Cambrex Corporation
Annual Report 2013

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10‑KT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the transition period from ______ toCommission file number 1‑10638CAMBREX CORPORATION(Exact name of registrant as specified in its Charter)Delaware22‑2476135(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.) One Meadowlands Plaza, East Rutherford, New Jersey07073(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 className of each exchange on which registeredCommon Stock, $.10 par valueNew 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 T.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 T.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 T. 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 T. 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. TIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See thedefinitions 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 TNon-accelerated filer oSmaller reporting company oIndicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o. No T.The aggregate market value of the voting and non-voting common equity held by non‑affiliates of the registrant was approximately $410,339,343 as ofJune 30, 2013.As of January 31, 2014, there were 30,485,265 shares outstanding of the registrant's Common Stock, $.10 par value.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s definitive Proxy Statement for the 2014 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, 2013ItemPART IPageNo. No. 1Business.31ARisk Factors.81BUnresolved Staff Comments.192Properties193Legal 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.237AQuantitative and Qualitative Disclosures about Market Risk.368Financial Statements and Supplementary Data.369Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.759AControls and Procedures.759BOther Information.76 PART III 10Directors, Executive Officers and Corporate Governance.7711Executive Compensation.7812Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.7813Certain Relationships and Related Transactions and Director Independence.7814Principal Accountant Fees and Services.78 PART IV 15Exhibits and Financial Statement Schedules.79______________(dollars in thousands, except per share data)2Table of ContentsForward-Looking StatementsThis document contains and incorporates by reference forward-looking statements including statements regarding expected performance, including, butnot limited to, the Company’s belief that cash flows from operations, along with funds available from the revolving line of credit, will be adequate to meet theoperational and debt servicing needs of the Company, as well as other statements relating to expectations with respect to sales, research and developmentexpenditures, earnings per share, capital expenditures, 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 thefact that they use words such as “may,” “will,” “could,” “should,” “would,” “expect,” “anticipate,” “intend,” “estimate,” “believe” or similar expressions.Any forward-looking statements contained herein are based on current plans and expectations and involve risks and uncertainties that could cause actualoutcomes and results to differ materially from current 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 the Company’s filings with the Securities and Exchange Commission provide examples of such risks anduncertainties that may cause the Company’s actual results to differ materially from the expectations the Company describes in its forward-looking statements,including, but not limited to, pharmaceutical outsourcing trends, competitive pricing or product developments, government legislation and regulations(particularly environmental issues), tax rates, interest rates, technology, manufacturing and legal issues, including the outcome of outstanding litigation,changes in foreign exchange rates, uncollectible receivables, loss on disposition of assets, cancellation or delays in renewal of contracts, lack of suitable rawmaterials or packaging materials, the Company’s ability to receive regulatory approvals for its products and continued demand in the U.S. for late stageclinical products or the successful outcome of the Company’s investment in new products.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 positioning it as a global supplier tothe nicotine replacement therapy (“NRT”) market. The Company also seeks to demonstrate excellence in regulatory compliance, environmental, health andsafety performance, and customer service.______________(dollars in thousands, except per share data)3Table of ContentsThe 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 and maintainsexcellent 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 therapeutics to address unmet needs drives business growth in life sciences companies. Aging "baby boomers" in the United States,Europe and Japan may provide an enormous healthcare opportunity. This group typically has more education, a higher socio-economic level and higherdemands 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 of sources.Large pharmaceutical and biotechnology companies spend billions on drug discovery and development and the Company believes billions more are spent bynumerous smaller emerging pharmaceutical companies. Macro-economic conditions can have an impact on the availability of funding for the Company’scustomers, especially many of the smaller companies that are often dependent upon venture capital and other private sources of funding.Once a drug is identified, companies must develop a robust process for the manufacture of clinical and commercial quantities. Product testing,analytical methods and quality processes are integrated into the manufacturing process. These are critical elements of getting a commercially viable drug tomarket. Cambrex excels in the manufacture and testing of APIs and drug substances at laboratory, clinical and commercial scale and specializes in optimizingmanufacturing processes.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 drug products.With large plants and product development resources in both Europe and the U.S., and large teams of professionals with substantial experience in thedevelopment, scale-up and operation of pharmaceutical manufacturing processes, Cambrex is particularly well positioned to assist drug companies with thesemuch needed services for APIs.______________(dollars in thousands, except per share data)4Table of ContentsNew drugs are typically patented. When the patent expires, the drug may be manufactured and marketed in its generic form. Growth in the generic drugmarket 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 alternative to higher-priced branded drugs. In the United States, and many countries in Europe, governments andprescription benefit management companies provide incentives for generic substitution to reduce costs. Cambrex manufactures over 70 generic APIs, typicallyin 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 similar regulatoryagencies throughout the world. These agencies oversee and regulate the development, manufacturing and commercialization processes for APIs and regulatedintermediates. Excellent regulatory and quality systems as well as extensive experience in pharmaceutical fine chemical scale-up and manufacturing areessential 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. Cambrex regularly sources R&D services, raw materials and certain intermediates from developing marketcompanies.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, a Hyderabad, India based pharmaceutical company focused on theformulation of final dosage form products. Pursuant to the stock purchase agreement, Cambrex will acquire the remaining 49% in early 2016 at a value to bedetermined using a weighted combination of a multiple of 2015 earnings before interest, taxes, depreciation and amortization (“EBITDA”) and cumulativeEBITDA for the years 2011 through 2015, adjusted for Zenara’s net debt or net cash position. Cambrex accounts for its investment in Zenara using the equitymethod of accounting. See Notes 2 and 7 to the Company’s consolidated financial statements for additional information.ProductsThe Company uses its technical expertise in a wide range of chemical processes to meet the needs of its customers for high quality products andservices for specialized applications.The Company’s business is primarily comprised of the custom development and manufacture of pharmaceutical ingredients derived from organicchemistry. Products and services are supplied globally to innovator and generic drug companies. Products include APIs, 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, Gilead Sciences, Inc., accountingfor 18.3% of 2013 consolidated sales. The Company’s products are sold through a combination of direct sales and independent agents. Two APIs, one anantiviral, and the other a gastrointestinal product that is sold to multiple customers, represented 18.3% and 10.0%, respectively, of 2013 consolidated sales.______________(dollars in thousands, except per share data)5Table of ContentsThe following table shows gross sales to geographic area: 2013 2012 2011 Europe $210,463 $150,678 $156,814 North America 86,974 105,439 75,979 Asia 13,800 12,827 10,448 Other 5,975 8,987 11,234 Total $317,212 $277,931 $254,475 Marketing and DistributionMarketing generally requires significant cooperative effort among a highly trained sales and marketing staff, a scientific staff that can assess thetechnical fit and estimate manufacturing economics, manufacturing and engineering staff to scale up the chemical process and business unit management todetermine 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 124 employees are at least partially involved in R&D activities worldwide.The Company spent $10,387, $9,544 and $11,037 in 2013, 2012 and 2011, respectively, on R&D efforts.Patents and TrademarksThe Company has patent protection covering certain products, processes and services. In addition, the Company also relies on know-how and tradesecrets (related to many of its manufacturing processes and techniques not generally known to other companies) for developing and maintaining its marketposition. The Company currently owns 18 issued patents and has 28 patent applications pending in the United States and owns 160 patents and has 106patent applications pending in foreign countries covering various technologies. The Company seeks to protect its proprietary technology and prepares newpatent applications as it develops new inventions.______________(dollars in thousands, except per share data)6Table of ContentsThe 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 bulk APIs.This intellectual property is related to 5-MAT and amphetamine salts currently sold by the Company. Under the terms of this agreement, the Company paysno royalties or fees related to its use of this intellectual property.CompetitionThe Company has numerous primary API and advanced intermediate competitors throughout Western Europe and the United States and many morecompetitors within various product categories the Company serves, including a growing number of competitors in Asia, Eastern Europe and other low-costareas. The Company believes that low cost providers have had the impact of driving prices down for many products and services for which the Companycompetes to provide, especially within the generic API market, and the Company anticipates that it will face increased competition from these providers in thefuture. It is expected that regulatory compliance, product quality, pricing, and logistics will determine the extent of the long term impact of these competitors inthe primary markets that the Company serves. If the Company perceives significant competitive risk and a need for technical or financial commitment, itgenerally attempts to negotiate long 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.Present and Future Environmental Expenditures: The Company’s policy is to comply with all legal requirements of applicable environmental, healthand safety laws and regulations. The Company believes it is in compliance with such requirements and has adequate professional staff and systems in placeto remain in compliance. In some cases, compliance can only be achieved by capital expenditures, and the Company made capital expenditures of $3,554,$3,757 and $3,088 in 2013, 2012 and 2011, respectively, for environmental projects. As the environmental proceedings in which the Company is involvedprogress from the remedial investigation and feasibility study stage to implementation of remedial measures, related capital and other expenditures mayincrease. The Company considers costs for environmental compliance to be a normal cost of doing business and includes such costs in pricing decisions.______________(dollars in thousands, except per share data)7Table of ContentsEmployeesAt December 31, 2013, the Company had 936 employees worldwide (647 of whom were from international operations) compared with 891 employeesat December 31, 2012 and 833 at December 31, 2011.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 third quarter.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 2013, 2012 and 2011 amounted to $86,850, $32,872 and $31,605, respectively. Sales from international operations were $164,010,$168,202, and $171,068 in 2013, 2012 and 2011, 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.Item 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, cash flows and reputation could be materially adversely affected. The risks and uncertainties described below are not the only ones theCompany faces. Additionally, risks and uncertainties not presently known to the Company or that it currently deems immaterial may also impair itsbusiness, financial condition, operating results and cash flows in the future.______________(dollars in thousands, except per share data)8Table of ContentsCertain 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.Should any significant customer renegotiate on terms more favorable to them, or discontinue or decrease their usage of the Company’s products, theloss could have a material adverse effect on the Company’s financial position, results of operations and cash flow. The Company’s customers routinelyattempt to reduce costs, including the costs of the Company’s products, as a result of macro-economic trends and various market dynamics specificallyaffecting the pharmaceuticals industry.New technologies, competition or a reduction in demand for the Company’s products could reduce sales.The markets for the Company’s products are competitive and price sensitive. The Company has numerous primary API and advanced intermediatecompetitors throughout Western Europe and the United States and many more competitors 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’s competitors may lower prices on products in thefuture and the Company may, in certain cases, respond by lowering its prices. Conversely, failure to anticipate and respond to price competition mayadversely impact the Company’s market share. Competitors may develop new technologies or products, negatively impacting the Company. Several of theCompany’s customers, especially those that buy its generic APIs and larger pharmaceutical companies that primarily sell patented products, have internalcapabilities similar to the Company’s. If one or more of these customers replace the Company’s products with their own internal capabilities, demand for theCompany’s products may decrease. In addition, demand for the Company’s products may weaken due to a reduction in R&D budgets, loss of distributors orother factors. A reduction in demand for the Company’s products could impair profit margins and may have a material adverse effect on the Company’sfinancial position, results of operations and cash flow.The Company’s failure to obtain new contracts or renew existing contracts may adversely affect its business.The Company must continually renew existing contracts and win new contracts, which subjects the Company to potentially significant pricingpressures. In the event the Company is unable to replace these contracts timely or at all, or is forced to accept terms, including pricing terms, less favorable tothe Company, the Company’s revenue may not be able to be sustained or may decline. In addition, certain of the Company’s long-term contracts may becancelled or delayed by clients for any reason upon notice. Multiple cancellations, non-renewals, or renewals on less favorable terms to the Company ofsignificant contracts could materially impact the Company’s business. While the Company intends to seek to renegotiate new or extended agreements prior toexpiration, if these contracts cannot be renewed or extended on terms acceptable to the Company or at all, the Company’s business, results of operations andfinancial condition could be materially adversely affected.Failure to obtain raw materials from third-party manufacturers could affect the Company’s ability to manufacture and deliver itsproducts.The Company relies on third-party manufacturers to supply many of its raw materials and intermediates. In addition, the Company has a single sourcefor supplies of some raw materials to its products. Manufacturing problems may occur with these and other outside sources. Prolonged disruptions in thesupply of any of the Company’s key raw materials, difficulty implementing replacement materials or new sources of supply, or a significant increase in theprices of raw materials could have a material adverse effect on the Company’s operating results, financial condition or cash flows. If a supplier provides theCompany 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 harm the Company’s reputation and have a material adverse effect on the Company’s business.______________(dollars in thousands, except per share data)9Table of ContentsFailure to obtain sufficient quota from the Drug Enforcement Administration ("DEA") could affect the Company’s ability to manufactureand 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 mustregularly apply for quota 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 or the removal of a product from the market that eliminate or reduce the Company’s and its customer’s sales of products couldnegatively impact the Company’s business and reputation. In addition, a number of factors could cause production interruptions at the Company’s facilities,including equipment malfunctions, disruptions in the supply chain, facility contamination, labor problems, raw material shortages, natural disasters,disruption in utility services, fire, terrorist activities, human error or disruptions in the operations of the Company’s suppliers. Any significant disruption tothose operations for these or any other reasons could adversely affect the Company’s sales and customer relationships. Any sustained reduction in theCompany’s ability to provide products would negatively impact its sales growth expectations, cash flows and profitability.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. The outcome of litigation, particularly class action lawsuits andregulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and themagnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. Complex or extended litigation could cause theCompany to incur large expenditures and distract its management. 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 on terms favorable to the Company. As a result, litigation may adversely affect itsbusiness, financial condition and results of operations. In addition, certain contracts with our suppliers and customers contain provisions whereby theCompany indemnifies, subject to certain limitations, the counterparty for damages suffered as a result of claims related to use of the Company’s products orfacilities and other matters. Claims made under these provisions could be expensive to litigate and could result in significant payments.______________(dollars in thousands, except per share data)10Table of ContentsRefer 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. Although the Company designs and implements safetyprocedures to comply with the standards prescribed by federal, state, and local regulations, the risk of accidental contamination of property, or injury toindividuals from these materials, cannot be completely eliminated. In the event of accidental contamination of property or injury to individuals caused by thesematerials, the Company could be liable for damages which could adversely affect its business. Additionally, any incident could shut down the Company’soperations, which could have a material adverse effect on the business and results of operations 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 handling of such waste potentially exposes the Company to environmentalliability if, in the future, it is determined that the violation of statutes or regulations occurred.The Company is also a party to several environmental remediation investigations and activities 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 in future periods as new facts or circumstances may indicate. Moreover, despite its effortsto comply with environmental laws, the Company may face significant remediation liabilities and additional legal proceedings concerning environmentalmatters, 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 materially 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/or remediation of applicable sites not owned by the Company and the Company's current and former operating sites. Reserves are adjustedperiodically as remediation efforts progress or as additional technical, regulatory or legal information become available. In some jurisdictions in which theCompany operates, such as Hyderabad, India, environmental, health and safety regulations are still early in their development, and the Company cannotdetermine how these laws will be implemented and the impact of such regulation on the Company. Given the uncertainties regarding the status of laws,regulations, enforcement, policies, the impact of other PRPs, technology and information related to individual sites, the Company does not believe it is possibleto currently develop an estimate of the range of reasonably possible environmental losses in excess of its reserves.Refer to Note 19 to the Company’s consolidated financial statements for a discussion of the Company’s environmental and legal matters.______________(dollars in thousands, except per share data)11Table of ContentsPotential 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 personal injuryor death to persons using such products. The Company seeks to reduce its potential liability through measures such as contractual indemnification provisionswith customers (the scope of which may vary by customer, and the performances of which are not secured) and insurance maintained by customers. TheCompany could be materially and adversely affected if it were required to pay damages or incur defense costs in connection with a claim that is outside thescope of the indemnification agreements, if the indemnity, although applicable, is not performed in accordance with its terms or if the Company’s liabilityexceeds the amount of applicable insurance or indemnity. In addition, the Company could be held liable for errors and omissions in connection with theservices it performs. The Company currently maintains product liability and errors and omissions insurance with respect to these risks. There can be noassurance, however, that the Company’s insurance coverage will be adequate or that insurance coverage will continue to be available on terms acceptable to theCompany.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.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.______________(dollars in thousands, except per share data)12Table of ContentsThe Company recently expanded its large-scale manufacturing capacity to support expected growth in the business. There can be no assurance thatsales volumes will be sufficient to ensure the economical operation of this expanded capacity, in which case, the Company’s results of operations could beadversely affected.Global growth is subject to a number of economic risks.A reduction in the availability of debt or equity capital could adversely affect the ability of the Company’s customers to obtain financing for productdevelopment and could result in a decrease in or cancellation of orders for the Company’s products as well as impact the ability of the Company’s customersto make payments. The Company believes that cash flows from operations, along with funds available from a revolving line of credit, will be adequate to meetthe operational and debt servicing needs of the Company, but if this does not continue to be the case the Company’s business may be materially adverselyaffected. There is a risk that the funds available to be drawn under the Company’s revolving line of credit may not be available in the event of the failure ofone or more participant banks. Significant movements in the rate of exchange between the U.S. dollar and certain currencies, primarily the euro and Swedishkrona, may also adversely affect the Company’s results.If the Company acquires other businesses, it may be harmed by difficulties in integration and employee retention, unidentified liabilities ofthe acquired businesses, or obligations incurred in connection with financing the acquisition.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 environmental, patent orproduct liability claims.·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Table of ContentsIn 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, the Company’sability to achieve its goals established for the Zenara 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 and is required to purchase the remaining 49% in 2016 based upon aformula derived from Zenara’s future EBITDA. The Company may, at its option, purchase the remaining equity in cash or a combination of cash and up to50% of the consideration in the Company’s 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 the Company’s common stock.Zenara is currently not profitable, and there is no guarantee that it will be in the future. If Zenara continues to generate losses, it could negatively impactthe Company’s consolidated results and cash flows. Should Zenara not meet certain targets within the contractual buyout formula, this will result in noconsideration to obtain the remaining 49%.The Company has a significant amount of debt.The Company has a $250,000 revolving credit facility of which $79,250 was outstanding at December 31, 2013. 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 will bein default. This current debt arrangement requires the Company to comply with specified financial ratios. The Company’s ability to comply with these ratiosmay 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 may place 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 may also require the Company to use a substantial portion of its cash to pay principal and interest on its debt.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Table of ContentsThe 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. The Company’s operations extend to numerous countries outside of the U.S.There are a number of significant risks arising from the Company’s international business and the establishment of foreign operations, including:·the possibility that nations or groups could boycott its products;·inflation, foreign currency exchange rates and the impact of shifts in the U.S. and local economies on those rates;·general economic decline or political unrest in the markets in which it operates;·geopolitical risks, terrorism, or acts of war or hostility;·compliance with local laws and regulations including laws restricting the inflow of capital or cash and unexpected changes in regulatoryrequirements;·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;·government sanctions may reduce or eliminate the Company’s ability to sell its products in certain countries; and·the protection of the Company’s intellectual property and that of its customers;If the Company is unable to effectively manage these risks, these locations may not produce the revenues, earnings, or strategic benefits that itanticipates which could have a material adverse effect on the Company’s business.A significant portion of the Company’s business is conducted in currencies other than the U.S. dollar, which is its reporting currency. The Companyrecognizes foreign currency gains or losses arising from its operations in the period incurred. As a result, currency fluctuations between the U.S. dollar and thecurrencies in which the Company does business have caused, and will continue to cause, foreign currency transaction gains and losses. The Company cannotpredict the effects of exchange rate fluctuations upon its future operating results because of the number of currencies involved, the variability of currencyexposures, and the potential volatility of currency exchange rates. The Company periodically 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.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.Furthermore, while employees and agents must comply with these laws, the Company cannot be certain that internal policies and procedures will alwaysprevent violations of these laws, despite a commitment to legal compliance and corporate ethics. Violations or mere allegations of such violations could have amaterial adverse effect on the Company’s business and reputation.______________(dollars in thousands, except per share data)15Table of ContentsThe Company’s operating results may unexpectedly fluctuate in future periods.The Company’s revenue and operating results can fluctuate on a quarterly basis. The operating results for a particular quarter may be higher or lowerthan expected as a result of a number of factors, including, but not limited to, the timing of contracts; the delay, cancellation or acceleration of a contract;seasonal slowdowns in different parts of the world; the timing of accounts receivable collections; pension contributions; changes in government regulations;and changes in 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 ofmaintaining facilities and compensating employees, any one of these factors could have a significant impact on the Company’s quarterly results. In somequarters, the Company’s revenue and operating results may be significantly lower than or higher than the expectations of securities analysts and investors dueto 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 some degree upon its ability to develop proprietary products and technologies. However, the Company cannot beassured that patents will be granted on any of its patent applications. The Company also cannot be assured that the scope of any of its issued patents will besufficiently broad to offer meaningful protection. The Company has patents issued in selected countries; therefore, third parties can make, use, and sellproducts covered by its patents in any country in which the Company does not have patent protection. In addition, the Company may be involved in patentlitigation in the future. Issued patents or patents the Company licenses could be successfully challenged, invalidated or circumvented so that its patent rightswould not create an effective competitive barrier. Although the Company intends to defend the validity of owned patents and use all appropriate methods toprevent their infringement, such efforts are expensive and time consuming, with no assurance of success. The ability to enforce patents depends on the laws ofindividual countries and each country’s practices regarding enforcement of intellectual property rights. The Company provides its customers the right to useits products under label licenses that are for research purposes only. These licenses could be contested, and the Company cannot be assured that it wouldeither 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 the Company’sproducts are found to infringe on a third party’s intellectual property, the Company may be required to pay damages for past infringement, and lose the abilityto sell certain products or receive licensing revenues.The Company also relies on trade secrets, unpatented proprietary know-how and continuing technological innovation that it seeks to protect, in part byconfidentiality agreements with licensees, suppliers, employees and consultants. It is possible that these agreements will be breached and the Company will nothave adequate remedies for any such breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentialityagreements. Furthermore, Cambrex’s trade secrets and proprietary technology may otherwise become known or be independently developed by its competitorsor the Company may not be able to maintain the confidentiality of information relating to such products.______________(dollars in thousands, except per share data)16Table of ContentsInformation technology systems could fail to perform adequately or the Company may fail to adequately protect such systems againstdata corruption, cyber-based attacks, or network security breaches.The Company utilizes information technology networks and systems to process, transmit, and store electronic information. In particular, the Companydepends on information technology infrastructure to effectively manage its business data, supply chain, logistics, accounting, and other business processesand electronic communications between employees, customers and suppliers. Ineffective allocation and management of the resources necessary to build andsustain an appropriate technology infrastructure could adversely affect the Company’s business. In addition, security breaches or system failures of thisinfrastructure can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. Inability to prevent such breaches orfailures, could disrupt the Company’s operations or cause financial damage or loss because of lost or misappropriated information.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 is lessthan the carrying value, an impairment loss will be recorded in the Company’s statement of operations. The determination of fair value is a highly subjectiveexercise and can produce significantly different results based on the assumptions used and methodologies employed. If the Company’s projected long-termsales growth rate, profit margins or terminal rate are considerably lower or the assumed weighted average cost of capital is considerably higher, future testingmay indicate impairment and the Company would have to record a non-cash goodwill impairment loss in its statement of operations.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. While the Company believes that it has adequately providedfor any taxes related to these items, and taxes related to all other aspects of its business, any such assessments or future settlements may be materially differentthan it has provided. Refer to Note 9 to the Company’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 tax rates or the timeperiod within which taxable income is recognized, the Company could be required to increase its valuation allowances against its deferred tax assets resultingin an increase in its recorded tax expense and a potential adverse impact on future results.______________(dollars in thousands, except per share data)17Table of ContentsLow investment performance by the Company’s defined benefit pension plan assets or other events including changes in regulations oractuarial assumptions may increase the Company’s pension expense, and may require the Company to fund a larger portion of its pensionobligations, 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. The proportion of pension assets to liabilities, which is calledthe funded status, determines the level of contribution to the plan that is required by law. Changes in the plan’s funded status related to the value of assets orliabilities could increase the amount required to be funded. The Company cannot predict whether changing market or economic conditions, regulatory changesor other factors will further increase the Company’s pension funding obligations, diverting funds from other potential uses.Any 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 and comparable regulatory authorities in other countries. The process of obtaining regulatory approval to produce and marketpharmaceutical products is rigorous, time-consuming, costly, and often unpredictable. 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 theregulatory authorities and governing the drug approval process. The Company may be unable to obtain requisite regulatory approvals on a timely basis formarketing and production of products. Conversely, any significant reduction in the scope of regulatory requirements or the introduction of simplified drugapproval procedures could reduce barriers to entry, increase competition, and 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 by the Company or its customers could have a material adverse effect on the Company.All facilities and manufacturing techniques used for manufacturing products for clinical use or for commercial sale in the U.S. must be operated inconformity with cGMP regulations as required by the FDA and other comparable regulatory authorities in other countries, and for certain products, the DEA.The Company’s facilities are subject to scheduled periodic regulatory and customer inspections to ensure compliance with cGMP and other requirementsapplicable to such products. A finding that the Company had materially violated these requirements could result in regulatory sanctions including, but notlimited to, the regulatory agencies withholding approval of new drug applications or supplements and the denial of entry into the U.S., or other countries, ofproducts manufactured at non-compliant facilities, the loss of a customer contract, the disqualification of data for client submissions to regulatory authoritiesand a mandated closing of the Company’s facilities. Any such violations would have a material adverse effect on the Company’s business. The Company’scustomers are typically subject to the same, or similar regulations and any such violations or other actions by regulatory agencies, including, but not limitedto, plant shutdowns or product recalls that eliminate or reduce the Company’s sale of its products or services could negatively impact the Company’sbusiness. In addition, the submission of new products to regulatory authorities for approval by the Company or its customers does not guarantee the approvalto market the product will be granted. Each authority may impose its own requirements or delay or refuse to grant approval to the Company or customer evenwhen the product has already been approved in another country. Regulatory authorities have required, and may require in the future, that certain scientific datarequirements be performed on the Company’s products and this may require additional testing. Responding to such requirements may cause delays in or thecessation of the sales of one or more products which would adversely affect profitability. The Company can provide no assurance that any testing approvalsor registration will be granted on a timely basis, if at all, or that the Company’s resources will be adequate to meet the costs of regulatory compliance or that theeconomic benefit of complying with the requirement will exceed costs.______________(dollars in thousands, except per share data)18Table of ContentsThe 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.Item 1BUnresolved Staff Comments.None.Item 2Properties.Set forth below is information relating to manufacturing facilities owned by the Company as of December 31, 2013: Operating Location Acreage Subsidiary Primary Product Lines Manufactured Charles City, Iowa 57 acres Cambrex APIs and Pharmaceutical Intermediates Charles City, Inc. Karlskoga, Sweden 42 acres Cambrex APIs and Pharmaceutical Intermediates Karlskoga AB Paullo (Milan), Italy 13 acres Cambrex APIs 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.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 proceedings alsodiscussed in Note 19 to the Company’s consolidated financial statements.Item 4Mine Safety Disclosures.None.______________(dollars in thousands, except per share data)19Table of ContentsPART IIItem 5Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.The Company’s common stock, $.10 par value, is listed on the NYSE under the symbol CBM. The following table sets forth the closing high and lowsales price of the common stock as reported on the NYSE:2013 High Low First Quarter $12.79 $11.27 Second Quarter 14.76 11.78 Third Quarter 15.55 12.76 Fourth Quarter 19.50 13.16 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 As of January 31, 2014, the Company estimates that there were approximately 6,272 beneficial holders of the outstanding common stock of theCompany.The Company does not anticipate paying cash dividends in the foreseeable future.2013 Equity Compensation TableThe following table provides information as of December 31, 2013 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 securitiesto be issued uponexercise of outstandingoptions, warrants andrights Weighted averageexercise price ofoutstanding options,warrants and rights Number of securitiesremaining for futureissuance under equitycompensation plans(excluding securitiesreflected in column (a)) Equity compensation plans approved by security holders 2,122,519 $9.53 1,251,625 Equity compensation plans not approved by security holders 107,450 $6.70 - Total 2,229,969 $9.39 1,251,625 ______________(dollars in thousands, except per share data)20Table of ContentsThe material features of the equity compensation plan under which equity securities are authorized for issuance that was adopted without stockholderapproval are described below: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, 2013 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, 2008, to the close of the last trading day of 2013, 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 on itsGICS 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, LifeSciences Tools & Services, and is comprised of 61 companies as of December 31, 2013.______________(dollars in thousands, except per share data)21Table of ContentsItem 6Selected Financial Data.The following selected consolidated financial data of the Company for each of the five years in the period through December 31, 2013 are derived fromthe audited financial statements. The consolidated financial statements of the Company as of December 31, 2013 and 2012 and for each of the years in thethree year period ended December 31, 2013 and the reports of the independent registered public accounting firm are included elsewhere in this annual report.The data presented below should be read in conjunction with the financial statements of the Company, the notes to the financial statements and "Management'sDiscussion and Analysis of Financial Condition and Results of Operations" included elsewhere. Years Ended December 31, 2013(1) 2012(2) 2011(3) 2010(4) 2009(5) INCOME DATA: Gross sales $317,212 $277,931 $254,475 $226,436 $236,277 Net revenues 318,176 276,501 255,653 226,992 234,550 Gross profit 102,904 90,487 74,084 66,866 70,278 Selling, general and administrative expenses 47,568 45,248 39,227 34,024 35,711 Research and development expenses 10,387 9,544 11,037 10,305 7,929 Restructuring expenses - - - 1,293 - Merger and acquisition expenses - - - 997 - Gain on sale of asset 4,680 - - - - Operating profit 49,629 35,695 23,820 20,247 26,638 Interest expense, net 2,242 2,439 2,373 4,391 4,634 Other expenses/(income), net 118 122 (111) 596 (641)Equity in losses of partially-owned affiliates 2,262 1,766 1,621 286 - Income before income taxes 45,007 31,368 19,937 14,974 22,645 Provision/(benefit) for income taxes 14,732 (31,861) 6,202 5,665 12,253 Income from continuing operations 30,275 63,229 13,735 9,309 10,392 (Loss)/income from discontinued operations, net of tax (4,360) (926) (2,767) 338 - Net income 25,915 62,303 10,968 9,647 10,392 EARNINGS PER SHARE DATA: Earnings/(loss) per common share (basic): Income from continuing operations $1.00 $2.13 $0.46 $0.32 $0.36 (Loss)/income from discontinued operations, net of tax $(0.14) $(0.03) $(0.09) $0.01 $- Net income $0.86 $2.10 $0.37 $0.33 $0.36 Earnings/(loss) per common share (diluted): Income from continuing operations $0.98 $2.09 $0.46 $0.32 $0.36 (Loss)/income from discontinued operations, net of tax $(0.14) $(0.03) $(0.09) $0.01 $- Net income $0.84 $2.06 $0.37 $0.33 $0.36 Weighted average shares outstanding (in thousands): Basic 30,150 29,703 29,468 29,361 29,241 Diluted 30,901 30,314 29,564 29,468 29,267 BALANCE SHEET DATA: (at end of period) Working capital $105,289 $61,487 $77,476 $82,146 $94,362 Total assets 458,037 385,731 342,831 351,751 351,515 Long-term debt 79,250 64,000 98,000 115,900 120,800 Total stockholders' equity 210,220 163,297 100,341 107,635 103,270 ______________(dollars in thousands, except per share data)22Table of Contents(1)Income from continuing operations includes a gain on the sale of an office building of $4,680, tax expense related to the gain on the sale of the officebuilding of $1,470 and a tax benefit related to changes in tax laws of $1,155. Loss from discontinued operations includes pre-tax charges of $6,708,reduced for a tax benefit of $2,348, for environmental remediation related to sites of divested businesses.(2)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, forenvironmental remediation related to sites of divested businesses.(3)Loss from discontinued operations includes pre-tax charges of $2,851 for environmental remediation, net of insurance proceeds, related to sites ofdivested businesses.(4)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 for aworker's compensation claim, all related to sites of divested businesses.(5)Net income includes tax expense of approximately $5,300 for an estimate of an international tax liability related to a 2003 transaction.Item 7Management's Discussion and Analysis of Financial Condition and Results of Operations.Executive OverviewThe Company’s business primarily consists of three manufacturing facilities. These facilities primarily manufacture APIs, pharmaceuticalintermediates and, to a lesser extent, other fine chemicals. The Company also owns a 51% stake in Zenara, a pharmaceutical company with final dosage formmanufacturing capabilities based in India.The following significant events, which are explained in detail on the following pages, occurred during 2013:·Gross sales in 2013 increased 14.1% to $317,212 from $277,931 in 2012. Foreign currency exchange favorably impacted sales 1.3%.·Operating profit increased 39.0% to $49,629 from 2012.·Debt, net of cash, increased $16,056 during 2013.Gross sales in 2013 of $317,212 were $39,281 or 14.1% higher than 2012. Excluding foreign currency, sales increased 12.8% as a result of highervolumes (+11.5%) and higher pricing (+1.3%). The volume increase was primarily due to higher sales of a recently approved branded API. Partially offsettingthis increase were lower volumes of generic APIs, controlled substances, branded APIs and products utilizing the Company’s drug delivery technology.Gross margins of 32.4% in 2013 were slightly lower compared to 32.6% in 2012. 2013 gross margins included a 0.3% unfavorable impact from foreigncurrency versus 2012. Gross margins were positively impacted by higher pricing offset by unfavorable product mix.______________(dollars in thousands, except per share data)23Table of ContentsThe Company reported income from continuing operations of $30,275, or $0.98 per diluted share in 2013, compared to $63,229 or $2.09 per dilutedshare in 2012. Income from continuing operations in 2012 includes the release of a valuation allowance on domestic deferred tax assets of $36,287.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 have amaterial 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: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 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 net revenues. Freightcosts 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 the 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 estimates thefair 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.______________(dollars in thousands, except per share data)24Table of ContentsThe 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.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 is recorded. Afterrelease of a portion of the Company’s domestic valuation allowance in the fourth quarter of 2012, the remaining domestic valuation allowance primarily relatesto federal foreign tax credits. Prior to 2012, domestic valuation allowances also included alternative minimum tax credits, research and development tax creditsand other net deferred tax balances, excluding deferred tax liabilities on indefinite-lived intangibles. The Company’s foreign valuation allowances primarilyrelate to NOL carryforwards in foreign jurisdictions with little or no history of generating taxable income or where future profitability is uncertain. TheCompany’s accounting for deferred taxes represents management’s best estimate of those future events. Changes in current estimates, due to unanticipatedevents, 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 cumulative pre-tax losses overa three-year period is heavily weighted as a source of negative evidence. The Company also considers the strength and trend of earnings, as well as otherrelevant factors. 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.______________(dollars in thousands, except per share data)25Table of ContentsA sustained period of domestic profitability along with expectations of future domestic profitability of sufficient amounts and character was requiredbefore the Company changed its judgment regarding the need for a full valuation allowance against net domestic deferred tax assets. During 2012, theCompany concluded that its three-year cumulative domestic profitability through the end of 2012 and expectations of future domestic profitability warrantedthe reversal of all of the domestic valuation allowance attributable to net federal temporary differences, alternative minimum tax credits, and research andexperimentation tax credits. Additionally, the Company released a portion of the domestic valuation allowance attributable to federal foreign tax credits. Thesevaluation allowance releases resulted in a tax benefit to continuing operations of $36,287 in 2012.The Company continues to assess the need for a valuation allowance against a portion of federal foreign tax credits and foreign losses. It is possible thatchanges in the amount or character of future domestic income could result in the release of additional domestic valuation allowance attributable to federalforeign tax credits in the future.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 its bestjudgment to determine if it is probable that the Company will incur an expense related to a settlement for such matters and whether a reasonable estimation ofsuch probable loss, if any, can be made. If probable and estimable, the Company accrues for the costs of investigation, remediation, settlements and legal fees.Given the inherent uncertainty related to the eventual outcome of litigation and environmental matters, it is possible that all or some of these matters may beresolved for amounts 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 pension benefits. The Company records annualamounts relating to these plans based on calculations, which include various actuarial assumptions, including discount rates, assumed rates of return andturnover rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates andtrends when it is deemed appropriate to do so. The effect of the modifications is generally recorded and amortized over future periods. The Company believesthat 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.______________(dollars in thousands, except per share data)26Table of ContentsResults of Operations2013 Compared to 2012Gross sales in 2013 of $317,212 were $39,281 or 14.1% higher than 2012. Excluding foreign currency, sales increased 12.8% as a result of highervolumes (+11.5%) and higher pricing (+1.3%). The volume increase was primarily due to higher sales of a recently approved branded API. Partially offsettingthis increase were lower volumes of generic APIs, controlled substances, branded APIs and products utilizing the Company’s drug delivery technology.The Company’s products and services are sold to a diverse group of several hundred customers, with one customer accounting for 18.3% of 2013consolidated sales. The Company’s products are sold through a combination of direct sales and independent agents. Two APIs, one an antiviral, and the othera gastrointestinal product that is sold to multiple customers, represented 18.3% and 10.0% of 2013 consolidated sales, respectively.Gross profit in 2013 was $102,904 compared to $90,487 in 2012. Gross margins were 32.4% in 2013 compared to 32.6% in 2012. Gross margins in2013 included a 0.3% unfavorable impact from foreign currency versus 2012. Gross margins were positively impacted by higher pricing offset by unfavorableproduct mix.Selling, general and administrative expenses of $47,568, or 15.0% of gross sales, in 2013 compared to $45,248, or 16.3%, in 2012. This increase isprimarily related to higher stock-based compensation expense as a result of the Company’s performance compared to a peer group and the Company’s higherstock price (approximately $1,400) and an unfavorable impact from foreign exchange (approximately $800). Sales and marketing expenses were flat year overyear.Research and development expenses of $10,387 were 3.3% of gross sales in 2013, compared to $9,544 or 3.4% of gross sales in 2012. The increase isprimarily due to increased headcount (approximately $1,000) and an unfavorable impact from foreign exchange (approximately $300). Higher absorption ofR&D expenses into inventory and cost of goods sold as a result of increased revenue generating custom development activity (approximately $500) partiallyoffset these increases.Operating profit was $49,629 in 2013 compared to $35,695 in 2012. The increase is due to higher gross profit and a $4,680 gain on sale of an officebuilding partially offset by higher operating expenses discussed above.Net interest expense was $2,242 in 2013 compared to $2,439 in 2012. The decrease in net interest expense is attributed to higher capitalized interest asa result of multiple large capital projects under construction during 2013. This decrease was partially offset by higher average debt and higher interest rates in2013. The average interest rate on debt was 2.3% in 2013 versus 2.2% in 2012.In November 2010, the Company acquired a 51% equity stake in Zenara, a pharmaceutical company focused on the formulation of final dosage formproducts based in India. Cambrex accounts for its investment in Zenara using the equity method of accounting. The impact of its ownership stake in Zenarawas a loss of $1,956 and $1,976 in 2013 and 2012, respectively, and is located within “Other expenses/(income)” as “Equity in losses of partially-ownedaffiliates” in the Company’s income statement. These amounts include amortization expense of $882 and $965 in 2013 and 2012, respectively anddepreciation expense of $130 and $132 in 2013 and 2012, respectively. Equity in losses of partially-owned affiliates also includes a loss of $311 and a gain of$210 in 2013 and 2012, respectively, related to an investment in a European joint venture.The Company recorded tax expense of $14,732 in 2013 compared to a benefit of $31,861 in 2012. The tax benefit for 2012 includes a benefit of$36,287 for a reversal of domestic valuation allowances. Additionally, 2013 and 2012 include benefits of $95 and $8,818, 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 the effect of the valuation allowance reversal and the effect ofremeasuring certain foreign deferred tax liabilities due to a change in enacted tax rates in 2012, the effective tax rate was 32.7% in 2013 compared to 18.3% in2012. The lower effective tax rate in 2012 was mostly due to domestic tax expense on U.S. income in 2012 being offset by utilization of fully valued domestictax attributes, prior to release of the domestic valuation allowance.______________(dollars in thousands, except per share data)27Table of ContentsIn 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 formal assessments against the subsidiary. In 2010, the Company filed to litigate the matter. The first courtdate, which pertained to the smaller of the assessments, 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 again ruled in the Company’s favor in 2012. The first court date for the larger of the assessments was held inSeptember 2012 and the court issued rulings in favor of the Company in June 2013 and December 2013. In 2013, the Company increased its reserve forunrecognized tax benefits for this matter by $450, including $279 of foreign currency translation. Any ruling reached by any of the courts may be subject tofurther appeals, and as such the final date of resolution of this matter is uncertain at this time. However, within the next twelve months it is possible thatfactors such as new developments, settlements or judgments may require the Company to increase its reserve for unrecognized tax benefits by up toapproximately $8,000 or decrease its reserve by approximately $6,400, including penalties and interest. If the court rules against the Company in subsequentcourt proceedings, a payment for the amount of the judgment, including any penalties and interest, will be due immediately while the case is appealed. TheCompany has analyzed these issues in accordance with guidance on uncertain tax positions and believes at this time that its reserves are adequate, and intendsto vigorously defend itself.Income from continuing operations in 2013 was $30,275 or $0.98 per diluted share, versus $63,229, or $2.09 per diluted share in 2012. Incomefrom continuing operations 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.2012 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, 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.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. Excluding a0.2% favorable impact from foreign currency, gross margins increased to 32.4% in 2012 versus 2011. Excluding the foreign currency impact, gross marginswere positively impacted by higher production volumes (3.7%), leading to increased plant efficiency, and favorable product mix (2.6%), partially offset bylower 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).______________(dollars in thousands, except per share data)28Table of ContentsResearch 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 in 2012, the effective tax rate was18.3% in 2012 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 toutilize fully valued domestic tax attributes, prior to release of the domestic valuation allowance, to mitigate tax expense.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.Liquidity and Capital ResourcesDuring 2013, cash flows from operations provided $36,874, compared to $43,546 in the same period a year ago. The decrease in cash flows fromoperations in 2013 compared to 2012 was largely due to higher accounts receivable as a result of large shipments in the fourth quarter of this year andincreased inventory production partially offset by improved cash management and cash receipts related to deferred revenue. Cash flows used in investingactivities in 2013 of $56,597 mainly reflects cash flows related to capital expenditures of $57,320. Cash flows provided by financing activities in 2013 of$18,173 mainly reflects borrowings under the Company’s credit facility to support capacity expansions. Debt, net of cash, increased $16,056 during 2013.In November 2011, the Company entered into a $250,000 five-year Syndicated Senior Revolving Credit Facility (“Credit Facility”) which expires inNovember 2016. The Company pays interest on this Credit Facility at LIBOR plus 1.75% - 2.50% based upon certain financial measurements. The CreditFacility also includes financial covenants regarding interest coverage and leverage ratios. The Company was in compliance with all financial covenants atDecember 31, 2013.______________(dollars in thousands, except per share data)29Table of ContentsIn 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, 2013 theCompany had floating rate debt of $79,250, of which $60,000 is fixed by an interest rate swap.The 2013 and 2012 weighted average interest rates for long-term bank debt were 2.3% and 2.2%, respectively.For 2014, capital expenditures are expected to be approximately $35,000 to $39,000.Contractual ObligationsAt December 31, 2013, the Company’s contractual obligations with initial or remaining terms in excess of one year were as follows: Total 2014 2015 2016 2017 2018 2019+ Long term debt $79,250 $- $- $79,250 $- $- $- Interest on debt 6,348 2,432 2,315 1,601 - - - Operating leases 3,395 968 830 539 515 442 101 Purchase obligations 2,769 2,171 598 - - - - Contractual cashobligations $91,762 $5,571 $3,743 $81,390 $515 $442 $101 In addition to the contractual obligations listed above, the Company expects to contribute approximately $2,700 in cash to its U.S. defined-benefitpension plan in 2014. It is possible that higher pension contributions could be required in 2015 and beyond. For the unfunded SERP and international pensionplans, the Company expects to make benefit payments of approximately $1,500 in 2014 and similar amounts in 2015 through 2018. See Note 16 to theCompany’s consolidated financial statements for details on the Company’s unfunded balance related to its pension plans. Also not included in the table aboveis $8,927 of uncertain tax positions due to uncertainties surrounding the timing of the obligation. See Note 9 to the Company’s consolidated financialstatements. The Company may be required to make cash payments to remediate certain environmental sites at unknown future periods as discussed in Note19 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.The Company has an obligation to purchase the remaining 49% of Zenara in 2016 at a price determined by future performance of that 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)30Table of ContentsMarket 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 forward contractsto mitigate the effect of short-term foreign exchange rate movements on the Company's local operating results. As a matter of policy, the Company does nothedge to protect the translated results of foreign operations. The Company did not have any foreign currency exchange forward contracts outstanding atDecember 31, 2013.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, 2013, 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, 2013, the coverage was76% 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 $193.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 and evaluatesthe need for reserves and disclosures as deemed necessary based on these facts and circumstances. These matters, either individually or in the aggregate, couldresult in actual costs that are significantly higher than the Company’s current assessment and could have a material adverse effect on the Company's operatingresults and cash flows in future reporting periods. While these matters could have a material adverse effect on the Company’s financial condition, based uponpast experience, it is likely that payments significantly in excess of current reserves, if required, 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 activities and along with other companies, have been named a potentially responsible party (“PRP”) for certainwaste disposal sites ("Superfund sites"). Substantially all of the liabilities currently recorded on the Company’s balance sheet for environmental proceedingsare 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, as wellas 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/or remediation of applicable sites. These reserves were $10,881 and $5,096 at December 31, 2013 and 2012, respectively. The increase in thereserve includes adjustments to reserves of $7,434 and the impact of currency translation of $21 partially offset by payments of $1,670. The reserves areadjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information becomes 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. Given the uncertainties regarding the outcome of investigative and study activities, the status of laws, regulations, enforcement,policies, the impact of other PRPs, technology and information related to individual sites, the Company does not believe it is possible to currently develop anestimate of the range of reasonably possible environmental loss in excess of its reserves.______________(dollars in thousands, except per share data)31Table of ContentsCasChemAs 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 pursuant tothe New Jersey Department of Environmental Protection’s (“NJDEP”) private oversight program. The results of the completed sampling, and any additionalsampling deemed necessary, will be used to develop an estimate of the Company's future liability for remediation costs. As of December 31, 2013, theCompany’s reserve was $249.CosanThe Company is currently implementing a sampling and pilot program at its Cosan Clifton, New Jersey site pursuant to the NJDEP private oversightprogram. The results of the sampling and pilot program to date have been used to develop an estimate of the Company's future liability for remediation costs.As of December 31, 2013, the Company’s reserve was $1,259.Additionally, the Company is currently implementing a sampling and pilot program at its Cosan Carlstadt, New Jersey site pursuant to the NJDEPprivate oversight program. The results of the sampling and pilot program to date have been used to develop an estimate of the Company's future liability forremediation costs. As of December 31, 2013, the Company’s reserve was $1,136.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, 2013, the Company’s reservewas $249 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 SiteA subsidiary of Cambrex is named a PRP of a former production facility in Hamptonburgh, New York by the USEPA in connection with thedischarge, under appropriate permits, of wastewater at that site prior to Cambrex's acquisition of this facility in 1986. The PRPs implemented soil remediationwhich was completed in 2012 pending approval by the USEPA. The PRPs will continue implementing the ground water remediation at the site. As ofDecember 31, 2013, the Company’s reserve was $322 to cover remaining ground water remediation and long-term monitoring.______________(dollars in thousands, except per share data)32Table of ContentsHarriman SiteSubsidiaries of Cambrex and Pfizer are named as responsible parties for the Company’s former Harriman, New York production facility by the NewYork State Department of Environmental Conservation (“NYSDEC”). A final ROD describing the Harriman site remediation responsibilities for Pfizer and theCompany was issued in 1997 (the "1997 ROD") and incorporated into a federal court Consent Decree in 1998 (the “Consent Decree”). Site clean-up workunder the 1997 ROD is on-going and is being jointly performed by Pfizer and the Company, with NYSDEC oversight. ELT Harriman, LLC ("ELT"), thecurrent owner of the Harriman site, conducted other investigation and remediation activities under a separate NYSDEC directive.In October 2013, the NYSDEC sent the Company, Pfizer, ELT and the immediately preceding owner Vertellus Specialties Holdings (“Vertellus”) anenforcement letter demanding that the Company and Pfizer submit a work plan for the further study and remediation of certain areas of the Harriman site,including the evaluation of certain remedies that the Company has contended are not required by the 1997 ROD. In December 2013, the Company, Pfizer andthe NYSDEC entered into a federal court stipulation withdrawing the October 2013 enforcement letter as to the Company and Pfizer, and resolving certaindisputes about the scope of their obligations under the Consent Decree and the 1997 ROD. Pursuant to the stipulation, the Company and Pfizer are required tocarry out an environmental investigation and study of certain areas of the Harriman Site.No final remedy for the site has been determined, which will follow further investigation and discussions with the NYSDEC. The Company estimatedthe range for its share of the liability at the site to be between $2,000 and $7,000. As of December 31, 2013, the Company’s reserve was $3,690, whichreflects amounts for work which the Company currently considers to be probable and estimable. At this time, the Company is unable to provide an estimate ofthe ultimate investigative and remedial costs to the Company for any final remedy selected by NYSDEC.The Company intends to enforce all of its contractual rights to recover costs and for indemnification, and has filed such claims in an arbitrationproceeding against ELT and Vertellus. ELT has filed counterclaims for contractual indemnification. Currently, the arbitration proceeding is stayed indefinitely.Scientific Chemical Processing (“SCP”) Superfund SiteA subsidiary of Cambrex was named a PRP of the SCP Superfund site, located in Carlstadt, New Jersey, in the early 1980’s along with approximately130 other PRPs. The site is a former waste processing facility that accepted various waste for recovery and disposal including processing wastewater from thissubsidiary. The PRPs 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’sCreek Superfund site (see previous discussion). For over a decade, the remediation has been funded by de minimus settlements and by the insurers of the SCPSuperfund site’s owners and operators. However, due to an unexpected increase in remediation costs at the site and costs to related to SCP’s involvement in theBerry’s Creek investigation, the PRP group approved the assessment of an additional cash contribution by the PRP group. While the Company continues todispute the methodology used by the PRP group to arrive at its allocation for the cash contribution, the Company has paid the recent funding requests. A finalallocation of SCP Site costs is expected to be developed during 2014. As of December 31, 2013, the Company’s reserve was $1,250 of which approximately$735 is expected to be covered by insurance.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 has entered into a settlementagreement with the original plaintiffs, which has been approved by the Court. The settlement resolves the lawsuit and provides the Company with someprotections from certain claims. The settlement resolves any claims that the original plaintiffs have against the Company and will require Maxus and Tierra tore-file their claims against the Company in federal court. As of December 31, 2013, the Company’s reserve is $324 for this matter.______________(dollars in thousands, except per share data)33Table of ContentsThe 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 “District Court”).Suits were also commenced by several State Attorneys General and class action complaints by private plaintiffs in various state courts. The suits allegedviolations of the Federal Trade Commission Act arising from exclusive license agreements between the Company and Mylan covering two APIs (Lorazepamand 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 has been completed and the parties are currently waiting for a ruling by thecourt.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 bond underwrittenby a third-party insurance company in the amount of $66,632. In the event of a final settlement or final judgment, Cambrex expects any payment required bythe Company to be made by Mylan under the indemnity described above.OtherThe Company has commitments incident to the ordinary course of business including corporate guarantees of certain subsidiary obligations to theCompany’s lenders related to financial assurance obligations under certain environmental laws for remediation; closure and third party liability requirementsof certain of its subsidiaries and a former operating location; contract provisions for indemnification protecting its customers and suppliers against third partyliability for the manufacture and sale of Company products that fail to meet product warranties and contract provisions for indemnification protectinglicensees against intellectual property infringement related to licensed Company technology or processes.Additionally, as permitted under Delaware law, the Company indemnifies its officers, directors and employees for certain events or occurrences whilethe officer, director or employee is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer's,director's or employee’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnificationagreements is unlimited; however, the Company has a director and officer insurance policy that covers a portion of any potential exposure. The Companycurrently believes the estimated fair value of its indemnification agreements is not material based on currently available information, and as such, theCompany had no liabilities recorded for these agreements as of December 31, 2013.______________(dollars in thousands, except per share data)34Table of ContentsCambrex's subsidiaries are party to a number of other proceedings that are not considered material at this time.Impact of Recent Accounting PronouncementsComprehensive IncomeIn February 2012, the FASB issued “Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income(“AOCI”)” which improves the reporting of reclassifications out of AOCI. The amendment requires an entity to report the effect of significant reclassificationsout of AOCI on the respective line items in net income. For other amounts not required to be reclassified to net income, an entity is required to cross-referenceother disclosures required under U.S. GAAP that provide additional detail about these amounts. This amendment became effective January 1, 2013 and theeffect of adopting this updated guidance did not have an impact on the Company’s financial position or results of operations.Presentation of Unrecognized Tax BenefitsIn July 2013, the FASB issued “Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar TaxLoss, or a Tax Credit Carryforward Exists” which improves the reporting of unrecognized tax benefits. The amendment requires an entity to present anunrecognized tax benefit as a reduction to deferred tax assets for NOLs or tax credit carryforwards, unless the NOL or tax credit carryforward is not availableunder the tax law or not intended to be used as of the reporting date to settle any additional income taxes that would be due from the disallowance of a taxposition. Under that exception, the unrecognized tax benefit should be presented as a liability instead of being netted against deferred tax assets for NOLs or taxcredit carryforwards. This amendment is effective for fiscal quarters and years beginning after December 15, 2013. The Company adopted this updatedguidance early and it did not have an impact on the Company’s financial position or results of operations.______________(dollars in thousands, except per share data)35Table of ContentsItem 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 31 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 Firm 37Consolidated Balance Sheets as of December 31, 2013 and 2012 39Consolidated Income Statements for the Years Ended December 31, 2013, 2012 and 2011 40Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2013,2012 and 2011 41Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2013, 2012 and2011 42Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 43Notes to Consolidated Financial Statements 44Selected Quarterly Financial and Supplementary Data (unaudited) 74 The financial statement schedules are filed pursuant to Item 15 of this report. 36Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of Cambrex Corporation,We have audited the accompanying consolidated balance sheets of Cambrex Corporation as of December 31, 2013 and 2012 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, 2013. 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 that ouraudits 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, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31,2013, 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, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 11, 2014 expressed an unqualified opinionthereon./s/ BDO USA, LLPWoodbridge, NJFebruary 11, 201437Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Shareholders of Cambrex Corporation,We have audited Cambrex Corporation’s internal control over financial reporting as of December 31, 2013, based on criteria established in InternalControl – Integrated Framework (1992) 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, 2013,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, 2013 and 2012, 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, 2013 and our report dated February 11, 2014 expressed anunqualified opinion thereon./s/ BDO USA LLPWoodbridge, NJFebruary 11, 201438Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(dollars in thousands, except per share data) December 31, 2013 2012 ASSETS Current assets: Cash and cash equivalents $22,745 $23,551 Trade receivables, less allowances of $1,058 and $652 at respective dates 71,276 43,094 Other receivables 12,943 2,015 Inventories, net 89,965 71,221 Prepaid expenses and other current assets 5,631 4,089 Total current assets 202,560 143,970 Property, plant and equipment, net 171,966 151,815 Goodwill 38,670 37,312 Intangible assets, net 4,011 4,091 Investments in and advances to partially-owned affiliates 13,364 15,094 Deferred income taxes 19,799 30,786 Other non-current assets 7,667 2,663 Total assets $458,037 $385,731 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $29,052 $27,612 Deferred revenue 20,121 11,570 Accrued expenses and other current liabilities 48,098 43,301 Total current liabilities 97,271 82,483 Long-term debt 79,250 64,000 Deferred income taxes 12,835 10,383 Accrued pension benefits 40,123 55,373 Other non-current liabilities 18,338 10,195 Total liabilities 247,817 222,434 Commitments and contingencies (see Notes 18 and 19) Stockholders' equity: Common Stock, $.10 par value; authorized 100,000,000 issued 32,240,795 and 31,704,230 shares at respectivedates 3,223 3,169 Additional paid-in capital 109,765 104,173 Retained earnings 131,178 105,263 Treasury stock, at cost, 1,757,530 and 1,795,082 shares at respective dates (14,984) (15,217)Accumulated other comprehensive loss (18,962) (34,091)Total stockholders' equity 210,220 163,297 Total liabilities and stockholders' equity $458,037 $385,731 See accompanying notes to consolidated financial statements.39Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED INCOME STATEMENTS(dollars in thousands, except per share data) Years Ended December 31, 2013 2012 2011 Gross Sales $317,212 $277,931 $254,475 Commissions, allowances and rebates 1,351 2,503 1,776 Net sales 315,861 275,428 252,699 Other 2,315 1,073 2,954 Net revenues 318,176 276,501 255,653 Cost of goods sold 215,272 186,014 181,569 Gross profit 102,904 90,487 74,084 Selling, general and administrative expenses 47,568 45,248 39,227 Research and development expenses 10,387 9,544 11,037 Total operating expenses 57,955 54,792 50,264 Gain on sale of asset 4,680 - - Operating profit 49,629 35,695 23,820 Other expenses/(income) Interest expense, net 2,242 2,439 2,373 Other expenses/(income), net 118 122 (111)Equity in losses of partially-owned affiliates 2,262 1,766 1,621 Income before income taxes 45,007 31,368 19,937 Provision/(benefit) for income taxes 14,732 (31,861) 6,202 Income from continuing operations 30,275 63,229 13,735 Loss from discontinued operations, net of tax (4,360) (926) (2,767)Net income $25,915 $62,303 $10,968 Basic earnings per share Income from continuing operations $1.00 $2.13 $0.46 Loss from discontinued operations, net of tax $(0.14) $(0.03) $(0.09)Net income $0.86 $2.10 $0.37 Diluted earnings per share Income from continuing operations $0.98 $2.09 $0.46 Loss from discontinued operations, net of tax $(0.14) $(0.03) $(0.09)Net income $0.84 $2.06 $0.37 Weighted average shares outstanding: Basic weighted average shares outstanding 30,150 29,703 29,468 Effect of dilutive stock based compensation 751 611 96 Diluted weighted average shares outstanding 30,901 30,314 29,564 See accompanying notes to consolidated financial statements.40Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESSTATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME/(LOSS)(dollars in thousands) Years Ended December 31, 2013 2012 2011 Net income $25,915 $62,303 $10,968 Foreign currency translation adjustments: Unrealized net change arising during the period 4,813 4,066 (7,501) Foreign currency forward contracts: Unrealized net (loss)/gain - (51) 624 Reclassification adjustments for gains included in net income - (329) (143)Income taxes - 110 (142) Interest rate swap agreement: Unrealized net losses (130) (1,253) - Reclassification adjustments for losses included in net income 444 323 - Income taxes (110) 326 - Pension plans: Actuarial gain/(loss) Actuarial gain/(loss) arising during the period 13,651 (4,413) (14,126)Amortization to net income of net actuarial loss 1,339 1,140 618 Prior service cost Amortization to net income of net prior service cost 50 110 486 Income taxes (4,928) (2,533) 489 Comprehensive income/(loss) $41,044 $59,799 $(8,727)See accompanying notes to consolidated financial statements.41Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(dollars in thousands, except per share data) Common Stock SharesIssued Par Value($.10) AdditionalPaid-InCapital RetainedEarnings TreasuryStock AccumulatedOtherComprehensiveLoss TotalStockholders'Equity 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)Repurchase of shares (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 Net income 25,915 25,915 Other comprehensive income 15,129 15,129 Exercise of stock options 536,565 54 3,170 3,224 Vested restricted stock (534) 534 - Stock option expense 1,994 1,994 Restricted stock expense 427 427 Performance stock expense 404 404 Share based compensation taxwindfall 131 131 Repurchase of shares (301) (301)Balance at December 31, 2013 32,240,795 $3,223 109,765 $131,178 $(14,984) $(18,962) $210,220 See accompanying notes to consolidated financial statements.42Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(dollars in thousands) Years Ended December 31, 2013 2012 2011 Cash flows from operating activities: Net income $25,915 $62,303 $10,968 Adjustments to reconcile net income to cash flows: Depreciation and amortization 22,473 21,775 23,120 Non-cash deferred revenue (10,093) (238) (973)Increase in inventory reserve 2,329 2,790 1,637 Gain on sale of assets (4,281) (5) 25 Allowance for doubtful accounts 433 193 (103)Stock based compensation included in net income 2,825 1,802 1,565 Deferred income tax provision 5,902 (40,712) (721)Equity in losses of partially-owned affiliates 2,262 1,766 1,621 Other 348 348 365 Changes in assets and liabilities: Trade receivables (27,707) (6,310) 2,066 Inventories (19,328) (10,295) (3,523)Prepaid expenses and other current assets (2,651) (188) 729 Accounts payable and other current liabilities 10,107 3,134 6,247 Deferred revenue 18,644 10,748 1,497 Other non-current assets and liabilities 11,229 182 (5,597)Discontinued operations: Net cash used in discontinued operations (1,533) (3,747) (601)Net cash provided by operating activities 36,874 43,546 38,322 Cash flows from investing activities: Capital expenditures (57,320) (18,156) (15,008)Proceeds from sale of assets 2,378 16 20 Advances to partially-owned affiliates (1,655) (2,047) - Acquisition of business and equity investment, net of cash acquired - - (500)Other - 5 - Net cash used in investing activities (56,597) (20,182) (15,488) Cash flows from financing activities: Long-term debt activity (including current portion): Borrowings 70,950 5,500 105,800 Repayments (55,700) (39,500) (123,700)Debt issuance costs - - (1,541)Proceeds from stock options exercised 3,224 1,355 145 Other (301) (22) (340)Net cash provided by/(used in) financing activities 18,173 (32,667) (19,636) Effect of exchange rate changes on cash and cash equivalents 744 933 (891)Net (decrease)/increase in cash and cash equivalents (806) (8,370) 2,307 Cash and cash equivalents at beginning of year 23,551 31,921 29,614 Cash and cash equivalents at end of year $22,745 $23,551 $31,921 Supplemental disclosure: Interest paid, net of capitalized interest $2,325 $2,556 $2,258 Income taxes paid, net of refunds received $7,211 $5,068 $8,520 See accompanying notes to consolidated financial statements.43Table of ContentsCAMBREX 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. Cambrexhas three operating segments, which are manufacturing facilities that have been aggregated as one reportable segment.(2)Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Equity investments in which theCompany exercises significant influence but does not control, are accounted for using the equity method. The Company’s share of its equity method investees’earnings or losses are included in “Other expenses/(income)” in the income statements. The Company eliminates its pro rata share of gross profit on sales withits 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. As such,the differential to be paid or received in connection with these instruments is accrued and recognized in income as an adjustment to interest expense.44Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(2)Summary of Significant Accounting Policies (continued)The Company formally documents the relationship 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 assessment ofnumerous 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 was $298 in 2013 and negligible in both 2012and 2011.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 and thesecond step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairmenttest is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of thereporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of thatgoodwill, an impairment loss is recognized in an amount equal to that excess.45Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(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 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.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 net revenues. Freightcosts 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 subsidiary. Historically, the Company intended to reinvest foreign earnings indefinitely outside of the U.S. and only considered repatriating excesscash from foreign subsidiaries if it could utilize fully valued domestic tax attributes to completely offset any tax expense that would otherwise result.Unrecognized foreign tax credits and fully valued foreign tax credit carryovers were available to offset any potential U.S. tax liability. Therefore, the Companyhad not provided U.S. federal income taxes or foreign withholding taxes on its undistributed earnings from foreign operations prior to 2012. During the fourthquarter of 2012 the Company completed a detailed forecast of foreign source income by jurisdiction as part of the ongoing process to evaluate its valuationallowance against deferred tax assets. As part of this process, as well as a continuing desire to limit its credit and currency exposure for cash held in foreigncurrencies or in non-U.S. banks, the Company determined that it is likely that a portion of the undistributed earnings of its foreign subsidiaries will berepatriated to the U.S. in the future. Accordingly, the Company changed its indefinite reinvestment assertion and has provided a deferred tax liability of $568on undistributed foreign earnings as of December 31, 2013. Subject to limitations, U.S. income tax on such foreign earnings, when actually repatriated, maybe reduced or eliminated by unrecognized foreign tax credits that may be generated in connection with the repatriation, or by existing foreign tax credits or othertax attributes for which valuation allowance was released in the fourth quarter of 2012. The Company monitors available evidence and management’s plansfor foreign earnings and expects to continue to provide deferred tax expense based on the tax liability that would be due upon repatriation of amounts notconsidered permanently reinvested.46Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(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 activities. The Company’s policy is to accrue environmental related costs of a non-capital nature, includingestimated litigation costs, when those costs are believed to be probable and can be reasonably estimated. The quantification of environmental exposuresrequires an assessment of many factors, including changing laws and regulations, advancements in environmental technologies, the quality of informationavailable related to specific sites, the assessment stage of each site investigation, preliminary findings and the length of time involved in remediation orsettlement. Such accruals are adjusted as further information develops or circumstances change. For certain matters, the Company expects to share costs withother 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 $133, $274 and $62in 2013, 2012 and 2011, respectively.47 2013 2012 Foreign currency translation $9,990 $5,177 Unrealized loss on hedging contracts, net of tax (396) (600)Pensions, net of tax (28,556) (38,668)Total $(18,962) $(34,091)Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(2)Summary of Significant Accounting Policies (continued)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, equity-settled performance shares and restricted stock units, using the treasury stock method.For the years ended December 31, 2013, 2012 and 2011, shares of 916,350, 580,745, and 1,839,373, respectively, were not included in thecalculation of diluted shares outstanding because the effect would be anti-dilutive.Comprehensive Income/(Loss)Included 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, 2013 and 2012 are included in the Statements of Comprehensive Income/(Loss).The components of accumulated other comprehensive loss in stockholders’ equity are as follows: ReclassificationCertain reclassifications have been made to prior year amounts to conform with current year presentation. (3)Impact of Recently Issued Accounting PronouncementsComprehensive IncomeIn February 2012, the FASB issued “Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income(“AOCI”)” which improves the reporting of reclassifications out of AOCI. The amendment requires an entity to report the effect of significant reclassificationsout of AOCI on the respective line items in net income. For other amounts not required to be reclassified to net income, an entity is required to cross-referenceother disclosures required under U.S. GAAP that provide additional detail about these amounts. This amendment became effective January 1, 2013 and theeffect of adopting this updated guidance did not have an impact on the Company’s financial position or results of operations.Presentation of Unrecognized Tax BenefitsIn July 2013, the FASB issued “Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar TaxLoss, or a Tax Credit Carryforward Exists” which improves the reporting of unrecognized tax benefits. The amendment requires an entity to present anunrecognized tax benefit as a reduction to deferred tax assets for NOLs or tax credit carryforwards, unless the NOL or tax credit carryforward is not availableunder the tax law or not intended to be used as of the reporting date to settle any additional income taxes that would be due from the disallowance of a taxposition. Under that exception, the unrecognized tax benefit should be presented as a liability instead of being netted against deferred tax assets for NOLs or taxcredit carryforwards. This amendment is effective for fiscal quarters and years beginning after December 15, 2013. The Company adopted this updatedguidance early and it did not have an impact on the Company’s financial position or results of operations.48Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(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, 2013 2012 Finished goods $29,797 $30,262 Work in process 31,990 23,533 Raw materials 22,580 12,352 Supplies 5,598 5,074 Total $89,965 $71,221 The components of inventory stated above are net of reserves of $11,496 and $11,839 as of December 31, 2013 and 2012, respectively.(5)Property, Plant and EquipmentProperty, plant and equipment consist of the following: December 31, 2013 2012 Land $4,312 $4,221 Buildings and improvements 108,460 92,307 Machinery and equipment 398,490 364,370 Furniture and fixtures 1,884 1,813 Construction in progress 16,808 21,382 Total 529,954 484,093 Accumulated depreciation (357,988) (332,278)Net $171,966 $151,815 Depreciation expense was $22,218, $21,528 and $22,822 for the years ended December 31, 2013, 2012 and 2011, respectively. Total capitalexpenditures in 2013 and 2012 were $41,600 and $29,407, respectively.(6)Goodwill and Intangible AssetsThe changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012 are as follows:Balance as of December 31, 2011 $36,731 Translation effect 581 Balance as of December 31, 2012 37,312 Translation effect 1,358 Balance as of December 31, 2013 $38,670 49Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(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, 2013 AmortizationPeriod GrossCarryingAmount AccumulatedAmortization Net CarryingAmount Technology-based intangibles 20 years $4,192 $(786) $3,406 Customer-related intangibles 10 - 15 years 814 (209) 605 $5,006 $(995) $4,011 As of December 31, 2012 AmortizationPeriod GrossCarryingAmount AccumulatedAmortization Net CarryingAmount Technology-based intangibles 20 years $4,011 $(552) $3,459 Customer-related intangibles 10 - 15 years 778 (146) 632 $4,789 $(698) $4,091 The change in the gross carrying amount is due to the impact of foreign currency.Amortization expense amounted to $255, $247 and $298 for the years ended December 31, 2013, 2012 and 2011, respectively.Amortization expense related to current intangible assets is expected to be approximately $265 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 manages alldaily operations of the business including employee relations at the site. Therefore, the Company accounts for this investment under the equity method ofaccounting.The impact of its ownership stake in Zenara was a loss of $1,956, $1,976 and $1,621 in 2013, 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 expenseof $882, $965 and $1,106 in 2013, 2012 and 2011, respectively, and depreciation expense of $130, $132 and $149 in 2013, 2012 and 2011, respectively.The Company advanced $1,514 and $1,594 to Zenara in 2013 and 2012, respectively.50Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(7)Investments in and Advances to Partially-Owned Affiliates (continued)Investments in and advances to partially-owned affiliates also includes a loss of $311 and a gain of $210 in 2013 and 2012, respectively, related to aninvestment in a European joint venture. In 2013 and 2012, the Company advanced $141 and $453, respectively to the European joint venture.(8)Accrued Expense and Other Current LiabilitiesThe components of accrued expenses and other current liabilities are as follows: December 31, 2013 2012 Salaries and employee benefits payable $26,211 $23,882 Taxes payable and related reserves 10,168 9,637 Other 11,719 9,782 Total $48,098 $43,301 (9)Income TaxesIncome before income taxes consists of the following: December 31, 2013 2012 2011 Domestic $23,068 $13,525 $3,749 International 21,939 17,843 16,188 Total $45,007 $31,368 $19,937 The provision for income taxes consist of the following provisions/(benefits): December 31, 2013 2012 2011 Current: Federal $630 $(177) $(196)State 15 4 45 International 5,980 8,525 7,074 6,625 8,352 6,923 Deferred: Federal $7,014 $(36,287) $204 International 1,093 (3,926) (925) 8,107 (40,213) (721)Total $14,732 $(31,861) $6,202 51Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(9)Income Taxes (continued)The provision/(benefit) for income taxes differs from the statutory federal income tax rate of 35% for 2013, 2012 and 2011 as follows: December 31, 2013 2012 2011 Income tax provision at U.S federal statutory rate $15,752 $10,979 $6,978 Effect of foreign income taxed at rates other than the U.S. federal statutory rate 242 (451) 469 Foreign income inclusions - 4,563 8,398 Tax credits (250) (177) (196)Changes in tax laws (1,155) (1,329) - Indefinite-lived intangibles - - 204 Net change in valuation allowance (97) (45,105) (9,546)Other 240 (341) (105)Total $14,732 $(31,861) $6,202 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 and fully valued foreign tax credits in 2011 to completely offset any tax impact of the foreign income inclusions. Net change inthe valuation allowance in 2012 includes the fourth quarter benefit of $36,287 for the release of the domestic valuation allowance, the reduction in thedomestic valuation allowance, prior to the release, for the utilization of fully valued tax credits to offset U.S. income tax and deferred tax amounts of $8,660,and the reduction in the foreign valuation allowance of $158.52Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(9)Income Taxes (continued)The components of deferred tax assets and liabilities as of December 31, 2013 and 2012 relate to temporary differences and carryforwards as follows: December 31, 2013 2012 Deferred tax assets: Inventory $2,510 $2,263 Legal and related reserves 260 100 Foreign tax credit carryforwards 31,463 35,410 Environmental 2,995 850 Net capital loss carryforwards (domestic) 31 31 Net operating loss carryforwards (foreign) 944 902 Employee benefits 12,841 17,977 Restructuring 239 334 Research & experimentation tax credit carryforwards 1,900 1,681 Alternative minimum tax credit carryforwards 2,773 2,604 Property, plant and equipment 3,843 4,228 Other 3,507 4,553 Total gross deferred tax assets 63,306 70,933 Valuation allowance (29,890) (29,941)Total deferred tax assets $33,416 $40,992 Deferred tax liabilities: Property, plant and equipment (9,059) (6,523)Intangibles and other (9,856) (9,510)Unremitted foreign earnings (568) (541)Foreign tax allocation reserve (2,006) (2,544)Other (2,187) (2)Total deferred tax liabilities $(23,676) $(19,120) Net deferred tax asset / (liability) $9,740 $21,872 Classified as follows in the consolidated balance sheet: Current deferred tax asset (included in other current assets) 2,874 1,469 Non-current deferred tax asset 19,799 30,786 Current deferred tax liability (included in other current liabilities) (98) - Non-current deferred tax liability (12,835) (10,383) $9,740 $21,872 53Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(9)Income Taxes (continued)The Company establishes a valuation allowance against deferred tax assets when it is more likely than not that the Company will be unable to realizethose deferred tax assets in the future. 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 forecasted income. Consideringthe pattern of then-recent domestic losses, the Company gave significant weight to projections showing future domestic losses for purposes of assessing theneed for a valuation allowance. This assessment resulted in a determination that it was more likely than not that domestic deferred tax assets would not berealized, 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 was requiredbefore the Company concluded that it was more likely than not that the domestic deferred tax assets would be realized, and as such, that there was no longerthe need for a full valuation allowance against net domestic deferred tax assets. During 2012, the Company concluded that its three-year cumulative domesticprofitability through the end of 2012 and expectations of future domestic profitability warranted the reversal of all of the domestic valuation allowanceattributable to net federal temporary differences, alternative minimum tax credits, and research and experimentation tax credits. Additionally, the Companyreleased a portion of the domestic valuation allowance attributable to federal foreign tax credits. These valuation allowance releases resulted in a tax benefit tocontinuing operations of $36,287.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. It is possible that additional domestic valuation allowance attributable to federal foreign taxcredits could be released in the future. The Company currently expects to maintain a full valuation allowance against state tax credits and deferred tax assetsdue to restrictive rules regarding realization. The Company expects to maintain a full valuation allowance against certain foreign tax assets, primarily NOLcarryforwards, until such time as the Company attains an appropriate level of future profitability in the appropriate jurisdictions and is able to conclude that itis more likely than not that its foreign deferred tax assets are realizable.The domestic valuation allowance for the years ended December 31, 2013, 2012 and 2011 decreased $3, decreased $47,490 and increased $304,respectively. The 2013 decrease in the domestic valuation allowance is due to domestic state items. The 2012 decrease in the domestic valuation allowance wasallocated as follows: The valuation allowance decreased $36,287 for the release of valuation allowance due to domestic profitability, decreased by a net amountof $8,660 for domestic income and deferred tax amounts in continuing operations prior to the release of valuation allowance in the fourth quarter of 2012, anddecreased by a net amount of $2,543 for domestic gains and losses included in OCI and discontinued operations. The 2011 increase in the domestic valuationallowance was allocated as follows: The valuation allowance decreased $9,340 for domestic income in continuing operations and increased by a net amount of$9,644 for deferred tax amounts, domestic gains and losses included in OCI and discontinued operations.54Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(9)Income Taxes (continued)The foreign valuation allowance for the years ended December 31, 2013, 2012 and 2011 decreased $48, $140, and $582, respectively. The 2013decrease in the foreign valuation allowance was allocated as follows: The valuation allowance decreased $94 for foreign income and increased $46 for deferredtax amounts and currency translation adjustments included in OCI. The 2012 decrease in the foreign valuation allowance was allocated as follows: Thevaluation allowance decreased $158 for foreign income and increased $18 for deferred tax amounts and currency translation adjustments included in OCI.The 2011 decrease in the foreign valuation allowance was allocated as follows: The valuation allowance decreased $206 for foreign income and decreased$376 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. Foreign NOLs are approximately $3,356, of which $2,090 are attributable to NOLs acquiredduring 2010. NOLs in most foreign jurisdictions will carry forward indefinitely.As of December 31, 2013, $31,463 of domestic federal foreign tax credits, $1,900 of research and experimentation tax credits and $2,773 of alternativeminimum tax credits are available as credits against future U.S. income taxes on worldwide income, subject to certain limitations. Under U.S. tax laws, thesewill expire in 2013 through 2018, 2020 through 2033, and the alternative minimum tax credit carryforwards have no expiration date, respectively. Thedomestic federal foreign tax credits are partially offset by a valuation allowance.In 2012, the Company repatriated $8,953 of cash from its foreign subsidiaries in order to reduce its credit and currency exposure for cash held inforeign currencies or in non-U.S. banks and utilized the excess cash for debt reduction. The Company utilized fully valued domestic tax credits in 2012 tocompletely offset any tax impact of the foreign income inclusion. Historically, the Company intended to reinvest foreign earnings indefinitely outside of theU.S. and only considered repatriating excess cash from foreign subsidiaries if it could utilize fully valued domestic tax attributes to completely offset any taxexpense that would otherwise result. Unrecognized foreign tax credits and fully valued foreign tax credit carryovers had been available to offset any potentialU.S. tax liability. Therefore, the Company had not provided U.S. federal or state income taxes or foreign withholding taxes on its undistributed earnings fromforeign operations prior to 2012. During the fourth quarter of 2012 the Company completed a detailed forecast of foreign source income by jurisdiction as partof the ongoing process to evaluate its valuation allowance against deferred tax assets. As part of this process, as well as a continuing desire to limit its creditand currency exposure related to cash held in foreign currencies or in non-U.S. 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 changed its indefinite reinvestmentassertion and has provided a deferred tax liability of $568 on undistributed foreign earnings as of December 31, 2013. Subject to limitations, U.S. income taxon such foreign earnings, when actually repatriated, may be reduced or eliminated by unrecognized foreign tax credits that may be generated in connection withthe repatriation, or by existing foreign tax credits or other tax attributes for which a valuation allowance was released in the fourth quarter of 2012. TheCompany monitors available evidence and management’s plans for foreign earnings and expects to continue to provide deferred tax expense based on the taxliability that would be due upon repatriation of amounts not considered permanently reinvested.55Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(9)Income Taxes (continued)The following table summarizes the activity related to the Company’s unrecognized tax benefits as of December 31, 2013, 2012 and 2011: 2013 2012 2011 Balance at January 1 $3,967 $4,328 $4,085 Gross increases related to current period tax positions 257 348 317 Gross (decreases)/increases related to prior period tax positions (427) (483) 95 Expirations of statute of limitations for the assessment of taxes (37) (113) (38)Settlements - (175) - Foreign currency translation 162 62 (131)Balance at December 31 $3,922 $3,967 $4,328 Of the total balance of unrecognized tax benefits at December 31, 2013, $3,922, if recognized, would affect the effective tax rate.Gross interest and penalties at December 31, 2013, 2012 and 2011 of $5,005, $4,511 and $3,427, respectively, related to the above unrecognized taxbenefits are not reflected in the table above. In 2013, 2012 and 2011, the Company accrued $219, $985 and $328, 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. jurisdictionsfor 2008 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 resulted inimmaterial adjustments. In the majority of states where the Company files, the Company is subject to examination for tax years 2009 and forward.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 formal assessments against the subsidiary. In 2010, the Company filed to litigate the matter. The first courtdate, which pertained to the smaller of the assessments, 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 again ruled in the Company’s favor in 2012. The first court date for the larger of the assessments was held inSeptember 2012 and the court issued rulings in favor of the Company in June 2013 and December 2013. In 2013, the Company increased its reserve forunrecognized tax benefits for this matter by $450, including $279 of foreign currency translation. Any ruling reached by any of the courts may be subject tofurther appeals, and as such the final date of resolution of this matter is uncertain at this time. However, within the next twelve months it is possible thatfactors such as new developments, settlements or judgments may require the Company to increase its reserve for unrecognized tax benefits by up toapproximately $8,000 or decrease its reserve by approximately $6,400, including penalties and interest. If the court rules against the Company in subsequentcourt proceedings, a payment for the amount of the judgment, including any penalties and interest, will be due immediately while the case is appealed. TheCompany has analyzed these issues in accordance with guidance on uncertain tax positions and believes at this time that its reserves are adequate, and intendsto 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.56Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(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, 2013. As of December 31, 2013, there was $79,250 outstanding on the Credit Facility. As of December 31, 2012, there was $64,000outstanding on the Credit Facility. The 2013 and 2012 weighted average interest rate for long-term bank debt was 2.3% and 2.2%, 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, from time to time, uses hedging instruments to reduce exposure to market risks resulting from fluctuations in interest rates and foreign exchangerates.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 associated with foreign currency transaction exposures or existing balancesheet exposures, as deemed appropriate.The Company’s foreign currency forward contracts generally have varying maturities with none exceeding twelve months.In 2012 and 2011, foreign currency forward contracts were designated as cash flow hedges and, accordingly, changes in the fair value of thesederivatives were not included in earnings but were included in AOCI. Changes in the fair value of the derivative instruments reported in AOCI were recordedinto earnings as a component of product revenue or expense, as applicable, when the forecasted transaction occurred. The ineffective portion of all hedges wasrecognized in earnings and was immaterial to the Company's financial results.There were no foreign currency forward contracts outstanding at December 31, 2013 and 2012.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, 2013 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.57Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(11)Derivatives and Hedging Activities (continued)As of December 31, 2013, the interest rate swap had a notional value of $60,000, at a fixed rate of 0.92%, maturing in September 2015. The fair valueof this swap is based on quoted market prices and was in a loss position of $616 and $930 at December 31, 2013 and 2012, respectively. This loss isreflected in the Company’s balance sheet under the caption “Accrued expenses and other current liabilities.” The Company did not have any interest rateswaps outstanding at December 31, 2011.Assuming current market conditions continue, a loss of $420 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 measureasset 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.The following tables provide the assets and liabilities carried at fair value, measured on a recurring basis, as of December 31, 2013 and 2012: Fair Value Measurements at December 31, 2013 using: Description Total (Level 1) (Level 2) (Level 3) Interest rate swap, liabilities $(616) $- $(616) $- Total $(616) $- $(616) $- 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) $- 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 financial instruments also include cash and cash equivalents, accounts receivables and accounts payable. The carrying amount ofthese instruments approximates fair value because of their short-term nature. The carrying amount of the Credit Facility approximates fair value because thedebt is based on current rates at which the Company could borrow funds with similar maturities.58Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(12)Fair Value Measurements (continued)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, 2013 and 2012. Authorized shares of Nonvoting Common Stock were 730,746 at December 31, 2013 and 2012. NonvotingCommon Stock with a par value of $0.10 has equal rights with Common Stock, with the exception of voting power. Nonvoting Common Stock is convertible,share for share, into Common Stock, subject to any legal requirements applicable to holders restricting the extent to which they may own voting stock. As ofDecember 31, 2013 and 2012, no shares of Nonvoting Common Stock were outstanding. The Company has authorized 5,000,000 shares of Series PreferredStock, par value $.10, issuable in series and with rights, powers and preferences as may be fixed by the Board of Directors. At December 31, 2013 and 2012,there was no preferred stock outstanding.The Company held treasury shares of 1,757,530 and 1,795,082 at December 31, 2013 and 2012, respectively, which are primarily used for issuanceto employee compensation plans.At December 31, 2013 there were 1,251,625 authorized shares of Common Stock reserved for issuance through equity compensation plans.(14)Accumulated Other Comprehensive Income/(Loss)The following table provides the changes in AOCI by component, net of tax, for the year ended December 31, 2013: ForeignCurrencyTranslationAdjustments Interest RateSwap Pension Plans Total Balance as of December 31, 2012 $5,177 $(600) $(38,668) $(34,091)Other comprehensive income/(loss) before reclassifications 4,813 (85) 9,173 13,901 Amounts reclassified from accumulated other comprehensive loss - 289 939 1,228 Net current-period other comprehensive income 4,813 204 10,112 15,129 Balance as of December 31, 2013 $9,990 $(396) $(28,556) $(18,962)59Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(14)Accumulated Other Comprehensive Income/(Loss) (continued)The following table provides the reclassifications out of AOCI by component for the year ended December 31, 2013: Details about AOCI Components AmountReclassified fromAOCI for the yearended December31, 2013 Affected Line Item in the Consolidated Income StatementLosses on cash flow hedge: Interest rate swap $(444)Interest expense, net $155 Tax benefit $(289)Net of tax Amortization of defined benefit pension items: Actuarial losses $(1,223)Selling, general and administrative expensesActuarial losses (116)Cost of goods soldPrior service costs (50)Selling, general and administrative expenses (1,389)Total before tax 450 Tax benefit $(939)Net of tax Total reclassification for the period $(1,228) (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 granted toemployees for the years ended December 31, 2013, 2012 and 2011 were $7.97, $7.14 and $3.18, respectively.The following assumptions were used in determining the fair value of stock options for grants issued in 2013, 2012 and 2011: 2013 2012 2011 Expected volatility 44.17%-71.58% 71.84% 68.91%-71.53%Expected term 1.25-4.75 years 4.75 years 4.75 years Risk-free interest rate 0.12%-1.37% 0.66% 1.02%-2.00%60Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(15)Stock Based Compensation (continued)The Company does not have any publicly traded stock options; therefore, expected volatilities are based on historical volatility of the Company’sstock. The risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bond whose maturity period approximates the option’s expected term.The expected term was utilized based on the “simplified” method for determining the expected term of stock options.For 2013, 2012, and 2011, the Company recorded $1,994, $1,303 and $1,028, respectively, in selling, general and administrative expenses for stockoptions. As of December 31, 2013, the total compensation cost related to unvested stock option awards granted to employees but not yet recognized was$6,436. The cost will be amortized on a straight-line basis over the remaining weighted-average vesting period of 2.8 years.Cambrex senior executives, through 2009, participated in an executive incentive plan which rewarded achievement with restricted stock units. Membersof the 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. Theseawards are classified as equity awards.For 2013, 2012, and 2011, the Company recorded $427, $446, and $497, respectively, in selling, general and administrative expenses for restrictedstock units. As of December 31, 2013, all restricted stock unit grants were fully vested.The Company granted 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 revenue and EBITDA growth of the members of a specified peer group of companies over a three year period. The peer group consists ofpublicly-traded life sciences companies competing in the same industry as the Company. For 2013, 2012 and 2011, the Company recorded $404, $53 and$40, respectively, in selling, general and administrative expense related to these PS awards.The Company granted 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 revenue and EBITDA growth of the members of a specified peer group of companies typically over a three yearperiod. The peer group consists of publicly-traded life sciences companies competing in the same industry as the Company. For 2013, 2012 and 2011, theCompany recorded $2,620, $1,529 and $415, respectively, in selling, general and administrative expenses for PSU awards. The increase is primarily theresult of the Company’s performance compared to the peer group and the Company’s higher share price.61Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(15)Stock Based Compensation (continued)The following table is a summary of the Company’s stock option activity issued to employees and related information: Weighted Average Number ofShares Exercise Price OptionsExercisable Outstanding at December 31, 2012 2,264,399 7.02 1,234,623 Granted 530,835 16.06 Exercised (536,565) 6.01 Forfeited or expired (28,700) 8.99 Outstanding at December 31, 2013 2,229,969 9.39 Exercisable at December 31, 2013 1,149,069 $6.88 The aggregate intrinsic value for all stock options exercised for the years ended December 31, 2013, 2012 and 2011 was $5,017, $1,658 and $70,respectively. The aggregate intrinsic values for all stock options outstanding and exercisable as of December 31, 2013 were $18,827 and $12,585,respectively.A summary of the Company’s nonvested stock options and restricted stock activity is presented below: Nonvested Stock Options Nonvested Restricted Stock Number ofShares Weighted-AverageGrant-DateFair Value Number ofShares Weighted-AverageGrant-DateFair Value Nonvested at December 31, 2012 1,029,776 4.62 31,145 5.76 Granted 530,835 7.97 31,648 12.64 Vested during period (455,211) 4.05 (62,793) 9.23 Forfeited (24,500) 4.73 - - Nonvested at December 31, 2013 1,080,900 $6.50 - $- 62Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(16)Retirement PlansDomestic Pension PlanThe Company maintains a defined-benefit pension plan (“Domestic Pension Plan”) for certain salaried and certain hourly employees. The Companyalso has a Supplemental Executive Retirement Plan (“SERP”) for key executives. This plan is non-qualified and unfunded. Benefits accruing under both planswere frozen as of August 31, 2007. In July 2008, the Board of Directors of the Company amended the SERP to allow for lump sum payments effectiveJanuary 1, 2009. The lump sum value as of January 1, 2009 will be paid in 10 equal actuarial equivalent installments through 2018. For the DomesticPension Plan, the Company's policy is to fund pension costs to the full extent required by the Internal Revenue Code.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 $731, $733 and $604 in 2013, 2012 and 2011, 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, 2013 and 2012 is $1,049 and $1,118, 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, 2013 and2012 is $1,049 and $1,118, 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, 2013 and 2012 were 49,121, and are included asa reduction of equity. The value of the shares held in trust and the corresponding liability of $876 and $559 at December 31, 2013 and 2012, respectively,have also been recorded in equity. The Plan is not funded by the Company, but the Company has established a Deferred Compensation Trust Fund whichholds the shares issued. Effective December 2011 the Board of Directors suspended employee contributions to this Plan.63Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(16)Retirement Plans (continued)The benefit obligations as of December 31, 2013 and 2012 are as follows: Pension Plans Domestic SERP International 2013 2012 2013 2012 2013 2012 Change in benefit obligation Benefit obligation, beginning of year $79,958 $75,430 $3,690 $4,153 $27,033 $23,020 Service cost - - - - 743 660 Interest cost 3,057 3,284 41 85 658 795 Actuarial (gain)/loss (8,269) 4,699 (9) 88 (2,314) 1,852 Benefits paid (4,037) (3,455) (636) (636) (808) (755)Currency translation affect - - - - 315 1,461 Benefit obligation, end of year $70,709 $79,958 $3,086 $3,690 $25,627 $27,033 The plan assets and funded status of the Domestic Pension Plan as of December 31, 2013 and 2012 are as follows: 2013 2012 Change in plan assets Fair value of plan assets, beginning of period $53,900 $49,104 Actual return on plan assets 6,894 5,945 Contributions 986 2,306 Benefits paid (4,037) (3,455)Fair value of plan assets, end of period $57,743 $53,900 Unfunded status (12,966) (26,058)Accrued benefit cost, end of period $(12,966) $(26,058)The unfunded status of the SERP was ($3,086) and ($3,690) as of December 31, 2013 and 2012, respectively. The unfunded status of theInternational Pension Plan was ($25,627) and ($27,033) as of December 31, 2013 and 2012, respectively.The amounts recognized in AOCI as of December 31, 2013 and 2012 consist of the following: Pension Plans Domestic SERP International 2013 2012 2013 2012 2013 2012 Actuarial loss $20,373 $32,646 $830 $958 $4,765 $7,354 Prior service cost/(benefit) - - 230 287 (24) (31)Total $20,373 $32,646 $1,060 $1,245 $4,741 $7,323 64Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(16)Retirement Plans (continued)The components of net periodic benefit cost are as follows: Pension Plans Domestic SERP International 2013 2012 2011 2013 2012 2011 2013 2012 2011 Components of net periodicbenefit cost Service cost $- $- $- $- $- $- $743 $660 $611 Interest cost 3,057 3,284 3,462 41 85 150 658 795 944 Expected return on planassets (3,826) (3,674) (3,787) - - - - - - Amortization of priorservice cost/(benefit) - 60 436 57 57 57 (7) (7) (7)Recognized actuarial loss 937 864 458 118 76 49 284 200 111 Net periodic benefit cost $168 $534 $569 $216 $218 $256 $1,678 $1,648 $1,659 The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2014 are as follows: Pension Plans Domestic SERP International Actuarial loss $522 $131 $160 Prior service cost/(benefit) - 57 (7)Total $522 $188 $153 Major assumptions used in determining the benefit obligations are presented in the following table: 2013 2012 Discount rate: Domestic Pension Plan 4.80% 3.90%SERP 1.40% 1.35%International Pension Plan 3.70% 3.40% Rate of compensation increase: International Pension Plan 2.50% 2.40%65Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(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: 2013 2012 2011 Discount rate: Domestic Pension Plan 3.90% 4.45% 5.35%SERP 1.35% 2.40% 3.40%International Pension Plan 3.40% 3.40% 4.40% Expected return on plan assets: Domestic Pension Plan 7.25% 7.50% 7.50% Rate of compensation increase: International Pension Plan 2.50% 2.40% 2.80%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 discounted bythe corresponding spot rate on the yield curve.The aggregate Accumulated Benefit Obligation (“ABO”) of $70,709 exceeds plan assets by $12,966 as of December 31, 2013 for the DomesticPension Plan. The aggregate ABO is $24,243 for the International Pension Plan as of December 31, 2013. The International Pension Plan is unfunded.The Company expects to contribute approximately $2,700 in cash to the Domestic Pension Plan in 2014. The Company does not expect to contributecash to its International Pension Plan in 2014.The following benefit payments are expected to be paid out of the plans: Pension Plans Domestic SERP International 2014 $3,527 $731 $824 2015 $3,478 $609 $836 2016 $3,486 $609 $837 2017 $3,628 $609 $858 2018 $3,654 $609 $934 2019-2023 $21,028 - $5,681 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. Fixedincome 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”).66Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(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, 2013 using: Asset Category Total (Level 1) (Level 2) (Level 3) Equity securities: U.S. companies $20,633 $- $20,633 $- International companies 11,157 - 11,157 - U.S. fixed income 18,736 - 16,660 2,076 Commodities 4,436 - 4,436 - TIPS 2,781 - 2,781 - $57,743 $- $55,667 $2,076 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 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, 2013: GroupAnnuityContract Balance at December 31, 2012 $2,160 Net investment loss (84)Balance at December 31, 2013 $2,076 67Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(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 2013, 2012 and2011: Domestic Foreign Total 2013 Gross sales $153,202 $164,010 $317,212 Long-lived assets 59,496 155,151 214,647 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 Export sales, included in domestic gross sales, in 2013, 2012 and 2011 amounted to $86,850, $32,872, and $31,605, respectively.Sales to geographic area consist of the following: 2013 2012 2011 Europe $210,463 $150,678 $156,814 North America 86,974 105,439 75,979 Asia 13,800 12,827 10,448 Other 5,975 8,987 11,234 Total $317,212 $277,931 $254,475 One customer accounted for 18.3% of consolidated 2013 gross sales.(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, 2013, future minimum commitments under non-cancelable operating lease arrangements were as follows:Year ended December 31: 2014 $968 2015 830 2016 539 2017 515 2018 442 2019 and thereafter 101 Total commitments $3,395 68Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(18)Commitments (continued)Total operating lease expense was $1,090, $815 and $644 for the years ended December 31, 2013, 2012 and 2011, respectively.The Company is party to several unconditional purchase obligations resulting from contracts that contain legally binding provisions with respect toquantities, pricing and timing of purchases. The Company’s purchase obligations mainly include commitments to purchase utilities. At December 31, 2013,future commitments under these obligations were as follows:Year ended December 31: 2014 $2,171 2015 598 2016 - 2017 - 2018 - Total commitments $2,769 (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 and evaluatesthe need for reserves and disclosures as deemed necessary based on these facts and circumstances. These matters, either individually or in the aggregate, couldresult in actual costs that are significantly higher than the Company’s current assessment and could have a material adverse effect on the Company's operatingresults and cash flows in future reporting periods. While these matters could have a material adverse effect on the Company’s financial condition, based uponpast experience, it is likely that payments significantly in excess of current reserves, if required, 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 activities and along with other companies, have been named a potentially responsible party (“PRP”) for certainwaste disposal sites ("Superfund sites"). Substantially all of the liabilities currently recorded on the Company’s balance sheet for environmental proceedingsare 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, as wellas 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/or remediation of applicable sites. These reserves were $10,881 and $5,096 at December 31, 2013 and 2012, respectively. The increase in thereserve includes adjustments to reserves of $7,434 and the impact of currency translation of $21 partially offset by payments of $1,670. The reserves areadjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information becomes 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. Given the uncertainties regarding the outcome of investigative and study activities, the status of laws, regulations, enforcement,policies, the impact of other PRPs, technology and information related to individual sites, the Company does not believe it is possible to currently develop anestimate of the range of reasonably possible environmental loss in excess of its reserves.69Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(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 pursuant tothe New Jersey Department of Environmental Protection’s (“NJDEP”) private oversight program. The results of the completed sampling, and any additionalsampling deemed necessary, will be used to develop an estimate of the Company's future liability for remediation costs. As of December 31, 2013, theCompany’s reserve was $249.CosanThe Company is currently implementing a sampling and pilot program at its Cosan Clifton, New Jersey site pursuant to the NJDEP private oversightprogram. The results of the sampling and pilot program to date have been used to develop an estimate of the Company's future liability for remediation costs.As of December 31, 2013, the Company’s reserve was $1,259.Additionally, the Company is currently implementing a sampling and pilot program at its Cosan Carlstadt, New Jersey site pursuant to the NJDEPprivate oversight program. The results of the sampling and pilot program to date have been used to develop an estimate of the Company's future liability forremediation costs. As of December 31, 2013, the Company’s reserve was $1,136.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, 2013, the Company’s reservewas $249 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.70Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(19)Contingencies (continued)Maybrook SiteA subsidiary of Cambrex is named a PRP of a former production facility in Hamptonburgh, New York by the USEPA in connection with thedischarge, under appropriate permits, of wastewater at that site prior to Cambrex's acquisition of this facility in 1986. The PRPs implemented soil remediationwhich was completed in 2012 pending approval by the USEPA. The PRPs will continue implementing the ground water remediation at the site. As ofDecember 31, 2013, the Company’s reserve was $322 to cover remaining ground water remediation and long-term monitoring.Harriman SiteSubsidiaries of Cambrex and Pfizer are named as responsible parties for the Company’s former Harriman, New York production facility by the NewYork State Department of Environmental Conservation (“NYSDEC”). A final ROD describing the Harriman site remediation responsibilities for Pfizer and theCompany was issued in 1997 (the "1997 ROD") and incorporated into a federal court Consent Decree in 1998 (the “Consent Decree”). Site clean-up workunder the 1997 ROD is on-going and is being jointly performed by Pfizer and the Company, with NYSDEC oversight. ELT Harriman, LLC ("ELT"), thecurrent owner of the Harriman site, conducted other investigation and remediation activities under a separate NYSDEC directive.In October 2013, the NYSDEC sent the Company, Pfizer, ELT and the immediately preceding owner Vertellus Specialties Holdings (“Vertellus”) anenforcement letter demanding that the Company and Pfizer submit a work plan for the further study and remediation of certain areas of the Harriman site,including the evaluation of certain remedies that the Company has contended are not required by the 1997 ROD. In December 2013, the Company, Pfizer andthe NYSDEC entered into a federal court stipulation withdrawing the October 2013 enforcement letter as to the Company and Pfizer, and resolving certaindisputes about the scope of their obligations under the Consent Decree and the 1997 ROD. Pursuant to the stipulation, the Company and Pfizer are required tocarry out an environmental investigation and study of certain areas of the Harriman Site.No final remedy for the site has been determined, which will follow further investigation and discussions with the NYSDEC. The Company estimatedthe range for its share of the liability at the site to be between $2,000 and $7,000. As of December 31, 2013, the Company’s reserve was $3,690, whichreflects amounts for work which the Company currently considers to be probable and estimable. At this time, the Company is unable to provide an estimate ofthe ultimate investigative and remedial costs to the Company for any final remedy selected by NYSDEC.The Company intends to enforce all of its contractual rights to recover costs and for indemnification, and has filed such claims in an arbitrationproceeding against ELT and Vertellus. ELT has filed counterclaims for contractual indemnification. Currently, the arbitration proceeding is stayed indefinitely.Scientific Chemical Processing (“SCP”) Superfund SiteA subsidiary of Cambrex was named a PRP of the SCP Superfund site, located in Carlstadt, New Jersey, in the early 1980’s along with approximately130 other PRPs. The site is a former waste processing facility that accepted various waste for recovery and disposal including processing wastewater from thissubsidiary. The PRPs 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’sCreek Superfund site (see previous discussion). For over a decade, the remediation has been funded by de minimus settlements and by the insurers of the SCPSuperfund site’s owners and operators. However, due to an unexpected increase in remediation costs at the site and costs to related to SCP’s involvement in theBerry’s Creek investigation, the PRP group approved the assessment of an additional cash contribution by the PRP group. While the Company continues todispute the methodology used by the PRP group to arrive at its allocation for the cash contribution, the Company has paid the recent funding requests. A finalallocation of SCP Site costs is expected to be developed during 2014. As of December 31, 2013, the Company’s reserve was $1,250 of which approximately$735 is expected to be covered by insurance.71Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(19)Contingencies (continued)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 has entered into a settlementagreement with the original plaintiffs, which has been approved by the Court. The settlement resolves the lawsuit and provides the Company with someprotections from certain claims. The settlement resolves any claims that the original plaintiffs have against the Company and will require Maxus and Tierra tore-file their claims against the Company in federal court. As of December 31, 2013, the Company’s reserve is $324 for this matter.The Company is involved in other environmental matters where the range of liability is not reasonably estimable at this time and it is not foreseeablewhen information will become available to provide a basis for adjusting or recording a reserve, should a reserve ultimately be required.Litigation and Other MattersLorazepam and ClorazepateIn 1998, the Company and a subsidiary were named as defendants along with Mylan Laboratories, Inc. (“Mylan”) and Gyma Laboratories, Inc.(“Gyma”) in a proceeding instituted by the Federal Trade Commission in the United States District Court for the District of Columbia (the “District Court”).Suits were also commenced by several State Attorneys General and class action complaints by private plaintiffs in various state courts. The suits allegedviolations of the Federal Trade Commission Act arising from exclusive license agreements between the Company and Mylan covering two APIs (Lorazepamand 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 has been completed and the parties are currently waiting for a ruling by thecourt.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 bond underwrittenby a third-party insurance company in the amount of $66,632. In the event of a final settlement or final judgment, Cambrex expects any payment required bythe Company to be made by Mylan under the indemnity described above.72Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except per share data)(19)Contingencies (continued)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, 2013.Cambrex's subsidiaries are party to a number of other proceedings that are not considered material at this time.(20)Discontinued OperationsFor 2013, the Company recorded pre-tax charges of $6,708, reduced by a tax benefit of $2,348, for environmental remediation related to sites ofdivested businesses as discontinued operations. For 2012, the Company recorded pre-tax charges of $1,425, reduced by a tax benefit of $499, forenvironmental remediation related to sites of divested businesses as discontinued operations. For 2011, the Company recorded pre-tax charges of $2,851 forenvironmental remediation, net of insurance proceeds, related to sites of divested businesses as discontinued operations.(21)Gain on Sale of AssetFor the year ended December 31, 2013, the Company recorded a gain on the sale of an office building of $4,680. The carrying value of the buildingwas not material. The Company received cash of approximately $1,900 and a secured note of approximately $3,200 as of December 31, 2013.73Table of ContentsCAMBREX CORPORATION AND SUBSIDIARIESSELECTED QUARTERLY FINANCIAL AND SUPPLEMENTARY DATA - UNAUDITED(in thousands, except share and per share data) 1st 2nd 3rd 4th Quarter (1) Quarter Quarter Quarter 2013 Gross sales $74,581 $61,628 $77,992 $103,011 Net revenues 74,885 62,803 77,452 103,036 Gross profit 24,749 19,251 24,966 33,938 Income from continuing operations 11,425 3,136 6,274 9,440 Loss from discontinued operations (3) (257) (862) (2,700) (541)Net income 11,168 2,274 3,574 8,899 Earnings per share of common stock: (4) Basic 0.37 0.07 0.12 0.29 Diluted 0.36 0.07 0.12 0.29 Average shares: Basic 29,970 30,089 30,184 30,353 Diluted 30,788 30,956 31,052 31,166 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter (2) 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 (3) - - (332) (594)Net income 7,038 9,928 1,689 43,648 Earnings per share of common stock: (4) 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 (1)Income from continuing operations includes a gain on sale of an office building of $4,680 and a corresponding tax expense of $1,470 and a benefit of$1,155 due to changes in tax laws.(2)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.(3)Discontinued operations include charges for environmental remediation related to sites of divested businesses.(4)Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period. As such, the sumof the quarters may not necessarily equal the earnings per share amount for the year.74Table of ContentsItem 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9AControls and Procedures.Conclusion Regarding the Effectiveness of Disclosure Controls and ProceduresThe Company maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the 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, 2013, our disclosure controls and procedures are effective to ensure that information required to be disclosedby us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in theSEC’s rules and forms and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.Management's Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States, and include thosepolicies and procedures that:·Pertain to the maintenance of records, that in reasonable detail, accurately and fairly represent the transactions and dispositions of the assetsof the Company,·Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations ofmanagement and the Board of Directors of the Company, and·Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assetsthat could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.75Table of ContentsUnder 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, 2013 based on the Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Our managementconcluded that based on its assessment, our internal control over financial reporting was effective as of December 31, 2013. Effectiveness of our internalcontrol over financial reporting as of December 31, 2013 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated intheir report which appears elsewhere herein.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of ExchangeAct Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internalcontrol over financial reporting.Item 9BOther Information.None.76Table of ContentsPART IIIItem 10Directors, Executive Officers and Corporate Governance.Executive Officers of the RegistrantThe following table lists the officers of the Company: Name Age Office Steven M. Klosk (i) (ii) 56 President, Chief Executive Officer Shawn P. Cavanagh (i) (ii) 47 Executive Vice President and Chief Operating Officer James G. Farrell (ii) 47 Vice President and Corporate Controller William M. Haskel (i) (ii) 52 Senior Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer Aldo G. Magnini (i) 61 Managing Director, Cambrex Profarmaco Milano Gregory P. Sargen (i) (ii) 48 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 of theBoard 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 employed with Lonza, which purchased Cambrex Bioproducts, most recently as President of Lonza Bioscience. From 1999 to 2007, Mr.Cavanagh worked for Cambrex Bioproducts. While at Cambrex Bioproducts, Mr. Cavanaugh held several positions of increasing responsibility includingPresident of Cambrex Bioproducts. Prior to joining Cambrex Bioproducts, Mr. Cavanagh held various management and engineering positions with FMCCorporation.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.77Table of ContentsMr. 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).Dr. Magnini joined Cambrex Profarmaco Milano S.r.l. (“CPM”) in 1996 as Commercial Director, Marketing and Sales; in 2005, he became ManagingDirector and in January 2014 has assumed full responsibility of CPM. Prior to joining CPM, Dr. Magnini held various senior management roles in otherpharmaceutical companies and from 2003 to 2004 served as Managing Director of Clariant Pharma, an Italian API manufacturer.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 2014 Proxy Statement and is incorporated herein by reference.Item 11Executive Compensation.The remaining information required by this item will be included in the 2014 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 2014 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 2014 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 2014 Proxy Statement and is incorporated herein by reference.78Table of ContentsPART 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 thisreport) Financial Statements: Reports of Independent Registered Public Accounting Firm 37Consolidated Balance Sheets as of December 31, 2013 and 2012 39Consolidated Income Statements for the Years Ended December 31, 2013, 2012 and 2011 40Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2013,2012 and 2011 41Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2013, 2012 and2011 42Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 43Notes to Consolidated Financial Statements 44Selected Quarterly Financial and Supplementary Data (unaudited) 74 2. (i) The following schedule to the consolidated financial statements of the Company as filed herein and the Report of Independent Registered PublicAccounting Firms are filed as part of this report. Page Number (in thisreport) Schedule II – Valuation and Qualifying Accounts 80 All 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 82-85.79Table of Contents SCHEDULE IICAMBREX CORPORATIONVALUATION AND QUALIFYING ACCOUNTSFOR THE YEARS ENDED DECEMBER 31, 2013, 2012 and 2011(dollars in thousands)Column A Column B Column C Column D Column E Additions BalanceBeginning ofYear Charged/(Credited) toCost andExpenses Charged/(Credited) toOtherAccounts Deductions Balance Endof Year Description Year ended December 31, 2013: Doubtful trade receivables and returns and allowances $652 $433 $27 $54 $1,058 Deferred tax valuation allowance 29,941 (97) 46 - 29,890 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 80Table of ContentsSIGNATURESPursuant 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 11, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date /s/STEVEN M. KLOSK President and Chief Executive Officer, February 11, 2014 Steven M. Klosk and Director /s/GREGORY P. SARGEN Executive Vice President and Chief Financial February 11, 2014 Gregory P. Sargen Officer (Principal Financial Officer and Accounting Officer) /s/JOHN R. MILLER Chairman of the Board of Directors February 11, 2014 John R. Miller /s/SHLOMO YANAI Vice Chairman of the Board of Directors February 11, 2014 Shlomo Yanai s/ROSINA B.DIXON Director February 11, 2014 Rosina B. Dixon, M.D. /s/KATHRYN RUDIE HARRIGAN Director February 11, 2014 Kathryn Rudie Harrigan, PhD /s/LEON J. HENDRIX, JR. Director February 11, 2014 Leon J. Hendrix, Jr. /s/ILAN KAUFTHAL Director February 11, 2014 Ilan Kaufthal /s/WILLIAM KORB Director February 11, 2014 William Korb /s/PETER G. TOMBROS Director February 11, 2014 Peter G. Tombros 81Table of ContentsEXHIBIT INDEXExhibit No.Description2.1--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 SrinivasanNarasimhan, Pradip Khodidas Dhamecna, Cambrex Corporation, Zenara Pharma Limited and Zenara Pharma PrivateLimited.(W). 2.2--Asset purchase agreement dated as of August 7, 2003 between Rutherford Acquisition Corporation and Cambrex Corporation andThe Sellers 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, LonzaGroup Limited 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 25, 2013).(F). 10.2--Directors’ Compensation Program.(Q). 10.3--Form of Non-Employee Directors Stock Option Agreement.(F). 10.4--William H. Haskel Offer of Employment Letter dated June 3, 2011.(Z). 10.5--Form of Performance Share Agreement.(DD). 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 SealSands Chemicals Ltd.), and Vertellus Specialties Holdings Corp. (formerly Rutherford Chemicals Holdings Corp.), and CambrexCorporation, 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).82Table of Contents10.26--Administrative Consent Order dated September 16, 1985 of the New Jersey Department of Environmental Protection to CosanChemical Corporation.(A – Exhibit 10(Q)). 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.(EE). 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 onForm 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.(E)(Y). 101.SCH--XBRL Taxonomy Extension Schema.(E)(Y). 101.CAL--XBRL Taxonomy Extension Calculation Linkbase.(E)(Y). 101.DEF--XBRL Taxonomy Extension Definition Linkbase.(E)(Y). 101.LAB--XBRL Taxonomy Extension Label Linkbase.(E)(Y). 101.PRE--XBRL Taxonomy Extension Presentation Linkbase.(E)(Y)._______________See legend on following page83Table of ContentsEXHIBIT 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, 2013.(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, 2011.84Table of Contents(Y)Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated BalanceSheets as of December 31, 2013 and 2012, (ii) Consolidated Income Statements for the years ended December 31, 2013, 2012 and 2011, (iii)Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2013, 2012 and 2011, (iv) Consolidated Statements ofStockholders’ Equity for the years ended December 31, 2013, 2012 and 2011, (v) Consolidated Statement of Cash Flows for the years endedDecember 31, 2013, 2012 and 2011, and (vi) Notes to Consolidated Financial Statements.(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.(DD)Incorporated by reference to the registrant’s Annual Report on Form 10-K for year end 2012 filed on February 7, 2013.(EE)Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2013. 85CAMBREX CORPORATIONEXHIBIT 21Subsidiaries of RegistrantSubsidiaryIncorporated in: Cambrex Charles City, Inc.Iowa Cambrex Profarmaco Milano S.r.l.Italy Cambrex Karlskoga ABSweden AS Cambrex TallinnEstonia Cambrex IEP GmbHGermany CAMBREX CORPORATIONEXHIBIT 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, 333-181053 and 333-190305) of Cambrex Corporation of our reports datedFebruary 11, 2014, relating to the consolidated financial statements and schedule, and the effectiveness of Cambrex Corporation’s internal control overfinancial reporting, which appear in this Annual Report on Form 10-K./s/ BDO USA, LLPWoodbridge, New JerseyFebruary 11, 2014 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 our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements 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; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: February 11, 2014 /s/ Steven M. Klosk Steven M. Klosk President and Chief Executive Officer Exhibit 31.2Cambrex CorporationCertification Pursuant to Rule 13a – 14(a) and Rule 15d – 14(a)of the Securities Exchange Act, as AmendedI, Gregory P. Sargen, certify that:1.I have reviewed this annual report on Form 10-K of Cambrex Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisannual report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d-15(f))for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements 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; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: February 11, 2014 /s/ Gregory P. Sargen Gregory P. Sargen Executive Vice President and Chief Financial Officer Exhibit 32CAMBREX CORPORATIONCertification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report of Cambrex Corporation (the “Company”) on Form 10-K for the period ending December 31, 2013, as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his respective knowledge:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Steven M. Klosk Steven M. Klosk President and Chief Executive Officer /s/ Gregory P. Sargen Gregory P. Sargen Executive Vice President and Chief Financial OfficerDated: February 11, 2014 

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