Cambrex Corporation
Annual Report 2012

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-Kx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2012ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission 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 x.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 x. 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 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x. No o. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes x. 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 thebest of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. x 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 xNon-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 x. The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $273,334,679 as ofJune 30, 2012. As of January 31, 2013, there were 29,938,601 shares outstanding of the registrant's Common Stock, $.10 par value.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s definitive Proxy Statement for the 2013 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, 2012ItemNo.PART IPageNo. 1Business.31ARisk Factors.91BUnresolved Staff Comments.192Properties.193Legal Proceedings.194Mine Safety Disclosures.19 PART II 5Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.206Selected Financial Data.227Management’s Discussion and Analysis of Financial Condition and Results of Operations.247AQuantitative and Qualitative Disclosures about Market Risk.378Financial Statements and Supplementary Data.379Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.749AControls and Procedures.749BOther Information.75 PART III 10Directors, Executive Officers and Corporate Governance.7611Executive Compensation.7712Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.7713Certain Relationships and Related Transactions and Director Independence.7714Principal Accountant Fees and Services.77 PART IV 15Exhibits and Financial Statement Schedules.78 (dollars in thousands, except per share data) 2Index Forward-Looking StatementsThis document contains and incorporates by reference forward-looking statements including statements regarding expected performance, especially theCompany’s estimate relating to the amount and timing of required capital expenditures under its new large Phase III supply agreement, the Company’s beliefthat cash flows from operations, along with funds available from the revolving line of credit, will be adequate to meet the operational and debt servicing needsof the Company, as well as other statements relating to expectations with respect to sales, research and development expenditures, earnings per share, capitalexpenditures, the outcome of pending litigation (including environmental proceedings and remediation investigations) and related estimates of potential liability,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 containedherein are based on current plans and expectations and involve risks and uncertainties that could cause actual outcomes and results to differ materially fromcurrent expectations. The factors described in Item 1A of Part I of this Annual Report on Form 10-K captioned “Risk Factors,” or otherwise described in theCompany’s filings with the Securities and Exchange Commission, as well as any cautionary language in this Annual Report on Form 10-K, provide examplesof such risks and uncertainties 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 andregulations (particularly environmental issues), tax rate, interest rate, technology, manufacturing and legal issues, including the outcome of outstandinglitigation disclosed in the Company’s public filings, changes in foreign exchange rates, uncollectible receivables, loss on disposition of assets, cancellation ordelays in renewal of contracts, lack of suitable raw materials or packaging materials, and the Company’s ability to receive regulatory approvals for itsproducts, as well as risks relating to the Company’s new large Phase III supply agreement including that the Company will expend significant resources toexpand its manufacturing facilities without any assurance that the new agreement will generate any revenue beyond that would be earned under terminationprovisions within the agreement, that the customer’s product candidate will be successful in Phase III trials or obtain the necessary regulatory approvals tocommercialize the product candidate, that the customer’s Phase III program will not be terminated early, that anticipated quantities will not be meaningfullyreduced, that the planned Phase III and pre-launch activities will proceed on the timeline anticipated, if at all, that the Company’s expansion will proceed on theanticipated timeline without disruption to existing customers or our new customer and without disruption to the Company’s and its customers’ ability to meetkey product delivery milestones.The forward-looking statements are based on the beliefs and assumptions of Company management and the information available to Companymanagement as of the date of this report. The Company cautions investors not to place significant reliance on expectations regarding future results, levels ofactivity, performance, achievements or other forward-looking statements. The information contained in this Annual Report on Form 10-K is provided by theCompany as of the date hereof, and, unless required by law, the Company does not undertake and specifically disclaims any obligation to update theseforward-looking statements contained in this Annual Report on Form 10-K as a result of new information, future events or otherwise.PART IItem 1Business.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Index The 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.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. (dollars in thousands, except per share data) 4Index 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.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 developingmarket companies 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 recent acquisitions and dispositions ofassets.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.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. (dollars in thousands, except per share data) 5Index 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, pharmaceutical intermediates and, toa lesser extent, other fine chemicals. The Company’s acquisition of a 51% equity stake in Zenara also gives the Company the additional capability ofproducing final dosage form products 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 12.5% of 2012 consolidated sales. The Company’s products are sold through acombination of direct sales and independent agents. One API, sold to multiple customers, accounted for 11.9% of 2012 consolidated sales. The Companycurrently has a supply agreement related to this API that accounted for 6.0% of 2012 consolidated sales and a supply agreement for another API that accountedfor 8.0% of 2012 consolidated sales, both of which are scheduled to expire on December 31, 2013. The Company intends to seek to renegotiate new orextended agreements prior to expiration, but there is no guarantee that these contracts will be renewed or extended.The following table shows gross sales to geographic area: 2012 2011 2010 Europe $150,678 $156,814 $127,009 North America 105,439 75,979 78,497 Asia 12,827 10,448 12,554 Other 8,987 11,234 8,376 Total $277,931 $254,475 $226,436 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.Raw 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 and certain othercommodity materials, where prices can vary 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 120 employees are at least partially involved in R&D activities worldwide.The Company spent $9,544, $11,037 and $10,305 in 2012, 2011 and 2010, respectively, on R&D efforts. (dollars in thousands, except per share data) 6Index 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 15 issued patents and has 26 patent applications pending in the United States and owns 159 patents and has 97patent 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 relate to its nicotine polacrilex resin products and methods of manufacturing, and expire on May 28, 2022.The Company's products and services are sold around the world under trademarks that are owned by the Company. This includes Profarmaco, whichis registered around the world as a word and design mark. Rights in this trademark will exist at least as long as the Company or its majority ownedsubsidiaries continue to use the trademark.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 terms of this agreement, the Companypays 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 United States and many morecompetitors within various segments of the markets the Company serves, including a growing number of competitors in Asia, Eastern Europe and other low-cost areas. The Company believes that low cost providers have had the impact of driving prices down for many products and services for which theCompany competes to provide, and the Company anticipates that it will face increased competition from these providers in the future. It is expected thatregulatory compliance, product quality, pricing, and logistics will determine the extent of the long term impact of these competitors in the primary markets thatthe Company serves. If the Company perceives significant competitive risk and a need for technical or financial commitment, it generally attempts to negotiatelong term contracts or guarantees from its customers.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. Other future developments, such as increasingly strict environmental, safety and health laws and regulations, and enforcement policies, could resultin substantial costs and liabilities to the Company and could subject the Company's handling, manufacture, use, reuse or disposal of substances orpollutants 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. (dollars in thousands, except per share data) 7IndexPresent 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$3,757, $3,088 and $2,321 in 2012, 2011 and 2010, 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, 2012, the Company had 891 employees worldwide (627 of whom were from international operations) compared with 833 employeesat December 31, 2011 and 829 at December 31, 2010.Non-U.S. production, administration, scientific and technical employees are represented by various local and national unions. The Company believesits labor relations are satisfactory.SeasonalityThe Company experiences some seasonality primarily due to planned plant shutdowns by the Company and certain customers in the thirdquarter. Operating results for any quarter, however, are not necessarily indicative of results for any future period. In particular, as a result of various factorsincluding, but not limited to, acquisitions, plant shutdowns, and the timing of large contract revenue streams, the Company believes that period-to-periodcomparisons of its operating 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 domesticoperations in 2012, 2011 and 2010 amounted to $32,872, $31,605 and $18,529, respectively. Sales from international operations were $168,202,$171,068, and $155,073 in 2012, 2011 and 2010, respectively. Refer to Note 17 to the Company’s consolidated financial statements.Additional 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 (“NYSE”) the Annual Chief Executive Officer Certification asrequired by Section 303A.12.(a) of the 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. (dollars in thousands, except per share data) 8IndexItem 1ARisk 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.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 12.5% of sales during 2012 and an additional 14% of sales were derived from twocontracts scheduled to expire at the end of 2013. In addition, one API, sold to multiple customers, accounted for 11.9% of sales in 2012 and included onecustomer representing 6.0% of 2012 sales that is covered under a contract expiring at the end of 2013. The Company has also observed increasing pressure onthe part of its customers to reduce costs, including the use of its services and products, as a result of macro-economic trends and various market dynamicsspecifically affecting the pharmaceuticals industry. Should one or more of the Company’s customers renegotiate on terms more favorable to them, ordiscontinue or decrease their usage of the Company’s services and products, the loss could have a material adverse 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.The Company’s failure to obtain new contracts or renew existing contracts may adversely affect its business.Many of Cambrex’s contracts with its customers 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 supply agreements that account for approximately 14.0% of 2012 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. (dollars in thousands, except per share data) 9Index Failure to obtain products and raw materials from third-party manufacturers could affect the Company’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 supplier providesthe Company raw materials or other supplies that are deficient or defective or if a supplier fails to provide the Company such materials or supplies in a timelymanner, 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.Failure to obtain sufficient quota from the Drug Enforcement Administration ("DEA") could affect the Company’s ability tomanufacture and deliver its products.The starting materials used in several of the Company's products and many of the Company's finished products are controlled substances and areregulated by the DEA. Consequently, their manufacture, shipment (including import and export), storage, sale and use are subject to a high degree ofregulation. In particular, the DEA limits the manufacturing and distribution of the starting materials and APIs manufactured by the Company and it mustapply for quota annually to obtain and manufacture these substances. As a result of these limitations, the Company may not be able to meet commercialdemand for these substances, which could harm its relationship with customers and its reputation. If the Company’s DEA registration were revoked orsuspended, or if any of the Company’s quota applications were rejected, the Company could no longer lawfully possess, manufacture or distribute controlledsubstances, 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 theCompany’s facilities, 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 the Company’ssuppliers. Any significant disruption to those operations for these or any other reasons could adversely affect the Company’s sales and customer relationships.Any sustained reduction 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. Environmentalmatters often span several years and frequently involve regulatory oversight or adjudication. Additionally, many remediation requirements are fluid and arelikely to be affected by future technological, site and regulatory developments. Each of these matters is subject to various uncertainties, and it is possible thatsome of these liabilities will be significantly higher than the Company has estimated.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. (dollars in thousands, except per share data) 11Index 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 was serving at the Company’srequest in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreementsis unlimited. Although the Company has a director and officer insurance policy that covers a portion of any potential exposure, the Company could bematerially and adversely affected if it were required to pay damages or incur legal costs in connection with a claim above its insurance limits.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, employer’s liability insurance, product liability insurance, general liability insurance, businessinterruption insurance, and directors and officers liability insurance, among others. Although the Company maintains what it believes to be adequateinsurance coverage, potential claims may exceed the amount of insurance coverage or may be excluded under the terms of the policy, which could cause anadverse effect on the Company’s business, financial condition and results from operations. In addition, in the future the Company may not be able to obtainadequate insurance coverage or the Company may be required to pay higher premiums and accept higher deductibles in order to secure adequate insurancecoverage.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. In particular, as previously announced, the Company intends to expand its large-scale manufacturing capacity to support expected growth in thebusiness and an agreement signed during 2012 to provide Phase III and commercial launch batches for a customer. There can be no assurance that this supplyagreement will generate any revenue beyond what would be earned under termination provisions within the agreement. In addition, the customer's productcandidate may not be succesful in Phase III trials and may not obtain the necessary regulatory approvals to commercialize its product candidate. Thecustomer's Phase III program may be terminated early or may not proceed on the timeline anticipated. Anticipated quantities under the agreement may bemeaningfully reduced. If the supply agreement does not generate the revenues that the Company expects, the Company may have excess large-scalemanufacturing capacity due to the expansion it intends to undertake, which could adversely affect the Company's results of operations. Moreover, theCompany's expansion may not proceed on the anticipated timeline, which could disrupt supply to existing customers or disrupt the Company's or itscustomers' ability to meet key product delivery milestones. Such a disruption could damage the Company's relationship with customers and adversely affectthe Company's results of operations. 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. Significant movements in the rate of exchange between the U.S. dollar and certain currencies, primarilythe Euro 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 anticipate localregulations 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.As 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. (dollars in thousands, except per share data) 13Index 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 may be significantly diluted and may result in a dilution ofearnings per share. If the Company makes one or more significant acquisitions in which the consideration includes cash, it may be required to use asubstantial portion of its available cash or incur a significant amount of debt or otherwise arrange additional funds to complete the acquisition, which mayresult 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 Company’s contractual buyout formula, substantial consideration willbe required to purchase the remaining 49%. A large cash payment could require borrowing under the Company’s credit facility. Additionally, the uncertaintyregarding the amount of consideration required for the 2016 buyout of the 49% may impact the Company’s future borrowing ability, result in higher interestexpense, or possibly result in difficulty securing any credit arrangements in the future. Additionally, issuance of any stock to satisfy a portion of thisobligation could have a dilutive effect on holders of Cambrex common stock. In the event that Cambrex is unable to compensate the 49% equity holder for itsshares 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.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 $64,000 was outstanding at December 31, 2012. 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.The 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 could have a material and adverse effect on the Company’s liquidity, business, financialcondition, results of operations and cash flows. (dollars in thousands, except per share data) 14Index 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 uncertainty in the global market, could also have an impact on the value ofinventory 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 nations or groups could boycott its products; ·general economic decline or political unrest in the markets in which it operates; ·less 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; ·import and export licensing requirements; and ·government sanctions may reduce or eliminate the Company’s ability to sell its products in certain countries. 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.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. (dollars in thousands, except per share data) 15Index 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.The Company could be subject to 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. (dollars in thousands, except per share data) 16Index The Company accounts for its investment in Zenara using the equity method of accounting and, as a result, the Company records its share of Zenara'snet income or loss on the Company’s income statement. The Company does not separately test an investee’s underlying assets for impairment but willrecognize its share of any impairment charge recorded by an investee in earnings and consider the effect of the impairment on its investment. Additional lossesat Zenara may require the Company to evaluate the carrying value of its investment. A conclusion by the Company that additional losses at Zenara are otherthan temporary could result in a material non-cash impairment charge to earnings. 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., particularly from the sale of the businesses that comprised theBioproducts and Biopharma segments in 2007. While the Company believes that it has adequately provided for any taxes related to these items, and taxesrelated to all other aspects of its business, any such assessments or future settlements may be materially different than it has provided. Refer to Note 9 to theCompany’s consolidated financial statements for a discussion of the Company’s income taxes.The Company has deferred tax assets that it may not be able to use under certain circumstances.If the company is unable to generate sufficient future taxable income in certain jurisdictions, or if there is a significant change in the actual tax rates orthe time period within which the underlying temporary differences become taxable or deductible, the Company could be required to increase its valuationallowances against its deferred tax assets resulting in an increase in its effective tax rate and an adverse impact on future operating results. 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. Recently, the Company’s pension plan investment portfolio hasincurred greater volatility. The proportion of pension assets to liabilities, which is called the funded status, determines the level of contribution to the plan thatis required by law. In recent years, the Company has funded the plan in amounts as required, but changes in the plan’s funded status related to the value ofassets or liabilities could increase the amount required to be funded. The Company cannot predict whether changing market or economic conditions, regulatorychanges or other factors will further increase the Company’s pension funding obligations, diverting funds from 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IndexAny 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 to modify regulations administered by theFDA or EMA and governing the drug approval process. Any significant reduction in the scope of regulatory requirements or the introduction of simplifieddrug 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, theDEA. The Company’s facilities are subject to scheduled periodic regulatory and customer inspections to ensure compliance with cGMP and otherrequirements 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 withholding approval of new drug applications or supplements and the denial of entry into the U.S., orother countries, of products manufactured at non-compliant facilities, the loss of a customer contract, the disqualification of data for client submissions toregulatory authorities and a mandated closing of the Company’s facilities. Any such violations would have a material adverse effect on the Company’sbusiness. Cambrex’s customers are typically subject to the same, or similar regulations and any such violations or other actions by regulatory agencies,including, but not limited to, plant shutdowns or product recalls that eliminate or reduce the Company’s sale of its products or services could negativelyimpact the Company’s business. In addition, the submission of new products to regulatory authorities for approval by the Company or its customers doesnot guarantee the approval to market the product will be granted. Each authority may impose its own requirements or delay or refuse to grant approval to theCompany or customer even when the product has already been approved in another country.The overall level of late-stage clinical phase projects could decline and the outsourcing trends may decline, 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 1BUnresolved Staff Comments.None.Item 2Properties.Set forth below is information relating to manufacturing facilities owned by the Company as of December 31, 2012:LocationAcreageOperatingSubsidiaryPrimary Product Lines Manufactured Charles City, Iowa57 acresCambrexAPIs and Pharmaceutical Intermediates Charles City, Inc. Karlskoga, Sweden42 acresCambrexAPIs, Pharmaceutical Intermediates Karlskoga ABand Other Fine Chemicals Paullo (Milan), Italy13 acresCambrexAPIs and Pharmaceutical Intermediates Profarmaco Milano S.r.l. The 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 3Legal 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 4Mine Safety Disclosures.None. (dollars in thousands, except per share data) 19Index PART 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 andlow sales price of the common stock as reported on the NYSE:2012 High Low First Quarter $8.32 $6.53 Second Quarter 9.41 5.98 Third Quarter 13.01 9.01 Fourth Quarter 13.96 9.34 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 As of January 31, 2013, the Company estimates that there were approximately 5,339 beneficial holders of the outstanding common stock of theCompany.The Company does not anticipate paying cash dividends in the foreseeable future.2012 Equity Compensation TableThe following table provides information as of December 31, 2012 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 of securities tobe issued upon exerciseof outstanding options,warrants and rights Weighted averageexercise price ofoutstandingoptions, warrantsand rights Number of securitiesremaining for futureissuance under equitycompensation plans(excluding securitiesreflected in column (a)) Equity compensation plans approved by security holders 2,091,789 $7.01 439,608 Equity compensation plans not approved by security holders 172,610 $7.24 - Total 2,264,399 $7.02 439,608 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Index 2000 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 2000 Plan. No participant shall be granted options to purchase more than 100,000 shares of common stock in any twelvemonth period. 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 aparticipant terminates, other than as a result of death, disability or retirement, all unexercised awards shall be cancelled. In the event of death, disability orretirement, the options will expire one year from the date of the event. As of December 31, 2012 there were no shares remaining for future issuance under thisplan.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, 2007, to the close of the last trading day of 2012, in each of (i) Cambrex common stock, (ii) the S&P 500 Indexand (iii) an index of the Company’s peer group. The stock price performance reflected in the graph below is not necessarily indicative of future priceperformance. 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, the Company believes that an index of its peer group based onits GICS code is a reasonable comparison group for the commercial activities on which it currently focuses. The peer group is for S&P GICS code 352030,Life Sciences Tools & Services, and is comprised of 65 companies as of December 31, 2012. (dollars in thousands, except per share data) 21Index Item 6Selected Financial Data.The following selected consolidated financial data of the Company for each of the five years in the period through December 31, 2012 are derived fromthe audited financial statements. The consolidated financial statements of the Company as of December 31, 2012 and 2011 and for each of the years in thethree year period ended December 31, 2012 and the reports of the independent registered public accounting firm are included elsewhere in this annualreport. The data presented below should be read in conjunction with the financial statements of the Company, the notes to the financial statements and"Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere. Years Ended December 31, 2012(1) 2011(2) 2010(3) 2009(4) 2008(5) INCOME DATA: Gross sales $277,931 $254,475 $226,436 $236,277 $249,618 Net revenues 276,501 255,653 226,992 234,550 249,228 Gross profit 90,487 74,084 66,866 70,278 73,743 Selling, general and administrative expenses 45,248 39,227 34,024 35,711 40,521 Research and development expenses 9,544 11,037 10,305 7,929 7,590 Restructuring expenses - - 1,293 - 4,695 Strategic alternative costs - - - - 1,515 Merger and acquisition expenses - - 997 - - Operating profit 35,695 23,820 20,247 26,638 19,422 Interest expense, net 2,439 2,373 4,391 4,634 3,668 Other expenses/(income), net 122 (111) 596 (641) 754 Equity in losses of partially-owned affiliates 1,766 1,621 286 - - Income before income taxes 31,368 19,937 14,974 22,645 15,000 (Benefit)/provision for income taxes (31,861) 6,202 5,665 12,253 7,071 Income from continuing operations 63,229 13,735 9,309 10,392 7,929 (Loss)/income from discontinued operations, net of tax (926) (2,767) 338 - - Net income 62,303 10,968 9,647 10,392 7,929 EARNINGS PER SHARE DATA: Earnings/(loss) per common share (basic): Income from continuing operations $2.13 $0.46 $0.32 $0.36 $0.27 (Loss)/income from discontinued operations, net of tax $(0.03) $(0.09) $0.01 $- $- Net income $2.10 $0.37 $0.33 $0.36 $0.27 Earnings/(loss) per common share (diluted): Income from continuing operations $2.09 $0.46 $0.32 $0.36 $0.27 (Loss)/income from discontinued operations, net of tax $(0.03) $(0.09) $0.01 $- $- Net income $2.06 $0.37 $0.33 $0.36 $0.27 Weighted average shares outstanding: Basic 29,703 29,468 29,361 29,241 29,116 Diluted 30,314 29,564 29,468 29,267 29,161 BALANCE SHEET DATA: (at end of period) Working capital $60,944 $77,476 $82,146 $94,362 $74,376 Total assets 394,468 342,831 351,751 351,515 341,072 Long-term debt 64,000 98,000 115,900 120,800 123,800 Total stockholders' equity 163,297 100,341 107,635 103,270 74,786 (dollars in thousands, except per share data) 22Index (1)Income from continuing operations includes the release of a valuation allowance on domestic deferred tax assets of $36,287 and the impact on deferredtaxes of a statutory rate change of $1,328. Loss from discontinued operations includes pre-tax charges of $1,425, reduced for a tax benefit of $499,for environmental remediation related to sites of divested businesses. (2)Loss from discontinued operations includes pre-tax charges of $2,851 for environmental remediation, net of insurance proceeds, related to sites ofdivested businesses. (3)Income from continuing operations includes pre-tax charges of $1,293 within operating expenses for certain one-time employee benefits relating to theplan to optimize operations at a manufacturing site to meet industry requirements, $997 within operating expenses for merger and acquisition expensesand $509 within other expenses for currency losses pursuant to the purchase of Zenara. Income from discontinued operations includes a benefit of$1,652 as a result of the expiration of a contingent liability, charges of $1,144 for environmental remediation, net of insurance proceeds, and $170 fora worker's compensation claim, all related to sites of divested businesses. (4)Net income includes tax expense of approximately $5,300 for an estimate of an international tax liability related to a 2003 transaction. (5)Net income includes pre-tax charges, within operating expenses, of $1,515 for costs related to strategic alternatives, $4,695 for restructuring costsand $1,040 related to a former CEO's retirement. (dollars in thousands, except per share data) 23Index Item 7Management's Discussion and Analysis of Financial Condition and Results of Operations.Executive OverviewThe Company’s business consists of three manufacturing facilities and one biocatalysis center. These facilities primarily manufacture APIs,pharmaceutical intermediates and, to a lesser extent, other fine chemicals. The Company also owns a 51% stake in Zenara, a pharmaceutical company withfinal dosage form manufacturing capabilities based in India.The following significant events, which are explained in detail on the following pages, occurred during 2012:·Gross sales in 2012 increased 9.2% to $277,931 from $254,475 in 2011. Foreign currency exchange unfavorably impacted sales 3.4%.·Operating profit increased 49.9% to $35,695 from 2011.·Debt, net of cash, decreased $25,630 during 2012.·Release of a valuation allowance on domestic deferred tax assets of $36,287.Gross sales in 2012 of $277,931 were $23,456 or 9.2% higher than 2011. Excluding foreign currency, sales increased 12.6% as a result of highervolumes sold (14.9%) partially offset by lower pricing (-2.3%). Sales volumes increased in most of the Company’s product categories including controlledsubstances, generic APIs, custom development and products utilizing the Company’s drug delivery technology. These increases were partially offset by lowerpricing for controlled substances and products utilizing the Company’s drug delivery technology.The Company also experienced a modest increase in its custom manufacturing product category. This category includes APIs, pharmaceuticalintermediates and other pharmaceutical products sold to innovator pharmaceutical companies. Increased demand for certain APIs was partially offset by anewly approved product in which the customer built up inventory in 2011.Gross margins in 2012 increased to 32.6% compared to 29.1% in 2011. 2012 gross margins included a 0.2% favorable impact from foreign currencyversus 2011. Excluding the foreign currency impact, gross margins were positively impacted by higher production volumes (3.7%), leading to increased plantefficiency, and favorable product mix (2.6%), partially offset by lower pricing in 2012 which eroded margins (-1.4%).The Company reported income from continuing operations of $63,229, or $2.09 per diluted share in 2012, compared to $13,735 or $0.46 per dilutedshare in 2011. The increase in 2012 includes a tax benefit of $36,287, or $1.20 per diluted share, resulting from the release of a valuation allowance ondeferred tax assets and higher gross profit resulting from increased sales.Critical Accounting EstimatesThe Company’s critical accounting estimates 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.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.The Company has investments in partially-owned affiliates. It does not separately test an investee’s underlying assets for impairment but will recognizeits share of any impairment charge recorded by an investee in earnings and consider the effect of the impairment on its investment. A series of operating lossesof an investee or other factors may indicate that a decrease in value of the investment has occurred that is other than temporary. A loss in value of aninvestment that is other than a temporary decline would be recognized as an impairment if the fair value of that investment is less than its carrying amount.The 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. (dollars in thousands, except per share data) 25Index 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, and tax credit carryforwards, on ataxing jurisdiction basis using enacted tax rates in effect for the year in which the differences are expected to reverse or the tax credit carryforwards are expectedto be realized. The recoverability of deferred tax assets is dependent upon the Company’s assessment that it is more likely than not that sufficient futuretaxable income of the appropriate character and in the appropriate taxable years will be generated in the relevant tax jurisdictions to utilize the deferred taxassets. When the Company determines that future taxable income will not be sufficient to utilize the deferred tax assets, a valuation allowance isrecorded. After release of a portion of the Company’s domestic valuation allowance in the fourth quarter of 2012, the remaining domestic valuation allowanceprimarily relates to federal foreign tax credits. Prior to 2012, domestic valuation allowances also included alternative minimum tax credits, research anddevelopment tax credits and other net deferred tax balances, excluding deferred tax liabilities on indefinite-lived intangibles. The Company’s foreign valuationallowances primarily relate to NOL carryforwards in foreign jurisdictions with little or no history of generating taxable income or where future profitability isuncertain. The Company’s accounting for deferred taxes represents management’s best estimate of those future events. Changes in current estimates, due tounanticipated events, could have a material impact on the Company’s financial condition and results of operations.Assumptions and Approach Used in Assessing the Need for a Valuation AllowanceThe Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. If, based on the weight ofavailable evidence, it is more likely than not the deferred tax assets will not be realized, the Company records a valuation allowance against all or a portion ofthe deferred tax assets to adjust the balance to the amount considered more likely than not to be realized. The weight given to the positive and negative evidenceis commensurate with the extent to which the evidence may be objectively verified.This assessment, which is completed on a taxing jurisdiction basis, takes into account a number of types of evidence, including the following:·Nature, frequency, and severity of current and cumulative financial reporting losses. A pattern of objectively-measured recent financial reportinglosses is heavily weighted as a source of negative evidence. The Company generally considers cumulative pre-tax losses in the current three-year period tobe significant negative evidence regarding future profitability. The Company also considers the strength and trend of earnings, as well as other relevantfactors. In certain circumstances, historical information may not be as relevant due to changes in the Company’s business operations;·Sources of future taxable income. Future reversals of existing temporary differences are heavily-weighted sources of objectively verifiable evidence.Projections of future taxable income exclusive of reversing temporary differences are a source of positive evidence only when the projections are combinedwith a history of recent profits and can be reasonably estimated; and·Tax planning strategies. Prudent and feasible tax planning strategies that would be implemented to maximize utilization of expiring tax creditcarryforwards are evaluated as a source of additional positive evidence.Valuation Allowance AssessmentIn 2003, the Company’s assessment of the need for a valuation allowance against domestic deferred tax assets considered current and past performance,cumulative losses in recent years from domestic operations, and a shift in the geographic mix of forecasted income. Considering the pattern of then-recentdomestic losses, the Company gave significant weight to projections showing future domestic losses for purposes of assessing the need for a valuationallowance. This assessment resulted in a determination that it was more likely than not that domestic deferred tax assets would not be realized, and as such, avaluation allowance against net domestic deferred tax assets was recorded.A sustained period of domestic profitability along with expectations of future domestic profitability of sufficient amounts and character is requiredbefore the Company would change its judgment regarding the need for a full valuation allowance against net domestic deferred tax assets. During 2012, theCompany noted that it continued to approach three-year cumulative profitability and that it was possible it would conclude by the end of the year that a portionof its domestic deferred tax asset valuation allowance could be reversed in the fourth quarter of 2012. During the fourth quarter of 2012, the Companycompleted its long range planning process and all necessary analyses and concluded that its three-year cumulative domestic profitability through the end of2012 and expectations of future domestic profitability warranted the reversal of all of the domestic valuation allowance attributable to net federal temporarydifferences, alternative minimum tax credits, and research and experimentation tax credits. Additionally, the Company released a portion of the domesticvaluation allowance attributable to federal foreign tax credits. These valuation allowance releases resulted in a tax benefit to continuing operations of $36,287. (dollars in thousands, except per share data) 26Index 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.Employee Benefit PlansThe Company provides a range of benefits to certain employees and retired employees, including pensions and health care benefits. The Companyrecords annual amounts relating to these plans based on calculations, which include various actuarial assumptions, including discount rates, assumed ratesof return, turnover rates, and health care cost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to theassumptions based on current rates and trends when it is deemed appropriate to do so. The effect of the modifications is generally recorded and amortized overfuture periods. The Company believes that the assumptions utilized for recording obligations under its plans are reasonable.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.Results of Operations2012 Compared to 2011Gross sales in 2012 increased 9.2% to $277,931 from $254,475 in 2011. Foreign currency exchange unfavorably impacted sales 3.4%. Excludingforeign currency, sales volumes increased in most of the Company’s product categories including controlled substances, generic APIs, custom developmentand products utilizing the Company’s drug delivery technology. These increases were partially offset by lower pricing for controlled substances and productsutilizing the Company’s drug delivery technology.The Company also experienced a modest increase in its custom manufacturing product category. This category primarily includes APIs andpharmaceutical intermediates sold to innovator pharmaceutical companies. Increased demand for certain APIs was partially offset by a newly approvedproduct in which the customer built up inventory in 2011.One customer, Gyma, a distributor representing multiple customers, accounted for 12.5% of the Company’s 2012 consolidated sales. One API, sold tomultiple customers, accounted for 11.9% of 2012 consolidated sales. (dollars in thousands, except per share data) 27Index Gross profit in 2012 was $90,487 compared to $74,084 in 2011. Gross margins in 2012 increased to 32.6% compared to 29.1% in 2011. Excludinga 0.2% favorable impact from foreign currency, gross margins increased to 32.4% in 2012 versus 2011. Excluding the foreign currency impact, grossmargins were positively impacted by higher production volumes (3.7%), leading to increased plant efficiency, and favorable product mix (2.6%), partiallyoffset by lower pricing in 2012 which eroded margins (-1.4%).Selling, general and administrative expenses of $45,248 or 16.3% of gross sales in 2012 increased from $39,227 or 15.4% in 2011. This increase isdue primarily to higher employee compensation (approximately $4,800), sales and marketing (approximately $900) and medical expenses (approximately$600) partially offset by a favorable impact from foreign exchange (approximately $1,300).Research and development expenses of $9,544 were 3.4% of gross sales in 2012, compared to $11,037 or 4.3% of gross sales in 2011. The decrease isprimarily due to increased absorption of R&D expenses into inventory and cost of goods sold as a result of increased revenue generating custom developmentactivity and a favorable impact from foreign exchange.Operating profit was $35,695 in 2012 compared to $23,820 in 2011. The increase is due to higher gross profit, partially offset by higher selling,general and administrative expenses discussed above.Net interest expense was $2,439 in 2012 compared to $2,373 in 2011. Higher interest rates were partially offset by lower average debt. The averageinterest rate on debt was 2.2% in 2012 versus 1.6% in 2011. The increase in the interest rate in 2012 is mainly due to the Company’s interest rate swapsentered into in the first quarter of 2012 which fixed the interest rate on $60,000 of its variable rate debt. 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. Theimpact of its ownership stake in Zenara was a loss of $1,976 and $1,621 in 2012 and 2011, respectively, and is located within “Other expenses/(income)”as “Equity in losses of partially-owned affiliates” in the Company’s income statement. These amounts include amortization expense of $965 and $1,106 in2012 and 2011, respectively and depreciation expense of $132 and $149 in 2012 and 2011, respectively. Equity in losses of partially-owned affiliates alsoincludes a gain of $210 in 2012 related to an investment in a European joint venture.The Company recorded a tax benefit of $31,861 in 2012 compared to expense of $6,202 in 2011. The tax benefit for 2012 includes a benefit of$36,287 for a reversal of domestic valuation allowances. Additionally, 2012 and 2011 include benefits of $8,818 and $9,546, respectively, for changes invaluation allowances to offset expense and benefit generated from domestic income, tax credits, and losses in certain foreign jurisdictions. The reversal of thevaluation allowance in 2012 resulted from the Company’s assessment of realizability of domestic deferred tax assets and tax credit carryforwards due toexpected future profitability in the U.S., among other factors. Since 2003, the Company had maintained a full valuation allowance on the tax benefits arisingfrom domestic pre-tax losses, U.S. tax credits, and net deferred tax balances, excluding indefinite-lived intangibles. Excluding the effect of the valuationallowance reversal and the effect of remeasuring certain foreign deferred tax liabilities due to a change in enacted tax rates, the effective tax rate was 18.3% in2012 compared to 31.1% in 2011. This reduction was mostly due to significantly higher U.S. income in 2012 for which the Company was able to utilizefully valued domestic tax attributes, prior to release of the domestic valuation allowance, to mitigate tax expense.In 2009, a subsidiary of the Company was examined by a European tax authority, which challenged the business purpose of the deductibility of certainintercompany transactions from 2003 and issued two formal assessments against the subsidiary. In 2010, the Company filed appeals to litigate thematter. The first court date related to this matter was held in 2011, after which the court issued its ruling in favor of the Company. The tax authoritiesappealed this ruling and the appeals court also ruled in the Company’s favor in the fourth quarter of 2012, however this ruling only applies to the smaller ofthe two assessments. The first court date for the larger of the two assessments was held in September 2012, and the Company has not yet received the court’sruling. In 2012 the Company increased its reserve for unrecognized tax benefits for this matter by $664, including $116 of foreign currency translation,primarily due to a change in the potential penalties that could be levied against the Company. The Company still believes this dispute to be in the early stagesof the judicial process since any ruling reached by any of the courts may be subject to further appeals, and as such the final date of resolution of this matter isuncertain at this time. However, within the next twelve months it is possible that factors such as new developments, settlements or judgments may require theCompany to increase its reserve for unrecognized tax benefits by up to approximately $8,000 or decrease its reserve by approximately $6,000, includingpenalties and interest. If the court rules against the Company in subsequent court proceedings, a payment for a substantial portion of the judgment, includingany penalties and interest, will be due immediately while the case is appealed. The Company has analyzed these issues in accordance with guidance onuncertain tax positions and believes at this time that its reserves are adequate, and intends to vigorously defend itself. (dollars in thousands, except per share data) 28Index Income from continuing operations in 2012 was $63,229 or $2.09 per diluted share, versus $13,735, or $0.46 per diluted share in 2011. Theincrease in 2012 includes a tax benefit of $36,287, or $1.20 per diluted share, resulting from the release of a valuation allowance on deferred tax assets andhigher gross profit resulting from increased sales.2011 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%. Excludingforeign currency, the main drivers of the higher sales include higher volumes of an API to a customer who experienced a disruption in its supply chain formost of 2010, increased volumes for a recently approved product, increased demand for an API manufactured under a long-term supply agreement and highersales of imaging and crop protection chemicals. These increases were partially offset by lower pricing across several product categories, lower revenue fromclinical phase projects 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.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.Operating 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. (dollars in thousands, except per share data) 29Index 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. Theimpact of its ownership stake in Zenara was a loss of $1,621 and $286 in 2011 and 2010, respectively, and is located within “Other expenses/(income)” as“Equity in losses of partially-owned affiliates” in the Company’s income statement. These amounts include amortization expense of $1,106 and $185 in2011 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 $9,546and $14,246, 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 resulted 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 had maintained a full valuation allowance on the tax benefits arising fromdomestic pre-tax losses.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.Liquidity and Capital ResourcesDuring 2012, cash flows from operations provided $43,546, compared to $38,322 in the same period a year ago. The increase in cash flows fromoperations in 2012 compared to 2011 was largely due to an increase of approximately $10,000 in deferred revenue, higher income before taxes, and lowerpension contributions in 2012 partially offset by higher accounts receivable, increased inventory production and higher environmental remediation paymentsrelate to discontinued operations. Cash flows used in investing activities in 2012 of $20,182 mainly reflects capital expenditures of $18,156 and advances topartially-owned affiliates of $2,047. Cash flows used in financing activities in 2012 of $32,667 mainly reflects the pay down of debt. Debt, net of cash,decreased $25,630 during 2012. The year over year weakness in the U.S. dollar favorably impacted the translation of foreign cash balances by $933.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 at December 31, 2012.In March 2012, the Company entered into an interest rate swap with a notional value of $60,000, at a fixed rate of 0.92%, maturing in September2015. The Company’s strategy has been to cover a portion of its outstanding floating rate debt with fixed interest rate protection. At December 31, 2012 theCompany had floating rate debt of $64,000, of which $60,000 is fixed by an interest rate swap.The 2012 and 2011 weighted average interest rates for long-term bank debt were 2.2% and 1.6%, 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. (dollars in thousands, except per share data) 30Index 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. For 2013, capital expenditures are expected to be approximately $36,000 to $40,000. The increase in capital expenditures versus prior year is primarilydriven by a previously announced expansion of the Company’s large scale manufacturing capacity to support expected growth in the business and anagreement signed during 2012 to provide large Phase III and commercial launch materials for a customer. Contractual ObligationsAt December 31, 2012, the Company’s contractual obligations with initial or remaining terms in excess of one year were as follows: Total 2013 2014 2015 2016 2017 2018+ Long term debt $64,000 $- $- $- $64,000 $- $- Interest on debt 7,596 2,137 2,137 2,000 1,322 - - Operating leases 4,052 995 846 671 502 499 539 Purchase obligations 4,265 2,557 1,708 - - - - Contractual cash obligations $79,913 $5,689 $4,691 $2,671 $65,824 $499 $539 In addition to the contractual obligations listed above, the Company expects to contribute approximately $985 in cash to its U.S. defined-benefitpension plan in 2013. The Company believes it is possible that higher pension contributions could be required in 2014 and beyond. For the unfunded SERPand international pension plans, the Company expects to make benefit payments of approximately $1,400 in 2013 and similar amounts in 2014 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 are significant cash outflows related to the Company’s capital expansion projects to take advantage of specific opportunities and$8,478 of uncertain tax positions due to uncertainties surrounding the timing of the obligation. See Note 9 to the Company’s consolidated financialstatements. The Company also may be required to make cash payments to remediate certain environmental sites at unknown future periods as discussed inNote 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, tax audit payments, as well as other factors. See the Risk Factors section of this document forfurther explanation of factors that may negatively impact the Company’s cash flows. Any change in the current status of these factors could adversely impactthe Company's ability to fund operating cash flow requirements. (dollars in thousands, except per share data) 31Index 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 may use 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 Company did not have any foreign currency exchange forward contracts outstandingat December 31, 2012.Interest Rate ManagementThe Company has employed a plan to mitigate interest rate risk by entering into an interest rate swap agreement. The swap is a contract to exchangefloating rate for fixed interest payments periodically over the life of the agreement without the exchange of the underlying notional debt amount. As of December31, 2012, the Company had an interest rate swap in place with a notional value of $60,000, at a fixed rate of 0.92% and with a maturity date in September2015. The Company’s strategy has been to cover a portion of outstanding bank debt with interest rate protection. At December 31, 2012, the coverage was94% of the Company’s variable interest rate debt. Holding all other variables constant, if the LIBOR portion of the weighted average interest rates in thevariable debt increased by 100 basis points, the effect on the Company’s earnings and cash flows would have been higher interest expense of $40. AtDecember 31, 2011, the Company did not have any interest rate swaps outstanding.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 result in actual costs that are significantly higher than the Company’s current assessment and could have a material adverse effect on theCompany's operating results and cash flows in future reporting periods. While these matters, specifically environmental matters, could have a materialadverse effect on the Company’s financial condition, based upon past experience, it is likely that payments significantly in excess of current reserves, ifrequired, would be made over an extended number of years.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. (dollars in thousands, except per share data) 32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. These reserves were $5,096 and $7,786 at December 31, 2012 and 2011, respectively. The decrease in thereserve includes payments of $4,209 partially offset by adjustments to reserves of $1,422 and the impact of currency translation of $97. The reserves areadjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information become available. Based upon availableinformation and analysis, the Company's current reserve represents management's best estimate of the probable and estimable costs associated withenvironmental proceedings including amounts for current investigation fees where full investigation and remediation costs may not be estimable at the reportingdate. Given the uncertainties regarding the outcome of investigative and study activities, the status of laws, regulations, enforcement, policies, the impact ofother PRPs, technology and information related to individual sites, the Company does not believe it is possible to currently develop an estimate of the range ofreasonably possible environmental loss in excess of its reserves.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 continue implementing a sampling plan at the property in 2013pursuant to the New Jersey Department of Environmental Protection’s (“NJDEP”) private oversight program. The results of the completed sampling, and anyadditional sampling deemed necessary, will be used to develop an estimate of the Company's future liability for remediation costs. As of December 31, 2012,the Company’s reserve was $184 to cover costs associated with current investigative work. 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 $767 at December 31, 2012, 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 $836 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 is now placed in the NJDEP’s private oversight program. Under the private oversight program, the Company has continuedwith the investigative 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 (“Agreement”) and Order on Consent with the USEPA agreeing to jointly conduct or fund anappropriate remedial investigation and feasibility study of the Berry’s Creek site with the other PRPs in 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, 2012, the Company’s reservewas $211 to cover the current phase of investigation based on a tentative agreement on the allocation of the site investigation costs among the PRPs. Theinvestigation is ongoing and at this time it is too early to predict the extent of additional liabilities. (dollars in thousands, except per share data) 33Index 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 a soil remedial action at this site in thethird quarter of 2011 which was completed in 2012 pending approval by the USEPA. The completion of this project resulted in an additional expense of$962 recorded in discontinued operations in 2012.Nepera, together with Pfizer as successor to Warner Lambert, is also named a responsible party for its former Harriman, New York production facilityby the New York State Department of Environmental Conservation (“NYSDEC”). A final ROD describing the Harriman site remediation responsibilities forPfizer and the Company was issued in 1997 (the "1997 ROD") and implemented under a federal Consent Decree with NYSDEC. Site clean-up work underthe 1997 ROD is on-going and jointly performed by Pfizer and the Company, with NYSDEC oversight. ELT Harriman, LLC ("ELT"), the current owner ofthe Harriman site, conducted other investigation and remediation activities under a separate NYSDEC directive.In December 2010, the NYSDEC notified the Company, Pfizer, ELT and former owner Vertellus Specialties Holdings that NYSDEC intended toimplement a site-wide re-characterization of the Harriman site under a single, new Administrative Consent Order. This development may lead to increasedliabilities for the Company, in which case, the Company intends to pursue available indemnities against other parties under contract and common law. Thereare on-going discussions between the NYSDEC and all parties to try to resolve this matter. To date, negotiations have been unsuccessful in fully resolvingdisputes as to which parties may be responsible for different remediation activities at the Harriman site. As of December 31, 2012, the reserve recorded by theCompany for the Harriman site was $300, which represents the Company’s best estimate to complete the 1997 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 at the site. The SCP Superfund site has also been identified as a PRP in the Berry’s Creek Superfundsite (see previous discussion). For over a decade, the remediation has been funded by de minimus settlements and by the insurers of the SCP Superfund site’sowners and operators. However, due to an unexpected increase in remediation costs at the site and costs to contribute to the Berry’s Creek investigation, thePRP group has approved the assessment of an additional cash contribution by the PRP group. While the Company continues to dispute the methodology usedby the PRP group to arrive at its allocation for the cash contribution, the Company has paid the initial funding requests. The Company does not currentlymaintain a reserve for the SCP Superfund site. Costs associated with remediation at the site, and SCP’s current allocation of Berry’s Creek investigative costsare each expected to be communicated to the Company by SCP in 2013.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. (dollars in thousands, except per share data) 34Index 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, at the time, the District Court ruled that the defendants were subject to a total of approximately $7,500 inprejudgment interest. The case is currently pending before the District Court following a January 2011 remand by the Court of Appeals where briefing relatedto whether the court has jurisdiction over certain self-funded customer plaintiffs is ongoing.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 $66,632. In the event of a final settlement or final judgment, Cambrex expects anypayment required 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, 2012.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 MeasurementIn May 2011, the FASB issued “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements”that established a framework for how to measure fair value and the disclosures required about fair value measurements. The updated guidance is largelyconsistent with fair value measurement principles that existed prior to the update and became effective on January 1, 2012. The effect of adopting this updatedguidance did not have a material impact on the Company’s financial position or results of operations. (dollars in thousands, except per share data) 35Index Comprehensive IncomeIn June 2011, the FASB issued “Comprehensive Income – Presentation of Comprehensive Income.” This amendment gives companies two options forpresenting other comprehensive income (“OCI”). An OCI statement can be included with the income statement, which together will make a statement of totalcomprehensive income. Alternatively, companies can have an OCI statement separate from an income statement, but the two statements will have to appearconsecutively within a financial report. This amendment is effective for fiscal quarters and years beginning after December 15, 2011. The effect of adoptingthis amendment did not have an impact on the Company’s financial position 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 reporting unit’s fair value is less than the value carried on the balance sheet. Thisamendment is effective for annual and interim tests performed for fiscal years beginning after December 15, 2011. The effect of adopting this statement didnot have an impact on the Company’s financial position or results of operations. (dollars in thousands, except per share data) 36Index Item 7AQuantitative 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 32 of this Form 10-K.Item 8Financial Statements and Supplementary Data.The following consolidated financial statements and selected quarterly financial data of the Company are filed under this item: Page Number (in this Report)Reports of Independent Registered Public Accounting Firm38Consolidated Balance Sheets as of December 31, 2012 and 201140Consolidated Income Statements for the Years Ended December 31, 2012, 2011 and 201041Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2012, 2011 and 201042Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2012, 2011 and 201043Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 201044Notes to Consolidated Financial Statements45Selected Quarterly Financial and Supplementary Data (unaudited)73 The financial statement schedules are filed pursuant to Item 15 of this report. (dollars in thousands, except per share data) 37Index Report 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, 2012 and 2011 and the relatedconsolidated statements of income, comprehensive income/(loss), stockholders’ equity, and cash flows for each of the three years in the period endedDecember 31, 2012. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanyingindex. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements 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 schedule. 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, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31,2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, 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, 2012, 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, 2013 expressed an unqualified opinionthereon. /s/ BDO USA, LLP Woodbridge, NJFebruary 7, 2013 38Index Report 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, 2012, 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, 2012,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, 2012 and 2011, and the related consolidated statements of income, comprehensive income/(loss),stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012 and our report dated February 7, 2013 expressed anunqualified opinion thereon. /s/ BDO USA LLP Woodbridge, NJFebruary 7, 2013 39Index CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(dollars in thousands, except per share data) December 31, 2012 2011 ASSETS Current assets: Cash and cash equivalents $23,551 $31,921 Trade receivables, less allowances of $652 and $450 at respective dates 43,094 36,510 Inventories, net 71,221 62,095 Prepaid expenses and other current assets 6,104 6,083 Total current assets 143,970 136,609 Property, plant and equipment, net 151,815 139,628 Goodwill 37,312 36,731 Intangible assets, net 4,091 4,261 Investments in and advances to partially-owned affiliates 15,094 15,090 Deferred income taxes 39,262 7,087 Other non-current assets 2,924 3,425 Total assets $394,468 $342,831 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $27,612 $21,200 Deferred revenue 11,570 1,060 Accrued expenses and other current liabilities 43,844 36,873 Total current liabilities 83,026 59,133 Long-term debt 64,000 98,000 Deferred income taxes 18,577 23,330 Accrued pension benefits 55,373 52,089 Other non-current liabilities 10,195 9,938 Total liabilities 231,171 242,490 Commitments and contingencies (see Notes 18 and 19) Stockholders' equity: Common Stock, $.10 par value; authorized 100,000,000 issued 31,704,230 and 31,441,138 shares at respective dates 3,169 3,143 Additional paid-in capital 104,173 101,646 Retained earnings 105,263 42,960 Treasury stock, at cost, 1,795,082 and 1,866,258 shares at respective dates (15,217) (15,821)Accumulated other comprehensive loss (34,091) (31,587)Total stockholders' equity 163,297 100,341 Total liabilities and stockholders' equity $394,468 $342,831 See accompanying notes to consolidated financial statements. 40Index CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED INCOME STATEMENTS(dollars in thousands, except per share data) Years Ended December 31, 2012 2011 2010 Gross Sales $277,931 $254,475 $226,436 Commissions, allowances and rebates 2,503 1,776 1,545 Net sales 275,428 252,699 224,891 Other 1,073 2,954 2,101 Net revenues 276,501 255,653 226,992 Cost of goods sold 186,014 181,569 160,126 Gross profit 90,487 74,084 66,866 Selling, general and administrative expenses 45,248 39,227 34,024 Research and development expenses 9,544 11,037 10,305 Restructuring expenses - - 1,293 Merger and acquisition expenses - - 997 Operating profit 35,695 23,820 20,247 Other expenses/(income) Interest expense, net 2,439 2,373 4,391 Other expenses/(income), net 122 (111) 596 Equity in losses of partially-owned affiliates 1,766 1,621 286 Income before income taxes 31,368 19,937 14,974 (Benefit)/provision for income taxes (31,861) 6,202 5,665 Income from continuing operations 63,229 13,735 9,309 (Loss)/income from discontinued operations, net of tax (926) (2,767) 338 Net income $62,303 $10,968 $9,647 Basic earnings per share Income from continuing operations $2.13 $0.46 $0.32 (Loss)/income from discontinued operations, net of tax $(0.03) $(0.09) $0.01 Net income $2.10 $0.37 $0.33 Diluted earnings per share Income from continuing operations $2.09 $0.46 $0.32 (Loss)/income from discontinued operations, net of tax $(0.03) $(0.09) $0.01 Net income $2.06 $0.37 $0.33 Weighted average shares outstanding: Basic weighted average shares outstanding 29,703 29,468 29,361 Effect of dilutive stock options and restricted stock 611 96 107 Diluted weighted average shares outstanding 30,314 29,564 29,468 See accompanying notes to consolidated financial statements. 41Index CAMBREX CORPORATION AND SUBSIDIARIESSTATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME/(LOSS)(dollars in thousands) Years Ended December 31, 2012 2011 2010 Net income $62,303 $10,968 $9,647 Foreign currency translation adjustments: Unrealized net change arising during the period 4,066 (7,501) (7,417) Foreign currency forward contracts: Unrealized net (loss)/gain on forward contracts (51) 624 1,643 Reclassification adjustments for gains included in net income (329) (143) (2,054)Income taxes on forward contracts 110 (142) 114 Interest rate swap agreement: Unrealized net losses on swap agreement (1,253) - (42)Reclassification adjustments for losses included in net income 323 - 2,080 Income taxes on swap agreement 326 - - Pension plans: Actuarial loss Actuarial loss arising during the period (4,413) (14,126) (2,665)Amortization to net income of net actuarial loss 1,140 618 564 Prior service cost Amortization to net income of net prior service cost 110 486 487 Income taxes on pension plans (2,533) 489 1 Comprehensive income/(loss) $59,799 $(8,727) $2,358 See accompanying notes to consolidated financial statements. 42Index CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(dollars in thousands, except per share data) Common Stock SharesIssued ParValue($.10) AdditionalPaid-InCapital RetainedEarnings TreasuryStock AccumulatedOtherComprehensiveLoss TotalStockholders'Equity Balance at December 31, 2009 31,408,778 $3,140 $100,497 $22,345 $(18,109) $(4,603) $103,270 Net income 9,647 9,647 Other comprehensive loss (7,289) (7,289)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 Net income 10,968 10,968 Other comprehensive loss (19,695) (19,695)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 Net income 62,303 62,303 Other comprehensive loss (2,504) (2,504)Exercise of stock options 263,092 26 1,329 1,355 Vested restricted stock (604) 604 - Stock option expense 1,303 1,303 Restricted stock expense 446 446 Performance stock expense 53 53 Balance at December 31, 2012 31,704,230 $3,169 $104,173 $105,263 $(15,217) $(34,091) $163,297 See accompanying notes to consolidated financial statements. 43Index CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(dollars in thousands) Years Ended December 31, 2012 2011 2010 Cash flows from operating activities: Net income $62,303 $10,968 $9,647 Adjustments to reconcile net income to cash flows: Depreciation and amortization 21,775 23,120 21,828 Increase in inventory reserve 2,790 1,637 1,719 Allowance for doubtful accounts 193 (103) 479 Stock based compensation included in net income 1,802 1,565 1,822 Deferred income tax provision (40,712) (721) (1,165)Restructuring charges - - 870 Equity in losses of partially-owned affiliates 1,766 1,621 286 Other 343 390 297 Changes in assets and liabilities: Trade receivables (6,310) 2,066 (7,148)Inventories (10,295) (3,523) (4,925)Prepaid expenses and other current assets (188) 729 1,357 Accounts payable and other current liabilities 3,134 6,247 (2,316)Deferred revenue 10,510 524 (104)Other non-current assets and liabilities 182 (5,597) 770 Discontinued operations: Net cash used in discontinued operations (3,747) (601) (133)Net cash provided by operating activities 43,546 38,322 23,284 Cash flows from investing activities: Capital expenditures (18,156) (15,008) (12,637)Advances to partially-owned affiliates (2,047) - - Acquisition of business and equity investment, net of cash acquired - (500) (25,249)Capital invested in partially-owned affiliate - - (1,148)Other investing activities 21 20 (18)Net cash used in investing activities (20,182) (15,488) (39,052) Cash flows from financing activities: Long-term debt activity (including current portion): Borrowings 5,500 105,800 33,200 Repayments (39,500) (123,700) (38,100)Debt issuance costs - (1,541) - Proceeds from stock options exercised 1,355 145 - Other financing activities (22) (340) (54)Net cash used in financing activities (32,667) (19,636) (4,954) Effect of exchange rate changes on cash and cash equivalents 933 (891) (2,029)Net (decrease)/increase in cash and cash equivalents (8,370) 2,307 (22,751)Cash and cash equivalents at beginning of year 31,921 29,614 52,365 Cash and cash equivalents at end of year $23,551 $31,921 $29,614 Supplemental disclosure: Interest paid, net of capitalized interest $2,556 $2,258 $4,328 Income taxes paid, net of refunds received $5,068 $8,520 $3,579 See accompanying notes to consolidated financial statements. 44Index CAMBREX 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 to alesser extent, other fine chemicals. Cambrex has three operating segments, which are manufacturing facilities that have been aggregated as one reportablesegment.(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 with its equity method investees for assets still remaining in inventory at the end of the reporting period. All other significant intercompany balances andtransactions 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 inability to make payments, additionalallowances 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.Derivative InstrumentsDerivative financial instruments are periodically used by the Company primarily for hedging purposes to mitigate a variety of working capital,investment and borrowing risks. The Company primarily uses foreign currency forward contracts to minimize foreign currency exchange rate risk associatedwith foreign currency transactions. Gains and losses on these hedging transactions are generally recorded in earnings in the same period as they are realized,which is usually the same period as the settlement of the underlying transactions. The Company uses interest rate swap instruments only as hedges or as anintegral 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. 45Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(2) Summary of Significant Accounting Policies (continued)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 estimated selling prices. Reserves are recorded to reduce the carrying value for inventory determined to be damaged, obsolete orotherwise 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 improvements 20 to 30 years, or term of lease if applicableMachinery and equipment 7 to 15 yearsFurniture and fixtures 5 to 7 yearsComputer hardware and software 3 to 7 yearsExpenditures for additions, major renewals or betterments are capitalized and expenditures for maintenance and repairs are charged to income asincurred.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 2012, 2011 and 2010 was negligible.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. 46Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(2) Summary of Significant Accounting Policies (continued)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.The Company has investments in a partially-owned affiliates. It does not separately test an investee’s underlying assets for impairment but willrecognize its share of any impairment charge recorded by an investee in earnings and consider the effect of the impairment on its investment. A series ofoperating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred that is other than temporary. A loss in valueof an investment that is other than a temporary decline would be recognized as an impairment if the fair value of that investment is less than its carryingamount.Revenue 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.Amounts billed in advance are recorded as deferred revenue on the balance sheet. Since payments received are sometimes non-refundable, thetermination of a contract by a customer prior to its completion could result in an immediate recognition of deferred revenue relating to payments alreadyreceived but not previously 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 are consolidated for financial reporting butare not eligible to be included in the consolidated U.S. income tax return, however the earnings of foreign subsidiaries are generally taxed by the U.S. whenrepatriated and such U.S. tax may be reduced or eliminated by federal foreign tax credits based on the foreign income and withholding taxes paid or accrued bythe foreign subsidiaries. Historically, the Company intended to reinvest foreign earnings indefinitely outside of the U.S. and only considered repatriatingexcess cash from foreign subsidiaries if it could utilize fully valued domestic tax attributes to completely offset any tax expense that would otherwiseresult. Unrecognized foreign tax credits and fully valued foreign tax credit carryovers were available to offset any potential U.S. tax liability. Therefore, theCompany had not provided U.S. federal income taxes or foreign withholding taxes on its undistributed earnings from foreign operations as of December 31,2011. During the fourth quarter of 2012 the Company completed a detailed forecast of foreign source income by jurisdiction as part of the ongoing process toevaluate its valuation allowance against deferred tax assets. As part of this process, as well as a continuing desire to limit its credit and currency exposure forcash held in foreign currencies or in non-U.S. banks, the Company determined that it is likely that a portion of the undistributed earnings of its foreignsubsidiaries will be repatriated to the U.S. in the future. Accordingly, the Company has changed its indefinite reinvestment assertion and provided a deferredtax liability of $541 on undistributed foreign earnings as of December 31, 2012. Subject to limitations, U.S. income tax on such foreign earnings, whenactually repatriated, may be reduced or eliminated by unrecognized foreign tax credits that may be generated in connection with the repatriation, or by existingforeign tax credits or other tax attributes for which valuation allowance was released in the fourth quarter of 2012. 47Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(2)Summary of Significant Accounting Policies (continued)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.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 $274, $62 and$113 in 2012, 2011 and 2010, 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, 2012, 2011 and 2010, shares of 580,745, 1,839,373, and 1,866,270, respectively, were not included in thecalculation of diluted shares outstanding because the effect would be anti-dilutive. 48Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(2)Summary of Significant Accounting Policies (continued)Comprehensive LossIncluded within accumulated other comprehensive income/(loss) for the Company are foreign currency translation adjustments, changes in the fairvalue related to derivative instruments classified as cash flow hedges, net of related tax, and changes in the pensions, net of tax. Total comprehensiveincome/(loss) for the years ended December 31, 2012 and 2011 are included in the Statements of Comprehensive Income/(Loss).The components of accumulated other comprehensive loss in stockholders’ equity are as follows: 2012 2011 Foreign currency translation $5,177 $1,111 Unrealized (loss)/gain on hedging contracts, net of tax (600) 274 Pensions, net of tax (38,668) (32,972)Total $(34,091) $(31,587)(3) Impact of Recently Issued Accounting PronouncementsFair Value MeasurementIn May 2011, the FASB issued “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements”that established a framework for how to measure fair value and the disclosures required about fair value measurements. The updated guidance is largelyconsistent with fair value measurement principles that existed prior to the update and became effective on January 1, 2012. The effect of adopting this updatedguidance did not have a material 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 amendment gives companies two options forpresenting other comprehensive income (“OCI”). An OCI statement can be included within the income statement, which together will make a statement of totalcomprehensive income. Alternatively, companies can have an OCI statement separate from an income statement, but the two statements will have to appearconsecutively within a financial report. This amendment is effective for fiscal quarters and years beginning after December 15, 2011. The effect of adoptingthis amendment did not have an impact on the Company’s financial position 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 reporting unit’s fair value is less than the value carried on the balance sheet. Thisamendment is effective for annual and interim tests performed for fiscal years beginning after December 15, 2011. The effect of adopting this statement didnot have an impact on the Company’s financial position or results of operations. 49Index CAMBREX 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, 2012 2011 Finished goods $30,262 $26,885 Work in process 23,533 19,190 Raw materials 12,352 11,261 Supplies 5,074 4,759 Total $71,221 $62,095 The components of inventory stated above are net of reserves of $11,839 and $11,243 as of December 31, 2012 and 2011, respectively.(5) Property, Plant and EquipmentProperty, plant and equipment consist of the following: December 31, 2012 2011 Land $4,221 $4,147 Buildings and improvements 92,307 89,587 Machinery and equipment 364,370 340,978 Furniture and fixtures 1,813 1,797 Construction in progress 21,382 8,190 Total 484,093 444,699 Accumulated depreciation (332,278) (305,071)Net $151,815 $139,628 Depreciation expense was $21,528, $22,822 and $21,632 for the years ended December 31, 2012, 2011 and 2010, respectively. Total capitalexpenditures in 2012 and 2011 were $29,407 and $15,008, respectively.(6) Goodwill and Intangible AssetsThe changes in the carrying amount of goodwill for the years ended December 31, 2012 and 2011 are as follows:Balance as of January 1, 2011 $37,694 Translation effect (963)Balance as of December 31, 2011 36,731 Translation effect 581 Balance as of December 31, 2012 $37,312 50Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(6) Goodwill and Intangible Assets (continued)Acquired intangible assets, which are amortized, consist of the following: As of December 31, 2012 AmortizationPeriod Gross CarryingAmount AccumulatedAmortization Net CarryingAmount Technology-based intangibles20 years $4,011 $(552) $3,459 Customer-related intangibles10 - 15 years 778 (146) 632 $4,789 $(698) $4,091 As of December 31, 2011 AmortizationPeriod Gross CarryingAmount 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 The change in the gross carrying amount is primarily due to the impact of foreign currency.Amortization expense amounted to $247, $298 and $196 for the years ended December 31, 2012, 2011 and 2010, respectively.Amortization expense related to current intangible assets is expected to be approximately $250 in each of the next five years.(7) Investments in and Advances to Partially-Owned AffiliatesThe 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.The impact of its ownership stake in Zenara was a loss of $1,976, $1,621 and $286 in 2012, 2011 and 2010, respectively, and is located within“Other expenses/(income)” as “Equity in losses of partially-owned affiliates” in the Company’s income statement. These amounts include amortizationexpense of $965, $1,106 and $185 in 2012, 2011 and 2010, respectively, and depreciation expense of $132, $149 and $25 in 2012, 2011 and 2010,respectively. In 2012, the Company advanced $1,594 to Zenara.Investments in and advances to partially-owned affiliates also includes a gain of $210 in 2012 related to an investment in a European joint venture. In2012, the Company advanced $453 to the European joint venture. 51Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(8) Accrued Expense and Other Current LiabilitiesThe components of accrued expenses and other current liabilities are as follows: December 31, 2012 2011 Salaries and employee benefits payable $22,702 $17,650 Taxes payable and related reserves 10,180 7,181 Other 10,962 12,042 Total $43,844 $36,873 (9) Income TaxesIncome before income taxes consists of the following: December 31, 2012 2011 2010 Domestic $13,525 $3,749 $1,199 International 17,843 16,188 13,775 Total $31,368 $19,937 $14,974 The provision for income taxes consist of the following (benefits)/provisions: December 31, 2012 2011 2010 Current: Federal $(177) $(196) $(3)State 4 45 55 International 8,525 7,074 6,778 8,352 6,923 6,830 Deferred: Federal $(36,287) $204 $204 International (3,926) (925) (1,369) (40,213) (721) (1,165)Total $(31,861) $6,202 $5,665 52Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(9)Income Taxes (continued)The (benefit)/provision for income taxes differs from the statutory federal income tax rate of 35% for 2012, 2011 and 2010 as follows: December 31, 2012 2011 2010 Income tax provision at U.S federal statutory rate $10,979 $6,978 $5,241 State and local taxes, net of federal income tax benefits (1) 14 17 Effect of foreign income taxed at rates other than the U.S. federal statutory rate (1,780) 469 610 Foreign income inclusions 4,563 8,398 13,869 Tax credits (177) (196) - Indefinite-lived intangibles - 204 204 Net change in valuation allowance (45,105) (9,546) (14,246)Other (340) (119) (30)Total $(31,861) $6,202 $5,665 Foreign income inclusions represent distributions from foreign subsidiaries which gave rise to newly recognized foreign tax credits. The Companyutilized fully valued foreign tax credits, alternative minimum tax credits, and research and experimentation tax credits in 2012, prior to the release of thedomestic valuation allowance, fully valued foreign tax credits in 2011, and fully valued net operating loss carryforwards and foreign tax credits in 2010, tocompletely offset any tax impact of the foreign income inclusions. Net change in the valuation allowance in 2012 includes the fourth quarter benefit of$36,287 for the release of the domestic valuation allowance, the reduction in the domestic valuation allowance, prior to the release, for the utilization of fullyvalued tax credits to offset U.S. income tax and deferred tax amounts of $8,660, and the reduction in the foreign valuation allowance of $158.The components of deferred tax assets and liabilities as of December 31, 2012 and 2011 relate to temporary differences and carryforwards as follows: December 31, 2012 2011 Current deferred tax assets: Inventory $2,263 $2,281 Legal and related reserves 100 508 Other 121 120 Current deferred tax assets 2,484 2,909 Valuation allowances (754) (1,991)Total current deferred tax assets $1,730 $918 Current deferred tax liabilities: Unremitted foreign earnings $541 $- Other 2 856 Total current deferred tax liabilities $543 $856 53Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(9) Income Taxes (continued) December 31, 2012 2011 Non-current deferred tax assets: Foreign tax credit carryforwards $35,410 $50,936 Environmental 850 1,549 Net capital loss carryforwards (domestic) 31 15 Net operating loss carryforwards (foreign) 902 996 Employee benefits 17,977 17,138 Restructuring 334 18 Research & experimentation tax credit carryforwards 1,681 1,630 Alternative minimum tax credit carryforwards 2,604 3,070 Property, plant and equipment 4,228 3,498 Other 4,432 3,817 Non-current deferred tax assets 68,449 82,667 Valuation allowances (29,187) (75,580)Total non-current deferred tax assets 39,262 7,087 Non-current deferred tax liabilities: Property, plant and equipment 6,523 7,960 Intangibles and other 9,510 11,558 Foreign tax allocation reserve 2,544 3,812 Total non-current deferred tax liabilities $18,577 $23,330 Total net non-current deferred tax (assets)/liabilities $(20,685) $16,243 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. In 2003, the Company’s assessment of the need for a valuation allowance against domestic deferred tax assets consideredcurrent and past performance, cumulative losses in recent years from domestic operations, and a shift in the geographic mix of forecastedincome. Considering the pattern of then-recent domestic losses, the Company gave significant weight to projections showing future domestic losses forpurposes of assessing the need for a valuation allowance. This assessment resulted in a determination that it was more likely than not that domestic deferredtax assets would not be realized, and as such, a valuation allowance against net domestic deferred tax assets was recorded.A sustained period of domestic profitability along with expectations of future domestic profitability of sufficient amounts and character is requiredbefore the Company would change its judgment regarding the need for a full valuation allowance against net domestic deferred tax assets. During 2012, theCompany noted that it continued to approach three-year cumulative profitability and that it was possible it would conclude by the end of the year that a portionof its domestic deferred tax asset valuation allowance could be reversed in the fourth quarter of 2012. During the fourth quarter of 2012, the Companycompleted its long range planning process and all necessary analyses and concluded that its three-year cumulative domestic profitability through the end of2012 and expectations of future domestic profitability warranted the reversal of all of the domestic valuation allowance attributable to net federal temporarydifferences, alternative minimum tax credits, and research and experimentation tax credits. Additionally, the Company released a portion of the domesticvaluation allowance attributable to federal foreign tax credits. These valuation allowance releases resulted in a tax benefit to continuing operations of $36,287. 54Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(9) Income Taxes (continued)The Company expects to maintain a partial valuation allowance against its domestic federal foreign tax credits, subject to the consideration of allprudent and feasible tax planning strategies, until such time as the Company attains an appropriate level of future domestic profitability of the appropriatecharacter and in the appropriate taxable years and is able to conclude that it is more likely than not that some portion of the domestic federal foreign tax creditsagainst which the valuation allowance is recorded are realizable. The Company currently expects to maintain a full valuation allowance against state taxcredits and deferred tax assets due to restrictive rules regarding realization. The Company expects to maintain a full valuation allowance against certain foreigntax assets, primarily NOL carryforwards, until such time as the Company attains an appropriate level of future profitability in the appropriate jurisdictionsand is able to conclude that it is more likely than not that its foreign deferred tax assets are realizable.The domestic valuation allowance for the years ended December 31, 2012, 2011 and 2010 decreased $47,490, increased $304, and decreased $3,891respectively. The 2012 decrease in the domestic valuation allowance was allocated as follows: The valuation allowance decreased $36,287 for the release ofvaluation allowance due to domestic profitability, decreased by a net amount of $8,660 for domestic income and deferred tax amounts in continuingoperations prior to the release of valuation allowance in the fourth quarter of 2012, and decreased by a net amount of $2,543 for domestic gains and lossesincluded in OCI and discontinued operations. The 2011 increase in the domestic valuation allowance was allocated as follows: The valuation allowancedecreased $9,340 for domestic income in continuing operations and increased by a net amount of $9,644 for deferred tax amounts, domestic gains and lossesincluded in OCI and discontinued operations. The 2010 decrease in the domestic valuation allowance was allocated as follows: The valuation allowancedecreased $14,321 for domestic income in continuing operations and increased by a net amount of $10,340 for deferred tax amounts, domestic gains andlosses included in OCI and discontinued operations.The foreign valuation allowance for the years ended December 31, 2012, 2011 and 2010 decreased $140, decreased $582, and increased $1,372,respectively. The 2012 decrease in the foreign valuation allowance was allocated as follows: The valuation allowance decreased $158 for foreign income andincreased $18 for deferred tax amounts and currency translation adjustments included in OCI. The 2011 decrease in the foreign valuation allowance wasallocated as follows: The valuation allowance decreased $206 for foreign income and decreased $376 for deferred tax amounts and currency translationadjustments included in OCI. The 2010 increase in the foreign valuation allowance was allocated as follows: The valuation allowance increased $75 forforeign losses and increased $1,297 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 are approximately $3,038, of which $2,347 are attributable to NOLs acquired during 2010. NOLs in most foreign jurisdictions willcarry forward indefinitely.As of December 31, 2012, $35,410 of domestic federal foreign tax credits, $1,681 of research and experimentation tax credits and $2,604 ofalternative minimum tax credits are available as credits against future U.S. income taxes on worldwide income, subject to certain limitations. Under U.S. taxlaws, these will expire in 2013 through 2018, 2020 through 2031, and the alternative minimum tax credit carryforwards have no expiration date, respectively.The domestic federal foreign tax credits are partially offset by a valuation allowance. 55Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(9) Income Taxes (continued)In 2012 and 2011, the Company repatriated $8,953 and $25,332, respectively, of cash from its foreign subsidiaries in order to reduce its credit andcurrency exposure for cash held in foreign currencies or in non-U.S. banks by utilizing the excess cash for debt reduction. The Company utilized fullyvalued domestic tax credits in 2012 and 2011 to completely offset any tax impact of the foreign inclusions. Historically, the Company intended to reinvestforeign earnings indefinitely outside of the U.S. and only considered repatriating excess cash from foreign subsidiaries if it could utilize fully valued domestictax attributes to completely offset any tax expense that would otherwise result. Unrecognized foreign tax credits and fully valued foreign tax credit carryovershad been available to offset any potential U.S. tax liability. Therefore, the Company had not provided U.S. federal or state income taxes or foreign withholdingtaxes on its undistributed earnings from foreign operations as of December 31, 2011. During the fourth quarter of 2012 the Company completed a detailedforecast of foreign source income by jurisdiction as part of the ongoing process to evaluate its valuation allowance against deferred tax assets. As part of thisprocess, as well as a continuing desire to limit its exposure for cash held in foreign banks, the Company determined that it is likely that a portion of theundistributed earnings of its foreign subsidiaries will be repatriated to the U.S. in the future. Accordingly, the Company has changed its indefinitereinvestment assertion and provided a deferred tax liability of $541 on undistributed foreign earnings as of December 31, 2012. Subject to limitations, U.S.income tax on such foreign earnings, when actually repatriated, may be reduced or eliminated by unrecognized foreign tax credits that may be generated inconnection with the repatriation, or by existing foreign tax credits or other tax attributes for which a valuation allowance was released in the fourth quarter of2012.The following table summarizes the activity related to the Company’s unrecognized tax benefits as of December 31, 2012, 2011 and 2010: 2012 2011 2010 Balance at January 1 $4,328 $4,085 $4,598 Gross increases related to current period tax positions 348 317 236 Gross increases/(decreases) related to prior period tax positions (483) 95 (303)Expirations of statute of limitations for the assessment of taxes (113) (38) (161)Settlements (175) - - Foreign currency translation 62 (131) (285)Balance at December 31 $3,967 $4,328 $4,085 Of the total balance of unrecognized tax benefits at December 31, 2012, $3,967, if recognized, would affect the effective tax rate.Gross interest and penalties at December 31, 2012, 2011 and 2010 of $4,511, $3,427 and $3,160, respectively, related to the above unrecognized taxbenefits are not reflected in the table above. In 2012, 2011 and 2010, the Company accrued $985, $328 and $343, 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 2007 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 2008 and forward. 56Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(9) Income Taxes (continued)In 2009, a subsidiary of the Company was examined by a European tax authority, which challenged the business purpose of the deductibility of certainintercompany transactions from 2003 and issued two formal assessments against the subsidiary. In 2010, the Company filed appeals to litigate thematter. The first court date related to this matter was held in 2011, after which the court issued its ruling in favor of the Company. The tax authoritiesappealed this ruling and the appeals court also ruled in the Company’s favor in the fourth quarter of 2012, however this ruling only applies to the smaller ofthe two assessments. The first court date for the larger of the two assessments was held in September 2012, and the Company had not yet received the court’sruling. In 2012 the Company increased its reserve for unrecognized tax benefits for this matter by $664, including $116 of foreign currency translation,primarily due to a change in the potential penalties that could be levied against the Company. The Company still believes this dispute to be in the early stagesof the judicial process since any ruling reached by any of the courts may be subject to further appeals, and as such the final date of resolution of this matter isuncertain at this time. However, within the next twelve months it is possible that factors such as new developments, settlements or judgments may require theCompany to increase its reserve for unrecognized tax benefits by up to approximately $8,000 or decrease its reserve by approximately $6,000, includingpenalties and interest. If the court rules against the Company in subsequent court proceedings, a payment for a substantial portion of the judgment, includingany penalties and interest, will be due immediately while the case is appealed. The Company has analyzed these issues in accordance with guidance onuncertain tax positions and believes at this time that its reserves are adequate, and intends to vigorously defend itself.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 $500. 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, 2012. As of December 31, 2012, there was $64,000 outstanding on the Credit Facility. As of December 31, 2011, there was $98,000outstanding on the Credit Facility. The 2012 and 2011 weighted average interest rate for long-term bank debt was 2.2% and 1.6%, 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 periodically enters into foreign currency forward contracts to hedge forecasted cash flows associated with foreign currency transactionexposures, as deemed appropriate. This hedging strategy mitigates some of the impact of short-term foreign exchange rate movements on the Company's localoperating results primarily in Sweden and Italy. The Company's primary market risk relates to exposures to foreign currency exchange rate fluctuations ontransactions entered into by these international operations that are denominated primarily in U.S. dollars, Swedish krona and Euros. 57Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(11) Derivatives and Hedging Activities (continued)The Company's foreign currency forward contracts substantially offset gains and losses on the transactions being hedged. Foreign currency forwardcontracts outstanding during the year had varying maturities with none exceeding twelve months.All foreign currency forward contracts outstanding during the year had been designated as cash flow hedges and, accordingly, changes in the fair valueof these derivatives were not included in earnings but were included in accumulated other comprehensive (loss)/income (“AOCI”). Changes in the fair value ofthe derivative instruments reported in AOCI were recorded into earnings as a component of product revenue or expense, as applicable, when the forecastedtransaction occurred. The ineffective portion of all hedges was recognized in current-period earnings and was immaterial to the Company's financial results.The notional amounts of foreign exchange forward contracts were $11,005 at December 31, 2011. There were no foreign currency forward contractsoutstanding at December 31, 2012.Included in AOCI is the fair value of the Company’s foreign currency forward contracts which was a gain of $380 as of December 31, 2011. The gainis located under the caption “Prepaid expenses and other current assets” on the balance sheet as of December 31, 2011.Interest Rate SwapThe Company entered into an interest rate swap in March 2012 to reduce the impact of changes in interest rates on its floating rate debt. The swap is acontract to exchange floating rate for fixed interest payments periodically over the life of the agreement without the exchange of the underlying notional debtamount.The swap contract outstanding at December 31, 2012 has been designated as a cash flow hedge and, accordingly, changes in the fair value of thisderivative is not recorded in earnings but are recorded each period in AOCI and reclassified into earnings as interest expense in the same period during whichthe hedged transaction affects earnings. The ineffective portion of all hedges is recognized in earnings and has been immaterial to the Company's financialresults.As of December 31, 2012, the interest rate swap had a notional value of $60,000, at a fixed rate of 0.92%, maturing in September 2015. The fairvalue of this swap is based on quoted market prices and was in a loss position of $930 at December 31, 2012. This loss is reflected in the Company’sbalance sheet under the caption “Accrued expenses and other current liabilities.” The Company did not have any interest rate swaps outstanding at December31, 2011.Assuming current market conditions continue, a loss of $419 is expected to be reclassed out of AOCI into earnings within the next 12 months.Refer to Note 12 to the Company’s consolidated financial statements for the summary table containing the fair value of the Company’s financialinstruments.(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Index CAMBREX 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, 2012 and 2011: Fair Value Measurements at December 31, 2012 using: Description Total (Level 1) (Level 2) (Level 3) Interest rate swap, liabilities $(930) $- $(930) $- Total $(930) $- $(930) $- Fair Value Measurements at December 31, 2011 using: Description Total (Level 1) (Level 2) (Level 3) Foreign currency forwards, assets $380 $- $380 $- Total $380 $- $380 $- The fair value of the interest rate swap is estimated based on the present value of the difference between expected cash flows calculated at the contractedinterest rate and the expected cash flows at current market interest rates using observable benchmarks for the LIBOR forward rates at the end of the period.The Company’s foreign currency forward contracts are measured at fair value using observable market inputs such as forward rates, the Company’scredit risk and its counterparties’ credit risks. Based on these inputs, foreign currency forward contracts are classified within Level 2 of the valuationhierarchy. Based on the Company’s continued ability to enter into forward contracts, the Company considers the markets for its fair value instruments to beactive.As of December 31, 2012, 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 receivables, 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.Refer to Note 11 to the Company’s consolidated financial statements for further disclosures on the Company’s financial instruments.(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, 2012 and 2011. Authorized shares of Nonvoting Common Stock were 730,746 at December 31, 2012 and 2011. 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, 2012 and 2011, 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 31,2012 and 2011, there was no preferred stock outstanding. 59Index CAMBREX 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 1,795,082 and 1,866,258 at December 31, 2012 and 2011, respectively, which are primarily used forissuance to employee compensation plans.At December 31, 2012 there were 439,608 authorized shares of Common Stock reserved for issuance through equity compensation plans.(14) Restructuring ExpensesDuring 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 as “Restructuring expenses” in the income statement. As of December 31, 2012 the balance in this reserve was negligible.(15) Stock Based CompensationThe Company recognizes compensation costs for stock options awarded to employees based on their grant-date fair value. The value of each stockoption is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average fair value per share for the stock options grantedto employees for the years ended December 31, 2012, 2011 and 2010 were $7.14, $3.18 and $2.45, respectively.The following assumptions were used in determining the fair value of stock options for grants issued in 2012, 2011 and 2010: 2012 2011 2010 Expected volatility 71.84% 68.91%-71.53% 66.48%-68.13%Expected term 4.75 years 4.75 years 4.75 yearsRisk-free interest rate 0.66% 1.02%-2.00% 1.25%-2.52%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 2012, 2011, and 2010, the Company recorded $1,303, $1,028 and $1,072, respectively, in selling, general and administrative expenses for stockoptions. As of December 31, 2012, the total compensation cost related to unvested stock option awards granted to employees but not yet recognized was$4,318. 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. Members ofthe Cambrex Board of Directors currently participate in an incentive plan which rewards service with restricted stock units. Awards are made annually andvest over six months. On the six month anniversary of the grant, restrictions on sale or transfer are removed and shares are issued to the Directors. In theevent of termination of service or retirement, the participant is entitled to the vested portion of the restricted stock units and forfeits the remainingamount. These awards are classified as equity awards. 60IndexCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(15) Stock Based Compensation (continued)For 2012, 2011, and 2010, the Company recorded $446, $497, and $645, respectively, in selling, general and administrative expenses for restrictedstock units. As of December 31, 2012, the total compensation cost related to unvested restricted stock units granted but not yet recognized was $27. The costwill be amortized on a straight-line basis over the remaining weighted-average vesting period of 0.1 years.The Company grants equity-settled performance shares (“PSs”) to certain executives. PS awards provide the recipient the right to receive a certainnumber of shares of the Company’s common stock in the future, which depends on the Company’s level of achievement of revenue and EBITDA growth ascompared to the relative revenue and EBITDA growth of the members of a specified peer group of companies typically over a three year performanceperiod. The peer group consists of publicly-traded life sciences companies competing in the same industry as the Company. For 2012, 2011 and 2010, theCompany recorded $53, $40 and $157, respectively, in selling, general and administrative expense related to these PS awards.The Company grants cash-settled performance share units (“PSUs”) to certain executives. PSU awards provide the recipient the right to receive thecash value of a certain number of shares of the Company’s common stock in the future, which depends on the Company’s level of achievement of revenueand EBITDA growth as compared to the relative revenue and EBITDA growth of the members of a specified peer group of companies typically over a threeyear performance period. The peer group consists of publicly-traded life sciences companies competing in the same industry as the Company. For 2012,2011 and 2010, the Company recorded $1,529, $415 and $78, respectively, in selling, general and administrative expenses for PSU awards. The increaseis primarily the result of the Company’s recent performance compared to the peer group and the Company’s higher share price.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, 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 1,122,122 Granted 392,400 12.46 Exercised (263,092) 5.15 Forfeited or expired (154,782) 18.72 Outstanding at December 31, 2012 2,264,399 7.02 Exercisable at December 31, 2012 1,234,623 $6.12 The aggregate intrinsic value for all stock options exercised for the years ended December 31, 2012 and 2011 was $1,658 and $70, respectively, andnegligible for 2010. The aggregate intrinsic values for all stock options outstanding and exercisable as of December 31, 2012 were $10,517 and $6,719,respectively. 61Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(15) Stock Based Compensation (continued)A summary of the Company’s nonvested stock options and restricted stock activity is presented below: Nonvested Stock Options Nonvested Restricted Stock Numberof Shares Weighted-Average Grant-Date Fair Value Numberof Shares Weighted-Average Grant-Date Fair Value 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 Granted 392,400 7.14 43,422 6.82 Vested during period (491,875) 2.62 (71,176) 6.23 Forfeited (38,500) 3.25 - - Nonvested at December 31, 2012 1,029,776 $4.62 31,145 $5.76 (16) Retirement PlansDomestic 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. Benefits accruing under both plans were frozen as of August 31, 2007. In July 2008, the Board ofDirectors 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 bepaid 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. 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 $733, $604 and $649 in 2012, 2011 and 2010, 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, 2012 and 2011 is $1,118 and $1,230, 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, 2012 and2011 is $1,118 and $1,230, 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, 2012 and 2011 were 49,121, and are includedas a reduction of equity. The value of the shares held in trust and the corresponding liability of $559 and $353 at December 31, 2012 and 2011,respectively, have also been recorded in equity. The Plan is not funded by the Company, but the Company has established a Deferred Compensation TrustFund which holds the shares issued. Effective December 2011 the Board of Directors suspended employee contributions to this Plan. 62Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(16) Retirement Plans (continued) The benefit obligations as of December 31, 2012 and 2011 are as follows: Pension Plans Domestic SERP International 2012 2011 2012 2011 2012 2011 Change in benefit obligation Benefit obligation, beginning of year $75,430 $66,268 $4,153 $5,139 $23,020 $20,877 Service cost - - - - 660 611 Interest cost 3,284 3,462 85 150 795 944 Actuarial loss 4,699 8,904 88 90 1,852 2,034 Benefits paid (3,455) (3,204) (636) (1,226) (755) (744)Currency translation affect - - - - 1,461 (702)Benefit obligation, end of year $79,958 $75,430 $3,690 $4,153 $27,033 $23,020 The plan assets and funded status of the Domestic Pension Plan as of December 31, 2012 and 2011 are as follows: 2012 2011 Change in plan assets Fair value of plan assets, beginning of period $49,104 $47,323 Actual return on plan assets 5,945 619 Contributions 2,306 4,366 Benefits paid (3,455) (3,204)Fair value of plan assets, end of period $53,900 $49,104 Unfunded status (26,058) (26,326)Accrued benefit cost, end of period $(26,058) $(26,326)The unfunded status of the SERP was ($3,690) and ($4,153) as of December 31, 2012 and 2011, respectively. The unfunded status of theInternational Pension Plan was ($27,033) and ($23,020) as of December 31, 2012 and 2011, respectively. 63Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(16) Retirement Plans (continued) The amounts recognized in AOCI as of December 31, 2012 and 2011 consist of the following: Pension Plans Domestic SERP International 2012 2011 2012 2011 2012 2011 Actuarial loss $32,646 $31,083 $958 $946 $7,354 $5,658 Prior service cost/(benefit) - 60 287 344 (31) (38) $32,646 $31,143 $1,245 $1,290 $7,323 $5,620 The components of net periodic benefit cost are as follows: Pension Plans Domestic SERP International 2012 2011 2010 2012 2011 2010 2012 2011 2010 Components of net periodic benefit cost Service cost $- $- $- $- $- $- $660 $611 $577 Interest cost 3,284 3,462 3,519 85 150 200 795 944 857 Expected return on plan assets (3,674) (3,787) (3,177) - - - - - - Amortization of prior servicecost/(benefit) 60 436 436 57 57 57 (7) (7) 176 Recognized actuarial loss 864 458 429 76 49 33 200 111 102 Net periodic benefit cost $534 $569 $1,207 $218 $256 $290 $1,648 $1,659 $1,712 The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2013 are as follows: Pension Plans Domestic SERP International Actuarial loss $937 $99 $284 Prior service cost/(benefit) - 57 (7)Total $937 $156 $277 Major assumptions used in determining the benefit obligations are presented in the following table: 2012 2011 Discount rate: Domestic Pension Plan 3.90% 4.45%SERP 1.35% 2.40%International Pension Plan 3.40% 4.40% Rate of compensation increase: International Pension Plan 2.40% 2.80% 64Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(16) Retirement Plans (continued) Major assumptions used in determining the net benefit cost are presented in the following table: 2012 2011 2010 Discount rate: Domestic Pension Plan 4.45% 5.35% 5.90%SERP 2.40% 3.40% 4.15%International Pension Plan 3.40% 4.40% 4.70% Expected return on plan assets: Domestic Pension Plan 7.50% 7.50% 7.50% Rate of compensation increase: International Pension Plan 2.40% 2.80% 3.00%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 $79,958 exceeds plan assets by $26,058 as of December 31, 2012 for the DomesticPension Plan. The aggregate ABO is $25,946 for the International Pension Plan as of December 31, 2012. The International Pension Plan is unfunded.The Company expects to contribute approximately $985 in cash to the Domestic Pension Plan in 2013. The Company does not expect to contributecash to its International Pension Plan in 2013.The following benefit payments are expected to be paid out of the plans: Pension Plans Domestic SERP International 2013 $3,201 $636 $771 2014 $3,434 $636 $772 2015 $3,435 $636 $780 2016 $3,408 $636 $784 2017 $3,560 $636 $807 2018-2022 $19,994 $636 $5,162 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”). 65Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(16) Retirement Plans (continued)The fair values of the Company’s pension plan assets by asset category are as follows: Fair Value Measurements at December 31, 2012 using: Asset Category Total (Level 1) (Level 2) (Level 3) Equity securities: U.S. companies $19,238 $- $19,238 $- International companies 10,337 - 10,337 - U.S. fixed income 17,625 - 15,465 2,160 Commodities 4,131 - 4,131 - TIPS 2,569 - 2,569 - $53,900 $- $51,740 $2,160 Fair Value Measurements at December 31, 2011 using: Asset Category Total (Level 1) (Level 2) (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 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, 2012: GroupAnnuityContract Balance at December 31, 2011 $2,100 Actual return on plan assets: Relating to assets still held at the reporting date 113 Purchases, issuances, and settlements (53)Balance at December 31, 2012 $2,160 66Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(17) Foreign Operations and SalesThe following summarized data represents the gross sales and long lived assets for the Company’s domestic and foreign entities for 2012, 2011 and2010: Domestic Foreign Total 2012 Gross sales $109,729 $168,202 $277,931 Long-lived assets 44,085 149,133 193,218 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 Export sales, included in domestic gross sales, in 2012, 2011 and 2010 amounted to $32,872, $31,605, and $18,529, respectively.Sales to geographic area consist of the following: 2012 2011 2010 Europe $150,678 $156,814 $127,009 North America 105,439 75,979 78,497 Asia 12,827 10,448 12,554 Other 8,987 11,234 8,376 Total $277,931 $254,475 $226,436 One customer, Gyma, a distributor representing multiple customers, accounted for 12.5%, 10.8% and 12.8% of consolidated gross sales for 2012,2011 and 2010, 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, 2012, future minimum commitments under non-cancelable operating lease arrangements were as follows:Year ended December 31: 2013 $995 2014 846 2015 671 2016 502 2017 499 2018 and thereafter 539 Total commitments $4,052 Total operating lease expense was $815, $644 and $2,027 for the years ended December 31, 2012, 2011 and 2010, respectively. 67Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(18) Commitments (continued)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, 2012,future commitments under these obligations were as follows:Year ended December 31: 2013 $2,557 2014 1,708 2015 - 2016 - 2017 - Total commitments $4,265 (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 result in actual costs that are significantly higher than the Company’s current assessment and could have a material adverse effect on theCompany's operating results and cash flows in future reporting periods. While these matters, specifically environmental matters, could have a materialadverse effect on the Company’s financial condition, based upon past experience, it is likely that payments significantly in excess of current reserves, ifrequired, would be made over an extended number of years.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. These reserves were $5,096 and $7,786 at December 31, 2012 and 2011, respectively. The decrease in thereserve includes payments of $4,209 partially offset by adjustments to reserves of $1,422 and the impact of currency translation of $97. The reserves areadjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information become available. Based upon availableinformation and analysis, the Company's current reserve represents management's best estimate of the probable and estimable costs associated withenvironmental proceedings including amounts for current investigation fees where full investigation and remediation costs may not be estimable at the reportingdate. Given the uncertainties regarding the outcome of investigative and study activities, the status of laws, regulations, enforcement, policies, the impact ofother PRPs, technology and information related to individual sites, the Company does not believe it is possible to currently develop an estimate of the range ofreasonably possible environmental loss in excess of its reserves. 68Index CAMBREX 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 continue implementing a sampling plan at the property in 2013pursuant to the New Jersey Department of Environmental Protection’s (“NJDEP”) private oversight program. The results of the completed sampling, and anyadditional sampling deemed necessary, will be used to develop an estimate of the Company's future liability for remediation costs. As of December 31, 2012,the Company’s reserve was $184 to cover costs associated with current investigative work.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 $767 at December 31, 2012, 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 $836 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 is now placed in the NJDEP’s private oversight program. Under the private oversight program, the Company has continuedwith the investigative 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 (“Agreement”) and Order on Consent with the USEPA agreeing to jointly conduct or fund anappropriate remedial investigation and feasibility study of the Berry’s Creek site with the other PRPs in 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, 2012, the Company’s reservewas $211 to cover the current phase of investigation based on a tentative agreement on the allocation of the site investigation costs among the PRPs. Theinvestigation is ongoing and at this time it is too early to predict the extent of 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 a soil remedial action at this site in thethird quarter of 2011 which was completed in 2012 pending approval by the USEPA. The completion of this project resulted in an additional expense of$962 recorded in discontinued operations in 2012. 69Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(19) Contingencies (continued) Nepera, together with Pfizer as successor to Warner Lambert, is also named a responsible party for its former Harriman, New York production facilityby the New York State Department of Environmental Conservation (“NYSDEC”). A final ROD describing the Harriman site remediation responsibilities forPfizer and the Company was issued in 1997 (the "1997 ROD") and implemented under a federal Consent Decree with NYSDEC. Site clean-up work underthe 1997 ROD is on-going and jointly performed by Pfizer and the Company, with NYSDEC oversight. ELT Harriman, LLC ("ELT"), the current owner ofthe Harriman site, conducted other investigation and remediation activities under a separate NYSDEC directive.In December 2010, the NYSDEC notified the Company, Pfizer, ELT and former owner Vertellus Specialties Holdings that NYSDEC intended toimplement a site-wide re-characterization of the Harriman site under a single, new Administrative Consent Order. This development may lead to increasedliabilities for the Company, in which case, the Company intends to pursue available indemnities against other parties under contract and common law. Thereare on-going discussions between the NYSDEC and all parties to try to resolve this matter. To date, negotiations have been unsuccessful in fully resolvingdisputes as to which parties may be responsible for different remediation activities at the Harriman site. As of December 31, 2012, the reserve recorded by theCompany for the Harriman site was $300, which represents the Company’s best estimate to complete the 1997 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 at the site. The SCP Superfund site has also been identified as a PRP in the Berry’s Creek Superfundsite (see previous discussion). For over a decade, the remediation has been funded by de minimus settlements and by the insurers of the SCP Superfund site’sowners and operators. However, due to an unexpected increase in remediation costs at the site and costs to contribute to the Berry’s Creek investigation, thePRP group has approved the assessment of an additional cash contribution by the PRP group. While the Company continues to dispute the methodology usedby the PRP group to arrive at its allocation for the cash contribution, the Company has paid the initial funding requests. The Company does not currentlymaintain a reserve for the SCP Superfund site. Costs associated with remediation at the site, and SCP’s current allocation of Berry’s Creek investigative costsare each expected to be communicated to the Company by SCP in 2013.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. 70Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(19) Contingencies (continued)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 ActivePharmaceutical Ingredients (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, at the time, the District Court ruled that the defendants were subject to a total of approximately $7,500 inprejudgment interest. The case is currently pending before the District Court following a January 2011 remand by the Court of Appeals where briefing relatedto whether the court has jurisdiction over certain self-funded customer plaintiffs is ongoing.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 $66,632. In the event of a final settlement or final judgment, Cambrex expects anypayment required 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, 2012.Cambrex's subsidiaries are party to a number of other proceedings that are not considered material at this time. 71Index CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(dollars in thousands, except per share data)(20) Discontinued OperationsFor 2012, the Company recorded pre-tax charges of $1,425, reduced by a tax benefit of $499, for environmental remediation related to sites of divestedbusinesses as discontinued operations. For 2011, the Company recorded pre-tax charges of $2,851 for environmental remediation, net of insurance proceeds,related to sites of divested businesses as discontinued operations. For 2010, the Company recorded a benefit of $1,652 as a result of the expiration of acontingent liability, pre-tax charges of $1,144 for environmental remediation, net of insurance proceeds, and $170 for a workers’ compensation claim, allrelated to sites of divested businesses as discontinued operations. 72Index CAMBREX CORPORATION AND SUBSIDIARIESSELECTED QUARTERLY FINANCIAL AND SUPPLEMENTARY DATA - UNAUDITED(in thousands, except share and per share data) 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter (1) 2012 Gross sales $70,559 $77,142 $59,841 $70,389 Net revenues 70,228 77,133 59,210 69,930 Gross profit 22,428 28,445 18,531 21,083 Income from continuing operations 7,038 9,928 2,021 44,242 Loss from discontinued operations (2) - - (332) (594)Net income 7,038 9,928 1,689 43,648 Earnings per share of common stock:(3) Basic 0.24 0.34 0.06 1.46 Diluted 0.24 0.33 0.06 1.42 Average shares: Basic 29,602 29,623 29,711 29,874 Diluted 29,886 29,912 30,587 30,717 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter 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 (2) (146) - (333) (2,288)Net income 2,709 4,757 2,761 741 Earnings per share of common stock:(3) 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 (1)Income from continuing operations includes the reversal of a valuation allowance on deferred tax assets of $36,287 and the impact on deferred taxes of astatutory rate change of $1,328.(2)Discontinued operations includes charges for environmental remediation related to sites of divested businesses.(3)Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period. As such, thesum of the quarters may not necessarily equal the earnings per share amount for the year. 73Index Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None. Item 9A Controls 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 Securities Exchange Act of 1934(“Exchange Act”) that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is processed,recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated andcommunicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow fortimely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controlsand procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and managementis required to apply its judgment in evaluating the 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, 2012, 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. 74Index Under 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, 2012 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, 2012. Effectiveness of our internal control overfinancial reporting as of December 31, 2012 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. 75Index PART IIIItem 10Directors, Executive Officers and Corporate Governance.Executive Officers of the RegistrantThe following table lists the officers of the Company:NameAge Office Steven M. Klosk (i) (ii)55 President, Chief Executive Officer Shawn P. Cavanagh (i) (ii)46 Executive Vice President and Chief Operating Officer James G. Farrell (ii)46 Vice President and Corporate Controller William M. Haskel (i) (ii)51 Senior Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer Paolo Russolo (i)68 President, Cambrex Profarmaco Milano Gregory P. Sargen (i) (ii)47 Executive Vice President and 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 Officerand 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. Cavanagh currently serveson the Board of Directors of Thorpewood Inc., a small non-profit organization focusing on serving at-risk youth.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). 76Index Dr. 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 2013 Proxy Statement and is incorporated herein by reference.Item 11Executive Compensation.The remaining information required by this item will be included in the 2013 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 2013 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 2013 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 2013 Proxy Statement and is incorporated herein by reference. 77Index PART 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, 2012 and 201140Consolidated Income Statements for the Years Ended December 31, 2012, 2011 and 201041Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2012, 2011 and 201042Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2012, 2011 and 201043Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 201044Notes to Consolidated Financial Statements45Selected Quarterly Financial and Supplementary Data (unaudited)732. (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 Accounts79All other schedules are omitted because they are not applicable or not required or because the required information is included in the consolidatedfinancial statements of the Company or the notes thereto.3. The exhibits filed in this report are listed in the Exhibit Index on pages 81-84. 78IndexSCHEDULE IICAMBREX CORPORATIONVALUATION AND QUALIFYING ACCOUNTSFOR THE YEARS ENDED DECEMBER 31, 2012, 2011 and 2010(dollars in thousands)Column A Column B Column C Column D Column E Additions Charged/ Charged/ Balance (Credited) to (Credited) to Balance Beginning Cost and Other End of of Year Expenses Accounts Deductions Year Description Year ended December 31, 2012: Doubtful trade receivables and returns and allowances $450 $193 $12 $3 $652 Deferred tax valuation allowance 77,571 (45,105) (2,525) - 29,941 Year ended December 31, 2011: Doubtful trade receivables and returns and allowances $1,083 $(103) $(39) $491 $450 Deferred tax valuation allowance 77,849 (9,546) 9,268 - 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 (14,246) 11,727 - 77,849 79Index SIGNATURESPursuant 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, 2013 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. Signature Title Date /s/ STEVEN M. KLOSK President and Chief Executive Officer, February 7, 2013 Steven M. Klosk and Director /s/ GREGORY P. SARGEN Executive Vice President and Chief Financial February 7, 2013 Gregory P. Sargen Officer (Principal Financial Officer and Accounting Officer) /s/ JOHN R. MILLER Chairman of the Board of Directors February 7, 2013 John R. Miller /s/ SHLOMO YANAI Vice Chairman of the Board of Directors February 7, 2013 Shlomo Yanai /s/ ROSINA B.DIXON Director February 7, 2013 Rosina B. Dixon, M.D. /s/ KATHRYN RUDIE HARRIGAN Director February 7, 2013 Kathryn Rudie Harrigan, PhD /s/ LEON J. HENDRIX, JR. Director February 7, 2013 Leon J. Hendrix, Jr. /s/ ILAN KAUFTHAL Director February 7, 2013 Ilan Kaufthal /s/ WILLIAM KORB Director February 7, 2013 William Korb /s/ PETER G. TOMBROS Director February 7, 2013 Peter G. Tombros 80Index EXHIBIT INDEX ExhibitNo. Description 2.1--Agreement for the sale and purchase of the entire issued share capital in each of Zenara Pharma Limited and Zenara Pharma PrivateLimited dated November 2, 2010, between Camzena Holdings Limited, NuLife (Cyprus) Limited, Ashok Srinivasan Narasimhan,Pradip Khodidas Dhamecna, Cambrex Corporation, Zenara Pharma Limited and Zenara Pharma Private Limited.(W). 2.2--Asset purchase agreement dated as of August 7, 2003 between Rutherford Acquisition Corporation and Cambrex Corporation and TheSellers listed in the asset Purchase agreement.(U). 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.(P – Exhibit 10.1). 3.1--Restated Certificate of Incorporation of Registrant, as amended.(AA). 3.2--By Laws of registrant, as amended.(AA). 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.(Q). 10.4--William H. Haskel Offer of Employment Letter dated June 3, 2011.(Z). 10.5--Form of Performance Share Agreement.(E). 10.7--Credit Agreement dated November 2, 2011 between Cambrex Corporation, the subsidiary borrowers party hereto, the subsidiaryguarantors party hereto, the lenders party hereto and JP Morgan Chase Bank, N.A., as Administrative Agent.(R). 10.8--Settlement Agreement and Release and Environmental Escrow Agreement dated July 30, 2007 between Rutherford Chemicals LLC,Vertellus Specialties Holdings UK Ltd. (formerly Rutherford Chemicals UK Ltd.), Vertellus Specialties UK Ltd. (formerly Seal SandsChemicals Ltd.), 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.(V). 10.9--Shawn P. Cavanagh Offer of Employment Letter.(X). 10.10--Supplemental Executive Retirement Plan Change of Control Amendment.(T). 10.11--Employment Agreement dated January 17, 2011 between the registrant and Shawn P. Cavanagh.(X). 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.(S). 10.19--Deferred Compensation Plan of Cambrex Corporation (as amended and restated as of March 1, 2001).(M). 10.20--Employment Agreement dated February 6, 2007 between the registrant and Paolo Russolo.(S). 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). 10.26--Administrative Consent Order dated September 16, 1985 of the New Jersey Department of Environmental Protection to CosanChemical Corporation.(A – Exhibit 10(q)). 81Index 10.28--Agreement to Lift Sales Restrictions on Certain Vested Options.(N). 10.29--Agreement to Accelerate Vesting of Certain Options.(O). 10.30--Form of Stock Option Agreement.(R). 10.31--Form of Performance Share Unit Agreement.(CC). 10.32--Employment Agreement with William M. Haskel.(Z). 10.33--Executive Cash Incentive Plan.(BB). 10.34--2012 Equity Incentive Plan for Non-Employee Directors.(BB). 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, 333-174124 and 333-181053 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 of2002.(K). 101.INS--XBRL Instance Document.(Y). 101.SCH--XBRL Taxonomy Extension Schema.(Y). 101.CAL--XBRL Taxonomy Extension Calculation Linkbase.(Y). 101.DEF--XBRL Taxonomy Extension Definition Linkbase.(Y). 101.LAB--XBRL Taxonomy Extension Label Linkbase.(Y). 101.PRE--XBRL Taxonomy Extension Presentation Linkbase.(Y). See legend on following page 82Index EXHIBIT INDEX(A)Incorporated by reference to the indicated Exhibit to registrant's Registration Statement on Form S-1 (Registration No. 33-16419). (B)Incorporated by reference to registrant's Registration Statement on Form S-8 (Registration No. 33-81780) 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 Annual Report on Form 10-K for year end 2005 filed May 26, 2006. (N) Incorporated by reference to registrant’s Current Report on Form 8-K dated November 7, 2006. (O) Incorporated by reference to registrant’s Current Report on Form 8-K dated June 7, 2005. (P) Incorporated by reference to registrant’s Current Report on Form 8-K filed October 24, 2006. (Q) Incorporated by reference to registrant’s Annual Report on Form 10-K filed February 11, 2010. (R)Incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the period ending September 30, 2011. (S)Incorporated by reference to registrant’s Annual Report on Form 10-K for year end 2006 filed on March 15, 2007. (T)Incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2008. (U) Incorporated by reference to the registrant’s Current Report on Form 8-K dated November 10, 2003. (V)Incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the period ending September 30, 2007. (W)Incorporated by reference to the registrant’s Current Report on Form 8-K dated November 4, 2010. (X) Incorporated by reference to the registrant’s Current Report on Form 8-K dated January 13, 2011. (Y) 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. 83Index (Z)Incorporated by reference to the registrant’s Current Report on Form 8-K dated June 24, 2011. (AA)Incorporated by reference to the registrant’s Current Report on Form 8-K dated April 30, 2012. (BB)Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q for the period ending March 31, 2012. (CC)Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2012. 84EXHIBIT 10.5CAMBREX CORPORATION2009 LONG-TERM INCENTIVE PLANPERFORMANCE SHARE AGREEMENT THIS PERFORMANCE SHARE AGREEMENT (the “Agreement”) entered into as of ___________, by and between ____________ (the“Participant”) and Cambrex Corporation, a Delaware corporation (the “Company”), evidences the grant of performance-based Restricted Stock Units (the“Award”) under the Cambrex Corporation 2009 Long-Term Incentive Plan as amended and restated, effective April 28, 2011 (the “Plan”). All capitalized termsnot defined herein have the definitions set forth in the Plan. 1.Award. The Participant has been granted an Award consisting of ________ Revenue-Related Performance Shares and ________EBITDA-Related Performance Shares (together, the “Performance Shares”). Each Performance Share represents a conditional right toreceive shares of Common Stock as described herein. 2.Certain Definitions. For purposes of this Agreement, the following terms will have the meanings set forth below: (a) “Affiliate”: any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or isunder common control with, the Company (within the meaning of the Exchange Act). (b) “Base Year”: the 12-month period ending on the last day of the Company’s latest fiscal quarter to end prior to thebeginning of the Performance Period. (c) “Cause”: the Participant’s (i) substantial failure to perform his or her duties and responsibilities to the Company orSubsidiaries or substantial negligence in the performance of such duties and responsibilities; (ii) commission of a felony; (iii) commissionof theft, fraud, embezzlement, material breach of trust or any material act of dishonesty involving the Company or any of its Subsidiaries;(iv) significant violation of the code of conduct of the Company or its Subsidiaries or of any statutory or common law duty of loyalty to theCompany or its Subsidiaries; or (v) material breach of any of the terms of the Plan or the Agreement, or of the terms of any other agreementbetween the Company or Subsidiaries and the Participant. (d) “Determination Date”: the date on which the Committee determines the number of shares earned pursuant to Section 4. (e) “Disability”: permanent disability as determined by the Committee for purposes of the Award and similar awards undersuch rules as it may establish from time to time, which rules may be, but shall not be required to be, the same as those used in determiningdisability under any long term disability insurance program of the Company. 1 (f) “EBITDA”: the definition of “EBITDA” employed by Standard & Poor’s for purposes of its GICS Code 352030 LifeSciences Tools & Services index (or, if the Committee has determined in its sole discretion to use an index other than the GICS Code352030 Life Sciences Tools & Services index as the Peer Index, the definition employed by the provider of the Peer Index) as in effect on thelast day of the Measuring Performance Year; provided, that in any case where EBITDA as so defined would not include in the Company’sEBITDA earnings and related adjustments at subsidiaries that are accounted for by the Company under the equity method of accounting(the “equity method”), EBITDA for the Company shall be determined using the equity method. (g) “EBITDA-Related Performance Shares”: the portion of the Award that is subject to the Three-Year EBITDA GrowthPercentile scale set forth on Exhibit A hereto. (h) “Measuring Performance Year”: the first to occur of (i) the final four-quarter period during the Performance Period, (ii)the four-quarter period ended most recently prior to a Change in Control for which the Committee possesses information sufficient (asdetermined by the Committee) to perform all necessary calculations hereunder, and (iii) in any case where a Qualifying Termination ofEmployment occurs prior to the end of the period described in clause (i), the later of (A) the first four-quarter period in the PerformancePeriod or (B) the four-quarter period ended immediately prior to the Qualifying Termination of Employment. (i) “Peer Index”: an index of peer companies comprising those companies contained in the GICS Code 352030 LifeSciences Tools & Services as of [date Performance Period begins], with 20__ sales between ten percent (10%) and seven hundred andfifty percent (750%) of the Company’s 20__sales or a similar index of companies as determined by the Committee in its sole discretion. Acompany included in the Peer Index that during the Performance Period is acquired or is no longer required to report under the Exchange Act(other than owing to its filing for bankruptcy under Chapter 7 the U.S. Bankruptcy Code) shall be deemed to have been removed from thePeer Index as of the beginning of the Performance Period. (j) “Performance Period”: the three-year period beginning on [date first quarter begins] and ending on [date lastquarter ends], subject to the following: (A) if a Peer Index member’s fiscal quarter is determined on the basis of a 52-53 week year, itshall be deemed for purposes of this definition to end on the closest month-end; (B) the Performance Period for a Peer Index member whosefiscal year (determined after taking into account clause (A)) is other than the calendar year shall be deemed to be the three-year periodbeginning on the first day of such member’s fiscal quarter in which the Company’s Performance 2 Period commences and ending on the last day of such member’s most recent fiscal quarter ended prior to the close of the Company’sPerformance Period; and (C) in any case to which clause (B) applies, the Committee shall make correlative adjustments to the Peer Indexmember’s Base Year and Measuring Performance Year. (k) “Qualifying Termination of Employment”: a termination of the Participant’s employment with the Company and itsAffiliates by reason of death or Disability or by reason of an involuntary termination without Cause. (l) “Revenue-Related Performance Shares”: the portion of the Award that is subject to the Three-Year Revenue GrowthPercentile scale set forth on Exhibit A hereto. (m) “Three-Year EBITDA Growth”: with respect to the Company or any company that is part of the Peer Index, the rate ofchange, expressed as a percentage, equal to the quotient obtained by dividing (i) by (ii), where (i) is the relevant entity’s EBITDA for theMeasuring Performance Year minus its EBITDA for the Base Year and (ii) is the relevant entity’s EBITDA for the Base Year. If EBITDAfor the Base Year is equal to or less than zero with respect to any company that is included in the Peer Index, “Three-Year EBITDAGrowth” shall be determined as if such company were not included in the Peer Index. (n) “Three-Year EBITDA Growth Percentile”: the percentile into which the Company’s Three-Year EBITDA Growth fallsin comparison to the Three-Year EBITDA Growth of the companies comprising the Peer Index. Notwithstanding anything to the contraryherein, if the Company’s EBITDA is negative in the Measuring Performance Year, no amount shall be payable with respect to theEBITDA-Related Performance Shares. (o) “Three-Year Revenue Growth”: with respect to the Company or any company that is part of the Peer Index, the rate ofchange, expressed as a percentage, equal to (for the Company or any company that is part of the Peer Index) the quotient obtained bydividing (i) by (ii), where (i) is the relevant entity’s revenue for the Measuring Performance Year minus its revenue for the Base Year and (ii)is the relevant entity’s revenue for the Base Year. (p) “Three-Year Revenue Growth Percentile”: the percentile into which the Company’s Three-Year Revenue Growth falls incomparison to the Three-Year Revenue Growth of the companies comprising the Peer Index. (q) “Vested Percentage”: the percentage determined under Section 5 below. 3.Number of Shares Payable; Time of Payment. The number of shares of Common Stock payable, if any, under the Award shall be equal tothe product of (i) the number of Performance Shares earned (as determined under Section 4), and (ii) the Vested Percentage. The number ofshares of Common Stock payable under 3 the Award shall be payable in a single lump sum (i) [[as soon as practicable after the end of the Measuring Performance Year, and in allcases not later than March 15 of the calendar year following the Measuring Performance Year] OR [in the first calendar year that beginsafter the end of the Measuring Performance Year]] or, if earlier, (ii) upon the occurrence of a Change in Control. 4.Performance Shares Earned. (a) As soon as practicable following the end of the Measuring Performance Year, the Committee shall determine the numberof shares earned in accordance with this Section 4(a). The total number of Performance Shares actually earned by the Participant shallequal the sum of (i)(A) the number of Revenue-Related Performance Shares specified in Section 1 multiplied by (B) the “Percent of Revenue-Related Performance Shares Earned” (determined by reference to the applicable Three-Year Revenue Growth Percentile), each as set forth onExhibit A hereto, plus (ii)(A) the number of EBITDA-Related Performance Shares specified in Section 1 multiplied by (B) the “Percent ofRevenue-Related Performance Shares Earned” (determined by reference to the applicable Three-Year EBITDA Growth Percentile), each as setforth on Exhibit A hereto. Percentages falling between the listed percentages shall be interpolated on a straight line basis and the earnedamount of any Award shall be based on such interpolated percentages. (b) Notwithstanding anything to the contrary herein, in the event of a Change in Control for which the definitive agreementwas executed before the Committee possessed information relating to a Measuring Performance Year determined under Section 2(h)(iii)(A)sufficient (in the determination of the Committee) to perform all necessary calculations hereunder, Section 4(a) above will be applied as ifthe Percent of Revenue-Related Performance Shares Earned and Percent of EBITDA-Related Performance Shares Earned were each 100%. 5.Vesting. (a) The Participant’s right to payment of the Award shall vest (if at all) on the first to occur (the date of the first to occur, the“Vesting Date”) of (i) the last day of the Performance Period, if the Participant remains continuously employed by the Company and itsAffiliates from the date hereof through such day, (ii) a Change in Control during the Performance Period, if the Participant remainscontinuously employed by the Company and its Affiliates until the occurrence of such Change in Control, (iii) the date of a QualifyingTermination of Employment. (b) The Vested Percentage in respect of a Vesting Date described in Section 5(a)(i) above shall be 100%. The VestedPercentage in respect of a Vesting Date described in Section 5(a)(ii) or Section 5(a)(iii) above shall be the percentage obtained by dividing thenumber of completed months in the Performance Period that elapsed through the date of the Change in Control or Qualifying Termination ofEmployment, as applicable, and the denominator of which is 36. 4 6.Forfeiture. If, prior to the Vesting Date, the Participant’s employment with the Company and its Affiliates is terminated other than in aQualifying Termination of Employment, all rights of the Participant in respect of the Award shall terminate immediately in their entiretyand the Participant shall not be entitled to any payment hereunder. 7.Administration. Any interpretation of the Agreement by the Committee (or its delegate) and any decision made by it (including, withoutlimitation, interpretations and decisions regarding determinations of the Peer Index, Three-Year Revenue Growth and Three-Year EBITDAGrowth) during the Performance Period or with respect to the Agreement, is final and binding. 8.Plan Governs. This Agreement is subject to the terms and provisions of the Plan, which are incorporated herein by reference. In the eventof any inconsistency between the provisions of this Agreement and of the Plan, the provisions of the Plan shall govern. 9.No Liability. By entering into this Agreement, the Participant agrees that no member of the Committee shall be liable for any action ordetermination made in good faith with respect to the Plan or this Agreement. 10.Withholding. All payments, if any, in respect of the Award shall be subject to and reduced by such tax and other withholdings as theCommittee determines to be required, which may be satisfied, if the Committee so determines, through the withholding of shares deliverableunder this Award. 11.Nature of Payments. The Participant acknowledges and agrees that the Award and any payment thereunder are not to be taken into accountin determining (i) any pension, retirement, profit-sharing, bonus, life insurance or other benefits under any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company, or (ii) any severance or other amounts payable under any otheragreement between the Company and the Participant, except as required by law or as may be provided under the terms of such plans or asdetermined by the Board. 12.Representations of the Participant. The Participant hereby represents to the Company that the Participant has read and fully understandsthe provisions of this Agreement and the Plan and his or her decision to participate in the Plan is completely voluntary. Further, theParticipant acknowledges that the Participant is relying solely on his or her own advisors with respect to the tax consequences of this award. 13.Notices. All notices or communications under this Agreement shall be in writing, addressed as follows: 5 If to the Company: Cambrex CorporationOne Meadowlands PlazaEast Rutherford, NJ 07073Attention: General Counsel If to the Participant: Address on file with the Company Any such notice or communication shall be (a) delivered by hand (with written confirmation of receipt) to the Company’s office or theParticipant or sent by a nationally recognized overnight delivery service (receipt requested) or (b) sent certified mail, return receipt requested,or registered mail addressed as above (or to such other address as such party may designate in writing from time to time). 14.Assignment; Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of theParticipant and the assigns and successors of the Company, but neither this Agreement nor any rights hereunder shall be assignable orotherwise subject to hypothecation by the Participant; provided, that the Company may assign this Agreement to any successor (includinga successor to its business). 15.Entire Agreement; Amendment; Termination. This Agreement represents the entire agreement of the parties, and supersedes all prioragreements between the parties, with respect to the subject matter hereof. 16.Governing Law. This Agreement and its validity, interpretation, performance and enforcement shall be governed by the laws of the State ofDelaware other than the conflict of laws provisions of such laws. 17.Severability. Whenever possible, each provision in this Agreement shall be interpreted in such manner as to be effective and valid underapplicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, then (a) suchprovision shall be deemed amended to accomplish the objectives of the provision as originally written to the fullest extent permitted by lawand (b) all other provisions of this Agreement shall remain in full force and effect. 18.No Right to Continued Employment or Participation; Effect on Other Plans. This Agreement shall not confer upon the Participant any rightwith respect to continued employment by the Company or its Affiliates or continued participation under the Plan, nor shall it interfere inany way with the right of the Company or its Affiliates to terminate the Participant’s employment at any time. 6 19.Code Section 409A. The compensation arrangements set forth in this Agreement are intended to satisfy the requirements of Section 409A ofthe Code (“Section 409A”) to the extent applicable. Notwithstanding the foregoing, in no event shall the Company, any of its Affiliates, orany director or employee thereof have any liability to the Participant or to any other person claiming rights under this Agreement relating tothe failure or alleged failure of any payment or benefit under this Agreement to comply with, or be exempt from, the requirements of Section409A. 20.Further Assurances. The Participant agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver andperform all additional documents, instruments and agreements that may be reasonably required by the Company or the Committee, as thecase may be, to implement the provisions and purposes of this Agreement and the Plan. 21.Claw Back. This agreement shall be subject to any clawback policy established by the Company and in effect as required by Section 10Dof the Exchange Act. IN WITNESS WHEREOF, the parties have duly executed this Agreement, as of the day and year first above written. CAMBREX CORPORATION PARTICIPANT 7 Exhibit A Revenue-RelatedPerformance Shares Three-YearRevenueGrowthPercentile Percent ofRevenue-RelatedPerformanceSharesEarned 25% 50% 30% 60% 35% 70% 40% 80% 45% 90%TARGET 50% 100% 55% 120% 60% 140% 65% 160% 70% 180% 75% 200% EBITDA-RelatedPerformance Shares Three-Year EBITDAGrowthPercentile Percent ofEBITDA-RelatedPerformanceSharesEarned 25% 50% 30% 60% 35% 70% 40% 80% 45% 90%TARGET 50% 100% 55% 120% 60% 140% 65% 160% 70% 180% 75% 200% 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 85CAMBREX CORPORATIONEXHIBIT 23Consent 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, 333-174124 and 333-181053) of Cambrex Corporation of our reports dated February 7, 2013,relating to the consolidated financial statements and schedule, and the effectiveness of Cambrex Corporation’s internal control over financial reporting, whichappear in this Annual Report on Form 10-K./s/ BDO USA, LLPWoodbridge, New JerseyFebruary 7, 2013 86EXHIBIT 31.1Cambrex CorporationCertification Pursuant to Rule 13a – 14(a) and Rule 15d – 14(a)of the Securities Exchange Act, as AmendedI, 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, 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 forexternal purposes 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 mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially 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 arereasonably likely 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 internalcontrol over financial reporting. Date: February 7, 2013 /s/ Steven M. Klosk Steven M. Klosk President and Chief Executive Officer 87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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, 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 forexternal purposes 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 mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially 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 arereasonably likely 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 internalcontrol over financial reporting.Date: February 7, 2013 /s/ Gregory P. Sargen Gregory P. Sargen Executive Vice President and Chief Financial Officer 88 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, 2012, 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; and 2.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 OfficerDated: February 7, 2013 89

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