Cambrex Corporation
Annual Report 1993

Plain-text annual report

1 - --------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- 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, 1993 OR/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-10638 CAMBREX CORPORATION (Exact name of registrant as specified in its Charter) DELAWARE 22-2476135 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE MEADOWLANDS PLAZA, 07073 EAST RUTHERFORD, NEW JERSEY (Zip Code) (Address of principal executive offices) 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- --------------------------------------------- --------------------------------------------- Common Stock, $.10 par value American Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item405 of Regulation S-K is not contained herein, and will not be contained, to thebest of the registrant's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates ofthe registrant was approximately $115,300,000 as of February 28, 1994.  APPLICABLE ONLY TO CORPORATE REGISTRANTS As of February 28, 1994, there were 5,214,089 shares outstanding of theregistrant's Common Stock, $.10 par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement for the 1994 AnnualMeeting are incorporated by reference into Part III of this report.- --------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 CAMBREX CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993 PART I ITEM 1 BUSINESS. GENERAL Cambrex Corporation (the Company or Cambrex), a Delaware corporation, beganbusiness in December 1981 through its predecessor, and now wholly-ownedsubsidiary, CasChem, Inc. (CasChem). The Company manufactures and markets a broad line of specialty chemicalsand commodity chemical intermediates and also manufactures chemicals to customerspecifications. There are five product categories: health and pharmaceuticals;agricultural intermediates and additives; specialty and fine chemicals;performance chemicals; and coatings. Important objectives of the Company are to expand its operations throughinternal growth and to make strategic acquisitions of product lines, technologyand companies that have substantial positions in niche markets, wherecustomizing a Cambrex core technology to meet specific customer needs is a primeingredient for success. The Company's plans for internal growth include: - developing new applications for technologies in which the Company has expertise; - expanding product offerings to increase use of existing equipment and resources; and - expanding domestic and international markets for existing products. On January 31, 1994, Cambrex purchased substantially all of the assets ofHexcel Corporation's fine chemicals business located in Middlesbrough, England,for approximately $9,500,000. This business, now known as Seal Sands Chemicals,Ltd., manufactures chemical intermediates used in the pharmaceutical,photographic, water treatment, health care, and plastics industries. On March 12, 1993, the Company purchased substantially all of the assets ofViscosity Oil's fiber optic gel business for $5,886,000. On March 31, 1992, the Company acquired substantially all of the assets ofthe fine chemicals business of Hexcel Fine Chemicals, located in Zeeland,Michigan, for $20,251,000 and the assumption of certain liabilities consistingprimarily of a variable rate Industrial Development Revenue Bond in theprincipal amount of $4,150,000, and a capital lease maturing in 1997 with a netpresent value of $8,214,000. The business, now known as Zeeland Chemicals, Inc.(Zeeland), manufactures synthetic organic chemicals for the pharmaceutical, foodadditive, photographic, agricultural, personal care, and plastics industries. On July 1, 1991, the Company purchased substantially all of the assets ofthe chemicals business of Solvay Animal Health, Inc., located in Charles City,Iowa, for $12,299,000. The business, now known as Salsbury Chemicals, Inc.(Salsbury), manufactures custom and fine chemicals, as well as pharmaceuticalintermediates, generic pharmaceuticals, animal feed additives, and photographicand polymer chemicals. 2 3 PRODUCTS The following table sets forth for the periods indicated informationconcerning gross revenues from the Company's five product categories: YEARS ENDED DECEMBER 31, ------------------------------------- 1993 1992(1)(2) 1991(1)(3) ------- ---------- ---------- (IN THOUSANDS) Health and pharmaceuticals......................... $55,550 $ 59,167 $ 38,384 Agricultural intermediates and additives........... 51,153 49,120 35,898 Specialty and fine chemicals....................... 48,841 37,623 27,885 Performance chemicals.............................. 30,880 20,441 21,024 Coatings........................................... 16,884 18,527 27,104 - --------------- (1) In 1992, certain customers within specific product categories were changed to conform to classifications which the Company feels will better reflect the end use of its products. The 1991 revenues have been reclassified to conform to the 1992 presentation. (2) Revenues from Zeeland, acquired in March of 1992, are included from the date of acquisition. The Company expanded its health and pharmaceuticals, and specialty and fine chemicals product lines through this acquisition. (3) Revenues from Salsbury, acquired in July of 1991, are included from the date of acquisition. The Company expanded its health and pharmaceuticals, agricultural, and specialty and fine chemicals product lines through this acquisition. Health and Pharmaceuticals. This category consists of four principalproduct groups: (1) specialty compounds utilized in the formulation of cosmeticsand toiletries, (2) intermediates converted into the active ingredients in avariety of food additives and over-the-counter medications, (3) bulkpharmaceuticals utilized as the active ingredients in over-the-counter andprescribed medications, and (4) Vitamin B3 and its chemical precursors. Suchhealth and pharmaceutical products are sold to a diverse group of more than 500customers. During 1993, sales of health and pharmaceuticals decreased $3,617,000 (6%)from 1992. The full year effect of the acquisition of Zeeland Chemicals in March1992 added $3,200,000 to this sales category. The decrease in this category'sperformance was due to lower shipments of a bulk pharmaceutical, and to reducedshipments of niacinamide (Vitamin B3) intermediates. Sales in the health andpharmaceuticals category are expected to recover in 1994. Sales of cosmetic and toiletry related compounds represented $22,700,000,or 41%, of this category's 1993 revenues and were $200,000 higher than 1992. Anincrease of $1,200,000 in sales is due to products associated with the Zeelandacquisition. Sales of castor oil based personal care products totaled $8,900,000in 1993 and were $700,000 lower than the prior year. Sales of pyridine basedproducts totaled $6,200,000 in 1993 and were $300,000 lower than the prior yeardue to reduced demand in the Asia-Pacific region and competitive pressure inChina. Sales are expected to remain at present levels in 1994. Sales of pharmaceutical intermediates represented $14,600,000, or 26%, ofthis category's 1993 revenues and were $300,000 higher than 1992. The increaseis due to a variety of products associated with the Zeeland acquisition and anincrease in x-ray contrast preparations. This increase was partially offset bydecreases in pyridine based intermediates used in the pharmaceutical industry inEurope that were due to depressed economic conditions. The overall market forx-ray contrast drugs continues to grow as less toxic compounds are developed. Sales of bulk pharmaceuticals represented $9,700,000, or 18%, of thiscategory's 1993 revenues and were $2,700,000 lower than 1992. The decrease wasdue to the unusually high 1992 sales caused by a disruption in the supply chainthat resulted in distributors building excessive inventories. Sales were belownormal levels in 1993 due to this inventory correction. Sales are expected toreturn to normal levels in 1994. 3 4 Sales of Vitamin B3 and its chemical precursors represented $8,500,000, or15%, of this category's 1993 revenues and were $1,400,000 lower than 1992. TheCompany's strategy to convert more of the intermediate into niacinamide (VitaminB3) produced increased sales of USP grade B3 offset by reduced sales of theintermediate. Overall sales were lower because of currency restrictions in Chinaand depressed economic conditions in Europe. Agricultural Intermediates. This category includes two principal productgroups: (1) intermediates for use in the manufacture of herbicides andinsecticides, and (2) animal feed additives. The Company's agriculturalintermediates and additives are sold to approximately 15 customers. Twocustomers accounted for 24% and 15% of 1993 revenues in this category. Total sales in this category increased $2,033,000, or 4%, in 1993. Theimprovement was due to increased sales of feed additives to the poultry industryand to higher shipments of a pyridine compound to a major herbicide producer.This category was decreased by lost sales from a contract for a herbicideintermediate that ended in the fourth quarter 1992, and a decrease in pyridinederivative export sales. In 1994, the feed additive markets are expected toincrease and the herbicide markets will remain at 1993 levels. The sales of products used in the manufacture of herbicides andinsecticides amounted to $22,800,000, or 45%, of this category's 1993 revenuesand were down 12% from 1992. Sales of pyridine, the largest item in this group,were at the same level as 1992. The largest pyridine customer is Zeneca, Inc.who uses it in the manufacture of herbicides. The Company produces another majorpyridine compound and is the exclusive supplier of this product to Dow Elancowho uses it in production of a herbicide. Sales of this compound increased 88%in 1993 due to Dow resuming normal ordering patterns after reducing theirinventories in 1992. Sales of other pyridine derivatives in this categorydecreased 80% from 1992 due to high inventory positions in the Asia-Pacificregion and reduced use of a wheat fungicide in Europe. This level of salesactivity will continue in 1994. The sales of animal feed additive products was $28,400,000, or 55%, of thiscategory's 1993 revenues, up 23% from 1992. Sales of organo-arsenical feedadditives increased 33% over the prior year due to a competitor stoppingproduction, increased dosages by poultry producers, and increased poultryproduction in the U.S. These products improve weight gain, feed efficiency andantibiotic performance in poultry feed. Specialty and Fine Chemicals. This category principally consists of fourproduct groups: (1) photographic chemicals, (2) specialty additives used forlubricants and surfactant intermediates, (3) organic intermediates, and (4)catalysts. The Company's manufacturing plants have available reactor capacitywhich enables Cambrex to seek additional opportunities to manufacture internallydeveloped and customer-specific compounds. Such specialty and fine chemicalproducts are sold to a diverse group of more than 1,000 customers. During 1993, sales of specialty and fine chemical products increased$11,218,000, a 30% rise from 1992. That increase included $6,000,000 related tothe Zeeland Chemicals acquisition of March 1992. Increases in this category werein specialty additives, organic intermediates, specialty catalysts and custommanufactured products. The most significant improvement in sales was due to theexpansion in the production facilities of a polymer used in instamatic film. Sales of photographic chemical products represented $13,700,000, or 28%, ofthis category's 1993 revenues and were $5,500,000 higher than 1992. The increaseis due to a substantial increase in production capacity of a photochemical usedas a polymer in instamatic film. Sales of specialty additive products represented $13,300,000, or 28%, ofthis category's 1993 revenues and were $3,500,000 higher than 1992. Thisincrease is primarily attributable to sales of a chemical used in a fireretardant fiber and for cooling tower water treatments, and to sales of aproduct used as a cross linker for strengthening plastic. Sales of both theseproducts are expected to continue to increase in 1994. Sales of organic intermediate products represented $10,800,000, or 22%, ofthis category's 1993 revenues and were $1,800,000 higher than 1992. Thisincrease is attributable to a wide variety of products used as chemicalintermediates. 4 5 Sales of catalyst chemical products represented $9,800,000, or 20%, of thiscategory's 1993 revenues and were $1,400,000 higher than 1992. The increase isprimarily attributable to a variety of products associated with the Zeelandacquisition. Performance Chemicals. The Company's urethane elastomers are used in thetelecommunications and electronics industries as encapsulants for wiringconnections, biomedical devices to seal filter elements, and adhesives forartificial turf and industrial uses. This category also includes fiber opticcable gels. The key increase in this business was due to the acquisition of acomplimentary fiber optic gel business in March 1993. The principal competitorsin the telecommunications and electronics markets include two companies thathave substantially greater resources than the Company. Competitors in the otherend-use markets for performance products are numerous and varied. The Companycompetes in these markets on the basis of its patent and proprietary positions,technical expertise, and customer service. Performance chemicals are sold toapproximately 550 customers with one customer accounting for 12% of thiscategory's 1993 revenues. Total sales of performance products increased $10,439,000, or 51%, from1992 levels. This increase was due to increases in sales of fiber optic cablegels and encapsulants to the telecommunications industry. The acquisition of acomplimentary fiber optic gel business in March 1993 contributed $8,900,000 inincreased revenues. The encapsulant sales were up 8% over 1992 due topenetration into international markets. Performance chemical sales will continue to increase in 1994 as fiber opticgel products grow with increased use of fiber optic cables. Coatings. The Company manufactures and sells products that are used asintermediates or performance-enhancing additives in the manufacture of paintsand other coatings. The Company's coatings products compete based on a varietyof factors including price, performance and technical support, depending on theparticular market involved. These products are sold to approximately 300customers. One customer accounted for 7% of 1993 revenues in this category.  Sales of coatings products declined $1,643,000, or 9%, from 1992. The majorpart of the decline, $1,600,000, was attributable to a tolling agreement forbiocides products that ended in May 1993. Although overall revenues in thecoatings category are not expected to increase, 1994 results will depend on theeconomic trends in both the housing and automotive markets. RAW MATERIALS The Company uses significant amounts of castor oil in the manufacture of anumber of its products and, under advantageous market conditions, sells it inbulk quantities as simple castor oil derivatives. The Company believes it is one of the largest purchasers of castor oil inthe United States and, currently, the only buyer which has the ability to takedelivery and store a large quantity of castor oil (up to 23 million pounds) onsite. Castor oil, which is not produced in the United States, is an agriculturalproduct whose market price is affected by natural factors relating to the castorbean crop from which the oil is produced. Castor oil is produced commercially ina few foreign countries with Brazil, India and China being the largestproducers. The Company obtains its castor oil from several suppliers andnegotiates castor oil purchases directly with principals of those organizationsor their selling agents. The Company has been able to obtain adequate suppliesof castor oil at acceptable prices in the past and expects to be able to do soin the future. Pyridine is produced by the Company using an efficient, cost-competitiveprocess through the high temperature reaction of acetaldehyde, formalin andammonia. Acetaldehyde's feedstock is ethylene, which is produced from naturalgas liquids or crude oil. Ethylene is readily available although its price isoften affected by the price of crude oil. Acetaldehyde is readily available fromtwo suppliers in the United States and several international sources atcompetitive prices. Formalin's feedstock is methanol, which is also used by thepetro-chemical industry in the manufacture of methyl-tert-butyl-ether (MTBE).The production of and demand for MTBE is expected to increase rapidly over thenext few years in connection with its use as a gasoline additive. Although thatis not expected to have an effect upon the availability of formalin, it may havean unfavorable 5 6 effect upon its pricing. Ammonia has been widely available in the past and theCompany believes that it will continue to be so in the future. The Company uses a wide array of other raw materials, in addition to thosepreviously described, in the conduct of its business, all of which are inadequate supply and most of which are available from multiple suppliers. RESEARCH AND DEVELOPMENT The Company's research and development program is designed to increase theCompany's competitiveness through improving its manufacturing technology anddeveloping new product applications for that technology. The goal is to improvethe Company's manufacturing processes to reduce costs, improve quality andincrease capacity and to identify market opportunities which are large enough towarrant a significant and sustained technical effort, but not so large thatsuccess would result in direct competition from organizations with far greaterresources than those possessed by the Company. Research and developmentactivities are carried on at most of the Company's manufacturing facilities.Fifty employees are involved directly in research and development activities. The Company spent approximately $5,800,000, $4,000,000 and $3,300,000 in1993, 1992 and 1991, respectively, on research and development. PATENTS AND TRADEMARKS The Company has patent protection in many of its product areas, especiallyin telecommunications encapsulants, biomedical sealants, coatings additives,pyridine process technology and its emerging hydrogel business. The Company alsohas know-how in many of its manufacturing processes and techniques not generallyknown to other chemical companies, particularly urethanes, castor oilderivatives, pyridine, alkenyl succinic anhydrides, organo-mercuric compounds,aromatic nitration, sulfonation, resolution of drugs in intermediates, and highpressure reactions. The Company currently owns approximately 45 United States patents whichhave varying durations and which cover selected items in each of the Company'smajor product areas. The Company also owns the foreign equivalent of many of itsUnited States patents. In addition, the Company has applied for patents forvarious concepts and is in the process of preparing patent applications forother concepts. Although some of the Company's patents will expire over the nextfive years, the expirations are not expected to have a materially adverse effecton the Company. The Company has trademarks registered in the United States and a number offoreign countries for use in connection with the Company's products andbusiness. The Company believes that many of its trademarks are generallyrecognized in its industry, particularly the cosmetic product relatedWickenol(R) and Waxenol(R) trademarks. ENVIRONMENTAL AND SAFETY REGULATIONS AND PROCEEDINGS General: Production of certain of the Company's chemicals involves the use,storage and transportation of toxic and hazardous materials. The Company'soperations are subject to extensive federal, state and local laws andregulations relating to the storage, handling, emission, transportation anddischarge of materials into the environment and the maintenance of safeconditions in the work place. The Company maintains environmental and industrialsafety and health compliance programs at its plants, and believes that itsmanufacturing operations are in general compliance with all applicable safety,health and environmental laws. The Company's acquisitions of Cosan Chemical Corporation (Cosan), Nepera,Inc. (Nepera), Heico Chemicals, Inc. (Heico), The Humphrey Chemical Company,Inc. (Humphrey), Salsbury Chemicals, Inc. (Salsbury), Zeeland Chemicals, Inc.(Zeeland) and Seal Sands Chemicals, Ltd. (Seal Sands) were made subject to knownenvironmental conditions. Also, risks of substantial costs and liabilities areinherent in certain plant operations and certain products produced at theCompany's plants, as they are with other companies engaged in the chemicalbusiness, and there can be no assurance that significant costs and 6 7 liabilities will not be incurred. Additionally, prevailing legislation tends tohold chemical companies primarily responsible for the proper disposal of theirchemical wastes even after transferral 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 couldsubject the Company's handling, manufacture, use, reuse, or disposal ofsubstances or pollutants at its plants to more rigorous scrutiny than atpresent. Although the Company has no direct operations and conducts its businessthrough subsidiaries, certain legal principles that provide the basis for theassertion against a parent company of liability for the actions of itssubsidiaries may support the direct assertion against the Company ofenvironmental liabilities of its subsidiaries. Known environmental matters which may result in liabilities to the Companyare summarized in Note #18 to the Cambrex Corporation and SubsidiariesConsolidated Financial Statements.  Present and Future Environmental Expenditures: The Company's policy is tocomply with all legal requirements of applicable environmental, health andsafety laws and regulations, and believes it is in general compliance with suchrequirements and has adequate professional staff and systems in place to remainin compliance. In some cases, compliance can only be achieved by capitalexpenditures, and the Company made capital expenditures of approximately$1,700,000 in 1993, $1,300,000 in 1992, and $3,300,000 in 1991 for environmentalprojects and has budgeted $5,100,000 in 1994 for such projects. The Companyanticipates that capital requirements will increase in subsequent years as aresult of the Clean Air Act Amendments and other pending environmental laws.Additionally, as the environmental proceedings in which the Company is involvedprogress from the remedial investigation and feasibility study stage toimplementation of remedial measures, related expenditures will probablyincrease. The Company considers costs for environmental compliance to be anormal cost of doing business, and includes such costs in pricing decisions. EMPLOYEES At December 31, 1993 the Company had 791 employees (414 of whom weresalaried and 377 of whom were hourly) employed as follows: Sales, marketing, finance & administration............................. 171 Research and development............................................... 50 Manufacturing.......................................................... 570 ---- Total........................................................ 791 All hourly plant employees at the Bayonne, New Jersey facility arerepresented by Local 8-406 of the Oil, Chemical and Atomic Workers InternationalUnion under a contract expiring September 17, 1994; the hourly plant employeesat the Carlstadt, New Jersey plant are represented by the Amalgamated IndustrialUnion of East Orange, New Jersey under a contract expiring November 30, 1994;and the hourly plant employees at the Harriman, New York facility arerepresented by Local 810 of the International Brotherhood of Teamsters under acontract expiring June 30, 1995. The Company believes its labor relations aresatisfactory. EXPORT SALES The Company exports numerous products to various areas, principally WesternEurope, Asia and Latin America. Export sales in 1993, 1992 and 1991 amounted to$37,300,000, $44,500,000 and $37,400,000, respectively. ITEM 2 PROPERTIES. The Company's manufacturing facilities are located on an eight acre tractin Bayonne, New Jersey, a three acre tract in Carlstadt, New Jersey, atwenty-nine acre tract in Harriman, New York, a twelve acre tract in DelawareWater Gap, Pennsylvania, a four acre tract in North Haven, Connecticut, afifty-seven acre tract in Charles City, Iowa, and a fourteen acre tract inZeeland, Michigan. In addition, the Company owns thirty-one acres of undevelopedland adjacent to the North Haven facility, 103 acres of undeveloped landadjacent to 7 8 the Harriman facility, and sixty-six acres of undeveloped land adjacent to theZeeland facility. The Company believes its facilities to be in good condition,well maintained and adequate for its current needs. Set forth below is information relating to the places of manufacture of theCompany's products:  MANUFACTURING PRODUCT AREA FACILITY ----------------------------------------------------- ------------------------------ Health and pharmaceuticals........................... Bayonne, NJ Charles City, IA Delaware Water Gap, PA Harriman, NY North Haven, CT Zeeland, MI Agricultural intermediates and additives............. Charles City, IA Delaware Water Gap, PA Harriman, NY Specialty and fine chemicals......................... Bayonne, NJ Charles City, IA Delaware Water Gap, PA Harriman, NY North Haven, CT Zeeland, MI Performance chemicals................................ Bayonne, NJ Carlstadt, NJ Coatings............................................. Bayonne, NJ Carlstadt, NJ Delaware Water Gap, PA ITEM 3 LEGAL PROCEEDINGS. See "Environmental and Safety Regulations and Proceedings" under Item 1hereof with respect to various proceedings involving the Company in connectionwith environmental matters. There are no other material legal proceedingsaffecting the Company. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None 8 9 The following table lists the executive officers of the Company and thechief operating officers of the Company's operating subsidiaries: NAME AGE OFFICE(1)- ------------------------------ ---- ------------------------------------------------- Cyril C. Baldwin, Jr.......... 66 Chairman of the Board and Chief Executive OfficerJames A. Mack................. 56 President and Chief Operating OfficerPeter Tracey.................. 52 Vice President -- Finance, Chief Financial OfficerPeter E. Thauer............... 54 Vice President -- Legal & Environment, General Counsel & Corporate SecretarySteven M. Klosk............... 36 Vice President -- AdministrationBurton M. Rein................ 55 Senior Vice PresidentAlbert L. Eilender............ 50 President and Chief Operating Officer -- CasChem, Inc. and Cosan Chemical CorporationRoger H. Noack................ 47 President and Chief Operating Officer -- Nepera, Inc.Russell C. Smith.............. 52 Vice President, General Manager of Salsbury Chemicals, Inc.Alan W. Thornton.............. 48 General Manager of Zeeland Chemicals, Inc.Karl A. Behrend............... 35 General Manager of Heico and Humphrey Chemical Companies - --------------- (1) Unless otherwise indicated, positions shown are with the Company.  The Company's executive officers are elected by the Board of Directors andserve at the Board's discretion. Mr. Baldwin, who was elected Chairman of the Board in July 1991, has beenChief Executive Officer and a director of the Company since it began business inDecember 1981. Mr. Mack was appointed President and Chief Operating Officer and a directorof the Company in February 1990. For five years prior thereto he was VicePresident in charge of the performance chemicals businesses worldwide of OlinCorporation, a manufacturer of chemical products, metal products, and ammunitionand defense-related products. Mr. Tracey joined the Company in November 1990 as Vice President and ChiefFinancial Officer. For three years prior to joining Cambrex, he was VicePresident -- Finance and Chief Financial Officer for Joyce International Inc., amanufacturer of office products. From 1986 to 1987, he was VicePresident -- Finance and Chief Financial Officer for Robotic Vision Systems,Inc., a manufacturer of industrial automation systems. Prior to 1986, Mr. Traceywas a principal in the firm of Sirius Management Consultants. Mr. Thauer was appointed Vice President, Legal & Environment in December1992, and General Counsel and Corporate Secretary in August 1989. Prior tojoining Cambrex, he was Counsel to the business and finance group of the firm ofCrummy, Del Deo, Dolan, Griffinger and Vecchione since 1987. From 1971 to 1987,Mr. Thauer has held various positions with Avon Products, Inc. including U. S.Legal Department Head and Corporate Assistant Secretary. Mr. Klosk joined the Company in October 1992 as Vice President,Administration. Prior to joining Cambrex, he was Vice President, Administrationand Corporate Secretary for the Genlyte Group, Inc., a lighting fixturemanufacturer, since February 1988. From 1985 to January 1988, he was VicePresident, Administration for Lightolier, Inc., a subsidiary of the GenlyteGroup, Inc. Dr. Rein was appointed Senior Vice President in April 1993. He joined theCompany in June 1991 as President of Cambrex Fine Chemicals Group. For more thanfive years prior thereto, he was Director of Commercial Planning for W. R. Grace& Company. 9 10 Mr. Eilender, who was employed by the Company's Cosan Chemical Corporationsubsidiary when it was acquired by the Company in October 1985, joined theCompany as a result of the acquisition. For more than three years prior toOctober 1985 he held various executive positions with Cosan including VicePresident, Research and Development and Executive Vice President. He wasPresident of Cosan from October 1986 until July 1989 at which time he wasappointed to the additional position of President of CasChem, Inc. Mr. Noack joined the Company in December 1991 as President and ChiefOperating Officer of Nepera, Inc. For more than five years prior thereto he heldvarious positions with Hexcel Corporation, a leading producer of technologicallyadvanced structural products and resins and chemical products, including GeneralManager of the Chemical Products Division. Mr. Smith was appointed Vice President, General Manager of SalsburyChemicals, Inc. upon the Company's acquisition of the Salsbury facility. Priorto the acquisition, Mr. Smith had many years of service with Solvay AnimalHealth, Inc. starting in 1968 as Chemical Engineer through his appointment asDirector, Chemical Operations in 1982. Mr. Thornton joined the Company as General Manager of Zeeland Chemicals,Inc. in April 1992. In his previous association with Hexcel Corporation,Zeeland, he held the positions of Sales/Marketing Manager and Plant Manager. Mr.Thornton also has extensive manufacturing management associations with M&TChemicals, Inc. and Hercules, Inc. Mr. Behrend joined the Company in 1988 as Manager, Business Analysis. InJuly 1991, he was promoted to Director, Operations of Fine Chemicals Group withoverall responsibility for Fine Chemical plant operations at Heico, Humphrey andSalsbury. In June 1993, Mr. Behrend was appointed to his current position asGeneral Manager of Heico and Humphrey. Prior to joining Cambrex, Mr. Behrend wasassociated with Colgate Palmolive in Traffic Management and has also been aPortfolio Specialist, handling municipal and government securities. PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) Since November 15, 1990, the Company's Common Stock, $.10 par value,has been traded on the American Stock Exchange (AMEX) under the symbol CBM. TheCommon Stock previously had been quoted on the National Association ofSecurities Dealers Automated Quotation (NASDAQ) National Market System. Thefollowing table sets forth the high and low market prices of the Common Stockfor the indicated periods as reported by AMEX: HIGH LOW ----- ----- 1993 First Quarter................................................. $20 1/4 $16 3/4 Second Quarter................................................ 19 7/8 18 3/4 Third Quarter................................................. 21 1/4 19 1/4 Fourth Quarter................................................ 20 1/4 19 1/8 HIGH LOW ----- ----- 1992 First Quarter................................................. $11 7/8 $8 3/8 Second Quarter................................................ 13 1/4 10 5/8 Third Quarter................................................. 15 7/8 11 1/4 Fourth Quarter................................................ 18 3/8 14 1/8 (b) As of March 14, 1994, the Company estimates that there wereapproximately 1,800 beneficial holders of the outstanding Common Stock of theCompany. 10 11 (c) Since the fourth quarter of 1989, Cambrex has paid a regular $.05 pershare quarterly dividend on the Common Stock. ITEM 6 SELECTED FINANCIAL DATA. The following selected consolidated financial data of the Company for eachof the years in the seven-year period ended December 31, 1993 are derived fromaudited financial statements. The consolidated financial statements of theCompany as of December 31, 1993 and December 31, 1992 and for each of the yearsin the three year period ended December 31, 1993 and the accountants' reportsthereon are included elsewhere in this annual report. The data presented belowshould be read in conjunction with the financial statements of the Company andthe notes thereto and "Management's Discussion and Analysis of FinancialCondition and Results of Operations" included elsewhere herein.  YEARS ENDED DECEMBER 31, -------------------------------------------------------------------------------- 1993 1992(1) 1991(2) 1990 1989(3) 1988 1987 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) INCOME DATA: Net revenues............................ $197,203 $179,452 $144,500 $133,628 $131,036 $120,297 $107,877 Gross profit............................ 51,778 46,036 26,326 28,730 28,922 31,272 29,877 Selling, general and administrative..... 29,286 28,201 22,743 20,828 18,568 15,469 13,679 Research and development................ 5,843 4,046 3,279 3,496 3,835 3,118 2,951 Restructuring charge.................... -- -- -- 9,427 -- -- -- Operating profit (loss)................. 16,649 13,789 304 (5,021) 6,519 12,685 13,247 Interest expense (income), net.......... 2,771 2,437 2,532 2,115 1,036 (153) 2,580 Other expense (income).................. 446 1,054 (2,280) 186 423 1,210 (40) (Gain) on sale of assets, net........... -- -- -- (3,070) -- -- -- Income (loss) from continuing operations: Before income taxes................... 13,412 10,298 52 (4,252) 5,060 11,628 10,708 After income taxes.................... 8,641 6,230 31 (5,075) 3,061 7,035 5,896 (Loss) from discontinued operations..... -- -- -- -- -- -- (402) Gain on sale of discontinued operations............................ -- -- -- -- -- -- 2,462 Net income (loss)....................... 8,641 6,230 31 (5,075) 3,061 7,035 7,956EARNINGS PER SHARE DATA: Earnings (loss) per common share and common share equivalents: Primary............................... $ 1.64 $ 1.27 $ 0.01 $ (1.05) $ 0.55 $ 1.25 $ 1.98 Fully diluted......................... $ 1.60 $ 1.23 $ 0.01 $ (1.05) $ 0.54 $ 1.24 $ 1.89 Weighted average shares outstanding: Primary............................... 5,282 4,888 4,704 4,818 5,630 5,611 3,899 Fully diluted......................... 5,484 5,242 4,738 4,818 5,900 5,877 4,199DIVIDENDS PER COMMON SHARE................ $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.05 -- --BALANCE SHEET DATA: (at end of period) Working capital......................... $ 38,497 $ 35,852 $ 31,359 $ 39,408 $ 46,833 $ 44,413 $ 38,816 Total assets............................ 166,845 148,406 111,603 110,149 128,611 112,020 101,928 Long-term obligations................... 36,261 39,808 19,021 18,490 22,165 6,024 7,106 Total stockholders' equity.............. 87,569 75,177 68,717 69,204 86,971 83,754 76,558 - --------------- (1) Includes the results of a business acquired from March 31, 1992, the date of acquisition, through December 31, 1992. (2) Includes the results of a business acquired from July 1, 1991, the date of acquisition, through December 31, 1991. (3) Includes the results of two businesses from their respective dates of acquisition, June 5, 1989 and July 18, 1989, through December 31, 1989. 11 12 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain itemsfrom the Selected Financial Data as a percentage of net revenues. YEARS ENDED DECEMBER 31, ------------------------- 1993 1992 1991 ----- ----- ----- Net revenues................................................ 100.0% 100.0% 100.0% Gross profit................................................ 26.3 25.7 18.2 Selling, general and administrative......................... 14.9 15.7 15.7 Research and development.................................... 3.0 2.3 2.3 Operating profit............................................ 8.4 7.7 0.2 Interest expense............................................ 1.4 1.4 1.8 Other expense (income)...................................... 0.2 0.6 (1.6) Net income.................................................. 4.4 3.5 0.0 The Company's product mix has changed substantially over the periodsindicated, principally as a result of acquisitions. The following tables showthe contributions to gross revenues of the Company's five product groups.  YEARS ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 -------- -------- -------- (IN THOUSANDS) REVENUES Health and pharmaceuticals......................... $ 55,550 $ 59,167 $ 38,384 Agricultural intermediates and additives........... 51,153 49,120 35,898 Specialty and fine chemicals....................... 48,841 37,623 27,885 Performance chemicals.............................. 30,880 20,441 21,024 Coatings........................................... 16,884 18,527 27,104 -------- -------- -------- Total gross revenues............................. $203,308 $184,878 $150,295 -------- -------- -------- -------- -------- -------- Total net revenues............................... $197,203 $179,452 $144,500 -------- -------- -------- -------- -------- -------- Total gross profit............................... $ 51,778 $ 46,036 $ 26,326 -------- -------- -------- -------- -------- -------- YEARS ENDED DECEMBER 31, ------------------------- 1993 1992 1991 ----- ----- ----- GROSS REVENUES DISTRIBUTION Health and pharmaceuticals.................................. 27.3% 32.0% 25.5% Agricultural intermediates and additives.................... 25.2 26.6 23.9 Specialty and fine chemicals................................ 24.0 20.3 18.6 Performance chemicals....................................... 15.2 11.1 14.0 Coatings.................................................... 8.3 10.0 18.0 ----- ----- ----- 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- ----- In 1992, certain customers within specific product categories were changedto conform to classifications which the Company feels will better reflect theend use of its products. The 1991 revenues have been reclassified to conform tothe 1992 presentation. 1993 COMPARED TO 1992 Net revenues in 1993 increased $17,751,000 (9.9%) over 1992 as a result ofincluding a full year of Zeeland sales, the increased performance chemicalsbusiness due to the acquisition of a fiber optic gel business, and increasedfeed additive sales. The health and pharmaceuticals business declined in 1993. 12 13 Health and Pharmaceuticals' revenues decreased $3,617,000 (6.1%) from 1992.The full year effect of the acquisition of Zeeland in March 1992 added$3,215,000 to this sales category. This category's performance was affected bydecreases in the shipments of bulk pharmaceuticals from unusually high levels in1992, and from reduced shipments of niacinamide (Vitamin B3) intermediates tothe Asia-Pacific region due to economic problems and increased competition. Revenues from Agricultural Intermediates and Additives increased by$2,033,000 (4.1%) over 1992. The increase was due to higher sales oforgano-arsenical feed additives to the poultry industry and to increasedshipments of a pyridine compound to a major herbicide producer. This categorywas negatively affected by the end of a contract for a herbicide intermediate inthe fourth quarter 1992, and a decrease in export sales of pyridine derivatives. Sales from Specialty and Fine Chemicals' increased by $11,218,000 (29.8%).This increase included the effect of Zeeland for a full year of $5,957,000.Increases in this category included photographic chemicals, specialty additives,organic intermediates, specialty catalysts and custom manufactured products. Themost significant improvement in this category was due to the expansion inproduction capabilities of a polymer used in instamatic film. Performance Chemicals' sales increased $10,439,000 (51.1%) from 1992 due toincreases in fiber optic cable gels and encapsulants to the telecommunicationsindustry. The acquisition of a complimentary fiber optic gel business in March1993 contributed $8,900,000 in increased revenues. The encapsulant sales were 8%above 1992 primarily due to penetration of international markets. Coatings revenues decreased $1,643,000 (8.9%) from 1992 primarily due to atolling agreement for paint additives and corrosion inhibitors that ended in May1993. Sales of castor oil derivatives were at the same level as 1992. Export and international sales decreased by $7,200,000, or 16.2%. Exportswere 18.3% of gross revenues in 1993 versus 24.1% in 1992 due to lower exportsales caused by poor economic conditions in Europe and payment problems in theAsia-Pacific region. Total gross profit of $51,778,000 increased by $5,742,000, or 12.5%, from1992. The gross profit as a percent of net revenues improved from 25.7% in 1992to 26.3% in 1993. The increased gross profit was due to an improvement in salesmix and the continued effort to improve manufacturing costs and productionprocesses. Selling, general and administrative expenses as a percentage of netrevenues was 14.9% in 1993, down from 15.7% in 1992. The 1993 expense of$29,286,000 was $1,085,000 (3.8%) above 1992, due to the full year effect of theZeeland acquisition and the costs of establishing a sales office in Hong Kong.Bonus payments to employees declined by 40% to $1,700,000 in 1993 based on aformula using year-to-year changes in net income and return on investmentachieved. Periodically, the Company conducts a comprehensive review of itsenvironmental and litigation issues, prepares estimates of the range ofpotential costs of each issue wherever possible, and adjusts the accruals forenvironmental contingencies as circumstances warrant. An environmental provisionof $1,029,000 was recorded in 1993 attributable to activity in a number ofpending environmental matters. The current year provision was less than the$1,747,000 which was recorded in 1992. A discussion of those matters is includedin the footnotes to the financial statements. Research and development expenses of $5,843,000 were 3.0% of net revenuesin 1993, and represented a 44.4% increase over 1992. The increase of $1,797,000in 1993 was largely due to the commitment to develop new products and processesto ensure future growth in profitability. This commitment will continue in thefuture. The operating profit in 1993 increased 20.7% to $16,649,000 from$13,789,000 in 1992. The increased operating profits were due to increased salesand gross margin, partially offset by the increases in research and developmentspending. 13 14 Net interest expense of $2,771,000 in 1993 reflected an increase of$334,000 from 1992. The increase was due to higher borrowings in order tofinance acquisition activity and the capital program. Other expense in 1993 was $466,000 compared with other expense of$1,054,000 in 1992. The decrease was due to a 1992 provision of $553,000 for thewrite-off of a receivable. The provision for income taxes for 1993 was based on an effective rate of35.6% versus 39.5% in 1992. The rate decreased due to the realization of thebenefit of tax planning strategies. The Company's net income increased 38.7% to $8,641,000 compared with a netincome of $6,230,000 in 1992. 1992 COMPARED TO 1991 Net revenues in 1992 increased $34,952,000 (24.2%) as a result of theacquisition of Zeeland in March 1992, increased revenues from the Salsbury 1991acquisition included for a full year, and price increases. The increasedrevenues were partially offset by declines in coatings business volume. Health and Pharmaceuticals' revenues increased $20,783,000 (54.1%) over1991. The acquisition of Zeeland added $11,264,000 to this sales category withsales of intermediates for cough and cold preparations and pharmaceuticals, areagent in the manufacture of antibiotics for respiratory infections, and a foodadditive for soft drinks. The full year effect of Salsbury added $9,404,000 tosales. Revenues from Agricultural Intermediates and Additives increased by$13,222,000 (36.8%) over 1991. The Salsbury acquisition, which occurred in July1991, contributed $7,605,000 of the increased sales. Another factor in theincreased sales was the renewal of a contract (which had been terminated in1990) for the manufacture of a herbicide intermediate by our facility inDelaware Water Gap, Pennsylvania. This contract was completed in November 1992.The sales of feed grade Vitamin B3 also increased both in terms of volume and inprice. Sales from Specialty and Fine Chemicals' increased by $9,738,000 (34.9%)mainly due to the Zeeland acquisition which contributed $11,482,000 to thistotal. The major Zeeland products include products for the photographicindustry, catalysts, organic intermediates and specialty additives. Performance Chemicals' sales decreased $583,000 (2.8%) from prior year.Sales of encapsulant products declined approximately 3% from 1991 reflecting acontinued decline in the use of copper cables in the telecommunications sector,but rebuilding after Hurricane Andrew in Florida and Louisiana helped to reducethe decline. Pricing of encapsulants, however, was slightly better than in 1991. Coatings revenues decreased $8,577,000 (31.6%) from 1991 due to thewithdrawal of rheological additive products and mercury biocides in 1991. Castoroil based products sold in this category increased due to sales to theconstruction and automotive industries. Export and international sales increased by $7,110,000, or 19.0%. Exportswere 24.1% of gross revenues in 1992 versus 24.9% in 1991 due to lower exportpercentages from Zeeland and Salsbury than the overall Cambrex average. Theincreased export activity was attributable to Zeeland, which exported $4,500,000in 1992 (mostly to Europe), and higher pyridine derivative sales to the Far Eastand Europe. Total gross profit of $46,036,000 increased by $19,710,000, or 74.9%, fromthe 1991 level. The gross profit as a percent of net revenues improved from18.2% in 1991 to 25.7% in 1992. The improved gross profit was due to theincreased sales of higher margin products, lower cost of major raw materials,and a $4,000,000 charge in 1991 for obsolete and off-specification inventoriesand the related waste disposal costs for products manufactured at the Bayonne,New Jersey facility. Selling, general and administrative expenses as a percentage of netrevenues was 15.7% in 1992, consistent with 1991. The 1992 expense of$28,201,000 was $5,458,000 above 1991, due to the addition of Salsbury andZeeland, and the cost of bonus payments to management and to other employees in1992 of $2,800,000.  14 15 Periodically, the Company conducts a comprehensive review of itsenvironmental and litigation issues, prepares estimates of the range ofpotential costs of each issue, where it can be estimated, and adjusts theaccruals for environmental contingencies as circumstances warrant. Anenvironmental provision of $1,747,000 was recorded in 1992 attributable toactivity in a number of pending environmental matters. A discussion of thosematters is included in the footnotes to the financial statements. The currentyear provision compares favorably with that of the prior year which included a$2,538,000 provision related to estimated remediation costs for a particularsite. Research and development expenses of $4,046,000 were 2.3% of net revenuesin 1992, and represent the same percentage as 1991. The increase of $767,000 in1992 was largely due to the Zeeland acquisition and a full year of operations atSalsbury. Spending by all our other businesses was comparable to 1991 levels. Operating profit in 1992 was $13,789,000 compared to $304,000 in 1991. Theincreased operating profit was due to the improved gross profit, partiallyoffset by higher selling, general and administrative expenses and research anddevelopment expenses. Net interest expense of $2,437,000 in 1992 reflected a decrease by $94,000from 1991. The lower average interest rate, based on better terms in the creditagreement negotiated in February 1992 and lower market rates, offset higheraverage loan balances in 1992, relating to acquisition activities. Other expense in 1992 was $1,054,000 compared with other income of$2,279,000 in 1991. The key item in 1992 was a $553,000 provision for thepotential write-off of an other receivable related to a product previouslymanufactured by Cambrex for a specific customer in prior years. The 1991 otherincome consisted primarily of $2,758,000 which represented the elimination ofthe remaining balance of a $3,400,000 accrual previously established inconnection with the sale of certain product lines in 1990. In 1992, the Company reported net income of $6,230,000 compared with a netincome of $31,000 in 1991. 1991 COMPARED TO 1990 Net revenues in 1991 increased $10,872,000 (8.1%) attributable to theacquisition of Salsbury Chemicals, Inc. (Salsbury) in July 1991. Excluding theacquisition, net revenues were unchanged from 1990's level, with increasedselling prices offsetting declines in volume. Health and Pharmaceuticals' revenues increased by $9,240,000 (31.7%) over1990. Excluding the contribution of Salsbury, revenues increased 12.9%attributable to higher sales volumes of 3-cyanopyridine for the production ofVitamin B3 and increased sales of castor oil based intermediates to thecosmetics market. During the year, increased production capacity for theconversion of 3-cyanopyridine to niacinamide (Vitamin B3) were brought on line. Revenues from Agricultural Intermediates and Additives increased by$2,791,000 (8.4%) over 1990, primarily due to the inclusion of Salsbury. Withoutthe benefit of Salsbury, gross revenues decreased by 5.1%. The decrease was dueto reduced revenues from a herbicide intermediate at the Company's DelawareWater Gap, Pennsylvania facility due to the completion of a contract, and toreduced 2-cyanopyridine for a herbicide due to excess customer inventory. Specialty and Fine Chemicals' revenues increased by $4,732,000, or 20.4%,mainly as a result of the acquisition. Otherwise, sales of these productsincreased by 0.8% from last year. Declines in sales volumes of castor oilproducts, affected by the higher cost of castor oil, were offset by increasedsales volumes of pyridine products.  In Performance Chemicals, domestic sales of encapsulant products declinedapproximately 20% from 1990 reflecting continued decline in market size, majorcustomers' reducing inventories and a period of lowered construction budgets.Increases in sales of fiber optic gel and biomedical products, which have beenintroduced in recent years, maintained sales in this category at 1990's level. 15 16 Revenues from Coatings decreased by $4,905,000 (15.3%) from 1990 due topoor economic conditions in the housing and automotive markets and the Company'sdecision to de-emphasize low margin, cyclical products that constitute much ofthis group. Coatings revenues were negatively impacted by the sale of theCompany's organic biocides business to Huls America Inc., (Huls) in February1990, the withdrawal of phenyl-mercuric acetate (PMA), a biocidal agent forpaints, and the expiration of a major contract on November 30, 1991 for themanufacture of rheological additives products. Revenues under this contractaccounted for approximately 5% of total gross revenues in 1991 and the priorfiscal year. Export and international sales increased by 41.2%. Exports were 24.9% ofgross revenues in 1991 versus 19.2% in 1990. Higher sales volumes of3-cyanopyridine and piperidine to the Far East were responsible for theincrease. Total gross profit of $26,326,000 declined by $2,404,000, or 8.4%, from the1990 level. Gross profit benefited from the lower cost of a key raw material,acetaldehyde, as well as increased revenues as discussed above; however,offsetting the benefits were the reduced margins on castor oil products due tohigher cost. In 1991, the Company included in its cost of sales an expense of$4,000,000 for certain obsolete and off-specification inventories and relatedwaste disposal costs for products manufactured at its Bayonne, New Jerseyfacility. In an effort to reduce the number of products it manufactures andmarkets, the Company obsoleted certain slower moving and excess inventories. TheCompany also reevaluated its off-specification inventory and determined thatalthough the material could be reprocessed, the cost of reworking it was notjustified. Selling, general and administrative expenses as a percentage of netrevenues increased from 15.6% in 1990 to 15.7% in 1991. Reductions achievedthrough strict cost controls, including personnel reductions and the benefits ofrestructuring, were offset by increased environmental expenses. Environmental expenses relating to administrative and judicial proceedingsas well as site remediation of $3,190,000 were 2.2% of revenues in 1991. Therewere no comparable expenses in the prior year. Such expenses in 1991 werecomprised primarily of a $2,538,000 provision related to the Company's estimatedshare of the cost of remediation of a site in Hamptonburgh, New York. Adiscussion of this matter is included in the footnotes to the financialstatements. Research and development expenses of $3,279,000 were 2.3% of net revenuesin 1991, a decrease of 6.2% attributable to personnel reductions effected duringthe year. The Company continues to maintain its commitment to allocatesignificant resources to product and process development. In 1991, operating profit was $304,000 as compared to an operating loss of$5,021,000 in 1990. In 1990, a one-time, pretax restructuring charge of$9,427,000 was recorded. The restructuring charge included the write-down ofcertain tangible and intangible assets and inventories and a reserve forpersonnel severance costs relating to the discontinuance of non-performingproducts and product lines. Net interest expense of $2,532,000 in 1991 increased by $417,000 largely asa result of bank borrowings to finance the acquisition of Salsbury in July 1991. Other income in 1991 was $2,279,000 compared with other expense of $186,000in 1990. In 1990, coincident with the sale of certain technology and productlines to Huls, the Company set up a provision against the proceeds from the saleto provide a reserve for costs that were deemed probable to be incurred as adirect result of the sale. During the fourth quarter of 1991, managementdetermined that no additional costs would be incurred and, therefore, reversedthe remaining balance of $2,758,000 to other income. In 1991, the Company reported net income of $31,000 compared with a netloss of $5,075,000 in 1990. LIQUIDITY AND CAPITAL RESOURCES Net cash flow from operations was $16,390,000 in 1993 compared to$24,022,000 in 1992 and $13,811,000 in 1991. The reduced cash flow in 1993 ascompared to 1992 was due to changes in inventory levels and accrued liabilities.The inventory levels of various finished goods increased in 1993 due to lowersales orders in the fourth quarter. Increases in accounts payable and accruedliabilities in 1993 were not as 16 17 substantial as the levels of increase from 1991 to 1992. Management decided toincrease accruals significantly in 1992 to reflect various potential liabilitiesbased on business decisions made in the fourth quarter of the year. Suchaccruals were not necessary at the end of 1993, and many of the circumstancesrequiring the accruals in 1992 were resolved. Capital expenditures were $15,535,000 in 1993, $9,133,000 in 1992, and$7,044,000 in 1991. The Company continued to upgrade all of the productionfacilities to meet marketing and regulatory requirements. Construction ofsupport facilities, including office, warehouse and maintenance areas, werecompleted at the Salsbury plant in the first quarter and an expansion of one ofthe production facilities at the Zeeland plant was started in the fourth quarterof 1993. Depreciation of fixed assets was $10,735,000 in 1993, $9,349,000 in1992, and $6,870,000 in 1991. An additional $5,886,000 was used to acquire the assets and technology ofViscosity Oil's fiber optic gel business. On September 15, 1993, the remaining holders of convertible 9% notestotalling $3,990,000 opted to convert to 257,397 shares of common stock at theconversion price of $15.50 per share. No gain or loss resulted from thistransaction. On November 16, 1993, the Company bought out a lease assumed as a part ofthe purchase of the assets of Zeeland Chemicals in March 1992. This debt, withan interest rate of 10.2%, was replaced with the London Interbank Offering Rate(LIBOR) borrowings through the existing Revolving Bank Credit line at the rateof 4 3/8% as of December 31, 1993. On May 10, 1993 the Company amended the Revolving Credit and Term LoanAgreement (Credit Agreement) with NBD Bank, N.A., National Westminster NJ andUnited Jersey Bank. The new Credit Agreement provides for an additionalrevolving credit facility of $10,000,000, bringing the aggregate principalamount to $65,000,000, of which $28,311,000 was unused at year end. Managementis of the opinion that these amounts are adequate for meeting the Company'scapital requirements. The Credit Agreement permits the Company to choose betweenvarious interest rate options and to specify the portion of the borrowing to becovered by specific interest rate options. Under the Credit Agreement, theinterest rate options available approximate (1) LIBOR plus no more than 1 1/2%or (2) the U.S. Prime Rate. During 1993, the Company paid cash dividends of $0.20 per share. ENVIRONMENTAL  The Company maintains environmental and industrial safety and healthcompliance programs at its plants, and believes that its manufacturingoperations are in general compliance with all applicable safety, health andenvironmental laws. Through the activities of its predecessors and third parties in connectionwith the handling and disposal of hazardous and other wastes, the Company maybecome liable, irrespective of fault, for certain site remediation costs underfederal and state environmental statutes. Descriptions of such environmentallyrelated contingencies are presented in Note #18 to the financial statements andincorporated herein by reference. The resolution of such matters often spans several years and frequentlyinvolves regulatory oversight and/or adjudication. Additionally, manyremediation requirements are not fixed and are likely to be affected by futuretechnological, site and regulatory developments. Consequently, the ultimateextent of liabilities with respect to such matters as well as the timing ofrelated cash disbursements cannot be determined with certainty. However,management is of the opinion that while the ultimate liability resulting fromthese matters may have a material effect upon the results of operations in anygiven year, they will not have a material adverse effect upon the Company'sliquidity or financial position. IMPACT OF RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standard No. 106 "Employers' Accountingfor Post Retirement Benefits Other than Pensions" (SFAS 106) requires therecognition of postretirement benefits, including 17 18 health care benefits, on an accrual basis. The Company adopted SFAS 106effective January 1, 1993 and amortizes the transition obligation of $1,853,000over twenty years. The net effect upon 1993 pretax operating results, includingthe amortization of the transition obligation, resulted in a cost of $301,000.The Company has recently reviewed its health care benefit plans for retirees anddoes not anticipate significant increases in the annual expense related to SFAS106. Statement of Financial Accounting Standard No. 109 "Accounting for IncomeTaxes" (SFAS 109) requires the use of current statutory rates in thedetermination of deferred tax assets and liabilities. The Company adopted SFAS109 effective January 1, 1993. The net effect upon 1993 income was immaterial.However, under SFAS 109, future changes in the statutory tax rate could have animpact upon net income of future periods. 18 19 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following consolidated financial statements and selected quarterlyfinancial data of the Company are filed under this item: PAGE NUMBER (IN THIS REPORT) ---------------- Independent Accountants' Reports............................................... 20Consolidated Balance Sheets as of December 31, 1993 and 1992................... 22Consolidated Income Statements for the Years Ended December 31, 1993, 1992 and 1991......................................................................... 23Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1992 and 1991...................................................... 24Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991..................................................................... 25Notes to Consolidated Financial Statements..................................... 26Selected Quarterly Financial Data (unaudited) for the Years Ended December 31, 1993 and 1992................................................................ 42 The financial statements and schedules are filed pursuant to Item 14 ofthis report. 19 20 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Cambrex Corporation: We have audited the accompanying consolidated balance sheets of CambrexCorporation and Subsidiaries as of December 31, 1993 and 1992 and the relatedconsolidated statements of income, stockholders' equity and cash flows and theconsolidated financial statement schedules for the years then ended, as listedin Item 14(a) of this Form 10-K. These consolidated financial statements andfinancial statement schedules are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditingstandards. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the consolidated financial position ofCambrex Corporation and Subsidiaries as of December 31, 1993 and 1992, and theconsolidated results of their operations and their cash flows for the years thenended in conformity with generally accepted accounting principles. In addition,in our opinion, the consolidated financial statement schedules referred toabove, when considered in relation to the basic consolidated financialstatements taken as a whole, present fairly, in all material respects, theinformation required to be included therein. As discussed in Notes 9 and 14 to the consolidated financial statements, in1993 the Company changed its method of accounting for income taxes and changedits method of accounting for postretirement benefits other than pensions. COOPERS & LYBRAND Parsippany, New JerseyJanuary 19, 1994,except for Note 3,the date of which isJanuary 31, 1994 20 21 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Cambrex Corporation:  We have audited the accompanying consolidated income statement, statementsof stockholders' equity and cash flows of Cambrex Corporation and Subsidiariesfor the year ended December 31, 1991, as listed in Item 14(a) of this Form 10-K.In connection with our audit of the consolidated financial statements, we alsohave audited the related financial statement schedules as listed in Item 14(a)of this Form 10-K. These consolidated financial statements and financialstatement schedules are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these consolidated financialstatements and financial statement schedules based on our audit. We conducted our audit in accordance with generally accepted auditingstandards. These standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the results of operations and cashflow of Cambrex Corporation and Subsidiaries for the year ended December 31,1991, in conformity with generally accepted accounting principles. Also in ouropinion, the related financial statement schedules, when considered in relationto the basic consolidated financial statements taken as a whole, present fairly,in all material respects, the information set forth therein. KPMG PEAT MARWICK New York, New YorkJanuary 28, 1992 21 22 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS DECEMBER 31, ----------------------- 1993 1992 -------- -------- Current assets:Cash................................................................. $ 161 $ 564 Receivables: Trade accounts, less allowance for doubtful accounts of $355 and $607 at respective dates....................................... 27,778 26,704 Other........................................................... 237 1,082 -------- -------- 28,015 27,786 Inventories........................................................ 33,730 28,158 Deferred tax asset................................................. 1,315 Other current assets............................................... 3,557 2,873 -------- -------- Total current assets....................................... 66,778 59,381Property, plant and equipment, net................................... 89,784 82,501Intangible assets, net............................................... 7,621 5,806Other assets......................................................... 2,662 718 -------- -------- Total assets............................................... $166,845 $148,406 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable and accrued liabilities........................... $ 20,872 $ 19,316 Income taxes payable............................................... 3,409 3,607 Current portion of long-term debt.................................. 4,000 606 -------- -------- Total current liabilities.................................. 28,281 23,529Long-term debt....................................................... 36,261 39,808Deferred taxes....................................................... 5,986 3,304Other noncurrent liabilities......................................... 8,748 6,588 -------- -------- Total liabilities.......................................... 79,276 73,229Commitments and contingenciesStockholders' equity: Common Stock, $.10 par value; issued 6,014,681 and 5,705,734 shares at respective dates............................................. 601 571 Additional paid-in capital......................................... 72,627 67,714 Retained earnings.................................................. 25,859 18,202 Additional minimum pension liability............................... (1,030) Treasury stock, at cost; 819,049 and 895,494 shares at respective dates........................................................... (10,488) (11,310) -------- -------- Total stockholders' equity................................. 87,569 75,177 -------- -------- Total liabilities and stockholders' equity................. $166,845 $148,406 -------- -------- -------- -------- See accompanying notes to consolidated financial statements. 22 23 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (IN THOUSANDS, EXCEPT PER-SHARE DATA) YEARS ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 -------- -------- -------- Net revenues............................................... $197,203 $179,452 $144,500Operating expenses: Cost of goods sold....................................... 145,425 133,416 118,174 Selling, general and administrative...................... 29,286 28,201 22,743 Research and development................................. 5,843 4,046 3,279 -------- -------- -------- Total operating expenses......................... 180,554 165,663 144,196 -------- -------- --------Operating profit........................................... 16,649 13,789 304Other (income) expenses Interest income.......................................... (41) (26) (125) Interest expense......................................... 2,812 2,463 2,657 Other -- net............................................. 466 1,054 (2,280) -------- -------- --------Income before income taxes................................. 13,412 10,298 52Provision for income taxes................................. 4,771 4,068 21 -------- -------- --------Net income................................................. $ 8,641 $ 6,230 $ 31 -------- -------- -------- -------- -------- --------Earnings per share of common stock and common stock equivalents: Primary.................................................. $ 1.64 $ 1.27 $ 0.01 Fully diluted............................................ $ 1.60 $ 1.23 $ 0.01Weighted average shares outstanding: Primary.................................................. 5,282 4,888 4,704 Fully diluted............................................ 5,484 5,242 4,738 See accompanying notes to consolidated financial statements. 23 24 CAMBREX CORPORATION AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) COMMON STOCK NONVOTING ADDITIONAL TOTAL ----------------------- COMMON ADD'L MINIMUM STOCK- SHARES PAR VALUE STOCK (PAR PAID-IN RETAINED PENSION TREASURY HOLDERS' ISSUED ($.10) $.10) CAPITAL EARNINGS LIABILITY STOCK EQUITY --------- --------- ---------- ------- -------- ---------- -------- -------- Balance at December 31, 1990................. 5,537,002 $ 554 $ 11 $67,002 $13,857 $(12,220) $69,204 Net income........... 31 31 Cash dividends at $0.20 per share.... (931 ) (931 ) Exercise of stock options............ 6,000 1 28 29 Conversion of nonvoting common stock to common stock.............. 113,182 11 (11) Shares issued under savings plan....... (35 ) 419 384 --------- --------- ----- ------- -------- -------- --------Balance at December 31, 1991................. 5,656,184 566 -- 67,030 12,922 (11,801) 68,717 Net income........... 6,230 6,230 Cash dividends at $0.20 per share.... (950 ) (950 ) Exercise of stock options............ 49,550 5 306 311 Shares issued under savings plan....... 378 749 1,127 Purchase of treasury stock.............. (258) (258 ) --------- --------- ----- ------- -------- -------- --------Balance at December 31, 1992................. 5,705,734 571 -- 67,714 18,202 (11,310) 75,177 Net income........... 8,641 8,641 Cash dividends at $0.20 per share.... (984 ) (984 ) Exercise of stock options............ 51,550 5 334 339 Conversion of subordinated notes.............. 257,397 25 3,965 3,990 Additional minimum pension liability.......... $ (1,030) (1,030 ) Shares issued under savings plan....... 614 822 1,436 --------- --------- ----- ------- -------- ---------- -------- --------Balance at December 31, 1993................. 6,014,681 $ 601 $ -- $72,627 $25,859 $ (1,030) $(10,488) $87,569 --------- --------- ----- ------- -------- ---------- -------- -------- --------- --------- ----- ------- -------- ---------- -------- -------- See accompanying notes to consolidated financial statements. 24 25 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 -------- -------- -------- Cash flows from operations: Net income............................................... $ 8,641 $ 6,230 $ 31 Depreciation and amortization............................ 11,779 10,323 7,855 Provision for environmental contingencies................ 1,029 1,747 3,190 Reversal of accruals previously established in connection with the sale of certain businesses................... (2,758) Increase (decrease) in deferred taxes.................... 1,112 (16) (397) Changes in assets and liabilities: Receivables........................................... (228) 862 (3,720) Inventories........................................... (3,709) (1,941) 11,095 Other current assets.................................. (684) (1,100) 132 Accounts payable and accrued liabilities.............. 1,016 6,666 (3,169) Income taxes payable.................................. 57 1,757 1,390 Other noncurrent assets and liabilities............... (2,623) (506) 162 -------- -------- -------- Net cash provided from operations..................... 16,390 24,022 13,811 -------- -------- --------Cash flows from investing activities: Capital expenditures..................................... (15,535) (9,133) (7,044) Acquisition of businesses................................ (5,886) (20,228) (12,319) -------- -------- -------- Net cash (used in) investing activities............... (21,421) (29,361) (19,363) -------- -------- --------Cash flows from financing activities: Dividends................................................ (984) (950) (931) Long-term debt activity (including current portion) Borrowings............................................ 42,111 65,544 16,900 Repayments............................................ (38,274) (59,985) (12,900) Proceeds from the issuance of common stock............... 339 311 28 Proceeds from the sale of treasury stock................. 1,436 1,127 384 Purchase of treasury stock............................... (257) -------- -------- -------- Net cash provided from financing activities........... 4,628 5,790 3,481 -------- -------- --------Net (decrease) increase in cash............................ (403) 451 (2,071)Cash at beginning of year.................................. 564 113 2,184 -------- -------- --------Cash at end of year........................................ $ 161 $ 564 $ 113 -------- -------- -------- -------- -------- --------Supplemental disclosure: Interest paid............................................ $ 2,810 $ 2,182 $ 2,543 Income taxes paid........................................ $ 4,126 $ 3,203 $ 82Noncash transactions: Conversion of subordinated notes to common stock......... $ 3,990 Additional minimum pension liability recorded as a charge to stockholders' equity............................... $ 1,030 See accompanying notes to consolidated financial statements. 25 26 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (1) THE COMPANY Cambrex Corporation supplies a broad line of pharmaceutical relatedproducts, specialty chemicals, fine chemicals and commodity chemicalintermediates to a diverse customer base for use in a wide variety ofapplications. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Companyand its majority owned subsidiaries. All significant intercompany balances andtransactions have been eliminated in consolidation. Cash Equivalents Temporary cash investments with a maturity of less than three months areconsidered cash equivalents. Financial Instruments Financial instruments consist principally of accounts receivable.Concentration of credit risk exists inasmuch as the Company sells its productsto customers primarily in the chemical and pharmaceutical industries. However,receivables are spread among many customers and are geographically dispersed. Nocustomer represents more than 10% of sales nor receivables. 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 accumulateddepreciation. Plant and equipment are depreciated on a straight-line basis overthe estimated useful lives for each applicable asset group as follows: Buildings and improvements..................... 15-20 years Machinery and equipment........................ 7-10 years Furniture and fixtures......................... 3- 5 years Intangible Assets Intangible assets are recorded at cost and amortized on a straight-linebasis as follows: Patents........................................... Amortized over the remaining life of individual patents (average 5 years) Goodwill.......................................... 40 years Product technology................................ 5 to 17 years Non-compete agreements............................ 5 years Trademarks and other.............................. 1 to 40 years Income Taxes The Company files a consolidated Federal income tax return which includesall domestic subsidiaries. 26 27 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Deferred taxes are recorded based upon differences between the financialstatement and tax bases of assets and liabilities, and available tax creditcarryforwards. Effective January 1, 1993, the Company adopted Statement of FinancialAccounting Standard No. 109, "Accounting for Income Taxes." Prior to that date,income taxes were accounted for in accordance with the provisions of AccountingPrinciples Board Opinion No. 11. Earnings Per Common Share The calculation of primary earnings per common share is based on theweighted average number of common shares and common share equivalentsoutstanding during the applicable period. Fully diluted earnings per shareassumes conversion of the outstanding convertible subordinated notes and theelimination of the related interest expense, net of tax. (3) ACQUISITIONS AND DIVESTITURES (a) On January 31, 1994, the Company purchased substantially all of theassets of Hexcel Corporation's fine chemicals business located in Middlesbrough,England for approximately $9,500. On March 12, 1993, the Company purchasedsubstantially all of the assets of Viscosity Oil's fiber optic gel business for$5,886. These transactions were accounted for as purchases and were financedwith the Company's credit agreement. No goodwill resulted from thesetransactions. (b) On March 31, 1992, the Company purchased substantially all of theassets of the fine chemicals business of Hexcel Fine Chemicals, now known asZeeland Chemicals, Inc. (Zeeland), for $20,251, and the assumption of certainliabilities consisting of a variable rate Industrial Development Revenue Bond inthe principal amount of $4,150, and the remaining payments of a capital leaseobligation with a net present value of $8,214. The transaction was accounted foras a purchase and was financed with the Company's credit agreement. No goodwillresulted from this transaction. On July 1, 1991, the Company purchased substantially all of the assets ofthe chemicals business of Solvay Animal Health, Inc., now known as SalsburyChemicals, Inc. (Salsbury), for $12,299. The transaction was accounted for as apurchase and was financed by borrowings against the Company's credit agreement.No goodwill resulted from this transaction. Unaudited pro forma results as if both the Zeeland acquisition and theSalsbury acquisition had occurred at January 1 of each of 1992 and 1991 arepresented below. The pro forma financial information is not necessarilyindicative of results of operations that would have occurred had thecombinations been in effect at the beginning of the periods nor of futureresults of operations of the combined companies. YEARS ENDED DECEMBER 31, --------------------- 1992 1991 -------- -------- Net revenues................................................. $186,569 $183,129 Net income (loss)............................................ $ 6,598 $ (797) Earnings (loss) per share Primary.................................................... $ 1.35 $ (0.17) Fully diluted.............................................. $ 1.30 $ (0.17) 27 28 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Assets acquired and liabilities assumed are as follows: DECEMBER 31, -------------------- 1992 1991 -------- ------- Receivables................................................... $ 4,653 $ -- Inventories................................................... 3,845 3,453 Other current assets.......................................... 32 -- Property, plant and equipment................................. 26,348 9,100 Accounts payable and accrued liabilities...................... (306) (233) Debt assumed.................................................. (12,364) -- Other noncurrent liabilities.................................. (1,980) -- -------- ------- Net assets acquired......................................... $ 20,228 $12,320 -------- ------- -------- -------  The proforma information has not been adjusted for the effect of the fiberoptic gel business, acquired in March of 1993, as such amounts cannot bereasonably separated from existing operations and are deemed to be immaterial. (4) FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT Statement of Financial Accounting Standard No. 112 "Employers' Accountingfor Postemployment Benefits" (SFAS 112) requires the recognition on an accrualbasis of all types of postemployment benefits provided to former or inactiveemployees subsequent to employment but before retirement. The Company currentlyprovides limited benefits in this regard. The Company plans to adopt SFAS 112 effective January 1, 1994. The neteffect upon 1994 pretax operating results is expected to be minimal. (5) INVENTORIES Inventories consist of the following: DECEMBER 31, ------------------ 1993 1992 ------- ------- Finished goods.................................................... $17,988 $15,055 Raw materials..................................................... 13,878 11,837 Supplies.......................................................... 1,864 1,266 ------- ------- Total................................................... $33,730 $28,158 ------- ------- ------- ------- 28 29 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (6) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following: DECEMBER 31, -------------------- 1993 1992 -------- -------- Land............................................................ $ 4,349 $ 4,349 Buildings and improvements...................................... 22,698 18,972 Machinery and equipment......................................... 100,910 93,100 Furniture and fixtures.......................................... 4,361 2,908 Construction in progress........................................ 13,919 8,917 -------- -------- Total................................................. 146,237 128,246 Accumulated depreciation........................................ (56,453) (45,745) -------- -------- Net................................................... $ 89,784 $ 82,501 -------- -------- -------- -------- Depreciation expense amounted to $10,735, $9,349 and $6,870 for the yearsended December 31, 1993, 1992 and 1991, respectively. (7) INTANGIBLE ASSETS Components of intangible assets are as follows: DECEMBER 31, -------------------- 1993 1992 -------- -------- Patents......................................................... $ 5,593 $ 5,593 Goodwill........................................................ 3,900 3,900 Product technology.............................................. 2,126 1,306 Non-compete agreements.......................................... 3,052 2,073 Trademarks and other............................................ 5,115 4,055 -------- -------- Total................................................. 19,786 16,927 Accumulated amortization........................................ (12,165) (11,121) -------- -------- Net................................................... $ 7,621 $ 5,806 -------- -------- -------- -------- (8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The components of accounts payable and accrued liabilities are as follows: DECEMBER 31, --------------------- 1993 1992 ------- ------- Accounts payable................................................ $12,996 $11,450 Salaries, wages and employee benefits payable................... 3,780 2,589 Other accrued liabilities....................................... 4,096 5,277 ------- ------- Total................................................. $20,872 $19,316 ------- ------- ------- ------- (9) INCOME TAXES Effective January 1, 1993, the Company adopted Statement of FinancialAccounting Standard No. 109 (SFAS 109), the effect of which was not material. 29 30 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) In summary, SFAS 109 requires the determination of deferred tax assets andliabilities by applying applicable tax rates to the difference between thefinancial statement and tax bases of assets and liabilities. Additionally, itrequires separate balance sheet disclosure of deferred tax assets andliabilities and has different recognition criteria for certain deferred taxassets than Accounting Principles Board Opinion No. 11 (APB 11), the standardunder which the Company's financial statements were previously prepared. Aspermitted under SFAS 109, prior year financial statements have not beenrestated. The provision for income taxes consists of the following expenses(benefits): YEARS ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 ------ ------ ----- Current: Federal.............................................. $3,216 $3,515 $ 390 State................................................ 443 569 29 ------ ------ ----- 3,659 4,084 419 ------ ------ ----- Deferred: Federal.............................................. 974 120 (357) State................................................ 138 (136) (41) ------ ------ ----- 1,112 (16) (398) ------ ------ ----- Total........................................ $4,771 $4,068 $ 21 ------ ------ ----- ------ ------ ----- The significant components of the deferred tax expense (benefit) arepresented in the schedule below. For 1993, the components of the deferred taxexpense (benefit) were computed in accordance with the provisions of SFAS 109.For 1992 and 1991, the components of the deferred income tax expense (benefit)were computed in accordance with the provisions of APB 11. YEARS ENDED DECEMBER 31, --------------------------------- 1993 1992 1991 ------ ------ ------- Depreciation......................................... $2,047 $1,746 $ 283 Environmental reserves............................... (453) (693) (1,288) Self insurance....................................... (79) (351) -- Inventory capitalization............................. (123) (361) 163 Alternative minimum tax credits...................... (727) -- -- Other................................................ 447 (357) 444 ------ ------ ------- $1,112 $ (16) $ (398) ------ ------ ------- ------ ------ ------- The provision for income taxes differs from the statutory Federal incometax rate of 34% as follows: YEARS ENDED DECEMBER 31, ------------------------------ 1993 1992 1991 ------ ------ ---- Income tax at Federal statutory rate.................... $4,560 $3,501 $18 State and local taxes (benefits), net of Federal income tax benefits.......................................... 383 286 (8 ) Other................................................... (172) 281 11 ------ ------ ---- Provision for income taxes.............................. $4,771 $4,068 $21 ------ ------ ---- ------ ------ ---- 30 31 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The components of deferred tax assets and liabilities as of December 31,1993 relate to temporary differences and carryforwards as follows: Deferred tax assets: Receivables........................................................ $ 130 Inventory.......................................................... 1,552 Prepaid pension expense............................................ (623) Other.............................................................. 256 ------- Total.................................................... $ 1,315 ------- ------- Deferred tax liabilities: Depreciation....................................................... $11,814 Environmental expenses............................................. (3,220) Alternative minimum tax credits.................................... (2,084) Research and development credits................................... (493) Other.............................................................. (31) ------- Total.................................................... $ 5,986 ------- ------- The alternative minimum tax credits totaling $2,084 are available to offsetfuture Federal income taxes on an indefinite carryforward basis. The researchand development credit carryforwards totaling $493 expire between the years 2001and 2005. (10) LONG-TERM DEBT Long-term debt consists of the following: DECEMBER 31, ------------------- 1993 1992 ------- ------- Bank credit facilities(a)........................................ $36,111 $24,500 9% convertible subordinated notes(b)............................. -- 3,990 Capital lease(c)................................................. -- 7,774 Industrial development revenue bond(d)........................... 4,150 4,150 ------- ------- Subtotal.................................................. 40,261 40,414 Less: current portion............................................ 4,000 606 ------- ------- Total.................................................. $36,261 $39,808 ------- ------- ------- ------- The Company estimates the fair market value of its debt instruments toapproximate book value, based on the variable interest rates described in thisNote.  (a) On May 10, 1993, the Company amended the Revolving Credit and Term LoanAgreement (Credit Agreement) with NBD Bank, N.A., National Westminster NJ andUnited Jersey Bank to increase the commitment by $10,000 bringing the aggregateprincipal amount to $65,000. The new Credit Agreement provides for a term loan in the aggregateprincipal amount of $20,000, payable in quarterly payments of $1,000 beginningin 1994, and a revolving credit facility in the aggregate principal amount of$45,000 which has a termination date of March 27, 1995. It permits the Companyto choose between various interest rate options and to specify the portion ofthe borrowing to be covered by specific interest rate options. Under theRevolving Credit Agreement, the interest rate options available to the 31 32 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Company are: (1) U.S. prime rate or (2) the London Interbank Offering Rate(LIBOR) plus 1 1/4%. The Term Loan will have the same options plus 1/4%.Additionally, the Company pays an annual commitment fee of between 25/100 of 1%and 15/100 of 1% on the unused portion of the revolving credit facilities. Thisfacility contains various restrictive covenants which, among other matters,require the Company to maintain minimum consolidated net worth levels, asdefined, and certain financial ratios. If these covenants are not met, the loanis collateralized by the assets of the Company. The Company met all bankcovenants for all four quarters of 1993. (b) Pursuant to a note and stock purchase agreement entered into in June1985, the Company issued $4,941 of convertible subordinated notes due andpayable in four equal annual installments commencing on June 30, 1994. Interestwas payable semiannually, at the rate of 9% per annum. The notes, at theholders' option, were convertible to Common Stock at a conversion price of$15.50 per share, subject to market price and anti-dilution provisions. OnSeptember 15, 1993, all existing notes were converted to common stock at theprice of $15.50 per share. No gain or loss resulted from this transaction. (c) On November 16, 1993, the Company bought out the capital leaseobligation which was assumed as part of the acquisition of Zeeland Chemicals,Inc. for $7,672. This capital lease obligation required quarterly payments of$343 through June 1997 and a balloon payment of $4,555 in July 1997. Suchpayments were discounted at 10.2% so that the net present value of theobligation as of the date of acquisition equaled the fair market value of therelated assets. The debt was replaced with LIBOR borrowings against theRevolving Credit Agreement, at a rate of 4 3/8% as of December 31, 1993. No gainor loss resulted from this transaction. (d) A variable rate Industrial Development Revenue Bond in the principalamount of $4,150 due March 1, 2008 was assumed as part of the purchase of theassets of Zeeland Chemicals, Inc. The interest is payable quarterly while theinterest rate is reset monthly by Morgan Stanley based on the current marketrate for long-term bonds. During 1993, the interest rate approximated 3%. (e) Aggregate maturities of long-term debt are as follows: 1994....................................................... $ 4,000 1995....................................................... 20,111 1996....................................................... 4,000 1997....................................................... 4,000 1988....................................................... 4,000 Thereafter................................................. 4,150 -------- Total............................................ $ 40,261 -------- -------- (11) STOCKHOLDERS' EQUITY The Company has two classes of common shares designated Common Stock andNonvoting Common Stock. Authorized shares of Common Stock were 20,000,000 atDecember 31, 1993 and 1992. Authorized shares of Nonvoting Common Stock were730,746 at December 31, 1993 and 1992. At December 31, 1993, authorized shares of Common Stock were reserved forissuance as follows: Stock option plans......................................... 682,100 Cambrex savings plan....................................... 44,641 -------- Total shares..................................... 726,741 -------- -------- Nonvoting Common Stock has equal rights with Common Stock, with theexception of voting power. Nonvoting Common Stock is convertible, share forshare, into Common Stock, subject to any legal 32 33 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) requirements applicable to holders restricting the extent to which they may ownvoting stock. In 1991, all 113,182 outstanding shares were converted. In 1990, Cambrex purchased 1,000,000 shares of its Common Stock as part ofa previously announced stock buy back program. These shares were purchased inthe open market at an average purchase price of $12.12 per share. All of theacquired shares are held as Common Stock in treasury, less shares issued to theCambrex Savings Plan. The Company held 819,049 and 895,494 shares of treasurystock at December 31, 1993 and 1992, respectively. In 1987, the Company authorized 5,000,000 shares of Series Preferred Stock,par value $0.10, issuable in series and with rights, powers and preferences asmay be fixed by the Board of Directors. At December 31, 1993 and 1992, there wasno preferred stock outstanding. (12) STOCK OPTIONS On October 24, 1983, the Company's stockholders approved the 1983 IncentiveStock Option Plan ("1983 Plan"), which provides for the grant of optionsintended to qualify as incentive stock options to management and other keyemployees of Cambrex. On September 1, 1987 the Company's stockholders approvedthe 1987 Stock Option Plan ("1987 Plan"), which provides for the granting to keyemployees both non-qualified stock options and incentive stock options. On May7, 1990, the Company's stockholders approved the 1989 Senior Executive StockOption Plan ("1989 Plan"), which provides for the grant of options intended toqualify as additional incentives to the Company's Senior Executive Officers. OnMay 1, 1992, the Company's stockholders approved the 1992 Stock Option Plan("1992 Plan"), which provides for the granting to key employees bothnon-qualified stock options and incentive stock options.non-qualified stock options and incentive stock options. As of December 31, 1993, 233,900 options had been exercised. Shares ofCommon Stock subject to outstanding options under the Plans were as follows: AUTHORIZED SUBJECT TO FOR ISSUANCE OUTSTANDING OPTIONS ------------ ------------------- 1983 Plan................................................ 216,000 51,650 1987 Plan................................................ 200,000 135,450 1989 Plan................................................ 400,000 400,000 1992 Plan................................................ 100,000 69,850 ------------ ---------- Total shares................................... 916,000 656,950 ------------ ---------- ------------ ---------- On July 26, 1990, the Board of Directors approved a management proposal toprovide current stock option holders under the 1983 and 1987 Plans theopportunity to exchange their existing stock options for new five year stockoptions at the rate of two existing option shares for each new option share at anew option price of $7.375 per share. The options received in the exchangebecame exercisable on January 26, 1991. The Company established the 1987 Long-Term Incentive Plan (the "Long-TermPlan"), which provides for the granting of long-term award opportunities toemployees. Under the Long-Term Plan, key employees may receive cash, CommonStock, or a combination of cash and Common Stock, measured by the differencebetween the market value of the stock on the vesting date and the grant date,and the value of cash dividends which would have been paid on the stock coveredby the grant. Units granted under this plan become vested three years from thedate of issuance. In 1991, 30,000 units were granted. In 1992, the units wereexchanged for cash and new options in the 1992 Plan. 33 34 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Information regarding the Company's stock option plans is summarized below: NUMBER OF NUMBER OF OPTION PRICE SHARES SHARES PER SHARE $ EXERCISABLE --------- ------------- ----------- Outstanding at December 31, 1990............... 537,800 5.000 -- 16.00 20,000 Granted...................................... 152,000 4.750 -- 7.75 Exercised.................................... (6,000) 4.750 Cancelled.................................... (33,750) 4.750 -- 7.37 Outstanding at December 31, 1991............... 650,050 4.750 -- 16.00 274,050 Granted...................................... 124,000 11.500 -- 18.125 Exercised.................................... (49,550) 4.750 -- 7.75 Cancelled.................................... (30,000) 5.750 Outstanding at December 31, 1992............... 694,500 4.750 -- 18.12 547,833 Granted...................................... 14,000 17.875 -- 19.375 Exercised.................................... (51,550) 4.750 -- 14.00 Outstanding at December 31, 1993............... 656,950 4.750 -- 19.37 523,617 --------- --------- (13) RETIREMENT PLANS  As of January 1, 1992, Cambrex maintains three defined benefit pensionplans which cover substantially all employees as follows: (1) The CasChem HourlyPension Plan (the "CasChem Plan") which covers the union employees of theBayonne, New Jersey and Carlstadt, New Jersey plants, (2) The Nepera HourlyPension Plan (the "Nepera Plan") which now covers the union employees at theHarriman, New York plant, and (3) The Cambrex Salaried Pension Plan (the"Cambrex Plan") which covers all other employees. Benefits for the salaried plan are based on salary and years of service,while hourly plans are based on negotiated benefits and years of service. TheCompany's policy is to fund pension costs currently to the extent deductible forincome tax purposes. Pension plan assets consist primarily of equity and fixedincome securities. 34 35 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) In accordance with the requirements of Statement of Financial AccountingStandard No. 87 "Employers' Accounting for Pensions" (SFAS 87), the overfundedand underfunded plans are presented separately. The funded status of these plansas of December 31, 1993 and 1992 is as follows: DECEMBER 31, 1993 DECEMBER 31, 1992 ------------------------- ------------------------- UNDERFUNDED OVERFUNDED UNDERFUNDED OVERFUNDED ----------- ---------- ----------- ---------- Actuarial present value of benefit obligations: Vested benefits............................... $ (13,798) $ (2,146) $ (10,843) $ (2,162) Non-vested benefits........................... (984) (214) (771) (260) ----------- ---------- ----------- ---------- Accumulated benefit obligation................ (14,782) (2,360) (11,614) (2,422) Additional benefits based on estimated future salary levels.............................. (1,115) -- (892) -- ----------- ---------- ----------- ----------Projected benefit obligation for service rendered through December 31, 1993 and 1992... (15,897) (2,360) (12,506) (2,422)Plan assets at fair market value................ 13,854 4,879 11,385 4,632 ----------- ---------- ----------- ----------Funded status................................... (2,043) 2,519 (1,121) 2,210Unrecognized net transition (asset)............. 4 (405) 5 (507)Unrecognized prior service cost................. (270) (194) (1,177) (207)Other -- unrecognized net loss (gain) on past experience.................................... 2,343 (189) 1,861 (39)Additional minimum liability.................... (1,030) -- (296) -- ----------- ---------- ----------- ----------Prepaid pension cost............................ $ (996) $ 1,731 $ (728) $ 1,457 ----------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- Assumptions used to develop the 1993 and 1992 net periodic pension expenseand the December 31, 1993 and 1992 actuarial present value of projected benefitobligations: 1993 1992 ------------------------- ------------------------- UNDERFUNDED OVERFUNDED UNDERFUNDED OVERFUNDED ----------- ---------- ----------- ---------- Pension Expense: Weighted-average discount rate................ 8.0% 8.0% 8.0% 8.0% Expected long-term rate of return on assets... 8.5% 8.5% 8.5% 8.5% Rate of increase in future compensation levels..................................... 5.0% * 5.0% *Actuarial Present Value of Projected Benefit Obligations: Weighted-average discount rate................ 7.5% 7.5% 8.0% 8.0% Expected long-term rate of return on assets... 8.5% 8.5% 8.5% 8.5% Rate of increase in future compensation levels..................................... 5.0% * 5.0% * - ---------------* Contractually negotiated with union at 4.0% and 3.5% in 1993 and 1992,respectively. 35 36 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Net pension costs included in operating results amounted to $713, $450 and$418 in 1993, 1992 and 1991, respectively, and were comprised of the following: YEARS ENDED DECEMBER 31, ------------------------------ 1993 1992 1991 ------- ------ ------- Service cost........................................... $ 843 $ 825 $ 574 Interest cost on projected benefit obligation.......... 1,299 1,152 1,116 Return on plan assets.................................. (2,131) (576) (2,725) Amortization of excess plan net assets at adoption of SFAS 87.............................................. (93) (171) (101) Other items -- deferred investment gain (loss)......... 795 (780) 1,554 ------- ------ ------- Net pension cost............................. $ 713 $ 450 $ 418 ------- ------ ------- ------- ------ ------- Included in the net periodic pension cost is the amortization of priorservice cost over a period of twelve to nineteen years and the amortization ofthe SFAS 87 transition obligation over a period of ten to twenty years. Cambrex also makes available to all employees a savings plan as permittedunder Sections 401(k) and 401(a) of the Internal Revenue Code. Employeecontributions are matched in part by Cambrex. In July 1991, to promote widerholding of its stock among employees, the Company began issuing, from itstreasury, Company stock to replace the matching cash contribution in the savingsplan. The cost of this plan amounted to $1,436, $1,145 and $682 in 1993, 1992and 1991, respectively. (14) OTHER POSTRETIREMENT BENEFITS Cambrex provides postretirement health and life insurance benefits(postretirement benefits) to all eligible retired employees. Employees whoretire at or after age 55 with ten years of service are eligible to participatein the postretirement benefit plans. The Company's responsibility for suchpremiums for each plan participant is based upon years of service subject to anannual maximum of one thousand dollars. Such plans are self-insured and are notfunded. Effective January 1, 1993, the Company adopted Statement of FinancialAccounting Standard No. 106 "Employers' Accounting for Postretirement BenefitsOther than Pensions" (SFAS 106). SFAS 106 requires such benefits to be accountedfor on an accrual basis. Previously, such costs were expensed as claims wereincurred. In connection with the adoption of SFAS 106, the Company has electedto amortize the transition obligation of $1,853 over twenty years. The neteffect upon 1993 pretax operating results, including the amortization of thetransition obligation, resulted in a cost of $301. The Company has recentlyreviewed its health care benefit plans for retirees and does not anticipatesignificant increases in the annual expense related to SFAS 106. The periodic postretirement benefit cost includes the following components: Service cost of benefits earned............................................ $ 58 Interest cost on accumulated postretirement benefit obligation............. 150 Amortization of transition obligation...................................... 93 ------- Total periodic postretirement benefit cost....................... $ 301 ------- ------- 36 37 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Accumulated postretirement benefit obligation: Retirees................................................................... $ 990 Fully eligible plan participants........................................... 320 Other active plan participants............................................. 799 ------- Total obligation......................................................... 2,109 Less: Unrecognized net loss.............................................. (149) Unrecognized transition obligation................................. (1,760) ------- Accrued postretirement benefit cost recognized in the balance sheet...... $ 200 ------- ------- The discount rate used to determine the accumulated postretirement benefitobligation was 7.5%. The assumed health care cost trend rate used to determinethe accumulated postretirement benefit obligation was initially 16%, decliningratably to 6% in 2002 and thereafter. A one-percentage-point increase in theassumed health care cost trend rate would have no effect upon the accumulatedpostretirement benefit obligation. The cost of all health and life insurance benefits is recognized asincurred and was approximately $3,797, $3,258 and $3,106 in 1993, 1992 and 1991,respectively. The cost of providing these benefits for the 181, 186 and 162retirees in 1993, 1992 and 1991, respectively, is not separable from the cost ofproviding benefits for the 791, 746 and 583 active employees. (15) OTHER INCOME AND EXPENSE Other expense in 1992 consisted primarily of a $553 provision for thepotential write-off of an other receivable related to a product manufactured byCambrex for a specific customer in prior years. The receivable and correspondingreserve were written-off in 1993; $250 of other income was recorded as a resultof payment received from the customer. There were no individually significant components in other expense in 1993. Other income in 1991 consisted primarily of $2,758 which represented theelimination of the remaining balance of a $3,400 accrual previously establishedin connection with the sale of certain product lines in the first quarter of1990. That accrual represented anticipated costs associated with thetransaction. During 1991, it was determined that no additional costs would beincurred in connection with that matter and, therefore, the elimination of theremaining accrual was reflected in the 1991 income statement. (16) FOREIGN OPERATIONS AND EXPORT SALES In 1987, the Company organized Cambrex Ltd., a wholly owned subsidiary, toact as parent company for two foreign subsidiaries, CasChem, Ltd. and Nepera,Ltd., which were also established in 1987. These companies are incorporated inthe United Kingdom and conduct certain European sales and marketing activitiesof Cambrex. Export sales in 1993, 1992 and 1991 amounted to $37,296, $44,536 and$37,425, respectively. No country, in any of the given years, represents morethan 10% of total revenues. (17) COMMITMENTS In conjunction with the acquisition of Zeeland Chemicals, Inc., the Companyassumed the remaining payments of a capital lease obligation for equipment,which required quarterly payments through and a balloon payment in 1997. Therelated capitalized asset of $8,214 is being depreciated over ten years, andaccumulated 37 38 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) depreciation amounted to $1,410 at December 31, 1993. In November of 1993, theCompany paid $7,672 to buy out the lease obligation. The Company currently hasno significant capital lease obligations. The Company has operating leases expiring on various dates through the year2013. The leases are primarily for office and laboratory equipment and vehicles.At December 31, 1993, future minimum commitments under operating leasearrangements were as follows: Year ended December 31: 1994....................................................... $ 817 1995....................................................... 619 1996....................................................... 506 1997....................................................... 332 1998 and thereafter........................................ 951 ------ Net minimum commitments...................................... $3,225 ------ ------ Total operating lease expense was $872, $1,097 and $947 for the years endedDecember 31, 1993, 1992 and 1991, respectively. The Company has three letters of credit outstanding aggregating $578 as ofDecember 31, 1993. The letters of credit were issued in connection with variousadministrative or environmental activities. During 1993, the Company was nolonger required to maintain the $1,500 letter of credit held in 1992 for the NewJersey Department of Environmental Protection and Energy in connection withenvironmental cleanup at the Cosan site. This requirement was fulfilled througha corporate guarantee of Cosan's Environmental Conservation and Recovery Act(ECRA) obligations. (18) CONTINGENCIES Contingencies exist for Cambrex and certain of its subsidiaries because oflegal and administrative proceedings arising out of the normal course ofbusiness. Such contingencies include environmental proceedings directly andindirectly against the Company or its subsidiaries as well as matters internallyidentified by the Company. The resolution of such matters often spans severalyears and frequently involves regulatory oversight and/or adjudication.Additionally, many remediation requirements are not fixed and are likely to beaffected by future technological, site, and regulatory developments.Consequently, the ultimate extent of liabilities with respect to such matters aswell as the timing of cash disbursements cannot be determined with certainty.However, management is of the opinion that while the ultimate liabilityresulting from these matters may have a material effect upon the results ofoperations in any given year, they will not have a material adverse effect uponthe Company's financial position. 38 39 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table exclusively addresses matters wherein the relatedliabilities are considered estimable. It summarizes the estimated range of theCompany's share of costs associated with such matters, the related accruals, andactivity associated with those accruals. Such ranges and accruals have not beenreduced for recoveries, if any, under insurance policies or from third partiesdue to the numerous uncertainties associated with such claims. The changes inthe estimated ranges from 1992 to 1993 represent revisions to estimates and theaddition of matters that were quantified for the first time during 1993. Therelated accruals represent management's assessment of the aggregate liabilityassociated with estimable matters. DECEMBER 31, ------------------- 1993 1992 ------- ------- Estimated range of the Company's share of costs associated with estimable matters: Minimum........................................................ $ 7,085 $ 6,107 ------- ------- ------- ------- Maximum........................................................ $14,835 $14,705 ------- ------- ------- ------- Accrual and related activity: Balance, beginning of year..................................... $ 7,388 $ 3,868 Adjustment recorded in connection with acquisition activity *........................................................... 1,320 -- Additions: Income statement charges.................................... 1,029 1,747 Estimated liability recorded in connection with acquisition activity net of related deferred tax asset of $1,320...... -- 1,980 Deductions for expenditures.................................... (679) (207) ------- ------- Balance, end of year........................................... $ 9,058 $ 7,388 ------- ------- ------- ------- Classification of year end accrual: Current........................................................ $ 310 $ 800 Non-current.................................................... 8,748 6,588 ------- ------- $ 9,058 $ 7,388 $ 9,058 $ 7,388 ------- ------- ------- ------- - --------------- * Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standard #109, "Accounting for Income Taxes." At that date and in accordance with the provisions of that Statement, a deferred tax asset of $1,320 previously netted against this accrual was reclassified to non-current assets. During 1991, income statement charges for additions to the accrual forenvironmental contingencies aggregated $3,190. Significant matters wherein the related liability or range of liability isestimable, are summarized as follows: (a) Nepera, Inc. (Nepera) was named in 1987 as a Potentially ResponsibleParty (PRP) along with certain prior owners of the Maybrook Site inHamptonburgh, New York by the United States Environmental Protection Agency(EPA) in connection with the disposition, under appropriate permits, ofwastewater at that site prior to Cambrex's acquisition of Nepera in 1986. TheHamptonburgh site is on the EPA's National Priorities List for remedial work andclean-up. However, to date the EPA has entrusted the management of theremediation effort to the New York State Department of EnvironmentalConservation (DEC). Although the periods of ownership of the site and the extentof its use for wastewater disposal are well established, the PRP's have not beenable to agree upon an allocation method for future remediation costs. 39 40 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) During 1991, the DEC, through the use of a computer model, developed anestimated cost to remediate the Hamptonburgh site and proposed an allocationmethod which considered the number of years each named party owned the site andthe number of years each party used the site for wastewater disposal. Under thatproposal, Nepera's suggested liability aggregated $2,600 and an expense wasrecorded in the same amount. During 1992, the Company received a draft RemedialInvestigation/Feasibility Study (RI/FS) report which enumerated severalremediation alternatives and submitted the Remedial Investigation portion to theDEC for review. Consequently, although this RI/FS has not been approved by theDEC, the Company utilized it to revise the estimated liability for this matterincluded in the accrual for environmental contingencies. This estimate considersthe probability of cost sharing with prior owners of the site. During 1993, the DEC requested the performance of additional siteinvestigation prior to reviewing the Feasibility Study portion of the report.The Company prepared a plan for such additional site investigation and submittedit for review. (b) Nepera was named in 1987 as a responsible party along with certainprior owners of Nepera's Harriman, New York production facility by the DEC inconnection with contamination at that site. The Company believes that anyremediation to be conducted at that site is primarily related to contaminationattributable to material handling and disposal practices, including drum burialat the site, which occurred prior to Cambrex's acquisition of Nepera in 1986. During 1991, the Company, with the agreement of the DEC, began an interimremedial measure which involves the pumping and treatment of groundwater tomitigate the possibility of contamination progressing beyond the Harriman sitemitigate the possibility of contamination progressing beyond the Harriman siteboundaries. This interim remedial measure continued throughout 1993. During 1992, the Company received a draft RI/FS report which enumeratedseveral remediation alternatives and submitted the Remedial Investigationportion to the DEC for review. Consequently, although this RI/FS has not beenapproved by the DEC, the Company utilized it to develop an estimated liabilityfor this matter and included it in the accrual for environmental contingencies.This estimate considers the probability of cost sharing with prior owners of thesite. During 1993, the Company has not received from the DEC any commentary onthe Remedial Investigation portion of the report. (c) CasChem, Inc. (CasChem) was subject to an investigation in 1990 byagents of the EPA and the Federal Bureau of Investigation pursuant to a searchwarrant indicating an interest in the handling, storage, and disposal ofhazardous wastes. Various records were taken and a number of materials weresampled. During 1992, the United States Attorney's Office (USAO) contacted theCompany and indicated that it believes there were violations of the ResourceConservation and Recovery Act at the site. During 1993, the Company was served with a subpoena requiring submission ofadditional documents relating to the site's activities. Discussions with theUSAO to resolve this matter are ongoing. (d) Cosan, Inc. (Cosan) entered into an Administrative Consent Order in1985 with the New Jersey Department of Environmental Protection and Energy(NJDEPE) under New Jersey's Environmental Conservation and Recovery Act (ECRA)in order to consummate the sale of the controlling interest in Cosan to theCompany. Through that action, Cosan became required to determine whether itsfacility located in Carlstadt, New Jersey was contaminated by hazardousmaterials and, if appropriate, effect a cleanup. During 1992, based upon the results of an evaluation of the site, theCompany proposed the installation of a groundwater recovery system to removecontaminates from the soil. Presently, the Company is awaiting the NJDEPE'sapproval of that proposal. 40 41 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (e) As more fully described in Note #3, in 1992 the Company acquiredsubstantially all of the assets of the fine chemicals business of Hexcel FineChemicals, now known as Zeeland Chemicals, Inc. In connection with thattransaction, the Company established an accrual of $3,300 for environmentalconditions existing as of the date of the acquisition. (f) Cosan received notice in 1990 of a proposed NJDEPE administrative fineof $2,308 relating to allegedly exceeding permit levels for discharges into alocal sewerage treatment plant during the 1980's. The Company contested theproposed fine stating that the Company was installing a modern treatment plantto meet effluent limits in a new permit and that the Company fully advised theNJDEPE of all activities at the time. During 1993, the Company agreed to a settlement consisting of a payment of$650. Such settlement did not constitute any admission of fact oracknowledgement of any fault or liability on the part of the Company. Thepayment was charged to the accrual for contingent liabilities. Those matters wherein the related liability is not estimable and no amountsare included in the accrual for environmental contingencies are summarized asfollows: (a) Nepera has been named as a PRP along with approximately 130 othercompanies by the EPA in connection with the SCP Corporation (SCP) site inCarlstadt, New Jersey. The SCP site is on the EPA's National Priorities List forremedial work and cleanup. SCP disposed of process wastewater and minor amountsof other material for Nepera during the 1970's. The EPA has directed an Interim Remedial Measure for this site consistingof the construction of slurry walls and a pump and treat facility. Presently,there are no reliable remediation cost estimates for this site nor has aproportionate allocation of responsibility been established. However, theCompany's alleged responsibility may be relatively large in relation to otherparties. The Company is contesting the proposed basis for the allocation ofresponsibility for this site, and believes it has grounds to, and will, opposeany efforts to charge it with excessive responsibility. Therefore, the ultimateextent of liability, if any, with respect to this matter cannot be estimated atthis time. (b) Cosan was named in 1992 as a defendant in a suit filed by the owners ofa manufacturing site in Clifton, New Jersey that had been owned and operated byCosan from 1968 to 1979. Through this action, the plaintiffs allege Cosancontributed to the contamination at the site and seek to compel the Company tocontribute toward present and future costs of remediation of the site underECRA. However, the magnitude of those costs and Cosan's alleged responsibilitieshave not been specified. Presently, the matter is in discovery. The Company is party to a number of other proceedings. Management is of theopinion that the ultimate liability resulting from those proceedings will nothave a material adverse effect upon the Company's results of operations nor itsfinancial position. 41 42 CAMBREX CORPORATION SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- -------- 1993Net revenues......................... $47,648 $52,779 $48,065 $48,711 $197,203Gross profit......................... 11,919 14,210 13,411 12,238 51,778Net income........................... 1,794 2,427 2,194 2,226 8,641Earnings per share:(1) Primary............................ $ 0.35 $ 0.47 $ 0.42 $ 0.40 $ 1.64 Fully diluted...................... $ 0.34 $ 0.45 $ 0.41 $ 0.40 $ 1.60Average shares: Primary............................ 5,169 5,191 5,273 5,498 5,282 Fully diluted...................... 5,486 5,466 5,482 5,502 5,4841992Net revenues......................... $40,657 $49,192 $46,854 $42,749 $179,452Gross profit......................... 9,842 12,247 13,025 10,922 46,036Net income........................... 1,304 1,709 2,092 1,125 6,230Earnings per share:(1) Primary............................ $ 0.27 $ 0.35 $ 0.43 $ 0.23 $ 1.27 Fully diluted...................... $ 0.27 $ 0.34 $ 0.41 $ 0.22 $ 1.23Average shares: Primary............................ 4,808 4,860 4,911 4,958 4,888 Fully diluted...................... 5,074 5,190 5,266 5,314 5,242 - --------------- (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. 42 43 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE. The registrant changed the accounting firm engaged as the principalaccountant to audit the registrant's financial statements. The former accountant, KPMG Peat Marwick was dismissed by the registrant onMarch 19, 1992. The principal accountant's report on the financial statementsfor the period up to December 31, 1991 did not contain any adverse opinion ordisclaimer of opinion and was not qualified or modified in any manner. Thedecision to change accountants was approved by the Board of Directors of theregistrant, in accordance with the recommendation of the Audit Committee. Duringthe periods up to December 31, 1991 and any subsequent interim period precedingthe dismissal of the former accountant there were no disagreements with theformer accountant on any matter of accounting principles or practices, financialstatement disclosure, or auditing scope or procedure, which would have causedthe former accountant to make reference to the subject matter of thedisagreement in connection with its report. The registrant engaged Coopers and Lybrand as the principal accountant onMarch 19, 1992. PART III 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 referenceto the information set forth under the captions "Principal Stockholders," "Boardof Directors," "Election of Directors," and "Executive Compensation" in theRegistrant's definitive proxy statement for the 1994 Annual Meeting ofStockholders, which meeting involves the election of directors, which definitiveproxy statement is being filed with the Securities and Exchange Commissionpursuant to Regulation 14A. In addition, information concerning the registrant's executive officers hasbeen included in Part I above under the caption "Executive Officers of theRegistrant." 43 44 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. The following consolidated financial statements of the Company arefiled as part of this report: PAGE NUMBER (IN THIS REPORT) (IN THIS REPORT) ---------------- Independent Accountants' Reports....................................... 20 Consolidated Balance Sheets as of December 31, 1993 and 1992........... 22 Consolidated Income Statements for the Years Ended December 31, 1993, 1992 and 1991........................................................ 23 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1992 and 1991..................................... 24 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991.................................................. 25 Notes to Consolidated Financial Statements............................. 26 Consolidated Quarterly Financial Data (unaudited) for the Years Ended December 31, 1993 and 1992........................................... 42 (a) 2.(i) The following schedules to the consolidated financial statementsof the Company as filed herein and the Report of Independent Certified PublicAccountants on Schedules are filed as part of this report. PAGE NUMBER (IN THIS REPORT) ---------------- Independent Accountants' Reports (included in the accountants' reports on the registrant's consolidated financial statements)............... 20 Schedule V -- Property, Plant and Equipment............................ 45 Schedule VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment........................................ 46 Schedule VIII -- Valuation and Qualifying Accounts..................... 47 Schedule X -- Supplementary Income Statement Information............... 48 All other schedules are omitted because they are not applicable or not requiredor because the required information is included in the consolidated financialstatements of the Company or the notes thereto. (ii) Separate financial statements of Cosan Canada, Ltd., which is 42.5%owned by the Company, have been omitted as neither the assets nor income fromcontinuing operations before taxes of Cosan Canada, Ltd. exceeds 20 percent ofthe Company's related consolidated totals. (a) 3. The exhibits filed in this report are listed in the Exhibit Index onpage 50. The registrant agrees, upon request of the Securities and ExchangeCommission, to file as an exhibit each instrument defining the rights of holdersof long-term debt of the registrant and its consolidated subsidiaries which hasnot been filed for the reason that the total amount of securities authorizedthereunder does not exceed 10% of the total assets of the registrant and itssubsidiaries on a consolidated basis. (b) Reports on Form 8-K The registrant did not file any reports on Form 8-K during the last quarterof the year ended December 31, 1993. 44 45 SCHEDULE V CAMBREX CORPORATION PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS)  COLUMN B COLUMN E COLUMN F ---------- COLUMN C -------------------- ---------- COLUMN A BALANCE AT -------- COLUMN D TRANSFERS OTHER BALANCE AT- ------------------------------- BEGINNING ADDITIONS ----------- BETWEEN CHANGES END OF CLASSIFICATION OF YEAR AT COST RETIREMENTS ACCOUNTS (1) YEAR- ------------------------------- ---------- -------- ----------- --------- ------- ---------- Year Ended December 31, 1993: Land......................... $ 4,349 $ -- $ -- $ -- $ -- $ 4,349 Buildings and Improvements... 18,972 -- -- 3,713 13 22,698 Machinery and Equipment...... 93,100 -- (255) 5,619 2,446 100,910 Furniture and Fixtures....... 2,908 -- -- 1,453 -- 4,361 Construction in Progress..... 8,917 15,835 (48) (10,785) -- 13,919Year Ended December 31, 1992: Land......................... 2,985 -- -- -- 1,364 4,349 Buildings and Improvements... 16,227 50 -- 416 2,279 18,972 Machinery and Equipment...... 64,685 1,060 -- 5,325 22,030 93,100 Furniture and Fixtures....... 2,332 169 -- 207 200 2,908 Construction in Progress..... 6,535 7,853 -- (5,947) 476 8,917Year Ended December 31, 1991: Land......................... 2,839 -- -- -- 146 2,985 Buildings and Improvements... 15,249 -- -- 646 332 16,227 Machinery and Equipment...... 52,485 112 (5) 3,810 8,283 64,685 Furniture and Fixtures....... 1,624 81 -- 309 318 2,332 Construction in Progress..... 4,425 6,855 -- (4,766) 21 6,535 - --------------- (1) Amounts included in 1993, 1992 and 1991 represent the cost of tangible assets acquired in business combinations accounted for as purchases. Other changes to machinery and equipment in 1992 include equipment of $8,214 acquired through the assumption of a capital lease obligation. 45 46 SCHEDULE VI CAMBREX CORPORATION ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS) COLUMN C COLUMN B ---------- COLUMN E COLUMN F ---------- ADDITIONS -------- ---------- COLUMN A BALANCE AT CHARGED TO COLUMN D OTHER BALANCE AT- ------------------------------------ BEGINNING COST AND ----------- CHANGES END OF CLASSIFICATION OF YEAR EXPENSES RETIREMENTS (1) YEAR- ------------------------------------ ---------- ---------- ----------- -------- ---------- Year Ended December 31, 1993: Buildings and Improvements........ $ 6,497 $1,254 $ -- $ -- $ 7,751 Machinery and Equipment........... 37,544 8,847 (27) -- 46,364 Furniture and Fixtures............ l,704 634 -- -- 2,338Year Ended December 31, 1992: Buildings and Improvements........ 5,417 1,080 -- -- 6,497 Machinery and Equipment........... 29,823 7,721 -- -- 37,544 Furniture and Fixtures............ 1,156 548 -- -- 1,704Year Ended December 31, 1991: Buildings and Improvements........ 4,458 959 -- -- 5,417 Machinery and Equipment........... 23,741 5,651 (1) 432 29,823 Furniture and Fixtures............ 897 259 -- -- 1,156 - ---------------(1) 1991 changes represent depreciation expense which was applied against an accrual for probable costs. 46 47 SCHEDULE VIII  CAMBREX CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS) COLUMN C ADDITIONS COLUMN B ----------------------- COLUMN E -------- CHARGED -------- COLUMN A BALANCE TO COST CHARGED TO COLUMN D BALANCE- -------------------------------------- BEGINNING AND OTHER ---------- END OF CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR- -------------------------------------- -------- -------- ---------- ---------- -------- Year Ended December 31, 1993: Doubtful trade receivables and returns and allowances........... $ 607 $ 120 $ -- $ 372 $ 355 Doubtful other receivables.......... 553 -- -- 553 -- Inventory and obsolescence losses... 2,579 103 -- 1,165 1,517Year Ended December 31, 1992: Doubtful trade receivables and returns and allowances........... 440 183 -- 16 607 Doubtful other receivables.......... -- 553 -- -- 553 Inventory and obsolescence losses... 3,036 1,073 -- 1,530 2,579Year Ended December 31, 1991: Doubtful trade receivables and returns and allowances........... 590 15 -- 165 440 Inventory and obsolescence losses... 1,796 4,220 -- 2,980 3,036 47 48 SCHEDULE X CAMBREX CORPORATION SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS) COLUMN A COLUMN B ------------ -------- CHARGED TO COSTS AND EXPENSES ------------ Year Ended December 31, 1993: Maintenance and repairs....................................................... $4,237Year Ended December 31, 1992: Maintenance and repairs....................................................... 5,295Year Ended December 31, 1991: Maintenance and repairs....................................................... 2,808 48 49 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. CAMBREX CORPORATION  By /s/ CYRIL C. BALDWIN, JR. Cryil C. Baldwin, Jr. Chairman of the Board and Chief Executive Officer Date: March 21, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE- --------------------------------------------- -------------------------- ----------- /s/ CYRIL C. BALDWIN, JR. Chairman of the Board and Cyril C. Baldwin, Jr. Chief Executive Officer and Director/s/ PETER TRACEY Vice President-Finance, Peter Tracey Principal Financial Officer and Principal Accounting Officer/s/ FRANCIS X. DWYER* Director Francis X. Dwyer /s/ ROBERT W. LEAR* Director Robert W. Lear/s/ EDWIN A. GEE* Director Edwin A. Gee/s/ ROBERT LEBUHN* Director Robert LeBuhn March 21, 1994/s/ GEORGE J. W. GOODMAN* Director George J. W. Goodman/s/ JAMES A. MACK* Director James A. Mack/s/ ILAN KAUFTHAL* Director Ilan Kaufthal/s/ DEAN P. PHYPERS* Director Dean P. Phypers/s/ ARTHUR I. MENDOLIA* Director Arthur I. Mendolia*By /s/ CYRIL C. BALDWIN, JR. Cyril C. Baldwin, Jr. Attorney-in-Fact 49 50 CAMBREX CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1992 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION- ------------------- -----------------------  3.1 -- Restated Certificate of Incorporation of Registrant (A) -- Exhibit 3(a). 3.2 -- By Laws of Registrant. (F) -- 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 -- Revolving Credit and Term Loan Agreement dated September 29, 1987 by and among the registrant, Midlantic National Bank and Irving Trust Company (now The Bank of New York). (B) -- Exhibit 4.1. 4.3.1 -- Amendment No. 1 dated June 5, 1989 to the Revolving Credit and Term Loan Agreement dated September 29, 1987, by and among the registrant, Midlantic National Bank and Irving Trust Company (now The Bank of New York). (D) -- Exhibit 4.1(a). 4.3.2 -- Amendment No. 2 dated March 30, 1990 to the Revolving Credit and Term Loan Agreement dated September 29, 1987, by and among the registrant, Midlantic National Bank and Irving Trust Company (now The Bank of New York). (E) -- Exhibit 4.1(b). 4.3.3 -- Amendment No. 3 dated March 26, 1991 to the Revolving Credit and Term Loan Agreement dated September 29, 1987, by and among the registrant, Midlantic National Bank and Irving Trust Company (now the Bank of New York). (G). 4.3.4 -- Amendment No. 4 dated June 28, 1991 to the Revolving Credit and Term Loan Agreement dated September 29, 1987 by and among the registrant, Midlantic National Bank, and NBD Bank, N.A. (H). 4.4 -- Revolving Credit and Term Loan Agreement dated March 27, 1992 by and among the registrant, NBD Bank, N.A., National Westminster NJ, and United Jersey Bank (K). 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. (D) -- Exhibit 10(a). 10.3 -- Asset Purchase Agreement dated as of July 1, 1991 between Solvay Animal Health, Inc. and the registrant. (H). 10.4 -- Asset Purchase Agreement dated as of March 31, 1992 between Hexcel Corporation and the registrant. (K). 10.10 -- Annual Incentive Compensation Plan for Corporate Executives dated January 26, 1989. (G). 10.11 -- Management Incentive Compensation Plan for Corporate Executives dated January 1, 1990. (G). 10.12 -- 1983 Incentive Stock Option Plan, as amended. (C). 10.13 -- 1987 Long-term Incentive Plan. (A) -- Exhibit (g). 10.14 -- 1987 Stock Option Plan. (C). 10.15 -- 1989 Senior Executive Stock Option Plan. (E) -- Exhibit 10.C. 10.21 -- Agreement dated September 27, 1990 between the registrant and Cyril C. Baldwin, Jr. (G). 50 51 EXHIBIT NO. DESCRIPTION ---------------- ---------------------- 10.25 -- Form of Employment Agreement between the registrant and its executive officers named in the Revised Schedule of Parties thereto. (E) -- Exhibit 10.A. 10.26 -- Revised Schedule of Parties to Employment Agreement (exhibit 10.25 hereto). (I). 10.27 -- Employment Agreement dated as of January 3, 1990 between the registrant and James A. Mack. (E) -- Exhibit 10.B. 10.28 -- Employment Agreement dated as of September 28, 1990 between the registrant and Peter Tracey. (G). 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). 10.50 -- Manufacturing Agreement dated as of July 1, 1991 between the registrant and A.L. Laboratories, Inc. (I). 11 -- Statement re computation of earnings per share. (L). 16 -- Change in Registrant's Certifying Accountant. (J). 22 -- Subsidiaries of registrant. (L). 24.1 -- Consent of KPMG Peat Marwick to the incorporation by reference of its 24.1 -- Consent of KPMG Peat Marwick to the incorporation by reference of its report herein in Registration Statement Nos. 33-21374 and 33-37791 on Form S-8 of the registrant. (L). 24.2 -- Consent of Coopers & Lybrand to the incorporation by reference of its report herein in Registration Statement Nos. 33-21374 and 33-37791 on Form S-8 of the registrant. (L). 25 -- Powers of Attorney to sign this report. (L). - --------------- (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 the indicated Exhibit to registrant's Annual Report on Form 10-K for 1987. (C) Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 33-21374) and Amendment No. 1. (D) Incorporated by reference to registrant's Annual Report on Form 10-K dated June 5, 1989. (E) Incorporated by reference to the indicated Exhibit to registrant's Annual Report on Form 10-K for 1989. (F) Incorporated by reference to the indicated Exhibit to registrant's Registration Statement on Form S-8 (Registration No. 33-37791). (G) Incorporated by reference to registrant's Annual Report on Form 10-K for 1990. (H) Incorporated by reference to registrant's Current Report on Form 8-K dated July 1, 1991. (I) Incorporated by reference to the registrant's Annual Report on Form 10-K for 1991. (J) Incorporated by reference to the registrant's Current Report on Form 8-K dated March 19, 1992 and Amendments No. 1 and No. 2 to its Current Report. (K) 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. (L) Filed herewith. 51 1 CAMBREX CORPORATION AND SUBSIDIARIES EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) YEARS ENDED DECEMBER 31, -------------------------------------------------------------------- 1993 1992 1991(1) 1990(1) 1989 1988 1987 ------ ------ ------- ------- ------ ------ ------ Income applicable to common shares: Income (loss) from continuing operations.... $8,641 $6,230 $ 31 $(5,075) $3,061 $7,035 $5,897Deduct: Preferred stock: Class A dividends........................ -- -- -- -- -- -- (247) ------ ------ ------- ------- ------ ------ ------ Primary earnings......................... 8,641 6,230 31 (5,075) 3,061 7,035 5,650Add: Interest reduction attributable to assumed conversion of convertible subordinated notes (Net of taxes) Notes issued June 11, 1985.................. 71 136 -- -- 144 149 146 Notes issued October 3, 1985................ 43 81 -- -- 87 91 88 ------ ------ ------- ------- ------ ------ ------ Fully diluted earnings (loss)............... $8,755 $6,447 $ 31 $(5,075) $3,292 $7,275 $5,884 ------ ------ ------- ------- ------ ------ ------ ------ ------ ------- ------- ------ ------ ------ Gain from discontinued operations........... $ -- $ -- $ -- $ -- $ -- $ -- $2,060 ------ ------ ------- ------- ------ ------ ------ ------ ------ ------- ------- ------ ------ ------Weighted average number of common shares and common share equivalents outstanding during the year: Common stock................................ 4,961 4,753 4,655 4,705 5,441 5,165 1,918 Nonvoting Common stock...................... -- -- -- 113 113 331 151 Preferred stock -- Class B.................. -- -- -- -- -- -- 528 Preferred stock -- Class C.................. -- -- -- -- -- -- 253 Preferred stock -- Class D.................. -- -- -- -- -- -- 952 Stock options............................... 321 135 49 -- 76 115 97 ------ ------ ------- ------- ------ ------ ------ Shares outstanding -- primary............... 5,282 4,888 4,704 4,818 5,630 5,611 3,899Notes issued June 11, 1985.................... 122 198 -- -- 169 166 185Notes issued October 3, 1985.................. 73 120 -- -- 101 100 111Additional stock options...................... 7 36 34 -- -- -- 4 ------ ------ ------- ------- ------ ------ ------ Shares outstanding -- fully diluted......... 5,484 5,242 4,738 4,818 5,900 5,877 4,199 ------ ------ ------- ------- ------ ------ ------ ------ ------ ------- ------- ------ ------ ------ Fully diluted earnings (loss) per common share(2).......................... $ 1.60 $ 1.23 $ 0.01 $ (1.05) $ 0.54 $ 1.24 $ 1.89 ------ ------ ------- ------- ------ ------ ------ ------ ------ ------- ------- ------ ------ ------ - --------------- (1) The convertible subordinated notes and the related interest, net of income taxes, had an anti-dilutive effect on earnings per share for the years ended December 31, 1991 and 1990 and are, therefore, excluded from the computation. (2) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. 52 1 CAMBREX CORPORATION EXHIBIT 22 SUBSIDIARIES OF REGISTRANT SUBSIDIARY STATE OF INCORPORATION ---------------------------------------- ---------------------- CasChem, Inc. Delaware Cosan Chemical Corp. New Jersey Nepera, Inc. New York The Humphrey Chemical Co., Inc. Delaware Salsbury Chemicals, Inc. Iowa Zeeland Chemicals, Inc. Michigan 53 1 CAMBREX CORPORATION EXHIBIT 24.1 ACCOUNTANTS' CONSENT The Stockholders and Board of DirectorsCambrex Corporation: We consent to incorporation by reference in the Registration StatementsNos. 33-21374 and 33-37791 on Form S-8 of Cambrex Corporation of our reportdated January 28, 1992, relating to the consolidated income statement,statements of stockholders' equity, and cash flows and related schedules ofCambrex Corporation and Subsidiaries for the year ended December 31, 1991, whichreport appears in the December 31, 1993 Annual Report on Form 10-K of CambrexCorporation. KPMG Peat Marwick New York, New YorkMarch 16, 1994 54 1 CAMBREX CORPORATION EXHIBIT 24.2 ACCOUNTANTS' CONSENT Cambrex Corporation: We consent to the incorporation by reference in the registration statementof Cambrex Corporation on Form S-8 (File No. 33-21374 and 33-37791) of ourreport dated January 19, 1994, (except for Note 3, the date of which is January31, 1994) on our audits of the consolidated financial statements and financialstatement schedules of Cambrex Corporation as of December 31, 1993 and 1992 forthe years then ended, which report is included in this Annual Report on Form10-K. COOPERS & LYBRAND Parsippany, New JerseyMarch 21, 1994 55 1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each officer and director of CambrexCorporation, a Delaware corporation, whose signature appears below constitutesand appoints Cyril C. Baldwin, Jr., James A. Mack and Peter Tracey, and each ofthem, his true and lawful Attorney-in-fact and agent, with full power ofsubstitution and resubstitution, for him and in his name, place and stead, inany and all capacities, to sign any and all Annual Reports on Form 10-K whichsaid Cambrex Corporation may be required to file pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 and any and all amendments thereto and tofile the same, with all exhibits thereto, and other documents in connectiontherewith, with the Securities and Exchange Commission, granting unto to saidattorneys-in-fact and agent full power and authority to do and perform each andevery act and thing requisite and necessary to be done in and about thepremises, as fully to all intents and purposes as he might or could do inperson, hereby ratifying and confirming all that said attorneys-in-fact andagents or their substitutes may lawfully do or cause to be done by virtuehereof. IN WITNESS WHEREOF, each of the undersigned has executed this instrument asof the 24th day of January, 1994. CYRIL C. BALDWIN, JR. ILAN KAUFTHALCyril C. Baldwin, Jr. Ilan KaufthalChief Executive Officer and Director Director(Principal Executive Officer) ROBERT W. LEARPeter Tracey Robert W. LearVice President and Chief Financial DirectorOfficer(Principal Financial and Accounting Officer)FRANCIS X. DWYER ROBERT LEBUHNFrancis X. Dwyer Robert LeBuhnDirector DirectorEDWIN A. GEE JAMES A. MACKEdwin A. Gee James A. MackDirector DirectorGEORGE J.W. GOODMAN ARTHUR I. MENDOLIAGeorge J.W. Goodman Arthur I. MendoliaDirector Director DEAN P. PHYPERS Dean P. Phypers Director

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