Cambrex Corporation
Annual Report 2011

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-Kx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2011OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from______________toCommission file number 1-10638CAMBREX CORPORATION(Exact name of registrant as specified in its Charter) Delaware 22-2476135(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) One Meadowlands Plaza, East Rutherford, New Jersey 07073(Address of principal executive offices) (Zip Code)Registrant's telephone number, including area code: (201) 804-3000Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $.10 par value New York Stock ExchangeSecurities registered pursuant to Section 12 (g) of the Act: (None)Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o. No .Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o. No . Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes . No o. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files).Yes . No o. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K.  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer oAccelerated filer Non-accelerated filer oSmaller reporting company o Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o. No . The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $133,921,442 as of June30, 2011. As of January 31, 2012, there were 29,576,880 shares outstanding of the registrant's Common Stock, $.10 par value.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s definitive Proxy Statement for the 2012 Annual Meeting are incorporated by reference into Part III of this Report.   CAMBREX CORPORATION AND SUBSIDIARIESINDEX TO ANNUAL REPORT ONFORM 10-K FILED WITH THESECURITIES AND EXCHANGE COMMISSIONFor the Year Ended December 31, 2011ItemNo. PART I PageNo. 1 Business. 31A Risk Factors. 91B Unresolved Staff Comments. 192 Properties. 193 Legal Proceedings. 194 Mine Safety Disclosures. 19 PART II 5 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 206 Selected Financial Data. 227 Management’s Discussion and Analysis of Financial Condition and Results of Operations. 247A Quantitative and Qualitative Disclosures about Market Risk. 368 Financial Statements and Supplementary Data. 379 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 759A Controls and Procedures. 759B Other Information. 76 PART III 10 Directors, Executive Officers and Corporate Governance. 7711 Executive Compensation. 7812 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 7813 Certain Relationships and Related Transactions and Director Independence. 7814 Principal Accountant Fees and Services. 78 PART IV 15 Exhibits and Financial Statement Schedules. 79 (dollars in thousands, except per share data) 2Index Forward-Looking StatementsThis document contains and incorporates by reference “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933,as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding expected performance,especially expectations with respect to sales, research and development expenditures, earnings per share, capital expenditures, acquisitions, divestitures,collaborations or other expansion opportunities. These statements may be identified by the fact that they use words such as “may,” “will,” “could,” “should,”“would,” “expect,” “anticipate,” “intend,” “estimate,” “believe” or similar expressions. Any forward-looking statements contained herein are based on currentplans and expectations and involve risks and uncertainties that could cause actual outcomes and results to differ materially from current expectations. Thefactors described in Item 1A of Part I of this Annual Report on Form 10-K captioned “Risk Factors,” or otherwise described in the Company’s filings with theSecurities and Exchange Commission, as well as any cautionary language in this Annual Report on Form 10-K, provide examples of such risks anduncertainties that may cause the Company’s actual results to differ materially from the expectations the Company describes in its forward-looking statements,including, but not limited to, pharmaceutical outsourcing trends, competitive pricing or product developments, government legislation and regulations(particularly environmental issues), tax rate, interest rate, technology, manufacturing and legal issues, including the outcome of outstanding litigationdisclosed in the Company’s public filings, changes in foreign exchange rates, uncollectable receivables, loss on disposition of assets, cancellation or delays inrenewal of contracts, lack of suitable raw materials or packaging materials, and the Company’s ability to receive regulatory approvals for its products.The forward-looking statements are based on the beliefs and assumptions of Company management and the information available to Companymanagement at the time these disclosures were prepared. Although the Company believes the expectations reflected in these statements are reasonable,expectations regarding future results, levels of activity, performance, achievements or other forward-looking statements should not be relied upon. Theinformation contained in this Annual Report is provided by us as of the date hereof, and, unless required by law, the Company does not undertake andspecifically disclaims any obligation to update these forward-looking statements contained in this Annual Report as a result of new information, future eventsor otherwise. PART IItem 1 Business.GeneralCambrex Corporation (the "Company" or "Cambrex"), a Delaware corporation, began business in December 1981. Cambrex is a life sciencescompany that provides products and services that accelerate and improve the development and commercialization of new and generic therapeutics. TheCompany primarily supplies its products and services worldwide to innovator and generic pharmaceutical companies. Cambrex has three operating segments,which are manufacturing facilities that have been aggregated as one reportable segment. The Company's overall strategy is to: grow its portfolio of customdevelopment projects, especially those in the later stages of the clinical trial process; secure long-term supply agreements to produce active pharmaceuticalingredients (“APIs”) and intermediates for newly approved drug products; expand sales of products and projects based on its proprietary technologies; andpartner with generic drug companies to grow the Company’s extensive portfolio of generic APIs. The Company’s acquisition of a 51% equity stake in ZenaraPharma (“Zenara”) also gives the Company the additional capability of producing final dosage form products as well as establishing it as one of the leadingglobal suppliers to the nicotine replacement therapy (“NRT”) market. The Company also seeks to demonstrate excellence in regulatory compliance,environmental, health and safety performance, and customer service. (dollars in thousands, except per share data) 3IndexThe Company uses a consistent business approach: ·Niche Market Focus: The Company participates in niche markets where significant technical expertise provides a competitive advantage andmarket differentiation. ·Market Leadership: The Company secures leading market positions through excellent customer service, proprietary technologies, specializedcapabilities and an outstanding regulatory record and leverages these capabilities across the market segments in which it participates. ·New Products and Services: The Company continues to invest in research and product development (“R&D”) in order to introduce innovativeproducts and services to accelerate revenue growth, provide a competitive advantage and maintain its leading market positions. ·Operational Excellence: The Company maintains its commitment to continually improve productivity and customer service levels andmaintains excellent quality and regulatory compliance systems. ·Acquisition and Licensing: The Company may drive growth in strategic business segments through the prudent acquisition of businesses,products, product lines, technologies and capabilities to enhance the Company's position in its niche markets.As part of the process of evaluating strategic alternatives to enhance shareholder value, the sale of the businesses that comprised the Bioproducts andBiopharma segments was completed in February 2007, and where applicable, these businesses are being reported as discontinued operations in all periodspresented.Market Overview and Growth DriversThe Company participates in markets that serve the healthcare industry. Customers include generic drug companies and companies that discover andcommercialize new small molecule human therapeutics using organic chemistry.The aging western population, continued investment in healthcare research and drug development, growth in the world’s developing markets, and thenecessity to develop life saving therapeutics to address unmet needs drives business growth in life sciences companies. Aging "baby boomers" in the UnitedStates, Europe and Japan may provide an enormous healthcare opportunity. This group typically has more education, a higher socio-economic level andhigher demands for healthcare services than previous generations.Demand for Cambrex products and services is dependent upon some of its customers’ continuing access to financial resources to advance their R&Dprojects for therapeutic candidates from the laboratory to the clinic, and eventually, to the patient. Healthcare investment comes from a variety ofsources. Large pharmaceutical and biotechnology companies spend billions on drug discovery and development. Macro-economic conditions can have animpact on the availability of funding for the Company’s customers, especially those customers dependent upon venture capital and other private sources offunding.Once a drug is identified, companies develop a robust process for the manufacture of clinical and commercial quantities. Product testing, analyticalmethods and quality processes are integrated into the manufacturing process. This is a critical step to getting a commercially viable drug to market. Cambrexexcels in the manufacture and testing of APIs and drug substances at laboratory, clinical and commercial scale and specializes in optimizing manufacturingprocesses.Demand for outsourced services from pharmaceutical companies continues to grow. Large pharmaceutical and biotechnology companies may outsourcethe development and manufacturing of a drug substance to manage multiple internal priorities, access new technologies or additional capacity, preserve neededcapital or ensure multiple sources of supply. Many emerging pharmaceutical and generic drug companies outsource all process development andmanufacturing and many larger pharmaceutical companies have publicly stated that they will increasingly outsource the manufacturing of drugproducts. Cambrex is particularly well positioned to assist drug companies with these much needed services for traditional APIs. (dollars in thousands, except per share data) 4Index New drugs are typically patented. When the patent expires, the drug may be manufactured and marketed in its generic form. Growth in the genericdrug market is driven by the continuing stream of drug patents that will expire in the future and favorable market forces that encourage the use of genericpharmaceuticals as a more cost effective health care alternative to higher-priced branded drugs. In the United States and many countries in Europe,governments and prescription benefit management companies provide incentives for generic substitution to reduce costs. Cambrex manufactures over 70generic APIs, typically in relatively small quantities for use in niche therapeutics.The market for human therapeutics is regulated by the Food and Drug Administration (“FDA”) in the United States and other regulatory agenciesthroughout the world. These agencies oversee and regulate the development, manufacturing and commercialization process for APIs and regulatedintermediates. Excellent regulatory and quality systems are essential to serve the industry and serve as a barrier to entry for potential new competitors.Competitors from developing markets have increased their capabilities in drug substance manufacturing and finished dosage form drugs in recentyears. While overall global demand has been lifted by the rapid growth in certain developing markets, the presence of competitors within these markets, whohave lower cost structures, have resulted in downward pricing pressure throughout the pharmaceutical supply chain, and especially on generic APIs andcertain development services for clinical phase products. Pricing pressures, due to developing market competitors, on later stage clinical projects and supplyarrangements for patented products has been limited to date, although these pressures may increase as developing markets become more acceptable assuppliers to larger pharmaceutical companies. The Company owns a 51% equity stake in Zenara, a Hyderabad, India based pharmaceutical companyfocused on the formulation of final dosage form products. Cambrex also sources R&D services, raw materials and certain intermediates from Chinese andIndian providers and will continue to do so. The Company will also continue to assess additional opportunities to invest in, or partner with, companies withcapabilities in these geographies.Development of the BusinessThe discussion below provides insight into the general development of the Company’s business, including its material acquisitions and dispositions ofassets over the past five years.In February 2007, the Company completed the sale of the businesses that comprised the Bioproducts and Biopharma segments to Lonza for total cashconsideration of $463,914, including working capital adjustments. As a result of this transaction, where applicable, these businesses are being reported asdiscontinued operations in all periods presented.In January 2008, the Company acquired AS ProSyntest, a privately held API research and development company located in Tallinn,Estonia. ProSyntest, renamed Cambrex Tallinn, has strengths in cost effective chemical route selection and sample generation, rapid scale up of products atkilo lab scale, as well as chiral and organometallic chemistries.In March 2010, the Company completed the acquisition of IEP GmbH (“IEP”), a company in Wiesbaden, Germany that is a leader in the field ofindustrial biocatalysis. IEP offers cost effective customized biocatalytic process development and sales of enzymes to the pharmaceutical industry and wasacquired for approximately $6,900 in cash.In November 2010, the Company acquired a 51% equity stake in Zenara for approximately $18,900. Zenara is a Hyderabad, India basedpharmaceutical company focused on the formulation of final dosage form products. Pursuant to the stock purchase agreement, Cambrex will acquire theremaining 49% in early 2016 at a value to be determined using a weighted combination of a multiple of 2015 earnings before interest, taxes, depreciation andamortization (“EBITDA”) and cumulative EBITDA for the years 2011 through 2015, adjusted for Zenara’s net debt or net cash position. Cambrex accountsfor its investment in Zenara using the equity method of accounting. See Notes 2 and 7 to the Company’s consolidated financial statements for additionalinformation. (dollars in thousands, except per share data) 5Index ProductsThe Company uses its technical expertise in a wide range of chemical processes to meet the needs of its customers for high quality products andservices for specialized applications.The Company’s business is primarily comprised of the custom development and manufacture of pharmaceutical ingredients derived from organicchemistry. Products and services are supplied globally to innovator and generic drug companies. Products include APIs and pharmaceuticalintermediates. The Company’s acquisition of a 51% equity stake in Zenara also gives the Company the additional capability of producing final dosage formproducts and establishes it as one of the leading global suppliers to the NRT market.The Company’s products and services are sold to a diverse group of several hundred customers, with one customer, Gyma Laboratories of America,Inc. (“Gyma”), a distributor representing multiple customers, accounting for 10.8% of 2011 consolidated sales. The Company’s products are sold through acombination of direct sales and independent agents. One API, sold to multiple customers, accounted for 13.4% of 2011 consolidated sales. The Companycurrently has a long-term supply agreement related to this API that accounts for approximately 8.0% of 2011 consolidated sales and a long-term supplyagreement for another API that accounts for approximately 8.0% of 2011 consolidated sales, both of which are scheduled to expire on December 31, 2013. TheCompany intends to renegotiate new or extended agreements prior to expiration, but there is no guarantee that these contracts will be renewed or extended.This table summarizes gross sales by product groups: 2011 2010 2009 APIs and pharmaceutical intermediates $229,319 $203,807 $212,644 Other 25,156 22,629 23,633 Total $254,475 $226,436 $236,277 The following table shows gross sales to geographic area for the years ended December 31, 2011, 2010, and 2009 : 2011 2010 2009 Europe $156,814 $127,009 $136,534 North America 75,979 78,497 80,830 Asia 10,448 12,554 10,495 Other 11,234 8,376 8,418 Total $254,475 $226,436 $236,277 Marketing and DistributionThe Company's products generally include higher value, low-to-medium volume niche products requiring significant technical expertise to develop andmanufacture. Marketing generally requires significant cooperative effort among a highly trained sales and marketing staff, a scientific staff that can assessthe technical fit and estimate manufacturing economics, manufacturing and engineering staff to scale up the chemical process and business unit managementto determine the strategic and operational fit. The process to take a client's project from the clinical trial stage to a commercial, approved therapeutic may takefrom two to ten years. The Company uses sales agents and independent distributors in those areas where they are deemed to be more effective or economicalthan direct sales efforts. (dollars in thousands, except per share data) 6IndexRaw MaterialsThe Company uses a wide array of raw materials in its businesses. For its products, the Company generally will attempt to have a primary andsecondary supplier for its critical raw materials. Prices for these raw materials are generally stable, except for the petroleum-based solvents, where prices canvary with market conditions.Research and DevelopmentThe Company's R&D program is designed to increase the Company's competitiveness by improving its technology and developing processes for themanufacture of new products to meet customer requirements. The goals are to introduce innovative and proprietary products, improve manufacturingprocesses to reduce costs, improve quality and increase capacity to identify market opportunities that warrant significant technical expertise, and offer theprospects of a long-term, profitable business relationship. R&D activities are performed at all of the Company's manufacturing facilities in both the UnitedStates and Europe. Approximately 108 employees are at least partially involved in R&D activities worldwide.In December 2007 the Company consolidated its United States R&D activities and small scale API production into its facility in Charles City, Iowa. As aresult of the consolidation, the New Jersey R&D facility was closed as of December 31, 2008.The Company spent $11,037, $10,305 and $7,929 in 2011, 2010 and 2009, respectively, on R&D efforts.Patents and TrademarksThe Company has patent protection covering certain products, processes and services. In addition, the Company also relies on know-how and tradesecrets (related to many of its manufacturing processes and techniques not generally known to other companies) for developing and maintaining its marketposition. The Company currently owns 13 issued patents and has 22 patent applications pending in the United States and owns 139 patents and has 100patent applications pending in foreign countries covering various technologies. The Company seeks to protect its proprietary technology and prepares newpatent applications as decisions are made to patent new inventions.The patent rights the Company considers most significant to its business are U.S. Patent Nos. 6,828,336 and 6,586,449 and 26 foreign counterpartswhich are part of its APIs and pharmaceutical intermediates product group relating to its nicotine polacrilex resin products and methods of manufacturing, andexpire on May 28, 2022.The Company's products and services are sold around the world under trademarks that are owned by the Company. These include PROFARMACO,which is registered around the world as a word and design mark, and CAMOUFLAGE, which has been registered in Europe and the United States. Rights inthese trademarks will exist at least as long as the Company or its majority owned subsidiaries continue to use each of these trademarks.The Company has entered into a worldwide perpetual license agreement with Celgene Corporation and Celgro Corporation that gives the Company theexclusive rights to certain intellectual property, including know-how and technology, relating to the development and manufacture of chirally pure bulkAPIs. This intellectual property is related to 5-MAT and amphetamine salts currently sold by the Company. Under the current terms of this agreement, theCompany pays no royalties or fees related to its use of this intellectual property.CompetitionThe Company has over 25 primary API and advanced intermediate competitors throughout Western Europe and the U.S. and many more competitors withinvarious segments of the markets the Company serves, including a growing number of competitors in Asia, Eastern Europe and other low-cost areas. TheCompany believes that low cost providers have had the impact of driving prices down for many products and services for which the Company competes toprovide, and the Company anticipates that it will face increased competition from these providers in the future. It is expected that regulatory compliance,product quality, pricing, and logistics will determine the extent of the long term impact of these competitors in the primary markets that the Companyserves. If the Company perceives significant competitive risk and a need for technical or financial commitment, it generally attempts to negotiate long termcontracts or guarantees from its customers. (dollars in thousands, except per share data) 7Index Environmental and Safety Regulations and ProceedingsGeneral: Certain products manufactured by the Company involve the use, storage and transportation of toxic and hazardous materials. TheCompany's operations are subject to extensive laws and regulations relating to the storage, handling, emission, transportation and discharge of materials intothe environment and the maintenance of safe working conditions. The Company maintains environmental and industrial safety and health complianceprograms and training at its plants and believes that its manufacturing operations are in compliance with all applicable safety, health and environmental laws.Prevailing legislation tends to hold companies primarily responsible for the proper disposal of its waste even after transfer to third party waste disposalfacilities. Moreover, other future developments, such as increasingly strict environmental, safety and health laws and regulations, and enforcement policiesthereunder, could result in substantial costs and liabilities to the Company and could subject the Company's handling, manufacture, use, reuse or disposal ofsubstances or pollutants at its plants to more rigorous scrutiny than at present.Known environmental matters that may result in liabilities to the Company and the related estimates and accruals are summarized in Note 19 to theCompany’s consolidated financial statements.Present and Future Environmental Expenditures: The Company’s policy is to comply with all legal requirements of applicable environmental,health and safety laws and regulations. The Company believes it is in compliance with such requirements and has adequate professional staff and systems inplace to remain in compliance. In some cases, compliance can only be achieved by capital expenditures, and the Company made capital expenditures of$3,088, $2,321 and $2,211 in 2011, 2010 and 2009, respectively, for environmental projects. As the environmental proceedings in which the Company isinvolved progress from the remedial investigation and feasibility study stage to implementation of remedial measures, related expenditures may increase. TheCompany considers costs for environmental compliance to be a normal cost of doing business and includes such costs in pricing decisions.EmployeesAt December 31, 2011, the Company had 833 employees worldwide (611 of whom were from international operations) compared with 829 employees atDecember 31, 2010 and 854 at December 31, 2009.Non-U.S. production, administration, scientific and technical employees are represented by various local and national unions. The Company believes itslabor relations are satisfactory.SeasonalityThe Company experiences some seasonality primarily due to planned plant shutdowns by the Company and certain customers in the third quarter. Operatingresults for any quarter, however, are not necessarily indicative of results for any future period. In particular, as a result of various factors including, but notlimited to, acquisitions, plant shutdowns, and the timing of large contract revenue streams, the Company believes that period-to-period comparisons of itsoperating results should not be relied upon as an indication of future performance.Export and International SalesThe Company exports numerous products to various areas, principally Western Europe and Asia. Export sales from the Company’s domestic operations in2011, 2010 and 2009 amounted to $31,605, $18,529 and $25,768, respectively. Sales from international operations were $171,068, $155,073, and$151,759 in 2011, 2010 and 2009, respectively. Refer to Note 17 to the Company’s consolidated financial statements. (dollars in thousands, except per share data) 8IndexAdditional InformationCambrex Corporation was incorporated as a Delaware corporation in 1981. The Company’s principal office is located at One Meadowlands Plaza,East Rutherford, NJ 07073 and its telephone number is (201) 804-3000.This Annual Report on Form 10-K, the Company’s Quarterly Reports on Form 10-Q, the Company’s Current Reports on Form 8-K, and amendmentsto those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made available free of charge on the Company’s Internet websitewww.cambrex.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The most recent certificationsby the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to thisAnnual Report on Form 10-K. The Company also files with the New York Stock Exchange the Annual Chief Executive Officer Certification as required bySection 303A.12.(a) of the New York Stock Exchange (“NYSE”) Listed Company Manual.The following corporate governance documents are available free of charge on the Company’s website: the charters of its Audit, Regulatory Affairs,Compensation and Governance Committees, its Corporate Governance Guidelines, its Code of Business Conduct and Ethics and its Independence Standardsfor Directors. These corporate governance documents are also available in print to any stockholder requesting a copy from its corporate secretary at itsprincipal executive offices. Information contained on its website is not part of this report. The Company will also post on its website any amendments to orwaivers of its Code of Business Conduct and Ethics that relate to its Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer.Item 1A Risk Factors.Factors That May Affect Future ResultsThe following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered, including thecautionary note under the heading “Forward-Looking Statements.” If any of the following risks manifests, the Company’s business, financial condition,operating results and cash flows could be materially adversely affected. The risks and uncertainties described below are not the only ones the Companyfaces. Additionally, risks and uncertainties not presently known to the Company or that it currently deems immaterial also may impair its business, financialcondition, operating results and cash flows in the future.Risks Relating to Cambrex’s Business Certain of the Company’s customers and suppliers comprise a significant percentage of the Company’s business and the loss of one ormore of these customers or suppliers could have a material adverse effect on the Company’s financial position, results of operations and cashflows. Gyma, a distributor representing multiple customers, accounted for 10.8% of sales during 2011 and an additional 16% of sales was derived from twolong-term contracts scheduled to expire at the end of 2013. In addition, one API, sold to multiple customers, accounted for 13.4% of sales in 2011. TheCompany has also observed increasing pressure on the part of its customers to reduce costs, including the use of its services and products, as a result ofmacro-economic trends and various market dynamics specifically affecting the pharmaceuticals industry. Should one or more of the Company’s customersrenegotiate on terms more favorable to them, or discontinue or decrease their usage of the Company’s services and products, the loss could have a materialadverse effect on the Company’s financial position, results of operations and cash flow. New technologies, competition or a reduction in demand for Cambrex’s products could reduce sales.The markets for the Company’s products are competitive and price sensitive. The Company’s competitors may lower prices on products in the futureand the Company may, in certain cases, respond by lowering its prices. Conversely, failure to anticipate and respond to price competition may adverselyimpact Cambrex’s market share. Companies may develop new technologies that would negatively impact the Company’s ability to competitively providecertain products and services. Several of Cambrex’s customers, especially those that buy its generic APIs, have internal capabilities similar to Cambrex’s. Ifone or more of these customers replace the Company’s products or services with their own internal capabilities, demand for the Company’s products maydecrease. In addition, demand for the Company’s products may weaken due to a reduction in R&D budgets, loss of distributors or other factors. A reductionin demand for the Company’s products could impair profit margins and may have a material adverse effect on the Company’s financial position, results ofoperation and cash flow. (dollars in thousands, except per share data) 9Index The Company’s failure to obtain new contracts or renew existing contracts may adversely affect its business.Many of Cambrex’s contracts with suppliers are short term in duration. As a result, the Company must continually replace its contracts with newcontracts, which subjects the Company to potentially significant pricing pressures. In the event the Company is unable to replace these contracts timely or atall, or is forced to accept terms, including pricing terms, less favorable to the Company, the Company’s revenue may not be able to be sustained or maydecline. In addition, certain of the Company’s long-term contracts may be cancelled or delayed by clients for any reason upon notice. Multiple cancellations,non-renewals, or renewals on less favorable terms to the Company of significant contracts could materially impact the Company’s business. The Companycurrently has two long-term supply agreements that account for approximately 16% of 2011 consolidated sales that are scheduled to expire on December 31,2013. While the Company intends to seek to renegotiate new or extended agreements prior to expiration, if these contracts cannot be renewed or extended onterms acceptable to the Company or at all, the Company’s business, results of operation and financial condition could be materially adversely affected.Failure to obtain products and raw materials from third-party manufacturers could affect Cambrex’s ability to manufacture anddeliver its products.The Company relies on third-party manufacturers to supply many of its raw materials and intermediates. In addition, the Company has a singlesource for supplies of some raw materials to its products. Manufacturing problems may occur with these and other outside sources. Prolonged disruptions inthe supply of any of the Company’s key raw materials, difficulty implementing replacement materials or new sources of supply, or a significant increase inthe prices of raw materials could have a material adverse effect on the Company’s operating results, financial condition or cash flows. If a supplierprovides the Company raw materials or other supplies that are deficient or defective or if a supplier fails to provide the Company such materials or supplies ina timely manner, the Company may have limited ability to find appropriate substitutes or otherwise meet required specifications and deadlines. Moreover, theCompany could experience inventory shortages if it is required to use an alternative supplier on short notice, which also could lead to raw materials beingpurchased on less favorable terms than the Company has with its regular suppliers. If such problems occur, the Company may not be able to manufacture itsproducts profitably or on time, which could have a material adverse effect on the Company’s business.Disruptions to the Company’s or its customers’ manufacturing operations or supply chain could adversely affect its results.Due to heavy reliance on manufacturing and related operations to produce and distribute the products the Company sells, the Company could beadversely affected by disruptions to these operations or its customers’ operations. The Company and its suppliers and customers operate in a highly regulatedindustry. Any violation of applicable regulations, failure to meet applicable manufacturing standards, or other actions by regulatory agencies, including, butnot limited to, plant shutdowns, the removal of a product from the market, or product recalls that eliminate or reduce the Company’s and its customer’s salesof products or services could negatively impact the Company’s business. In addition, a number of factors could cause production interruptions at ourfacilities, including equipment malfunctions, disruptions in the supply chain, facility contamination, labor problems, raw material shortages orcontamination, natural disasters, disruption in utility services, fire, terrorist activities, human error or disruptions in the operations of our suppliers. Anysignificant disruption to those operations for these or any other reasons could adversely affect the Company’s sales and customer relationships. Any sustainedreduction in the Company’s ability to provide products would negatively impact its sales growth expectations, cash flows and profitability. (dollars in thousands, except per share data) 10Index Litigation may harm the Company or otherwise negatively impact its management and financial resources.The Company’s business is subject to the risk of litigation by employees, customers, consumers, suppliers, stockholders or others through privateactions, class actions, administrative proceedings, regulatory actions or other litigation. For example, in the past the Company has been party to proceedingsinstituted by the Federal Trade Commission as well as suits commenced by State Attorneys General and class-action plaintiffs. The outcome of litigation,particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of verylarge or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods oftime. Complex or extended litigation could cause the Company to incur large expenditures and distract its management. For example, lawsuits by employees,stockholders, counterparties to acquisition and divestiture contracts, collaborators, distributors, customers, or end-users of the Company’s products orservices could be very costly and substantially disrupt its business. The cost to defend current and future litigation may be significant. There may also beadverse publicity associated with litigation that could decrease customer acceptance of the Company’s products, regardless of whether the allegations are validor whether the Company is ultimately found liable. Disputes from time to time with such companies or individuals are not uncommon, and the Companycannot be assured that it will always be able to resolve such disputes out of court or on terms favorable to the Company. As a result, litigation may adverselyaffect its business, financial condition and results of operations.Refer to Note 19 to the Company’s consolidated financial statements for a discussion of the Company’s environmental and legal matters.Incidents related to hazardous materials could adversely affect the Company.Portions of the Company’s operations require the controlled use of hazardous materials. In the event of accidental contamination of property or injury toindividuals caused by these materials, the Company could be liable for damages which could adversely affect its business. Additionally, any incident couldshut down the Company’s research and manufacturing facilities and operations, which could have a material adverse effect on the business and results ofoperations of the Company.The Company generates waste that must be transported to approved storage, treatment and disposal facilities. The transportation and disposal of suchwaste are required to meet applicable state and federal statutes and regulations. The storage, treatment and disposal of such waste potentially exposes theCompany to environmental liability if, in the future, such transportation and disposal are deemed to have violated such statutes or regulations or if the storage,treatment and disposal facilities are inadequate and are proved to have damaged the environment.The Company is also party to several environmental remediation investigations and cleanups and, along with other companies, has been named apotentially responsible party (“PRP”) for certain waste disposal sites. The Company’s estimated reserve for environmental remediation is based on informationcurrently available to it and may be subject to material adjustment upward or downward in future periods as new facts or circumstances mayindicate. Moreover, despite its efforts to comply with environmental laws, the Company may face significant remediation liabilities and additional legalproceedings concerning environmental matters, which could have a material adverse effect on the Company’s business.It is the Company’s policy to record appropriate liabilities for environmental matters where remedial efforts are probable and the costs can be reasonablyestimated. Such liabilities are based on the Company’s best estimate of the undiscounted future costs required to complete the remedial work. Each of thesematters is subject to various uncertainties, and it is possible that some of these matters will be decided unfavorably against the Company. The resolution ofsuch matters often spans several years and frequently involves regulatory oversight or adjudication. Additionally, many remediation requirements are fluidand are likely to be affected by future technological, site and regulatory developments. Consequently, the ultimate liability with respect to such matters, aswell as the timing of cash disbursements cannot be determined with certainty. (dollars in thousands, except per share data) 11Index In matters where the Company has been able to reasonably estimate its liability, the Company has accrued for the estimated costs associated with thestudy and remediation of applicable sites not owned by the Company and the Company's current and former operating sites. The reserves are adjustedperiodically as remediation efforts progress or as additional technical, regulatory or legal information become available. Given the uncertainties regarding thestatus of laws, regulations, enforcement, policies, the impact of other PRPs, technology and information related to individual sites, the Company does notbelieve it is possible to currently develop an estimate of the range of reasonably possible environmental loss in excess of its reserves.Refer to Note 19 to the Company’s consolidated financial statements for a discussion of the Company’s environmental and legal matters.Potential product liability claims, errors and omissions claims in connection with services the Company performs and potential liabilityunder indemnification agreements between the Company and its officers and directors could adversely affect the Company.The Company manufactures products intended for use by the public. These activities could expose the Company to risk of liability for personalinjury or death to persons using such products. The Company seeks to reduce its potential liability through measures such as contractual indemnificationprovisions with customers (the scope of which may vary by customer, and the performances of which are not secured) and insurance maintained bycustomers. The Company could be materially and adversely affected if it were required to pay damages or incur defense costs in connection with a claim thatis outside the scope of the indemnification agreements, if the indemnity, although applicable, is not performed in accordance with its terms or if theCompany’s liability exceeds the amount of applicable insurance or indemnity. In addition, the Company could be held liable for errors and omissions inconnection with the services it performs. The Company currently maintains product liability and errors and omissions insurance with respect to theserisks. There can be no assurance, however, that the Company’s insurance coverage will be adequate or that insurance coverage will continue to be availableon terms acceptable to the Company.The Company also indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at theCompany’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under theseindemnification agreements is unlimited. Although the Company has a director and officer insurance policy that covers a portion of any potential exposure,the Company could be materially and adversely affected if it were required to pay damages or incur legal costs in connection with a claim above its insurancelimits.Any claims beyond the Company’s insurance coverage limits, or that are otherwise not covered by the Company’s insurance, may resultin substantial costs and a reduction in its available capital resources.The Company maintains property insurance policies covering physical damage to its equipment, facilities, buildings and inventory; employer’sliability insurance generally covering death or work injury of employees; product liability insurance covering product liability claims arising from the use,consumption or operation of its products; general liability insurance covering certain incidents to third parties that occur on or in the premises of theCompany; business interruption insurance, and directors and officers liability insurance, among others. Although the Company maintains product liabilityinsurance coverage, potential product liability claims may exceed the amount of insurance coverage or potential product liability claims may be excluded underthe terms of the policy, which could cause an adverse effect on the Company’s business, financial condition and results from operations. In addition, in thefuture the Company may not be able to obtain adequate insurance coverage or the Company may be required to pay higher premiums and accept higherdeductibles in order to secure adequate insurance coverage.The Company depends on key personnel and the loss of key personnel could harm the Company’s business and results of operations.The Company depends on its ability to attract and retain qualified scientific and technical employees as well as a number of key executives. Theseemployees may voluntarily terminate their employment with the Company at any time. There can be no assurance the Company will be able to retain keypersonnel, or to attract and retain additional qualified employees. The Company does not maintain key-man or similar policies covering any of its seniormanagement or key personnel. The Company’s inability to attract and retain key personnel would have a material adverse effect on the Company’s business. (dollars in thousands, except per share data) 12Index The Company has made significant capital investments to its facilities to meet its potential future needs and, as a result, the Companydepends on the success of attracting new and retaining existing customers’ projects and their continued business.The Company has made substantial investments in all of its manufacturing facilities. With the completion of these facilities, the Company’s fixedcosts have increased. If the Company is not able to utilize the facilities to capacity, its margins could be adversely affected.Global growth is subject to a number of economic risks.The tightening of credit in financial markets in recent years adversely affects the ability of the Company’s customers to obtain financing for significantpurchases and operations and could result in a decrease in or cancellation of orders for its products and services as well as impact the ability of theCompany’s customers to make payments. The Company believes that cash flows from operations, along with funds available from a revolving line of credit,will be adequate to meet the operational and debt servicing needs of the Company, but if this does not continue to be the case the Company’s business may bematerially adversely affected. There is a risk that the funds available to be drawn under the Company’s revolving line of credit may not be available in theevent of the failure of one or more participant banks. Strengthening of the rate of exchange for the U.S. dollar against certain major currencies such as theEuro and Swedish krona may also adversely affect the Company’s results.If the Company acquires other businesses, its business may be harmed by difficulties in integration and employee retention, unidentifiedliabilities of the acquired businesses, or obligations incurred in connection with acquisition financings.All acquisitions involve known and unknown risks that could adversely affect the Company’s future revenues and operating results. For example: ·The Company may fail to successfully integrate its acquisitions in accordance with its business strategy. ·The initial rationale for the acquisition may not remain viable due to a variety of factors, including unforeseen regulatory changes and marketdynamics after the acquisition, and this may result in a significant delay or reduction in the profitability of the acquisition. ·Integration of acquisitions may divert management’s attention away from the Company’s primary product offerings, resulting in the loss of keycustomers or personnel, and may expose the Company to unanticipated liabilities. ·The Company may not be able to retain the skilled employees and experienced management that may be necessary to operate the businesses itacquires. If the Company cannot retain such personnel, it may not be able to locate or hire new skilled employees and experienced management toreplace them. ·The Company may purchase a business that has contingent liabilities that include, among others, known or unknown patent or product liabilityclaims. ·The Company’s acquisition strategy may require it to obtain additional debt or equity financing, resulting in additional leverage, or increased debtobligations as compared to equity, and dilution of ownership. ·The Company may purchase businesses located in jurisdictions where it does not have operations and as a result it may not be able to anticipatelocal regulations and the impact such regulations have on its business.Any indemnities or warranties obtained in connection with such acquisitions may not fully cover the ultimate actual liabilities the Company incurs dueto limitations in scope, amount or duration, financial limitations of the indemnitor or warrantor or other reasons. (dollars in thousands, except per share data) 13IndexAs a result of acquiring businesses or entering into other significant transactions, the Company may experience significant charges to earnings formerger and related expenses. If the Company is not able to successfully integrate the acquired business, it may affect the Company’s results of operations andthe market price of its common stock. Furthermore, if the Company is unable to improve the operating margins of acquired businesses or operate themprofitably, it may be unable to achieve its growth strategy.In addition, if the Company makes one or more significant acquisitions in which the consideration includes equity shares or other securities oradditional capital is raised through one or more equity financings, equity interests in Cambrex held by holders of equity may be significantly diluted and mayresult in a dilution of earnings per share. If the Company makes one or more significant acquisitions in which the consideration includes cash, it may berequired to use a substantial portion of its available cash or incur a significant amount of debt or otherwise arrange additional funds to complete theacquisition, which may result in reduced liquidity, a decrease in its net income and a consequential reduction in its earnings per share.There are risks associated with the Company’s acquisition of a 51% equity stake in Zenara including, but not limited to, Cambrex’sability to achieve its goals established for that business and to fund its obligation to purchase the remaining 49% equity stake in 2016. In November 2010, the Company purchased 51% of the equity in Zenara for approximately $18,900, and is required to purchase the remaining 49%in 2016 based upon a formula derived from Zenara’s future EBITDA. The Company may, at its option, purchase the remaining equity in cash or acombination of cash and up to 50% of the consideration in Cambrex stock. To the extent Zenara has significant EBITDA during the period covered by the contract formula, substantial consideration will be required to purchasethe remaining 49%. A large cash payment could require borrowing under the Company’s credit facility. Additionally, the uncertainty regarding the amount ofconsideration required for the 2016 buyout of the 49% may impact the Company’s future borrowing ability, result in higher interest expense, or possiblyresult in difficulty securing any credit arrangements in the future. Additionally, issuance of any stock to satisfy a portion of this obligation could have adilutive effect on holders of Cambrex common stock. In the event that Cambrex is unable to compensate the 49% equity holder for its shares in 2016, the49% shareholder has certain rights, including the right to force a sale of Zenara to a third party to secure their payment.Zenara is currently not profitable, and there is no guarantee that it will be in the future. Should Zenara not meet its goals or continue to generate losses,it could negatively impact the Company’s consolidated results, cash flows and stock price.The Company has a significant amount of debt.The Company has a $250,000 revolving credit facility of which $98,000 was outstanding at December 31, 2011. This facility expires in November2016. If the Company is unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the credit facility, it willbe in default. This current debt arrangement requires the Company to comply with specified financial ratios. The Company’s ability to comply with theseratios may be affected by events beyond its control.Even if the Company is able to meet its debt service obligations, the amount of debt it has could adversely affect the Company by limiting its ability toobtain any necessary financing in the future for working capital, capital expenditures, debt service requirements, or other purposes. It also places theCompany at a disadvantage relative to its competitors who may have lower levels of debt, while making it more vulnerable to a downturn in its business or theeconomy in general. It also requires the Company to use a substantial portion of its cash to pay principal and interest on its debt, instead of investing thosefunds in the business. (dollars in thousands, except per share data) 14IndexThe Company’s liquidity, business, financial condition, results of operations and cash flows could be materially and adversely affected ifthe financial institutions which hold its funds fail. The Company has significant funds held in bank deposits, money market funds and other accounts at certain financial institutions. A significantportion of the funds held in these accounts exceed insurable limits. In the normal course of business, the Company maintains cash balances with EuropeanUnion banks ranging from $5,000 - $15,000. The Company routinely monitors the risks associated with these institutions and diversifies its exposure bymaintaining smaller balances with multiple financial institutions. If any of the financial institutions where the Company has deposited funds were to fail, theCompany may lose some or all of its deposited funds. Such a loss would have a material and adverse effect on the Company’s liquidity, business, financialcondition, results of operations and cash flows.The Company has significant inventories on hand.The Company maintains significant inventories and has an allowance for slow-moving and obsolete inventory. Any significant unanticipated changesin future product demand or market conditions, including obsolescence or the current uncertainty in the global market, could also have an impact on the valueof inventory and adversely impact the Company’s results of operations.International unrest or foreign currency fluctuations could adversely affect the Company’s results.The Company’s international revenues, which include revenues from its non-U.S. subsidiaries and export sales from the U.S., represent the majorityof its product revenues.There are a number of risks arising from the Company’s international business, including: ·the possibility that unfriendly nations or groups could boycott its products; ·general economic decline or political unrest in the markets in which it operates; ·more limited protection for intellectual property rights in some countries; ·unexpected changes in regulatory requirements; ·the difficulties and expenses of compliance with a wide variety of foreign laws and regulations; ·longer accounts receivable cycles in certain foreign countries; and ·import and export licensing requirements.In addition, a significant portion of the Company’s business is conducted in currencies other than the U.S. dollar, which is its reporting currency. TheCompany recognizes foreign currency gains or losses arising from its operations in the period incurred. As a result, currency fluctuations between the U.S.dollar and the currencies in which the Company does business have caused, and will continue to cause, foreign currency transaction gains and losses. TheCompany cannot predict the effects of exchange rate fluctuations upon its future operating results because of the number of currencies involved, the variabilityof currency exposures, and the potential volatility of currency exchange rates. The Company engages in limited foreign exchange hedging transactions tomitigate the impact of this volatility on its operations, but its strategies are short-term in nature and may not adequately protect its operating results from thefull effects of exchange rate fluctuations.Cambrex’s global operations expose the Company to additional risks that could have an adverse effect on its business, financial positionand results of operations.Cambrex’s operations extend to numerous countries outside of the U.S. including a 51% interest in Zenara located in Hyderabad, India. There aresignificant risks associated with the establishment of foreign operations, including, but not limited to: geopolitical risks, terrorism, inflation, foreign currencyexchange rates and the impact of shifts in the U.S. and local economies on those rates, compliance with local laws and regulations, the protection of theCompany’s intellectual property and that of its customers, the ability to integrate its corporate culture with local customs and cultures, and the ability toeffectively and efficiently supply its international facilities with the required equipment and materials. If the Company is unable to effectively manage theserisks, these locations may not produce the revenues, earnings, or strategic benefits that it anticipates which could have a material adverse affect on theCompany’s business. (dollars in thousands, except per share data) 15Index Finally, the Company operates in certain jurisdictions that have experienced governmental corruption to some degree and, in some circumstances, anti-bribery laws may conflict with some local customs and practices. As a result of the Company’s policy to comply with the U.S. Foreign Corrupt Practices Actand similar anti-bribery laws, the Company may be at a competitive disadvantage to competitors that are not subject to, or do not comply with, such laws.Cambrex’s operating results may unexpectedly fluctuate in future periods.The Company’s revenue and operating results have fluctuated, and could continue to fluctuate, on a quarterly basis. The operating results for aparticular quarter may be lower than expected as a result of a number of factors, including, but not limited to, the timing of contracts; the delay or cancellationof a contract; the mix of services provided; seasonal slowdowns in different parts of the world; the timing of start-up expenses for new services and facilities;the timing of accounts receivable collections; pension contributions; changes in government regulations; and unfavorable exchange rates with the U.S.dollar. Because a high percentage of the Company’s costs are relatively fixed in the short term, such as the cost of maintaining facilities and compensatingemployees, any one of these factors could have a significant impact on the Company’s quarterly results. In some quarters, the Company’s revenue andoperating results may fall below the expectations of securities analysts and investors due to any of the factors described above. The possibility the Company will be unable to protect its technologies could affect its ability to compete.The Company’s success depends to a significant degree upon its ability to develop proprietary products and technologies. However, the Companycannot be assured that patents will be granted on any of its patent applications. The Company also cannot be assured that the scope of any of its issuedpatents will be sufficiently broad to offer meaningful protection. The Company has patents issued in selected countries, therefore, third parties can make,use, and sell products covered by its patents in any country in which the Company does not have patent protection. In addition, issued patents or patents theCompany licenses could be successfully challenged, invalidated or circumvented so that its patent rights would not create an effective competitive barrier. TheCompany provides its customers the right to use its products under label licenses that are for research purposes only. These licenses could be contested, andthe Company cannot be assured that it would either be aware of an unauthorized use or be able to enforce the restrictions in a cost-effective manner.If a third party claimed an intellectual property right to technology the Company uses, the Company may need to discontinue an important product orproduct line, alter its products and processes, defend its right to use such technology in court or pay license fees. Although the Company may, under thesecircumstances, attempt to obtain a license to such intellectual property, it may not be able to do so on favorable terms, or at all. Additionally, if Cambrex’sproducts are found to infringe on a third party’s intellectual property, the Company may be required to pay damages for past infringement, and lose the abilityto sell certain products or receive licensing revenues.The Company also relies on trade secrets, unpatented proprietary know-how and continuing technological innovation that it seeks to protect, in part byconfidentiality agreements with licensees, suppliers, employees and consultants. It is possible that these agreements will be breached and the Company will nothave adequate remedies for any such breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentialityagreements. Furthermore, Cambrex’s trade secrets and proprietary technology may otherwise become known or be independently developed by its competitorsor the Company may not be able to maintain the confidentiality of information relating to such products. (dollars in thousands, except per share data) 16IndexThe Company could be subject to goodwill impairment charges in the future. Under U.S. GAAP, the Company is required to evaluate goodwill for impairment at least annually. If the Company determines that the fair value isless than the carrying value, an impairment loss will be recorded in the Company’s statement of operations. The determination of fair value is a highlysubjective exercise and can produce significantly different results based on the assumptions used and methodologies employed. If the Company’s projectedlong-term sales growth rate, profit margins or terminal rate are considerably lower or the assumed weighted average cost of capital is considerably higher,future testing may indicate impairment and the Company would have to record a non-cash goodwill impairment loss in its statement of operations. Assessments by various tax authorities may be materially different than the Company has provided for and it may experience significantvolatility in its annual and quarterly effective tax rate.As a matter of course, the Company is regularly audited by federal, state, and foreign tax authorities. From time to time, these audits result in proposedassessments. In recent years, the Company utilized significant tax attributes in the form of foreign tax credits and U.S. net operating loss (“NOL”)carryforwards to eliminate potential tax expense related to the repatriation of funds into the U.S. from the sale of the businesses that comprised the Bioproductsand Biopharma segments in 2007. While the Company believes that it has adequately provided for any taxes related to these items, and taxes related to allother aspects of its business, any such assessments or future settlements may be materially different than it has provided. Refer to Note 9 to the Company’sconsolidated financial statements for a discussion of the Company’s tax issues.Low investment performance by the Company’s defined benefit pension plan assets may increase the Company’s pension expense, andmay require the Company to fund a larger portion of its pension obligations, thus, diverting funds from other potential uses.The Company sponsors a defined benefit pension plan that covers certain eligible employees. The Company’s pension expense and requiredcontributions to the pension plan are directly affected by changes in interest rates, the value of plan assets, the projected rate of return on plan assets, the actualrate of return on plan assets, and the actuarial assumptions used to measure the defined benefit pension plan obligations. If plan assets perform below theassumed rate of return used to determine pension expense, future pension expense will increase. Further, as a result of the global economic instability, ourpension plan investment portfolio has recently incurred greater volatility. The proportion of pension assets to liabilities, which is called the funded status,determines the level of contribution to the plan that is required by law. In recent years, the Company has funded the plan in amounts as required, but changesin the plan’s funded status related to the value of assets or liabilities could increase the amount required to be funded. The Company cannot predict whetherchanging market or economic conditions, regulatory changes or other factors will further increase the Company’s pension funding obligations, diverting fundsfrom other potential uses.The Company may pursue transactions that could cause it to experience significant charges to earnings that may adversely affect its stockprice and financial condition.The Company regularly reviews potential transactions related to technologies, products, product rights and businesses complementary to itsbusiness. These transactions could include mergers, acquisitions, divestitures, strategic alliances or licensing agreements. In the future, the Company maychoose to enter into these transactions at any time. As a result of acquiring businesses or entering into other significant transactions, the Company mayexperience significant charges to earnings for merger and related expenses. If the Company is not able to successfully integrate the acquired business to createthe advantages the acquisition was intended to create, it may affect the Company’s results of operations and the market price of its commonstock. Furthermore, if the Company is unable to improve the operating margins of acquired businesses or operate them profitably, it may be unable to achieveits growth strategy. (dollars in thousands, except per share data) 17IndexRisks Related to Cambrex’s IndustryAny significant change in government regulation of the drug development process could have a material adverse effect on the Company.The manufacturing of pharmaceutical products is subject to extensive regulation by governmental authorities, including the FDA, the EuropeanMedicines Agency (“EMA”) and comparable regulatory authorities in other countries. The Company’s business, as well as its customers’ business dependsin part on strict government regulation of the drug development process. Legislation may be introduced and enacted from time to time to modify regulationsadministered by the FDA or EMA and governing the drug approval process. Any significant reduction in the scope of regulatory requirements or theintroduction of simplified drug approval procedures could have a material adverse effect on the Company’s business.Failure to comply with current Good Manufacturing Practices (“cGMP”) and other government regulations or delays in obtainingregulatory approval could have a material adverse effect on the Company.All facilities and manufacturing techniques used for manufacturing products for clinical use or for commercial sale in the U.S. must be operated inconformity with cGMP regulations as required by the FDA and other comparable regulatory authorities in other countries, and for certain products, the DrugEnforcement Agency. The Company’s facilities are subject to scheduled periodic regulatory and customer inspections to ensure compliance with cGMP andother requirements applicable to such products. A finding that the Company had materially violated these requirements could result in regulatory sanctionsincluding, but not limited to, the regulatory agencies, including the FDA, withholding approval of new drug applications or supplements and the denial ofentry into the U.S., or other countries, of products manufactured at non-compliant foreign facilities, the loss of a customer contract, the disqualification ofdata for client submissions to regulatory authorities and a mandated closing of the Company’s facilities. Any such violations would have a material adverseeffect on the Company’s business. Cambrex’s customers are typically subject to the same, or similar, regulations and any such violations or other actions byregulatory agencies, including, but not limited to, plant shutdowns or product recalls that eliminate or reduce the Company’s sale of its products or servicescould negatively impact the Company’s business. In addition, the submission of new products to regulatory authorities for approval by the Company or itscustomers does not guarantee the approval to market the product will be granted. Each authority may impose its own requirements or delay or refuse to grantapproval to the Company or customer even when the product has already been approved in another country.The overall level of late-stage clinical phase projects may continue to decline or the outsourcing trend declines, either of which could slow theCompany’s growth.The success of the Company’s business depends to a certain extent on the number of clinical phase contracts and the size of the contracts that it mayobtain from pharmaceutical companies. A decline in the level of clinical phase projects or a slowing of the outsourcing trend could result in a diminishedgrowth rate in the Company’s sales and adversely affect its business, financial condition and results of operations. (dollars in thousands, except per share data) 18Index Item 1B Unresolved Staff Comments.None.Item 2 Properties.Set forth below is information relating to manufacturing facilities owned by the Company as of December 31, 2011:LocationAcreageOperating SubsidiaryProduct Lines Manufactured Charles City, Iowa57 acresCambrexCharles City, Inc.APIs, PharmaceuticalIntermediates, Imaging Chemicals,Animal Health Products and FineCustom Chemicals Karlskoga, Sweden42 acresCambrexKarlskoga ABAPIs, PharmaceuticalIntermediates, Imaging Chemicalsand Fine Custom Chemicals Paullo (Milan), Italy13 acresCambrexProfarmaco Milano S.r.l.APIs and PharmaceuticalIntermediatesThe Company leases 10,000 square feet in Tallinn, Estonia which has a lease term ending in May 2014 and leases 6,000 square feet in Wiesbaden,Germany which has a lease term ending in December 2015. The Company believes its operating facilities to be in good condition, well-maintained andadequate for its current needs.Most of the Company's products and services are provided from multi-purpose facilities. Each product has a unique requirement for equipment, andoccupies such equipment for varying amounts of time. It is generally possible, with proper lead time and customer and regulatory approval (if required), totransfer the manufacturing of a particular product to another facility should capacity constraints dictate.Item 3 Legal Proceedings.See "Environmental and Safety Regulations and Proceedings" under Item 1 and Note 19 to the Company’s consolidated financial statements withrespect to various proceedings involving the Company in connection with environmental matters. The Company is party to a number of other proceedingsalso discussed in Note 19 to the Company’s consolidated financial statements. Item 4 Mine Safety Disclosures. None. (dollars in thousands, except per share data) 19IndexPART IIItem 5Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.The Company’s common stock, $.10 par value, is listed on the NYSE under the symbol CBM. The following table sets forth the closing high and low salesprice of the common stock as reported on the NYSE: 2011 High Low First Quarter $5.95 $4.42 Second Quarter 5.50 4.03 Third Quarter 5.49 4.19 Fourth Quarter 7.61 4.57 2010 High Low First Quarter $6.01 $3.68 Second Quarter 4.79 3.15 Third Quarter 4.41 2.91 Fourth Quarter 6.07 4.02 As of January 31, 2012, the Company estimates that there were approximately 4,784 beneficial holders of the outstanding common stock of theCompany.The Company has not paid any cash dividends on its common stock in the last three years and presently intends to retain future earnings, to fund thedevelopment and growth of its business. Therefore, the Company does not anticipate paying cash dividends in the foreseeable future.2011 Equity Compensation TableThe following table provides information as of December 31, 2011 with respect to shares of common stock that may be issued under the Company’sexisting equity compensation plans. Column (a) Column (b) Column (c) Plan category Number ofsecurities to beissued uponexercise ofoutstandingoptions, warrantsand rights Weighted averageexercise price ofoutstanding options,warrants andrights Number ofsecuritiesremaining forfuture issuanceunder equitycompensationplans (excludingsecurities reflectedin column (a)) Equity compensation plans approved by security holders 2,086,128 $6.63 588,180 Equity compensation plans not approved by security holders 203,745 $7.05 - Total 2,289,873 $6.67 588,180 The material features of the equity compensation plan under which equity securities are authorized for issuance that was adopted without stockholderapproval are described below: (dollars in thousands, except per share data) 20Index2000 Employee Performance Stock Option PlanThe 2000 Employee Stock Option Plan (the “2000 Plan”) was used to fund awards for Non-Executive Employees of the Company. The 2000 Plan isadministered by the Compensation Committee of the Board of Directors, and that Committee may delegate responsibilities to others to assist in administeringthe 2000 Plan. The total number of shares of common stock which may be issued on exercise of stock options shall not exceed 500,000 shares, subject toadjustment in accordance with the Plan. No participant shall be granted options to purchase more than 100,000 shares of common stock in any twelve monthperiod. The options were priced at fair market value on the date of grant and expire up to 10 years after the date of grant. If the employment of a participantterminates, other than as a result of death, disability or retirement, all unexercised awards shall be cancelled. In the event of death, disability or retirement, theoptions will expire one year from the date of the event. As of December 31, 2011 there were no shares remaining for future issuance under this plan.Comparison of Five-Year Cumulative Total ReturnsThe comparative stock performance graph below compares the five-year cumulative total stockholder return (assuming reinvestment of dividends, ifany) from investing $100 on December 31, 2006, to the close of the last trading day of 2011, in each of (i) Cambrex common stock, (ii) the S&P 500 Indexand (iii) S&P 1500 Pharmaceuticals Index. The stock price performance reflected in the graph below is not necessarily indicative of future price performance. The Company’s commercial activities are focused on manufacturing and marketing to customers concentrated in the Life Sciences Industry (includingpharmaceutical chemicals and intermediates). Although the Company’s products are diverse, making it difficult to select a comparative peer group, theCompany believes that the S&P 1500 Pharmaceuticals Index is a reasonable, publicly available comparison group for the commercial activities on which itcurrently focuses. The S&P 1500 Pharmaceuticals Index is comprised of 20 pharmaceutical companies within the S&P 1500 Composite Index as ofDecember 31, 2011. (dollars in thousands, except per share data) 21IndexItem 6 Selected Financial Data.The following selected consolidated financial data of the Company for each of the five years in the period through December 31, 2011 are derived fromthe audited financial statements, including all adjustments necessary for discontinued operations presentation. The consolidated financial statements of theCompany as of December 31, 2011 and 2010 and for each of the years in the three year period ended December 31, 2011 and the reports of the independentregistered public accounting firm thereon are included elsewhere in this annual report. In February 2007 the Company completed the sale of the businesses thatcomprised the Bioproducts and Biopharma segments (excluding certain liabilities). As a result, where applicable, these businesses are being reported asdiscontinued operations for all periods presented. The data presented below should be read in conjunction with the financial statements of the Company andthe notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. Years Ended December 31, 2011(1) 2010(2) 2009(3) 2008(4) 2007(5) INCOME DATA: Gross sales $254,475 $226,436 $236,277 $249,618 $252,574 Net revenues 255,653 226,992 234,550 249,228 252,505 Gross profit 74,084 66,866 70,278 73,743 91,232 Selling, general and administrative expenses 39,227 34,024 35,711 40,521 48,858 Research and development expenses 11,037 10,305 7,929 7,590 12,157 Restructuring expenses - 1,293 - 4,695 6,073 Strategic alternative costs - - - 1,515 31,127 Merger and acquisition expenses - 997 - - - Operating profit/(loss) 23,820 20,247 26,638 19,422 (6,983)Interest expense/(income), net 2,373 4,391 4,634 3,668 (485)Other (income)/expenses, net (111) 596 (641) 754 725 Equity in losses of partially-owned affiliate 1,621 286 - - - Income/(loss) before income taxes 19,937 14,974 22,645 15,000 (7,223)Provision for income taxes 6,202 5,665 12,253 7,071 6,288 Income/(loss) from continuing operations 13,735 9,309 10,392 7,929 (13,511)(Loss)/income from discontinued operations, including gainsfrom dispositions, net of tax (2,767) 338 - - 222,759 Net income 10,968 9,647 10,392 7,929 209,248 EARNINGS PER SHARE DATA: Earnings/(loss) per common share (basic): Income/(loss) from continuing operations $0.46 $0.32 $0.36 $0.27 $(0.47)(Loss)/income from discontinued operations, including gainsfrom dispositions, net of tax $(0.09) $0.01 $- $- $7.77 Net income $0.37 $0.33 $0.36 $0.27 $7.30 Earnings/(loss) per common share (diluted): Income/(loss) from continuing operations $0.46 $0.32 $0.36 $0.27 $(0.47)(Loss)/income from discontinued operations, including gainsfrom dispositions, net of tax $(0.09) $0.01 $- $- $7.77 Net income $0.37 $0.33 $0.36 $0.27 $7.30 Weighted average shares outstanding: Basic 29,468 29,361 29,241 29,116 28,683 Diluted 29,564 29,468 29,267 29,161 28,683 DIVIDENDS PER COMMON SHARE $- $- $- $- $14.03 (dollars in thousands, except per share data) 22Index Years Ended December 31, 2011(1) 2010(2) 2009(3) 2008(4) 2007(5) BALANCE SHEET DATA: (at end of period) Working capital $77,476 $82,146 $94,362 $74,376 $69,148 Total assets 335,744 351,751 351,515 341,072 373,462 Long-term debt 98,000 115,900 120,800 123,800 101,600 Total stockholders' equity 100,341 107,635 103,270 74,786 102,057 (1)Loss from discontinued operations includes pre-tax charges of $2,851 for environmental remediation, net of insurance proceeds, related to sites ofdivested businesses.(2)Income from continuing operations includes pre-tax charges of $1,293 within operating expenses for certain one-time employee benefits relating to the planto optimize operations at a manufacturing site to meet industry requirements, $997 within operating expenses for merger and acquisition expenses and$509 within other expenses for currency losses pursuant to the purchase of Zenara. Income from discontinued operations includes a benefit of $1,652as a result of the expiration of a contingent liability, charges of $1,144 for environmental remediation, net of insurance proceeds, and $170 for a worker'scompensation claim, all related to sites of divested businesses.(3)Net income includes tax expense of approximately $5,300 for an estimate of an international tax liability related to a 2003 transaction.(4)Net income includes pre-tax charges, within operating expenses, of $1,515 for costs related to strategic alternatives, $4,695 for restructuring costs and$1,040 related to a former CEO's retirement.(5)Loss from continuing operations includes pre-tax charges of $31,127 within operating expenses for the costs related to strategic alternatives, $6,073within operating expenses for restructuring costs and $841 within interest expense for the write-off of unamortized debt costs. Income from discontinuedoperations includes the gain on sale of the businesses that comprised the Bioproducts and Biopharma business segments of $235,489, expense of$4,636 for the Rutherford litigation settlement and expense of $1,000 for an adjustment to an environmental reserve at a site of a divested business. (dollars in thousands, except per share data) 23IndexItem 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.Executive OverviewThe Company’s business consists of three manufacturing facilities and one R&D center. These facilities primarily manufacture pharmaceuticalintermediates, APIs and ingredients derived from organic chemistry. The Company also owns a 51% stake in Zenara, a pharmaceutical company with finaldosage form manufacturing capabilities based in India, and IEP, a business that designs and licenses biocatalytic enzymes based in Germany.The following significant events, which are explained in detail on the following pages, occurred during 2011: ·Sales in 2011 increased 12.4% to $254,475 from $226,436 in 2010. Foreign currency exchange favorably impacted sales 4.8%. ·Debt, net of cash, decreased $20,216 during 2011. ·Operating profit increased 17.6% to $23,820 from 2010. ·The Company entered into a $250,000 five-year Syndicated Senior Revolving Credit Facility.Excluding foreign currency, the main drivers of the higher sales include higher volumes of an API to a customer who experienced a disruption in itssupply chain for most of 2010, increased volumes for a recently approved product and increased demand for an API manufactured under a long-term supplyagreement. These increases were partially offset by lower pricing across several product categories, lower revenue from clinical phase projects and lower salesof a product that was discontinued by a customer of the Company in December 2010.The Company also experienced higher generic API sales due to higher volumes partially offset by competitive pricing. Sales of controlled substances,which the Company defines as drugs falling under Schedule II of the U.S. Drug Enforcement Agency’s classification system, showed continued growth in2011.Gross margins in 2011 decreased to 29.1% compared to 29.5% in 2010. Excluding a 0.6% unfavorable impact from foreign currency, gross marginsincreased to 29.7% in 2011 versus 2010. Excluding the foreign currency impact, gross margins were positively impacted by higher production volumes,leading to increased plant efficiency, and favorable product mix, partially offset by lower pricing in 2011, and the result of the benefits in 2010 for insuranceproceeds related to a business interruption claim and fees related to the cancellation of a supply contract.The Company reported income from continuing operations of $13,735, or $0.46 per diluted share in 2011, compared to $9,309, or $0.32 per dilutedshare in 2010.Critical Accounting PoliciesThe Company’s critical accounting policies are those that require the most subjective or complex judgments, often as a result of the need to makeestimates about the effect of matters that are inherently uncertain. The Company bases its estimates on historical experience and on other assumptions that aredeemed reasonable by management under each applicable circumstance. Actual results or amounts could differ from estimates and the differences could havea material impact on the consolidated financial statements. A discussion of the Company’s critical accounting policies, the underlying judgments anduncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using differentassumptions, is as follows: (dollars in thousands, except per share data) 24IndexRevenue RecognitionRevenues are generally recognized when title to products and risk of loss are transferred to customers. Additional conditions for recognition of revenueare that collection of sales proceeds is reasonably assured and the Company has no further performance obligations.The Company has certain contracts that contain multiple deliverables. These deliverables often include process development services and commercialproduction and are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to thecustomer and the arrangement includes a general right of return relative to the delivered item and delivery or performance of the undelivered item(s) isconsidered probable and substantially in the control of the Company. The consideration the Company receives is allocated at the inception of the arrangementto all deliverables on the basis of their relative selling price (“the relative selling price method”). When applying the relative selling price method, the sellingprice for each deliverable is determined using vendor specific objective evidence (“VSOE”) of selling price, if it exists; otherwise, third party evidence (“TPE”)of selling price is used. If neither VSOE nor TPE of selling price exists for a deliverable, the Company uses it best estimate of selling price for that deliverable.Once the accounting units are defined, applicable revenue recognition criteria are applied to each of the separate units. The Company elected to early adopt theprovisions of this standard, on a prospective basis, for revenue arrangements entered into or materially modified beginning January 1, 2010. The adoption ofthis standard did not have a material impact on the Company’s financial position or results of operations.For contracts that contain milestone-based payments, the Company recognizes revenue using the proportional performance method based on thepercentage of costs incurred relative to the total costs estimated to be incurred to complete the contract. Revenue recognition computed under this methodologyis compared to the amount of non-refundable cash payments received or contractually receivable at the reporting date and the lesser of the two amounts isrecognized as revenue at each reporting date. The proportional performance methodology applied by the Company for revenue recognition utilizes an inputbased measure, specifically labor costs, because the Company believes the use of an input measure is a better surrogate of proportional performance than anoutput based measure, such as milestones.Amounts billed in advance are recorded as deferred revenue on the balance sheet. Since payments received are typically non-refundable, the terminationof a contract by a customer prior to its completion could result in an immediate recognition of deferred revenue relating to payments already received but notpreviously recognized as revenue.Sales terms to certain customers include rebates if certain conditions are met. Additionally, sales are generally made with a limited right of return undercertain conditions. The Company estimates these rebates and returns at the time of sale based on the terms of agreements with customers and historicalexperience and recognizes revenue net of these estimated costs which are classified as allowances and rebates.The Company bills a portion of freight cost incurred on shipments to customers. Amounts billed to customers are recorded within netrevenues. Freight costs are reflected in cost of goods sold.Asset Valuations and Review for Potential ImpairmentsThe review of long-lived assets, principally fixed assets and other amortizable intangibles, requires the Company to estimate the undiscounted futurecash flows generated from these assets whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. Ifundiscounted cash flows are less than carrying value, the long-lived assets are written down to fair value.The review of the carrying value of goodwill and indefinite lived intangibles is conducted annually or whenever events or changes in circumstancesindicate that the carrying value may not be fully recoverable utilizing a two-step process. In the first step, the fair value of the reporting units is determinedusing a discounted cash flow model and compared to the carrying value. If such analysis indicates that impairment may exist, the Company then estimatesthe fair value of the other assets and liabilities utilizing appraisals and discounted cash flow analyses to calculate an impairment charge. (dollars in thousands, except per share data) 25IndexThe determination of fair value is judgmental and involves the use of significant estimates and assumptions, including projected future cash flowsprimarily based on operating plans, discount rates, determination of appropriate market comparables and perpetual growth rates. These estimates andassumptions could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge.Environmental and Litigation ContingenciesThe Company periodically assesses the potential liabilities related to any lawsuits or claims brought against it. See Note 19 to the Company’sconsolidated financial statements for a discussion of the Company’s current environmental and litigation matters, reserves recorded and its position withrespect to any related uncertainties. While it is typically very difficult to determine the timing and ultimate outcome of these actions, the Company uses itsbest judgment to determine if it is probable that the Company will incur an expense related to a settlement for such matters and whether a reasonable estimationof such probable loss, if any, can be made. If probable and estimable, the Company accrues for the costs of clean-up, settlements and legal fees. Given theinherent uncertainty related to the eventual outcome of litigation and environmental matters, it is possible that all or some of these matters may be resolved foramounts materially different from any provisions that the Company may have made with respect to their resolution from time to time. Income TaxesThe Company applies an asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities are recognized for the expectedfuture tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for theyear in which the differences are expected to reverse. The recoverability of deferred tax assets is dependent upon the Company’s assessment that it is morelikely than not that sufficient future taxable income will be generated in the relevant tax jurisdictions to utilize the deferred tax assets. When the Companydetermines that future taxable income will not be sufficient to utilize the deferred tax assets, a valuation allowance is recorded. The Company’s valuationallowances primarily relate to foreign tax credits, alternative minimum tax credits, and other net deferred tax balances, excluding deferred tax liabilities onindefinite-lived intangibles, in the U.S., where profitability is uncertain, and NOL carryforwards in foreign jurisdictions with little or no history of generatingtaxable income or where future profitability is uncertain. Employee Benefit PlansThe Company provides a range of benefits to certain employees and retired employees, including pensions, post employment benefits and health carebenefits. The Company records annual amounts relating to these plans based on calculations, which include various actuarial assumptions, includingdiscount rates, assumed rates of return, turnover rates, and health care cost trend rates. The Company reviews its actuarial assumptions on an annual basisand makes modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. The effect of the modifications isgenerally recorded and amortized over future periods. The Company believes that the assumptions utilized for recording obligations under its plans arereasonable.The discount rate used to measure pension liabilities and costs is selected by projecting cash flows associated with plan obligations which are matchedto a yield curve of high quality bonds. The Company then selects the single rate that produces the same present value as if each cash flow were discounted bythe corresponding spot rate on the yield curve. (dollars in thousands, except per share data) 26IndexResults of Operations2011 Compared to 2010Gross sales for 2011 increased 12.4% to $254,475 from $226,436 in 2010. Foreign currency exchange favorably impacted sales 4.8%.The following table summarizes gross sales by product groups: 2011 2010 APIs and pharmaceutical intermediates $229,319 $203,807 Other 25,156 22,629 Total $254,475 $226,436 Sales of APIs and pharmaceutical intermediates in 2011 of $229,319 were $25,512 or 12.5% higher than the prior year. Foreign currency favorablyimpacted these sales 4.8%. Excluding foreign currency, the main drivers of the higher sales include higher volumes of an API to a customer who experienced adisruption in its supply chain for most of 2010, increased volumes for a recently approved product and increased demand for an API manufactured under along-term supply agreement. These increases were partially offset by lower pricing across several product categories, lower revenue from clinical phaseprojects and lower sales of a product that was discontinued by a customer of the Company in December 2010.The Company also experienced higher generic API sales due to higher volumes partially offset by competitive pricing. Sales of controlled substances,which the Company defines as drugs falling under Schedule II of the U.S. Drug Enforcement Agency’s classification system, showed continued growth in2011.One customer, Gyma, a distributor representing multiple customers, accounted for 10.8% of the Company’s 2011 consolidated sales. One API sold tomultiple customers, accounted for 13.4% of 2011 consolidated sales.Other sales in 2011 of $25,156 were $2,527 or 11.2% higher than the prior year. Foreign currency favorably impacted these sales 5.3%. Excludingforeign currency, the increase in sales is due primarily to higher sales of imaging and crop protection chemicals.Gross profit in 2011 was $74,084 compared to $66,866 in 2010. Gross margins in 2011 decreased to 29.1% compared to 29.5% in2010. Excluding a 0.6% unfavorable impact from foreign currency, gross margins increased to 29.7% in 2011 versus 2010. Excluding the foreign currencyimpact, gross margins were positively impacted by higher production volumes, leading to increased plant efficiency, and favorable product mix, partiallyoffset by lower pricing in 2011, and the result of the benefits in 2010 for insurance proceeds related to a business interruption claim and fees related to thecancellation of a supply contract.Selling, general and administrative expenses of $39,227 or 15.4% of gross sales in 2011 increased from $34,024 or 15.0% in 2010. This increase isdue primarily to higher employee compensation (approximately $4,100), unfavorable foreign exchange (approximately $1,500) and higher sales and marketingcosts (approximately $400) partially offset by lower pension expense (approximately $1,200).Research and development expenses of $11,037 were 4.3% of gross sales in 2011, compared to $10,305 or 4.6% of gross sales in 2010. The increaseis primarily due to unfavorable foreign exchange.During 2010, the Company finalized a plan to restructure its operations at a manufacturing site which resulted in a reduction in workforce of 32employees. The plan included certain one-time benefits for terminated employees, all of which will be paid in cash. Costs related to this plan are recorded onthe Company’s income statement under the caption “Restructuring expenses” and totaled $1,293 in 2010. (dollars in thousands, except per share data) 27IndexOperating profit was $23,820 in 2011 compared to $20,247 in 2010. The increase is due to higher gross profit, partially offset by higher depreciationexpense and selling, general and administrative expenses discussed above. The 2010 results include restructuring costs and merger and acquisition expensesof $1,293 and $997, respectively.Net interest expense was $2,373 in 2011 compared to $4,391 in 2010. The average interest rate on debt was 1.6% in 2011 versus 3.3% in2010. Interest rate swaps expired in October 2010 resulting in a lower weighted average interest rate in 2011.In November 2010, the Company acquired a 51% equity stake in Zenara for approximately $18,900. Zenara is a pharmaceutical company focused onthe formulation of final dosage form products based in India. Cambrex accounts for its investment in Zenara using the equity method of accounting.The impact of its ownership stake in Zenara was a loss of $1,621 and $286 in 2011 and 2010, respectively, and is located within “Otherexpenses/(income)” as “Equity in losses of partially-owned affiliate” in the Company’s income statement. These amounts include amortization expense of$1,106 and $185 in 2011 and 2010, respectively and depreciation expense of $149 and $25 in 2011 and 2010, respectively.The Company recorded tax expense of $6,202 in 2011 compared to $5,665 in 2010. The tax expense for 2011 and 2010 includes benefits of $338and $1,799, respectively, for changes in valuation allowances to offset expense and benefit generated from domestic income, tax credits, and losses in certainforeign jurisdictions. These valuation allowances result from the Company’s recent history of domestic and certain foreign losses and its short-termprojections for losses in the relative jurisdictions. Since 2003, the Company has maintained a full valuation allowance on the tax benefits arising fromdomestic pre-tax losses.The Company will continue to record a full valuation allowance, primarily on its domestic net deferred tax assets excluding indefinite-lived intangibles,until an appropriate level of domestic profitability is sustained or tax strategies can be developed that would enable the Company to conclude that it is morelikely than not that a portion of the domestic net deferred tax assets would be realized. If the Company continues to report pre-tax losses in certain foreignjurisdictions, income tax benefits associated with those losses will not be recognized and, therefore, those losses would not be reduced by such income taxbenefits. The carryforward periods for domestic federal foreign tax credits, research and experimentation tax credits and alternative minimum tax credits are10 years, 20 years and an indefinite period, respectively. As such, improvements in domestic pre-tax income in the future may result in these tax benefitsultimately being realized. However, there is no assurance that such improvements will be achieved.In 2009, a subsidiary of the Company was examined by a European tax authority, who challenged the business purpose of the deductibility of certainintercompany transactions from 2003. In the fourth quarter of 2009, the tax authorities notified the Company that they disagreed with the Company’sresponses to the authority’s two formal assessments. In the first quarter of 2010, the Company filed an appeal to litigate the matter. The first court date relatedto this matter was held in June 2011. The court issued its ruling in favor of the Company in June, however, this ruling has been appealed by the taxauthorities and only applies to the smaller of the two assessments made by the authorities related to this matter. The Company still believes this dispute to bein the early stages of the judicial process since any ruling reached by any of the courts may be appealed, and as such the final date of resolution and outcomeof this matter are uncertain at this time. However, within the next twelve months it is possible that factors such as new developments, judgments orsettlements may require the Company to increase its reserve for unrecognized tax benefits by up to $8,000 or decrease its reserve by $5,300, including interestand penalties. If the court rules against the Company in subsequent court proceedings, a payment of between $6,000 and $9,000 including interest andpenalties will be due immediately while the case is appealed. The Company has analyzed these issues in accordance with guidance on uncertain tax positionsand believes at this time that its reserves are adequate, and intends to vigorously defend itself. In January 2012 the tax authorities commenced a generalexamination of the subsidiary’s 2008 tax return. No issues have been raised to date.Income from continuing operations in 2011 was $13,735, or $0.46 per diluted share, versus $9,309, or $0.32 per diluted share in 2010. (dollars in thousands, except per share data) 28Index2010 Compared to 2009Gross sales for 2010 decreased 4.2% to $226,436 from $236,277 in 2009. The impact of foreign currency exchange was negligible.The following table summarizes gross sales by product groups: 2010 2009 APIs and pharmaceutical intermediates $203,807 $212,644 Other 22,629 23,633 Total $226,436 $236,277 Sales of APIs and pharmaceutical intermediates in 2010 of $203,807 were $8,837 or 4.2% below the prior year. The main drivers of the lower salesinclude declines in products utilizing the Company’s drug delivery technology due to a negotiated contract extension resulting in lower volumes and pricing,two APIs manufactured under long-term supply agreements, one of which is a result of a supply chain disruption at a customer’s facility that has since beenresolved and the other due to lower demand by a customer, and lower custom development revenue. Increased demand for generic APIs and controlledsubstances exceeded price declines and positively impacted 2010 as compared to 2009.Other sales in 2010 of $22,629 were $1,004 or 4.2% below the prior year. The decrease in sales is due primarily to lower sales of a feed additiveproduct line that the Company previously exited partially offset by higher sales of specialty additives.Gross profit in 2010 was $66,866 compared to $70,278 in 2009. Gross margins in 2010 decreased slightly to 29.5% compared to 29.7% in2009. Excluding a 0.6% unfavorable impact from foreign currency, gross margins increased to 30.1%. Excluding the foreign currency impact, the highermargins are due primarily to favorable product mix, lower productions costs, insurance proceeds related to a business interruption claim (+0.7%) and feesrelated to the cancellation of a supply contract (+0.3%) partially offset by lower pricing during 2010.Selling, general and administrative expenses of $34,024 or 15.0% of gross sales in 2010 decreased from $35,711 or 15.1% in 2009. This decrease isdue primarily to lower legal fees (approximately $1,600), insurance premiums (approximately $1,000) and bonus expense (approximately $800) partiallyoffset by a one-time benefit from terminating the postretirement employee benefit plan in 2009 (approximately $1,200) and bad debt expense (approximately$600).Research and development expenses of $10,305 were 4.6% of gross sales in 2010, compared to $7,929 or 3.4% of gross sales in 2009. The increase isprimarily due to the March 2010 acquisition of IEP (approximately $1,550) and reduced utilization of certain R&D personnel on revenue-generating customdevelopment projects resulting in these costs being expensed rather than absorbed into cost of sales.During 2010, the Company finalized a plan to restructure its operations at a manufacturing site which resulted in a reduction in workforce of 32employees. The plan included certain one-time benefits for terminated employees, all of which will be paid in cash. Costs related to this transaction arerecorded on the Company’s income statement under the caption “Restructuring expenses” and totaled $1,293 in 2010.Operating profit was $20,247 in 2010 compared to $26,638 in 2009. The decrease is due to lower gross profit, higher R&D expense, restructuringcosts and merger and acquisition expenses partially offset by lower selling, general and administrative expenses discussed above. The 2010 results includerestructuring costs and merger and acquisition expenses of $1,293 and $997, respectively. (dollars in thousands, except per share data) 29Index Net interest expense was $4,391 in 2010 compared to $4,634 in 2009. This decrease is due primarily to lower average debt balances, lower interestrates and the Company’s interest rate swaps maturing in October 2010 partially offset by lower capitalized interest due to the completion of a large capitalproject in 2009. Average interest rates were 3.3% and 3.8% in 2010 and 2009, respectively.In November 2010, the Company acquired a 51% equity stake in Zenara for approximately $18,900. Zenara is a Hyderabad, India basedpharmaceutical company focused on the formulation of final dosage form products. Pursuant to the stock purchase agreement, Cambrex will acquire theremaining 49% in early 2016 at a value to be determined using a weighted combination of a multiple of 2015 EBITDA and cumulative EBITDA for the years2011 through 2015, adjusted for Zenara’s net debt or net cash position. Cambrex accounts for its investment in Zenara using the equity method ofaccounting.The impact of its ownership stake in Zenara was a loss of $286 in 2010 and is located within “Other expenses/(income)” as “Equity in losses ofpartially-owned affiliate” in the Company’s income statement.The Company recorded tax expense of $5,665 in 2010 compared to $12,253 in 2009. The tax expense for 2010 and 2009 includes a benefit of$1,799 and a charge of $103, respectively, for changes in valuation allowances to offset expense and benefit generated from domestic income and losses, taxcredits, and losses in certain foreign jurisdictions. These valuation allowances result from the Company’s recent history of domestic and certain foreign lossesand its short-term projections for losses in the relative jurisdictions. Tax expense for 2009 also includes a charge of $5,300 for an estimate of an internationaltax liability related to a 2003 transaction. Since 2003, the Company has maintained a full valuation allowance on the tax benefits arising from domestic pre-taxlosses.Income from continuing operations in 2010 was $9,309, or $0.32 per diluted share, versus $10,392, or $0.36 per diluted share in 2009.Liquidity and Capital ResourcesDuring 2011, cash and cash equivalents on hand increased $2,307 to $31,921. The year over year strength in the U.S. dollar unfavorably impactedthe translated cash balances by $891. During 2011, cash flows from operations provided $38,322, compared to $23,284 in the same period a yearago. Cash flows from operations in 2011 compared to 2010 were favorably impacted by improved accounts receivable collections and better cash managementrelated to the Company’s accounts payables partially offset by higher pension contributions. Cash flows used in financing activities in 2011 of $19,636mainly reflects the pay down of debt.In November 2011, the Company entered into a $250,000 five-year Syndicated Senior Revolving Credit Facility (“Credit Facility”) which expires inNovember 2016. The Company pays interest on this Credit Facility at LIBOR plus 1.75% - 2.50% based upon certain financial measurements. The CreditFacility also includes financial covenants regarding interest coverage and leverage ratios. The Company was in compliance with all financial covenants atDecember 31, 2011. As of December 31, 2011, there was $98,000 outstanding on this Credit Facility. The 2011 and 2010 weighted average interest rates for long-term bank debt were 1.6% and 3.3%, respectively. In November 2010, the Company purchased a 51% equity stake in Zenara for approximately $18,900 and is required to purchase the remaining 49%in 2016 based upon a formula derived from Zenara’s future EBITDA. The Company may, at its option, purchase the remaining equity in cash or acombination of cash and up to 50% of the consideration in Cambrex stock. To the extent that Zenara has significant EBITDA during the period covered by the contract formula, substantial consideration will be required topurchase the remaining 49%. A large cash payment could require borrowing under the Company’s Credit Facility. Additionally, the uncertainty regarding theamount of consideration required for the 2016 buyout of the 49% may impact the Company’s future borrowing ability, result in higher interest expense, orpossibly result in difficulty securing any credit arrangements in the future. Additionally, issuance of any stock to satisfy a portion of this obligation couldhave a dilutive effect on holders of Cambrex common stock. In the event that Cambrex is unable to compensate the 49% equity holder for its shares in 2016,the 49% shareholder has certain rights, including the right to force a sale of Zenara to a third party to secure their payment. (dollars in thousands, except per share data) 30Index For 2012, capital expenditures are expected to be approximately $15,000 to $18,000.Contractual ObligationsAt December 31, 2011, the Company’s contractual obligations with initial or remaining terms in excess of one year were as follows: Total 2012 2013 2014 2015 2016 2017+ Long term debt $98,000 $- $- $- $- $98,000 $- Interest on debt 13,175 2,726 2,726 2,726 2,726 2,271 - Operating leases 4,237 815 715 650 614 489 954 Purchase obligations 2,059 1,487 540 32 - - - Contractual cashobligations $117,471 $5,028 $3,981 $3,408 $3,340 $100,760 $954 In addition to the contractual obligations listed above, the Company expects to contribute approximately $3,000 in cash to its U.S. defined-benefitpension plan in 2012. The Company believes it is possible that a similar amount of pension contributions could be required in 2013. For the unfunded SERPand international pension plans the Company expects to make benefit payments of approximately $1,450 in 2012 and similar amounts in 2013 through2017. See Note 16 to the Company’s consolidated financial statements for details on the Company’s unfunded balance related to its pension plans. Also notincluded in the table above is $7,042 of uncertain tax positions due to uncertainties surrounding the timing of the obligation. See Note 9 to the Company’sconsolidated financial statements. The Company also may be required to make cash payments to remediate certain environmental sites at unknown futureperiods as discussed in Note 19 to the Company’s consolidated financial statements.See Notes 10, 16, 18 and 19 to the Company’s consolidated financial statements for additional information regarding the Company’s pension plans,debt and other commitments.As disclosed above the Company has an obligation to purchase the remaining 49% of Zenara in 2016 at a price determined by future performance ofthat entity.The Company’s forecasted cash flow from future operations may be adversely affected by various factors including, but not limited to, declines incustomer demand, increased competition, the deterioration in general economic and business conditions, returns on assets within the Company’s domesticpension plan that are significantly below expected performance, as well as other factors. See the Risk Factors section of this document for further explanationof factors that may negatively impact the Company’s cash flows. Any change in the current status of these factors could adversely impact the Company'sability to fund operating cash flow requirements.Market RisksCurrency Risk ManagementThe Company's primary market risk relates to exposure to foreign currency exchange rate fluctuations on transactions entered into by internationaloperations which are primarily denominated in the U.S. dollar, Euro and Swedish krona. The Company currently uses foreign currency exchange forwardcontracts to mitigate the effect of short-term foreign exchange rate movements on the Company's local operating results. As a matter of policy, the Companydoes not hedge to protect the translated results of foreign operations. The notional amount of these contracts as of December 31, 2011 was$11,005. Unrealized foreign exchange contract losses do not subject the Company's actual results to risk as gains or losses on these contracts are undertakento offset gains or losses on the transactions that are hedged. The foreign exchange contracts have varying maturities with none exceeding twelve months. (dollars in thousands, except per share data) 31IndexWith respect to the contracts outstanding at December 31, 2011, a 10% fluctuation of the local currency over a one-year period would cause $1,087 pre-tax earnings to be at risk. This is based on the notional amount of the contracts, adjusted for unrealized gains and losses, of $10,867. These calculations donot include the impact of exchange gains or losses on the underlying positions that would offset the gains and losses of the derivative instruments.Interest Rate ManagementThe Company previously employed a plan to mitigate interest rate risk by entering into interest rate swap agreements to convert floating rates to fixedinterest rates. During 2010, the Company had three interest rate swaps in place with an aggregate notional value of $60,000, at an average fixed rate of4.48%. These interest rate swaps matured in October 2010. At December 31, 2011, the Company did not have any interest rate swaps outstanding and wouldrecord higher interest expense if interest rates were to rise. The Company is evaluating potentially entering into floating to fixed-rate interest rate swaps forexisting borrowings.ContingenciesThe Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of itsbusiness activities. The Company continually assesses all known facts and circumstances as they pertain to all legal and environmental matters andevaluates the need for reserves and disclosures as deemed necessary based on these facts and circumstances. These matters, either individually or in theaggregate, could have a material adverse effect on the Company's financial condition, operating results and cash flows in a future reporting period.EnvironmentalIn connection with laws and regulations pertaining to the protection of the environment, the Company and its subsidiaries are a party to severalenvironmental proceedings and remediation investigations and cleanups and, along with other companies, have been named a PRP for certain waste disposalsites ("Superfund sites"). Additionally, the Company has retained the liability for certain environmental proceedings associated with discontinued operations.It is the Company’s policy to record appropriate liabilities for environmental matters where remedial efforts are probable and the costs can be reasonablyestimated. Such liabilities are based on the Company’s best estimate of the undiscounted future costs required to complete the remedial work. Each of thesematters is subject to various uncertainties, and it is possible that some of these matters will be decided unfavorably against the Company. The resolution ofsuch matters often spans several years and frequently involves regulatory oversight or adjudication. Additionally, many remediation requirements are fluidand are likely to be affected by future technological, site and regulatory developments. Consequently, the ultimate liability with respect to such matters, aswell as the timing of cash disbursements cannot be determined with certainty.In matters where the Company has been able to reasonably estimate its liability, the Company has accrued for the estimated costs associated with thestudy and remediation of applicable sites not owned by the Company and the Company's current and former operating sites. These reserves were $7,786 and$7,017 at December 31, 2011 and 2010, respectively. The increase in the reserve includes adjustments to reserves of $2,930 partially offset by payments of$2,112 and the impact of currency translation of $49. The reserves are adjusted periodically as remediation efforts progress or as additional technical,regulatory or legal information become available. Based upon available information and analysis, the Company's current reserve represents management's bestestimate of the probable and estimable costs associated with environmental proceedings including amounts for investigation fees where full remediation costsmay not be estimable at the reporting date. Given the uncertainties regarding the status of laws, regulations, enforcement, policies, the impact of other PRPs,technology and information related to individual sites, the Company does not believe it is possible to currently develop an estimate of the range of reasonablypossible environmental loss in excess of its reserves. (dollars in thousands, except per share data) 32IndexCasChemAs a result of the sale of the Bayonne, New Jersey facility, the Company became obligated to investigate site conditions and conduct requiredremediation under the New Jersey Industrial Site Recovery Act. The Company intends to implement a sampling plan at the property in 2012 pursuant to theNew Jersey Department of Environmental Protection’s (“NJDEP”) private oversight program. The results of the completed sampling, and any additionalsampling deemed necessary, will be used to develop an estimate of the Company's future liability for remediation costs, if any. CosanIn response to the NJDEP, the Company completed its initial investigation and submitted the results of the investigation and a proposed remediationplan to the NJDEP for its Cosan Clifton, New Jersey site. The NJDEP subsequently rejected the remediation plan and requested additional investigative workat the site and that work is on-going. The reserve was $1,013 at December 31, 2011 which was based on the initial remedial action plan. The results of theadditional investigative work may impact the remediation plan and costs.Additionally, the Company has a reserve of $870 for the Cosan Carlstadt, New Jersey site based on the investigations completed to date and theproposed remediation plan submitted to the NJDEP for its approval. The NJDEP has subsequently required the Company to perform additional investigativework prior to approval of the remediation plan. The results of this additional investigative work may impact the remediation plan and costs. The NJDEP hasadvised the Company that the site will be placed in the NJDEP’s private oversight program. Under the program, the Company will be required to implement aremediation plan in 2012.Berry’s CreekThe Company received a notice from the United States Environmental Protection Agency (“USEPA”) that two former subsidiaries of the Company areconsidered PRPs at the Berry’s Creek Study Area in New Jersey. These subsidiaries are among many other PRPs that were listed in the notice. Pursuant to thenotice, the PRPs have been asked to perform a remedial investigation and feasibility study of the Berry’s Creek site. The Company has joined the group ofPRPs and entered into an Administrative Settlement Agreement and Order on Consent with the USEPA agreeing to jointly conduct or fund an appropriateremedial investigation and feasibility study of the Berry’s Creek site with other PRP signatories to the Agreement. The PRPs have engaged consultants toperform the work specified in the Agreement and develop a method to allocate related costs among the PRPs. As of December 31, 2011, the Company’s reservewas $288, which includes $250 of additional expense recorded in discontinued operations in 2011, to cover the current phase of investigation based on atentative agreement on the allocation of the site investigation costs among the PRPs. The investigation is ongoing and at this time it is too early to predict theextent of any additional liabilities.Maybrook and Harriman SitesThe Company’s Nepera, Inc. subsidiary (“Nepera”) is named a PRP of the Maybrook site in Hamptonburgh, New York by the USEPA in connectionwith the discharge, under appropriate permits, of wastewater at that site prior to Cambrex's acquisition of Nepera in 1986. The USEPA also issued theCompany a Notice of Potential Liability and the Company signed a consent decree to complete the Record of Decision (“ROD”) and has provided the USEPAwith appropriate financial assurance to guarantee the obligation under the consent decree. The PRPs began to implement remedial action at this site in the thirdquarter of 2011 and during the course of the remediation the Company became aware of unexpected additional requirements and scope of the remediationwork. Consequently, the Company recorded an expense of $2,200 to discontinued operations. The Company’s reserve for completing this project is $2,625,which it expects to complete in 2012. (dollars in thousands, except per share data) 33IndexNepera is also named a responsible party of its former Harriman, New York production facility by the New York State Department of EnvironmentalConservation (“NYSDEC”). A final ROD was issued that describes the remediation plan for the site. Implementation of the ROD is on-going. In December2010, the NYSDEC notified the PRPs and the current owners of the property that they intended to combine the investigation and remediation being conductedby various parties pursuant to different regulatory programs under one regulatory plan. This development could potentially lead to increased liabilities for theCompany. There are on-going discussions between the NYSDEC and all parties to try to resolve this matter. As of December 31, 2011, the reserve recordedby the Company for the Nepera Harriman site was $425 which represents the Company’s best estimate to complete the ROD.Scientific Chemical Processing (“SCP”) Superfund SiteNepera was named a PRP of the SCP Superfund site, located in Carlstadt, New Jersey, in the early 1980’s along with approximately 130 otherPRPs. The site is a former waste processing facility that accepted various waste for recovery and disposal including processing wastewater from Nepera. ThePRPs are in the process of implementing a final remedy for soil and groundwater contamination at the site. The SCP Superfund site has also been identified asa PRP in the Berry’s Creek Superfund site (see previous discussion). For over a decade, the remediation has been funded by de minimus settlements and bythe insurers of the SCP Superfund site’s owners and operators. However, due to an unexpected increase in remediation costs at the site and costs to contributeto the Berry’s Creek investigation, the PRP group has recently approved the assessment of an additional cash contribution by the PRP group. While theCompany disputes the methodology used by the PRP group to arrive at its allocation for the cash contribution, the Company has paid the initial fundingrequests.Newark Bay Complex LitigationCasChem and Cosan have been named as two of several hundred third-party defendants in a third-party complaint filed in February 2009, by MaxusEnergy Corporation (“Maxus”) and Tierra Solutions, Inc. (“Tierra”). The original plaintiffs include the NJDEP, the Commissioner of the NJDEP and theAdministrator of the New Jersey Spill Compensation Fund, which originally filed suit in 2005 against Maxus, Tierra and other defendants seeking recoveryof cleanup and removal costs for alleged discharges of dioxin and other hazardous substances into the Passaic River, Newark Bay, Hackensack River, ArthurKill, Kill Van Kull and adjacent waters (the “Newark Bay Complex”). Maxus and Tierra are now seeking contributions from third-party defendants,including subsidiaries of the Company, for cleanup and removal costs for which each may be held liable in the primary lawsuit. Maxus and Tierra also seekrecovery for cleanup and removal costs that each has incurred or will incur relating to the Newark Bay Complex. The Company expects to vigorously defendagainst the lawsuit. At this time it is too early to predict whether the Company will have any liability in this matter.The Company is involved in other environmental matters where the range of liability is not reasonably estimable at this time and it is not foreseeablewhen information will become available to provide a basis for adjusting or recording a reserve, should a reserve ultimately be required.Litigation and Other MattersLorazepam and ClorazepateIn 1998, the Company and a subsidiary were named as defendants along with Mylan Laboratories, Inc. (“Mylan”) and Gyma Laboratories, Inc.(“Gyma”) in a proceeding instituted by the Federal Trade Commission in the United States District Court for the District of Columbia (the “DistrictCourt”). Suits were also commenced by several State Attorneys General and class action complaints by private plaintiffs in various state courts. The suitsalleged violations of the Federal Trade Commission Act arising from exclusive license agreements between the Company and Mylan covering two APIs(Lorazepam and Clorazepate).All cases have been resolved except for one brought by four health care insurers. In the remaining case, the District Court entered judgment after trial in2008 against Mylan, Gyma and Cambrex in the total amount of $19,200, payable jointly and severally, and also a punitive damage award against eachdefendant in the amount of $16,709. In addition, the District Court ruled that the defendants were subject to a total of approximately $7,500 in prejudgmentinterest. Several motions are currently pending in connection with the defendant’s appeal of the judgment. (dollars in thousands, except per share data) 34IndexIn 2003, Cambrex paid $12,415 to Mylan in exchange for a release and full indemnity against future costs or liabilities in related litigation brought bythe purchasers of Lorazepam and Clorazepate, as well as potential future claims related to the ongoing matter. Mylan has submitted a surety bond underwrittenby a third-party insurance company in the amount of $74,500. In the event of a final settlement or final judgment, Cambrex expects any payment required bythe Company to be made by Mylan under the indemnity described above.OtherThe Company has commitments incident to the ordinary course of business including corporate guarantees of certain subsidiary obligations to theCompany’s lenders related to financial assurance obligations under certain environmental laws for remediation; closure and third party liability requirementsof certain of its subsidiaries and a former operating location; contract provisions for indemnification protecting its customers and suppliers against third partyliability for the manufacture and sale of Company products that fail to meet product warranties and contract provisions for indemnification protectinglicensees against intellectual property infringement related to licensed Company technology or processes.Additionally, as permitted under Delaware law, the Company indemnifies its officers, directors and employees for certain events or occurrences whilethe officer, director or employee is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer's,director's or employee’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnificationagreements is unlimited; however, the Company has a director and officer insurance policy that covers a portion of any potential exposure. The Companycurrently believes the estimated fair value of its indemnification agreements is not material based on currently available information, and as such, theCompany had no liabilities recorded for these agreements as of December 31, 2011.Cambrex's subsidiaries are party to a number of other proceedings that are not considered material at this time.Impact of Recent Accounting PronouncementsFair Value MeasurementsIn January 2010, the Financial Accounting Standards Board (“FASB”) issued “Fair Value Measurements and Disclosures - Improving Disclosuresabout Fair Value Measurements.” This statement requires new disclosures and clarifies some existing disclosure requirements about fair valuemeasurement. Disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements are effective forfiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The effect of adopting this pronouncement did not have animpact on the Company’s financial position or results of operations.Revenue Recognition – Milestone MethodIn April 2010, the Emerging Issues Task Force issued “Revenue Recognition – Milestone Method.” This issue provides guidance on defining amilestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Thisissue is effective on a prospective basis for milestones achieved in fiscal years beginning after June 15, 2010. The adoption of this standard did not have amaterial impact on the Company’s financial position or results of operations. (dollars in thousands, except per share data) 35IndexComprehensive IncomeIn June 2011, the FASB issued “Comprehensive Income – Presentation of Comprehensive Income.” This statement gives companies two options forpresenting other comprehensive income (“OCI”), which currently is included as part of the statement of shareholders’ equity. An OCI statement can beincluded within the income statement, which together will make a statement of total comprehensive income. Alternatively, companies can have an OCIstatement separate from an income statement, but the two statements will have to appear consecutively within a financial report. This statement is effective forfiscal quarters and years beginning after December 15, 2011. The effect of adopting this statement will not have an impact on the Company’s financialposition or results of operations.Testing Goodwill for ImpairmentIn September 2011, the FASB issued “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” to simplify the goodwill impairmenttest. The change allows companies to first decide whether they need to do the two-step test by allowing companies to first assess qualitative factors todetermine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A business no longer has to calculate the fairvalue of a reporting unit unless it believes it is very likely that the unit’s fair value is less than the value carried on the balance sheet. This amendment alsoincludes examples of how the amended test should be carried out. This amendment is effective for annual and interim tests performed for fiscal yearsbeginning after December 15, 2011, although early adoption is permitted. The effect of adopting this statement is not expected to have an impact on theCompany’s financial position or results of operations.Item7A Quantitative and Qualitative Disclosures about Market Risk.The information required in this section can be found in the “Market Risks” section of Item 7 on page 31 of this Form 10-K. (dollars in thousands, except per share data) 36IndexItem 8 Financial Statements and Supplementary Data.The following consolidated financial statements and selected quarterly financial data of the Company are filed under this item: Page Numbur (in this Report)Reports of Independent Registered Public Accounting Firm38Consolidated Balance Sheets as of December 31, 2011 and 201040Consolidated Income Statements for the Years Ended December 31, 2011, 2010 and 200941Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2011, 2010 and 200942Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 200943Notes to Consolidated Financial Statements44Selected Quarterly Financial and Supplementary Data (unaudited)74The financial statement schedules are filed pursuant to Item 15 of this report. (dollars in thousands, except per share data) 37IndexReport of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Cambrex Corporation, We have audited the accompanying consolidated balance sheets of Cambrex Corporation as of December 31, 2011 and 2010 and the relatedconsolidated income statements, statements of stockholders’ equity, and statements of cash flows for each of the three years in the period ended December 31,2011. In connection with our audits of the financial statements, we have also audited the financial statement schedules listed in the accompanying index. Thesefinancial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements and schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedules. We believe thatour audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CambrexCorporation at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31,2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole,present fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Cambrex Corporation’sinternal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 7, 2012 expressed an unqualified opinionthereon. /s/ BDO USA, LLP Woodbridge, NJFebruary 7, 2012 38IndexReport of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Cambrex Corporation, We have audited Cambrex Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria established in InternalControl – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CambrexCorporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control Over Financial Reporting.” Ourresponsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. In our opinion, Cambrex Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011,based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of Cambrex Corporation as of December 31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity, and cash flowsfor each of the three years in the period ended December 31, 2011 and our report dated February 7, 2012 expressed an unqualified opinion thereon. /s/ BDO USA, LLP Woodbridge, NJFebruary 7, 2012 39Index CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(dollars in thousands, except per share data) December 31, 2011 2010 ASSETS Current assets: Cash and cash equivalents $31,921 $29,614 Trade receivables, less allowances of $450 and $1,083 at respective dates 36,510 39,025 Inventories, net 62,095 61,408 Prepaid expenses and other current assets 6,083 5,082 Total current assets 136,609 135,129 Property, plant and equipment, net 139,628 150,483 Goodwill 36,731 37,694 Intangible assets, net 4,261 4,687 Investment in partially-owned affiliate 15,090 19,709 Other non-current assets 3,425 4,049 Total assets $335,744 $351,751 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $21,200 $19,480 Accrued expense and other current liabilities 37,933 33,503 Total current liabilities 59,133 52,983 Long-term debt 98,000 115,900 Deferred income tax 16,243 17,893 Accrued pension and postretirement benefits 52,089 43,921 Other non-current liabilities 9,938 13,419 Total liabilities 235,403 244,116 Commitments and contingencies (see Notes 18 and 19) Stockholders' equity: Common Stock, $.10 par value; authorized 100,000,000 issued 31,441,138 and 31,409,638 shares at respectivedates 3,143 3,140 Additional paid-in capital 101,646 101,271 Retained earnings 42,960 31,992 Treasury stock, at cost, 1,866,258 and 1,978,533 shares at respective dates (15,821) (16,876)Accumulated other comprehensive loss (31,587) (11,892)Total stockholders' equity 100,341 107,635 Total liabilities and stockholders' equity $335,744 $351,751 See accompanying notes to consolidated financial statements. 40IndexCAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED INCOME STATEMENTS(dollars in thousands, except per share data) Years Ended December 31, 2011 2010 2009 Gross Sales $254,475 $226,436 $236,277 Commissions, allowances and rebates 1,776 1,545 1,402 Net sales 252,699 224,891 234,875 Other 2,954 2,101 (325)Net revenues 255,653 226,992 234,550 Cost of goods sold 181,569 160,126 164,272 Gross profit 74,084 66,866 70,278 Selling, general and administrative expenses 39,227 34,024 35,711 Research and development expenses 11,037 10,305 7,929 Restructuring expenses - 1,293 - Merger and acquisition expenses - 997 - Operating profit 23,820 20,247 26,638 Other expenses/(income) Interest expense, net 2,373 4,391 4,634 Other (income)/expenses, net (111) 596 (641)Equity in losses of partially-owned affiliate 1,621 286 - Income before income taxes 19,937 14,974 22,645 Provision for income taxes 6,202 5,665 12,253 Income from continuing operations 13,735 9,309 10,392 (Loss)/income from discontinued operations, net of tax (2,767) 338 - Net income $10,968 $9,647 $10,392 Basic earnings per share Income from continuing operations $0.46 $0.32 $0.36 (Loss)/income from discontinued operations, net of tax $(0.09) $0.01 $- Net income $0.37 $0.33 $0.36 Diluted earnings per share Income from continuing operations $0.46 $0.32 $0.36 (Loss)/income from discontinued operations, net of tax $(0.09) $0.01 $- Net income $0.37 $0.33 $0.36 Weighted average shares outstanding: Basic weighted average shares outstanding 29,468 29,361 29,241 Effect of dilutive stock options and restricted stock 96 107 26 Diluted weighted average shares outstanding 29,564 29,468 29,267 See accompanying notes to consolidated financial statements. 41Index CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(dollars in thousands, except per share data) Common Stock Shares Issued Par Value($.10) AdditionalPaid-In Capital RetainedEarnings TreasuryStock ComprehensiveIncome/(Loss) AccumulatedOtherComprehensive(Loss)/Income TotalStockholders'Equity Balance at December 31, 2008 31,406,778 $3,140 $99,881 $11,960 $(19,014) $(21,181) $74,786 Comprehensive income Net income 10,392 10,392 10,392 Other comprehensive income Foreign currency translationadjustment 9,819 Unrealized gains on hedgingcontracts, net of tax of $304 2,450 Pensions, net of tax of $204 4,309 Other comprehensive income 16,578 16,578 16,578 Total comprehensive income $26,970 Adjustment to cash dividend onrestricted stock (7) (7)Purchase of treasury stock (25) (25)Exercise of stock options 2,000 9 9 Deferred compensation (102) 264 162 Vested restricted stock (666) 666 - Stock option modification 94 94 Stock option expense 554 554 Restricted stock expense 658 658 Performance stock expense 69 69 Balance at December 31, 2009 31,408,778 $3,140 $100,497 $22,345 $(18,109) $(4,603) $103,270 Comprehensive income Net income 9,647 9,647 9,647 Other comprehensive loss Foreign currency translationadjustment (7,417) Unrealized gains on hedgingcontracts, net of tax benefitof $114 1,741 Pensions, net of tax benefit of$1 (1,613) Other comprehensive loss (7,289) (7,289) (7,289)Total comprehensive income $2,358 Purchase of treasury stock (33) (33)Deferred compensation (96) 262 166 Vested restricted stock 860 (1,004) 1,004 - Stock option modification 52 52 Stock option expense 1,020 1,020 Restricted stock expense 645 645 Performance stock expense 157 157 Balance at December 31, 2010 31,409,638 $3,140 $101,271 $31,992 $(16,876) $(11,892) $107,635 Comprehensive loss Net income 10,968 10,968 10,968 Other comprehensive loss Foreign currency translationadjustment (7,501) Unrealized gains on hedgingcontracts, net of tax of $142 339 Pensions, net of tax benefit of$489 (12,533) Other comprehensive loss (19,695) (19,695) (19,695)Total comprehensive loss $(8,727) Purchase of treasury stock (329) (329)Exercise of stock options 31,500 3 142 145 Deferred compensation (28) 80 52 Vested restricted stock (911) 911 - Vested performance stock (393) 393 - Stock option expense 1,028 1,028 Restricted stock expense 497 497 Performance stock expense 40 40 Balance at December 31, 2011 31,441,138 $3,143 $101,646 $42,960 $(15,821) $(31,587) $100,341 See accompanying notes to consolidated financial statements. 42Index CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(dollars in thousands) Years Ended December 31, 2011 2010 2009 Cash flows from operating activities: Net income $10,968 $9,647 $10,392 Adjustments to reconcile net income to cash flows: Depreciation and amortization 23,120 21,828 20,505 Increase in inventory reserve 1,637 1,719 4,196 Allowance for doubtful accounts (103) 479 (191)Stock based compensation included in net income 1,565 1,822 1,281 Deferred income tax provision (721) (1,165) (287)Restructuring charges - 870 - Equity in losses of partially-owned affiliate 1,621 286 - Stock option modification - 52 94 Foreign tax reserve - - 5,330 Other 390 245 (259)Changes in assets and liabilities: Trade receivables 2,066 (7,148) 5,930 Inventories (3,523) (4,925) 712 Prepaid expenses and other current assets 729 1,357 2,083 Accounts payable and other current liabilities 4,655 (938) (13,038)Other non-current assets and liabilities (6,248) (374) (2,356)Discontinued operations: Adjustments to reconcile discontinued operations to cash flows 2,166 (471) - Net cash provided by operating activities 38,322 23,284 34,392 Cash flows from investing activities: Capital expenditures (15,008) (12,637) (12,587)Acquisition of business and equity investment, net of cash acquired (500) (25,249) - Capital invested in partially-owned affiliate - (1,148) - Other investing activities 20 (18) 67 Net cash used in investing activities (15,488) (39,052) (12,520) Cash flows from financing activities: Dividends and return of capital - - (889)Long-term debt activity (including current portion): Borrowings 105,800 33,200 23,600 Repayments (123,700) (38,100) (26,600)Debt issuance costs (1,541) - - Proceeds from stock options exercised 145 - 9 Other financing activities (340) (54) (48) Net cash used in financing activities (19,636) (4,954) (3,928) Effect of exchange rate changes on cash and cash equivalents (891) (2,029) 1,881 Net increase/(decrease) in cash and cash equivalents 2,307 (22,751) 19,825 Cash and cash equivalents at beginning of year 29,614 52,365 32,540 Cash and cash equivalents at end of year $31,921 $29,614 $52,365 Supplemental disclosure: Interest paid, net of capitalized interest $2,258 $4,328 $4,906 Income taxes paid, net of refunds received $8,520 $3,579 $6,882 See accompanying notes to consolidated financial statements. 43IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(1)The CompanyCambrex Corporation and Subsidiaries (the “Company” or “Cambrex”) primarily provides products and services worldwide to pharmaceuticalcompanies and generic drug companies. The Company is dedicated to accelerating its customers’ drug discovery, development and manufacturing processesfor human therapeutics. The Company’s products consist of active pharmaceutical ingredients (“APIs”) and pharmaceutical intermediates produced underFood and Drug Administration current Good Manufacturing Practices for use in the production of prescription and over-the-counter drug products and otherfine custom chemicals derived from organic chemistry. Cambrex has three operating segments, which are manufacturing facilities, that have been aggregatedas one reportable segment. (2)Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Equity investments in which theCompany exercises significant influence but does not control, are accounted for using the equity method. The Company’s share of its equity methodinvestees’ earnings or losses are included in “Other expenses/(income)” in the income statements. The Company eliminates its pro rata share of gross profit onsales to/from its equity method investees for assets still remaining in inventory at the end of the reporting period. All other significant inter-company balancesand transactions have been eliminated in consolidation.Cash EquivalentsTemporary cash investments with an original maturity of less than three months are considered cash equivalents. The carrying amounts approximatefair value.Allowance for Doubtful AccountsThe Company maintains allowances for doubtful accounts relating to estimated losses resulting from customers being unable to make requiredpayments. Allowances for doubtful accounts are based on historical experience and known factors regarding specific customers and the industries in whichthose customers operate. If the financial condition of the Company’s customers were to deteriorate, resulting in their ability to make payments being impaired,additional allowances would be required.Concentrations of credit riskFinancial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents andaccounts receivable. In the normal course of business, the Company maintains cash balances with European Union banks ranging from $5,000 - $15,000.The Company routinely monitors the risks associated with these institutions and diversifies its exposure by maintaining smaller balances with multiplefinancial institutions. Concentrations of credit risk with respect to accounts receivable are limited due to the Company's large number of customers and theirdispersion throughout the world. 44IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(2)Summary of Significant Accounting Policies (continued)Derivative InstrumentsDerivative financial instruments are used by the Company primarily for hedging purposes to mitigate a variety of working capital, investment andborrowing risks. The Company primarily uses foreign currency forward contracts to minimize foreign currency exchange rate risk associated with foreigncurrency transactions. Gains and losses on these hedging transactions are generally recorded in earnings in the same period as they are realized, which isusually the same period as the settlement of the underlying transactions. The Company occasionally uses interest rate swap instruments only as hedges or asan integral part of borrowing. As such, the differential to be paid or received in connection with these instruments is accrued and recognized in income as anadjustment to interest expense.The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives andstrategies for undertaking various hedging relationships. All cash flow hedges are linked to transactions and the Company assesses effectiveness at inceptionand on a quarterly basis. If it is determined that a derivative instrument is not highly effective or the transaction is no longer deemed probable of occurring, theCompany discontinues hedge accounting and recognizes the ineffective portion in current period earnings.InventoriesInventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. The determination of market value involves assessmentof numerous factors, including costs to dispose of inventory and estimated selling prices. Reserves are recorded to reduce carrying value for inventorydetermined to be damaged, obsolete or otherwise unsaleable.Property, Plant and EquipmentProperty, plant and equipment is stated at cost, net of accumulated depreciation. Plant and equipment are depreciated on a straight-line basis over theestimated useful lives for each applicable asset group as follows:Buildings and improvements20 to 30 years, or term of lease if applicableMachinery and equipment7 to 15 yearsFurniture and fixtures5 to 7 yearsComputer hardware and software3 to 7 yearsExpenditures for additions, major renewals or betterments are capitalized and expenditures for maintenance and repairs are charged to income as incurred.When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gainor loss is reflected in costs of goods sold or operating expenses. Interest is capitalized in connection with the construction and acquisition of assets that arecapitalized over longer periods of time for larger amounts. The capitalized interest is recorded as part of the cost of the asset to which it relates and is amortizedover the asset’s estimated useful life. Total interest capitalized in connection with ongoing construction activities in 2011, 2010 and 2009 amounted to $38,$41 and $677, respectively. 45IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(2)Summary of Significant Accounting Policies (continued)Impairment of GoodwillThe Company reviews the carrying value of goodwill to determine whether impairment may exist on an annual basis or whenever it has reason tobelieve goodwill may not be recoverable. The annual impairment test of goodwill is performed during the fourth quarter of each fiscal year. The Company didnot have an impairment for any of the years presented.Goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment bycomparing the fair value of each reporting unit, determined using various valuation techniques, with the primary technique being a discounted cash flowanalysis, to its carrying value. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired andthe second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwillimpairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fairvalue of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fairvalue of that goodwill, an impairment loss is recognized in an amount equal to that excess.Impairment of Long-Lived AssetsThe Company assesses the impairment of its long-lived assets, including amortizable intangible assets, and property, plant and equipment, whenevereconomic events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. Long lived assets are considered to beimpaired when the sum of the undiscounted expected future operating cash flows is less than the carrying amounts of the related assets. If impaired, the assetsare written down to fair market value.Revenue Recognition Revenues are generally recognized when title to products and risk of loss are transferred to customers. Additional conditions for recognition of revenueare that collection of sales proceeds is reasonably assured and the Company has no further performance obligations.The Company has certain contracts that contain multiple deliverables. These deliverables often include process development services and commercialproduction and are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to thecustomer and the arrangement includes a general right of return relative to the delivered item and delivery or performance of the undelivered item(s) isconsidered probable and substantially in the control of the Company. The consideration the Company receives is allocated at the inception of the arrangementto all deliverables on the basis of their relative selling price (“the relative selling price method”). When applying the relative selling price method, the sellingprice for each deliverable is determined using vendor specific objective evidence (“VSOE”) of selling price, if it exists; otherwise, third party evidence (“TPE”)of selling price is used. If neither VSOE nor TPE of selling price exists for a deliverable, the Company uses it best estimate of selling price for that deliverable.Once the accounting units are defined, applicable revenue recognition criteria are applied to each of the separate units. The Company elected to early adopt theprovisions of this standard, on a prospective basis, for revenue arrangements entered into or materially modified beginning January 1, 2010. The adoption ofthis standard did not have a material impact on the Company’s financial position or results of operations. 46IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(2)Summary of Significant Accounting Policies (continued)For contracts that contain milestone-based payments, the Company recognizes revenue using the proportional performance method based on thepercentage of costs incurred relative to the total costs estimated to be incurred to complete the contract. Revenue recognition computed under this methodologyis compared to the amount of non-refundable cash payments received or contractually receivable at the reporting date and the lesser of the two amounts isrecognized as revenue at each reporting date. The proportional performance methodology applied by the Company for revenue recognition utilizes an inputbased measure, specifically labor costs, because the Company believes the use of an input measure is a better surrogate of proportional performance than anoutput based measure, such as milestones.Amounts billed in advance are recorded as deferred revenue on the balance sheet. Since payments received are typically non-refundable, the terminationof a contract by a customer prior to its completion could result in an immediate recognition of deferred revenue relating to payments already received but notpreviously recognized as revenue.Sales terms to certain customers include rebates if certain conditions are met. Additionally, sales are generally made with a limited right of return undercertain conditions. The Company estimates these rebates and returns at the time of sale based on the terms of agreements with customers and historicalexperience and recognizes revenue net of these estimated costs which are classified as allowances and rebates.The Company bills a portion of freight cost incurred on shipments to customers. Amounts billed to customers are recorded within netrevenues. Freight costs are reflected in cost of goods sold.Income TaxesThe Company and its eligible subsidiaries file a consolidated U.S. income tax return. Foreign subsidiaries which are consolidated for financialreporting are not eligible to be included in the consolidated U.S. income tax return. At this time, Cambrex intends to reinvest foreign earnings indefinitelyoutside of the U.S. and would only consider repatriations of cash from foreign subsidiaries if it could utilize fully valued domestic tax attributes to completelyoffset any tax expense that would otherwise result. Unrecognized foreign tax credits and fully valued foreign tax credit carryovers would be available to offsetany potential U.S. tax liability. Therefore, the Company has not provided U.S. federal income taxes or foreign withholding taxes on its undistributed earningsfrom foreign operations as of December 31, 2011. Determination of the amount of unrecognized deferred taxes related to these earnings is not practicablebecause of the complexities of the hypothetical calculation. Use of EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differ from those estimates.Environmental CostsThe Company is subject to extensive and changing federal, state, local and foreign environmental laws and regulations, and has made provisions forthe estimated financial impact of environmental cleanup related costs. The Company’s policy is to accrue environmental cleanup related costs of a non-capitalnature, including estimated litigation costs, when those costs are believed to be probable and can be reasonably estimated. The quantification of environmentalexposures requires an assessment of many factors, including changing laws and regulations, advancements in environmental technologies, the quality ofinformation available related to specific sites, the assessment stage of each site investigation, preliminary findings and the length of time involved inremediation or settlement. Such accruals are adjusted as further information develops or circumstances change. For certain matters, the Company expects toshare costs with other parties. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed certain. 47IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(2)Summary of Significant Accounting Policies (continued) Foreign CurrencyThe functional currency of the Company's foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies intoU.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts andcash flows using average rates of exchange prevailing during the year. Adjustments resulting from the translation of foreign currency financial statements areaccumulated in a separate component of stockholders' equity until the entity is sold or substantially liquidated. Gains or losses relating to transactions of along-term investment nature are accumulated in stockholders' equity. Gains or losses resulting from third-party foreign currency transactions are included inthe income statement as a component of other revenues in the consolidated income statement. Foreign currency net transaction losses were $62, $113 and$1,006 in 2011, 2010 and 2009, respectively.Earnings per Common ShareAll diluted earnings per share are computed on the basis of the weighted average shares of common stock outstanding plus common equivalent sharesarising from the effect of dilutive stock options and restricted stock units, using the treasury stock method.For the years ended December 31, 2011, 2010 and 2009, shares of 1,839,373, 1,866,270, and 2,106,556, respectively, were not included in thecalculation of diluted shares outstanding because the effect would be anti-dilutive.Comprehensive LossIncluded within accumulated other comprehensive loss for the Company are; foreign currency translation adjustments, changes in the fair value relatedto derivative instruments classified as cash flow hedges, net of related tax and changes in the pensions, net of tax. Total comprehensive loss for the yearsended December 31, 2011 and 2010 are included in the Statements of Stockholders’ Equity.The components of accumulated other comprehensive loss in stockholders’ equity are as follows: 2011 2010 Foreign currency translation $1,111 $8,612 Unrealized gain/(loss) on hedging contracts, net of tax 274 (65)Pensions, net of tax (32,972) (20,439)Total $(31,587) $(11,892) 48IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(3)Impact of Recently Issued Accounting PronouncementsFair Value MeasurementsIn January 2010, the Financial Accounting Standards Board (“FASB”) issued “Fair Value Measurements and Disclosures - Improving Disclosuresabout Fair Value Measurements.” This statement requires new disclosures and clarifies some existing disclosure requirements about fair valuemeasurement. Disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements are effective forfiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The effect of adopting this pronouncement did not have animpact on the Company’s financial position or results of operations.Revenue Recognition – Milestone MethodIn April 2010, the Emerging Issues Task Force issued “Revenue Recognition – Milestone Method.” This issue provides guidance on defining amilestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Thisissue is effective on a prospective basis for milestones achieved in fiscal years beginning after June 15, 2010. The adoption of this statement did not have amaterial impact on the Company’s financial position or results of operations.Comprehensive IncomeIn June 2011, the FASB issued “Comprehensive Income – Presentation of Comprehensive Income.” This statement gives companies two options forpresenting other comprehensive income (“OCI”), which currently is included as part of the statement of shareholders’ equity. An OCI statement can beincluded within the income statement, which together will make a statement of total comprehensive income. Alternatively, companies can have an OCIstatement separate from an income statement, but the two statements will have to appear consecutively within a financial report. This statement is effective forfiscal quarters and years beginning after December 15, 2011. The effect of adopting this statement will not have an impact on the Company’s financialposition or results of operations.Testing Goodwill for ImpairmentIn September 2011, the FASB issued “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” to simplify the goodwill impairmenttest. The change allows companies to first decide whether they need to do the two-step test by allowing companies to first assess qualitative factors todetermine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A business no longer has to calculate the fairvalue of a reporting unit unless it believes it is very likely that the unit’s fair value is less than the value carried on the balance sheet. This amendment alsoincludes examples of how the amended test should be carried out. This amendment is effective for annual and interim tests performed for fiscal yearsbeginning after December 15, 2011, although early adoption is permitted. The effect of adopting this statement is not expected to have an impact on theCompany’s financial position or results of operations. 49IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data) (4)Net InventoriesInventories are stated at the lower of cost, determined on a first-in, first-out basis, or market.Net inventories consist of the following: December 31, 2011 2010 Finished goods $26,885 $27,823 Work in process 19,190 17,852 Raw materials 11,261 12,183 Supplies 4,759 3,550 Total $62,095 $61,408 The components of inventory stated above are net of reserves of $11,243 and $12,310 as of December 31, 2011 and 2010, respectively.(5)Property, Plant and EquipmentProperty, plant and equipment consist of the following: December 31, 2011 2010 Land $4,147 $4,178 Buildings and improvements 89,587 90,165 Machinery and equipment 340,978 339,410 Furniture and fixtures 1,797 1,810 Construction in progress 8,190 6,432 Total 444,699 441,995 Accumulated depreciation (305,071) (291,512)Net $139,628 $150,483 Depreciation expense was $22,822, $21,632 and $20,501 for the years ended December 31, 2011, 2010 and 2009, respectively. Total capitalexpenditures in 2011 and 2010 were $15,008 and $12,637, respectively. 50IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(6)Goodwill and Intangible AssetsThe changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 are as follows:Balance as of January 1, 2010 $36,360 Acquisition of business 3,469 Translation effect (2,135)Balance as of December 31, 2010 37,694 Translation effect (963)Balance as of December 31, 2011 $36,731 Acquired intangible assets, which are amortized, consist of the following: As of December 31, 2011 AmortizationPeriod GrossCarrying Amount AccumulatedAmortization Net CarryingAmount Technology-based intangibles20 years $3,933 $(344) $3,589 Customer-related intangibles10 - 15 years 763 (91) 672 $4,696 $(435) $4,261 As of December 31, 2010 AmortizationPeriod GrossCarrying Amount AccumulatedAmortization Net CarryingAmount Technology-based intangibles20 years $4,062 $(153) $3,909 Customer-related intangibles10 - 15 years 828 (50) 778 $4,890 $(203) $4,687 The change in the gross carrying amount is primarily due to the impact of foreign currency.Amortization expense amounted to $298 and $196 for the years ended December 31, 2011 and 2010 and was immaterial for the year ended December31, 2009.Amortization expense related to current intangible assets is expected to be approximately $264 in each of the next five years. (7)Investment in Partially-Owned AffiliateThe Company owns 51% of the equity in Zenara Pharma (“Zenara”) and will purchase the remaining 49% in 2016 based upon a formula derivedfrom future EBITDA. Zenara is a pharmaceutical company focused on the formulation of final dosage form products based in India.Under current U.S. GAAP, the Company does not consolidate the results of Zenara as it does not meet the requirements of having control over theentity. The contractual arrangement includes substantial participating rights for the 49% interest holder. These rights were bargained for by the 49% interestholder to ensure that all significant transactions, as defined in the agreement, require a unanimous vote. Furthermore, the 49% minority owner will handle alldaily operations of the business including all aspects of employee relations at the site. Therefore, the Company accounts for this investment under the equitymethod of accounting. 51IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data) (7)Investment in Partially-Owned Affiliate (continued) The impact of its ownership stake in Zenara was a loss of $1,621 and $286 in 2011 and 2010 and is located within “Other expenses/(income)” as “Equity inlosses of partially-owned affiliate” in the Company’s income statement. These amounts include amortization expense of $1,106 and $185 in 2011 and 2010,respectively and depreciation expense of $149 and $25 in 2011 and 2010, respectively.(8)Accrued Expense and Other Current LiabilitiesThe components of accrued expenses and other current liabilities are as follows: December 31, 2011 2010 Salaries and employee benefits payable $17,650 $15,559 Taxes payable and related reserves 7,133 7,465 Deferred revenue 2,237 2,737 Restructuring and strategic alternatives 165 924 Other 10,748 6,818 Total $37,933 $33,503 (9)Income TaxesIncome/(loss) before income taxes consist of the following: December 31, 2011 2010 2009 Domestic $3,749 $1,199 $(1,272)International 16,188 13,775 23,917 Total $19,937 $14,974 $22,645 52IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(9)Income Taxes (continued) The provision for income taxes consist of the following provisions/(benefits): December 31, 2011 2010 2009 Current: Federal $(196) $(3) $(240)State 45 55 86 International 7,074 6,778 12,694 6,923 6,830 12,540 Deferred: Federal $204 $204 $204 International (925) (1,369) (491) (721) (1,165) (287)Total $6,202 $5,665 $12,253 The provision for income taxes differs from the statutory federal income tax rate of 35% for 2011, 2010 and 2009 as follows: December 31, 2011 2010 2009 Income tax provision at U.S federal statutory rate $6,978 $5,241 $7,926 State and local taxes, net of federal income tax benefits 14 17 30 Effect of foreign income taxed at rates other than the U.S. federal statutory rate 469 610 (962)Foreign income inclusions 8,398 13,869 - Tax credits (9,404) (12,447) (135)Indefinite-lived intangibles 204 204 204 Adjustments for prior years' taxes 242 (86) 5,006 Net change in valuation allowance (338) (1,799) 103 Other (361) 56 81 Total $6,202 $5,665 $12,253 Foreign income inclusions represent distributions from foreign subsidiaries which gave rise to newly recognized foreign tax credits. The Companyutilized fully valued foreign tax credits in 2011, and fully valued net operating loss (“NOL”) carryforwards and foreign tax credits in 2010, to completelyoffset any tax impact of the foreign income inclusions. 53IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(9)Income Taxes (continued)The components of deferred tax assets and liabilities as of December 31, 2011 and 2010 relate to temporary differences and carryforwards as follows: December 31, 2011 2010 Current deferred tax assets: Inventory $2,281 $2,569 Legal and related reserves 508 512 Other 120 179 Current deferred tax assets 2,909 3,260 Valuation allowances (1,991) (2,633)Total current deferred tax assets $918 $627 Current deferred tax liabilities: Other $856 $486 Total current deferred tax liabilities $856 $486 December 31, 2011 2010 Non-current deferred tax assets: Foreign tax credit carryforwards $50,936 $54,598 Environmental 1,549 1,854 Net capital loss carryforwards (domestic) 15 15 Net operating loss carryforwards (foreign) 996 1,544 Employee benefits 17,138 13,711 Restructuring 18 167 Research & experimentation tax credit carryforwards 1,630 1,214 Alternative minimum tax credit carryforwards 3,070 3,266 Property, plant and equipment 3,498 2,574 Other 3,817 2,526 Non-current deferred tax assets 82,667 81,469 Valuation allowances (75,580) (75,216)Total non-current deferred tax assets 7,087 6,253 Non-current deferred tax liabilities: Property, plant and equipment 7,960 8,025 Intangibles 9,209 9,315 Indefinite-lived intangibles 2,349 2,144 Foreign tax allocation reserve 3,812 4,662 Total non-current deferred tax liabilities $23,330 $24,146 Total net non-current deferred tax liabilities $16,243 $17,893 54IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(9)Income Taxes (continued)The Company establishes a valuation allowance against deferred tax assets when it is more likely than not that the Company will be unable to realizethose deferred tax assets in the future. Based on the Company’s history of earnings it has established a valuation allowance of $76,569 against its netdomestic deferred tax assets, excluding deferred tax liabilities on indefinite-lived intangibles, as of December 31, 2011. With respect to the Company’s foreigndeferred tax assets, the Company recorded a valuation allowance of $1,002 as of December 31, 2011.The Company expects to maintain a full valuation allowance against its net domestic, and certain foreign, deferred tax assets, subject to theconsideration of all prudent and feasible tax planning strategies, until such time as the Company attains an appropriate level of future domestic profitabilityand the Company is able to conclude that it is more likely than not that its domestic deferred tax assets are realizable.The domestic valuation allowance for the years ended December 31, 2011, 2010 and 2009 increased $304, decreased $3,891, and increased $1,168,respectively. The 2011 increase in the domestic valuation allowance was allocated as follows: The valuation allowance decreased $132 for domestic income incontinuing operations and increased by a net amount of $436 for deferred tax amounts, domestic gains and losses included in OCI and discontinuedoperations. The 2010 decrease in the domestic valuation allowance was allocated as follows: The valuation allowance decreased $1,874 for domestic income incontinuing operations and decreased by a net amount of $2,017 for deferred tax amounts, domestic gains and losses included in OCI and discontinuedoperations. The 2009 increase in the domestic valuation allowance was allocated as follows: The valuation allowance increased $130 for domestic losses andincreased by a net amount of $1,038 for deferred tax amounts and domestic gains and losses included in OCI.The foreign valuation allowance for the years ended December 31, 2011, 2010 and 2009 decreased $582, increased $1,372, and decreased $30,respectively. The 2011 decrease in the foreign valuation allowance was allocated as follows: The valuation allowance decreased $206 for foreign income anddecreased $376 for deferred tax amounts and currency translation adjustments included in OCI. The 2010 increase in the foreign valuation allowance wasallocated as follows: The valuation allowance increased $75 for foreign losses and increased $1,297 for deferred tax amounts and currency translationadjustments included in OCI. The 2009 decrease in the foreign valuation allowance was allocated as follows: The valuation allowance decreased $27 forforeign income and decreased $3 for deferred tax amounts and currency translation adjustments included in OCI.Under the tax laws of the various jurisdictions in which the Company operates, NOLs may be carried forward or back, subject to statutorylimitations, to reduce taxable income in future or prior years. The domestic federal NOLs and most of the domestic state NOLs were fully utilized during2010. The foreign NOLs were approximately $3,245, of which $2,905 are attributable to NOLs acquired during 2010. NOLs in most foreign jurisdictionswill carry forward indefinitely.As of December 31, 2011, $50,936 of domestic federal foreign tax credits, $1,630 of research & experimentation tax credits and $3,070 of alternativeminimum tax credits were available as credits against future U.S. income taxes on worldwide income, subject to certain limitations. Under the U.S. InternalRevenue Code, these will expire in 2012 through 2021, 2020 through 2031, and the alternative minimum tax credit carryforwards have no expiration date,respectively. All domestic tax credits are offset by a full valuation allowance. 55IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(9)Income Taxes (continued)In 2011 and 2010, the Company repatriated $25,332 and $31,306, respectively, of cash from its foreign subsidiaries to reduce its credit and currencyexposure for cash held at foreign banks by utilizing the excess cash for debt reduction, and also to make foreign acquisitions during 2010. The Companyutilized fully valued foreign tax credits in 2011, and fully valued NOLs and foreign tax credits in 2010, to completely offset any tax impact of the foreigninclusions. At this time, the Company intends to reinvest foreign earnings indefinitely outside of the U.S. and would only consider further repatriations ofcash from foreign subsidiaries if it could utilize fully valued domestic tax attributes to completely offset any tax expense that would otherwise result.Unrecognized foreign tax credits and fully valued foreign tax credit carryovers would be available to offset any potential U.S. tax liability. Therefore, theCompany has not provided U.S. federal income taxes or foreign withholding taxes on its undistributed earnings from foreign operations as of December 31,2011. Determination of the amount of unrecognized deferred taxes related to these earnings is not practicable because of the complexities of the hypotheticalcalculation.The following table summarizes the activity related to the Company’s unrecognized tax benefits as of December 31, 2011, 2010 and 2009: 2011 2010 2009 Balance at January 1 $4,085 $4,598 $1,697 Gross increases related to current period tax positions 317 236 133 Gross increases/(decreases) related to prior period tax positions 95 (303) 2,881 Expirations of statute of limitations for the assessment of taxes (38) (161) (193)Foreign currency translation (131) (285) 80 Balance at December 31 $4,328 $4,085 $4,598 Of the total balance of unrecognized tax benefits at December 31, 2011, $3,902, if recognized, would affect the effective tax rate.Gross interest and penalties at December 31, 2011, 2010 and 2009 of $3,427, $3,160 and $2,795, respectively, related to the above unrecognized taxbenefits are not reflected in the table above. In 2011, 2010 and 2009, the Company accrued $328, $343 and $2,529, respectively, of interest and penalties inthe income statement. Consistent with prior periods, the Company recognizes interest and penalties within its income tax provision.Tax years 2007 and forward in the U.S. are open to examination by the IRS. The Company is also subject to examinations in its non-U.S.jurisdictions for 2006 and later years.The Company is also subject to audits in various states for various years in which it has filed income tax returns. Previous state audits have resultedin immaterial adjustments. In the majority of states where the Company files, the Company is subject to examination for tax years 2007 and forward.In 2009, a subsidiary of the Company was examined by a European tax authority, who challenged the business purpose of the deductibility of certainintercompany transactions from 2003. In the fourth quarter of 2009, the tax authorities notified the Company that they disagreed with the Company’sresponses to the authority’s two formal assessments. In the first quarter of 2010, the Company filed an appeal to litigate the matter. The first court date relatedto this matter was held in June 2011. The court issued its ruling in favor of the Company in June, however, this ruling has been appealed by the taxauthorities and only applies to the smaller of the two assessments made by the authorities related to this matter. The Company still believes this dispute to bein the early stages of the judicial process since any ruling reached by any of the courts may be appealed, and as such the final date of resolution and outcomeof this matter are uncertain at this time. However, within the next twelve months it is possible that factors such as new developments, judgments orsettlements may require the Company to increase its reserve for unrecognized tax benefits by up to $8,000 or decrease its reserve by $5,300, including interestand penalties. If the court rules against the Company in subsequent court proceedings, a payment of between $6,000 and $9,000 including interest andpenalties will be due immediately while the case is appealed. The Company has analyzed these issues in accordance with guidance on uncertain tax positionsand believes at this time that its reserves are adequate, and intends to vigorously defend itself. In January 2012 the tax authorities commenced a generalexamination of the subsidiary’s 2008 tax return. No issues have been raised to date. 56IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(9)Income Taxes (continued) In the next twelve months, other than as noted above, the Company may increase its reserve for unrecognized tax benefits for intercompany transactionsand acquired tax attributes by approximately $450. This could affect the effective tax rate. (10)Long-term DebtIn November 2011, the Company entered into a $250,000 five-year Syndicated Senior Revolving Credit Facility (“Credit Facility”) which expires inNovember 2016. The Company pays interest on this Credit Facility at LIBOR plus 1.75% - 2.50% based upon certain financial measurements. The CreditFacility also includes financial covenants regarding interest coverage and leverage ratios. The Company was in compliance with all financial covenants atDecember 31, 2011. As of December 31, 2011, there was $98,000 outstanding on the Credit Facility. As of December 31, 2010, there was $115,900outstanding on the previous credit facility. The 2011 and 2010 weighted average interest rate for long-term bank debt was 1.6% and 3.3%, respectively.(11)Derivatives and Hedging ActivitiesThe Company operates internationally and is exposed to fluctuations in foreign exchange rates and interest rates in the normal course of business. TheCompany considers the use of derivative financial instruments to reduce exposure to market risks resulting from fluctuations in interest rates and foreignexchange rates.All financial instruments involve market and credit risks. The Company is exposed to credit losses in the event of non-performance by thecounterparties to the contracts. While there can be no assurance, the Company does not anticipate non-performance by these counterparties.Foreign Currency Forward ContractsThe Company enters into forward exchange contracts to hedge forecasted cash flows associated with foreign currency transaction exposures, as deemedappropriate. This hedging strategy mitigates some of the impact of short-term foreign exchange rate movements on the Company's operating results primarilyin Sweden and Italy. The Company's primary market risk relates to exposures to foreign currency exchange rate fluctuations on transactions entered into bythese international operations that are denominated primarily in U.S. dollars, Swedish krona and Euros.The Company's forward exchange contracts substantially offset gains and losses on the transactions being hedged. The forward exchange contractshave varying maturities with none exceeding twelve months.All forward contracts outstanding at December 31, 2011 have been designated as cash flow hedges and, accordingly, changes in the fair value of thesederivatives are not included in earnings but are included in accumulated other comprehensive (loss)/income (“AOCI”). Changes in the fair value of thederivative instruments reported in AOCI will be recorded into earnings as a component of product revenue or expense, as applicable, when the forecastedtransaction occurs. The ineffective portion of all hedges is recognized in current-period earnings and is immaterial to the Company's financial results. 57IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(11)Derivatives and Hedging Activities (continued)The notional amounts of foreign exchange forward contracts were $11,005 and $19,094 at December 31, 2011 and 2010, respectively.Included in AOCI is the fair value of the Company’s forward exchange contracts which is a gain of $380 and a loss of $101 as of December 31, 2011and 2010, respectively. These gains and losses are located under the captions “Prepaid expenses and other current assets” and “Accrued expenses and othercurrent liabilities” on the balance sheet as of December 31, 2011 and 2010, respectively.The Company recognized a pre-tax gain in other comprehensive loss from foreign exchange contracts of $481 in 2011. The Company reclassified apre-tax gain of $143 from AOCI into other revenue related to foreign exchange forward contracts in 2011. Assuming current market conditions continue, theentire amount recorded in AOCI related to foreign exchange forward contracts is expected to be recorded into other revenue within the next 12 months to reflectthe fixed prices obtained from the forward contracts.Interest Rate Swap AgreementsThe Company occasionally enters into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt. Swapagreements are contracts to exchange floating rate for fixed interest payments periodically over the life of the agreements without the exchange of the underlyingnotional debt amounts.The Company’s interest rate swaps matured in October 2010. As such, as of December 31, 2011 the Company did not have any interest rate swapsoutstanding.(12)Fair Value MeasurementsU.S. GAAP establishes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes theinputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs arequoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other thanquoted prices that are observable for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, orcorroborated by, observable market data through correlation; Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measureassets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that issignificant to the fair value measurement. 58IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(12) Fair Value Measurements (continued)The following tables provide the assets and liabilities carried at fair value, measured on a recurring basis, as of December 31, 2011 and 2010: Fair Value Measurements at December 31, 2011 using: Description Total Quoted Prices inActive MarketsforIdentical Assets(Level 1) SignifcantOtherObservableInputs(Level 2) SignificantUnobservable Inputs(Level 3) Foreign currency forwards, assets $380 $- $380 $- Total $380 $- $380 $- Fair Value Measurements at December 31, 2010 using: Description Total Quoted Prices inActive MarketsforIdentical Assets(Level 1) SignifcantOtherObservableInputs(Level 2) SignificantUnobservable Inputs(Level 3) Foreign currency forwards, liabilities $(101) $- $(101) $- Total $(101) $- $(101) $- The Company’s derivative assets and liabilities include foreign exchange forward contracts that are measured at fair value using observable marketinputs such as forward rates, the Company’s credit risk and its counterparties’ credit risks. Based on these inputs, the derivative assets and liabilities areclassified within Level 2 of the valuation hierarchy. Based on the Company’s continued ability to enter into forward contracts, the Company considers themarkets for its fair value instruments to be active.As of December 31, 2011, there had not been any significant impact to the fair value of the Company’s derivative liabilities due to its own creditrisk. Similarly, there had not been any significant adverse impact to the Company’s derivative assets based on the Company’s evaluation of itscounterparties’ credit risks.The Company’s financial instruments also include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. Thecarrying amount of these instruments approximates fair value because of their short-term nature. The carrying amount of the Credit Facility approximates fairvalue because the debt is based on current rates at which the Company could borrow funds with similar maturities.(13)Stockholders' EquityThe Company has two classes of common shares, Common Stock and Nonvoting Common Stock. Authorized shares of Common Stock were100,000,000 at December 31, 2011 and 2010. Authorized shares of Nonvoting Common Stock were 730,746 at December 31, 2011 and 2010. NonvotingCommon Stock with a par value of $0.10 has equal rights with Common Stock, with the exception of voting power. Nonvoting Common Stock isconvertible, share for share, into Common Stock, subject to any legal requirements applicable to holders restricting the extent to which they may own votingstock. As of December 31, 2011 and 2010, no shares of Nonvoting Common Stock were outstanding. The Company has authorized 5,000,000 shares ofSeries Preferred Stock, par value $.10, issuable in series and with rights, powers and preferences as may be fixed by the Board of Directors. At December 31,2011 and 2010, there was no preferred stock outstanding. 59IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(13)Stockholders' Equity (continued)The Company held treasury shares of 1,866,258 and 1,978,533 at December 31, 2011 and 2010, respectively, which are primarily used forissuance to employee compensation plans.At December 31, 2011 there were 588,180 authorized shares of Common Stock reserved for issuance through equity compensation plans.(14)Restructuring Expenses Consolidation of Domestic Research and Development ActivitiesIn December 2007, the Company consolidated its United States research and development (“R&D”) activities and small scale API production with itsfacility in Charles City, Iowa. The restructuring reserve at December 31, 2009 consisted of the remaining lease payments and related costs under theCompany’s current operating lease at the New Jersey R&D facility. The operating lease expired in December 2010. Costs related to this consolidation arerecorded as “Restructuring expenses” in the income statement.Restructuring of a Manufacturing SiteDuring the third quarter 2010, the Company finalized a plan to restructure its operations at a manufacturing site which resulted in a reduction inworkforce of 32 employees. The plan included certain one-time benefits for terminated employees, all of which will be paid in cash. Costs related to thistransaction are recorded as “Restructuring expenses” in the income statement.The following table reflects the activity related to the restructuring reserves for December 31, 2011: December 31,2009 2010 Activity December 31,2010 2011 Activity December 31,2011 ReserveBalance Expense CashPayments TranslationEffect ReserveBalance CashPayments TranslationEffect ReserveBalance Consolidation ofDomestic R&DActivities: Lease payments andrelated costs $1,473 $- $(1,473) $- $- $- $- $- Restructuring of aManufacturingFacility: One-time employeebenefits - 1,293 (423) 16 886 (728) 7 165 $1,473 $1,293 $(1,896) $16 $886 $(728) $7 $165 (15)Stock Based CompensationThe Company recognizes compensation costs for stock option awards to employees based on their grant-date fair value. The value of each stock optionis estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average fair value per share for the stock options granted toemployees for the years ended December 31, 2011, 2010 and 2009 were $3.18, $2.45 and $3.31, respectively.The following assumptions were used in determining the fair value of stock options for grants issued in 2011, 2010 and 2009: 2011 2010 2009 Expected volatility68.91%-71.53% 66.48%-68.13% 48.10%-65.11%Expected term4.75 years 4.75 years 4.75 yearsRisk-free interest rate1.02%-2.00% 1.25%-2.52% 2.38%-2.77% 60Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(15)Stock Based Compensation (continued)The Company does not have any publicly traded stock options; therefore, expected volatilities are based on historical volatility of the Company’sstock. The risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bond whose maturity period approximates the option’s expectedterm. The expected term was utilized based on the “simplified” method for determining the expected term of stock options in Staff Accounting Bulletin(“SAB”) No. 107, “Share-Based Payment.” The Company also considered SAB No. 110 when determining the expected term of stock options.For 2011, 2010, and 2009, the Company recorded $1,028, $1,072 and $648, respectively, in selling, general and administrative expenses for stockoptions. As of December 31, 2011, the total compensation cost related to unvested stock option awards granted to employees but not yet recognized was$2,943. The cost will be amortized on a straight-line basis over the remaining weighted-average vesting period of 2.7 years.Cambrex senior executives, until 2010, participated in an executive incentive plan which rewarded achievement with restricted stock units. Awardswere made annually if certain targets were met and vested in one-third increments on the first, second and third annual anniversaries of the grant. On the thirdanniversary of the grant, restrictions on sale or transfer are removed and shares are issued to executives. In the event of termination of employment orretirement, the participant is entitled to the vested portion of the restricted stock units and forfeits the remaining amount; the three-year sale and transferrestriction remains in place. For certain employees with employment contracts, all shares vest upon certain events, including a change in control. In the eventof death or permanent disability, all shares vest and the deferred sales restriction lapses. These awards are classified as equity awards.For 2011, 2010, and 2009, the Company recorded $497, $645, and $658, respectively, in selling, general and administrative expenses for restrictedstock. As of December 31, 2011, the total compensation cost related to unvested restricted stock granted but not yet recognized was $177. The cost will beamortized on a straight-line basis over the remaining weighted-average vesting period of 1.1 years. In May 2008, the Company granted a target award of 43,000 performance shares, with a potential award of up to 86,000 shares to the currentCEO. These performance shares were dependent upon the Company’s performance measured against certain financial metrics over a three year period endingJune 30, 2011, as compared to an external peer group. The Company issued 53,750 shares under this award in 2011 and recognized expense related to theseshares over the vesting period, based upon measurement against the financial metrics. For 2011, 2010 and 2009, the Company recorded $40, $157 and$69, respectively, in selling, general and administrative expense related to these performance shares. 61IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(15)Stock Based Compensation (continued)The following table is a summary of the Company’s stock option activity issued to employees and related information: Weighted Average Number ofShares Exercise Price OptionsExercisable Outstanding at December 31, 2009 2,020,369 $11.27 886,579 Granted 228,000 4.38 Forfeited or expired (394,576) 24.97 Outstanding at December 31, 2010 1,853,793 7.51 863,623 Granted 586,000 5.55 Exercised (31,500) 4.61 Forfeited or expired (118,420) 14.80 Outstanding at December 31, 2011 2,289,873 6.67 Exercisable at December 31, 2011 $8.01 1,122,122 The aggregate intrinsic value for all stock options exercised for the years ended December 31, 2011 was $70 and for each of 2010 and 2009 wasnegligible. The aggregate intrinsic value for all stock options outstanding as of December 31, 2011 was $3,735. The aggregate intrinsic value for all stockoptions exercisable as of December 31, 2011 was $1,626.A summary of the Company’s nonvested stock options and restricted stock activity is presented below: Nonvested Stock Options Nonvested Restricted Stock Number ofShares Weighted-AverageGrant-DateFair Value Number ofShares Weighted-AverageGrant-DateFair Value Nonvested at December 31, 2009 1,133,790 $2.67 90,686 $11.43 Granted 228,000 2.45 125,428 5.18 Vested during period (340,421) 2.77 (109,990) 9.32 Forfeited (31,199) 2.87 (800) 13.75 Nonvested at December 31, 2010 990,170 2.57 105,324 6.17 Granted 586,000 3.18 61,072 5.24 Vested during period (370,919) 2.51 (107,497) 5.99 Forfeited (37,500) 2.89 - - Nonvested at December 31, 2011 1,167,751 $2.89 58,899 $5.54 62IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(16)Retirement Plans and Other Postretirement BenefitsDomestic Pension PlanThe Company maintains a defined-benefit pension plan (“Domestic Pension Plan”) for certain salaried and certain hourly employees. Benefits arebased on salary and years of service or negotiated benefits for employees covered by a collective bargaining agreement. The Company's policy is to fundpension costs to the full extent required by the Internal Revenue Code. The Company also has a Supplemental Executive Retirement Plan (“SERP”) for keyexecutives. This plan is non-qualified and unfunded. These plans were frozen as of August 31, 2007 and no additional accrual will be granted forparticipants after this date. In July 2008, the Board of Directors of the Company amended the SERP to allow for lump sum payments effective January 1,2009. The lump sum value as of January 1, 2009 will be paid in 10 equal actuarial equivalent installments.International Pension PlansA foreign subsidiary of the Company maintains a pension plan (“International Pension Plan”) for its employees that conforms to the common practicein that country. Based on local laws and customs, this plan is unfunded. Other Postretirement BenefitsCambrex previously provided limited post-retirement health and life insurance benefits ("postretirement benefits") to all eligible retiredemployees. Certain subsidiaries and all employees hired after December 31, 2002 (excluding those covered by collective bargaining) were not eligible for thesebenefits. Effective December 31, 2009, the Company terminated these postretirement benefits for all participants resulting in a benefit of approximately$1,200 in 2009.Savings PlanCambrex makes available to all domestic employees a savings plan. Employee contributions are matched in part by Cambrex. The cost of this planamounted to $604, $649 and $631 in 2011, 2010 and 2009, respectively.OtherThe Company has a non-qualified Deferred Compensation Plan for Key Executives (“The Plan”). Under this Plan, officers and key employees mayelect to defer all or any portion of their pre-tax earnings or elect to defer receipt of the Company’s stock which would otherwise have been issued upon theexercise of the Company’s options. Included within other liabilities at December 31, 2011 and 2010 there is $1,230 and $2,420, respectively, representing theCompany’s obligation under the plan. The Company invests in certain mutual funds and as such, included within other assets at December 31, 2011 and2010 is $1,230 and $2,420, respectively, representing the fair value of these funds. The fair values of these mutual funds are based on quoted market pricesin active markets (Level 1). The number of Cambrex shares held in trust under this plan as of December 31, 2011 and 2010 were 49,121 and 113,513,respectively, and are included as a reduction of equity. The value of the shares held in trust and the corresponding liability of $353 and $587 at December31, 2011 and 2010, respectively, have also been recorded in equity. The Plan is not funded by the Company, but the Company has established a DeferredCompensation Trust Fund which holds the shares issued. Effective December 2011 the Board of Directors suspended employee contributions to this Plan. 63IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(16)Retirement Plans and Other Postretirement Benefits (continued)The benefit obligations as of December 31, 2011 and 2010 are as follows: Pension Plans Domestic SERP International 2011 2010 2011 2010 2011 2010 Change in benefit obligation Benefit obligation, beginning of year $66,268 $61,086 $5,139 $5,538 $20,877 $18,491 Service cost - - - - 611 577 Interest cost 3,462 3,519 150 200 944 857 Actuarial loss 8,904 4,955 90 121 2,034 91 Benefits paid (3,204) (3,292) (1,226) (720) (744) (532)Unrecognized prior service costs - - - - 183 Currency translation affect - - - - (702) 1,210 Benefit obligation, end of year $75,430 $66,268 $4,153 $5,139 $23,020 $20,877 The plan assets and funded status of the Domestic Pension Plan as of December 31, 2011 and 2010 are as follows: 2011 2010 Change in plan assets Fair value of plan assets, beginning of period $47,323 $43,222 Actual return on plan assets 619 5,684 Contributions 4,366 1,709 Benefits paid (3,204) (3,292)Fair value of plan assets, end of period $49,104 $47,323 Unfunded status (26,326) (18,945)Accrued benefit cost, end of period $(26,326) $(18,945) The unfunded status of the SERP was ($4,153) and ($5,139) as of December 31, 2011 and 2010, respectively. The unfunded status of theInternational Pension Plan was ($23,020) and ($20,877) as of December 31, 2011 and 2010, respectively.The amounts recognized in AOCI as of December 31, 2011 and 2010 consist of the following: Pension Plans Domestic SERP International 2011 2010 2011 2010 2011 2010 Actuarial loss $31,083 $19,469 $946 $904 $5,658 $3,806 Prior service cost/(benefit) 60 496 344 402 (38) (45) $31,143 $19,965 $1,290 $1,306 $5,620 $3,761 64IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(16)Retirement Plans and Other Postretirement Benefits (continued) The components of net periodic benefit cost are as follows: Pension Plans Domestic SERP International Postretirement Plans 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009 Components of net periodicbenefit cost Service cost $- $- $- $- $- $- $611 $577 $533 $- $- $26 Interest cost 3,462 3,519 3,427 150 200 279 944 857 747 - - 110 Expected return on planassets (3,787) (3,177) (2,924) - - - - - - - - - Amortization of priorservice cost/(benefit) 436 436 625 57 57 57 (7) 176 (6) - - (156)Recognized actuarial loss 458 429 355 49 33 - 111 102 130 - - 52 Curtailments - - - - - - - - - - - (1,178)Net periodic benefit cost $569 $1,207 $1,483 $256 $290 $336 $1,659 $1,712 $1,404 $- $- $(1,146) The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2012 are as follows: Pension Plans Domestic SERP International Actuarial loss $794 $76 $197 Prior service cost/(benefit) 60 57 (7)Total $854 $133 $190 Major assumptions used in determining the benefit obligations are presented in the following table: 2011 2010 Discount rate: Domestic Pension Plan 4.45% 5.35%SERP 2.40% 3.40%International Pension Plan 4.40% 4.70% Rate of compensation increase: International Pension Plan 2.80% 3.00%Major assumptions used in determining the net benefit cost are presented in the following table: 2011 2010 2009 Discount rate: Domestic Pension Plan 5.35% 5.90% 6.00%SERP 3.40% 4.15% 5.60%International Pension Plan 4.40% 4.70% 4.70%Postretirement Plan N/A N/A 6.00% Expected return on plan assets: Domestic Pension Plan 7.50% 7.50% 8.00% Rate of compensation increase: International Pension Plan 2.80% 3.00% 3.00% 65IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(16)Retirement Plans and Other Postretirement Benefits (continued) In making its assumption for the long-term rate of return on plan assets, the Company has utilized historical rates earned on securities allocatedconsistently with its investments. The discount rate was selected by projecting cash flows associated with plan obligations, which were matched to a yieldcurve of high quality corporate bonds. The Company then selected the single rate that produced the same present value as if each cash flow were discountedby the corresponding spot rate on the yield curve.The aggregate Accumulated Benefit Obligation (“ABO”) of $75,430 exceeds plan assets by $26,326 as of December 31, 2011 for the DomesticPension Plan. The aggregate ABO is $22,326 for the International Pension Plan as of December 31, 2011. The International Pension Plan is unfunded.The Company expects to contribute approximately $3,000 in cash to the Domestic Pension Plan in 2012. The Company does not expect to contributecash to its International Pension Plan in 2012.The following benefit payments are expected to be paid out of the plans: Pension Plans Domestic SERP International 2012 $3,292 $636 $822 2013 $3,259 $636 $721 2014 $3,491 $636 $739 2015 $3,502 $636 $744 2016 $3,497 $636 $746 2017-2021 $19,649 $1,272 $4,576 The investment objective for the Domestic Pension Plan’s assets is to achieve long-term growth with exposure to risk at an appropriate level. TheCompany invests in a diversified asset mix consisting of equities (domestic and international) and taxable fixed income securities. Assets are managed toobtain the highest total rate of return in keeping with a moderate level of risk. The target allocations for plan assets are 30% - 80% equity securities, 25% -45% U.S. fixed income and 0% - 10% all other investments. Equity securities primarily include investments in large-cap and small-cap companies, U.S.Fixed income securities include high quality corporate bonds and U.S. government securities. Other types of investments include real asset funds, consistingprimarily of investments in commodities, and Treasury Inflation-Protected Securities (“TIPS”).The fair values of the Company’s pension plan assets by asset category are as follows: Fair Value Measurements at December 31, 2011using: Asset Category Total Quoted Prices inActiveMarkets forIdentical Assets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Equity securities: U.S. companies $17,403 $- $17,403 $- International companies 9,481 - 9,481 - U.S. fixed income 16,136 - 14,036 2,100 Commodities 3,756 - 3,756 - TIPS 2,328 - 2,328 - $49,104 $- $47,004 $2,100 66IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(16)Retirement Plans and Other Postretirement Benefits (continued)The following table sets forth a summary of the changes in the fair value of the Domestic Plan’s Level 3 assets, which are annuity contracts with aninsurance company, for the year ended December 31, 2011: GroupAnnuityContract Balance at December 31, 2010 $2,027 Actual return on plan assets: Relating to assets still held at the reporting date 126 Purchases, issuances, and settlements (53)Balance at December 31, 2011 $2,100 (17)Foreign Operations and SalesThe following summarized data represents the gross sales and long lived tangible assets for the Company’s domestic and foreign entities for 2011, 2010and 2009: Domestic Foreign Total 2011 Gross sales $83,407 $171,068 $254,475 Long-lived assets 34,885 145,735 180,620 2010 Gross sales $71,363 $155,073 $226,436 Long-lived assets 36,691 156,173 192,864 2009 Gross sales $84,518 $151,759 $236,277 Long-lived assets 39,227 158,282 197,509 Export sales, included in domestic gross sales, in 2011, 2010 and 2009 amounted to $31,605, $18,529, and $25,768, respectively.Sales to geographic area consist of the following: 2011 2010 2009 Europe $156,814 $127,009 $136,534 North America 75,979 78,497 80,830 Asia 10,448 12,554 10,495 Other 11,234 8,376 8,418 Total $254,475 $226,436 $236,277 67IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(17)Foreign Operations and Sales (continued)This table summarizes gross sales by product groups: 2011 2010 2009 APIs and pharmaceutical intermediates $229,319 $203,807 $212,644 Other 25,156 22,629 23,633 Total $254,475 $226,436 $236,277 One customer, Gyma, a distributor representing multiple customers, accounted for 10.8%, 12.8% and 11.5% of consolidated gross sales for 2011, 2010 and2009, respectively.(18)CommitmentsThe Company has operating leases expiring on various dates through the year 2019. The leases are primarily for the rental of office space, office andlaboratory equipment and vehicles. At December 31, 2011, future minimum commitments under non-cancelable operating lease arrangements were as follows:Year ended December 31: 2012 $815 2013 715 2014 650 2015 614 2016 489 2017 and thereafter 954 Total commitments $4,237 Total operating lease expense was $644, $2,027 and $1,978 for the years ended December 31, 2011, 2010 and 2009, respectively.The Company is party to several unconditional purchase obligations resulting from contracts that contain legally binding provisions with respect toquantities, pricing and timing of purchases. The Company’s purchase obligations mainly include commitments to purchase utilities. At December 31, 2011,future commitments under these obligations were as follows:Year ended December 31: 2012 $1,487 2013 540 2014 32 2015 - 2016 - Total commitments $2,059 68IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(19)ContingenciesThe Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of itsbusiness activities. The Company continually assesses all known facts and circumstances as they pertain to all legal and environmental matters andevaluates the need for reserves and disclosures as deemed necessary based on these facts and circumstances. These matters, either individually or in theaggregate, could have a material adverse effect on the Company's financial condition, operating results and cash flows in a future reporting period. EnvironmentalIn connection with laws and regulations pertaining to the protection of the environment, the Company and its subsidiaries are a party to severalenvironmental proceedings and remediation investigations and cleanups and, along with other companies, have been named a potentially responsible party(“PRP”) for certain waste disposal sites ("Superfund sites"). Additionally, the Company has retained the liability for certain environmental proceedingsassociated with discontinued operations.It is the Company’s policy to record appropriate liabilities for environmental matters where remedial efforts are probable and the costs can be reasonablyestimated. Such liabilities are based on the Company’s best estimate of the undiscounted future costs required to complete the remedial work. Each of thesematters is subject to various uncertainties, and it is possible that some of these matters will be decided unfavorably against the Company. The resolution ofsuch matters often spans several years and frequently involves regulatory oversight or adjudication. Additionally, many remediation requirements are fluidand are likely to be affected by future technological, site and regulatory developments. Consequently, the ultimate liability with respect to such matters, aswell as the timing of cash disbursements cannot be determined with certainty.In matters where the Company has been able to reasonably estimate its liability, the Company has accrued for the estimated costs associated with thestudy and remediation of applicable sites not owned by the Company and the Company's current and former operating sites. These reserves were $7,786 and$7,017 at December 31, 2011 and 2010, respectively. The increase in the reserve includes adjustments to reserves of $2,930 partially offset by payments of$2,112 and the impact of currency translation of $49. The reserves are adjusted periodically as remediation efforts progress or as additional technical,regulatory or legal information become available. Based upon available information and analysis, the Company's current reserve represents management's bestestimate of the probable and estimable costs associated with environmental proceedings including amounts for investigation fees where full remediation costsmay not be estimable at the reporting date. Given the uncertainties regarding the status of laws, regulations, enforcement, policies, the impact of other PRPs,technology and information related to individual sites, the Company does not believe it is possible to currently develop an estimate of the range of reasonablypossible environmental loss in excess of its reserves. 69IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(19)Contingencies (continued)CasChemAs a result of the sale of the Bayonne, New Jersey facility, the Company became obligated to investigate site conditions and conduct requiredremediation under the New Jersey Industrial Site Recovery Act. The Company intends to implement a sampling plan at the property in 2012 pursuant to theNew Jersey Department of Environmental Protection’s (“NJDEP”) private oversight program. The results of the completed sampling, and any additionalsampling deemed necessary, will be used to develop an estimate of the Company's future liability for remediation costs, if any. CosanIn response to the NJDEP, the Company completed its initial investigation and submitted the results of the investigation and a proposed remediationplan to the NJDEP for its Cosan Clifton, New Jersey site. The NJDEP subsequently rejected the remediation plan and requested additional investigative workat the site and that work is on-going. The reserve was $1,013 at December 31, 2011 which was based on the initial remedial action plan. The results of theadditional investigative work may impact the remediation plan and costs.Additionally, the Company has a reserve of $870 for the Cosan Carlstadt, New Jersey site based on the investigations completed to date and theproposed remediation plan submitted to the NJDEP for its approval. The NJDEP has subsequently required the Company to perform additional investigativework prior to approval of the remediation plan. The results of this additional investigative work may impact the remediation plan and costs. The NJDEP hasadvised the Company that the site will be placed in the NJDEP’s private oversight program. Under the program, the Company will be required to implement aremediation plan in 2012.Berry’s CreekThe Company received a notice from the United States Environmental Protection Agency (“USEPA”) that two former subsidiaries of the Company areconsidered PRPs at the Berry’s Creek Study Area in New Jersey. These subsidiaries are among many other PRPs that were listed in the notice. Pursuant to thenotice, the PRPs have been asked to perform a remedial investigation and feasibility study of the Berry’s Creek site. The Company has joined the group ofPRPs and entered into an Administrative Settlement Agreement and Order on Consent with the USEPA agreeing to jointly conduct or fund an appropriateremedial investigation and feasibility study of the Berry’s Creek site with other PRP signatories to the Agreement. The PRPs have engaged consultants toperform the work specified in the Agreement and develop a method to allocate related costs among the PRPs. As of December 31, 2011, the Company’s reservewas $288, which includes $250 of additional expense recorded in discontinued operations in 2011, to cover the current phase of investigation based on atentative agreement on the allocation of the site investigation costs among the PRPs. The investigation is ongoing and at this time it is too early to predict theextent of any additional liabilities. Maybrook and Harriman SitesThe Company’s Nepera, Inc. subsidiary (“Nepera”) is named a PRP of the Maybrook site in Hamptonburgh, New York by the USEPA in connectionwith the discharge, under appropriate permits, of wastewater at that site prior to Cambrex's acquisition of Nepera in 1986. The USEPA also issued theCompany a Notice of Potential Liability and the Company signed a consent decree to complete the Record of Decision (“ROD”) and has provided the USEPAwith appropriate financial assurance to guarantee the obligation under the consent decree. The PRPs began to implement remedial action at this site in the thirdquarter of 2011 and during the course of the remediation the Company became aware of unexpected additional requirements and scope of the remediationwork. Consequently, the Company recorded an expense of $2,200 to discontinued operations. The Company’s reserve for completing this project is $2,625,which it expects to complete in 2012. 70Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(19)Contingencies (continued)Nepera is also named a responsible party of its former Harriman, New York production facility by the New York State Department of EnvironmentalConservation (“NYSDEC”). A final ROD was issued that describes the remediation plan for the site. Implementation of the ROD is on-going. In December2010, the NYSDEC notified the PRPs and the current owners of the property that they intended to combine the investigation and remediation being conductedby various parties pursuant to different regulatory programs under one regulatory plan. This development could potentially lead to increased liabilities for theCompany. There are on-going discussions between the NYSDEC and all parties to try to resolve this matter. As of December 31, 2011, the reserve recordedby the Company for the Nepera Harriman site was $425 which represents the Company’s best estimate to complete the ROD.Scientific Chemical Processing (“SCP”) Superfund SiteNepera was named a PRP of the SCP Superfund site, located in Carlstadt, New Jersey, in the early 1980’s along with approximately 130 otherPRPs. The site is a former waste processing facility that accepted various waste for recovery and disposal including processing wastewater from Nepera. ThePRPs are in the process of implementing a final remedy for soil and groundwater contamination at the site. The SCP Superfund site has also been identified asa PRP in the Berry’s Creek Superfund site (see previous discussion). For over a decade, the remediation has been funded by de minimus settlements and bythe insurers of the SCP Superfund site’s owners and operators. However, due to an unexpected increase in remediation costs at the site and costs to contributeto the Berry’s Creek investigation, the PRP group has recently approved the assessment of an additional cash contribution by the PRP group. While theCompany disputes the methodology used by the PRP group to arrive at its allocation for the cash contribution, the Company has paid the initial fundingrequests.Newark Bay Complex LitigationCasChem and Cosan have been named as two of several hundred third-party defendants in a third-party complaint filed in February 2009, by MaxusEnergy Corporation (“Maxus”) and Tierra Solutions, Inc. (“Tierra”). The original plaintiffs include the NJDEP, the Commissioner of the NJDEP and theAdministrator of the New Jersey Spill Compensation Fund, which originally filed suit in 2005 against Maxus, Tierra and other defendants seeking recoveryof cleanup and removal costs for alleged discharges of dioxin and other hazardous substances into the Passaic River, Newark Bay, Hackensack River, ArthurKill, Kill Van Kull and adjacent waters (the “Newark Bay Complex”). Maxus and Tierra are now seeking contributions from third-party defendants,including subsidiaries of the Company, for cleanup and removal costs for which each may be held liable in the primary lawsuit. Maxus and Tierra also seekrecovery for cleanup and removal costs that each has incurred or will incur relating to the Newark Bay Complex. The Company expects to vigorously defendagainst the lawsuit. At this time it is too early to predict whether the Company will have any liability in this matter.The Company is involved in other environmental matters where the range of liability is not reasonably estimable at this time and it is not foreseeablewhen information will become available to provide a basis for adjusting or recording a reserve, should a reserve ultimately be required.Litigation and Other MattersLorazepam and ClorazepateIn 1998, the Company and a subsidiary were named as defendants along with Mylan Laboratories, Inc. (“Mylan”) and Gyma Laboratories, Inc.(“Gyma”) in a proceeding instituted by the Federal Trade Commission in the United States District Court for the District of Columbia (the “DistrictCourt”). Suits were also commenced by several State Attorneys General and class action complaints by private plaintiffs in various state courts. The suitsalleged violations of the Federal Trade Commission Act arising from exclusive license agreements between the Company and Mylan covering two APIs(Lorazepam and Clorazepate). 71IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(19)Contingencies (continued) All cases have been resolved except for one brought by four health care insurers. In the remaining case, the District Court entered judgment after trial in2008 against Mylan, Gyma and Cambrex in the total amount of $19,200, payable jointly and severally, and also a punitive damage award against eachdefendant in the amount of $16,709. In addition, the District Court ruled that the defendants were subject to a total of approximately $7,500 in prejudgmentinterest. Several motions are currently pending in connection with the defendant's appeal of the judgment. In 2003, Cambrex paid $12,415 to Mylan in exchange for a release and full indemnity against future costs or liabilities in related litigation brought bythe purchasers of Lorazepam and Clorazepate, as well as potential future claims related to the ongoing matter. Mylan has submitted a surety bondunderwritten by a third-party insurance company in the amount of $74,500. In the event of a final settlement or final judgment, Cambrex expects any paymentrequired by the Company to be made by Mylan under the indemnity described above.OtherThe Company has commitments incident to the ordinary course of business including corporate guarantees of certain subsidiary obligations to theCompany’s lenders related to financial assurance obligations under certain environmental laws for remediation; closure and third party liability requirementsof certain of its subsidiaries and a former operating location; contract provisions for indemnification protecting its customers and suppliers against third partyliability for the manufacture and sale of Company products that fail to meet product warranties and contract provisions for indemnification protectinglicensees against intellectual property infringement related to licensed Company technology or processes.Additionally, as permitted under Delaware law, the Company indemnifies its officers, directors and employees for certain events or occurrences whilethe officer, director or employee is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer's,director's or employee’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnificationagreements is unlimited; however, the Company has a director and officer insurance policy that covers a portion of any potential exposure. The Companycurrently believes the estimated fair value of its indemnification agreements is not material based on currently available information, and as such, theCompany had no liabilities recorded for these agreements as of December 31, 2011.Cambrex's subsidiaries are party to a number of other proceedings that are not considered material at this time. 72IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(20)Discontinued OperationsFor 2011, the Company recorded pre-tax charges of $2,851 for environmental remediation, net of insurance proceeds related to sites of divestedbusinesses as discontinued operations. For 2010, the Company recorded a benefit of $1,652 as a result of the expiration of a contingent liability, pre-taxcharges of $1,144 for environmental remediation, net of insurance proceeds, and $170 for a workers’ compensation claim, all related to sites of divestedbusinesses as discontinued operations. 73IndexCAMBREX CORPORATION AND SUBSIDIARIESSELECTED QUARTERLY FINANCIAL AND SUPPLEMENTARY DATA - UNAUDITED(in thousands, except share and per share data) 1st 2nd 3rd 4th Quarter (1) Quarter Quarter (2) Quarter (3) 2011 Gross sales $61,654 $67,484 $58,203 $67,134 Net revenues 60,585 68,382 59,155 67,531 Gross profit 17,455 19,057 17,829 19,743 Income from continuing operations 2,855 4,757 3,094 3,029 Loss from discontinued operations (146) - (333) (2,288)Net income 2,709 4,757 2,761 741 Earnings per share of common stock:(7) Basic 0.09 0.16 0.09 0.03 Diluted 0.09 0.16 0.09 0.02 Average shares: Basic 29,448 29,419 29,483 29,520 Diluted 29,518 29,493 29,528 29,711 1st 2nd 3rd 4th Quarter Quarter (4) Quarter (5) Quarter (6) 2010 Gross sales $56,155 $57,403 $49,356 $63,522 Net revenues 56,093 58,217 47,774 64,908 Gross profit 14,493 17,933 14,110 20,330 Income/(loss) from continuing operations 1,683 3,666 (1,284) 5,244 Income/(loss) from discontinued operations - 1,105 (170) (597)Net income/(loss) 1,683 4,771 (1,454) 4,647 Earnings/(loss) per share of common stock:(7) Basic 0.06 0.16 (0.05) 0.16 Diluted 0.06 0.16 (0.05) 0.16 Average shares: Basic 29,315 29,333 29,373 29,420 Diluted 29,374 29,404 29,373 29,489 (1)Discontinued operations includes pre-tax charges of $176 for environmental remediation related to sites of divested businesses.(2)Discontinued operations includes pre-tax charges of $333 for environmental remediation, net of insurance, related to sites of divested businesses.(3)Discontinued operations includes pre-tax charges of $2,342 for environmental remediation related to sites of divested businesses.(4)Discontinued operations includes a benefit of $1,652 as a result of the expiration of a contingent liability and charges of $547 for environmentalremediation, both related to sites of divested businesses.(5)Income from continuing operations includes pre-tax charges of $1,187 within operating expenses for certain one-time employee benefits relating to the planto optimize operations at a manufacturing site, and $711 within operating expenses for merger and acquisition expenses. Discontinued operationsincludes a charge of $170 for a worker's compensation claim related to a site of a divested business.(6)Income from continuing operations includes pre-tax charges of $106 within operating expenses for certain one-time employee benefits relating to the plan tooptimize operations at a manufacturing site, $211 within operating expenses for merger and acquisition expenses and $509 within other expenses forcurrency losses pursuant to the purchase of Zenara. Discontinued operations include a charge of $597 for environmental remediation, net of insurance,related to sites of a divested business.(7)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 sumof the quarters may not necessarily equal the earnings per share amount for the year. 74Index Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None. Item 9AControls and Procedures.Conclusion Regarding the Effectiveness of Disclosure Controls and ProceduresThe Company maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed toensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is processed, recorded, summarized and reportedwithin the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management,including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. Indesigning and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluatingthe cost-benefit relationship of possible controls and procedures. As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of management,including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosurecontrols and procedures as of the end of the period covered by this Annual Report. Based on this evaluation, our Chief Executive Officer and Chief FinancialOfficer have concluded that as of December 31, 2011, our disclosure controls and procedures are effective to ensure that information required to be disclosedby us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in theSEC’s rules and forms and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.Management's Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States, and include thosepolicies and procedures that: ·Pertain to the maintenance of records, that in reasonable detail, accurately and fairly represent the transactions and dispositions of the assetsof the Company, ·Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations ofmanagement and the Board of Directors of the Company, and ·Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assetsthat could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. 75IndexUnder the supervision and with the participation of our management, including our principal executive officer and principal financial officer, wecarried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011 based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Our management concluded thatbased on its assessment, our internal control over financial reporting was effective as of December 31, 2011. Effectiveness of our internal control overfinancial reporting as of December 31, 2011 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their reportwhich appears elsewhere herein.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of ExchangeAct Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internalcontrol over financial reporting.Item 9BOther Information.None. 76IndexPART IIIItem 10Directors, Executive Officers and Corporate Governance.Executive Officers of the RegistrantThe following table lists the officers of the Company: NameAgeOffice Steven M. Klosk (i) (ii)54President, Chief Executive Officer Shawn P. Cavanagh (i) (ii)45Executive Vice President & Chief Operating Officer James G. Farrell (ii)45Vice President and Corporate Controller William M. Haskel (i) (ii)50Senior Vice President, General Counsel, Corporate Secretaryand Chief Compliance Officer Paolo Russolo (i)67President, Cambrex Profarmaco Milano Gregory P. Sargen (i) (ii)46Executive Vice President & Chief Financial Officer (i) Executive Officer (ii) Corporate OfficerThe Company's corporate officers are appointed by the Board of Directors and serve at the Board's discretion.Mr. Klosk joined Cambrex in October 1992 and has served as President and Chief Executive Officer since May 2008. He also became a member ofthe Board of Directors in May 2008. Mr. Klosk joined the Company as Vice President, Administration. He was appointed Executive Vice President,Administration in October 1996 and was promoted to the position of Executive Vice President, Administration and Chief Operating Officer for the CambrexPharma and Biopharmaceutical Business Unit in October 2003. In January 2005, Mr. Klosk assumed direct responsibility for the leadership of theBiopharmaceutical Business Unit as Chief Operating Officer. In August 2006, Mr. Klosk assumed the responsibility of the Pharma business as ExecutiveVice President and Chief Operating Officer – Biopharma & Pharma and in February 2007 was appointed to Executive Vice President, Chief Operating Officer& President, Pharmaceutical Products and Services. From 1988 until he joined Cambrex, Mr. Klosk was Vice President, Administration and CorporateSecretary for The Genlyte Group, Inc. From 1985 to 1988, he was Vice President, Administration for Lightolier, Inc., a subsidiary of The Genlyte Group,Inc.Mr. Cavanagh joined Cambrex in January 2011 and currently serves as Executive Vice President and Chief Operating Officer. From 2007 to 2009 Mr.Cavanagh was with Lonza, which purchased Cambrex Bioproducts, most recently as President of Lonza Bioscience. From 1999 to 2007, Mr. Cavanaghwas with Cambrex Bioproducts. While at Cambrex Bioproducts, Mr. Cavanaugh held several positions including President of Cambrex Bioproducts. Priorto joining Cambrex Bioproducts, Mr. Cavanagh held various management and engineering positions with FMC Corporation.Mr. Farrell joined Cambrex in September 2005 as Corporate Controller. He has served as Vice President and Corporate Controller since July 2007,except for a portion of 2008 when Mr. Farrell was employed by PDI, Inc. as Vice President and Corporate Controller/Interim Chief Financial Officer. From1994 until 2005, he was with Ingersoll-Rand Company, most recently as Director, Accounting Policy, Procedures and External Reporting. Mr. Farrell waswith Ernst & Young from 1988 to 1994, most recently as Audit Manager.Mr. Haskel joined Cambrex in June 2011 and currently serves as Senior Vice President, General Counsel, Corporate Secretary and Chief ComplianceOfficer. Prior to joining Cambrex, Mr. Haskel was employed by Wyeth from 1992 until 2010, serving a variety of roles including Vice President andAssociate General Counsel-Corporate, Vice President of Global Administration, and Assistant Vice President working with the Chairman and CEO andserving as Secretary to the Management Committee. Prior to 1992, Mr. Haskel was a corporate associate at Hale and Dorr (now WilmerHale). 77IndexDr. Russolo is President, Cambrex Profarmaco Milano and joined the Company in 1994 with the acquisition of Profarmaco Nobel S.r.l. in Milan Italy,where he served as Managing Director since 1982. Dr. Russolo joined Profarmaco Nobel S.r.l. in 1971. Upon the acquisition of Profarmaco Nobel S.r.l., Dr.Russolo continued serving in the role of Managing Director until 2000, when he was appointed to President, Cambrex Profarmaco Business Unit. Upon thecompletion of the sale of the Landen facility Dr. Russolo assumed his current position.Mr. Sargen joined Cambrex in February 2003 and has served as Vice President and Chief Financial Officer since February 2007 and Executive VicePresident and Chief Financial Officer since January 2011. Mr. Sargen previously held the position of Vice President, Finance. Previously, he was withExp@nets, Inc. from 1999 through 2002, serving in the roles of Executive Vice President, Finance/Chief Financial Officer and Vice President/CorporateController. From 1996 to 1998, he was with Fisher Scientific International’s Chemical Manufacturing Division, serving in the roles of Vice President,Finance and Controller. Mr. Sargen has also held various positions in finance, accounting and audit with Merck & Company, Inc., Heat and Control, Inc.,and Deloitte & Touche.The remaining information required by this item will be included in the 2012 Proxy Statement and is incorporated herein by reference.Item 11Executive Compensation.The remaining information required by this item will be included in the 2012 Proxy Statement and is incorporated herein by reference.Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The remaining information required by this item will be included in the 2012 Proxy Statement and is incorporated herein by reference.Item 13Certain Relationships and Related Transactions and Director Independence.The remaining information required by this item will be included in the 2012 Proxy Statement and is incorporated herein by reference.Item 14Principal Accountant Fees and Services.The remaining information required by this item will be included in the 2012 Proxy Statement and is incorporated herein by reference. 78IndexPART IVItem 15Exhibits and Financial Statement Schedules.(a) 1.The following consolidated financial statements of the Company are filed as part of this report: Page Number (in this report)Financial Statements: Reports of Independent Registered Public Accounting Firm38Consolidated Balance Sheets as of December 31, 2011 and 201040Consolidated Income Statements for the Years Ended December 31, 2011, 2010 and 200941Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2011, 2010 and200942Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 200943Notes to Consolidated Financial Statements44Selected Quarterly Financial and Supplementary Data (unaudited)74 2. (i) The following schedule to the consolidated financial statements of the Company as filed herein and the Report of Independent RegisteredPublic Accounting Firms are filed as part of this report. Page Number (in this report) Schedule II – Valuation and Qualifying Accounts80All other schedules are omitted because they are not applicable or not required or because the required information is included in the consolidated financialstatements of the Company or the notes thereto. 3. The exhibits filed in this report are listed in the Exhibit Index on pages 82 - 85. 79Index SCHEDULE II CAMBREX CORPORATIONVALUATION AND QUALIFYING ACCOUNTSFOR THE YEARS ENDED DECEMBER 31, 2011, 2010 and 2009(dollars in thousands)Column A Column B Column C Column D Column E Additions BalanceBeginningof Year Charged/(Credited) toCost andExpenses Charged/(Credited) toOtherAccounts Deductions BalanceEnd ofYear Description Year ended December 31, 2011: Doubtful trade receivables and returns and allowances $1,083 $(103) $(39) $491 $450 Deferred tax valuation allowance 77,849 (338) 60 - 77,571 Year ended December 31, 2010: Doubtful trade receivables and returns and allowances $627 $478 $(22) $- $1,083 Deferred tax valuation allowance 80,368 (1,799) (720) - 77,849 Year ended December 31, 2009: Doubtful trade receivables and returns and allowances $1,105 $(191) $31 $318 $627 Deferred tax valuation allowance 79,230 103 1,035 - 80,368 80IndexSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. CAMBREX CORPORATION By: /s/Gregory P. Sargen Gregory P. Sargen Executive Vice President and Chief Financial Officer Date: February 7, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report 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/STEVEN M. KLOSK President and Chief Executive Officer, and Director February 7, 2012 Steven M. Klosk /s/GREGORY P. SARGEN Executive Vice President and Chief Financial Officer February 7, 2012 Gregory P. Sargen (Principal Financial Officer and Accounting Officer) /s/JOHN R. MILLER Chairman of the Board of Directors February 7, 2012 John R. Miller /s/DAVID R. BETHUNE Director February 7, 2012 David R. Bethune /s/ROSINA B.DIXON Director February 7, 2012 Rosina B. Dixon, M.D. /s/KATHRYN RUDIE HARRIGAN Director February 7, 2012 Kathryn Rudie Harrigan, PhD /s/LEON J. HENDRIX, JR Director February 7, 2012 Leon J. Hendrix, Jr. /s/ILAN KAUFTHAL Director February 7, 2012 Ilan Kaufthal /s/WILLIAM KORB Director February 7, 2012 William Korb /s/PETER G. TOMBROS Director February 7, 2012 Peter G. Tombros 81IndexEXHIBIT INDEX Exhibit No.Description 2.1--Agreement for the sale and purchase of the entire issued share capital in each of Zenara Pharma Limited and Zenara Pharma Private Limiteddated November 2, 2010, between Camzena Holdings Limited, NuLife (Cyprus) Limited, Ashok Srinivasan Narasimhan, Pradip KhodidasDhamecna, Cambrex Corporation, Zenara Pharma Limited and Zenara Pharma Private Limited.(Z). 2.2--Asset purchase agreement dated as of August 7, 2003 between Rutherford Acquisition Corporation and Cambrex Corporation and The Sellerslisted in the asset Purchase agreement.(V). 2.3--Stock Purchase Agreement dated October 23, 2006 between Lonza America Inc., Lonza Bioproducts AG, Lonza Sales AG, Lonza GroupLimited and Cambrex Corporation and Subsidiaries.(Q – Exhibit 10.1). 3.1--Restated Certificate of Incorporation of registrant, as amended.(F). 3.2--By Laws of registrant, as amended.(M). 4.1--Form of Certificate for shares of Common Stock of registrant.(A - Exhibit 4(a)). 10.1--2009 Long-Term Incentive Plan (as amended and restated as of April 28, 2011).(F). 10.2--Directors’ Compensation Program.(K). 10.3--Performance Share Agreement by and between Steven M. Klosk and Cambrex Corporation.(X). 10.4--William H. Haskel Offer of Employment Letter dated June 3, 2011.(DD). 10.5--Performance Share Units Agreement by and between Steven M. Klosk and Cambrex Corporation.(Y). 10.6--Performance Share Units Agreement by and between Gregory P. Sargen and Cambrex Corporation.(Y). 10.7--Credit Agreement dated November 2, 2011 between Cambrex Corporation, the subsidiary borrowers party hereto, the subsidiary guarantorsparty hereto, the lenders party hereto and JP Morgan Chase Bank, N.A., as Administrative Agent.(S). 10.8--Settlement Agreement and Release and Environmental Escrow Agreement dated July 30, 2007 between Rutherford Chemicals LLC, VertellusSpecialties Holdings UK Ltd. (formerly Rutherford Chemicals UK Ltd.), Vertellus Specialties UK Ltd. (formerly Seal Sands ChemicalsLtd.), and Vertellus Specialties Holdings Corp. (formerly Rutherford Chemicals Holdings Corp.), and Cambrex Corporation, Nepera, Inc.,CasChem Inc., Zeeland Chemicals, Inc., Nepcam, Inc., and Cambrex Ltd.(W). 10.9--Shawn P. Cavanagh Offer of Employment Letter.(AA). 10.10--Supplemental Executive Retirement Plan Change of Control Amendment.(U). 10.11--Employment Agreement dated January 17, 2011 between the registrant and Shawn P. Cavanagh.(AA). 10.12--1994 Stock Option Plan.(C). 10.13--1996 Performance Stock Option Plan.(G). 10.14--1998 Performance Stock Option Plan.(H). 10.15--2000 Employee Performance Stock Option Plan.(H). 10.16--Cambrex Corporation Savings Plan.(B). 10.17--Cambrex Corporation Supplemental Retirement Plan.(D). 10.18--Employment Agreement dated February 6, 2007 between the registrant and Gregory P. Sargen.(T). 10.19--Deferred Compensation Plan of Cambrex Corporation (as amended and restated as of March 1, 2001).(N). 10.20--Employment Agreement dated February 6, 2007 between the registrant and Paolo Russolo.(T). 10.21--2001 Performance Stock Option Plan.(I). 10.22--2003 Performance Stock Option Plan.(I). 10.23--2004 Performance Incentive Plan.(J). 10.24--Directors’ Common Stock Fee Payment Plan.(J). 10.25--2004 Incentive Plan.(L). 82Index 10.26--Administrative Consent Order dated September 16, 1985 of the New Jersey Department of Environmental Protection to Cosan ChemicalCorporation.(A – Exhibit 10(q)). 10.28--Agreement to Lift Sales Restrictions on Certain Vested Options.(O). 10.29--Agreement to Accelerate Vesting of Certain Options.(P). 10.30--Form of Stock Option Agreement.(S). 10.31--Form of Performance Share Agreement.(CC). 10.32--Employment Agreement with William M. Haskel.(DD). 16.1--PricewaterhouseCoopers LLP Letter.(R). 21--Subsidiaries of registrant.(E). 23--Consent of BDO USA, LLP to the incorporation by reference of its report herein in Registration Statement Nos. 333-166260, 333-57404, 333-22017, 33-21374, 33-81782, 333-113612, 333-113613, 333-129473, 333-136529 and 333-174124 on Form S-8 of the registrant.(E). 31.1--CEO Certification pursuant to Rule 13a – 14(a) and Rule 15d – 14(a) of the Securities Exchange Act, as amended.(E). 31.2--CFO Certification pursuant to Rule 13a – 14(a) and Rule 15d – 14(a) of the Securities Exchange Act, as amended.(E). 32--CEO and CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(K). 101.INS--XBRL Instance Document.(BB). 101.SCH--XBRL Taxonomy Extension Schema.(BB). 101.CAL--XBRL Taxonomy Extension Calculation Linkbase.(BB). 101.DEF--XBRL Taxonomy Extension Definition Linkbase.(BB). 101.LAB--XBRL Taxonomy Extension Label Linkbase.(BB). 101.PRE--XBRL Taxonomy Extension Presentation Linkbase.(BB).See legend on following page 83IndexEXHIBIT 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. 33-81780) dated July 20, 1994. (C)Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 33-81782) dated July 20, 1994. (D)Incorporated by reference to the registrant's Annual Report on Form 10-K for 1994. (E)Filed herewith. (F)Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q for the period ending March 31, 2011. (G)Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-22017) dated February 19, 1997. (H)Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-57404) dated March 22, 2001. (I)Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-113612) dated March 15, 2004. (J)Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-113613) dated March 15, 2004. (K)Furnished herewith. (L)Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-129473) dated November 4, 2005. (M)Incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the period ending March 31, 2007. (N)Incorporated by reference to registrant’s Annual Report on Form 10-K for year end 2005 filed May 26, 2006. (O)Incorporated by reference to registrant’s Current Report on Form 8-K dated November 7, 2006. (P)Incorporated by reference to registrant’s Current Report on Form 8-K dated June 7, 2005. (Q)Incorporated by reference to registrant’s Current Report on Form 8-K filed October 24, 2006. (R)Incorporated by reference to registrant’s Current Report on Form 8-K filed March 21, 2007. (S)Incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the period ending September 30, 2011. (T)Incorporated by reference to registrant’s Annual Report on Form 10-K for year end 2006 filed on March 15, 2007. (U)Incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2008. (V)Incorporated by reference to the registrant’s Current Report on Form 8-K dated November 10, 2003. (W)Incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the period ending September 30, 2007. (X)Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q for the period ending March 31, 2010. (Y)Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2010. 84Index (Z)Incorporated by reference to the registrant’s Current Report on Form 8-K dated November 4, 2010. (AA)Incorporated by reference to the registrant’s Current Report on Form 8-K dated January 13, 2011. (BB)Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposesof Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise not subject to liability. (CC)Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2011. (DD)Incorporated by reference to the registrant’s Current Report on Form 8-K dated June 24, 2011. 85CAMBREX CORPORATIONEXHIBIT 21Subsidiaries of RegistrantSubsidiaryIncorporated in: Cambrex Charles City, Inc.Iowa Cambrex Profarmaco Milano S.r.l.Italy Cambrex Karlskoga ABSweden AS Cambrex TallinnEstonia Cambrex IEP GmbHGermany CAMBREX CORPORATIONEXHIBIT 23 Consent of Independent Registered Public Accounting FirmWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-166260, 333-57404, 333-22017, 33-21374, 33-81782, 333-113612, 333-113613, 333-129473, 333-136529 and 333-174124) of Cambrex Corporation of our reports dated February 7, 2012, relating to theconsolidated financial statements and schedule, and the effectiveness of Cambrex Corporation’s internal control over financial reporting, which appear in thisAnnual Report on Form 10-K. /s/ BDO USA, LLPWoodbridge, New JerseyFebruary 7,2012 Exhibit 31.1 Cambrex CorporationCertification Pursuant to Rule 13a – 14(a) and Rule 15d – 14(a)of the Securities Exchange Act, as Amended I, Steven M. Klosk, certify that: 1.I have reviewed this annual report on Form 10-K of Cambrex Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisannual report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: February 7, 2012 /s/ Steven M. Klosk Steven M. Klosk President and Chief Executive Officer Exhibit 31.2Cambrex CorporationCertification Pursuant to Rule 13a – 14(a) and Rule 15d – 14(a)of the Securities Exchange Act, as AmendedI, Gregory P. Sargen, certify that: 1.I have reviewed this annual report on Form 10-K of Cambrex Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisannual report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d-15(f))for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: February 7, 2012 /s/ Gregory P. Sargen Gregory P. Sargen Executive Vice President and Chief Financial Officer Exhibit 32 CAMBREX CORPORATIONCertification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Cambrex Corporation (the “Company”) on Form 10-K for the period ending December 31, 2011, as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his respective knowledge:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Steven M. Klosk Steven M. Klosk President and Chief Executive Officer /s/ Gregory P. Sargen Gregory P. Sargen Executive Vice President and Chief Financial Officer Dated: February 7, 2012 

Continue reading text version or see original annual report in PDF format above