1 ---------------------------------------------------------------------------------------------------------------------------------------------------------------- UNITED STATES 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, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-10638 CAMBREX CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-2476135 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYERINCORPORATION 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: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE (SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE) Indicate by check mark whether the registrant (1) has filed all 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 of The aggregate market value of the voting stock held by non-affiliates ofthe registrant was approximately $990,722,740 as of February 28, 2001. APPLICABLE ONLY TO CORPORATE REGISTRANTS As of February 28, 2001, there were 25,471,853 shares outstanding of theregistrant's Common Stock, $.10 par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement for the 2001 AnnualMeeting are incorporated by reference into Part III of this report.---------------------------------------------------------------------------------------------------------------------------------------------------------------- 2 PART I ITEM 1 BUSINESS. GENERAL Cambrex Corporation (the "Company" or "Cambrex"), a Delaware corporation,began business in December 1981. The Company primarily provides products andservices worldwide to the life sciences industry. Cambrex operates in foursegments, Human Health, Biosciences, Animal Health/Agriculture, and Specialtyand Fine Chemicals. Each of these segments include various product categories.The Human Health, Biosciences, and Animal Health/Agriculture segments facilitateall the ongoing analysis of the business in the area of life sciences.Currently, the Company's overall strategy for these segments is to focus onniche markets that have global opportunities, build on strong customer relationsto enhance our new products pipeline, and support state-of-the-art technology,while being a leader in environmental, health and safety performance. Within each of the segments, the Company uses a consistent businessapproach: 1. Focus on niche products requiring significant technical expertise. 2. Be a leading supplier of core products, for which price competition is not the primary market determinant. 3. Review products on a continuing basis and eliminate those not meeting operating profit goals and replace those products with ones generating higher returns. Important objectives of the Company are to expand its operations throughinternal growth and make strategic acquisitions of product lines, technology andcompanies that increase its position in niche markets. On October 3, 1997, the Company completed the acquisition of all of theoutstanding common stock of BioWhittaker, Inc. ("BioWhittaker") forapproximately $133,500. BioWhittaker, which is located on 116 acres inWalkersville, Maryland, develops, produces and sells cell culture and endotoxindetection products to the biotechnology and pharmaceutical industries forresearch and for the commercial manufacture of biopharmaceutical products. OnMay 12, 1998, Cambrex purchased the assets of the biopharmaceuticalmanufacturing and distribution business of Boehringer Ingelheim BioproductPartnership. The assets acquired include a state-of-the-art cell culture andmedia manufacturing facility in Verviers, Belgium, and inventory for certaincell culture, endotoxin detection and molecular biology products. On January 9, 1998, the Company completed the acquisition of the chiralintermediates business of Celgene Corporation for approximately $11,328 plusfuture royalties of up to $7,500 based upon sales. The product line, which hasbeen re-named Chiragene, produces optically active, complex, organic compoundsthat are critical to the production of modern active pharmaceutical ingredients. On January 4, 1999, the Company acquired Poietic Technologies, Inc., theleading supplier of normal human cells of hematopoietic origin. Terms of thetransaction are $2,500 in cash and future consideration based on the performanceof the business. On March 12, 1999, the Company completed the purchase of IrotecLaboratories, Ltd., a manufacturer of active pharmaceutical ingredients locatedin Cork, Ireland. Cambrex paid approximately $37,560 for the business, whichincluded a new $15,000 cGMP pharmaceutical manufacturing plant that came on linein the third quarter of 1999. In connection with the purchase, the Companysigned a long-term agreement with Hexal AG, Germany's second largest genericpharmaceutical producer. The agreement covers the supply of an expected $50,000to $75,000 of Active Pharmaceutical Ingredients (API) over the next five years. On July 12, 1999, the Company acquired BioWhittaker Molecular Applications,Inc. (formerly the BioProducts division of the FMC Corporation) forapproximately $38,000. The business, which serves the life sciences industry, isthe world's largest manufacturer of electrophoresis media based on the naturalpolymer ---------------(dollars in thousands, except share data) 1 3 agarose. Electrophoresis media products are used to separate and analyzeproteins and sequence DNA, work critical to the development and manufacture ofnew biopharmaceuticals. High purity agarose is also used to make chromatographymedia for large-scale separation and purification of biologicals, important inpharmaceutical applications. The transaction, structured as a purchase ofassets, includes two operating facilities located in Rockland, Maine andCopenhagen, Denmark, and a number of U.S. and foreign patents associated withthe business. On March 2, 2000, the Company completed the acquisition of Conti BC NV, amanufacturer and supplier of pharmaceutical intermediates and activepharmaceutical ingredients, located in Landen, Belgium. The Company paidapproximately $6,200 in cash and assumed debt for the business. At the time ofthe transaction, goodwill was recorded at $451 and is being amortized over 20years. On July 24, 2000, the Company completed the acquisition of Lumitech,Limited, an emerging company based in Nottingham, United Kingdom, which providesproducts and services used in the high throughput screening market for drugdiscovery. The Company paid approximately $4,700 in cash at closing, themajority of which was recorded as patents and other intangibles, with additionalfuture performance-based payments of up to $16,000 due over the next five years.The acquired patents and other intangibles are being amortized over 15-20 years. On August 29, 2000, Cambrex Corporation announced that its CasChem, Inc.subsidiary had licensed the castor oil based ester products business fromArizona Chemical, Jacksonville, FL through a perpetual licensing agreement forapproximately $4.5 million. The agreement provides CasChem with processtechnologies, customer lists, and supply of raw materials. The ester productsare used in personal care and coatings applications. The acquisition cost isincluded in intangible assets at December 31, 2000 and is being amortized over10 years. As part of the transaction, CasChem has also entered into a five-yearsupply agreement with Arizona Chemical to manufacture a line of tall oil basedproducts used in the lubricant and lithographic ink markets. It is estimatedthat the aggregate revenue contribution to CasChem will be approximately $10million per year. PRODUCTS The Company uses its technical expertise in a wide range of chemical and biological processes to meet the needs of its customers for high qualityproducts for specialized applications. The following table sets forth for theperiods indicated information concerning gross sales from the Company's foursegments: YEARS ENDED DECEMBER 31, -------------------------------- 2000(2) 1999(1) 1998 -------- -------- -------- Human Health....................................... $233,886 $225,660 $194,766Biosciences........................................ 96,232 83,887 65,968Animal Health/Agriculture.......................... 56,220 55,695 56,285Specialty and Fine Chemicals....................... 106,206 119,318 124,664 -------- -------- -------- Gross Sales...................................... $492,544 $484,560 $441,683 ======== ======== ======== ---------------(1) Sales from Irotec Laboratories, acquired in March 1999, and BioWhittaker Molecular Applications, acquired in July 1999, are included from the dates of acquisition. (2) Sales from Conti BC NV acquired in March 2000, and Lumitech Limited, acquired July 2000, are included from dates of acquisition. Human Health: The Human Health Segment is classified into eight principalproduct groups: (1) Active Pharmaceutical Ingredients, (2) PharmaceuticalIntermediates, (3) Imaging Chemicals, (4) Personal Care Ingredients, (5)Biomedical Urethanes, (6) Catalysts, (7) Chiral Technology and (8)Nutraceuticals. These products are sold to a diverse group of more than 1,100customers, with one customer, a distributor ---------------(dollars in thousands, except share data) 2 4 representing multiple customers, accounting for 15% of 2000 sales in thissegment. Many of these products are also sold through agents. This table summarizes the gross sales for this product segment. $ % 2000 1999 CHANGE CHANGE -------- -------- ------- ------ Active Pharmaceutical Ingredients.......... $171,174 $161,282 $ 9,892 6%Pharmaceutical Intermediates............... 29,527 25,995 3,532 14Personal Care Ingredients.................. 15,512 14,706 806 5Imaging Chemicals.......................... 7,842 13,568 (5,726) (42)Biomedical Urethanes....................... 2,784 3,050 (266) (9)Catalysts.................................. 7,035 6,950 85 1Nutraceuticals............................. 12 109 (97) (89) -------- -------- ------- Total Human Health............... $233,886 $225,660 $ 8,226 4% ======== ======== ======= === Human Health sales of $233,886 increased $8,226 (4%) despite theunfavorable effects of foreign currency which reduced sales by 5.0%. Active Pharmaceutical Ingredients are manufactured under FDA regulation(cGMP -- current Good Manufacturing Practices) for use as the active ingredientsin prescription and over-the-counter drugs. Active Pharmaceutical Ingredients sales of $171,174 were $9,892 (6%) above the prior year due primarily to salesfrom the acquisition of Conti in March 2000 of approximately $15,000, a new U.S.cardiovascular introduction and a full year of sales from the March 1999acquisition of Irotec partially offset by lower sales of gastro-intestinalproductions due to customer 1999 inventory buildups. Active PharmaceuticalIngredients includes active ingredients used in products for gastro-intestinal,cardiovascular, endocrine, central nervous system, respiratory, diuretics,anti-infective, anti-inflammatory, immunology and various other uses. Pharmaceutical Intermediates sales of $29,527 were $3,532 (14%) above 1999due to a new contract for cyclohexenylethylamine, a cough suppressantingredient, new products, as well as a full year of sales from the March 1999acquisition of Irotec. Imaging chemicals sales of $7,842 were $5,726 (42%) below 1999 due to lostbusiness from competitive pricing in the industry. Other product category changes from prior year were not significant. Biosciences: This segment consists of cell culture products, includingliving cell cultures, cell culture media and cell culture media supplements,endotoxin detection products, and electrophoresis and chromatography productssupplied to the biotechnology and pharmaceutical industries. The Companymanufactures more than 1,800 products which are sold to more than 14,000customers worldwide with no one customer accounting for more than 10% of salesin this category. This table summarizes the gross sales for this product segment: $ % 2000 1999 CHANGE CHANGE ------- ------- ------- ------ Cells and Media.............................. $50,590 $47,434 $ 3,156 7%Endotoxin Detection.......................... 21,391 21,864 (473) (2)Electrophoresis, Chromatography & Other...... 24,251 14,589 9,662 66 ------- ------- ------- Total Biosciences.................. $96,232 $83,887 $12,345 15% ======= ======= ======= == Gross sales of $96,232 were $12,345 (15%) above 1999 due to increasedshipments of cell culture and electrophoresis products. The effect of full yearsales from the acquisition of BioWhittaker Molecular ---------------(dollars in thousands, except share data) 3 5 Applications, Inc. (formerly the BioProducts Business of FMC Corporation) inJuly 1999 added $11,652 in sales to this segment, and includes products forfragment analysis, sequencing, gel bond film and chromatography. Animal Health/Agriculture: This segment consists of three product groups:(1) Vitamin B-3 used in feed additives and for veterinary products, (2) AnimalHealth products used in disease prevention and (3) Agricultural Intermediatesused in crop protection. These products are sold to approximately 200 customers.Two customers accounted for 29.0% and 26.9% of 2000 sales in this segment. This table summarizes the gross sales for this product segment: $ % 2000 1999 CHANGE CHANGE 2000 1999 CHANGE CHANGE ------- ------- ------- ------ Vitamin B-3.................................. $ 6,910 $ 9,155 $(2,245) (25)%Animal Health................................ 16,140 15,013 1,127 8Agricultural Intermediates................... 33,170 31,527 1,643 5 ------- ------- ------- Total Animal Health/Agriculture.... $56,220 $55,695 $ 525 1% ======= ======= ======= === Vitamin B-3 sales of $6,910 were $2,245 (25%) below 1999 due to reducedshipments to the animal feed markets and lower prices compared to 1999. Animal Health sales of $16,140 were $1,127 (8%) above 1999 due to inventoryadjustments made by a major customer and moderate feed additive market growth. Agricultural Intermediate sales of $33,170 were up $1,643 (5%) due torequirements in crop protection and the timing of significant customercampaigns. Specialty and Fine Chemicals: This segment consists of two product groups:(1) Performance Enhancing Chemicals and (2) Polymer Systems. PerformanceEnhancing Chemicals are complex chemicals designed to impart special propertieswhen small quantities are included in the formulation of specific products.These chemicals, which include over 100 products, are used in photography,pigments, polymers, fuel/oil addition, catalysts and other specialty additives.Polymer Systems are monomers or two component polymer systems for use in smallvolume, high performance applications. These polymers include applications usedin coatings, telecommunications, electronics and engineering plastics. Theseproducts are sold to approximately 1,100 customers with no one customeraccounting for over 10% of 2000 sales. This table summarizes the gross sales for this product category: $ % 2000 1999 CHANGE CHANGE -------- -------- -------- ------ Performance Enhancing Chemicals........... $ 67,004 $ 76,441 $ (9,437) (12)%Polymer Systems........................... 39,202 42,877 (3,675) (9) -------- -------- -------- Total Specialty and Fine Chemicals..................... $106,206 $119,318 $(13,112) 11% ======== ======== ======== === Performance Enhancing Chemicals sales of $67,004 were $9,437 (12%) below1999 levels. Key decreases were in sales of Suconox (used as an anti-oxidant inplastic resins) and ASA's (alkenyl succinic anhydrides used in the fuel oilindustries as additives). Polymer Systems sales of $39,202 were down $3,675 (9%) due primarily tolower sales of encapsulants used in telecommunications. MARKETING AND DISTRIBUTION The Company's Human Health segment generally includes high value, lowvolume products requiring significant technical expertise for their developmentand manufacture. Marketing generally requires significant cooperative effortamong a small highly trained marketing staff, a technical staff who can assessthe technical ---------------(dollars in thousands, except share data) 4 6 fit and estimate manufacturing economics, and the business unit management todetermine the strategic and business fit. Such a process may take from two tofive years before a commercial product is fully established. Because of thislong lead time and the complexity of the technical efforts, there are usuallylong-term relationships with major corporations who become significantcustomers. Sales of established products may be handled by agents in those areaswhere direct sales efforts are uneconomical. For the Biosciences segment, the Company markets and sells its products inthe United States and Europe principally through its own direct sales force. TheCompany directly serves the European markets through its wholly-ownedsubsidiaries, BioWhittaker UK LTD, located outside London, and BioWhittaker,Europe located in Belgium, and BioWhittaker Molecular Applications located inDenmark. The remaining international markets are served principally through anextensive network of independent distributors. The Company is currentlyimplementing e-commerce software to market these products. For the Specialty and Fine Chemicals segment and some AnimalHealth/Agriculture segment products, marketing and distribution is more typicalof specialty chemical companies, with products being sold to customers frominventory in volumes ranging from rail cars to five gallon containers. Sales maybe handled by Company salespeople, distributors or agents, as appropriate. RAW MATERIALS The Company uses a wide array of raw materials in the conduct of itsbusinesses. The Company uses significant amounts of castor oil and compoundsderived from petroleum feedstocks in manufacturing a limited number of itsproducts. The Company believes it is one of the largest purchasers of castor oilin the United States, and has the ability to take delivery and store a largequantity of castor oil. Castor oil is used primarily in the manufacture of theCompany's polymer systems for coatings, telecommunication, and electronicapplications. Under advantageous market conditions, the Company sells thiscommodity in bulk quantities as simple castor oil derivatives. Castor oil, whichis not produced in the United States, is an agricultural product, the marketprice of which is affected by natural factors relating to the castor bean cropfrom which the oil is produced. Castor oil is produced commercially in a fewforeign countries, with India currently being the largest exporter. The Companyhas been generally able to obtain adequate supplies of castor oil at acceptableprices in the past and expects to be able to continue to do so in the future. Pyridine, which accounted for approximately 5%, 6% and 6% of gross revenuesin 2000, 1999 and 1998, respectively, is produced by the Company by a processinvolving the high temperature reaction of acetaldehyde, formalin and ammonia.Acetaldehyde is available from one supplier in North America. The average priceof acetaldehyde increased approximately 32% during 2000 after decreasing 9% in1999. While formaldehyde is available from multiple sources, a majority isobtained from a local supplier in the U.S. at competitive prices. The averageprice of formaldehyde in 2000 increased approximately 18% from 1999. The Companyobtains acetaldehyde and formalin pursuant to long-term supply contracts underwhich the price for the raw material adjusts to market conditions. For its biosciences products, the Company buys materials from manysuppliers and is generally not dependent on any one supplier or group ofsuppliers. Nonetheless, although there is a well-established market for rawfetal bovine serum, its price and supply are cyclical and fluctuate. The Companyalso is dependent on one company for the raw materials used to make Agaroseproducts (used by BioWhittaker Molecular Applications in electrophoeresis mediaproducts). A long term contract is in effect for this supply. The other key raw materials used by the Company are advanced organicintermediates and generally have been in adequate supply from multiplesuppliers. RESEARCH AND DEVELOPMENT The Company's research and development program is designed to increase theCompany's competitiveness through improving its technology and developing processes for the manufacture of new products to meet ---------------(dollars in thousands, except share data) 5 7 customer requirements. The goals are to improve the Company's manufacturingprocesses to reduce costs, improve quality and increase capacity; and toidentify market opportunities which warrant a significant technical effort, andoffer the prospects of a long-term, profitable business relationship. Researchand development activities are performed at most of the Company's manufacturingfacilities in both the United States and Europe. Approximately 150 employees areinvolved directly in research and development activities worldwide. At the end of 2000, the Company completed its initial investment in theCambrex Center of Technical Excellence, a new research and developmentorganization. The 42,000 square foot site is located in The Technology Centre ofNew Jersey in North Brunswick. The new facility helps to place the Company in aunique position to be a full-service resource for pharmaceutical andbiotechnology companies throughout the drug development cycle. The Company spent approximately $14,300, $14,300 and $14,000 in 2000, 1999and 1998, respectively, on research and development efforts. PATENTS AND TRADEMARKS The Company has patent protection in some of its product areas. However,the Company relies primarily on know-how in many of its manufacturing processesand techniques not generally known to other chemical companies, for developingand maintaining its market position. The Company currently owns approximately 160 United States patents whichhave various expiration dates beginning in 2001 through 2018 and which coverselected items in each of the Company's major product areas. The Company alsoowns the foreign equivalent of many of its United States patents. In addition,the Company has applied for patents for various concepts and is in the processof preparing patent applications for other concepts. In conjunction with theacquisition of BioWhittaker, the Company acquired patent and other proprietaryrights, which are material to the endotoxin detection products, allergy testskits and the ELVIS(R) cell culture products. 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. Such trademarks include Naturechem(R), Bufferite(R),Poietics(R), Clonetics(R), Auto-LAL(TM) and ELVIS(R). The Company requires employees to sign confidentiality and non-competeagreements where appropriate. COMPETITION Because of the nature of the Company's products in its Human Health andAnimal Health/Agriculture segments and its strategic approach, it is notpossible to identify a group of direct competitors. Where competition exists, itis typically specific to a certain product, or is focused early in the process,when an initial market position is being established. If the Company perceivessignificant competitive risk and a need for large technical or financialcommitment, it generally negotiates long-term contracts or capital guaranteesfrom its targeted customer before proceeding. In the Biosciences segment, no one company is known to compete with theCompany in all of its product groups, but in each group competition is offeredby a number of companies, including, in some cases, firms substantially largerand with greater financial resources than the Company. The markets in which theCompany competes are generally concentrated and are highly competitive, with competition centering on product specifications, quality, depth of product line,price, technical support, timely product development and speed of delivery. Competition for the Company's Specialty and Fine Chemicals segment is moretypical of chemical markets. Competition exists from other producers of theCompany's products and from other products that ---------------(dollars in thousands, except share data) 6 8 may offer equivalent properties. Competition in these areas is generally basedon customer service, product quality and pricing. ENVIRONMENTAL AND SAFETY REGULATIONS AND PROCEEDINGS General: Production of certain of the Company's products involves the use,storage and transportation of toxic and hazardous materials. The Company'soperations are subject to extensive international and domestic federal, stateand local laws and regulations relating to the storage, handling, emission,transportation and discharge of materials into the environment and themaintenance of safe conditions in the work place. The Company maintainsenvironmental and industrial safety and health compliance programs at itsplants, and believes that its manufacturing operations are in general compliancewith all applicable safety, health and environmental laws. The Company's acquisitions were made subject to known environmentalconditions. Also, as with other companies engaged in the chemical business,risks of substantial costs and liabilities are inherent in certain plantoperations and certain products produced at the Company's plants. Additionally,prevailing legislation tends to hold chemical companies primarily responsiblefor the proper disposal of their chemical wastes even after transferal to thirdparty waste disposal facilities. Moreover, other future developments, such asincreasingly strict environmental, safety and health laws and regulations, andenforcement policies thereunder, could result in substantial costs andliabilities to the Company and could subject the Company's handling,manufacture, use, reuse, or disposal of substances or pollutants at its plantsto more rigorous scrutiny than at present. Although the Company has no directoperations and conducts its business through subsidiaries, certain legalprinciples that provide the basis for the assertion against a parent company ofliability for the actions of its subsidiaries may support the direct assertionagainst the Company of environmental liabilities of its subsidiaries. Known environmental matters which may result in liabilities to the Companyand the related estimates and accruals are summarized in Note #22 to the CambrexCorporation and Subsidiaries Consolidated 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. The Company believes it is in general compliancewith such requirements and has adequate professional staff and systems in placeto remain in compliance. In some cases, compliance can only be achieved bycapital expenditures, and the Company made capital expenditures of approximately$5,300 in 2000, $5,600 in 1999, and $2,900 in 1998 for environmental projects.The Company anticipates that capital requirements will increase in subsequentyears as a result of the Clean Air Act Amendments and other pendingenvironmental laws. Additionally, as the environmental proceedings in which theCompany is involved progress from the remedial investigation and feasibilitystudy stage to implementation of remedial measures, related expenditures willmost likely increase. The Company considers costs for environmental complianceto be a normal cost of doing business, and includes such costs in pricingdecisions. EMPLOYEES At December 31, 2000 the Company had 1,852 employees worldwide (834 of whom were from international operations) compared with 1,860 employees at December31, 1999 and 1,750 at December 31, 1998. 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, 2001; 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, 2003;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, 2001. Nordic, Profarmaco, Conti and Irotecproduction, administration,---------------(dollars in thousands, except share data) 7 9 scientific and technical employees are represented by various local and nationalunions. Production, administration, scientific and technical employees at oursite in Denmark are members of a national union. The contracts with these unionsexpire at various times through December 31, 2001. The Company believes itslabor relations are satisfactory, and will begin negotiations for the renewal ofcontracts expiring in 2001. SEASONALITY Like many other businesses in the life sciences and specialty chemicalsindustry, the Company experiences some seasonality primarily due to plantshutdowns in the third quarter. Operating results for any quarter, however, arenot necessarily indicative of results for any future period. In particular, as aresult of various factors such as acquisitions and plant shutdowns, the Companybelieves that period-to-period comparisons of its operating results should notbe relied upon as an indication of future performance. EXPORT AND INTERNATIONAL SALES The Company exports numerous products to various areas, principally WesternEurope, Asia and Latin America. Export sales from the Company's domesticoperations in 2000, 1999 and 1998 amounted to $50,910, $40,610 and $42,722,respectively. Sales from international operations were $230,476 in 2000,$218,389 in 1999, and $178,296 in 1998. Refer to Note #20 to the CambrexCorporation and Subsidiaries Consolidated Financial Statements. ITEM 2 PROPERTIES. Set forth below is information relating to the Company's manufacturingfacilities: OPERATINGLOCATION ACREAGE SUBSIDIARY PRODUCT LINES MANUFACTURED-------- ------- ---------- -------------------------- Bayonne, NJ 8 acres CasChem Personal Care Ingredients; Biomedical Urethanes; Performance Enhancers; Polymer SystemsCarlstadt, NJ 3 acres Cosan Performance Enhancing Chemicals; Polymer SystemsHarriman, NY 29 acres Nepera Active Pharmaceutical Ingredients Personal Care Ingredients; Vitamin B-3; Agricultural Intermediates; Performance Enhancing ChemicalsDelaware Water Gap, PA 12 acres Heico Active Pharmaceutical Ingredients; Chiral Technology; Performance Enhancing Chemicals; Polymer SystemsCharles City, IA 57 acres Salsbury Active Pharmaceutical Ingredients; Pharmaceutical Intermediates; Imaging Chemicals; Animal Health Products Chemicals; Animal Health Products Performance Enhancing ChemicalsZeeland, MI 14 acres Zeeland Pharmaceutical Intermediates; Personal Care Ingredients; Chiral Technology; Catalysts Performance Enhancing ChemicalsMiddlesbrough, England 12 acres Seal Sands Pharmaceutical Intermediates; Personal Care Ingredients; Catalysts; Agricultural Intermediates; Performance Enhancing Chemicals; Polymer SystemsKarlskoga, Sweden 42 acres Nordic Active Pharmaceutical Ingredients; Pharmaceutical Intermediates; Imaging Chemicals; Personal Care Ingredients; Catalysts; Agricultural Intermediates; Performance Enhancing Chemicals ---------------(dollars in thousands, except share data) 8 10 OPERATINGLOCATION ACREAGE SUBSIDIARY PRODUCT LINES MANUFACTURED-------- ------- ---------- -------------------------- Paullo (Milan), Italy 13 acres Profarmaco Active Pharmaceutical IngredientsWalkersville, MD 116 acres BioWhittaker BiosciencesVerviers, Belgium 9 acres BioWhittaker Biosciences EuropeCork, Ireland 21 acres Irotec Active Pharmaceutical Ingredients; Pharmaceutical IntermediatesRockland, Maine 93 acres BMA BiosciencesCopenhagen, Denmark Leased BMA BiosciencesLanden, Belgium 40 acres Conti Active Pharmaceutical IngredientsNottinghamshire, Leased Lumitech Biosciences England The Company owns all the above facilities and properties, with theexception of the leased facilities in Nottinghampshire, England and Copenhagen,Denmark. The Company also leases 31,000 square feet in North Brunswick, NewJersey for its Center of Technical Excellence, which has a 10 year term endingMarch 27, 2010. In addition, the Company owns a four acre site and buildings inNorth Haven, CT and thirty-one acres of undeveloped land adjacent to the NorthHaven facility, one hundred and three acres of undeveloped land adjacent to theHarriman facility, sixty-six acres of undeveloped land adjacent to the Zeelandfacility and eighty-one acres used as grazing fields in Walkersville, Maryland.The Company believes its facilities to be in good condition, well-maintained andadequate for its current needs. Most of the Company's products are manufactured in multi-purposefacilities. Each product has a unique requirement for equipment, and occupiessuch equipment for varying amounts of time. This, combined with the variationsin demand for individual products, makes it difficult to estimate actual overallcapacity subject to regulatory approval. It is generally possible to transferthe manufacturing of a particular product to another facility should capacityconstraints dictate. However, the Company's pyridine and arsenical feed additiveproduct groups are each manufactured at a single facility, and production ofsuch products would not be transferable to another site. The Company plans to continue to expand capacity to meet growing needs byprocess improvements and construction of new facilities where needed. ITEM 3 LEGAL PROCEEDINGS. See "Environmental and Safety Regulations and Proceedings" under Item 1 andNote #22 to the Cambrex Corporation and Subsidiaries Consolidated Financial Statements with respect to various proceedings involving the Company inconnection with environmental matters. The Company is party to a number of otherproceedings also discussed in Note #22. Management is of the opinion that whilethe ultimate liability resulting from those proceedings, as well asenvironmental matters, may have a material effect upon the results of operationsin any given year, they will not have a material adverse effect upon theCompany's liquidity nor its financial position. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ---------------(dollars in thousands, except share data) 9 11 ITEM 10 EXECUTIVE OFFICERS OF THE REGISTRANT. The following table lists the executive officers of the Company: NAME AGE OFFICE---- --- ------ James A. Mack............................. 63 Chairman of the Board, President and Chief Executive OfficerDouglas H. MacMillan...................... 54 Vice President and Chief Financial OfficerPeter E. Thauer........................... 61 Senior Vice President, Law & Environment General Counsel & Corporate SecretarySteven M. Klosk........................... 43 Executive Vice President, AdministrationClaes Glassell............................ 49 Executive Vice President and Chief Operating OfficerSalvatore J. Guccione..................... 38 Senior Vice President, Corporate DevelopmentRonnie D. Carroll......................... 60 Vice President, TechnologyThomas N. Bird............................ 56 Vice President, Business Development/Life SciencesJohn A. Antonelli, Jr. ................... 45 Vice President, TreasurerJohn P. Hopkins........................... 40 Vice President, ControllerKeith Hendersen........................... 48 President, Cambrex Fine Chemical Business UnitRobert J. Congiusti....................... 47 Vice President, Information SystemsPaulo Russolo............................. 56 President, Cambrex Generic Business and Managing Director of ProfarmacoMonika Lekander........................... 47 President, Innovator Pharmaceutical BusinessCyril C. Baldwin, Jr. .................... 73 Chairman Emeritus The Company's executive officers are elected by the Board of Directors andserve at the Board's discretion. Mr. Mack was elected Chairman of the Board of Directors on October 28,1999. He also retains his position as President and Chief Executive Officer. Mr.Mack has been Chief Executive Officer since Mr. Baldwin's retirement on April 1,1995. Mr. Mack was appointed President and Chief Operating Officer and adirector of the Company in February 1990. For five years prior thereto he wasVice President in charge of the worldwide Performance Chemicals businesses ofOlin Corporation, a manufacturer of chemical products, metal products, andammunition and defense-related products. Mr. Mack was Executive Vice Presidentof Oakite Products, Inc. from 1982 to 1984. Prior to joining Oakite, he heldvarious positions with The Sherwin-Williams Company, most recently as Presidentand General Manager of the Chemicals Division from 1977 to 1981. Mr. Mack is apast Chairman of the Board of Governors of the Synthetic Organic ChemicalManufacturing Association and is a member of the Board of Trustees of theMichigan Tech Alumni Fund. Mr. MacMillan was appointed Vice President and Chief Financial Officer inApril 1997. He was most recently Vice President, Chief Financial Officer forMorgan Products, Ltd., a manufacturer and distributor of building productstraded on the New York Stock Exchange. Prior to his work with Morgan Products,he was Chief Financial Officer of Varlen Corporation, a manufacturer ofpetroleum analysis and automotive and scientific instruments. Mr. Thauer was appointed Senior Vice President, Law & Environment inJanuary 2001. Mr. Thauer was previously appointed Vice President, Law &Environment in December 1992, and General Counsel and Corporate Secretary inAugust 1989. From 1987 until he joined Cambrex, he was Counsel to the businessand finance group of the firm of Crummy, Del Deo, Dolan, Griffinger andVecchione. From 1971 to 1987, ---------------(dollars in thousands, except share data) 10 12 Mr. Thauer had held various positions with Avon Products, Inc., including U. S.Legal Department Head and Corporate Assistant Secretary. Mr. Klosk was appointed Executive Vice President, Administration in October1996. Mr. Klosk joined the Company in October 1992 as Vice President,Administration. From February 1988 until he joined Cambrex, he was VicePresident, Administration and Corporate Secretary for The Genlyte Group, Inc., alighting fixture manufacturer. From 1985 to January 1988, he was Vice President,Administration for Lightolier, Inc., a subsidiary of The Genlyte Group, Inc. Mr. Glassell was appointed Executive Vice President and Chief OperatingOfficer in July 2000. Mr. Glassell assumed the position of President,Pharmaceutical Group in July 1998. Mr. Glassell was appointed President,International in November 1997. Mr. Glassell was appointed Vice President ofCambrex in November 1994. After extensive management experience at Nordic andProfarmaco, he joined Cambrex as a result of the 1994 acquisition of Nordic andProfarmaco. In 1989, he joined Nordic as President and CEO for Nordic'sChemistry Business. From 1986 to 1989, he worked for the agricultural divisionof Berol Europe Ltd. Mr. Guccione was appointed Senior Vice President, Corporate Development inJanuary 2001. Mr. Guccione joined the Company in December 1995 as VicePresident, Corporate Development. Prior to joining the Company, from 1993 to1995, he held the position of Vice President and General Manager of theInternational Specialty Products (ISP) Personal Care Division. He also served asDirector of Corporate Development for ISP. Dr. Carroll joined the Company in September 1997 as Vice President,Technology. Mr. Carroll had been with Bristol-Myers Squibb for 14 years, mostrecently as Vice President, Chemical Development for Bristol-Myers SquibbTechnical Operations. Prior to working for Bristol-Myers Squibb, Dr. Carroll waswith Pfizer, Inc. in Groton, CT. Mr. Bird was appointed Vice President, Business Development, Life Sciencesin January 2001. Prior to that, Mr. Bird served as President, Biosciences Groupsince July 1998. Mr. Bird joined the Company in June 1997, as President ofNepera, Inc. He was previously President of the consulting firm of Bavier,Bulgar and Goodyear since 1994. Prior to that, Mr. Bird maintained various vicepresidential positions with Commercial Intertech Corporation in their FluidPurification Group. Mr. Antonelli was appointed Vice President and Treasurer in April 1999. Mr.Antonelli was promoted to the position of Treasurer in April 1998. He joined theCompany in June 1995 as Director of Taxes. Prior to joining the Company, Mr.Antonelli was Corporate Tax Manager at InterMetro Industries, a worldwidemanufacturer and distributor of storage and shelving systems. Mr. Antonelli is aCertified Public Accountant who has worked for PriceWaterhouse, KPMG and ParenteRandolph. Mr. Hopkins joined the Company in January 1999 as Vice President andController. Prior to joining the Company, from 1988 to 1998, he held varioussenior financial positions with ARCO Chemical Company, a manufacturer andmarketer of specialty chemicals and chemical intermediates. Mr. Hopkins is aCertified Public Accountant and was an Audit Manager for Coopers & Lybrand priorto joining ARCO Chemical. Dr. Henderson was appointed President of the Cambrex Fine Chemical BusinessUnit in October of 2000. Dr. Henderson joined the Company in July 1994 asManaging Director of Seal Sands Chemicals Limited. He has also held the positionof Managing Director of both Irotec Laboratories and Conti BPC. Prior to joiningCambrex, Dr. Henderson had been with Pentagon Chemicals Limited, a manufacturerof fine and specialty chemicals, for 14 years holding various positionsincluding Technical Director, Operations Director and Managing Director. Mr. Congiusti was appointed Vice President, Information Services inNovember 1998. Mr. Congiusti joined the Company in September 1994 as Director,Information Services. Prior to joining the Company, from ---------------(dollars in thousands, except share data) 11 13 1984 to 1994, he held various senior information systems management positions atInternational Specialty Products and American Cyanamid Company. Mr. Russolo was appointed President, Cambrex Generic Business Unit inNovember 2000 in addition to his responsibilities as Managing Director ofProfarmaco, a position he has held since January 1982. Before 1982, he heldpositions within Profarmaco since 1971 with different charges in the technicalarea. Mrs. Lekander was appointed President, Innovator Pharmaceutical BusinessUnit in January 2000. She was promoted to Managing Director of Nordic Synthesisin 1996. Previous to that she held a position as General Manager, PharmaChemicals Division. From 1980 when Mrs. Lekander joined Nordic Synthesis until1994, when the Company was acquired by Cambrex, Mrs. Lekander held severalpositions in marketing, business development and general management. Mr. Baldwin was named Chairman Emeritus on October 28, 1999. Mr. Baldwinwas Chairman of the Board from July 1991 to October 28, 1999, and a Director ofthe Company since it began business in December 1981. On January 26, 1995, Mr.Baldwin announced his retirement, effective April 1, 1995, as Chief ExecutiveOfficer of the Company, a position he also held since December 1981. Mr. Baldwinretired as an employee of the Company effective April 30, 1995. He is a memberof the Environmental and Governance Committees of the Company's Board ofDirectors, and he is a director of Church & Dwight Co., Inc. and CongoleumCorporation. PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Effective March 5, 1998 the Company's Common Stock, $.10 par value, waslisted on the New York Stock Exchange (NYSE), continuing under the symbol CBM.From November 15, 1990 to March 5, 1998, the Company's Common Stock had beentraded on the American Stock Exchange (AMEX). The following table sets forth theclosing high and low sales price of the Common Stock as reported on the NYSE: 2000 HIGH LOW---- ------ ------ First Quarter.............................................. $43.50 $31.81Second Quarter............................................. 45.02 37.88Third Quarter.............................................. 49.44 31.50Fourth Quarter............................................. 47.94 33.19 1999 HIGH LOW---- ------ ------ First Quarter.............................................. $24.81 $20.56Second Quarter............................................. 26.25 22.06Third Quarter.............................................. 28.31 23.81Fourth Quarter............................................. 34.44 24.63 As of March 15, 2001, the Company estimates that there were approximately5,700 beneficial holders of the outstanding Common Stock of the Company. The quarterly dividend on common stock was $0.03 for 2000 and 1999. ITEM 6 SELECTED FINANCIAL DATA. The following selected consolidated financial data of the Company for eachof the years in the five year period ended December 31, 2000 are derived fromthe audited financial statements. The consolidated financial statements of theCompany as of December 31, 2000 and December 31, 1999 and for each of the yearsin the three year period ended December 31, 2000 and the report of independentaccountants thereon are included elsewhere in this annual report. The datapresented below should be read in conjunction with the financial---------------(dollars in thousands, except share data) 12 14 statements of the Company and the notes thereto and "Management's Discussion andAnalysis of Financial Condition and Results of Operations" included elsewhereherein. YEARS ENDED DECEMBER 31, ------------------------------------------------------ 2000(1) 1999(2) 1998(3) 1997(4)(5) 1996 -------- -------- -------- ---------- -------- (IN THOUSANDS, EXCEPT PER-SHARE DATA) INCOME DATA:Gross sales................................. $492,544 $484,560 $441,683 $380,083 $369,479Net revenues................................ 484,246 481,388 457,241 374,215 359,385Gross profit................................ 177,495 167,163 163,417 113,962 101,336Selling, general and administrative......... 82,204 77,729 76,594 52,688 45,879Research and development.................... 14,267 14,255 13,956 10,600 9,183Vitamin B-3 provision....................... -- 6,000 -- -- --Non-recurring in-process R&D charge......... -- -- -- 14,000 --Operating profit............................ 81,024 69,179 72,867 36,674 46,274Interest expense, net....................... 11,487 9,723 10,227 5,330 5,799Other (income) expense, net................. (329) 555 945 (1,263) (194)Income before taxes......................... 69,866 58,901 61,695 32,607 40,669Net income.................................. 49,605 38,132 39,102 17,776 28,225EARNINGS PER SHARE DATA:Earnings per common share and common share equivalents: Basic..................................... 1.98 $ 1.55 $ 1.62 $ 0.75 $ 1.22 Diluted................................... 1.90 $ 1.49 $ 1.54 $ 0.73 $ 1.19Weighted average shares outstanding: Basic..................................... 25,015 24,572 24,194 23,627 23,214 Diluted................................... 26,157 25,613 25,412 24,419 23,792DIVIDENDS PER COMMON SHARE.................. $ 0.12 $ 0.12 $ 0.11 $ 0.10 $ 0.09BALANCE SHEET DATA: (AT END OF PERIOD) Working capital........................... $143,948 $163,165 $156,297 $116,743 $ 62,912 Total assets.............................. 681,100 673,647 617,054 552,426 404,444 Long-term obligations..................... 168,591 225,922 191,372 194,325 60,152 Total stockholders' equity................ 337,621 295,365 276,853 225,954 229,045 ---------------(1) Includes the results of Conti BC NV from the date of acquisition effective March 2000, the results of Lumitech Limited from the date of acquisition effective July 24, 2000 and the results of the Arizona Chemical products from the date of license effective August 2000. (2) Includes the results of Irotec Laboratories, Ltd. from the date of acquisition effective March 1999 and the results of BioWhittaker Molecular Applications, Inc. from the date of acquisition effective July 1999. (3) Includes royalty income of $19,298 in net revenues related to a technology license agreement with Mylan Laboratories for the use of intellectual property. (4) Includes the results of BioWhittaker, Inc. from the date of acquisition effective October 1997. (5) Includes the non-recurring charge for in-process research and development associated with the acquisition of BioWhittaker. ---------------(dollars in thousands, except share data) 13 15 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 consolidated financial information as a percentage of grosssales. YEARS ENDED DECEMBER 31, ------------------------- 2000 1999 1998 ----- ------ ------ Gross sales................................................. 100% 100.0% 100.0%Net revenues................................................ 98.3 99.3 103.5*Gross profit(1)............................................. 36.0 34.5 37.0Selling, general and administrative......................... 16.7 16.1 17.3Research and development.................................... 2.9 2.9 3.2Vitamin B-3 accrual......................................... -- 1.2 --Operating profit............................................ 16.5 14.3 16.5Interest expense............................................ 2.3 2.0 2.3Other (income) expense, net................................. -- 0.1 0.2Net income.................................................. 10.1 7.9 8.9 --------------- * Includes royalty income of $19,298 (1) Gross profit percentage is based on Gross Sales. The following tables show the gross sales of the Company's four segments,in dollars and as a percentage of the Company's total gross sales for the yearsended December 31, 2000, 1999 and 1998, as well as the gross profit by productsegment for 2000 and 1999. YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- GROSS SALES Human Health............................................. $233,886 $225,660 $194,766 Biosciences.............................................. 96,232 83,887 65,968 Biosciences.............................................. 96,232 83,887 65,968 Animal Health/Agriculture................................ 56,220 55,695 56,285 Specialty and Fine Chemicals............................. 106,206 119,318 124,664 -------- -------- --------Total Gross Sales.......................................... $492,544 $484,560 $441,683 ======== ======== ========Total Net Revenues......................................... $484,246 $481,388 $457,241* ======== ======== ========Total Gross Profit......................................... $177,495 $167,163 $163,417 ======== ======== ======== ---------------* Includes royalty income of $19,298 YEARS ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ GROSS SALES DISTRIBUTION Human Health.............................................. 47.5% 46.6% 44.1% Biosciences............................................... 19.5% 17.3% 14.9% Animal Health/Agriculture................................. 11.4% 11.5% 12.8% Specialty and Fine Chemicals.............................. 21.6% 24.6% 28.2% ----- ----- -----Total Gross Sales Distribution.............................. 100.0% 100.0% 100.0% ===== ===== ===== ---------------(dollars in thousands, except share data) 14 16 2000-1999 GROSS SALES & GROSS PROFIT BY PRODUCT SEGMENT 2000 1999 ------------------------------ ------------------------------ GROSS GROSS GROSS GROSS GROSS GROSS SALES PROFIT PROFIT % SALES PROFIT PROFIT % -------- -------- -------- -------- -------- -------- Human Health.......................... $233,886 $ 91,145 39.0% $225,660 $ 83,603 37.0%Biosciences........................... 96,232 50,815 52.8% 83,887 42,088 50.2%Animal Health/Agriculture............. 56,220 9,829 17.5% 55,695 12,045 21.6%Specialty and Fine Chemicals.......... 106,206 25,706 24.2% 119,318 29,427 24.7% -------- -------- -------- -------- Total....................... $492,544 $177,495 36.0% $484,560 $167,163 34.5% ======== ======== ======== ======== 2000 COMPARED TO 1999 Gross sales in 2000 increased 1.6% to $492,544 from $484,560 in 1999. Salesin the Human Health (up 3.6%), Biosciences (up 14.7%), and AnimalHealth/Agriculture (up 1%) segments increased compared to 1999 and more thanoffset the decrease in the Specialty and Fine Chemicals Segment (down 11%). The effect of foreign currency exchange rates on gross sales for the yearresulted in a negative impact on sales of 3.4% or $16,658 compared to 1999.Gross sales would have been $509,202 using 1999 exchange rates compared to 1999sales of $484,560. The unfavorable effects of foreign currencies are attributable primarily tosignificant exchange rate fluctuations in the Italian Lira, Swedish Krona, PoundSterling and Irish Punt against the U.S. dollar in 2000. The Human Health Segment gross sales of $233,886 were $8,226 (3.6%) above 1999 due primarily to sales generated by the acquisition of Irotec in Ireland inMarch 1999 and Conti in Belgium in March 2000, new U.S. business related to acardiovascular reformulation, as well as other new products, and increased salesof a cough suppressant ingredient. These increases were partially offset bylower sales of gastro-intestinal products and the unfavorable impact of foreigncurrency which reduced segment sales 5.0%. The Company also eliminated certainlower margin x-ray products which were under pricing pressure. The BioSciences Segment gross sales of $96,232 were $12,345 (14.7%) above1999 primarily due to the acquisition of BioWhittaker Molecular Applications,Inc. (formerly the BioProducts business of FMC Corporation) in July 1999, aswell as increased shipments of cell culture and electrophoresis products. Thesegment sales were lower as a result of decreased emphasis on serum andallergy/diagnostic sales coupled with supply issues for LAL (endotoxindetection) and certain cell products. The Animal Health/Agriculture Segment gross sales of $56,220 were $525 (1%)above 1999. This increase was mainly due to increased sales of agriculturalintermediates; primarily 2-Cyanopyridine and pyridine derivatives. Animal Healthproducts were also above 1999 due to increased shipments of a poultry feedadditive. These increases were partially offset by lower Vitamin B-3 sales dueto reduced shipments to the animal feed markets and lower prices compared to1999. The Specialty and Fine Chemicals Segment gross sales of $106,206 were$13,112 (11%) below 1999 due to lower specialty additive revenues used inplastic resins and fuel oil, castor oil based products sold to the commoditymarkets, and encapsulants used in telecommunications. Export sales from U.S. businesses of $50,910 in 2000 compared to $40,610 in1999. International sales from our European operations totaled $230,476 in 2000compared to $218,389 in 1999. Total gross profit of $177,495 was $10,332 above 1999 due to the improvedgross margin on the Human Health Segment sales due primarily to increasedvolume, favorable product mix and lower spending, the Biosciences Segments'operating efficiencies and full year impact of the second quarter 1999acquisition of BioWhittaker Molecular Applications. These increases werepartially offset by declines in the Animal health/ Agriculture Segment, due toplant operational problems, higher raw material and energy costs, and the ---------------(dollars in thousands, except share data) 15 17 Specialty and Fine Chemicals segment due primarily to lower plant volume. Thegross margin for 2000 was 36.0% versus 34.5% in 1999. Selling, general and administrative expenses as a percentage of gross saleswere 16.7% in 2000 versus 16.1% for 1999. Administration costs increased due tothe acquisitions of Biowhittaker Molecular Applications in July 1999, Conti inMarch 2000 and Irotec in March 1999, and the shutdown of The Humphrey ChemicalCompany, Inc. These increases were partially offset by the continued benefitfrom the consolidation of administrative functions in the Specialty and FineChemical, and Animal Health/Agriculture businesses, as well as a first quarterinsurance recovery related to previously incurred environmental expenses. Research and development expenses of $14,267 were 2.9% of gross sales in2000, and were at the same levels as 1999. The operating profit in 2000 was $81,024, an increase of 17.1% (7.7%excluding the effect of Vitamin B-3 accrual) compared to 1999. This increase isdue to the increased sales and improved gross margin. Net interest expense of $11,487 in 2000 reflected an increase of $1,764from 1999 as a result of the additional financing for acquisitions and increased interest rates. The average interest rate was 6.7% in 2000 versus 6.1% in 1999. The provision for income taxes in 2000 resulted in an effective rate of 29%versus 32% (excluding the effect of the $6,000 Vitamin B-3 accrual in 1999). Thedecrease in the tax rate was due to the favorable outcome of tax audits, R&D taxcredit programs and reconciliation of actual tax filings with previous accruals.In addition, the Company continues to benefit from international tax treatiesand foreign income taxed at a lower overall effective tax rate as compared tothe U.S. statutory rate. The Company's net income in 2000 increased to $49,605 compared with netincome of $44,132 in 1999 (excluding the impact of the $6,000 Vitamin B-3accrual in 1999). 1999 COMPARED TO 1998 Gross sales in 1999 were $42,877 (10%) above 1998. Increases occurred inHuman Health and Biosciences. Specialty and Fine Chemicals decreased compared to1998, and Animal Health/Agriculture was at the same level as the prior year. The effect of foreign currency exchange rates on gross sales for the yearresulted in a negative impact on sales of $2,482 compared to 1998. Gross salesfor 1999 would have been $487,042 using 1998 exchange rates compared to 1998sales of $441,683. The unfavorable effects of foreign currencies are attributable primarily tosignificant exchange rate fluctuations in the Italian Lire against the U.S.dollar in 1999. The Swedish Krona, Pound Sterling and Irish Punt were alsonegatively affected in 1999. The Human Health Segment gross sales of $225,660 were $30,894 (16%) above1998. This segment's increase was in Active Pharmaceutical Ingredients, whichwere up $34,791 (29%). Personal Care Ingredients were down $2,071 (12%) andCatalysts were down $1,331 (16%) from 1998. Active Pharmaceutical Ingredient sales of $155,250 were $34,791 (29%) abovethe prior year due to strong demand for our gastro-intestinal products used fortreating ulcerative colitis, increased shipments of central nervous system andcardiovasular preparations, new products, and sales from the acquisition ofIrotec in March 1999 of $14,587. Active Pharmaceutical Ingredients includeactive ingredients used in products for gastro-intestinal, cardiovascular,endocrine, central nervous system, respiratory, diuretics, anti-infective, anti-inflammatory, immunology and various other uses. Pharmaceutical Intermediatesales of $25,995 were roughly at the same level as 1998 with new products usedfor a cholesterol reducing drug and central nervous system applications, as wellas additional products from the Irotec acquisition, offsetting no sales ofaminodioxepin (AOA) ($7,600 in 1998), a drug intermediate used in the productionof a protease inhibitor ---------------(dollars in thousands, except share data) 16 18 for the treatment of AIDS, due to the customer changing their production method.Personal Care Ingredients of $14,706 were $2,071 (12%) below 1998 due to reducedPyridine sales for the pharmaceutical market both in the U.S. and for the exportmarket. Catalyst sales used in the pharmaceutical market of $6,950 were $1,331(16%) below 1998 levels due to lower sales of Vitride. The Biosciences Segment gross sales of $83,887 were $17,919 (27%) above1998 due to increased shipments of cell culture and endotoxin detectionproducts. The acquisition of BioWhittaker Molecular Applications, Inc. (formerlythe BioProducts Business of FMC Corporation) in July 1999 added $11,652 in salesto this segment, and includes products for fragment analysis, sequencing, gelbond film and chromatography. This segment consists principally of cell cultureproducts, including living cell cultures, cell culture media and cell culture media supplements, as well as endotoxin detection products. Sales for 1999 from cell culture products of $47,434 were $3,659 (8%) abovethe prior year, and sales from endotoxin detection products of $21,864 were$3,012 (16%) above the prior year due to increased shipments. The Animal Health/Agriculture Segment gross sales of $55,695 were $590 (1%)below the 1998 level. Sales of Vitamin B-3 decreased $3,659 (29%) and AnimalHealth products decreased $2,601 (15%). These decreases were offset byagricultural intermediate sales, which increased $5,670 (22%). Vitamin B-3 sales of $9,155 were $3,659 (29%) below 1998 due to reducedshipments to the animal feed markets and lower prices compared to 1998. AnimalHealth product sales of $15,013 were $2,601 (15%) below 1998, due to slowerexports made by a major customer caused by the continued economic slowdown inPacific Rim countries. Agricultural Intermediate sales of $31,527 were up $5,670(22%) due to new applications by a major customer for use in crop protection. The Specialty and Fine Chemicals Segment gross sales of $119,318 were$5,346 (4%) below 1998. Sales of Performance Enhancing Chemicals were $5,412(7%) below 1998 levels and Polymer Systems remained at 1998 levels. Performance Enhancing Chemical sales of $76,441 were $5,412 (7%) below 1998levels. Key decreases were in sales of pyridine products used in specialtyadditives, Suconox (used as an anti-oxidant in plastic resins), and ASA's(alkenyl succinic anhydrides used in the fuel oil industries as additives).Polymer system sales of $42,877 were up $66 due to additional customers forencapsulants used in telecommunications. These increases were offset by reduceddemand for castor based polymer and telecommunication products, and theCompany's decision not to sell into low margin resale markets. Export sales from U.S. businesses were $40,610 compared with $42,722 in1998. International sales, comprised of all sites from our operations in Europe,totaled $192,038 compared with $156,844 in 1998. Total gross profit of $167,163 was $3,746 above 1998 due to improved grossmargins in Biosciences, Animal Health/Agriculture and the Specialty FineChemicals, The Human Health segment gross profit was lower than 1998 due to theinclusion in 1998 of $19,298 in royalty income. This royalty income ended inDecember 1998 with the termination of the exclusive portion of the LicenseAgreement with Mylan Laboratories. The Company's gross margin percentage in 1999was 34.5% versus 37.0% in 1998. Excluding the royalty income, the gross marginpercentage in 1998 was 32.6%. Selling, general and administrative expenses as a percentage of gross saleswas 16.1% in 1999, compared to 17.3% in 1998. This decrease was mainly due tothe reduction of $3.3 million in 1999 compared to 1998 for administrative costsat the Corporate group and a reorganization at some of the Specialty Chemicalsites which was started in 1998. Increases in marketing and sales were due toadditional promotional and compensation expenses attributed to upgradingbiosciences marketing efforts in the U.S. and Europe. In 1999, the Companyincurred an additional $194 in environmental expenses and reversed $1,200 fromthe reserve, thereby decreasing the total reserve by $1,394. In addition, theCompany settled certain environmental claims involving the Cosan ChemicalCompany (a subsidiary) with insurance companies for $1,150. The Company ---------------(dollars in thousands, except share data) 17 19 conducts periodic reviews of its environmental and litigation matters, preparesestimates of the range of potential future costs of each matter whereverpossible, and adjusts the accruals for environmental contingencies ascircumstances warrant. Research and Development expenses of $14,255 were 2.9% of gross sales in 1999 versus $13,956 (3.2% of gross sales) in 1998. The decreased percentage wasdue to reduced contract research and reduced R&D spending by the Zeeland,Michigan facility due to a reorganization of the Specialty Chemical sites. Totalspending increased due to the biosciences spending at BioWhittaker MolecularApplications, Inc. (formerly the BioProducts division of FMC Corporation). An accrual of $6,000 was recorded as of December 31, 1999 to cover theanticipated government settlements, related litigation, and legal expensesassociated with Cambrex's subsidiary, Nepera, alleged role in Vitamin B-3anti-trust violations from 1992 to 1995. Vitamin B-3 sales during this periodaccount for approximately 2% of Cambrex volume at low gross margins. The operating profit in 1999 was $75,179 versus $72,867 in 1998 (excludingthe effect of the Vitamin B-3 accrual of $6,000). Net interest expense of $9,723 in 1999 reflected a decrease of $504 from1998. This decrease was due to the reduced interest rate in 1999. The averageinterest in 1999 was 6.1% versus 6.5% in 1998. Other expense of $555 for 1999 was lower than the $945 in 1998. Included inother expense for 1998 were asset write-offs at our Zeeland, Michigan facilityof $522. The provision for income taxes for 1999 resulted in an effective rate of32% (excluding the effect of the Vitamin B-3 provision of $6,000, including abenefit of $1,493 for the Italian Substitute Tax) versus 31% in 1998 (excludingthe Italian Substitute Tax expense of $3,420). The Company's net income for 1999 increased to $44,132 (excluding theeffect of the Vitamin B-3 accrual of $6,000) compared with a net income of$39,102 in 1998. Net income in 1999, including the Vitamin B-3 accrual, was$38,132. LIQUIDITY AND CAPITAL RESOURCES Net cash flow from operations was $88,672 for the year ended December 31,2000 compared with $88,011 in 1999. The increase in cash flow is primarily dueto increased revenues, as well as increased current liabilities and lowerpayments for income taxes, partially offset by higher inventories. Cash flowsused in investing activities included capital expenditures of $39,456, and theacquisition of Conti BC NV, Lumitech Limited and Arizona Chemical product line.Cash flows used in financing activities of $53,300 included net repayment ofdebt of $55,147 and payment of $2,991 in dividends partially offset by $11,150in proceeds from the exercise of stock options. Capital expenditures were $39,456 in 2000, $30,529 in 1999 and $43,007 in1998. Part of the funds were used for the purchase of the land occupied by theSeal Sands facility in Middlesbrough, England, a new product facility and wastetreatment plant at the Nordic Synthesis AB facility in Sweden, a new Q.C.laboratory at Profarmaco Srl in Italy and the new Technical Center of Excellencein New Jersey. On September 16, 1997, the Company entered into a new five year CreditAgreement (the "Agreement") with a bank group headed by The Chase Manhattan Bankas Administrative Agent and The First National Bank of Chicago as DocumentationAgent. The bank group has a total of 13 domestic banks and 8 internationalbanks. The Agreement provides the Company with a $400,000 borrowing facility.The new Agreement replaces the previously existing Revolving Credit Agreementwith NBD Bank, N.A. Under this agreement, the Company has pledged 66% of the common stock ofthe Company's foreign subsidiaries as collateral. The Agreement permits theCompany to choose between various interest rate options. Under the Agreement,the interest rate options available to the Company are: (a) U.S. Prime rate or ---------------(dollars in thousands, except share data) 18 20 (b) LIBOR plus the applicable margin (ranging from .225% to .5% or (c)Competitive Bid at a LIBOR Rate Borrowing or a Fixed Rate Borrowing to bedetermined by auction. The applicable margin is adjusted based upon the FundedIndebtedness to Cash Flow Ratio of the Company. Additionally, the Company pays acommitment fee of between .15% to .25% on the entire portion of the Agreement. On September 18, 1997, the Company utilized $60,000 of the Agreement inorder to repay the then outstanding balance under the previously existingRevolving Credit Agreement. On September 30, 1997, the Company borrowed $126,000to finance the acquisition of the outstanding common stock of BioWhittaker. Ofthis amount, $116,000 was utilized on September 30, 1997 to acquire the 93% ofBioWhittaker shares which had been tendered at that date. The Companysubsequently utilized the remaining portion to finance the acquisition of theremaining 7% of BioWhittaker on October 3, 1997. The undrawn borrowing availability under the Agreement as of December 31,2000 and 1999 was $235,500 and $181,500 respectively. There is $164,500outstanding as of December 31, 2000. Management is of the opinion that theseamounts, together with cash flows from operations, are adequate for meeting theCompany's operating, financing and capital requirements. Management believes that existing sources of capital, together with cashflows from operations, will be sufficient to meet foreseeable cash flowrequirements. FINANCIAL INSTRUMENTS The Company is exposed to market risks arising from adverse changes ininterest rates and foreign currency exchange rates. In the normal course ofbusiness, the Company uses a variety of techniques and instruments, includingderivatives, as part of its overall risk management strategy. Currency Risk Management The Company's primary market risk relates to exposure to foreign currencyexchange rate fluctuations on transactions entered into by our internationaloperations which are primarily denominated in the U.S. dollar, Euro currency,and British pound sterling. The Company currently uses foreign currency exchangeforward contracts to mitigate the effect of short-term foreign exchange ratemovements on the Company's operating results. The net notional amount of thesecontracts at December 31, 2000, excluding $7,213 of inter-company contracts, was$41,495, which the Company estimates to be approximately 60% of the non-localcurrency exposure during the period. Unrealized foreign exchange contract lossesdo not subject the Company's actual results to risk as gains or losses on thesecontracts generally offset gains or losses on the transactions that are hedged. Given the unlikely scenario that the operating companies' non-localcurrency collections match their forecast, and that all collections move 10%against their local currencies, no more than $3,200 of pre-tax profits for atwelve-month period would be at risk. This is based on a non-hedged risk of$32,292. This residual risk allows for an over-forecasting margin of error andprevents over hedging of actual operating risk. As of December 31, 2000, thecombined non-local currency forecasted net collections amounted to $112,000.Offsetting this exposure are the expected $31,000 U.S. dollar inter-companypayments from the combined European sites. The remaining $81,000 forecastedexposure was partially hedged ($48,708) with major banks to reduce thenon-hedged risk to $32,292. Interest Rate Management The Company's interest paid to support the debt increased over the pastyear due primarily to higher rates. Each of the interest rate options in theRevolving Credit Agreement includes floating rates. This arrangement has theadvantage of making lower interest rates available in a declining market.However, it also exposes the company to any upward swings in interest rates. For example, based on the company's current net debt outstanding, an annual interestrate increase of 100 basis points would increase interest expense and thus ---------------(dollars in thousands, except share data) 19 21 decrease the company's after-tax profitability by $975 after tax. Fortunately,movement in interest rates is a risk that can be controlled. The Company has employed a plan to control interest rate risk. To limit therisk of interest rates rising above a tolerable level, the Company would pay apremium now in order to obtain a fixed interest rate at a predetermined cost inthe future. That premium, or Swap, stabilizes interest costs by convertingfloating or variable rates to fixed rates through a contract with a financialinstitution. We monitor the Company's debt position and market trends to protectit from any unforeseen shifts in interest rates. As of December 31, 2000, the Company had eight interest rate Swaps in placewith an aggregate notional value of $85,000, at an average rate of 5.92%, andwith varying maturity dates through the year 2003. The Company's strategy hasbeen to cover approximately 40% of outstanding bank debt with interest rateprotection. ENVIRONMENTAL In connection with laws and regulations pertaining to the protection of theenvironment, the Company is a party to several environmental remediationinvestigations and cleanups and, along with other companies, has been named a"potentially responsible party" for certain waste disposal sites (Superfundsites). Each of these matters is subject to various uncertainties, and it ispossible that some of these matters will be decided unfavorably against theCompany. The Company had accruals, included in current accrued liabilities andother noncurrent liabilities, of $2,300 and $3,400 at December 31, 2000 and1999, respectively, for costs associated with the study and remediation ofSuperfund sites and the Company's current and former operating sites for mattersthat are probable and reasonably estimable. Based on currently availableinformation and analysis, the Company's accrual represents management's bestestimate of what it believes are the reasonably possible environmental cleanuprelated costs of a non-capital nature. During the past three-year period, cashpayments for environmental cleanup related matters were $0, $200 and $1,800 for2000, 1999 and 1998, respectively. There were no provisions for environmentalcontingencies during the past three-year period. The Company reduced reserves byapproximately $1,100 and $1,200 during the third quarters of 2000 and 1999,respectively, as a result of revised estimates. In addition, the Company settledcertain environmental claims involving the Cosan Chemical Corporation (asubsidiary) with insurance companies for $1,812 in 2000 and $1,150 in 1999.After reviewing information currently available, management believes any amountspaid in excess of the accrued liabilities will not have a material effect on itsfinancial position or results of operations. However, these matters, if resolvedin a manner different from the estimates could have a material adverse effect onfinancial condition, operating results and cash flows when resolved in a futurereporting period. LITIGATION The Company and its subsidiary Profarmaco S.r.l. ("Profarmaco") were namedas defendants in a proceeding instituted by the Federal Trade Commission ("FTC")on December 21, 1998, in the United States District Court for the District ofColumbia. The complaint alleges that exclusive license agreements whichProfarmaco entered into with Mylan Laboratories, Inc. ("Mylan") covering thedrug master files for (and therefore the right to buy and use) two activepharmaceutical ingredients ("APIs"), lorazepam and clorazepate, were part of aneffort on Mylan's part to restrict competition in the supply of lorazepam andclorazepate and to increase the price charged for these products when Mylan soldthem as generic pharmaceuticals. The complaint further alleges that these agreements violate the Federal Trade Commission Act, and that Mylan, Cambrex,Profarmaco, and Gyma Laboratories of America, Inc., Profarmaco's distributor inthe United States, engaged in an unlawful restraint of trade and conspired tomonopolize and attempted to monopolize the markets for the genericpharmaceuticals incorporating the APIs. In accordance with the licenseagreement, the Company received royalties of approximately $19,300 and $1,000for the years ended December 31, 1998 and 1997, respectively. A lawsuit makingsimilar allegations against the Company and Profarmaco, and seeking injunctiverelief and treble damages, has been filed by the Attorneys General of ---------------(dollars in thousands, except share data) 20 22 31 states in the United States District Court for the District of Columbia onbehalf of those states and persons in those states who were purchasers of thegeneric pharmaceuticals. The Company and Profarmaco have also been named in purported class actioncomplaints brought by private plaintiffs in various state courts on behalf ofpurchasers of lorazepam and clorazepate in generic form, making allegationsessentially similar to those raised in the FTC's complaint and seeking variousforms of relief including treble damages. On February 9, 2001, a federal court in Washington, DC entered an Order andStipulated Permanent Injunction as part of a settlement of the FTC and AttorneysGeneral's suits. Under these settlement documents Mylan has agreed to pay over$140 million on its own behalf and on behalf of most of the other defendantcompanies including Cambrex and Profarmaco. In the Order and Injunction, thesettling defendants also agreed to monitor certain future conduct. The Company strongly believes that its licensing arrangements with Mylanare in accordance with regulatory requirements and will vigorously defend thevarious other lawsuits and class actions. However, the Company and Mylan haveterminated the exclusive license to the drug master files as of December 31,1998. In entering these licensing arrangements, the Company elected not to raisethe price of its products and had no control or influence over the pricing ofits final generic product. Some private litigation will continue. Untilrecently, Mylan had been fully covering the costs for the defense and indemnityof Cambrex and Profarmaco under certain obligations set forth in the licenseagreements. Cambrex has now agreed to cover separate legal defense costsincurred for Cambrex and Profarmaco on a going forward basis beginning August 1,2000. These costs are not expected to be significant. On May 14, 1998, the Company's Nepera subsidiary, a manufacturer and sellerof niacinamide (Vitamin B-3), received a Federal Grand Jury subpoena for theproduction of documents relating to the pricing and possible customer allocationwith regard to that product. The Company understands that the subpoena wasissued as part of the Federal Government's ongoing anti-trust investigation intovarious business practices in the vitamin industry generally. In the fourthquarter of 1999, the Company reached a settlement with the Government concerningNepera's alleged role in Vitamin B-3 violations from 1992 to 1995. On October13, 2000, the Government settlement was finalized with Nepera entering into avoluntary plea agreement with the Department of Justice. Under this agreement,Nepera has entered a plea of guilty to one count of price fixing and marketallocation of Vitamin B-3 from 1992 to 1995 in violation of section one of theSherman Act and has agreed to pay a fine of $4,000. Nepera will be on probationfor one year. The fine, for which we are fully reserved, was paid in February2001. Nepera has been named as a defendant, along with several other companies,in a number of private civil actions brought on behalf of alleged purchasers ofVitamin B-3. An accrual of $6,000 was recorded in the fourth quarter 1999 to cover theanticipated government settlement, related litigation, and legal expenses. Thebalance of this accrual as of December 31, 2000 was $5,301. This accrual hasbeen recorded in Accounts Payable and Accrued Liabilities. While it is not possible to predict with certainty the outcome of the abovelitigation matters and various other lawsuits, it is the opinion of managementthat the ultimate resolution of these proceedings should not have a materialadverse effect on the Company's results of operations, cash flows and financialposition. These matters, if resolved in an unfavorable manner, could have amaterial effect on the operating results and cash flows when resolved in afuture reporting period. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standard No. 133 "Accounting for Derivative Instruments andHedging Activities" (SFAS 133). SFAS 133 was originally effective for all fiscalquarters of all fiscal years beginning after June 15, 1999. In June 1999, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandard No. 137 "Accounting for Derivative Instruments and HedgingActivities -- Deferral of the Effective Date of FASB ---------------(dollars in thousands, except share data) 21 23 Statement No. 133" (SFAS 137). SFAS 137 defers the effective date of FASB 133for all fiscal quarters of all fiscal years beginning after June 15, 2000(January 1, 2001 for the Company). In addition, Statement of FinancialAccounting Standard No. 138 "Accounting for Certain Derivative Instruments andCertain Hedging Activities" was issued in June 2000 which amended certainaccounting and reporting standards of SFAS 133. SFAS 133, as amended, requiresthat all derivative instruments be recorded on the balance sheet at their fairvalue. Changes in the fair value of derivatives are recorded each period incurrent earnings or other comprehensive income, depending on whether aderivative is designated as part of a hedge transaction and, if it is, the typeof hedge transaction. The fair value hedge transactions in which the Company ishedging changes in an asset's, liability's or firm commitment's fair value;changes in the fair value of the derivative instrument that are reported inother comprehensive income will be reclassified as earnings in the period inwhich earnings are impacted by the variability of the cash flows of the hedgeditem. The ineffective portion of all hedges will be recognized in current-periodearnings. Adoption of this statement is not expected to have a material impacton the Company's financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issuedStaff Accounting Bulletin No. 101 ("SAB 101") which provides guidelines inapplying generally accepted accounting principles to certain revenue recognitionissues. Subsequently, the SEC has issued related guidance, which has extendedthe implementation date of SAB 101 until the fourth quarter of 2000. SAB 101 didnot have a material impact on the Company's financial statements. FORWARD-LOOKING STATEMENTS This document contains forward-looking statements. Investors should beaware of factors that could cause Cambrex actual results to vary materially fromthose projected in the forward-looking statements. These factors include, butare not limited to, global economic trends; competitive pricing or productdevelopment activities; markets, alliances, and geographic expansions developingdifferently than anticipated; government legislation and/or regulation(particularly on environmental issues); and technology, manufacturing and legalissues. 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) ---------------- Report of Independent Accountants........................... 23Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... 24Consolidated Income Statements for the Years Ended December 31, 2000, 1999 and 1998................................... 25Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998.............. 26Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.......................... 27Notes to Consolidated Financial Statements.................. 28Consolidated Quarterly Financial Data (unaudited) for the Years Ended December 31, 2000 and 1999.................... 53 The consolidated financial statements and financial statement schedule arefiled pursuant to Item 14 of this report. ---------------(dollars in thousands, except share data) 22 24 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cambrex Corporation: In our opinion, the accompanying consolidated balance sheets and therelated consolidated statements of income, stockholders' equity and cash flowspresent fairly, in all material respects, the financial position of CambrexCorporation and its subsidiaries at December 31, 2000 and 1999, and the resultsof their operations and their cash flows for each of the three years in theperiod ended December 31, 2000, in conformity with accounting principlesgenerally accepted in the United States of America. These financial statementsare the responsibility of the Company's management; our responsibility is toexpress an opinion on these financial statements based on our audits. Weconducted our audits of these statements in accordance with auditing standardsgenerally accepted in the United States of America, which require that we planand perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP January 19, 2001 23 25 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) DECEMBER 31, -------------------- 2000 1999 -------- -------- ASSETSCurrent assets: Cash and cash equivalents................................. $ 21,721 $ 39,796 Trade receivables, less allowances of $1,354 and $799 at respective dates....................................... 76,394 72,227 Inventories, net.......................................... 107,616 92,439 Deferred tax assets....................................... 14,743 16,422 Prepaid expenses and other current assets................. 12,380 14,403 -------- -------- Total current assets.............................. 232,854 235,287Property, plant and equipment, net.......................... 287,338 280,163Intangible assets, net...................................... 149,199 149,307Other assets................................................ 11,709 8,890 -------- -------- Total assets...................................... $681,100 $673,647 ======== ========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable and accrued liabilities.................. $ 78,198 $ 57,567 Income taxes payable...................................... 9,224 11,276 Short-term debt and current portion of long-term debt..... 1,484 3,279 -------- --------Total current liabilities................................... 88,906 72,122Long-term debt.............................................. 168,591 225,922Deferred tax liabilities.................................... 61,531 55,172Other noncurrent liabilities................................ 24,451 25,066 -------- -------- Total liabilities................................. 343,479 378,282Commitments and contingenciesStockholders' equity: Common Stock, $.10 par value; issued 27,433,170 and 26,719,924 shares at respective dates.................. 2,769 2,667 Additional paid-in capital................................ 181,698 166,288 Retained earnings......................................... 214,269 167,655 Treasury stock, at cost; 2,193,945 and 2,100,690 shares at respective dates....................................... (13,010) (10,172) Accumulated other comprehensive income/(loss)............. (48,105) (31,073) -------- -------- Total stockholders' equity........................ 337,621 295,365 -------- -------- Total liabilities and stockholders' equity........ $681,100 $673,647 ======== ======== See accompanying notes to consolidated financial statements. 24 26 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Gross sales................................................ $492,544 $484,560 $441,683Net revenues............................................... 484,246 481,388 457,241 Net revenues............................................... 484,246 481,388 457,241 Cost of goods sold....................................... 306,751 314,225 293,824 -------- -------- --------Gross profit............................................... 177,495 167,163 163,417 Selling, general and administrative...................... 82,204 77,729 76,594 Research and development................................. 14,267 14,255 13,956 Vitamin B-3 provision.................................... -- 6,000 -- -------- -------- --------Operating profit........................................... 81,024 69,179 72,867Other (income) expenses Interest income.......................................... (2,217) (2,286) (2,073) Interest expense......................................... 13,704 12,009 12,300 Other -- net............................................. (329) 555 945 -------- -------- --------Income before income taxes................................. 69,866 58,901 61,695Provision for income taxes................................. 20,261 20,769 22,593 -------- -------- --------Net income................................................. $ 49,605 $ 38,132 $ 39,102 ======== ======== ========Earnings per share of common stock and common stock equivalents: Basic.................................................... $ 1.98 $ 1.55 $ 1.62 Diluted.................................................. $ 1.90 $ 1.49 $ 1.54Weighted average shares outstanding: Basic.................................................... 25,015 24,572 24,194 Diluted.................................................. 26,157 25,613 25,412 See accompanying notes to consolidated financial statements. 25 27 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) COMMON STOCK ACCUMULATED ---------------------- ADDITIONAL OTHER SHARES PAR VALUE PAID-IN RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE ISSUED ($.10) CAPITAL EARNINGS STOCK INCOME/(LOSS) INCOME/(LOSS) ---------- --------- ---------- -------- -------- ------------- ------------- BALANCE AT DECEMBER 31, 1997........... 12,967,287 $1,295 $154,406 $ 96,027 $ (9,458) $(15,041) Comprehensive income/(loss) Net Income......................... 39,102 $ 39,102 -------- Other comprehensive income/(loss).................... Foreign currency translation adjustments.................... 5,522 Minimum pension liability adjustment..................... (2,031) -------- Other comprehensive income/(loss).................... 3,491 3,491 -------- Comprehensive income................. $ 42,593 ======== Cash dividends at $0.11 per share............................ (2,658) Exercise of stock options.......... 472,575 47 7,148 (462) Tax benefit of stock options exercised........................ 2,977 Shares issued to Board of Directors........................ 104 Shares issued under savings plan... 203 79 Two-for-one split.................. 13,133,462 1,313 (1,313) ---------- ------ -------- -------- -------- --------BALANCE AT DECEMBER 31, 1998........... 26,573,324 $2,655 $163,525 $132,471 $ (9,841) $(11,550) Comprehensive income/(loss) Net Income......................... 38,132 $ 38,132 -------- Other comprehensive income/(loss).................... Foreign currency translation adjustments.................... (19,889) Minimum pension liability adjustment..................... 366 -------- Other comprehensive income/(loss).................... (19,523) (19,523) -------- Comprehensive income/(loss).......... $ 18,609 ======== Cash dividends at $0.12 per share............................ (2,948) Exercise of stock options.......... 146,600 12 2,134 (447) Tax benefit of stock options exercised........................ 548 Shares issued to Board of Directors........................ 81 116 ---------- ------ -------- -------- -------- --------BALANCE AT DECEMBER 31, 1999........... 26,719,924 $2,667 $166,288 $167,655 $(10,172) $(31,073) Comprehensive income/(loss) Net Income......................... 49,605 $ 49,605 -------- Other comprehensive income/loss.... Foreign currency translation adjustments.................... (17,511) Minimum pension liability adjustment..................... 479 -------- Other comprehensive income/(loss).................... (17,032) (17,032) -------- Comprehensive income/(loss).......... $ 32,573 ======== Cash dividends at $0.12 per share............................ (2,991) Exercise of stock options.......... 713,246 102 11,150 (2,838) Tax benefit of stock options exercised........................ 4,260 ---------- ------ -------- -------- -------- --------BALANCE AT DECEMBER 31, 2000........... 27,433,170 $2,769 $181,698 $214,269 $(13,010) $(48,105) ========== ====== ======== ======== ======== ======== TOTAL STOCKHOLDERS' EQUITY ------------- BALANCE AT DECEMBER 31, 1997........... $227,229 Comprehensive income/(loss) Net Income......................... 39,102 Other comprehensive income/(loss).................... Foreign currency translation adjustments.................... Minimum pension liability adjustment..................... Other comprehensive income/(loss).................... 3,491 Comprehensive income................. Cash dividends at $0.11 per share............................ (2,658) Exercise of stock options.......... 6,733 Tax benefit of stock options exercised........................ 2,977 Shares issued to Board of Directors........................ 104 Shares issued under savings plan... 282 Two-for-one split.................. -- --------BALANCE AT DECEMBER 31, 1998........... $277,260 Comprehensive income/(loss) Net Income......................... 38,132 Other comprehensive income/(loss).................... Foreign currency translation adjustments.................... Minimum pension liability adjustment..................... Other comprehensive income/(loss).................... (19,523) Comprehensive income/(loss).......... Cash dividends at $0.12 per share............................ (2,948) Exercise of stock options.......... 1,699 Tax benefit of stock options exercised........................ 548 Shares issued to Board of Directors........................ 197 --------BALANCE AT DECEMBER 31, 1999........... $295,365 Comprehensive income/(loss) Net Income......................... 49,605 Other comprehensive income/loss.... Foreign currency translation adjustments.................... Minimum pension liability adjustment..................... Other comprehensive income/(loss).................... (17,032) Comprehensive income/(loss).......... Cash dividends at $0.12 per share............................ (2,991) Exercise of stock options.......... 8,414 Tax benefit of stock options exercised........................ 4,260 --------BALANCE AT DECEMBER 31, 2000........... $337,621 ======== See accompanying notes to consolidated financial statements. 26 28 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 --------- --------- -------- Cash flows from operations: Net income................................................ $ 49,605 $ 38,132 $ 39,102 Depreciation and amortization............................. 42,094 42,328 40,132 Vitamin B-3 provision..................................... -- 6,000 -- Reimbursement/reversal of environmental contingencies..... (2,912) (2,350) (800) Provision for inventories................................. 2,599 4,486 6,046 Deferred income tax provision............................. (5,981) (181) 2,189 Changes in assets and liabilities (net of assets and liabilities acquired): Receivables............................................ (5,260) (8,881) (2,274) Inventories............................................ (17,263) 8,893 (10,867) Prepaid expenses and other current assets.............. 2,112 (149) (2,711) Accounts payable and accrued liabilities............... 13,364 (6,036) 3,383 Income taxes payable................................... 13,873 2,366 4,407 Other noncurrent assets and liabilities................ (3,559) 3,403 2,079 --------- --------- -------- Net cash provided from operations...................... 88,672 88,011 80,686 --------- --------- --------Cash flows from investing activities: Capital expenditures...................................... (39,456) (30,529) (43,007) Acquisition of businesses (net of cash acquired).......... (12,488) (75,336) (15,199) Other investing activities................................ 111 (841) 1,948 --------- --------- -------- Net cash (used in) investing activities................ (51,833) (106,706) (56,258) --------- --------- --------Cash flows from financing activities: Dividends................................................. (2,991) (2,946) (2,658) Net (decrease) increase in short-term debt................ (3,754) 1,761 (1,406) Long-term debt activity (including current portion): Borrowings............................................. 45,800 52,500 37,000 Repayments............................................. (100,947) (24,291) (40,430) Proceeds from the issuance of common stock................ 11,150 2,775 10,325 Purchase of treasury stock................................ (2,838) (331) (229) Other..................................................... 280 366 (2,031) --------- --------- -------- Net cash (used in) provided from financing activities........................................... (53,300) 29,834 571 --------- --------- --------Effect of exchange rate changes on cash..................... (1,614) (19,870) 2,059 --------- --------- --------Net (decrease) increase in cash and cash equivalents........ (18,075) (8,731) 27,058Cash and cash equivalents at beginning of year.............. 39,796 48,527 21,469 --------- --------- --------Cash and cash equivalents at end of year.................... $ 21,721 $ 39,796 $ 48,527 ========= ========= ========Supplemental disclosure: Interest paid (net of capitalized interest)............... $ 14,909 $ 11,105 $ 13,660 Income taxes paid......................................... $ 16,578 $ 20,277 $ 16,767Noncash transactions: Additional minimum pension liability (eliminated from) charged to stockholders' equity........................ $ (479) $ (366) $ 2,031 Liabilities established under deferred compensation plan................................................... $ (1,292) $ (467) $ (868) Tax benefit on stock options exercised.................... $ 4,260 $ 548 $ 2,977 Liabilities assumed in connection with acquisition........ $ 10,454 $ 5,436 $ -- See accompanying notes to consolidated financial statements. 27 29 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (1) THE COMPANY Cambrex Corporation and Subsidiaries (the "Company" or "Cambrex") primarilyprovides products and services worldwide to the lifesciences industry. TheCompany operates in four segments, Human Health, Biosciences, AnimalHealth/Agriculture, and Specialty and Fine Chemicals. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances andtransactions have been eliminated in consolidation. Cash Equivalents Temporary cash investments with an original maturity of less than threemonths and virtually no risk of loss in value are considered cash equivalents. Derivative Instruments Derivative financial instruments are used by the Company primarily forhedging purposes to mitigate a variety of working capital, investment andborrowing risks. The use and mix of hedging instruments can vary depending onbusiness and economic conditions and management's risk assessments. The Companyuses a variety of strategies, including foreign currency forward contracts andtransaction hedging, to minimize or eliminate foreign currency exchange raterisk associated with substantially all of its foreign currency transactions.Gains and losses on these hedging transaction are generally recorded in earningsin the same period as they are realized, which is usually the same period as thesettlement of the underlying transactions. The Company uses interest ratederivative instruments only as hedges or as an integral part of borrowings. Assuch, the differential to be paid or received in connection with theseinstruments is accrued and recognized in income as an adjustment to interestexpense. 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 to 20 yearsMachinery and equipment............................... 5 to 10 yearsFurniture and fixtures................................ 3 to 5 years When assets are retired or otherwise disposed of, the cost and relatedaccumulated depreciation are removed from the accounts, and any resulting gainor loss is reflected in other (income) expense, net. Interest is capitalized inconnection with the construction and acquisition of assets. The capitalizedinterest is recorded as part of the cost of the asset to which it relates and isamortized over the asset's estimated useful life. Total interest capitalized inconnection with ongoing construction activities in 2000, 1999 and 1998 amountedto $1,307, $1,670 and $533, respectively. 28 30 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Intangible Assets Intangible assets are recorded at cost and amortized on a straight-linebasis as follows: Patents................................. Amortized over the remaining life of individual patents (average 5 years)Goodwill................................ 4 to 20 yearsProduct technology...................... 5 to 17 yearsNon-compete agreements.................. 5 yearsTrademarks and other.................... 1 to 40 years The Company continually evaluates the reasonableness of its amortization ofintangibles. If it becomes probable that expected future undiscounted cash flowsassociated with intangible assets are less than their carrying value, the assetsare written down to their fair value. Impairment of Long-Lived Assets The Company assesses the impairment of its long-lived assets, includingintangible assets, and property, plant and equipment, whenever economic eventsor changes in circumstances indicate that the carrying amounts of the assets maynot recoverable. Long lived assets are considered to be impaired when the sum ofthe undiscounted expected future operating cash flows is less than the carryingamounts of the related assets. Revenue Recognition Revenues are recognized when products are shipped and title has passed tothe customer. Royalties are recognized as earned in accordance with royaltyagreements. Income Taxes Deferred income taxes reflect the differences between assets andliabilities recognized for financial reporting purposes and amounts recognizedfor tax purposes. Deferred taxes are based on tax laws currently enacted. The Company and its eligible subsidiaries file a consolidated U.S. incometax return. Certain subsidiaries which are consolidated for financial reportingare not eligible to be included in the consolidated U.S. income tax return. U.S.income taxes are provided on a repatriation of a portion of current andaccumulated foreign earnings and consider applicable foreign tax credits. Therepatriation of dividends occurred due to an expected tax law change, and thereis no plan to repatriate dividends in the future. Cambrex has adopted a policyto indefinitely reinvest the unremitted earnings of certain non-U.S.subsidiaries, and as such, separate provisions for income taxes have beendetermined for these entities and U.S. taxes have not been provided on theirunremitted earnings. At December 31, 2000, 1999 and 1998, the cumulative amountof unremitted earnings of non-U.S. subsidiaries was $0, $49,427, and $28,850,respectively. Use of Estimates The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the 29 31 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) reported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates. Environmental Costs In the ordinary course of business, like most other industrial companies,the Company is subject to extensive and changing federal, state, local andforeign environmental laws and regulations, and has made provisions for theestimated financial impact of environmental cleanup related costs. The Company'spolicy is to accrue environmental cleanup related costs of a noncapital naturewhen those costs are believed to be probable and can be reasonably estimated.The quantification of environmental exposures requires an assessment of manyfactors, including changing laws and regulations, advancements in environmentaltechnologies, the quality of information available related to specific sites,the assessment stage of each site investigation, preliminary findings and thelength of time involved in remediation or settlement. Such accruals are adjustedas further information develops or circumstances change. For certain matters,the Company expects to share costs with other parties. Costs of futureexpenditures for environmental remediation obligations are not discounted totheir present value. Recoveries of environmental remediation costs from otherparties are recorded as assets when their receipt is deemed certain. Foreign Currency The functional currency of the Company's foreign subsidiaries is theapplicable local currency. The translation of the applicable foreign currenciesinto U.S. dollars is performed for balance sheet accounts using current exchangerates in effect at the balance sheet date and for revenue and expense accountsand cash flows using average rates of exchange prevailing during the year.Adjustments resulting from the translation of foreign currency financialstatements are accumulated in a separate component of stockholders' equity untilthe entity is sold or substantially liquidated. Gains or losses relating totransactions of a long-term investment nature are accumulated in stockholders'equity. Gains or losses resulting from foreign currency transactions areincluded in the results of operations as a component of other revenues in 2000,1999 and 1998. Foreign currency net transaction gains (losses) were $(4,095),$83 and $2,019 in 2000, 1999 and 1998, respectively. Earnings Per Common Share All diluted earnings per share are computed on the basis of the weightedaverage shares of common stock outstanding plus common equivalent shares arisingfrom the effect of dilutive stock options, using the treasury stock method. Earnings per share calculations are as follows: FOR THE YEARS ENDED, ----------------------------- 2000 1999 1998 ------- ------- ------- Numerator:Income available to common stockholders............... $49,605 $38,132 $39,102Denominator:Basic weighted average shares outstanding............. 25,015 24,572 24,194Effect of dilutive stock options...................... 1,142 1,041 1,218 ------- ------- -------Diluted weighted average shares outstanding........... 26,157 25,613 25,412Basic earnings per share.............................. $ 1.98 $ 1.55 $ 1.62Diluted earnings per share............................ $ 1.90 $ 1.49 $ 1.54 30 32 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Freight Billing and Costs The Company bills a substantial portion of freight cost incurred onshipments to customers. Freight costs and amounts billed to customers arerecorded within net revenues. These amounts are not material to the Company'soperating results. (3) ACQUISITIONS On March 2, 2000, the Company completed the acquisition of Conti BC NV, amanufacturer and supplier of pharmaceutical intermediates and activepharmaceutical ingredients, located in Landen, Belgium. The Company paidapproximately $6,200 in cash and assumed debt for the business. At the time ofthe transaction, goodwill was recorded at $451 and is being amortized over 20years. On July 24, 2000, the Company completed the acquisition of Lumitech,Limited, an emerging company based in Nottingham, United Kingdom, which providesproducts and services used in the high throughput screening market for drugdiscovery. The Company paid approximately $4,700 in cash at closing, themajority of which was recorded as patents and other intangibles, with additionalfuture performance-based payments of up to $16,000 due over the next five years.The acquired patents and other intangibles are being amortized over 15-20 years. On August 29, 2000, Cambrex Corporation announced that its CasChem, Inc.subsidiary had licensed the castor oil based ester products business fromArizona Chemical, Jacksonville, FL through a perpetual licensing agreement forapproximately $4.5 million. The agreement provides CasChem with processtechnologies, customer lists, and supply of raw materials. The ester productsare used in personal care and coatings applications. The acquisition cost isincluded in intangible assets at December 31, 2000 and is being amortized over10 years. As part of the transaction, CasChem entered into a five-year supplyagreement with Arizona Chemical to manufacture a line of tall oil based productsused in the lubricant and lithographic ink markets. On January 4, 1999, the Company acquired Poietic Technologies, Inc.("Poietics"), the leading supplier of normal human cells of hematopoieticorigin. The Company paid $2,500 cash and will pay future consideration based onthe performance of the business. On March 12, 1999, Cambrex completed the acquisition of Irotec LaboratoriesLtd. ("Irotec"), a supplier of active pharmaceutical ingredients (APIs) locatedin Cork, Ireland. Cambrex paid approximately $37,560 for the business, net ofcash acquired, which was financed through the Company's cash reserves. Theexcess of the purchase price over the fair value of the net assets acquired wasapproximately $9,330 and was recorded as goodwill and is being amortized over 20years using the straight-line method. On July 12, 1999, Cambrex completed the acquisition of FMC Corporation'sBioProducts business, which has been renamed BioWhittaker Molecular Applications("BMA"). The business, which serves the life sciences industry, is the world'slargest manufacturer of electrophoresis media based on the polymer agarose. Thetransaction includes two operating facilities in Rockland, Maine and Copenhagen,Denmark. Camberex paid approximately $38,000 for the business, of which $31,000was financed through the Company's revolving credit agreement and $7,000 throughthe Company's cash reserves. The excess of the purchase price over the fairvalue of the net assets acquired was approximately $25,420 and was recorded asgoodwill and will be amortized over 20 years using the straight-line method. On January 9, 1998, Chiragene, a newly formed subsidiary of CambrexCorporation, acquired substantially all of the assets of the chiral intermediatebusiness of Celgene Corporation for approximately $11,328. The purchaseagreement included an upfront payment of $7,500 paid at closing plus future royalties based upon sales. While the present value of the potential futureroyalties was $7,500 based upon a formula disclosed 31 33 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (3) ACQUISITIONS -- (CONTINUED) in the purchase agreement, the amount included in the purchase allocation was$3,750 which represents the minimum guaranteed royalty payouts. Purchase pricein excess of the fair value of the net assets was approximately $5,000 and wasrecorded as goodwill and will be amortized over 15 years. On January 9, 1998,the Company borrowed $8,200 from the existing Credit Agreement, of which $7,500was used to finance the acquisition of Chiragene. On May 12, 1998, Cambrex completed the acquisition of certain assets of thebiopharmaceutical manufacturing and distribution business of BoerhingerIngelheim Bioproduct Partnership (BIBP) for $3,871, including acquisition costof $621. The assets acquired include a state-of-the-art cell culture and mediamanufacturing facility in Verviers, Belgium, and inventory for certain cellculture, endotoxin detection and molecular biology products. The majority of theacquisition was funded through cash reserves. On September 30, 1997, the Company acquired approximately 93% of theoutstanding common stock of BioWhittaker for approximately $116,000. Theremaining 7% of the outstanding common stock was subsequently acquired onOctober 3, 1997 for an additional $10,000. The acquisition price wasapproximately $133,500 and was financed by the Company's Credit Agreement. Theexcess of the purchase price over the fair value of the net assets acquired wasapproximately $48,000 and was recorded as goodwill and will be amortized over 20years using the straight-line method. The allocation to in-process research anddevelopment of $14,000 represents the value of BioWhittaker's research anddevelopment efforts which had not reached commercial viability with noalternative future use and were, therefore, immediately expensed. Certain actions were taken in the third quarter of 1998 for the acquisitionreorganization plan at our BioWhittaker facility of approximately $1,400 for thetermination of 28 employees. This plan was part of the final purchase accountingadjustments made in the third quarter 1998. In addition, Biowhittaker favorablyconcluded a patent infringement dispute and has received a cash payment ofapproximately $5,400 in 1998. This settlement, as well as the settlement ofother acquisition contingencies of approximately $1,600, are part of the finalpurchase accounting adjustments in the third quarter 1998. As a result offinalizing the purchase accounting, the net impact on goodwill, including thetax effect, was a reduction of approximately $900. The above acquisitions have been accounted for under the purchase method ofaccounting and accordingly the results of operations of the acquisitions areincluded in the accompanying consolidated financial statements from the date ofacquisition. Assets acquired and liabilities assessed have been recorded attheir fair values. (4) IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standard No. 133 "Accounting for Derivative Instruments andHedging Activities" (SFAS 133). SFAS 133 was originally effective for all fiscalquarters of all fiscal years beginning after June 15, 1999. In June 1999, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandard No. 137 "Accounting for Derivative Instruments and HedgingActivities -- Deferral of the Effective Date of FASB Statement No. 133" (SFAS137). SFAS 137 defers the effective date of FASB 133 for all fiscal quarters ofall fiscal years beginning after June 15, 2000 (January 1, 2001 for theCompany). In addition, Statement of Financial Accounting Standard No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities"was issued in June 2000 which amended certain accounting and reporting standardsof SFAS 133. SFAS 133, as amended, requires that all derivative instruments berecorded on the balance sheet at their fair value. Changes in the fair value ofderivatives are recorded each period in current earnings or other comprehensiveincome, depending on whether a derivative is designated as part of a hedgetransaction and, if it is, the type of hedge transaction. The fair value hedgetransactions in which the Company is hedging 32 34 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (4) IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- (CONTINUED) changes in an asset's, liability's or firm commitment's fair value; changes inthe fair value of the derivative instrument that are reported in othercomprehensive income will be reclassified as earnings in the period in whichearnings are impacted by the variability of the cash flows of the hedged item.The ineffective portion of all hedges will be recognized in current-periodearnings. Adoption of this statement is not expected to have a material impacton the Company's financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issuedStaff Accounting Bulletin No. 101 ("SAB 101") which provides guidelines inapplying generally accepted accounting principles to certain revenue recognitionissues. Subsequently, the SEC has issued related guidance, which has extendedthe implementation date of SAB 101 until the fourth quarter of 2000. SAB 101 didnot have a material impact on the Company's financial statements. (5) INVENTORIES Inventories consist of the following: DECEMBER 31, ------------------- 2000 1999 -------- ------- Finished goods.......................................... $ 44,437 $34,509Work in process......................................... 33,601 27,214Raw materials........................................... 25,156 26,322Supplies................................................ 4,422 4,394 -------- ------- Total......................................... $107,616 $92,439 ======== ======= (6) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following: DECEMBER 31, ---------------------- 2000 1999 --------- --------- Land................................................. $ 19,691 $ 12,908Buildings and improvements........................... 93,660 87,914 Buildings and improvements........................... 93,660 87,914Machinery and equipment.............................. 334,308 328,492Furniture and fixtures............................... 11,637 9,499Construction in progress............................. 48,456 31,721 --------- --------- Total...................................... 507,752 470,534Accumulated depreciation............................. (220,414) (190,371) --------- --------- Net................................................ $ 287,338 $ 280,163 ========= ========= Depreciation expense amounted to $31,939, $33,118, and $30,547 for theyears ended December 31, 2000, 1999 and 1998, respectively. 33 35 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (7) INTANGIBLE ASSETS Intangible assets consist of the following: DECEMBER 31, -------------------- 2000 1999 -------- -------- Goodwill............................................... $131,895 $135,301Other.................................................. 71,672 60,457 -------- -------- Total........................................ 203,567 195,758Accumulated amortization............................... (54,368) (46,451) -------- -------- Net............................................... $149,199 $149,307 ======== ======== Amortization expense amounted to $10,155, $9,210 and $9,585 for the yearsended December 31, 2000, 1999 and 1998, respectively. (8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The components of accounts payable and accrued liabilities are as follows: DECEMBER 31, ------------------ 2000 1999 ------- ------- Accounts payable......................................... $53,892 $33,650Salaries, wages and employee benefits payable............ 9,301 9,576Vitamin B-3 provision.................................... 5,301 6,000Other accrued liabilities................................ 9,704 8,341 ------- ------- Total.......................................... $78,198 $57,567 ======= ======= (9) INCOME TAXES Income before taxes consisted of the following: YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Domestic...................................... $13,892 $32,912 $31,324International................................. 55,974 25,989 30,371 ------- ------- ------- Total............................... $69,866 $58,901 $61,695 ======= ======= ======= 34 36 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (9) INCOME TAXES -- (CONTINUED) The provision for income taxes consists of the following expenses(benefits): YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Current: Federal............................................. $ 8,359 $11,587 $14,377 State............................................... 336 178 696 International....................................... 17,547 9,185 5,331 ------- ------- ------- $26,242 20,950 20,404 ------- ------- -------Deferred: Federal............................................. (6,959) 765 (2,481) State............................................... -- 61 (167) International....................................... 978 (1,007) 4,837 ------- ------- ------- (5,981) (181) 2,189 ------- ------- ------- Total....................................... $20,261 $20,769 $22,593 ======= ======= ======= The provision for income taxes differs from the statutory Federal incometax rate of 35% for 2000, 1999 and 1998 as follows: YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Income tax at Federal statutory rate.................. $24,453 $20,615 $21,594State and local taxes (benefits), net of Federal income tax benefits................................. 218 239 522Difference between Federal statutory rate and statutory rates non-U.S. income..................... (1,233) 940 (945)Reversal of valuation allowance for international NOL Reversal of valuation allowance for international NOL carryforward........................................ -- (2,414) --Research and experimentation credits.................. (1,458) (255) (150)Non-taxable international income accrual.............. (2,653) (2,275) --Foreign Tax Credits................................... (2,884) (97) (311)Non-deductible provision for Vitamin B-3.............. (78) 2,014 --Other................................................. 3,896 2,002 1,883 ------- ------- ------- $20,261 $20,769 $22,593 ======= ======= ======= 35 37 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (9) INCOME TAXES -- (CONTINUED) The components of deferred tax assets and liabilities as of December 31,2000 and 1999 relate to temporary differences and carryforwards as follows: DECEMBER 31, ------------------ 2000 1999 ------- ------- Deferred tax assets: Acquisition reserves................................... $ 636 $ 1,284 Environmental.......................................... 846 1,228 Net operating loss carryforwards....................... 2,732 -- Inventory.............................................. 1,883 4,322 Employee benefits...................................... 3,730 3,963 Receivables............................................ 187 27 Capital Assets......................................... 2,042 3,626 Other.................................................. 5,376 1,972 ------- ------- Net current deferred tax assets........................ 17,432 16,422 Valuation allowances................................... (2,689) -- ------- ------- Total net deferred tax assets.................. $14,743 $16,422 ======= =======Deferred tax liabilities: Depreciation........................................... $33,416 $30,967 Environmental Reserves................................. -- 796 Intangibles............................................ 11,777 14,963 Italian Intangibles.................................... 2,653 4,581 Acquisition Reserve.................................... 5,477 -- Other Benefits......................................... -- 2,143 Other.................................................. 8,208 1,722 ------- ------- Total net non-current deferred tax liabilities.................................. $61,531 $55,172 ======= ======= Included within the change in the cumulative translation adjustment for theyear ended December 31, 2000 is $7,104 related to the translation of deferredtax assets and liabilities of international operations. Under the tax laws of various international countries in which the Companyoperates, net operating losses (NOLs) may be carried forward, subject tostatutory limitations, to reduce taxable income in future years. The tax effectof such international NOL carryforwards aggregated approximately $2,732 and $0at December 31, 2000 and 1999. The change in valuation allowance for the years ended December 31, 2000 and 1999 was $2,689 and $(2,414), respectively. Avaluation allowance has been established since management believes that it isnot more likely than not that the full amount of deferred tax assets will berealized. During 1998, the Company made an election which allows the Italiansubsidiary to deduct for tax purposes previously non-deductible intangibleassets. The result of this election was a charge to 1998 earnings of $3,420 thatresulted in net favorable tax benefits of $1,928 and $1,493 for 2000 and 1999,respectively, plus $2,653 projected for future years. (10) SHORT-TERM DEBT The Company has lines of credit in Italy with five local banks (the"Facility"). The Facility is short-term and provides three types of financingwith the following limits: Overdraft Protection of $2,000 (Lire 4.0 36 38 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (10) SHORT-TERM DEBT -- (CONTINUED) billion), Export Financing of $4,000 (Lire 8.0 billion) and Advances onUncleared Deposits of $1,000 (Lire 2.0 billion). The Overdraft Protection andExport Financing facilities bear interest at varying rates when utilized,however, Advances on Uncleared Deposits (Ricevute Bancarie) bear no interest. Short-term debt at December 31, 2000 and 1999 consists of the following: DECEMBER 31, ---------------- 2000 1999 ------ ------ Export financing facility.................................. $ 724 $2,813Other...................................................... 323 -- ------ ------ $1,047 $2,813 ====== ====== The 2000 and 1999 average interest rates were 6.9% and 6.6%, respectively. (11) LONG-TERM DEBT Long-term debt consists of the following: DECEMBER 31, -------------------- 2000 1999 -------- -------- Bank credit facilities(a).............................. $164,500 $218,500Capitalized leases(b).................................. 4,041 5,320Notes payable.......................................... 487 2,568 -------- -------- Subtotal..................................... 169,028 226,388Less: current portion.................................. (437) (466) Less: current portion.................................. (437) (466) -------- -------- Total........................................ $168,591 $225,922 ======== ======== (a) On September 16, 1997, the Company entered into a five year Credit Agreement(the "Agreement"). The Agreement provides the Company with a $400,000 borrowingfacility. Under this Agreement, the Company has pledged 66% of the common stockof the Company's international subsidiaries as collateral. The Agreement permitsthe Company to choose between various interest rate options and to specify theportion of the borrowing to be covered by specific interest rate options. Underthe Agreement, the interest rate options available to the Company are: (a) U.S.Prime rate or (b) LIBOR plus the applicable margin (ranging from .225% to .5%)or (c) Competitive Bid at a LIBOR Rate Borrowing or a Fixed Rate Borrowing to bedetermined by auction. The applicable margin is adjusted based upon the FundedIndebtedess to Cash Flow Ratio of the Company. Additionally, the Company pays acommitment fee of between .15% to .25% on the entire portion of the Agreement.The 2000 and 1999 average interest rates were 6.7% and 6.1%, respectively. On September 18, 1997, the Company utilized $60,000 of the Agreement in order torepay the then outstanding balance under the previously existing RevolvingCredit Agreement. On September 30, 1997, the Company borrowed $126,000 tofinance the acquisition of the outstanding common stock of BioWhittaker. Of thisamount, approximately $116,000 was utilized on September 30, 1997. On October 3,1997, an additional $12,000 was utilized to acquire the remaining 7% ofBioWhittaker's common stock. During 1999, $31,000 was utilized to fund theacquisition of BioWhittaker Molecular Applications, Inc. In 2000, $12,488 wasused for various acquisition activities. The undrawn borrowing availabilityunder the Agreement as of December 31, 2000 was $235,500. 37 39 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (11) LONG-TERM DEBT -- (CONTINUED) The Agreement is subject to financial covenants requiring the Company tomaintain certain levels of net worth and an interest coverage ratio, as well asa limitation on indebtedness. The Company met all of the bank covenants during2000. (b) The Company assumed six capital leases as part of the acquisition of Irotecin 1999 of $5,436. These leases are for various plant and equipment expiring in2006 to be repaid in 28 equal quarterly installments. There is $4,041outstanding at December 31, 2000. The Company assumed a note payable as part of the acquisition of BioWhittaker in1997 of $1,253. The note, bearing interest at 8%, is payable in annualinstallments of $340 and expires in 2001. There is $289 and $574 outstanding asof December 31, 2000 and 1999, respectively. Aggregate maturities of long-term debt are as follows: 2001........................................................ $ 4372002........................................................ 166,5272003........................................................ 9042004........................................................ 9042005........................................................ 256Thereafter.................................................. -- -------- Total............................................. $169,028 ======== (12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS The Company uses derivative financial instruments to reduce exposures tomarket risks resulting from fluctuations in interest rates and foreign exchangerates. The Company does not enter into financial instruments for trading orspeculative purposes. The Company is exposed to credit loss in the event ofnonperformance by the other parties to the interest rate swap, forward exchangeor put and call contracts. However, the Company does not anticipatenon-performance by the counterparties. Interest Rate Swap Agreements The Company enters into interest rate Swap agreements to reduce the impactof changes in interest rates on its floating rate debt. The Swap agreements arecontracts to exchange floating rate for fixed interest payments periodicallyover the life of the agreements without the exchange of the underlying notionaldebt amounts. The notional amounts provide an indication of the extent of theCompany's involvement in such agreements but do not represent its exposure tomarket risk. The following table shows the notional amounts outstanding,maturity dates, and the weighted average receive and pay rates of interest rateswap agreements as of December 31, 2000. WEIGHTED AVG. RATENOTIONAL MATURITY -------------------AMOUNTS DATE RECEIVE PAY-------- -------- -------- ----- $10,000.......................................... 2002 6.75% 5.85%$10,000.......................................... 2003 6.50% 5.77%$10,000.......................................... 2002 6.76% 5.77%$ 5,000.......................................... 2002 6.75% 6.98%$10,000.......................................... 2001 6.75% 5.80%$10,000.......................................... 2003 6.80% 6.65%$20,000.......................................... 2001 6.50% 6.60%$10,000.......................................... 2002 6.66% 5.15% 38 40 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED) Interest expense under these agreements, and the respective debtinstruments that they hedge, are recorded at the net effective interest rate ofthe hedged transactions. The fair value of these agreements were based on quotedmarket prices and was ($261) at December 31, 2000. Foreign Exchange Instruments The Company's policy is to enter into forward exchange contracts and/orcurrency options to hedge foreign currency transactions. This hedging strategymitigates the impact of short-term foreign exchange rate movements on theCompany's operating results primarily in the United Kingdom, Sweden and Italy.The Company's primary market risk relates to exposure to foreign currencyexchange rate fluctuations on transactions entered into by these internationaloperations which are denominated primarily in U.S. dollars, Euro currency, andBritish pound sterling. As a matter of policy, the Company does not hedge toprotect the translated results of foreign operations. The Company's forward protect the translated results of foreign operations. The Company's forwardexchange contracts do not subject the Company's results of operations to riskdue to exchange rate movements because gains and losses on these contractsgenerally offset gains and losses on the transactions being hedged. The forwardexchange contracts have varying maturities with none exceeding twelve months.The Company makes net settlements for forward exchange contracts at maturity,based upon negotiated rates at inception of the contracts. 2000 1999 -------------------------------------- -------------------------------------- UNREALIZED UNREALIZED NOTIONAL FAIR --------------- NOTIONAL FAIR --------------- AMOUNTS VALUE GAINS LOSSES AMOUNTS VALUE GAINS LOSSES -------- ------- ----- ------ -------- ------- ----- ------ Forward exchange contracts.......... $41,495 $41,120 $248 $623 $39,448 $40,563 $242 $1,357 The carrying amount reported in the consolidated balance sheets for cashand cash equivalents, accounts receivable, accounts payable and short-term debtapproximates fair value because of the immediate or short-term maturity of thesefinancial instruments. The carrying amount reported for long-term debtapproximates fair value because approximately 60% of the underlying debt is atvariable rates and reprices quarterly. The remaining amount of long-term debthas fixed rates through interest swap contracts. (13) STOCKHOLDERS' EQUITY The Company has two classes of common shares designated Common Stock andNonvoting Common Stock. Authorized shares of Common Stock were 60,000,000 atDecember 31, 2000 and 1999. Authorized shares of Nonvoting Common Stock were730,746 at December 31, 2000 and 1999. At December 31, 2000, authorized shares of Common Stock were reserved forissuance as follows: Stock option plans........................................ 3,710,604Cambrex savings plan...................................... 169,544 --------- Total shares.................................... 3,880,148 ========= On May 28, 1998, the Company's Board of Directors approved a two-for-onestock split of the Company's Common Stock, $.10 par value, effected by thedistribution to stockholders of record as of the close of business on June 10,1998 of one additional share of Common Stock for each share held. All share andper share data, including stock option plan information, have been adjusted toreflect the impact of the two-for-one stock split. The effect of the split waspresented within stockholders' equity at December 31, 1998 by transferring thepar value for the additional shares issued from additional paid-in capital tocommon stock. 39 41 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (13) STOCKHOLDERS' EQUITY -- (CONTINUED) Nonvoting Common Stock with a par value of $.10, has equal rights withCommon Stock, with the exception of voting power. Nonvoting Common Stock is convertible, share for share, into Common Stock, subject to any legalrequirements applicable to holders restricting the extent to which they may ownvoting stock. As of December 31, 2000 and 1999, no shares of Nonvoting CommonStock were outstanding. The Company held treasury stock of 2,193,945 and 2,100,690 shares atDecember 31, 2000 and 1999, respectively, and are used for issuance to theCambrex Savings Plan. The Company has authorized 5,000,000 shares of Series Preferred Stock, parvalue $.10, issuable in series and with rights, powers and preferences as may befixed by the Board of Directors. At December 31, 2000 and 1999, there was nopreferred stock outstanding. (14) STOCK OPTIONS The Company has eight stock-based compensation plans currently in effect.The 1983 Incentive Stock Option Plan ("1983 Plan") provides for the grant ofoptions intended to qualify as incentive stock options to management and otherkey employees. The 1987 Stock Option Plan ("1987 Plan") provides for thegranting to key employees both non-qualified stock options and incentive stockoptions. The 1989 Senior Executive Stock Option Plan ("1989 Plan") provides forthe grant of options intended to qualify as additional incentives to theCompany's Senior Executive Officers. The 1992 Stock Option Plan ("1992 Plan")provides for the granting to key employees both non-qualified stock options andincentive stock options. The 1993 Senior Executive Stock Option Plan ("1993Plan") provides for the grant of options intended to qualify as additionalincentives to the Company's Senior Executive Officers. The 1994 Stock OptionPlan ("1994 Plan") provides for the granting to key employees both non-qualifiedand incentive stock options. The 1994 Plan also provides for the granting ofnon-qualified stock options to non-employee directors. The 1996 PerformanceStock Option Plan ("1996" Plan) provides for the granting of options intended toqualify as additional incentives to management and other key employees. The 1996Plan also provides for the granting of non-qualified stock options tonon-employee directors. Options granted under the above plans vest and becomeexercisable nine years after date of grant, subject to acceleration if thepublically traded price of the Company's common stock equals or exceeds levelsdetermined by the Committee within certain time periods or in the event of achange in control. On April 23, 1998, the Company's stockholders approved The 1998 PerformanceStock Option Plan (the "1998 Plan"), which provides for the granting of optionsintended to qualify as additional incentives to directors and key employees.Options granted under the 1998 Plan shall vest and become exercisable nine yearsafter the date of grant, subject to acceleration if the publicly traded price ofthe Company's Common Stock equals or exceeds levels determined by the Committeewithin certain time periods or in the event of a change in control. Optionsshall have a term of no more than ten years from the date of grant. On April 27, 2000, the Company's Board of Directors approved The 2000Performance Stock Option Plan (the "2000 Plan"), which provides for the grantingof options intended to qualify as additional incentives to directors and keyemployees. Options granted under the 2000 Plan shall vest and become exercisablenine years after the date of grant, subject to acceleration if the publiclytraded price of the Company's Common Stock equals or exceeds levels determinedby the Committee within certain time periods or in the event of a change incontrol. Options shall have a term of no more than ten years from the date ofgrant. In addition, stock option awards may be transferred to a member of theParticipant's immediate family or to a trust or similar vehicle for the benefitof such transferee. The Company applies the provisions of APB Opinion No. 25 and relatedInterpretations in accounting for its stock-based compensation plans. Statementof Financial Accounting Standards No. 123 "Accounting for 40 42 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (14) STOCK OPTIONS -- (CONTINUED) Stock-Based Compensation" (SFAS 123) establishes financial accounting andreporting standards for stock-based employee compensation plans. The Company hasadopted the disclosure only provisions available under SFAS 123. Accordingly, nocompensation cost has been recognized for stock option plans under SFAS 123. Had compensation cost for the Company's grants for stock-based compensationplans been determined based on the fair value at the grant dates for awardsunder these plans consistent with SFAS 123, the Company's net income, and netincome per common share for 2000, 1999 and 1998 would approximate the pro formaamounts below : 2000 1999 1998 ------- ------- ------- Net income -- as reported................................. $49,605 $38,132 $39,102 ======= ======= =======Net income -- pro forma................................... $40,736 $34,357 $35,951 ======= ======= =======Diluted earnings per share -- as reported................. $ 1.90 $ 1.49 $ 1.54 ======= ======= =======Diluted earnings per share -- pro forma................... $ 1.56 $ 1.34 $ 1.41 ======= ======= ======= The pro forma compensation expense of $8,869, $3,775, and $3,151 for 2000,1999 and 1998, respectively, was calculated based on the fair value of eachoption primarily using the Black-Scholes option-pricing model fornon-performance options and a path dependent model for performance options, withthe following assumptions for 2000, 1999 and 1998, respectively: (i) averagedividend yield of 0.52%, 0.56% and 0.58% (ii) expected volatility of 28.8%,24.1% and 24.5%, (iii) risk-free interest rate ranging from 5.31% to 6.69%,5.32% to 5.42%, and 5.50% to 5.54% and (iv) expected life of 4-5 years. As of December 31, 2000, 4,915,896 options had been exercised. Shares ofCommon Stock subject to outstanding options under the stock option plans were asfollows: OPTIONS OUTSTANDING ------------------------------------------------------ OPTIONS EXERCISABLE WEIGHTED AVERAGE -------------------- ---------------------- WEIGHTED OPTION REMAINING AVERAGE AUTHORIZED PRICE PER CONTRACTUAL EXERCISE NUMBER EXERCISE FOR ISSUANCE OUTSTANDING SHARE $ LIFE (YRS.) PRICE $ OF SHARES PRICE $ ------------ ----------- --------------- ----------- -------- --------- -------- 1983 Plan.............. 648,000 -- -- -- -- -- --1987 Plan.............. 600,000 -- -- -- -- -- --1989 Plan.............. 1,200,000 -- -- -- -- -- --1992 Plan.............. 300,000 10,500 8.063 3.9 8.06 10,500 8.061993 Plan.............. 900,000 124,000 6.625 - 8.063 2.8 6.90 124,000 6.901994 Plan.............. 300,000 38,050 6.625 - 7.438 3.26 7.18 38,050 7.18 10,500 11.4375 4.33 11.44 10,500 11.441996 Plan.............. 3,000,000 963,700 12.373 - 17.500 5.1 13.91 963,700 13.91 298,004 19.813 - 29.375 7.41 25.75 288,781 25.87 610,093 30.938 - 44.188 9.37 42.52 66,500 35.181998 Plan.............. 1,180,000 964,049 22.063 - 29.375 7.21 22.75 964,049 22.75 160,339 34.750 - 44.188 9.53 41.83 -- --2000 Plan.............. 500,000 382,000 34.750 - 44.188 9.8 42.55 -- -- --------- --------- --------- Total shares..... 8,628,000 3,561,235 6.625 - 44.188 26.18 2,466,080 18.85 ========= ========= ========= 41 43 CAMBREX CORPORATION AND SUBSIDIARIES CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (14) STOCK OPTIONS -- (CONTINUED) Information regarding the Company's stock option plans is summarized below: WEIGHTED AVERAGE ------------------------ NUMBER OF EXERCISE FAIR VALUE $ OPTIONS SHARES PRICE $ AT GRANT DATE EXERCISABLE --------- -------- ------------- ----------- Outstanding at December 31, 1997.................... 2,713,550 13.28 2,472,050 Granted........................................... 1,237,050 23.35 9.59 Exercised......................................... (638,750) 11.19 Cancelled......................................... (57,000) 21.84 ---------Outstanding at December 31, 1998.................... 3,254,850 17.30 2,141,800 Granted........................................... 187,549 26.81 9.31 Exercised......................................... (146,600) 9.22 Cancelled......................................... (78,750) 27.11 ---------Outstanding at December 31, 1999.................... 3,217,049 18.05 1,757,900 Granted........................................... 1,182,182 41.99 16.88 Exercised......................................... (713,246) 15.81 Cancelled......................................... (124,750) 25.42 ---------Outstanding at December 31, 2000.................... 3,561,235 26.18 2,466,080 ========= (15) RETIREMENT PLANS Pension Plans The Company maintains two U.S. defined-benefit pension plans which coversubstantially all eligible employees: (1) the Nepera Hourly Pension Plan (the"Nepera Plan") which covers the union employees at the Harriman, New York plant,and (2) the Cambrex Pension Plan (the "Cambrex Plan") which covers all othereligible employees. Benefits for the salaried and certain hourly employees are based on salaryand years of service, while those for employees covered by a collectivebargained agreement 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 balanced mutualfund investments. The Company has a Supplemental Executive Retirement Plan for keyexecutives. The net periodic pension expense for both 2000 and 1999 is based on atwelve month period and on valuations of the plans as of January 1. However, thereconciliation of funded status is determined as of the September 30 measurementdate. The funded status of these plans, incorporating fourth quartercontributions, as of September 30, 2000 and 1999 is as follows: 42 44 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (15) RETIREMENT PLANS -- (CONTINUED) 2000 1999 ------- ------- CHANGE IN BENEFIT OBLIGATIONBenefit obligation at beginning of year..................... $32,354 $33,731Service cost................................................ 2,190 2,378Interest cost............................................... 2,432 2,253Amendments.................................................. -- --Actuarial loss (gain)....................................... (2,118) (4,855)Acquisitions................................................ -- 124Benefits paid............................................... (1,365) (1,277) ------- -------Benefit obligation at end of year........................... 33,493 32,354CHANGE IN PLAN ASSETSFair value of plan assets at beginning of year.............. 28,699 25,820Actual return on plan assets................................ 2,319 3,631Acquisitions................................................ 250 525Benefits paid............................................... (1,365) (1,277) ------- -------Fair value of plan assets at end of year.................... 29,903 28,699 ------- -------Funded status............................................... (3,590) (3,655)Unrecognized prior service cost............................. 1,145 1,194Unrecognized net (gain)loss................................. (3,292) (1,100)Additional minimum liability................................ (1,397) (1,988) ------- -------Prepaid (accrued) benefit at September 30,.................. (7,134) (5,549)4th quarter contributions................................... -- -- ------- -------Prepaid (accrued) benefit cost at December 31,.............. $(7,134) $(5,549) ======= ======= The components of net periodic pension cost is as follows: 2000 1999 1998 ------- ------- ------- COMPONENTS OF NET PERIODIC BENEFIT COSTService Cost.......................................... $ 2,190 $ 2,378 $ 1,587Interest Cost......................................... 2,432 2,253 2,108Expected return on plan assets........................ (2,392) (2,171) (2,201)Amortization of prior service cost.................... 49 47 36Recognized actuarial loss............................. 61 261 195 ------- ------- -------Net periodic benefit cost............................. $ 2,340 $ 2,768 $ 1,725 ======= ======= =======WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,Discount rate......................................... 8.00% 7.75% 6.75%Expected return on plan assets........................ 8.00% 8.50% 8.50%Rate of compensation increase......................... 5.00% 5.00% 5.00% The aggregate ABO (Accumulated Benefit Obligation) for those plans withABO's in excess of plan assets is $4,631 in 2000. The aggregate fair value ofassets for those plans with ABO's in excess of plan assets is $0 in 2000. Certain foreign subsidiaries of the Company maintain pension plans fortheir employees which conform to the common practice in their respectivecountries. The funded status of these plans, incorporating fourth quartercontributions, as of December 31, 2000 and 1999 is as follows: 43 45 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (15) RETIREMENT PLANS -- (CONTINUED) 2000 1999 ------- ------- CHANGE IN BENEFIT OBLIGATIONBenefit obligation at beginning of year..................... $12,062 $ 8,668Service cost................................................ 643 702Interest cost............................................... 673 611Plan participants' contribution............................. (58) 13Actuarial loss (gain)....................................... 1,002 270Acquisitions................................................ -- 2,424Benefits paid............................................... (207) (128)Foreign exchange............................................ (1,017) (498) ------- -------Benefit obligation at end of year........................... $13,098 12,062 ------- -------CHANGE IN PLAN ASSETSFair value of plan assets at beginning of year.............. 6,961 2,749Actual return on plan assets................................ 62 1,231Company contribution........................................ 437 318Plan participant contribution............................... 161 175Acquisitions................................................ -- 2,811Benefits paid............................................... (207) (128)Foreign exchange............................................ (342) (195) ------- -------Fair value of plan assets at end of year.................... 7,072 6,961 ------- -------Funded status............................................... (6,030) (5,101)Unrecognized actuarial loss................................. 1,274 244Unrecognized prior service cost............................. 42 49Unrecognized net (gain)loss................................. (1,055) (1,491)Foreign exchange............................................ (16) 20 ------- -------Prepaid (accrued) benefit................................... $(5,785) $(6,279) ======= ======= The components of the net periodic pension cost is as follows: 2000 1999 1998 ----- ----- ----- COMPONENTS OF NET PERIODIC BENEFIT COSTService Cost............................................... $ 643 $ 702 $ 532Interest Cost.............................................. 673 611 533Expected return on plan assets............................. (557) (459) (236)Amortization of excess plan net............................ (28) (31) (33)Amortization of prior service cost......................... (5) (12) 3 ----- ----- -----Net periodic benefit cost.................................. $ 726 $ 811 $ 799 ===== ===== ===== 44 46 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (15) RETIREMENT PLANS -- (CONTINUED) 2000 1999 1998 ------------- ------------- ------------- WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,Discount rate....................... 5.50% - 6.25% 5.75% - 6.50% 5.50% - 6.00%Expected return on plan assets...... 7.50% - 9.00% 9.00% 9.00%Rate of compensation increase....... 3.00% - 4.25% 3.00% - 4.50% 2.50% - 3.50% The aggregate ABO for those plans with ABO's in excess of plan assets is$5,464 in 2000, which were not funded. The Company's net pension costs for U.S. and foreign plans included inoperating results amounted to $3,066, $3,579, and $2,524 in 2000, 1999 and 1998,respectively. BioWhittaker had a noncontributory defined contribution target plan for itseligible employees. Under BioWhittaker's target plan, all domestic employeesover 21 years of age who have completed one year of service with the Companyparticipate. The target plan was 100% Company-funded, with annual contributionsby the Company based on the employee's targeted benefit, determined by suchfactors as salary and expected years of service to age 65. Effective May, 1999,BioWhittaker no longer has a separate plan and is covered by the Cambrex plan.Total target plan expenses amounted to $171 in 1999, and $546 in 1998. Savings Plan Cambrex makes available to all employees a savings plan as permitted underSections 401(k) and 401(a) of the Internal Revenue Code. Effective August 1998,this plan became available to all BioWhittaker employees. Employee contributionsare matched in part by Cambrex. The cost of this plan amounted to $1,393,$1,391, and $1,523 in 2000, 1999 and 1998, respectively. BioWhittaker had available to all eligible employees a contributory 401(k)plan which was terminated in August 1998. Employee contributions had beenmatched in part by BioWhittaker. The cost of this plan amounted to $262 in 1998. Other The Company has a non-qualified Compensation Plan for Key Executives ("theDeferred Plan"). Under the Deferred Plan, officers and key employees may electto defer all or any portion of their pre-tax annual bonus and/or annual basesalary. Included within other liabilities at December 31, 2000 and 1999 there is$2,030 and $2,247, respectively, representing the Company's obligation under theplan. To assist in the funding of this obligation, the Company invests incertain mutual funds and as such, included within other assets at December 31,2000 and 1999 is $2,030 and $2,247, respectively, representing the fair value ofthese funds. During 1995, the Board amended the Deferred Plan to permit officersand key employees to elect to defer receipt of Company stock which wouldotherwise have been issued upon the exercise of Company options. Total sharesheld in trust as of December 31, 2000 and 1999 are 267,559 and 283,540,respectively, and are included as a reduction of equity at cost. The value ofthe shares held in trust and the corresponding liability of $1,092 at December31, 2000 have been recorded in equity. The Deferred Plan is not funded by theCompany, but the Company has established a Deferred Compensation Trust Fundwhich holds the shares issued. 45 47 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (16) 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. The Company elected to amortize the transition obligation of $1,853 overtwenty years. The net effect upon 2000, 1999 and 1998 pretax operating results,including the amortization of the transition obligation, resulted in a cost of$325, $323, and $321, respectively. Disclosure is presented in accordance withStatement of Financial Accounting Standards No. 132 "Employers' DisclosuresAbout Pensions and Other Post Retirement Benefits" (SFAS 132). The periodic postretirement benefit cost includes the following components: DECEMBER 31, ------------------ 2000 1999 ------- ------- CHANGE IN BENEFIT OBLIGATIONAccumulated benefit obligation at beginning of year......... $ 2,372 $ 2,539Service cost................................................ 54 63Interest cost............................................... 178 167Actuarial gain.............................................. (394) (397) ------- -------Accumulated benefit obligation at end of year............... $ 2,210 $ 2,372 ======= =======Unrecognized net loss (gain)................................ $ 414 $ 203Unrecognized translation obligation......................... (1,112) (1,204) ------- -------Accrued benefit cost at end of year......................... $ 1,512 $ 1,371 ======= ======= YEARS ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ COMPONENTS OF NET PERIODIC BENEFIT COSTService cost of benefits earned............................. $ 54 $ 63 $ 63Interest cost............................................... 178 167 165Amortization of transition obligation....................... 93 93 93 ---- ---- ----Total periodic postretirement benefit cost.................. $325 $323 $321 ==== ==== ==== The discount rate used to determine the accumulated postretirement benefitobligation was 8.00% and 7.75% in 2000 and 1999, respectively. The assumedhealth care cost trend rate used to determine the accumulated postretirementbenefit obligation is 8% in 2000 (9% in 1999), declining ratably to 6.5% in 2002and thereafter. A one-percentage-point increase in the assumed health care costtrend rate would increase the accumulated postretirement benefit obligation by$58 and would increase the sum of interest and service cost by $9. Aone-percentage-point decrease would lower the accumulated postretirement benefitobligation by $55 and would raise the sum of interest and service cost by $9. The cost of all health and life insurance benefits is recognized asincurred and was approximately $3,716, $3,312 and $4,214 in 2000, 1999 and 1998,respectively. The cost of providing these benefits for the 241, 259 and 250retirees in 2000, 1999 and 1998, respectively, is not separable from the cost ofproviding benefits for the 1,018, 1,052, and 1,105 active U.S. employees in2000, 1999 and 1998, respectively. 46 48 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (17) RESTRUCTURING During the third quarter of 1998, the Company incurred a restructuringcharge of $1,400 which includes the non-recurring costs resulting from theconsolidation of administrative and management functions and resulted in thereduction of 44 employees. These costs are related to severance paid toterminated employees. The majority of these costs were incurred and paid priorto December 31, 1998 with the remainder paid in full during 1999. (18) OTHER INCOME AND EXPENSE Other (income) expense was ($329), $555 and $945 for 2000, 1999 and 1998,respectively. Included in 2000 income were gains on foreign exchange andmiscellaneous non-recurring lab services. Included in 1999 expense are variouscosts associated with loss on sale of assets and other miscellaneous expenses.Included in 1998 other expense were asset write-offs at the Zeeland facility of$522. (19) SEGMENT INFORMATION The Company is involved principally in the manufacturing and marketing ofproducts which include: Human Health, which include Active PharmaceuticalIngredients produced under Food and Drug Administration (FDA) regulation for usein prescription drug products, Pharmaceutical Intermediates produced in currentGood Manufacturing Practices (cGMP) facilities for use in the production ofpharmaceuticals and over-the-counter drug products, Imaging Chemicals used inx-ray media, Personal Care Ingredients used in cosmetics and for thepharmaceutical market, and Nutraceuticals used in health products; Biosciences,consisting of cell culture and endotoxin detection products; AnimalHealth/Agriculture products including Vitamin B-3 used in feed additives,Agricultural Intermediates used in crop protection, and Animal Health productsused as feed additives; and the Specialty and Fine Chemical segment whichincludes Performance Enhancing Chemicals used in photography, pigments,specialty polymers, fuel/oil additives, catalysts, and other specialtyadditives, and Polymer Systems products used in coatings, telecommunications,electronics and engineering plastics. Most of the Company's subsidiaries operatein more than one of these segments. The key exceptions are BioWhittaker and BMA,which solely comprise the biosciences segment. The Company has providedfinancial information in order to show Gross Sales and Gross Profit by segment.All other financial information is available only for the Biosciences Segmentand for all other segments combined. The Company allocates Corporate expensesand interest to each of its subsidiaries. The interest allocation is based on12% of subsidiary working capital and 9% of net property, plant and equipment.No customer accounts for more than 10% of consolidated revenues. The following is a summary of business segment information: 2000 1999 1998 -------- -------- -------- GROSS SALES GROSS SALESHuman Health....................................... $233,886 $225,660 $194,766Biosciences........................................ 96,232 83,887 65,968Animal Health/Agriculture.......................... 56,220 55,695 56,285Specialty and Fine Chemicals....................... 106,206 119,318 124,664 -------- -------- -------- $492,544 $484,560 $441,683 ======== ======== ======== 47 49 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (19) SEGMENT INFORMATION -- (CONTINUED) 2000 1999 1998 -------- -------- -------- GROSS PRODUCT SALES DETAIL FOR EACH SEGMENTHuman Health: Active Pharmaceutical............................ $171,174 $161,282 $126,007 Pharmaceutical Intermediates..................... 29,527 25,995 24,844 Personal Care Ingredients........................ 15,512 14,706 16,777 Imaging Chemicals................................ 7,842 13,568 14,179 Biomedical Urethanes............................. 2,784 3,050 3,977 Catalysts........................................ 7,035 6,950 8,281 Neutraceuticals.................................. 12 109 701 -------- -------- -------- Total Human Health....................... $233,886 $225,660 $194,766 ======== ======== ========Biosciences:Cells and Media.................................... $ 50,590 $ 47,434 $ 43,795Endotoxin Detection................................ 21,391 21,864 18,852Electrophoresis, Chromatography & Other............ 24,251 14,589 3,321 Total Biosciences........................ $ 96,232 $ 83,887 $ 65,968 ======== ======== ========Animal Health/Agriculture: Vitamin B-3...................................... $ 6,910 $ 9,155 $ 12,814 Animal Health.................................... 16,140 15,013 17,614 Agricultural Intermediates....................... 33,170 31,527 25,857 -------- -------- -------- Total Animal Health/Agriculture.......... $ 56,220 $ 55,695 $ 56,285 ======== ======== ========Specialty and Fine Chemicals: Performance Enhancing Chemicals.................. $ 67,004 $ 76,441 $ 81,853 Polymer Systems.................................. 39,202 42,877 42,811 -------- -------- -------- Total Specialty and Fine Chemicals....... $106,206 $119,318 $124,664 ======== ======== ======== 2000 1999 1998 -------- -------- -------- GROSS PROFITHuman Health....................................... $ 91,145 $ 83,603 $ 92,441*Biosciences........................................ 50,815 42,088 32,321Animal Health/Agriculture.......................... 9,829 12,045 11,557Specialty and Fine Chemicals....................... 25,706 29,427 27,098 -------- -------- -------- $177,495 $167,163 $163,417 ======== ======== ======== ---------------* Includes royalty income of $19,298 48 50 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (19) SEGMENT INFORMATION -- (CONTINUED) 2000 1999 1998 -------- -------- -------- NET INCOMEBiosciences........................................ $ 5,122 $ 3,150 $ 1,953Human Health, Animal Health/Agriculture & Specialty and Fine Chemicals............................... 44,483 34,982 37,149 -------- -------- -------- $ 49,605 $ 38,132 $ 39,102 ======== ======== ======== 2000 1999 1998 -------- -------- -------- TOTAL ASSETSBiosciences........................................ $190,770 $186,405 $154,082Human Health, Animal Health/Agriculture & Specialty and Fine Chemicals............................... 483,083 487,242 462,972 -------- -------- -------- $673,853 $673,647 $617,054 ======== ======== ======== 2000 1999 1998 ------- ------- ------- CAPITAL SPENDINGBiosciences........................................... $ 4,007 $ 1,829 $ 4,215Human Health, Animal Health/Agriculture & Specialty and Fine Chemicals.................................. 35,784 28,700 38,792 ------- ------- ------- $39,791 $30,529 $43,007 ======= ======= ======= 2000 1999 1998 ------- ------- ------- DEPRECIATIONBiosciences........................................... $ 3,817 $ 2,897 $ 1,997Human Health, Animal Health/Agriculture & Specialty and Fine Chemicals.................................. 28,122 30,221 28,550 ------- ------- ------- $31,939 $33,118 $30,547 ======= ======= ======= 2000 1999 1998 ------- ------- ------- AMORTIZATION AMORTIZATIONBiosciences........................................... $ 6,586 $ 5,017 $ 4,358Human Health, Animal Health/Agriculture & Specialty and Fine Chemicals.................................. 3,569 4,193 5,227 ------- ------- ------- $10,155 $ 9,210 $ 9,585 ======= ======= ======= 49 51 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (20) FOREIGN OPERATIONS AND EXPORT SALES Summarized data for the Company's operations for 2000, 1999 and 1998 are asfollows: DOMESTIC EUROPEAN TOTAL -------- -------- -------- 2000Gross sales........................................ $262,068 $230,476 $492,544Long-lived identifiable assets..................... 272,529 164,008 436,5371999Gross sales........................................ $266,171 $218,389 $484,560Long-lived identifiable assets..................... 268,669 160,801 429,4701998Gross sales........................................ $263,387 $178,296 $441,683Long-lived identifiable assets..................... 241,694 140,317 382,011 Export sales, included in domestic gross sales, in 2000, 1999 and 1998amounted to $50,910, $40,610, and $42,722, respectively. No country, in any ofthe given years, represents more than 10% of these export sales. (21) COMMITMENTS The Company has operating leases expiring on various dates through the year2010. The leases are primarily for office and laboratory equipment and vehicles.At December 31, 2000, future minimum commitments under non-cancelable operatinglease arrangements were as follows: Year ended December 31: 2001..................................................... $ 2,984 2002..................................................... 2,604 2003..................................................... 2,540 2004..................................................... 2,484 2005 and thereafter...................................... 6,075 ------- Net commitments.................................. $16,687 ======= Total operating lease expense was $1,897, $2,433, and $2,412 for the yearsended December 31, 2000, 1999 and 1998, respectively. On August 11, 1999, the Company completed a marketing, development andmedia supply agreement with Osiris Therapeutics, Inc. covering adult stem cells,the progenitors of structural and connective tissues. The Company's BioWhittakersubsidiary will manufacture and market adult stem cell products for the lifescience research market through an exclusive worldwide license from Osiris.BioWhittaker will also become the exclusive supplier of culture media to Osiris for the production of human adult stem cells in therapeutic applications. Thetwo companies will share development costs and Osiris will receive royalties onsales of research reagents. Cambrex also purchased $5,000 of Osiris CommonStock, which represents approximately 5% ownership interest in the Company, andhas agreed to purchase an additional $2,000 of Common Stock coincident with anOsiris initial public offering. Cambrex also received preemptive rights tomaintain its equity position in subsequent rounds of financing. The $5,000 paidfor Osiris Common Stock is included in Other Non-current Assets. 50 52 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (22) CONTINGENCIES The Company is subject to various investigations, claims and legalproceedings covering a wide range of matters that arise in the ordinary courseof its business activities. Environmental In connection with laws and regulations pertaining to the protection of theenvironment, the Company is a party to several environmental remediationinvestigations and cleanups and, along with other companies, has been named a"potentially responsible party" for certain waste disposal sites (Superfundsites). Each of these matters is subject to various uncertainties, and it ispossible that some of these matters will be decided unfavorably against theCompany. The Company had accruals, included in current accrued liabilities andother noncurrent liabilities, of $2,300 and $3,400 at December 31, 2000 and1999, respectively, for costs associated with the study and remediation ofSuperfund sites and the Company's current and former operating sites for mattersthat are probable and reasonably estimable. Based on currently availableinformation and analysis, the Company's accrual represents management's bestestimate of what it believes are the reasonably possible environmental cleanuprelated costs of a non-capital nature. During the past three-year period, cashpayments for environmental cleanup related matters were $0, $200 and $1,800 for2000, 1999 and 1998, respectively. There were no provisions for environmentalcontingencies during the past three-year period. The Company reversed reservesof approximately $1,100 and $1,200 during the third quarters of 2000 and 1999,respectively, as a result of revised estimates. In addition, the Company settledcertain environmental claims involving the Cosan Chemical Corporation (asubsidiary) with insurance companies for $1,812 in 2000 and $1,150 in 1999.After reviewing information currently available, management believes any amountspaid in excess of the accrued liabilities will not have a material effect on itsfinancial position or results of operations. However, these matters, if resolvedin a manner different from the estimates could have a material adverse effect onfinancial condition, operating results and cash flows when resolved in a futurereporting period. Litigation The Company and its subsidiary Profarmaco S.r.l. ("Profarmaco") were namedas defendants in a proceeding instituted by the Federal Trade Commission ("FTC")on December 21, 1998, in the United States District Court for the District ofColumbia. The complaint alleges that exclusive license agreements whichProfarmaco entered into with Mylan Laboratories, Inc. ("Mylan") covering thedrug master files for (and therefore the right to buy and use) two activepharmaceutical ingredients ("APIs"), lorazepam and clorazepate, were part of aneffort on Mylan's part to restrict competition in the supply of lorazepam andclorazepate and to increase the price charged for these products when Mylan soldthem as generic pharmaceuticals. The complaint further alleges that theseagreements violate the Federal Trade Commission Act, and that Mylan, Cambrex,Profarmaco, and Gyma Laboratories of America, Inc., Profarmaco's distributor inthe United States, engaged in an unlawful restraint of trade and conspired to monopolize and attempted to monopolize the markets for the genericpharmaceuticals incorporating the APIs. In accordance with the licenseagreement, the Company received royalties of approximately $19,300 and $1,000for the years ended December 31, 1998 and 1997, respectively. A lawsuit makingsimilar allegations against the Company and Profarmaco, and seeking injunctiverelief and treble damages, has been filed by the Attorneys General of 31 statesin the United States District Court for the District of Columbia on behalf ofthose states and persons in those states who were purchasers of the genericpharmaceuticals. The Company and Profarmaco have also been named in purported class actioncomplaints brought by private plaintiffs in various state courts on behalf ofpurchasers of lorazepam and clorazepate in generic form, making allegationsessentially similar to those raised in the FTC's complaint and seeking variousforms of relief including treble damages. 51 53 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (22) CONTINGENCIES -- (CONTINUED) On February 9, 2001, a federal court in Washington, DC entered an Order andStipulated Permanent Injunction as part of a settlement of the FTC and AttorneysGeneral's suits. Under these settlement documents Mylan has agreed to pay over$140 million on its own behalf and on behalf of most of the other defendantcompanies including Cambrex and Profarmaco. In the Order and Injunction, thesettling defendants also agreed to monitor certain future conduct. The Company strongly believes that its licensing arrangements with Mylanare in accordance with regulatory requirements and will vigorously defend thevarious other lawsuits and class actions. However, the Company and Mylan haveterminated the exclusive licenses to the drug master files as of December 31,1998. In entering these licensing arrangements, the Company elected not to raisethe price of its products and had no control of influence over the pricing ofits final generic product. Some private litigation will continue. Untilrecently, Mylan had been fully covering the costs for the defense and indemnityof Cambrex and Profarmaco under certain obligations set forth in the licenseagreements. Cambrex has now agreed to cover separate legal defense costsincurred for Cambrex and Profarmaco on a going forward basis beginning August 1,2000. These costs are expected to be significant. On May 14, 1998, the Company's Nepera subsidiary, a manufacturer and sellerof niacinamide (Vitamin B-3), received a Federal Grand Jury subpoena for theproduction of documents relating to the pricing and possible customer allocationwith regard to that product. The Company understands that the subpoena wasissued as part of the Federal Government's ongoing anti-trust investigation intovarious business practices in the vitamin industry generally. In the fourthquarter of 1999, the Company reached a settlement with the Government concerningNepera's alleged role in Vitamin B-3 violations from 1992 to 1995. On October13, 2000, the Government settlement was finalized with Nepera entering into avoluntary plea agreement with the Department of Justice. Under this agreement,Nepera has entered a plea of guilty to one count of price fixing and marketallocation of Vitamin B-3 from 1992 to 1995 in violation of section one of theSherman Act and has agreed to pay a fine of $4,000. Nepera will be on probationfor one year. The fine, for which we are fully reserved, was paid in February2001. Nepera has been named as a defendant, along with several other companies,in a number of private civil actions brought on behalf of alleged purchasers ofVitamin B-3. An accrual of $6,000 was recorded in the fourth quarter 1999 to cover theanticipated government settlements, related litigation, and legal expenses. Thebalance of this accrual as of December 31, 2000 was $5,301. This accrual hasbeen recorded in the above litigation matters and Accounts Payable and Accrued Liabilities. While it is not possible to predict with certainty the outcome of the abovelitigation matters and various other lawsuits, it is the opinion of managementthat the ultimate resolution of these proceedings should not have a materialadverse effect on the Company's results of operations, cash flows and financialposition. These matters, if resolved in an unfavorable manner, could have amaterial effect on the operating results and cash flows when resolved in afuture reporting period. 52 54 CAMBREX CORPORATION SELECTED QUARTERLY FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER YEAR ----------- ----------- ----------- ----------- -------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 2000Gross sales...................... $128,986 $127,472 $115,742 $120,344 $492,544Net revenues..................... 127,378 125,276 114,075 117,517 484,246Gross profit..................... 46,149 48,746 41,368 41,232 177,495Net income....................... 12,312 14,206 11,251 11,836 49,605Earnings per share:(1) Basic.......................... $ 0.50 $ 0.57 $ 0.45 $ 0.47 $ 1.98 Diluted........................ $ 0.48 $ 0.55 $ 0.43 $ 0.45 $ 1.90Average shares: Basic.......................... 24,706 24,883 25,082 25,213 25,015 Diluted........................ 25,852 26,037 26,216 26,086 26,1571999Gross sales...................... $117,519 $123,642 $118,602 $124,797 $484,560Net revenues..................... 117,399 122,654 117,450 123,885 481,388Gross profit..................... 40,503 42,859 39,234 44,567 167,163Net income....................... 10,180 11,925 9,673 6,354(2) 38,132(2)Earnings per share:(1) Basic.......................... $ 0.41 $ 0.49 $ 0.39 $ 0.26 $ 1.55 Diluted........................ $ 0.40 $ 0.47 $ 0.38 $ 0.25 $ 1.49Average shares: Basic.......................... 24,533 24,564 24,583 24,607 24,572 Diluted........................ 25,384 25,498 25,654 25,896 25,613 --------------- (1) Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period, as such, the sum of the quarters may not necessarily equal the earnings per share amount for the year. (2) The fourth quarter and full year 1999 net income includes a $6,000 provision to cover government settlements, related litigation and legal expenses associated with Cambrex subsidiary Nepera's alleged role in Vitamin B-3 anti-trust matter from 1992 to 1995. 53 55 PART III ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE. None. ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. ITEM 11 EXECUTIVE COMPENSATION. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by Part III is hereby incorporated by referenceto the information set forth under the captions "Principal Stockholders," "Boardof Directors," "Election of Directors," "Related Party Transactions" and"Executive Compensation" in the registrant's definitive proxy statement for theAnnual Meeting of Stockholders, to be held April 26, 2001, which meetinginvolves the election of directors, which definitive proxy statement is beingfiled with the Securities and Exchange Commission pursuant to Regulation 14A. In addition, information concerning the registrant's executive officers hasbeen included in Part I under the caption "Executive Officers of theRegistrant." 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) ---------------- Report of Independent Accounts.............................. 23Consolidated Balance Sheets as of December 31, 2000, and 1999...................................................... 24Consolidated Income Statements for the Years Ended December 31, 2000, 1999 and 1998................................... 25Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998.................... 26Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.......................... 27Notes to Consolidated Financial Statements.................. 28Consolidated Quarterly Financial Data (unaudited) for the Years Ended December 31, 2000 and 1999.................... 53 (a) 2. (i) The following schedule to the consolidated financial statementsof the Company as filed herein and the Report of Independent Certified PublicAccountants on Schedule are filed as part of this report. PAGE NUMBER (IN THIS REPORT) ---------------- Report of Independent Accountants on Financial Statement Schedule.................................................. 55Schedule II -- Valuation and Qualifying Accounts............ 56 All other schedules are omitted because they are not applicable or notrequired or because the required information is included in the consolidatedfinancial statements of the Company or the notes thereto. (a) 3. The exhibits filed in this report are listed in the Exhibit Index onpages 59-61 pages 59-61 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 filed no reports on Form 8-K during the last quarter of theyear ended December 31, 2000. 54 56 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directorsof Cambrex Corporation: Our audits of the consolidated financial statements referred to in ourreport dated January 19, 2001 appearing in the 2000 Annual Report toShareholders of Cambrex Corporation and its subsidiaries on Form 10-K of CambrexCorporation and its subsidiaries also included an audit of the financialstatement schedule listed in Item 14(a) (2) of this Form 10-K. In our opinion,this financial statement schedule presents fairly, in all material respects, theinformation set forth therein when read in conjunction with the relatedconsolidated financial statements. PRICEWATERHOUSECOOPERS LLP January 19, 2001 55 57 SCHEDULE II CAMBREX CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (DOLLARS IN THOUSANDS) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E --------- ---------- ---------- ---------- -------- ADDITIONS ----------------------- BALANCE CHARGED TO CHARGED TO BEGINNING COST AND OTHER ENDCLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR-------------- --------- ---------- ---------- ---------- -------- Year Ended December 31, 2000: Doubtful trade receivables and returns and allowances.............................. $ 799 $ 805 $ -- $ 250 $ 1,354 Inventory and obsolescence provisions...... 18,654 $2,599 -- 3,860 17,393Year Ended December 31, 1999: Doubtful trade receivables and returns and allowances.............................. $ 1,550 $ (347) $ 26(2) $ 430 $ 799 Inventory and obsolescence provisions...... 17,156 4,486 1,221(1) 4,209 18,654Year Ended December 31, 1998: Doubtful trade receivables and returns and allowances.............................. $ 1,705 $ 257 $ -- $ 412 $ 1,550 Inventory and obsolescence provisions...... 15,943 6,046 -- 4,833 17,156 ---------------(1) Reserve of Irotec acquired March, 1999. (2) Reserve of BMA acquired July, 1999. 56 58 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/ JAMES A. MACK ------------------------------------ James A. Mack Chairman of the Board of Directors Date: March 19, 2001 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/ JAMES A. MACK Chairman of the Board of )------------------------------------------------ Directors James A. Mack /s/ DOUGLAS MACMILLAN Vice President Chief Financial )------------------------------------------------ Officer Douglas MacMillan /s/ CYRIL C. BALDWIN, JR. Director )------------------------------------------------ Cyril C. Baldwin, Jr.* /s/ ROSINA B. DIXON, M.D.* Director )------------------------------------------------ Rosina B. Dixon, M.D. /s/ GEORGE J. W. GOODMAN* Director )------------------------------------------------ George J. W. Goodman /s/ ROY W. HALEY* Director )------------------------------------------------ Roy W. Haley /s/ KATHRYN RUDIE HARRIGAN, PHD* Director )------------------------------------------------ Kathryn Rudie Harrigan, PhD /s/ LEON J. HENDRIX, JR.* Director ) March 19, 2001------------------------------------------------ Leon J. Hendrix, Jr. /s/ ILAN KAUFTHAL* Director )------------------------------------------------ Ilan Kaufthal /s/ WILLIAM KORB* Director )------------------------------------------------ William Korb 57 59 SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT LEBUHN* Director )------------------------------------------------ Robert LeBuhn /s/ JOHN R. MILLER* Director )------------------------------------------------ John R. Miller /s/ DEAN P. PHYPERS* Director )------------------------------------------------ Dean P. Phypers *By /s/ JAMES A. MACK -------------------------- James A. Mack Attorney-in-Fact 58 60 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION------- ----------- 3.1 -- Restated Certificate of Incorporation of registrant.(A) -- Exhibit 3(a). 3.2 -- By Laws of registrant.(E) -- Exhibit 4.2. 4.1 -- Form of Certificate for shares of Common Stock of registrant.(A) -- Exhibit 4(a). 4.2 -- Article Fourth of the Restated Certificate of Incorporation.(A) -- Exhibit 4(b). 4.3 -- Loan Agreement dated September 21, 1994 by and among the registrant, NBD Bank, N.A., United Jersey Bank, National Westminster Bank NJ, Wachovia Bank of Georgia, N.A., BHF- Bank, The First National Bank of Boston, Chemical Bank New Jersey, N.A., and National City Bank.(K). 4.4 -- Loan Agreement dated September 16, 1997 by and among the registrant, Chase Manhattan Bank as Administrative Agent and The First National Bank of Chicago as Documentation Agent. The bank group includes 13 domestic banks and 7 international banks.(Q) 10.1 -- Purchase Agreement dated July 11, 1986, as amended, between the registrant and ASAG, Inc.(A) -- Exhibit 10(r). 10.2 -- Asset Purchase Agreement dated as of June 5, 1989 between Whittaker Corporation and the registrant.(C) -- Exhibit 10(a). 10.3 -- Asset Purchase Agreement dated as of July 1, 1991 between Solvay Animal Health, Inc. and the registrant.(F). 10.4 -- Asset Purchase Agreement dated as of March 31, 1992 between Hexcel Corporation and the registrant.(H). 10.5 -- Stock Purchase Agreement dated as of September 15, 1994 between Akzo Nobel AB, Akzo Nobel NV and the registrant, for the purchase of Nobel Chemicals AB.(K). 10.6 -- Stock Purchase Agreement dated as of September 15, 1994 between Akzo Nobel AB, Akzo Nobel and the registrant, for the purchase of Profarmaco Nobel, S.r.l.(K). 10.7 -- Stock purchase agreement dated as of October 3, 1997 between BioWhittaker and the registrant.(Q) 10.10 -- 1983 Incentive Stock Option Plan, as amended.(B). 10.11 -- 1987 Long-term Incentive Plan.(A) -- Exhibit(g). 10.12 -- 1987 Stock Option Plan.(B). 10.13 -- 1989 Senior Executive Stock Option Plan.(J). 10.14 -- 1992 Stock Option Plan.(J). 10.15 -- 1993 Senior Executive Stock Option Plan.(J). 10.16 -- 1994 Stock Option Plan.(J). 10.17 -- 1996 Performance Stock Option Plan.(N). 10.20 -- Form of Employment Agreement between the registrant and its executive officers named in the Revised Schedule of Parties thereto.(D) -- Exhibit 10. A. ---------------See legend on following page. 59 61 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION------- ----------- 10.21 -- Revised Schedule of Parties to Employment Agreement (exhibit 10.20 hereto).(M). 10.22 -- Cambrex Corporation Savings Plan.(I). 10.23 -- Cambrex Corporation Supplemental Retirement Plan.(L). 10.24 -- Deferred Compensation Plan of Cambrex Corporation.(L). 10.25 -- Amendment to Deferred Compensation Plan of Cambrex Corporation (Exhibit 10.24 hereto).(P). 10.26 -- Cambrex Earnings Improvement Plan.(L). 10.27 -- Consulting Agreement dated December 15, 1994 between the registrant and Arthur I. Mendolia.(L). 10.28 -- Consulting Agreement dated December 15, 1995 between the registrant and Cyril C. Baldwin, Jr.(L). 10.29 -- Consulting Agreement between the registrant and James A. Mack.(L). 10.30 -- Additional Retirement Payment Agreement dated December 15, 1994 between the registrant and Arthur I. Mendolia.(L). 10.31 -- Additional Retirement Payment Agreement dated December 15, 1994 between the registrant and Cyril C. Baldwin, Jr.(L). 10.32 -- Additional Retirement Payment Agreement between the registrant and James A. Mack.(L). 10.40 -- Registration Rights Agreement dated as of June 6, 1985 between the registrant and the purchasers of its Class D Convertible Preferred stock and 9% Convertible Subordinated Notes due 1997.(A) -- Exhibit 10(m). 10.41 -- Administrative Consent Order dated September 16, 1985 of the New Jersey Department of Environmental Protection to Cosan Chemical Corporation.(A) -- Exhibit 10(q). 10.42 -- Registration Rights Agreement dated as of June 5, 1996 between the registrant and American Stock Transfer and Trust Company.(O) -- Exhibit 1. 10.50 -- Manufacturing Agreement dated as of July 1, 1991 between the registrant and A.L. Laboratories, Inc.(G). 21 -- Subsidiaries of registrant.(M). 23 -- Consent of PricewaterhouseCoopers L.L.P. to the incorporation by reference of its report herein in Registration Statement Nos. 333-22017, 33-21374, 33-37791, 33-81780 and 33-81782 on Form S-8 of the registrant.(M). 24 -- Powers of Attorney to sign this report.(M). 27 -- Financial Data Schedule.(M). ---------------See legend on following page 60 62 EXHIBIT INDEX (A) Incorporated by reference to the indicated Exhibit to registrant's Registration Statement on Form S-1 (Registration No. 33-16419).(B) Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 33-21374) and Amendment No. 1.(C) Incorporated by reference to registrant's Annual Report on Form 10-K dated June 5, 1989.(D) Incorporated by reference to the indicated Exhibit to registrant's Annual Report on Form 10-K for 1989.(E) Incorporated by reference to the indicated Exhibit to registrant's Registration Statement on Form S-8 (Registration No. 33-37791).(F) Incorporated by reference to registrant's Current Report on Form 8-K dated July 1, 1991.(G) Incorporated by reference to the registrant's Annual Report on Form 10-K for 1991.(H) Incorporated by reference to the registrant's Current Report on Form 8-K dated April 10, 1992 and Amendment No. 1 to its Current Report.(I) Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 33-81780) dated July 20, 1994.(J) Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 33-81782) dated July 20, 1994.(K) Incorporated by reference to registrant's Current Report on Form 8-K dated October 26, 1994.(L) Incorporated by reference to the registrant's Annual Report on Form 10-K for 1994.(M) Filed herewith.(N) Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 333-22017) dated February 19, 1997.(O) Incorporated by reference to the registrant's Current Report on Form 8-A dated June 12, 1996.(P) Incorporated by reference to the registrant's Annual Report on Form 10-K for 1995.(Q) Incorporated by reference to the registrant's Current Report on Form 8-K dated October 8, 1997. 61 1 CAMBREX CORPORATION ANNUAL REPORT ON FORM 10-K EXHIBIT 10.21 REVISED SCHEDULE OF PARTIESNAME TITLE DATE OF AGREEMENT James A. Mack President and Chief 02/01/90 Executive OfficerClaes Glassell Executive Vice President, and 10/12/94 Chief Operating OfficerSteven M. Klosk Executive Vice President, 10/21/92 AdministrationPeter E. Thauer Senior Vice President, Law and Environment, 08/28/89 General Counsel and Corporate SecretarySalvatore J. Guccione Senior Vice President, 12/14/95 Corporate DevelopmentDouglas H. MacMillan Vice President and 04/14/97 Chief Financial OfficerThomas N. Bird Vice President, Business Development 07/23/99 Life Sciences 1 CAMBREX CORPORATION EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Subsidiary Incorporated in: CasChem, Inc. Delaware Cosan Chemical Corp. New Jersey Nepera, Inc. New York Heico Chemicals, Inc. Delaware Chiragene, Inc. Delaware Salsbury Chemicals, Inc. Iowa Zeeland Chemicals, Inc. Michigan BioWhittaker, Inc. Delaware Seal Sands Chemicals Limited England Profarmaco S.r.l. Italy Nordic Synthesis AB Sweden BioWhittaker Europe s.p.r.l. Belgium BioWhittaker Molecular Applications, Inc. Delaware BioWhittaker Molecular Applications Aps Denmark Irotec Laboratories, Ltd. Ireland Conti BC NV Belgium Lumitech Limited England 1 CAMBREX CORPORATION EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTSWe hereby consent to the incorporation by reference in the RegistrationStatements on Form S-8 (File Nos. 333-22017, 33-21374, 33-37791, 33-81780, and33-81782) of Cambrex Corporation of our report dated January 19, 2001 relatingto the financial statements and financial statement schedule, which appear inthis Form 10-K. PRICEWATERHOUSECOOPERS LLPMarch 19, 2001 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each officer and director ofCambrex Corporation, a Delaware corporation, whose signature appears belowconstitutes and appoints Cyril C. Baldwin, Jr., James A. Mack, and Douglas H.MacMillan, and each of them, his true and lawful attorneys-in-fact and agents,with full power of substitution and resubstitution, for him and in his name,place and stead, in any and all capacities, to sign any and all Annual Reportson Form 10-K which said Cambrex Corporation may be required to file pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934 and any and allamendments thereto and to file the same, with all exhibits thereto, and otherdocuments in connection therewith, with the Securities and Exchange Commission,granting unto said attorneys-in-fact and agents full power and authority to doand perform each and every act and thing requisite and necessary to be done inand about the premises, as fully to all intents and purposes as he might orcould do in person, hereby ratifying and confirming all that saidattorneys-in-fact and agents or their substitutes may lawfully do or cause to bedone by virtue hereof. IN WITNESS WHEREOF each of the undersigned has executed this instrumentas of the 25th day of January 2001./s/ James A. Mack. /s/ Leon J. Hendrix ------------------------------------- ------------------------------James A. Mack Leon J. HendrixPresident, Chief Executive Officer DirectorChairman of the Board/s/ Douglas H. MacMillan /s/ Ilan Kaufthal ------------------------------------- ------------------------------Douglas H. MacMillan Leon J. Hendrix, Jr.Vice President - Finance and DirectorChief Financial Officer(Principal Financial Officer and /s/William Korb Accounting Officer) ------------------------------ William Korb Director/s/ Rosina B. Dixon /s/ Robert LeBuhn ------------------------------------- ------------------------------Rosina B. Dixon, M.D. William KorblDirector Director/s/ George J.W. Goodman /s/ John R. Miller ------------------------------------- ------------------------------George J.W. Goodman John R. MillerDirector Director/s/ Roy W. Haley /s/ Dean P. Phypers ------------------------------------- ------------------------------Roy W. Haley John R. MillerDirector Director/s/ Kathryn Rudie Harrigan, PhD -------------------------------------Kathryn Rudie Harrigan, PhDDirector