in
interest rates and foreign currency exchange rates. In the normal course of
business, the company uses a variety of techniques and instruments, including
derivatives, as part of its overall risk management strategy.
Currency Risk Management
The Company's primary market risk relates to exposure to foreign currency
exchange rate fluctuations on transactions entered into by our international
operations which are primarily denominated in the U.S. dollar, Deutsche mark and
British pound sterling. The Company currently uses foreign currency forward
exchange contracts and has used put and call options contracts in the past 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
$24,371 which the Company estimates to be approximately 56% of the foreign
currency exposure during the period covered resulting in an unrealized currency
loss of $66 at December 31, 1998.
Given the unlikely scenario that the collections match the forecast, and
that all the collections move 10% against their local currencies, no more than
$3,329 of pre-tax profits for a twelve month period would be at risk. This is
based on a non-hedged risk of $33,290. This residual risk allows for an
over-forecasting margin of error and prevents over hedging of actual operating
risk. As of December 31, 1998, the combined non-local currency forecasted net
collections amounted to $76,120. Offsetting this exposure are the expected
$18,393 U.S. dollar intercompany payments from the combined European sites. The
remaining $57,727 forecasted exposure was partially hedged ($24,437) with major
banks through interest rate swaps to reduce the non-hedged risk to $33,290.
Interest Rate Management
The company's debt outstanding, and the interest paid to support the debt,
has been relatively flat over the past year. Each of the interest rate options
contained in the Revolving Credit Agreement includes floating rates. This
arrangement has the advantage of making lower interest rates available in a
declining market, however it also exposes the company to any upward swings in
interest rates. For example, based on the Company's current level of debt
outstanding, an interest rate increase of 100 basis points would increase
interest expense and thus decrease the company's after-tax profitability by
$1,235.
The Company has employed a plan to control interest rate risk. The plan
allows the Company to pay a premium now in order to obtain a fixed interest rate
at predetermined cost in the future. In effect, the premium, or swap, stabilizes
interest costs by converting unpredictable variable interest rates to fixed
rates. The swap market is currently offering fixed rates for the next two to
five years at a small premium, between .10% and .25%, over the current LIBOR
rate.
As of December 31, 1998, the Company has seven interest rate swaps in place
that total $80,000 at an average rate of 5.79%, with maturities through the year
2003. The Company's strategy is to cover approximately 40% of outstanding bank
debt with interest rate protection.
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Impact of the Euro
The advent of the Euro may have a slight impact on the transactions of the
Company's Italian subsidiary, Profarmaco. The Euro has mitigated any exposure on
the transactions among the Company's subsidiaries in Germany and France. The
activities of Nordic and Seal Sands will not be impacted since the England and
Sweden are not part of the European Monetary Union at present. Overall, the Euro
should not have a material impact on the consolidated financial statements of
the company.
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 $4,800 and $7,400 at December 31, 1998 and
1997, respectively, for costs associated with the study and remediation of
Superfund sites and the Company's current and former operating sites for matters
that are probable and reasonably estimable. Based on currently available
information and analysis, the Company's accrual represents 73% of what it
believes are the reasonably possible environmental cleanup related costs of a
non-capital nature. The estimate of reasonably possible costs is less certain
than the probable estimate on which the accrual is based. During the past
three-year period, cash payments for environmental cleanup related matters were
$1,800, $400 and $600 for 1998, 1997 and 1996, respectively. There were no
provisions for environmental contingencies during the past three-year period.
The Company reduced reserves of approximately $800 and $1,000 in 1998 and 1996,
respectively, as a result of revised estimates. After reviewing information
currently available, management believes any amounts paid in excess of the
accrued liabilities will not have a material effect on its financial position or
results of operations. However, these matters, if resolved in a manner different
from the estimates could have a material adverse effect on financial condition,
operating results and cash flows when resolved in a future reporting period.
LITIGATION
The Company and its subsidiary Profarmaco S.r.l. ("Profarmaco") were named
as defendants in a proceeding instituted by the Federal Trade Commission ("FTC")
on December 21, 1998, in the United States District Court for the District of
Columbia. The complaint alleges that exclusive license agreements which
Profarmaco entered into with Mylan Laboratories, Inc. ("Mylan") covering the
drug master files for (and therefore the right to buy and use) two active
pharmaceutical ingredients ("APIs"), lorazepam and clorazepate, were part of an
effort on Mylan's part to restrict competition in the supply of lorazepam and
clorazepate and to increase the price charged for these products when Mylan sold
them as generic pharmaceuticals. The complaint further alleges that these
agreements violate the Federal Trade Commission Act, and that Mylan, Cambrex,
Profarmaco, and Gyma Laboratories of America, Inc., Profarmaco's distributor in
the United States, engaged in an unlawful restraint of trade and conspired to
monopolize and attempted to monopolize the markets for the generic
pharmaceuticals incorporating the APIs. 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 31 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
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24
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.
The Company 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. The
future royalty arrangements under the agreements have concluded 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 forms by Mylan.
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 antitrust investigation into
various business practices in the vitamin industry generally. The Company and
Nepera have been cooperating fully with the Government's investigation.
While it is not possible to predict with certainty the outcome of the FTC
action and various other lawsuits and class actions, it is the opinion of
management that the ultimate resolution of these proceedings should not have a
material adverse affect on the Company's results of operations, cash flows and
financial position. These matters if resolved in an unfavorable manner could
have a material adverse affect on the operating results or cash flows when
resolved in a future reporting period.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" (SFAS 131)
in the fourth quarter of 1998. This Statement establishes standards for the way
in which public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about those operating segments in interim reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS 131 did not have an
effect on the financial position or results of operations of the Company.
The Company adopted Statement of Financial Accounting Standards No. 132
"Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS
132) in the fourth quarter of 1998. This statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. The adoption of SFAS 132
did not have an effect on the financial position or results of operations of the
Company.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. The fair value hedge transactions in which the Company is hedging
changes in an asset's, liability's or firm commitment's fair value; changes in
the fair value of the derivative instrument that are reported in other
comprehensive income will be reclassified as earnings in the period in which
earnings are impacted by the variability of the cash flows of the hedged item.
The ineffective portion of all hedges will be recognized in current-period
earnings. The Company is evaluating the impact that the adoption of SFAS 133
will have on its earnings, comprehensive income or statement of financial
position.
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YEAR 2000 UPDATE
The ability of computers, software or any equipment utilizing
micro-processors to properly recognize and process data information at the turn
of the century is commonly referred to as a Year 2000 ("Y2K") compliance issue.
To minimize the risk of unplanned interruptions, the Company is using a
multi-step approach in conducting its year 2000 project. These steps are
inventory, assessment, remediation, testing for compliance, and contingency
planning.
The Company approaches its Y2K compliance issue by categorizing its
dependencies into two sections: Internal systems (Information Technology ("IT")
systems and Non-IT systems), and External systems of suppliers and customers.
Generally, internal systems identified as non-Y2K compliant are being replaced
or modified. Many of the internal non-compliant systems were targeted for
replacement for reasons other than Y2K issues as the benefits of newer
technology had already created an economic business case for action. Replacement
solution costs will be capitalized as permitted by applicable accounting
standards whereas the cost of modification solutions will generally be expensed
as repairs. External systems are being monitored with the cooperation of our
suppliers and customers.
Internal Systems
a) IT systems -- These systems include internal applications software such
as finance, manufacturing (purchasing, product costing, production reporting,
maintenance, and planning and scheduling), logistics (distribution planning and
customer order entry), human resources, and communications. All internal IT
systems have been inventoried, assessed, and remediated where necessary for Y2K
compliance and are now being tested. The Company anticipates its internal IT
will be Y2K compliant by the end of 1999.
b) Non-IT systems -- These systems are used for process monitoring and
control, laboratory measurement and analysis, waste treatment control, and in
other plant operations. These systems include embedded chip technology such as
programmable logic controllers and related hardware/software, and personal
computers and related software. All internal non-IT systems have been
inventoried and assessed for Y2K compliance and those which require modification
are being remediated. This remediation, or where necessary replacement, will be
completed by mid-1999. Testing will be completed on all systems by the end of
the third quarter 1999.
External systems
External systems include systems of customers and suppliers. The Company is
in the process of understanding the extent to which it is vulnerable to the Y2K
issues of its customers and suppliers. The Company has identified and contacted
third parties whose systems would have a significant negative impact on
operations if not Y2K compliant, and is in the process of assessing the systems
of these third parties. The Company expects to complete its assessment and to
have developed requisite action plans with respect to these findings by
mid-1999.
The Company will also develop contingency plans during the third and fourth
quarters of 1999 for all critical systems and key suppliers in the event an
internal or external system, that is believed to be compliant, fails.
The dates on which the Company plans to complete any necessary Y2K
modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. The Company believes its most reasonably likely worst case scenario in
the event of the failure to correct a material Y2K compliance problem, internal
or external, could result in an interruption in, or a failure of, certain normal
business activities or operations. While management is not aware of such
problems, such failures, if they occur, could have a material adverse impact on
the operations of the Company. The Company believes that
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26
with the implementation of new business systems and completion of the Y2K
project as scheduled, the possibility of significant interruptions of normal
operations will be reduced.
The estimated total cost of implementing Y2K solutions, which includes the
cost of the replacement systems discussed above, is approximately $8,500. The
approximate amount expended through December 1997 was $6,000 with an additional
spending of approximately $1,900 occurring in 1998. With regard to the $7,900
expended through 1998, approximately $700 has been expensed and $7,200
capitalized in accordance with applicable accounting standards. The remaining
Y2K expenditures, which will be expensed, are estimated to be $600 and are
anticipated to be incurred by the end of 1999.
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; and the factors disclosed in the Year 2000 Update.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements and selected quarterly
financial data of the Company are filed under this item:
PAGE NUMBER
(IN THIS REPORT)
----------------
Report of Independent Accountants........................... 26
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 27
Consolidated Income Statements for the Years Ended December
31, 1998, 1997 and 1996................................... 28
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996.............. 29
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... 30
Notes to Consolidated Financial Statements.................. 31
Consolidated Quarterly Financial Data (unaudited) for the
Years Ended December 31, 1998 and 1997.................... 56
The consolidated financial statements and financial statement schedule are
filed pursuant to Item 14 of this report.
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25
27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Cambrex Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings and cash flows present
fairly, in all material respects, the financial position of Cambrex Corporation
and its subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
January 22, 1999, except
for Note 23, as to which the
date is March 12, 1999
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28
CAMBREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
--------------------
1998 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 48,527 $ 21,469
Trade receivables, less allowances of $1,550 and $1,705 at
respective dates....................................... 56,964 55,733
Other receivables......................................... 7,689 6,150
Inventories, net.......................................... 100,245 91,733
Deferred tax assets....................................... 11,759 5,947
Prepaid expenses and other current assets................. 6,342 3,622
-------- --------
Total current assets.............................. 231,526 184,654
Property, plant and equipment, net.......................... 255,016 237,342
Intangible assets, net...................................... 126,995 127,003
Other assets................................................ 3,517 3,427
-------- --------
Total assets...................................... $617,054 $552,426
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 63,467 $ 58,471
Income taxes payable...................................... 8,733 4,857
Short-term debt........................................... 2,451 3,597
Current portion of long-term debt......................... 578 986
-------- --------
Total current liabilities......................... 75,229 67,911
Long-term debt.............................................. 191,372 194,325
Deferred tax liabilities.................................... 52,183 43,436
Other noncurrent liabilities................................ 21,417 20,800
-------- --------
Total liabilities................................. 340,201 326,472
Commitments and contingencies
Stockholders' equity:
Common Stock, $.10 par value; issued 26,573,324 and
25,934,574 shares at respective dates.................. 2,655 1,295
Additional paid-in capital................................ 163,525 154,406
Retained earnings......................................... 132,471 96,027
Treasury stock, at cost; 2,081,099 and 2,081,122 shares at
respective dates....................................... (9,841) (9,458)
Shares held in trust, at cost; 381,749 and 360,554 shares
at respective dates.................................... (407) (1,275)
Accumulated other comprehensive income/(loss)............. (11,550) (15,041)
-------- --------
Total stockholders' equity........................ 276,853 225,954
-------- --------
Total liabilities and stockholders' equity........ $617,054 $552,426
======== ========
See accompanying notes to consolidated financial statements.
27
29
CAMBREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
Gross sales................................................ $441,683 $380,083 $369,479
Net revenues............................................... 457,241 374,215 359,385
Cost of goods sold....................................... 293,824 260,253 258,049
-------- -------- --------
Gross profit............................................... 163,417 113,962 101,336
Selling, general and administrative...................... 76,594 52,688 45,879
Research and development................................. 13,956 10,600 9,183
Non-recurring in-process R&D charge...................... -- 14,000 --
-------- -------- --------
Operating profit........................................... 72,867 36,674 46,274
Other (income) expenses
Interest income.......................................... (249) (238) (353)
Interest expense......................................... 10,476 5,568 6,152
Other -- net............................................. 945 (1,263) (194)
-------- -------- --------
Income before income taxes................................. 61,695 32,607 40,669
Provision for income taxes................................. 22,593 14,831 12,444
-------- -------- --------
Net income................................................. $ 39,102 $ 17,776 $ 28,225
======== ======== ========
Earnings per share of common stock and common stock
equivalents:
Basic.................................................... $ 1.62 $ 0.75 $ 1.22
Diluted.................................................. $ 1.54 $ 0.73 $ 1.19
Weighted average shares outstanding:
Basic.................................................... 24,194 23,627 23,214
Diluted.................................................. 25,412 24,419 23,792
See accompanying notes to consolidated financial statements.
28
30
CAMBREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK
---------------------- ADDITIONAL SHARES
SHARES PAR VALUE PAID-IN RETAINED TREASURY HELD IN COMPREHENSIVE
ISSUED ($.10) CAPITAL EARNINGS STOCK TRUST INCOME/(LOSS)
---------- --------- ---------- -------- -------- ------- -------------
BALANCE AT DECEMBER 31, 1995.............. 8,195,831 $ 818 $142,453 $ 54,316 $(9,160) $ --
Comprehensive income/(loss)
Net Income............................ 28,225 $ 28,225
--------
Other comprehensive income/(loss)
Foreign currency translation
adjustments...................... 6,884
Minimum pension liability
adjustment....................... 197
--------
Other comprehensive income/(loss)..... 7,081
--------
Comprehensive income.................... $ 35,306
========
Cash dividends at $0.09 per share....... (1,933)
Exercise of stock options............... 334,650 33 4,677 (856) (718)
Tax benefit of stock options
exercised............................. 1,406
Shares issued to Board of Directors..... 87 62
Shares issued under savings plan........ 992 505
Three-for-two stock split............... 4,238,694 424 (424)
---------- ------ -------- -------- ------- -------
BALANCE AT DECEMBER 31, 1996.............. 12,769,175 $1,275 $149,191 $ 80,608 $(9,449) $ (718)
Comprehensive income/(loss)
Net Income............................ 17,776 $ 17,776
--------
Other comprehensive income/(loss)
Foreign currency translation
adjustments...................... (23,732)
Minimum pension liability
adjustment....................... 553
--------
Other comprehensive income/(loss)..... (23,179)
--------
Comprehensive income.................... $ (5,403)
========
Cash dividends at $0.10 per share....... (2,357)
Exercise of stock options............... 198,112 20 3,555 (201) (557)
Tax benefit of stock options
exercised............................. 718
Shares issued to Board of Directors..... 134 54
Shares issued under savings plan........ 808 138
---------- ------ -------- -------- ------- -------
BALANCE AT DECEMBER 31, 1997.............. 12,967,287 $1,295 $154,406 $ 96,027 $(9,458) $(1,275)
Comprehensive income/(loss)
Net Income............................ 39,102 $ 39,102
--------
Other comprehensive income/(loss)
Foreign currency translation
adjustments...................... 5,522
Minimum pension liability
adjustment....................... (2,031)
--------
Other comprehensive income/(loss)..... 3,491
--------
Comprehensive income.................... $ 42,593
========
Cash dividends at $0.11 per share....... (2,658)
Exercise of stock options............... 472,575 47 7,148 (462) 868
Tax benefit of stock options
exercised............................. 2,977
Shares issued to Board of Directors..... 104
Shares issued under savings plan........ 203 79
Two-for-one stock split................. 13,133,462 1,313 (1,313)
---------- ------ -------- -------- ------- -------
BALANCE AT DECEMBER 31, 1998.............. 26,573,324 $2,655 $163,525 $132,471 $(9,841) $ (407)
========== ====== ======== ======== ======= =======
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME/(LOSS) EQUITY
------------- -------------
BALANCE AT DECEMBER 31, 1995.............. $ 1,057 $189,484
Comprehensive income/(loss)
Net Income............................ 28,225
Other comprehensive income/(loss)
Foreign currency translation
adjustments......................
Minimum pension liability
adjustment.......................
Other comprehensive income/(loss)..... 7,081 7,081
Comprehensive income....................
Cash dividends at $0.09 per share....... (1,933)
Exercise of stock options............... 3,136
Tax benefit of stock options
exercised............................. 1,406
Shares issued to Board of Directors..... 149
Shares issued under savings plan........ 1,497
Three-for-two stock split............... --
-------- --------
BALANCE AT DECEMBER 31, 1996.............. $ 8,138 $229,045
Comprehensive income/(loss)
Net Income............................ 17,776
Other comprehensive income/(loss)
Foreign currency translation
adjustments......................
Minimum pension liability
adjustment.......................
Other comprehensive income/(loss)..... (23,179) (23,179)
Comprehensive income....................
Cash dividends at $0.10 per share....... (2,357)
Exercise of stock options............... 2,817
Tax benefit of stock options
exercised............................. 718
Shares issued to Board of Directors..... 188
Shares issued under savings plan........ 946
-------- --------
BALANCE AT DECEMBER 31, 1997.............. $(15,041) $225,954
Comprehensive income/(loss)
Net Income............................ 39,102
Other comprehensive income/(loss)
Foreign currency translation
adjustments......................
Minimum pension liability
adjustment.......................
Other comprehensive income/(loss)..... 3,491 3,491
Comprehensive income....................
Cash dividends at $0.11 per share....... (2,658)
Exercise of stock options............... 7,601
Tax benefit of stock options
exercised............................. 2,977
Shares issued to Board of Directors..... 104
Shares issued under savings plan........ 282
Two-for-one stock split................. --
-------- --------
BALANCE AT DECEMBER 31, 1998.............. $(11,550) $276,853
======== ========
See accompanying notes to consolidated financial statements.
29
31
CAMBREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
-------- --------- --------
Cash flows from operations:
Net income.............................................. $ 39,102 $ 17,776 $ 28,225
Depreciation and amortization........................... 40,132 31,122 28,493
Non-recurring in-process R&D charge..................... -- 14,000 --
Recognition of reimbursement for past environmental
costs................................................ -- (2,400) --
Gain realized on settlement of foreign denominated
loan................................................. -- (954) --
Provision for inventories............................... 6,046 2,489 1,099
Reversal of tax contingencies........................... -- -- (1,500)
Reversal of environmental contingencies................. (800) -- (1,000)
Deferred income tax provision........................... 2,189 4,236 1,721
Changes in assets and liabilities (net of assets and
liabilities acquired):
Receivables.......................................... (2,274) 2,321 1,205
Inventories.......................................... (10,867) (8,815) 6,284
Prepaid expenses and other current assets............ (2,711) 323 1,663
Accounts payable and accrued liabilities............. 3,383 (5,418) (6,199)
Income taxes payable................................. 4,407 (2,792) 6,620
Other noncurrent assets and liabilities.............. 2,079 691 174
-------- --------- --------
Net cash provided from operations.................. 80,686 52,579 66,785
-------- --------- --------
Cash flows from investing activities:
Capital expenditures.................................... (43,007) (35,935) (32,396)
Acquisition of businesses (net of cash acquired)........ (15,199) (128,916) --
Other investing activities.............................. 1,948 -- (1,345)
-------- --------- --------
Net cash (used in) investing activities............ (56,258) (164,851) (33,741)
-------- --------- --------
Cash flows from financing activities:
Dividends............................................... (2,658) (2,357) (1,933)
Net increase (decrease) in short-term debt.............. (1,406) 370 (1,025)
Long-term debt activity (including current portion):
Borrowings........................................... 37,000 235,900 44,000
Repayments........................................... (40,430) (109,649) (80,599)
Proceeds from the issuance of common stock.............. 10,325 3,575 6,116
(Purchase of)Proceeds from the sale of treasury stock... (229) 933 790
Other................................................... (2,031) -- --
-------- --------- --------
Net cash provided from (used in) financing
activities...................................... 571 128,772 (32,651)
-------- --------- --------
Effect of exchange rate changes on cash................... 2,059 (2,384) 2,119
-------- --------- --------
Net increase in cash and cash equivalents................. 27,058 14,116 2,512
Cash and cash equivalents at beginning of year............ 21,469 7,353 4,841
-------- --------- --------
Cash and cash equivalents at end of year.................. $ 48,527 $ 21,469 $ 7,353
======== ========= ========
Supplemental disclosure:
Interest paid (net of capitalized interest)............. $ 13,660 $ 5,275 $ 6,859
Income taxes paid....................................... $ 16,767 $ 13,344 $ 3,695
Noncash transactions:
Additional minimum pension liability (eliminated from)
charged to stockholders' equity...................... $ 2,031 $ (553) $ (197)
Liabilities established under deferred compensation
plan................................................. $ (868) $ 557 $ 718
Tax benefit on stock options exercised.................. $ 2,977 $ 718 $ 1,406
Liabilities assumed in connection with acquisition...... $ -- $ 1,253 $ --
See accompanying notes to consolidated financial statements.
30
32
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(1) THE COMPANY
Cambrex Corporation and Subsidiaries (the "Company" or "Cambrex")
manufactures and markets a broad line of specialty and fine chemicals, as well
as products and services to the biotechnology industry. The Company operates in
four segments: Human Health, Biotechnology, Animal Health/Agriculture and
Specialty Business.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash Equivalents
Temporary cash investments with an original maturity of less than three
months and have virtually no risk of loss in value are considered cash
equivalents.
Derivative Instruments
Derivative financial instruments are used by the Company primarily for
hedging purposes to mitigate a variety of working capital, investment and
borrowing risks. The use and mix of hedging instruments can vary depending on
business and economic conditions and management's risk assessments. The Company
uses a variety of strategies, including foreign currency forward contracts and
transaction hedging, to minimize or eliminate foreign currency exchange rate
risk associated with substantially all of its foreign currency transactions.
Gains and losses on these hedging transaction are generally recorded in earnings
in the same period as they are realized, which is usually the same period as the
settlement of the underlying transactions. The Company uses interest rate
derivative instruments only as hedges or as an integral part of borrowings. As
such, the differential to be paid or received in connection with these
instruments is accrued and recognized in income as an adjustment to interest
expense.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, net of accumulated
depreciation. Plant and equipment are depreciated on a straight-line basis over
the estimated useful lives for each applicable asset group as follows:
Buildings and improvements.................................. 15 to 20 years
Machinery and equipment..................................... 5 to 10 years
Furniture and fixtures...................................... 3 to 5 years
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is reflected in other (income) expense, net. Interest is capitalized in
connection with the construction and acquisition of assets. The capitalized
interest is recorded as part of the cost of the asset to which it relates and is
amortized over the asset's estimated useful life. Total interest capitalized in
connection with ongoing construction activities in 1998, 1997 and 1996 amounted
to $533, $1,045, and $677, respectively.
31
33
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Intangible Assets
Intangible assets are recorded at cost and amortized on a straight-line
basis as follows:
Patents......................................... Amortized over the remaining
life of individual patents
(average 5 years)
Goodwill........................................ 4 to 20 years
Product technology.............................. 5 to 17 years
Non-compete agreements.......................... 5 years
Trademarks and other............................ 1 to 40 years
The Company continually evaluates the reasonableness of its amortization of
intangibles. If it becomes probable that expected future undiscounted cash flows
associated with intangible assets are less than their carrying value, the assets
are written down to their fair value.
Revenue Recognition
Revenues are generally recognized when products are shipped or title has
passed to customer. Royalties are recognized as earned in accordance with
royalty agreements.
Income Taxes
Deferred income taxes reflect the differences between assets and
liabilities recognized for financial reporting purposes and amounts recognized
for tax purposes. Deferred taxes are based on tax laws currently enacted.
The Company and its eligible subsidiaries file a consolidated U.S. income
tax return. Certain subsidiaries which are consolidated for financial reporting
are not eligible to be included in the consolidated U.S. income tax return. U.S.
income taxes are provided on a planned repatriation of a portion of non U.S.
earnings and consider applicable foreign tax credits. Cambrex also intends to
indefinitely reinvest the unremitted earnings of certain non-U.S. subsidiaries,
and as such, separate provisions for income taxes have been determined for these
entities and U.S. taxes have not been provided. At December 31, 1998, 1997 and
1996, the cumulative amount of unremitted earnings of non-U.S. subsidiaries was
$28,850, $16,140, and $3,605, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Environmental Costs
In the ordinary course of business, like most other industrial companies,
the Company is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations, and has made provisions for the
estimated financial impact of environmental cleanup related costs. The Company's
policy is to accrue environmental cleanup related costs of a noncapital nature
when those costs are believed to be probable and can be reasonably estimated.
The quantification of environmental exposures requires an
32
34
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
assessment of many factors, including changing laws and regulations,
advancements in environmental technologies, the quality of information available
related to specific sites, the assessment stage of each site investigation,
preliminary findings and the length of time involved in remediation or
settlement. For certain matters, the Company expects to share costs with other
parties. The Company does not include anticipated recoveries from insurance
carriers or other third parties in its accruals for environmental liabilities.
Foreign Currency
The functional currency of the Company's foreign subsidiaries is the
applicable local currency. The translation of the applicable foreign currencies
into U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
and cash flows using average rates of exchange prevailing during the year.
Adjustments resulting from the translation of foreign currency financial
statements are accumulated in a separate component of stockholders' equity until
the entity is sold or substantially liquidated. Gains or losses relating to
transactions of a long-term investment nature are accumulated in stockholders'
equity. Gains or losses resulting from foreign currency transactions are
included in the results of operations as a component of other revenues in 1998
and 1997 and as a component of other income in 1996. Foreign currency net
transaction gains (losses) were $2,019, $2,668, and $194 in 1998, 1997 and 1996,
respectively.
Stock Option Plans
The Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123") in 1997. In conjunction
with the adoption, the Company will continue to apply the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" with pro-forma disclosure of net
income and earnings per share as if the fair value based method prescribed by
SFAS 123 had been applied. In general, no compensation cost related to these
plans is recognized in the consolidated statements of earnings.
Earnings Per Common Share
Earnings per share of Common Stock for 1998, 1997 and 1996 reflect the
adoption of SFAS No. 128, "Earnings per Share." All diluted earnings per share
are computed on the basis of the weighted average shares of common stock
outstanding plus common equivalent shares arising from the effect of dilutive
stock options, using the treasury stock method.
Earnings per share calculations are as follows:
FOR THE YEARS ENDED,
-----------------------------
1998 1997 1996
------- ------- -------
Numerator:
Income available to common stockholders............... $39,102 $17,776 $28,225
Denominator:
Basic weighted average shares outstanding............. 24,194 23,627 23,214
Effect of dilutive stock options...................... 1,218 792 578
------- ------- -------
Diluted weighted average shares outstanding........... 25,412 24,419 23,792
Basic earnings per share.............................. $ 1.62 $ 0.75 $ 1.22
Diluted earnings per share............................ $ 1.54 $ 0.73 $ 1.19
33
35
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(3) ACQUISITIONS AND DIVESTITURES
On January 9, 1998, Chiragene, a newly formed subsidiary of Cambrex
Corporation, acquired substantially all of the assets of the chiral intermediate
business of Celgene Corporation for approximately $11,328. The purchase
agreement includes an upfront payment of $7,500 paid at closing plus future
royalties based upon sales. While the present value of the potential future
royalties is $7,500 based upon a formula disclosed in the purchase agreement,
the amount included in the initial purchase allocation is $3,750 which are the
minimum guaranteed royalty payouts. The acquisition has been accounted for under
the purchase method and as such, the purchase price has been allocated to the
fair value of assets acquired. Purchase price in excess of the fair value of the
net assets was approximately $5,000 and was recorded as goodwill and will be
amortized over 15 years. On January 9, 1998, the Company borrowed $8,200 from
the existing Credit Agreement with Chase Manhattan Bank, of which $7,500 was
used to finance the acquisition of Chiragene.
On May 12, 1998, Cambrex completed the acquisition of certain assets of the
biopharmaceutical manufacturing and distribution business of Boerhinger
Ingelheim Bioproduct Partnership (BIBP). The assets acquired include a
state-of-the-art cell culture and media manufacturing facility in Verviers,
Belgium, and inventory for certain cell culture, endotoxin detection and
molecular biology products. The acquisition has been accounted for as a purchase
transaction in which the purchase price has been allocated to the fair value of
assets and liabilities acquired. The majority of the acquisition was funded
through cash reserves.
The proforma information for the above acquisitions has not been included
in these financial statements, as it was deemed to be immaterial, both
individually and collectively.
Certain actions were taken in the third quarter of 1998 for the acquisition
reorganization plan at our BioWhittaker facility of approximately $1,400 for the
termination of 28 employees. This plan was part of the final purchase accounting
adjustments made in the third quarter 1998. In addition, BioWhittaker favorably
concluded a patent infringement dispute and has received a cash payment of
approximately $5,400 in 1998. This settlement, as well as the settlement of
other acquisition contingencies of approximately $1,600, are part of the final
purchase accounting adjustments in the third quarter 1998. As a result of
finalizing the purchase accounting, the net impact on goodwill, including the
tax effect, was a reduction of approximately $900.
On September 30, 1997, the Company acquired approximately 93% of the
outstanding common stock of BioWhittaker for approximately $116,000. The
remaining 7% of the outstanding common stock was subsequently acquired on
October 3, 1997 for an additional $10,000. The acquisition price was
approximately $133,500 and was financed by the Company's Credit Agreement. The
acquisition was accounted for as a purchase transaction and as such, the
purchase price was allocated to the fair value of assets and liabilities
acquired. The excess of the purchase price over the fair value of the net assets
acquired was approximately $48,000 and was recorded as goodwill and will be
amortized over 20 years. The allocation to in-process research and development
of $14,000 represents the value of BioWhittaker's research and development
efforts which had not reached commercial viability with no alternative future
use and were, therefore, immediately expensed.
Unaudited proforma results of operations of the Company and BioWhittaker
for the years ended December 31, 1997 and 1996, as if it had occurred on January
1, 1996 are listed below.
34
36
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(3) ACQUISITIONS AND DIVESTITURES -- (CONTINUED)
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
Net revenues................................................ $416,871 $410,844
Net income.................................................. $ 17,146 $ 21,564
Earnings per share
Basic..................................................... $ 1.45 $ 1.86
Diluted................................................... $ 1.40 $ 1.81
The unaudited pro forma adjustments give effect to the depreciation of
property, plant and equipment, amortization of the goodwill, interest on the
debt assumed to finance the acquisition, and the tax effects of each of these
items. The unaudited pro forma information is not necessarily indicative of the
results of operations that would have occurred had the combination been in
effect at January 1, 1996, nor of future results of operations of the combined
companies.
The fair value of assets acquired and liabilities assumed are as follows
(giving effect to the total purchase price):
Cash...................................................... $ 4,557
Receivables............................................... 6,795
Inventories............................................... 25,389
Deferred tax asset........................................ 770
Other current assets...................................... 556
Property, plant and equipment............................. 24,190
In-process research and development....................... 14,000
Other identified intangibles.............................. 41,590
Goodwill.................................................. 47,859
Other assets.............................................. 89
Accounts payable and accrued liabilities.................. (10,458)
Income taxes payable...................................... (1,073)
Long term debt............................................ (1,755)
Deferred tax liabilities.................................. (19,036)
--------
$133,473
========
(4) FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. The fair value hedge transactions in which the Company is hedging
changes in an asset's, liability's or firm commitment's fair value; changes in
the fair value of the derivative instrument that are reported in other
comprehensive income will be reclassified as earnings in the period in which
earnings are impacted by the variability of the cash flows of the hedged item.
The ineffective portion of all hedges will be recognized in current-period
earnings. The Company is evaluating the impact that the adoption of SFAS 133
will have on its earnings, comprehensive income or statement of financial
position.
35
37
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(5) INVENTORIES
Inventories consist of the following:
DECEMBER 31,
-------------------
1998 1997
-------- -------
Finished goods.......................................... $ 54,264 $42,974
Work in process......................................... 20,177 25,217
Raw materials........................................... 20,105 18,254
Supplies................................................ 5,699 5,288
-------- -------
Total......................................... $100,245 $91,733
======== =======
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
DECEMBER 31,
----------------------
1998 1997
--------- ---------
Land................................................. $ 11,009 $ 10,555
Buildings and improvements........................... 76,949 76,476
Machinery and equipment.............................. 289,577 256,689
Furniture and fixtures............................... 9,033 6,555
Construction in progress............................. 30,657 19,194
--------- ---------
Total...................................... 417,225 369,469
Accumulated depreciation............................. (162,209) (132,127)
--------- ---------
Net................................................ $ 255,016 $ 237,342
========= =========
Depreciation expense amounted to $30,547, $24,666, and $22,788 for the
years ended December 31, 1998, 1997 and 1996, respectively.
(7) INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31,
--------------------
1998 1997
-------- --------
Goodwill............................................... $110,117 $100,229
Other.................................................. 56,330 55,977
-------- --------
Total........................................ 166,447 156,206
Accumulated amortization............................... (39,452) (29,203)
-------- --------
Net.................................................. $126,995 $127,003
======== ========
Amortization expense amounted to $9,585, $6,456 and $5,705 for the years
ended December 31, 1998, 1997 and 1996 respectively.
36
38
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are as follows:
DECEMBER 31,
------------------
1998 1997
------- -------
Accounts payable......................................... $30,761 $28,174
Salaries, wages and employee benefits payable............ 20,475 15,208
Other accrued liabilities................................ 12,231 15,089
------- -------
Total.......................................... $63,467 $58,471
======= =======
(9) INCOME TAXES
Income before taxes consisted of the following:
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
Domestic.............................................. $31,324 $13,195 $31,611
Foreign............................................... $30,371 19,412 9,058
------- ------- -------
Total....................................... $61,695 $32,607 $40,669
======= ======= =======
The provision for income taxes consists of the following expenses
(benefits):
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
Current:
Federal............................................. 14,377 $ 2,670 $ 3,783
State............................................... 696 427 598
Foreign............................................. 5,331 7,498 6,342
------- ------- -------
20,404 10,595 10,723
------- ------- -------
Deferred:
Federal............................................. (2,481) 2,272 922
State............................................... (167) 143 (527)
Foreign............................................. 4,837 1,821 1,326
------- ------- -------
2,189 4,236 1,721
------- ------- -------
Total....................................... $22,593 $14,831 $12,444
======= ======= =======
37
39
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(9) INCOME TAXES -- (CONTINUED)
The provision for income taxes differs from the statutory Federal income
tax rate of 35% for 1998, 1997 and 1996 as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
Income tax at Federal statutory rate.................. $21,594 $11,412 $14,234
State and local taxes (benefits), net of Federal
income tax benefits................................. 522 605 (239)
Difference between Federal statutory rate and
statutory rates on foreign income................... (945) (1,666) 1,771
Reversal of tax contingency for IRS audit
settlement.......................................... -- (728) (1,500)
Return to provision adjustment........................ -- -- (1,066)
Research and experimentation credits.................. (150) (399) (484)
Write off of acquired in-process research and
development......................................... -- 4,900 --
Foreign Tax Credits................................... (311) -- --
Other................................................. 1,883 707 (272)
------- ------- -------
$22,593 $14,831 $12,444
======= ======= =======
The components of deferred tax assets and liabilities as of December 31,
1998 and 1997 relate to temporary differences and carryforwards as follows:
DECEMBER 31,
------------------
1998 1997
------- -------
Deferred tax assets:
Acquisition reserves................................... $ 781 $ 732
Environmental.......................................... 1,574 --
Net operating loss carryforwards....................... 3,643 3,896
Inventory.............................................. 2,535 1,235
Employee benefits...................................... 3,297 2,365
Receivables............................................ 195 136
Other.................................................. 2,148 --
------- -------
Net current deferred tax assets........................ 14,173 8,364
Valuation allowances................................... (2,414) (2,417)
------- -------
Total net deferred tax assets.................. $11,759 $ 5,947
======= =======
Deferred tax liabilities:
Depreciation........................................... $29,591 $29,937
Environmental reserves................................. -- (1,261)
Intangibles............................................ 14,839 14,659
Italian Intangibles.................................... 6,086 --
Other.................................................. 1,667 101
------- -------
Total net non-current deferred tax
liabilities.................................. $52,183 $43,436
======= =======
Included within the change in the cumulative translation adjustment for the
year ended December 31, 1998 is $(413) which relates to the translation of
deferred tax assets and liabilities.
38
40
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(9) INCOME TAXES -- (CONTINUED)
Under the tax laws of various foreign countries in which the Company
operates, net operating losses (NOLs) may be carried forward, subject to
statutory limitations, to reduce taxable income in future years. The tax effect
of such foreign NOLs aggregated is approximately $3,643 and $3,896 at December
31, 1998 and 1997, the majority of which are available on an indefinite
carryforward basis. However, valuation reserves have been established against
certain NOLs to reflect uncertainties associated with the realizability of such
future benefits.
During 1998, the Company made an election which allows its Italian
subsidiary to deduct for tax purposes intangible assets that were previously
nondeductible. The result of this election was a charge to 1998 earnings of
$3,420 that will result in net favorable future tax benefits.
During 1997, the Company concluded some of the ongoing matters with the
Internal Revenue Service related to audits for the years 1988 through 1993.
(10) SHORT-TERM DEBT
The Company has lines of credit in Italy with five local banks (the
"Facility"). The Facility is short-term and provides three types of financing
with the following limits: Overdraft Protection of $2,300 (Lire 4.0 billion),
Export Financing of $4,500 (Lire 8.0 billion) and Advances on Uncleared Deposits
of $1,700 (Lire 3.0 billion). The Overdraft Protection and Export Financing
facilities bear interest at varying rates when utilized, however, Advances on
Uncleared Deposits (Ricevute Bancarie) bear no interest.
Short-term debt at December 31, 1998 and 1997 consists of the following:
DECEMBER 31,
--------------------
1998 1997
-------- --------
Export financing facility.............................. $ 2,451 $ 3,597
(11) LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
--------------------
1998 1997
-------- --------
Bank credit facilities(a).............................. $190,000 $192,600
Capitalized leases..................................... 49 --
Notes payable(b)....................................... 1,901 2,711
-------- --------
Subtotal..................................... 191,950 195,311
Less: current portion(c)............................... 578 986
-------- --------
Total........................................ $191,372 $194,325
======== ========
(a) On September 16, 1997, the Company entered into a new five year Credit
Agreement (the "Agreement") with a bank group headed by The Chase Manhattan Bank
as Administrative Agent and The First National Bank of Chicago as Documentation
Agent. The bank group has a total of 13 domestic banks and 7 international
banks. The Agreement provides the Company with a $400,000 borrowing facility.
The new Agreement replaces the previously existing Revolving Credit Agreement
with NBD Bank, N.A.
Under this agreement, the Company has pledged 66% of the common stock of
the Company's foreign subsidiaries as collateral. The Agreement permits the
Company to choose between various interest rate
39
41
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(11) LONG-TERM DEBT -- (CONTINUED)
options and to specify the portion of the borrowing to be covered by specific
interest rate options. Under the Agreement, the interest rate options available
to the Company are: (a) U.S. Prime rate or (b) LIBOR plus the applicable margin
(ranging from .225% to .5%) or (c) Competitive Bid at a LIBOR Rate Borrowing or
a Fixed Rate Borrowing to be determined by auction. The applicable margin is
adjusted based upon the Funded Indebtedness to Cash Flow Ratio of the Company.
Additionally, the Company pays a commitment fee of between .15% to .25% on the
entire portion of the Agreement. The 1998 and 1997 average interest rates were
6.4% and 6.8%.
On September 18, 1997, the Company utilized $60,000 of the Agreement in
order to repay the then outstanding balance under the previously existing
Revolving Credit Agreement. On September 30, 1997, the company borrowed $126,000
to finance the acquisition of the outstanding common stock of BioWhittaker. Of
this amount, approximately $116,000 was utilized on September 30, 1997. On
October 3, 1997, an additional $12,000 was utilized to acquire the remaining 7%
of BioWhittaker's common stock. The undrawn borrowing availability under the
Agreement as of December 31, 1998 was $210,000.
The Agreement is subject to financial covenants requiring the Company to
maintain certain levels of net worth and an interest coverage ratio, as well as
a limitation on indebtedness. The Company met all of the bank covenants for
1998.
(b) The Company has a loan agreement with the Italian government to finance
technological innovations. The loan of $1,291 bearing interest at 9.21%, is
amortized over ten annual payments starting July 26, 1995 and ending July 26,
2004. There is $891 and $931 outstanding as of December 31, 1998 and 1997,
respectively.
The Company assumed a note payable as part of the acquisition of
BioWhittaker in 1997 of $1,253. The note, bearing interest at 8%, is payable in
annual installments of $340 and expires in 2001. There is $845 outstanding as of
December 31, 1998.
(c) Aggregate maturities of long-term debt are as follows:
1999.............................................. $ 578
2000.............................................. 433
2001.............................................. 428
2002.............................................. 190,160
2003.............................................. 168
Thereafter........................................ 183
--------
Total................................... $191,950
========
(12) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to reduce exposures to
market risks resulting from fluctuations in interest rates and foreign exchange
rates. The Company does not enter into financial instruments for trading or
speculative purposes. The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap, forward exchange
and put and call contracts. However, the Company does not anticipate
non-performance by the counterparties.
40
42
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(12) DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements to reduce the impact
of changes in interest rates on its floating rate debt. The swap agreements are
contracts to exchange floating rate for fixed interest payments periodically
over the life of the agreements without the exchange of the underlying notional
amounts. Notional amounts provide an indication of the extent of the Company's
involvement in such agreements but do not represent its exposure to market risk.
The following table shows the notional amounts outstanding, maturity dates, and
the weighted average receive and pay rates of interest rate swap agreements as
of December 31, 1998.
WEIGHTED AVG. RATE
NOTIONAL MATURITY -------------------
AMOUNTS DATE RECEIVE PAY
- -------- -------- -------- -----
$10,000 2002 5.25% 5.85%
$10,000 2003 5.23% 5.77%
$10,000 2002 5.21% 5.77%
$10,000 2001 5.25% 5.81%
$10,000 2000 5.23% 6.09%
$20,000 2001 5.23% 5.93%
$10,000 2002 5.23% 5.15%
Interest expense under these agreements, and the respective debt
instruments that they hedge, are recorded at the net effective interest rate of
the hedged transactions. The fair value of these agreements were based on quoted
market prices and was $78,640 at December 31, 1998.
Foreign Exchange Instruments
The Company's policy is to enter into forward exchange contracts and/or
currency options to hedge foreign currency transactions. This hedging mitigates
the impact of short-term foreign exchange rate movements on the Company's
operating results primarily in the United Kingdom, Sweden and Italy. The
Company's primary market risk relates to exposure to foreign currency exchange
rate fluctuations on transactions entered into by these foreign operations which
are denominated primarily in U.S. dollars, Deutsche marks and British pound
sterling. As a matter of policy, the Company does not hedge to protect the
translated results of foreign operations. The Company's forward exchange
contracts do not subject the Company's results of operations to risk due to
exchange rate movements because gains and losses on these contracts generally
offset gains and losses on the transactions being hedged. The forward exchange
contracts have varying maturities with none exceeding twelve months. The Company
makes net settlements for forward exchange contracts at maturity, based upon
negotiated rates at inception of the contracts.
1998
--------------------------------------
UNREALIZED
NOTIONAL FAIR ---------------
AMOUNTS VALUE GAINS LOSSES
-------- ------- ----- ------
Forward exchange contracts...................... $24,371 $24,437 $481 $547
1997
--------------------------------------
UNREALIZED
NOTIONAL FAIR ---------------
AMOUNTS VALUE GAINS LOSSES
-------- ------- ----- ------
Forward exchange contracts...................... $22,173 $22,295 $ 85 $207
41
43
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(13) STOCKHOLDERS' EQUITY
The Company has two classes of common shares designated Common Stock and
Nonvoting Common Stock. Authorized shares of Common Stock were 60,000,000 at
December 31, 1998 and 20,000,000 at December 31, 1997. Authorized shares of
Nonvoting Common Stock were 730,746 at December 31, 1998 and 1997.
At December 31, 1998, authorized shares of Common Stock were reserved for
issuance as follows:
Stock option plans................................ 4,070,450
Cambrex savings plan.............................. 169,544
---------
Total shares............................ 4,239,994
=========
On May 28, 1998, the Company's Board of Directors approved a two-for-one
stock split of the Company's Common Stock, $.10 par value, effected by the
distribution to stockholders of record as of the close of business on June 10,
1998 of one additional share of Common Stock for each share held. All share and
per share date, including stock option plan information, have been adjusted to
reflect the impact of the two-for-one stock split. The effect of the split was
presented within stockholders' equity at December 31, 1998 by transferring the
par value for the additional shares issued from additional paid-in capital to
common stock.
On July 24, 1996, the Company's Board of Directors approved a three-for-two
stock split of the Company's Common Stock, $.10 par value, effected in the form
of a 50% stock dividend to holders of record on July 8, 1996. All share and per
share data, including stock option plan information were adjusted to reflect the
impact of the three-for-two stock split. The effect of the split is presented
retroactively within stockholders' equity at December 31, 1996 by transferring
the par value for the additional shares issued from additional paid-in capital
to common stock.
On May 23, 1996, the Board of Directors of the Company declared a dividend
of one Right for each outstanding share of Common Stock, $.10 par value per
share, payable on June 10, 1996 to the stockholders of record on that date.
Under certain circumstances, each Right entitles the registered holder to
purchase from the Company, one one-hundredth of a share of Series E Junior
Participating Cumulative Preferred Stock ("Preferred Stock"), or in certain
circumstances, shares of Common Stock of the Company or common stock of an
acquiring company at one-half the market price of such Common Stock or common
stock, as the case may be. The Rights are designed to make it more likely that
all stockholders of the Company receive fair and equal treatment in the event of
any proposed takeover of the Company and to guard against the use of partial
tender offers or other coercive tactics to gain control of the Company. A Right
will be granted for each share of Common Stock issued after such date and prior
to the expiration date or redemption of that Right.
The Rights will become exercisable only in the event that any person or
group of affiliated persons becomes a holder, or commences a tender or exchange
offer, that if consummated, would result in that person or group of affiliated
persons owning at least 15% of the outstanding Common Stock of the Company. Once
exercisable, each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Preferred Stock, at a price of $174 per
share, subject to adjustment. The Rights may be redeemed at a price of $.01 per
Right at any time prior to the expiration date of June 5, 2006.
Nonvoting Common Stock with a par value of $.10, has equal rights with
Common Stock, with the exception of voting power. Nonvoting Common Stock is
convertible, share for share, into Common Stock, subject to any legal
requirements applicable to holders restricting the extent to which they may own
voting stock. As of December 31, 1998 and 1997, no shares of Nonvoting Common
Stock were outstanding.
The Company held treasury stock of 2,081,099 and 2,081,122 shares at
December 31, 1998 and 1997, respectively, and are used for issuance to the
Cambrex Savings Plan.
42
44
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(13) STOCKHOLDERS' EQUITY -- (CONTINUED)
The Company has authorized 5,000,000 shares of Series Preferred Stock, par
value $.10, issuable in series and with rights, powers and preferences as may be
fixed by the Board of Directors. At December 31, 1998 and 1997, there was no
preferred stock outstanding.
(14) STOCK OPTIONS
The Company has eight stock-based compensation plans currently in effect.
The 1983 Incentive Stock Option Plan ("1983 Plan") provides for the grant of
options intended to qualify as incentive stock options to management and other
key employees. The 1987 Stock Option Plan ("1987 Plan") provides for the
granting to key employees both non-qualified stock options and incentive stock
options. The 1989 Senior Executive Stock Option Plan ("1989 Plan") provides for
the grant of options intended to qualify as additional incentives to the
Company's Senior Executive Officers. The 1992 Stock Option Plan ("1992 Plan")
provides for the granting to key employees both non-qualified stock options and
incentive stock options. The 1993 Senior Executive Stock Option Plan ("1993
Plan") provides for the grant of options intended to qualify as additional
incentives to the Company's Senior Executive Officers. The 1994 Stock Option
Plan ("1994 Plan") provides for the granting to key employees both non-qualified
and incentive stock options. The 1994 Plan also provides for the granting of
non-qualified stock options to non-employee directors.
On April 25, 1996, the Company's stockholders approved the 1996 Performance
Stock Option Plan ("1996 Plan"), which provides for the granting of options
intended to qualify as additional incentives to management and other key
employees. The 1996 Plan also provides for the granting of non-qualified stock
options to non-employee directors. Options granted under the 1996 Plan vest nine
years after the date of grant, subject to acceleration if the publicly traded
price of the Company's Common Stock equals or exceeds certain levels.
Substantially all options available under the various plans prior to the 1996
Plan have been granted. These Plans contain various vesting provisions also
based upon time and achievement of certain stock price levels. All option awards
granted under each plan expire no more than ten years from the grant date.
On April 23, 1998, the Company's stockholders approved The 1998 Performance
Stock Option Plan (the "1998 Plan"), which provides for the granting of options
intended to qualify as additional incentives to directors and key employees.
Options granted under the 1998 Plan shall vest and become exercisable nine years
after the date of grant, subject to acceleration if the publicly traded price of
the Company's Common Stock equals or exceeds levels determined by the Committee
within certain time periods or in the event of a change in control. Options
shall have a term of no more than ten years from the date of grant.
The Company applies the provisions of APB Opinion No. 25 and related
Interpretations in accounting for its stock-based compensation plans. Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS 123) establishes financial accounting and reporting
standards for stock-based employee compensation plans. During 1996, the Company
adopted the disclosure only provisions available under SFAS 123. Accordingly, no
compensation cost has been recognized for stock option plans under SFAS 123.
43
45
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(14) STOCK OPTIONS -- (CONTINUED)
Had compensation cost for the Company's 1998, 1997 and 1996 grants for
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under these plans consistent with SFAS 123, the Company's
net income, and net income per common share for 1998, 1997 and 1996 would
approximate the pro forma amounts below:
1998 1997 1996
------- ------- -------
Net income -- as reported............................. $39,102 $17,776 $28,225
======= ======= =======
Net income -- pro forma............................... $35,951 $16,079 $26,946
======= ======= =======
Diluted earnings per share -- as reported............. $ 1.54 $ 0.73 $ 1.19
======= ======= =======
Diluted earnings per share -- pro forma............... $ 1.41 $ 0.66 $ 1.14
======= ======= =======
The pro forma compensation expense of $3,151, $1,697, and $1,279 for 1998
and 1997 and 1996, respectively, was calculated based on the fair value of each
option primarily using the Black-Scholes option-pricing model with the following
assumptions for 1998, 1997 and 1996, respectively: (i) average dividend yield of
0.58% and 1.33% (ii) expected volatility of 24.5% and 25.5%, (iii) risk-free
interest rate ranging from 5.50% to 5.54% and from 6.03% to 6.85% and (iv)
expected life of 4-5 years. The 1998 and 1997 grants have been valued using a
path dependent model due to the cliff vesting with performance acceleration
provisions set forth in the 1996 Plan.
As of December 31, 1998, 4,056,050 options had been exercised. Shares of
Common Stock subject to outstanding options under the stock option plans were as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ --------------------
WEIGHTED AVERAGE
---------------------- WEIGHTED
OPTION REMAINING AVERAGE
AUTHORIZED PRICE PER CONTRACTUAL EXERCISE NUMBER EXERCISE
FOR ISSUANCE OUTSTANDING SHARE $ LIFE (YRS.) PRICE $ OF SHARES PRICE $
------------ ----------- --------------- ----------- -------- --------- --------
1983 Plan............ 648,000 -- -- -- -- -- --
1987 Plan............ 600,000 -- -- -- -- -- --
1989 Plan............ 1,200,000 -- -- -- -- -- --
1992 Plan............ 300,000 52,200 6.938 - 12.375 4.3 7.66 52,200 7.66
1993 Plan............ 900,000 287,200 6.625 - 8.063 4.8 6.85 287,200 6.85
1994 Plan............ 300,000 88,350 6.625 - 13.688 5.6 8.45 88,350 8.45
1996 Plan............ 3,000,000 1,718,850 12.375 - 27.500 7.5 15.90 1,714,050 15.88
1998 Plan............ 1,180,000 1,108,250 22.063 - 27.563 9.2 23.34 -- n/a
--------- --------- ---------
Total
shares.... 8,128,000 3,254,850 6.625 - 27.563 17.30 2,141,800
========= ========= =========
44
46
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(14) STOCK OPTIONS -- (CONTINUED)
Information regarding the Company's stock option plans is summarized below:
WEIGHTED AVERAGE
-----------------------
FAIR VALUE $
NUMBER OF EXERCISE AT GRANT OPTIONS
SHARES PRICE $ DATE EXERCISABLE
--------- -------- ------------ -----------
Outstanding at December 31, 1995.................. 1,864,650 7.69 1,789,650
Granted......................................... 1,775,752 13.88 4.97
Exercised....................................... (950,926) 6.69
Cancelled....................................... (16,500) 10.88
---------
Outstanding at December 31, 1996.................. 2,672,976 11.52 912,226
Granted......................................... 466,800 21.09 6.92
Exercised....................................... (396,226) 10.54
Cancelled....................................... (30,000) 14.39
---------
Outstanding at December 31, 1997.................. 2,713,550 13.28 2,472,050
Granted......................................... 1,237,050 23.35 9.59
Exercised....................................... (638,750) 11.19
Cancelled....................................... (57,000) 21.84
---------
Outstanding at December 31, 1998.................. 3,254,850 17.30 2,141,800
=========
(15) RETIREMENT PLANS
Pension Plans
The Company maintains two U.S. defined-benefit pension plans which cover
substantially all eligible employees: (1) the Nepera Hourly Pension Plan (the
"Nepera Plan") which covers the union employees at the Harriman, New York plant,
and (2) the Cambrex Pension Plan (the "Cambrex Plan") which covers all other
eligible employees.
Benefits for the salaried and certain hourly employees are based on salary
and years of service, while those for employees covered by a collective
bargained agreement are based on negotiated benefits and years of service. The
Company's policy is to fund pension costs currently to the extent deductible for
income tax purposes. Pension plan assets consist primarily of balanced mutual
fund investments.
The Company also has a Supplemental Executive Retirement Plan for certain
key executives.
The net periodic pension expense for both 1998 and 1997 are based on a
twelve month period and on valuations of the plans as of January 1. However, the
reconciliation of funded status is determined as of the September 30 measurement
date.
45
47
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(15) RETIREMENT PLANS -- (CONTINUED)
The funded status of these plans, incorporating these fourth quarter
contributions, as of September 30, 1998 and 1997 is as follows:
1998 1997
------- -------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $29,350 $24,007
Service cost................................................ 1,587 1,310
Interest cost............................................... 2,108 1,886
Amendments.................................................. 81 1,087
Actuarial loss (gain)....................................... 1,968 2,268
Benefits paid............................................... (1,238) (1,208)
------- -------
Benefit obligation at end of year........................... 33,856 29,350
------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. 26,321 21,898
Actual return on plan assets................................ 334 4,814
Acquisitions................................................ 375 789
Benefits paid............................................... (1,210) (1,180)
------- -------
Fair value of plan assets at end of year.................... 25,820 26,321
------- -------
Funded status............................................... (8,036) (3,029)
Unrecognized prior service cost............................. 1,115 2,082
Unrecognized net (gain) loss................................ 5,121 (181)
Additional minimum liability................................ (1,281) --
------- -------
Prepaid (accrued) benefit at September 30, ................. (3,081) (1,128)
4th quarter contributions................................... 232 18
------- -------
Prepaid (accrued) benefit cost at December 31, ............. $(2,849) $(1,110)
======= =======
The components of net periodic pension cost is as follows:
1998 1997 1996
------- ------- -------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service Cost.......................................... $ 1,587 $ 1,310 $ 1,171
Interest Cost......................................... 2,108 1,887 1,535
Expected return on plan assets........................ (2,201) (1,827) (1,665)
Amortization of prior service cost.................... 36 (23) (32)
Recognized actuarial loss............................. 195 92 (26)
------- ------- -------
Net periodic benefit cost............................. $ 1,725 $ 1,439 $ 983
======= ======= =======
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate......................................... 6.75% 7.25% 7.50%
Expected return on plan assets........................ 8.50% 8.50% 8.50%
Rate of compensation increase......................... 5.00% 5.00% 5.00%
46
48
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(15) RETIREMENT PLANS -- (CONTINUED)
Certain foreign subsidiaries of the Company maintain pension plans for
their employees which conform to the common practice in their respective
countries The funded status of these plans, as of December 31, 1998 and 1997, is
as follows:
1998 1997
------- -------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $ 8,094 $ 7,892
Service cost................................................ 532 472
Interest cost............................................... 533 544
Plan participants' contribution............................. (64) (62)
Actuarial loss (gain)....................................... (264) 126
Benefits paid............................................... (68) (5)
Foreign exchange............................................ (95) (1,180)
------- -------
Benefit obligation at end of year........................... 8,668 8,094
------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. 2,205 1,617
Actual return on plan assets................................ 249 369
Company contribution........................................ 280 231
Plan participant contribution............................... 88 74
Benefits paid............................................... (99) (25)
Foreign exchange............................................ 26 (61)
------- -------
Fair value of plan assets at end of year.................... 2,749 2,205
------- -------
Funded status............................................... (6,043) (6,746)
Unrecognized actuarial loss................................. 53 279
Unrecognized prior service cost............................. 53 56
Unrecognized net (gain) loss................................ (467) (478)
Foreign exchange............................................ 127 858
------- -------
Prepaid (accrued) benefit................................... $(6,277) $(6,032)
======= =======
47
49
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(15) RETIREMENT PLANS -- (CONTINUED)
The components of the net periodic pension cost is as follows:
1998 1997 1996
------- ------- -------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service Cost.............................. $ 532 $ 472 $ 387
Interest Cost............................. 533 544 462
Expected return on plan assets............ (236) (167) (906)
Amortization of excess plan net........... (33) (34) (139)
Amortization of prior service cost........ 3 3 2
Recognized actuarial loss................. -- -- 865
------- ------- -------
Net periodic benefit cost............... $ 799 $ 818 $ 671
------- ------- -------
------- ------- -------
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate............................ 5.50%-6.00% 5.50%-7.00% 5.00%
Expected return on plan assets........... 9.00% 10.00% 10.00%
Rate of compensation increase............ 2.50%-3.50% 3.50%-5.00% 4.00%-4.50%
The aggregate ABO for those plans with ABO's in excess of plan assets is
$5,120 in 1998, which were not funded.
The Company's net pension costs included in operating results amounted to
$2,524, $2,257, and $1,654 in 1998, 1997 and 1996, respectively. The pension
expense for foreign pension plans of $799, $818, and $672 is included in the
1998, 1997 and 1996 net periodic pension expense, respectively.
BioWhittaker has established a noncontributory defined contribution target
plan for its eligible employees. Under BioWhittaker's target plan, all domestic
employees over 21 years of age who have completed one year of service with the
Company participate. The target plan is 100% Company-funded, with annual
contributions by the Company based on the employee's targeted benefit,
determined by such factors as salary and expected years of service to age 65.
Total target plan expenses amounted to $546 in 1998 and from the date of
acquisition amounted to $126 in 1997.
Savings Plan
Cambrex makes available to all employees a savings plan as permitted under
Sections 401(k) and 401(a) of the Internal Revenue Code. Effective August 1998,
this plan became available to all BioWhittaker employees. Employee contributions
are matched in part by Cambrex. The cost of this plan amounted to $1,523,
$1,387, and $1,534, in 1998, 1997 and 1996, respectively.
BioWhittaker had available to all eligible employees a contributory 401(k)
plan which was terminated in August 1998. Employee contributions had been
matched in part by BioWhittaker. The cost of this plan amounted to $262 in 1998
and from the date of acquisition amounted to $115 in 1997.
Other
The Company has a non-qualified Compensation Plan for Key Executives ("the
Deferred Plan"). Under the Deferred Plan, officers and key employees may elect
to defer all or any portion of their pre-tax annual bonus and/or annual base
salary. Included within other liabilities at December 31, 1998 and 1997 there is
$3,005, and $2,764, respectively, representing the Company's obligation under
the plan. To assist in the funding of this obligation, the Company invests in
certain mutual funds and as such, included within other
48
50
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(15) RETIREMENT PLANS -- (CONTINUED)
assets at December 31, 1998 and 1997 is $3,005 and $2,764, respectively,
representing the fair value of these funds. During 1995, the Board amended the
Deferred Plan to permit officers and key employees to elect to defer receipt of
Company stock which would otherwise have been issued upon the exercise of
Company options. Total shares held in trust as of December 31, 1998 and 1997 are
364,811 and 360,544, respectively; and are included as a reduction of equity at
cost. The value of the shares held in trust and the corresponding liability of
$1,375 at December 31, 1998 have been recorded in equity. The Deferred Plan is
not funded by the Company, but the Company has established a Deferred
Compensation Trust Fund which holds the shares issued.
(16) OTHER POSTRETIREMENT BENEFITS
Cambrex provides postretirement health and life insurance benefits
("postretirement benefits") to all eligible retired employees. Employees who
retire at or after age 55 with ten years of service are eligible to participate
in the postretirement benefit plans. The Company's responsibility for such
premiums for each plan participant is based upon years of service subject to an
annual maximum of one thousand dollars. Such plans are self-insured and are not
funded.
The Company elected to amortize the transition obligation of $1,853 over
twenty years. The net effect upon 1998, 1997 and 1996 pretax operating results,
including the amortization of the transition obligation, resulted in a cost of
$321, $285, and $316, respectively. Disclosure is presented in accordance with
Statement of Financial Accounting Standards No. 132 "Employers' Disclosures
About Pensions and Other Post Retirement Benefits" (SFAS 132).
DECEMBER 31,
------------------
1998 1997
------- -------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $ 2,157 $ 2,141
Service cost................................................ 63 51
Interest cost............................................... 165 150
Actuarial loss (gain)....................................... 154 (185)
------- -------
Benefit obligation at end of year........................... 2,539 2,157
------- -------
Unrecognized net (gain) loss................................ (49) 241
Unrecognized translation obligation......................... (1,297) (1,390)
------- -------
Benefit obligation at end of year........................... $ 1,193 $ 1,008
======= =======
Account recognized in the Statement of Financial Position:
Accrued benefit liability................................... $ 1,193 $ 1,008
------- -------
Net amount recognized....................................... $ 1,193 $ 1,008
======= =======
49
51
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(16) OTHER POSTRETIREMENT BENEFITS -- (CONTINUED)
The periodic postretirement benefit cost includes the following components:
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
---- ---- ----
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost of benefits earned........................... $ 63 $ 51 $ 67
Interest cost............................................. 165 150 156
Amortization of unrecognized prior service cost........... -- (9) --
Amortization of transition obligation..................... 93 93 93
---- ---- ----
Total periodic postretirement benefit cost................ $321 $285 $316
==== ==== ====
The discount rate used to determine the accumulated postretirement benefit
obligation was 6.75% and 7.25% in 1998 and 1997, respectively. The assumed
health care cost trend rate used to determine the accumulated postretirement
benefit obligation is 10.0%, declining ratably to 6.5% in 2002 and thereafter. A
one-percentage-point increase in the assumed health care cost trend rate would
not have a material effect on either the accumulated postretirement benefit
obligation or the service and interest cost component of the net periodic
post-retirement benefit cost.
(17) RESTRUCTURING
During the third quarter of 1998, the Company incurred a restructuring
charge of $1,400 which includes the non-recurring costs resulting from the
consolidation of administrative and management functions and resulted in the
reduction of 44 employees. These costs are related to severance paid to
terminated employees. The majority of these costs were incurred and paid prior
to December 31, 1998.
(18) OTHER INCOME AND EXPENSE
Other expense (income) was $945, $(1,263) and $(194) for 1998, 1997 and
1996, respectively. Included in 1998 other expense were asset write-offs at the
Zeeland facility of $522. Other income in 1997 included a 'gain of $954 on the
settlement of a foreign denominated loan. Additionally, 1997 other income
included the final resolution and receipt of the settlement proceeds due from
the 1996 premature termination of a contract by a customer for $766, offset by a
charge of $507 for the settlement of a legal matter reached during the year.
Other income in 1996 of $194 is related to foreign currency transaction gains.
(19) SEGMENT INFORMATION
The Company is involved principally in the manufacturing and marketing of
products which include: Human Health, which include Active Pharmaceutical
Ingredients produced under Food and Drug Administration (FDA) regulation for use
in prescription drug products, Pharmaceutical Intermediates produced in current
Good Manufacturing Practices (cGMP) facilities for use in the production of
pharmaceuticals and over-the-counter drug products, Imaging Chemicals used in
x-ray media, Personal Care Products used in cosmetics and for the pharmaceutical
actives market, and Nutraceuticals used in health products; Biotechnology,
consisting of cell culture and endotoxin detection products; Animal
Health/Agriculture products including Vitamin B(3) used in feed additives,
Agricultural Intermediates used in crop protection, and Animal Health products
used as feed additives; and the Specialty Business segment which includes
Performance Enhancing Chemicals used in photography, pigments, specialty
polymers, fuel/oil additives, catalysts, and other specialty additives, and
Polymer Systems products used in coatings, telecommunications, electronics and
engineering plastics. Most of the Company's subsidiaries operate in more than
one of these segments. The
50
52
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(19) SEGMENT INFORMATION -- (CONTINUED)
exception is BioWhittaker which solely comprises the Biotechnology segment. The
Company has provided financial information in order to show Gross Sales and
Gross Profit by segment. All other financial information is available only for
the Biotechnology Segment and for all other segments combined. The Company
allocates Corporate expenses and interest to each of its subsidiaries. The
interest allocation is based on 12% of subsidiary working capital and 9% of net
property plant and equipment.
The following is a summary of business segment information:
GROSS SALES: 1998 1997 1996
------------ -------- -------- --------
Human Health............................................... $194,766 $182,818 $174,398
Biotechnology.............................................. 65,968 13,577 --
Animal Health/Agriculture.................................. 56,285 59,804 61,560
Specialty Business......................................... 124,664 123,884 133,521
-------- -------- --------
$441,683 $380,083 $369,479
======== ======== ========
GROSS PRODUCT SALES DETAIL FOR EACH SEGMENT 1998 1997 1996
------------------------------------------- -------- -------- --------
Human Health:
Active Pharmaceutical Ingredients........................ $120,459 $110,461 $103,809
Pharmaceutical Intermediates............................. 24,844 23,430 16,311
Imaging Chemicals........................................ 14,179 17,617 23,024
Personal Care Ingredients................................ 16,777 16,453 14,303
Biomedicals.............................................. 3,977 4,286 5,888
Catalysts................................................ 8,281 6,554 5,537
Chiral Tehnology......................................... 5,548 3,733 5,520
Neutraceuticals.......................................... 701 284 6
-------- -------- --------
Total Human Health............................... $194,766 $182,818 $174,398
======== ======== ========
Biotechnology:
Cell Culture............................................. $ 43,795 $ 9,126 $ --
Endotoxin Detection...................................... 18,852 3,539 --
Other.................................................... 3,321 912 --
-------- -------- --------
Total Biotechnology.............................. $ 65,968 $ 13,577 $ --
======== ======== ========
Animal Health/Agriculture:
Vitamin B(3)............................................. $ 12,814 $ 12,163 $ 11,740
Animal Health............................................ 17,614 17,471 18,149
Agricultural Intermediates............................... 25,857 30,170 31,671
-------- -------- --------
Total Animal Health/Agriculture.................. $ 56,285 $ 59,804 $ 61,560
======== ======== ========
Specialty Business:
Performance Enhancing Chemicals.......................... $ 81,853 $ 81,640 $ 87,395
Polymer Systems.......................................... 42,811 42,244 46,126
-------- -------- --------
Total Specialty Business......................... $124,664 $123,884 $133,521
======== ======== ========
51
53
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(19) SEGMENT INFORMATION -- (CONTINUED)
GROSS PROFIT: 1998 1997 1996
------------- -------- -------- --------
Human Health............................................... $ 92,441* $ 67,779 $ 54,633
Biotechnology.............................................. 32,321 6,696 --
Animal Health/Agriculture.................................. 11,557 10,621 12,784
Specialty Business......................................... 27,098 28,866 33,919
-------- -------- --------
$163,417 $113,962 $101,336
======== ======== ========
NET INCOME: 1998 1997 1996
----------- -------- -------- --------
Biotechnology.............................................. $ 1,953 $(13,921)** $ --
Human Health, Animal Health/Agriculture & Specialty
Business................................................. 37,149 31,697 28,225
-------- -------- --------
$ 39,102 $ 17,776 $ 28,225
======== ======== ========
IDENTIFIABLE ASSETS 1998 1997 1996
- ------------------- -------- -------- --------
Biotechnology.............................................. $ 27,799 $ 24,647 $ --
Human Health, Animal Health/Agriculture & Specialty
Business................................................. 227,217 212,695 216,481
-------- -------- --------
$255,016 $237,342 $216,481
======== ======== ========
CAPITAL SPENDING 1998 1997 1996
- ---------------- -------- -------- --------
Biotechnology.............................................. $ 4,215 $ 886 $ --
Human Health, Animal Health/Agriculture & Specialty
Business................................................. 38,792 35,049 32,396
-------- -------- --------
$ 43,007 $ 35,935 $ 32,396
======== ======== ========
DEPRECIATION 1998 1997 1996
- ------------ -------- -------- --------
Biotechnology.............................................. $ 1,997 $ 428 $ --
Human Health, Animal Health/Agriculture & Specialty
Business................................................. 28,550 24,238 22,788
-------- -------- --------
$ 30,547 $ 24,666 $ 22,788
======== ======== ========
AMORTIZATION 1998 1997 1996
- ------------ -------- -------- --------
Biotechnology.............................................. $ 4,358 $ 1,122 $ --
Human Health, Animal Health/Agriculture & Specialty
Business................................................. 5,227 5,334 5,705
-------- -------- --------
$ 9,585 $ 6,456 $ 5,705
======== ======== ========
- ---------------
* Includes royalty income of $19,298.
** Includes effect of non-recurring charge for $14,000 related to the value of
in-process research and development efforts underway at the time of the
acquisition of BioWhittaker, Inc., which was completed on October 3, 1997.
52
54
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(20) FOREIGN OPERATIONS AND EXPORT SALES
Summarized data for the Company's operations for 1998, 1997 and 1996 are as
follows:
DOMESTIC EUROPEAN TOTAL
-------- -------- --------
1998
Gross sales........................................ $284,839 $156,844 $441,683
Operating profit................................... 38,414 34,453 72,867
Net income......................................... 26,392 12,710 39,102
Identifiable assets................................ 414,742 202,312 617,054
1997
Gross sales........................................ $228,004 $152,079 $380,083
Operating profit................................... 4,656 32,018 36,674
Net income......................................... 4,787 12,989 17,776
Identifiable assets................................ 335,637 216,789 552,426
1996
Gross sales........................................ $218,013 $151,466 $369,479
Operating profit................................... 22,296 23,978 46,274
Net income......................................... 22,094 6,131 28,225
Identifiable assets................................ 179,164 225,280 404,444
Export sales, included in domestic gross sales, in 1998, 1997 and 1996
amounted to $64,174, $48,852, and $50,243 respectively. No country, in any of
the given years, represents more than 10% of these export sales.
(21) COMMITMENTS
The Company has operating leases expiring on various dates through the year
2012. The leases are primarily for office and laboratory equipment and vehicles.
At December 31, 1998, future minimum commitments under non-cancelable operating
lease arrangements were as follows:
Year ended December 31:
1999............................................. $ 1,367
2000............................................. 903
2001............................................. 507
2002............................................. 417
2003 and thereafter.............................. 11,047
-------
Net commitments.................................. $14,241
=======
Total operating lease expense was $2,412, $1,939, and $2,175 for the years
ended December 31, 1998, 1997 and 1996, respectively.
In February, 1997, the Company signed a cooperative agreement with Albany
Molecular Research, Inc. of Albany, New York. The Company will provide Albany
Molecular Research financial support to develop processes specifically designed
to fit into the Company's cGMP manufacturing facilities. In May, 1997, the
Company formed an alliance with Fine Tech Ltd., of Technicon City, Israel, in
which the Company will provide Fine Tech funding over the next three years for
process improvement on existing and newly-developed generic drugs to be
manufactured in the Company's cGMP facilities. The estimated commitments for the
Research & Development agreements over the next three years is approximately
$1,300.
53
55
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(22) CONTINGENCIES
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary course
of its business activities.
Environmental
In connection with laws and regulations pertaining to the protection of the
environment, the Company is a party to several environmental remediation
investigations and cleanups and, along with other companies, has been named a
"potentially responsible party" for certain waste disposal sites (Superfund
sites). Each of these matters is subject to various uncertainties, and it is
possible that some of these matters will be decided unfavorably against the
Company. The Company had accruals, included in current accrued liabilities and
other noncurrent liabilities, of $4,800 and $7,400 at December 31, 1998 and
1997, respectively, for costs associated with the study and remediation of
Superfund sites and the Company's current and former operating sites for matters
that are probable and reasonably estimable. Based on currently available
information and analysis, the company's accrual represents 73% of what it
believes are the reasonably possible environmental cleanup related costs of a
non-capital nature. The estimate of reasonably possible costs is less certain
than the probable estimate on which the accrual is based. During the past
three-year period, cash payments for environmental cleanup related matters were
$1,800, $400 and $600 for 1998, 1997 and 1996, respectively. There were no
provisions for environmental contingencies during the past three-year period.
The Company reversed reserves of approximately $800 and $1,000 in 1998 and 1996,
respectively, as a result of revised estimates. After reviewing information
currently available, management believes any amounts paid in excess of the
accrued liabilities will not have a material effect on its financial position or
results of operations. However, these matters, if resolved in a manner different
from the estimates could have a material adverse effect on financial condition,
operating results and cash flows when resolved in a future reporting period.
Litigation
The Company and its subsidiary Profarmaco S.r.l. ("Profarmaco") were named
as defendants in a proceeding instituted by the Federal Trade Commission ("FTC")
on December 21, 1998, in the United States District Court for the District of
Columbia. The complaint alleges that exclusive license agreements which
Profarmaco entered into with Mylan Laboratories, Inc. ("Mylan") covering the
drug master files for (and therefore the right to buy and use) two active
pharmaceutical ingredients ("APIs"), lorazepam and clorazepate, were part of an
effort on Mylan's part to restrict competition in the supply of lorazepam and
clorazepate and to increase the price charged for these products when Mylan sold
them as generic pharmaceuticals. The complaint further alleges that these
agreements violate the Federal Trade Commission Act, and that Mylan, Cambrex,
Profarmaco, and Gyma Laboratories of America, Inc., Profarmaco's distributor in
the United States, engaged in an unlawful restraint of trade and conspired to
monopolize and attempted to monopolize the markets for the generic
pharmaceuticals incorporating the APIs. 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 31 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
54
56
CAMBREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(22) CONTINGENCIES -- (CONTINUED)
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.
The Company 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. The
future royalty arrangements under the agreements have concluded 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 forms by Mylan.
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 antitrust investigation into
various business practices in the vitamin industry generally. The Company and
Nepera have been cooperating fully with the government's investigation.
While it is not possible to predict with certainty the outcome of the FTC
action and various other lawsuits and class actions, it is the opinion of
management that the ultimate resolution of these proceedings should not have a
material adverse affect on the Company's results of operations, cash flows and
financial position. These matters if resolved in an unfavorable manner could
have a material adverse affect on the operating results or cash flows when
resolved in a future reporting period.
(23) SUBSEQUENT EVENT
On March 12, 1999, the Company announced the purchase of Irotec
Laboratories, Ltd., a manufacturer of active pharmaceutical ingredients located
in Cork, Ireland. Cambrex paid approximately $40,000 for the business, which
includes a new $15,000 cGMP pharmaceutical manufacturing plant which is expected
to be on line in the second quarter of 1999. In connection with the purchase,
the Company signed a long-term agreement with Hexal AG, Germany's second largest
generic pharmaceutical producer. The agreement covers the supply of an expected
$50,000 to $75,000 of Active Pharmaceutical Ingredients (API) over the next five
years.
55
57
CAMBREX CORPORATION
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER(2) YEAR(3)
-------- -------- -------- ---------- --------
1998
Gross sales......................... $113,770 $116,173 $104,423 $107,317 $441,683
Net revenues........................ 113,602 123,504 107,950 112,185 457,241
Gross profit........................ 38,950 47,821 38,839 37,807 163,417
Net income.......................... 9,143 10,886 8,851 10,222 39,102
Earnings per share*:(1)
Basic............................. $ 0.38 $ 0.45 $ 0.36 $ 0.42 $ 1.62
Diluted........................... $ 0.36 $ 0.43 $ 0.35 $ 0.40 $ 1.54
Average shares*:
Basic............................. 23,910 24,154 24,288 24,417 24,194
Diluted........................... 25,052 25,548 25,483 25,534 25,412
1997
Gross sales......................... $ 93,141 $100,773 $ 82,638 $103,531 $380,083
Net revenues........................ 91,894 98,719 81,365 102,237 374,215
Gross profit........................ 27,739 30,070 24,558 31,595 113,962
Net income.......................... 7,448 8,852 7,531 (6,055) 17,776
Earnings per share*:(1)
Basic............................. $ 0.32 $ 0.38 $ 0.32 $ (0.26) $ 0.75
Diluted........................... $ 0.31 $ 0.38 $ 0.30 $ (0.26) $ 0.73
Average shares*:
Basic............................. 23,476 23,504 23,658 23,830 23,627
Diluted........................... 23,988 24,034 24,810 25,004 24,419
- ---------------
(1) Earnings per share calculations for each of the quarters are based on the
weighted average number of shares outstanding for each period, as such, the
sum of the quarters may not necessarily equal the earnings per share amount
for the year.
(2) Includes non-recurring charge for in-process research and development
related to the acquisition of BioWhittaker in the fourth quarter of 1997.
Additionally, the Company recognized $2,400 as a reduction of legal expenses
in the fourth quarter of 1997 related to the recovery of past environmental
costs associated with the settlement with a prior owner of one of the
Company's operating facilities.
(3) Includes royalty income of $19,298 in net revenues related to a technology
license agreement with Mylan Laboratories for use of intellectual property
in 1998.
* Share and per share data reflect adjustments for a two-for-one stock split
in the form of a dividend of one new share for each share held, paid on June
25, 1998.
56
58
PART III
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11 EXECUTIVE COMPENSATION.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Part III is hereby incorporated by reference
to the information set forth under the captions "Principal Stockholders," "Board
of Directors," "Election of Directors," and "Executive Compensation" in the
registrant's definitive proxy statement for the Annual Meeting of Stockholders,
to be held April 22, 1999, which meeting involves the election of directors,
which definitive proxy statement is being filed with the Securities and Exchange
Commission pursuant to Regulation 14A.
In addition, information concerning the registrant's executive officers has
been included in Part I above under the caption "Executive Officers of the
Registrant."
57
59
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. The following consolidated financial statements of the Company are
filed as part of this report:
PAGE NUMBER
(IN THIS REPORT)
----------------
Report of Independent Accounts.............................. 26
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 27
Consolidated Income Statements for the Years Ended December
31, 1998, 1997 and 1996................................... 28
Consolidated Statement of Stockholder's Equity for the Years
Ended December 31, 1998, 1997 and 1996.................... 29
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... 30
Notes to Consolidated Financial Statements.................. 31
Consolidated Quarterly Financial Data (unaudited) for the
Years Ended December 31, 1998 and 1997.................... 56
(a) 2. (i) The following schedule to the consolidated financial statements
of the Company as filed herein and the Report of Independent Certified Public
Accountants on Schedule are filed as part of this report.
PAGE NUMBER
(IN THIS REPORT)
----------------
Independent Accountants' Report............................. 59
Schedule II -- Valuation and Qualifying Accounts............ 60
All other schedules are omitted because they are not applicable or not
required or because the required information is included in the consolidated
financial statements of the Company or the notes thereto.
(a) 3. The exhibits filed in this report are listed in 63
the Exhibit Index on page.............................
The registrant agrees, upon request of the Securities and Exchange
Commission, to file as an exhibit each instrument defining the rights of holders
of long-term debt of the registrant and its consolidated subsidiaries which has
not been filed for the reason that the total amount of securities authorized
thereunder does not exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis.
(b) Reports on Form 8-K
The registrant filed no reports on Form 8-K during the last quarter of the
year ended December 31, 1998.
58
60
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Boards of Directors
of Cambrex Corporation:
Our audits of the consolidated financial statements referred to in our report
dated January 22, 1999 (except for Note 23, as to which the date is March 12,
1999) of the 1998 Annual Report on Form 10-K of Cambrex Corporation and its
subsidiaries also included an audit of the financial statement schedule listed
in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
January 22, 1999
59
61
SCHEDULE II
CAMBREX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------- ---------- ---------- ---------- --------
ADDITIONS
-----------------------
BALANCE CHARGED TO CHARGED TO
BEGINNING COST AND OTHER END OF
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
-------------- --------- ---------- ---------- ---------- --------
YEAR ENDED DECEMBER 31, 1998:
Doubtful trade receivables and returns
and allowances...................... 1,705 257 -- 412 1,550
Inventory and obsolescence
provisions.......................... 15,943 6,046 -- (4,833) 17,156
YEAR ENDED DECEMBER 31, 1997:
Doubtful trade receivables and returns
and allowances...................... $ 1,453 $ 818 $ 57(1) $ 623 $ 1,705
Inventory and obsolescence
provisions.......................... 6,467 2,489 8,225(1) 1,238 15,943
YEAR ENDED DECEMBER 31, 1996:
Doubtful trade receivables and returns
and allowances...................... 1,261 609 -- 417 1,453
Inventory and obsolescence
provisions.......................... 8,364 1,099 -- 2,996 6,467
- ---------------
(1) Reserve of BioWhittaker acquired during 1997.
60
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAMBREX CORPORATION
By /s/ CYRIL C. BALDWIN, JR.
------------------------------------
Cyril C. Baldwin, Jr.
Chairman of the Board of Directors
Date: March 22, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ CYRIL C. BALDWIN, JR. Chairman of the Board of Directors
- ------------------------------------------------
Cyril C. Baldwin, Jr.
/s/ DOUGLAS MACMILLAN Vice President
- ------------------------------------------------ Chief Financial Officer
Douglas MacMillan
/s/ ROSINA B. DIXON, M.D.* Director
- ------------------------------------------------
Rosina B. Dixon, M.D.
/s/ GEORGE J. W. GOODMAN* Director
- ------------------------------------------------
George J. W. Goodman
/s/ ROY W. HALEY* Director
- ------------------------------------------------ March 22, 1999
Roy W. Haley
/s/ KATHRYN RUDIE HARRIGAN, PHD* Director
- ------------------------------------------------
Kathryn Rudie Harrigan, PhD
/s/ LEON J. HENDRIX, JR.* Director
- ------------------------------------------------
Leon J. Hendrix, Jr.
/s/ ILAN KAUFTHAL* Director
- ------------------------------------------------
Ilan Kaufthal
/s/ WILLIAM B. KORB* Director
- ------------------------------------------------
William B. Korb
/s/ ROBERT LEBUHN* Director
- ------------------------------------------------
Robert LeBuhn
/s/ JAMES A. MACK* Director
- ------------------------------------------------
James A. Mack
61
63
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JOHN R. MILLER Director
- ------------------------------------------------
John R. Miller March 22, 1999
/s/ DEAN P. PHYPERS* Director
- ------------------------------------------------
Dean P. Phypers
*By /s/ CYRIL C. BALDWIN, JR.
-------------------------------------------
Cyril C. Baldwin, Jr.
Attorney-in-Fact
62
64
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 -- Restated Certificate of Incorporation of registrant
(A) -- Exhibit 3(a).
3.2 -- By Laws of registrant. (E) -- Exhibit 4.2.
4.1 -- Form of Certificate for shares of Common Stock of
registrant. (A) -- Exhibit 4(a).
4.2 -- Article Fourth of the Restated Certificate of Incorporation.
(A) -- Exhibit 4(b).
4.3 -- Loan Agreement dated September 21, 1994 by and among the
registrant, NBD Bank, N.A., United Jersey Bank, National
Westminster Bank NJ, Wachovia Bank of Georgia, N.A., BHF-
Bank, The First National Bank of Boston, Chemical Bank New
Jersey, N.A., and National City Bank. (K).
4.4 -- Loan Agreement dated September 16, 1997 by and among the
registrant, Chase Manhattan Bank as Administrative Agent and
The First National Bank of Chicago as Documentation Agent.
The bank group includes 13 domestic banks and 7
international banks. (Q)
10.1 -- Purchase Agreement dated July 11, 1986, as amended, between
the registrant and ASAG, Inc. (A) -- Exhibit 10(r).
10.2 -- Asset Purchase Agreement dated as of June 5, 1989 between
Whittaker Corporation and the registrant. (C) -- Exhibit
10(a).
10.3 -- Asset Purchase Agreement dated as of July 1, 1991 between
Solvay Animal Health, Inc. and the registrant. (F).
10.4 -- Asset Purchase Agreement dated as of March 31, 1992 between
Hexcel Corporation and the registrant. (H).
10.5 -- Stock Purchase Agreement dated as of September 15, 1994
between Akzo Nobel AB, Akzo Nobel NV and the registrant, for
the purchase of Nobel Chemicals AB. (K).
10.6 -- Stock Purchase Agreement dated as of September 15, 1994
between Akzo Nobel AB, Akzo Nobel and the registrant, for
the purchase of Profarmaco Nobel, S.r.l. (K).
10.7 -- Stock purchase agreement dated as of October 3, 1997 between
BioWhittaker and the registrant. (Q)
10.10 -- 1983 Incentive Stock Option Plan, as amended. (B).
10.11 -- 1987 Long-term Incentive Plan. (A) -- Exhibit (g).
10.12 -- 1987 Stock Option Plan. (B).
10.13 -- 1989 Senior Executive Stock Option Plan. (J).
10.14 -- 1992 Stock Option Plan. (J).
10.15 -- 1993 Senior Executive Stock Option Plan. (J).
10.16 -- 1994 Stock Option Plan. (J).
10.17 -- 1996 Performance Stock Option Plan. (N).
10.20 -- Form of Employment Agreement between the registrant and its
executive officers named in the Revised Schedule of Parties
thereto. (D) -- Exhibit 10.A.
10.21 -- Revised Schedule of Parties to Employment Agreement (exhibit
10.20 hereto) (M).
10.22 -- Cambrex Corporation Savings Plan. (I).
10.23 -- Cambrex Corporation Supplemental Retirement Plan. (L).
10.24 -- Deferred Compensation Plan of Cambrex Corporation. (L).
10.25 -- Amendment to Deferred Compensation Plan of Cambrex
Corporation (Exhibit 10.24 hereto). (P).
10.26 -- Cambrex Earnings Improvement Plan. (L).
10.27 -- Consulting Agreement dated December 15, 1994 between the
registrant and Arthur I. Mendolia. (L).
10.28 -- Consulting Agreement dated December 15, 1995 between the
registrant and Cyril C. Baldwin, Jr. (L).
10.29 -- Consulting Agreement between the registrant and James A.
Mack. (L).
10.30 -- Additional Retirement Payment Agreement dated December 15,
1994 between the registrant and Arthur I. Mendolia. (L).
63
65
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.31 -- Additional Retirement Payment Agreement dated December 15,
1994 between the registrant and Cyril C. Baldwin, Jr. (L).
10.32 -- Additional Retirement Payment Agreement between the
registrant and James A. Mack. (L).
10.40 -- Registration Rights Agreement dated as of June 6, 1985
between the registrant and the purchasers of its Class D
Convertible Preferred stock and 9% Convertible Subordinated
Notes due 1997. (A) -- Exhibit 10(m).
10.41 -- Administrative Consent Order dated September 16, 1985 of the
New Jersey Department of Environmental Protection to Cosan
Chemical Corporation. (A) -- Exhibit 10(q).
10.42 -- Registration Rights Agreement dated as of June 5, 1996
between the registrant and American Stock Transfer and Trust
Company. (O) -- Exhibit 1.
10.50 -- Manufacturing Agreement dated as of July 1, 1991 between the
registrant and A.L. Laboratories, Inc. (G).
21 -- Subsidiaries of registrant. (M).
23 -- Consent of Coopers & Lybrand L.L.P. to the incorporation by
reference of its report herein in Registration Statement
Nos. 33-22017, 33-21374, 33-37791, 33-81780 and 33-81782 on
Form S-8 of the registrant. (M).
24 -- Powers of Attorney to sign this report. (M).
27 -- Financial Data Schedule. (M).
- ---------------
See legend on following page
64
66
EXHIBIT INDEX
(A) Incorporated by reference to the indicated Exhibit to
registrant's Registration Statement on Form S-1
(Registration No. 33-16419).
(B) Incorporated by reference to registrant's Registration
Statement on Form S-8 (Registration No. 33-21374) and
Amendment No. 1.
(C) Incorporated by reference to registrant's Annual Report on
Form 10-K dated June 5, 1989.
(D) Incorporated by reference to the indicated Exhibit to
registrant's Annual Report on Form 10-K for 1989.
(E) Incorporated by reference to the indicated Exhibit to
registrant's Registration Statement on Form S-8
(Registration No. 33-37791).
(F) Incorporated by reference to registrant's Current Report on
Form 8-K dated July 1, 1991.
(G) Incorporated by reference to the registrant's Annual Report
on Form 10-K for 1991.
(H) Incorporated by reference to the registrant's Current Report
on Form 8-K dated April 10, 1992 and Amendment No. 1 to its
Current Report.
(I) Incorporated by reference to registrant's Registration
Statement on Form S-8 (Registration No. 33-81780) dated July
20, 1994.
(J) Incorporated by reference to registrant's Registration
Statement on Form S-8 (Registration No. 33-81782) dated July
20, 1994.
(K) Incorporated by reference to registrant's Current Report on
Form 8-K dated October 26, 1994.
(L) Incorporated by reference to the registrant's Annual Report
on Form 10-K for 1994.
(M) Filed herewith.
(N) Incorporated by reference to registrant's Registration
Statement on Form S-8 (Registration No. 33-22017) dated
February 19, 1997.
(O) Incorporated by reference to the registrant's Current Report
on Form 8-A dated June 12, 1996.
(P) Incorporated by reference to the registrant's Annual Report
on Form 10-K for 1995.
(Q) Incorporated by reference to the registrant's Current Report
on Form 8-K dated October 8, 1997.
65