UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D. C. 20549





FORM
10-Q





x  QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





for the
quarterly period ended September 30,
2009





OR


o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF


THE
SECURITIES EXCHANGE ACT OF 1934





for the
transition period from _____________ to _______________


Commission
file number 1-10638





CAMBREX
CORPORATION


(Exact
name of registrant as specified in its charter)





DELAWARE
            22-2476135(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)





ONE MEADOWLANDS PLAZA, EAST
RUTHERFORD, NEW JERSEY 07073


(Address
of principal executive offices)





(201)
804-3000


(Registrant's
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.





Yes ý.   No
o.





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer”in Rule 12b-2 of the Exchange
Act.  (Check one):





Large
      accelerated filer o
            Accelerated
      filer ý
            Non-accelerated
      filer o
            Smaller
      reporting company o(Do
      not check if a smaller reporting
company)





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act).  Yes o.   No
ý.




As of
October 31, 2009, there were 29,285,406 shares outstanding of the registrant’s
Common Stock, $.10 par value.










CAMBREXCORPORATION AND SUBSIDIARIES





Form
10-Q





For The
Quarter Ended September 30, 2009


Table of
Contents




Page No.Part
      I
            Financial informationItem
      1.
            Financial StatementsConsolidated Balance Sheets as of September 30, 2009 and
      December 31, 2008
            2Consolidated Statements of Operations for the three and nine
      months ended September 30, 2009 and 2008
            3Consolidated Statements of Cash Flows for the nine months ended
      September 30, 2009 and 2008
            4Notes to Unaudited Consolidated Financial
      Statements
            5 -
      19Item
      2.
            Management's Discussion and Analysis of Financial Condition and
      Results of Operations
            20
      - 26Item
      3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            27Item
      4.
            Controls and Procedures
            27Part
      II
            Other informationItem
      1.
            Legal Proceedings
            28Item
      1A.
            Risk Factors
            28-35Item
      6.
            Exhibits
            36Signatures
            37


Table of Contents


PartI -
FINANCIAL INFORMATION





Item
      1.
            Financial
      Statements





CAMBREX
CORPORATION AND SUBSIDIARIES


Consolidated
Balance Sheets


(in
thousands, except share data)





September
      30,
            
            
            December
      31,2009
            
            
            2008(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            45,345
            
            
            $
            32,540Trade
      receivables, net
            
            
            37,466
            
            
            
            36,685Inventories,
      net
            
            
            61,341
            
            
            
            61,133Prepaid
      expenses and other current assets
            
            
            9,193
            
            
            
            8,798Total
      current assets
            
            
            153,345
            
            
            
            139,156Property,
      plant and equipment, net
            
            
            166,303
            
            
            
            161,500Goodwill
            
            
            36,838
            
            
            
            35,374Other
      non-current assets
            
            
            4,661
            
            
            
            5,042Total
      assets
            
            $
            361,147
            
            
            $
            341,072LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            16,167
            
            
            $
            19,700Accrued
      expense and other current liabilities
            
            
            35,566
            
            
            
            45,080Total
      current liabilities
            
            
            51,733
            
            
            
            64,780Long-term
      debt
            
            
            124,000
            
            
            
            123,800Deferred
      income tax
            
            
            17,774
            
            
            
            16,138Accrued
      pension and postretirement benefits
            
            
            45,707
            
            
            
            44,165Other
      non-current liabilities
            
            
            16,537
            
            
            
            17,403Total
      liabilities
            
            
            255,751
            
            
            
            266,286Stockholders'
      equity:Common
      stock, $.10 par value; authorized 100,000,000, issued 31,406,778 shares at
      respective dates
            
            
            3,140
            
            
            
            3,140Additional
      paid-in capital
            
            
            100,132
            
            
            
            99,881Retained
      earnings
            
            
            25,113
            
            
            
            11,960Treasury
      stock, at cost, 2,129,361 and 2,224,613 shares at respective
      dates
            
            
            (18,177
            )
            
            
            (19,014
            )Accumulated
      other comprehensive loss
            
            
            (4,812
            )
            
            
            (21,181
            )Total
      stockholders' equity
            
            
            105,396
            
            
            
            74,786Total
      liabilities and stockholders' equity
            
            $
            361,147
            
            
            $
            341,072





See
accompanying notes to unaudited consolidated financial
statements.


2
 Table of Contents


CAMBREXCORPORATION AND SUBSIDIARIES


Consolidated
Statements of Operations


(unaudited)


(in
thousands, except per-share data)





Three
      months ended
            
            
            Nine
      months endedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Gross
      sales
            
            $
            57,802
            
            
            $
            56,508
            
            
            $
            177,568
            
            
            $
            184,440Allowances
      and rebates
            
            
            285
            
            
            
            193
            
            
            
            623
            
            
            
            1,137Net
      sales
            
            
            57,517
            
            
            
            56,315
            
            
            
            176,945
            
            
            
            183,303Other
      revenues
            
            
            (1,147
            )
            
            
            1,977
            
            
            
            (262
            )
            
            
            1,792Net
      revenues
            
            
            56,370
            
            
            
            58,292
            
            
            
            176,683
            
            
            
            185,095Cost
      of goods sold
            
            
            39,422
            
            
            
            42,057
            
            
            
            120,919
            
            
            
            127,120Gross
      profit
            
            
            16,948
            
            
            
            16,235
            
            
            
            55,764
            
            
            
            57,975Operating
      expenses:Selling,
      general and administrative expenses
            
            
            9,295
            
            
            
            8,767
            
            
            
            26,889
            
            
            
            31,511Research
      and development expenses
            
            
            2,026
            
            
            
            1,772
            
            
            
            5,924
            
            
            
            5,945Restructuring
      expenses
            
            
            -
            
            
            
            321
            
            
            
            -
            
            
            
            1,469Strategic
      alternative costs
            
            
            -
            
            
            
            833
            
            
            
            -
            
            
            
            1,408Total
      operating expenses
            
            
            11,321
            
            
            
            11,693
            
            
            
            32,813
            
            
            
            40,333Operating
      profit
            
            
            5,627
            
            
            
            4,542
            
            
            
            22,951
            
            
            
            17,642Other
      expenses/(income):Interest
      expense, net
            
            
            1,111
            
            
            
            956
            
            
            
            3,410
            
            
            
            2,302Other
      (income)/expenses, net
            
            
            (31
            )
            
            
            485
            
            
            
            (139
            )
            
            
            459Income
      before income taxes
            
            
            4,547
            
            
            
            3,101
            
            
            
            19,680
            
            
            
            14,881Provision
      for income taxes
            
            
            1,584
            
            
            
            304
            
            
            
            6,520
            
            
            
            6,002Net
      income
            
            $
            2,963
            
            
            $
            2,797
            
            
            $
            13,160
            
            
            $
            8,879Earnings
      per share of common stock:Basic
            
            $
            0.10
            
            
            $
            0.10
            
            
            $
            0.45
            
            
            $
            0.31Diluted
            
            $
            0.10
            
            
            $
            0.10
            
            
            $
            0.45
            
            
            $
            0.31Weighted
      average shares outstanding:Basic
            
            
            29,253
            
            
            
            29,163
            
            
            
            29,225
            
            
            
            29,096Effect
      of dilutive stock based compensation
            
            
            50
            
            
            
            15
            
            
            
            24
            
            
            
            5Diluted
            
            
            29,303
            
            
            
            29,178
            
            
            
            29,249
            
            
            
            29,101





See
accompanying notes to unaudited consolidated financial
statements.


3
 Table of Contents


CAMBREXCORPORATION AND SUBSIDIARIES


Consolidated
Statements of Cash Flows


(unaudited)


(in
thousands)




Nine
      months endedSeptember
      30,2009
            
            
            2008Cash
      flows from operating activities:Net
      income
            
            $
            13,160
            
            
            $
            8,879Adjustments
      to reconcile net income to cash flows:Depreciation
      and amortization
            
            
            14,774
            
            
            
            16,115Increase
      in inventory reserve
            
            
            2,514
            
            
            
            3,763Stock
      based compensation included in net income
            
            
            988
            
            
            
            1,665Other
            
            
            90
            
            
            
            1,034Changes
      in assets and liabilities:Trade
      receivables
            
            
            833
            
            
            
            17,102Inventories
            
            
            135
            
            
            
            (14,975
            )Prepaid
      expenses and other current assets
            
            
            (518
            )
            
            
            (237
            )Accounts
      payable and other current liabilities
            
            
            (12,450
            )
            
            
            (33,203
            )Other
      non-current assets and liabilities
            
            
            30
            
            
            
            (3,045
            )Net
      cash provided by/(used in) operating activities
            
            
            19,556
            
            
            
            (2,902
            )Cash
      flows from investing activities:Capital
      expenditures
            
            
            (9,651
            )
            
            
            (22,908
            )Acquisition
      of business, net of cash
            
            
            -
            
            
            
            (1,284
            )Other
      investing activities
            
            
            57
            
            
            
            -Net
      cash used in investing activities
            
            
            (9,594
            )
            
            
            (24,192
            )Cash
      flows from financing activities:Long-term
      debt activity (including current portion):Borrowings
            
            
            19,700
            
            
            
            55,800Repayments
            
            
            (19,500
            )
            
            
            (36,416
            )Other
      financing activities
            
            
            (44
            )
            
            
            44Net
      cash provided by financing activities
            
            
            156
            
            
            
            19,428Effect
      of exchange rate changes on cash and cash equivalents
            
            
            2,687
            
            
            
            (1,649
            )Net
      increase/(decrease) in cash and cash equivalents
            
            
            12,805
            
            
            
            (9,315
            )Cash
      and cash equivalents at beginning of period
            
            
            32,540
            
            
            
            38,488Cash
      and cash equivalents at end of period
            
            $
            45,345
            
            
            $
            29,173





See
accompanying notes to unaudited consolidated financial
statements.


4
 Table of Contents


CAMBREXCORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements


(dollars
in thousands, except share data)





(1)
            Basis
      of Presentation





Unless
otherwise indicated by the context, "Cambrex" or the "Company" means Cambrex
Corporation and subsidiaries.





The
accompanying unaudited consolidated financial statements have been prepared from
the records of the Company.  In the opinion of management, the
financial statements include all adjustments, which are of a normal and
recurring nature, except as otherwise described herein, and are necessary for a
fair statement of financial position and results of operations in conformity
with generally accepted accounting principles (“GAAP”).  These interim
financial statements should be read in conjunction with the financial statements
for the year ended December 31, 2008.





The
results of operations for the three and nine months ended September 30, 2009 are
not necessarily indicative of the results expected for the full
year.





(2)
            Impact
      of Recently Issued Accounting
Pronouncements





Fair
Value Measurements





The
Company adopted the Financial Accounting Standards Board’s (“FASB”) Statement
“Fair Value Measurements” related to nonfinancial assets and nonfinancial
liabilities effective January 1, 2009.  This statement defines fair
value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements.  This statement applies
whenever another standard requires (or permits) assets or liabilities to be
measured at fair value.   The standard does not expand the use of
fair value to any new circumstances.  The effect of adopting this
pronouncement did not have a material impact on the Company’s financial position
or results of operations.





Disclosures
about Derivative Instruments and Hedging Activities





The
Company adopted the FASB’s Statement “Disclosures about Derivative Instruments
and Hedging Activities” effective January 1, 2009.  This statement
requires enhanced disclosures about derivative and hedging activities and
thereby improves the transparency of financial reporting.  This
statement also encourages, but does not require, comparative disclosures for
earlier periods at initial adoption.  The effect of adopting this
pronouncement did not have an impact on the Company’s financial position or
results of operations.





Employers’
Disclosures about Postretirement Benefit Plan Assets





In
December 2008, the FASB issued “Employers’ Disclosures about Postretirement
Benefit Plan Assets.”  This statement provides guidance on additional
disclosures about plan assets of a defined benefit pension or other
postretirement plan.  This statement is effective for fiscal years
ending after December 15, 2009.  Upon initial application, the
provisions of this pronouncement are not required for earlier periods that are
presented for comparative purposes. The Company is currently evaluating the
disclosure requirements of this new statement.


5
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(2)
            Impact
      of Recently Issued Accounting Pronouncements
  (continued)





Subsequent
Events





The
Company adopted the FASB’s Statement “Subsequent Events” effective June 30,
2009.  This statement establishes general standards of accounting for,
and disclosure of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  This
statement requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date, that is, whether that
date represents the date the financial statements were issued or were available
to be issued.  The effect of adopting this pronouncement did not have
a material impact on the Company’s financial position or results of
operations.





FASB
Accounting StandardsCodificationand the
Hierarchy of GAAP





The
Company adopted the FASB’s Statement “TheFASB
Accounting StandardsCodificationand
the Hierarchy of Generally Accepted Accounting Principles” effective September
30, 2009.  This statement provides for the FASB Accounting Standards
Codificationto
become the single official source of authoritative, nongovernmental U.S.
GAAP.  This statement does not change GAAP but reorganizes the
literature.





Measuring
Liabilities at Fair Value





In August
2009, the FASB issued “Fair Value Measurements and Disclosures —Measuring
Liabilities at Fair Value.”  This update provides amendments to “Fair
Value Measurements and Disclosures – Overall”, for the fair value measurement of
liabilities.  This update provides clarification for circumstances in
which a quoted price in an active market for the identical liability is not
available, how to estimate the fair value of a liability and how to determine
the quoted price.  The amendments in this update reduce potential
ambiguity in financial reporting when measuring the fair value of
liabilities.  This update is effective for the first reporting period
beginning after issuance.  The Company is currently evaluating the
potential impact of this update.





Revenue
Arrangements with Multiple Deliverables





In
September 2009, the Emerging Issues Task Force (“EITF”) issued “Revenue
Arrangements with Multiple Deliverables.”  This issue addresses how to
determine whether an arrangement involving multiple deliverables contains more
than one unit of accounting, and how to allocate the consideration to each unit
of accounting.  This issue will supersede EITF 00-21 “Revenue
Arrangements with Multiple Deliverables.”  This issue eliminates the
use of the residual value method for determining allocation of arrangement
consideration; and allows the use of an entity's best estimate to determine the
selling price if vendor specific objective evidence and third-party evidence can
not be determined.  This issue also requires additional disclosure to
provide both qualitative and quantitative information regarding the significant
judgments made in applying this issue.  In addition, for each
reporting period in the initial year of adoption, this issue requires disclosure
of the amount of revenue recognized subject to the measurement requirements of
this issue and the amount of revenue that would have been recognized if the
related transactions were subject to the measurement requirements of Issue
00-21.  This issue is effective for revenue arrangements entered into
or materially modified in fiscal years beginning after June 15,
2010.  Early adoption is permitted.  The Company is
currently evaluating the potential impact of this issue.


6
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(3)
            Stock
      Based Compensation





The
Company recognizes compensation costs for stock option awards to employees based
on their grant-date fair value.  The value of each stock option is
estimated on the date of grant using the Black-Scholes option-pricing
model.  The weighted-average fair value per share for stock options
granted to employees during the nine months ended September 30, 2009 and 2008
was $1.48 and $1.88, respectively.





For the
three months ended September 30, 2009 and 2008, the Company recorded $104 and
$129, respectively, in selling, general and administrative expenses for stock
options, which, in 2008, includes $23 recorded in strategic alternative costs as
a result of a modification to previous stock option awards related to a special
dividend declared in 2007.  For the nine months ended September 30,
2009 and 2008, the Company recorded $416 and $434, respectively, in selling,
general and administrative expenses for stock options, which in 2008, includes
$136 for the acceleration of stock options previously awarded to the former CEO
and $76 recorded in strategic alternative costs as a result of a modification to
previous stock option awards related to a special dividend declared in
2007.  As of September 30, 2009, the total compensation cost related
to unvested stock option awards granted to employees but not yet recognized was
$1,219.  The cost will be amortized on a straight-line basis over the
remaining weighted-average vesting period of 2.9 years.





For the
three months ended September 30, 2009 and 2008, the Company recorded $135 and
$208, respectively, in selling, general and administrative expenses for
restricted stock awards.  For the nine months ended September 30, 2009
and 2008, the Company recorded $520 and $1,121, respectively, in selling,
general and administrative expenses for restricted stock awards, which includes
$461 in 2008 for the acceleration of restricted stock previously awarded to the
former CEO.  As of September 30, 2009 the total compensation cost
related to unvested restricted stock granted, but not yet recognized was
$456.  The cost will be amortized on a straight-line basis over the
remaining weighted-average vesting period of 0.9 years.





The
following table is a summary of the Company’s stock option activity issued to
employees and related information:





Options
            
            Number
      of Shares
            
            
            Weighted
      Average Exercise PriceOutstanding
      at January 1, 2009
            
            
            1,590,869
            
            
            $
            14.07Granted
            
            
            20,000
            
            
            $
            4.17Forfeited
      or expired
            
            
            (2,000
            )
            
            $
            12.97Outstanding
      at March 31, 2009
            
            
            1,608,869
            
            
            $
            13.27Granted
            
            
            2,500
            
            
            $
            2.45Forfeited
      or expired
            
            
            (52,450
            )
            
            $
            21.21Outstanding
      at June 30, 2009
            
            
            1,558,919
            
            
            $
            12.98Forfeited
      or expired
            
            
            (9,550
            )
            
            $
            9.78Outstanding
      at September 30, 2009
            
            
            1,549,369
            
            
            $
            13.00Exercisable
      at September 30, 2009
            
            
            799,013
            
            
            $
            20.29


7
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(3)
            Stock
      Based Compensation (continued)





The
aggregate intrinsic value for all stock options outstanding as of September 30,
2009 was $1,200.  The aggregate intrinsic value for all stock options
exercisable as of September 30, 2009 was $98.





A summary
of the Company’s nonvested stock options and restricted stock as of September
30, 2009 and changes during the three and nine months ended September 30, 2009,
are presented below:





Nonvested Stock Options
            
            
            Nonvested Restricted StockNumber of Shares
            
            
            Weighted-Average Grant-Date Fair
      Value
            
            
            Number of Shares
            
            
            Weighted-Average Grant-Date Fair
      ValueNonvested
      at January 1, 2009
            
            
            833,819
            
            
            $
            5.55
            
            
            
            143,327
            
            
            $
            13.38Granted
            
            
            20,000
            
            
            $
            4.17
            
            
            
            16,182
            
            
            $
            2.23Vested
      during period
            
            
            (375
            )
            
            $
            7.71
            
            
            
            (31,753
            )
            
            $
            12.31Nonvested
      at March 31, 2009
            
            
            853,444
            
            
            $
            5.51
            
            
            
            127,756
            
            
            $
            12.24Granted
            
            
            2,500
            
            
            $
            2.45
            
            
            
            8,532
            
            
            $
            4.22Vested
      during period
            
            
            (65,625
            )
            
            $
            5.59
            
            
            
            (7,596
            )
            
            $
            4.74Forfeited
            
            
            (875
            )
            
            $
            11.21
            
            
            
            (655
            )
            
            $
            17.02Nonvested
      at June 30, 2009
            
            
            789,444
            
            
            $
            5.49
            
            
            
            128,037
            
            
            $
            12.12Granted
            
            
            -
            
            
            
            -
            
            
            
            5,814
            
            
            $
            6.20Vested
      during period
            
            
            (32,989
            )
            
            $
            11.05
            
            
            
            (38,572
            )
            
            $
            13.35Forfeited
            
            
            (6,099
            )
            
            $
            6.92
            
            
            
            (1,515
            )
            
            $
            15.45Nonvested
      at September 30, 2009
            
            
            750,356
            
            
            $
            5.24
            
            
            
            93,764
            
            
            $
            11.20




(4)
            Goodwill





The
changes in the carrying amount of goodwill for the nine months ended September
30, 2009, are as follows:





Balance
      as of January 1, 2009
            
            $
            35,374Translation
      effect
            
            
            1,464Balance
      as of September 30, 2009
            
            $
            36,838




8
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(5)
            Income
      Taxes





The
Company recorded tax expense of $1,584 and $6,520 in the three and nine months
ended September 30, 2009, respectively, compared to $304 and $6,002 in the three
and nine months ended September 30, 2008, respectively.  The increase
is due to changes in the geographic mix of pre-tax earnings, the enactment of
reduced tax rates in Sweden and tax benefits related to the favorable resolution
of certain tax matters in the three and nine months ended September 30,
2008.





The
Company maintains a full valuation allowance against its domestic, and certain
foreign, deferred tax assets and will continue to do so until an appropriate
level of profitability is sustained or tax strategies can be developed that
would enable the Company to conclude that it is more likely than not that a
portion of these deferred tax assets would be realized.  As such,
improvements in pre-tax income in the future, within these jurisdictions where
the Company maintains a valuation allowance, may result in these tax benefits
ultimately being realized.  However, there is no assurance that such
improvements will be achieved.





As of
January 1, 2009 the Company had approximately $1,697 of unrecognized tax
benefits, excluding gross interest and penalties.  During the three
and nine months ended September 30, 2009, the Company increased its unrecognized
tax benefits by $61 and $178, respectively, for current year positions and
foreign currency translation.  Of the total balance of unrecognized
tax benefits at September 30, 2009 $1,145, if recognized, would affect the
effective tax rate.





In the
next twelve months the Company may decrease the reserve for unrecognized tax
benefits for intercompany transactions by approximately $250 mainly due to the
expiration of a statute of limitation period.  This item would impact
the income tax provision.





In
September 2008 the Company was selected for a random IRS examination for tax
year 2006.  The examination is in process and no adjustments have been
proposed to date.  Tax years 2007 and forward remain open to
examination within the U.S.  The Company is also subject to exams in
its significant non-U.S. jurisdictions for 2004 and 2007 forward.





The
Company is also subject to audits in various states for various years in which
it has filed income tax returns.  In June 2009 the Company finalized a
New Jersey examination of its open tax years, with no material
adjustments.  Previous state audits have resulted in immaterial
adjustments.  Open years for the majority of states where the Company
files are 2006 and forward.





In July
2009, the Company’s Italian subsidiary received a preliminary report from the
local taxing authority related to an audit of the subsidiary’s 2006 tax
return.  This report challenged the deductibility of certain intercompany
transactions for 2006 and the benefits related to a transaction initiated in
2003.  In October 2009, the Company formally responded to the preliminary
report. The Company expects the tax authority to either respond in the Company’s
favor, or issue a formal assessment prior to December 31, 2009 based upon the
merits of the Company’s response.  If the tax authority were to disagree
with the Company’s position on these issues, the Company estimates an
assessment, excluding penalties, could be levied against this subsidiary for up
to $7,000 based upon the preliminary report.  Although it is early in the
process at this time, the Company has analyzed these issues in accordance with
guidance on uncertain tax positions and believes its reserves are adequate, and
intends to defend itself.


9
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(5)
            Income
      Taxes (continued)





In
September 2009, the Company’s Swedish subsidiary was examined by the local
taxing authority. The tax authority has questioned certain significant
intercompany balances and transactions.  The Company expects to file a
response to the inquiry in November 2009.  The Company expects it to
take several months before a formal audit report is issued.  If the
tax authority were to disagree with the Company’s position on these issues, the
Company estimates the preliminary assessment would be less than $2,000.Although it is early in
the process at this time, the Company has analyzed these issues in accordance
with guidance on uncertain tax positions and believes its reserves are adequate,
and intends to defend itself.





(6)
            Net
      Inventories





Inventories
are stated at the lower of cost, determined on a first-in, first-out basis, or
market.





Net
inventories at September 30, 2009 and December 31, 2008 consist of the
following:




September
      30,
            
            
            December
      31,2009
            
            
            2008Finished
      goods
            
            $
            22,967
            
            
            $
            24,657Work
      in process
            
            
            23,320
            
            
            
            22,372Raw
      materials
            
            
            11,376
            
            
            
            10,688Supplies
            
            
            3,678
            
            
            
            3,416Total
            
            $
            61,341
            
            
            $
            61,133





(7)
            Strategic
      Alternative Costs and Restructuring
Expenses





Strategic
Alternative Costs





Strategic
alternative costs include expenses that the Company has incurred related to the
decision to sell the businesses that comprised the Bioproducts and Biopharma
segments in February 2007 and costs associated with a project to streamline the
Company’s legal structure.  These costs are not considered part of
either the restructuring program or discontinued operations under current
accounting guidance.





Strategic
alternative costs for the three and nine months ended September 30, 2008 were
$833 and $1,408, respectively, consisting primarily of costs associated with the
project to streamline the Company’s legal structure, change-in-control benefits,
and costs associated with the modification of employee stock options due to the
payment of the special dividend in connection with the divestiture discussed
above.





Restructuring
Expenses





Corporate
Office Restructuring





During
2007, the Company announced a plan to eliminate certain employee positions at
the corporate office upon completion of the sale of the businesses that
comprised the Bioproducts and Biopharma segments.  This plan included
certain one-time benefits for terminated employees.  Costs related to
this plan are recorded as restructuring expenses in the income
statement.  For the three and nine months ended September 30, 2008,
the Company recognized expense of $45 and $295, respectively.


10
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(7)
            Strategic
      Alternative Costs and Restructuring Expenses
  (continued)





Consolidation
of Domestic Research and Development Activities





In
December 2007, the Company consolidated its United States research and
development (“R&D”) activities and small scale active pharmaceutical
ingredient (“API”) production with its facility in Charles City,
Iowa.  The restructuring reserve at December 31, 2008 consisted of the
remaining lease payments and related costs under the Company’s current operating
lease at the New Jersey R&D facility.  The operating lease expires
in December 2010.  Costs related to this consolidation are recorded as
restructuring expenses on the income statement.  For the three and
nine months ended September 30, 2008 the Company recorded rent and related
expenses of $276 and $1,174, respectively.





The
following table reflects the activity related to the restructuring reserves
through September 30, 2009:





December 31, 2008
            
            
            2009
      Activity
            
            
            September 30, 2009Reserve
            
            
            
            
            
            Cash
            
            
            ReserveBalance
            
            
            Expense
            
            
            Payments
            
            
            BalanceEmployee
      termination costs
            
            $
            462
            
            
            $
            -
            
            
            $
            (403
            )
            
            $
            59Lease
      payments and related costs
            
            
            3,021
            
            
            
            -
            
            
            
            (1,158
            )
            
            
            1,863Total
            
            $
            3,483
            
            
            $
            -
            
            
            $
            (1,561
            )
            
            $
            1,922






(8)
            Derivatives
      and Hedging Activities





The
Company operates internationally and is exposed to fluctuations in foreign
exchange rates and interest rates in the normal course of
business.  These fluctuations can increase the costs of financing,
investing and operating the business.  The Company uses derivative
financial instruments to reduce these exposures to market risks resulting from
fluctuations in interest rates and foreign exchange rates.





By
nature, all financial instruments involve market and credit
risks.  The Company is exposed to credit losses in the event of
nonperformance by the counterparties to the contracts.  While there
can be no assurance, the Company does not anticipate non-performance by these
counterparties.





Foreign
Currency Forward Contracts





The
Company's policy is to enter into forward exchange contracts to hedge forecasted
cash flows associated with foreign currency transaction exposures which are
accounted for as cash flow hedges, as deemed appropriate.  This
hedging strategy mitigates the impact of short-term foreign exchange rate
movements on the Company's operating results primarily in Sweden and
Italy.  The Company's primary market risk relates to exposures to
foreign currency exchange rate fluctuations on transactions entered into by
these international operations that are denominated primarily in U.S. dollars,
Swedish krona, and euros.  As a matter of policy, the Company does not
hedge to protect the translated results of foreign operations.





The
Company's forward exchange contracts substantially offset gains and losses on
the transactions being hedged.  The forward exchange contracts have
varying maturities with none exceeding twelve months. The Company makes net
settlements for forward exchange contracts at maturity, based upon negotiated
rates at inception of the contracts.


11
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(8)
            Derivatives
      and Hedging Activities (continued)





All
forward contracts outstanding at September 30, 2009 have been designated as cash
flow hedges and, accordingly, changes in the fair value of these derivatives are
not included in earnings but are included in accumulated other comprehensive
(loss)/income (“AOCI”).  Changes in the fair value of the derivative
instruments reported in AOCI will be reclassified into earnings as a component
of product revenue when the forecasted transaction occurs.  The
ineffective portion of all hedges is recognized in current-period earnings and
is immaterial to the Company's financial results.





The
notional amounts of foreign exchange forward contracts were $14,795 and $20,568
at September 30, 2009 and December 31, 2008, respectively.





The fair
value of the Company’s forward contracts is a gain of $172 and is located under
the caption “other current assets” on the balance sheet as of September 30,
2009.





The
Company recognized a pre-tax gain in other comprehensive income from foreign
exchange contracts of $897 and $850 for the three and nine months ended
September 30, 2009, respectively.  The Company reclassified a pre-tax
loss of $342 and $446 from AOCI into other revenue related to foreign exchange
forward contracts for the three and nine months ended September 30, 2009,
respectively.  Assuming current market conditions continue, the entire
amount recorded in AOCI related to foreign exchange forward contracts is
expected to be reclassed into other revenue within the next 12 months to reflect
the fixed prices obtained from the forward contracts.





Interest
Rate Swap Agreements





The
Company enters into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating rate debt.  The swap
agreements are contracts to exchange floating rate for fixed interest payments
periodically over the life of the agreements without the exchange of the
underlying notional debt amounts.





All swap
contracts outstanding at September 30, 2009 have been designated as cash flow
hedges and, accordingly, changes in the fair value of derivatives are recorded
each period in AOCI.  Changes in the fair value of the derivative
instruments reported in AOCI will be reclassified into earnings in the period in
which earnings are impacted by the variability of the cash flows of the hedged
item.  The ineffective portion of all hedges is recognized in
current-period earnings and is immaterial to the Company's financial
results.





As of
September 30, 2009, the Company had three interest rate swaps in place with an
aggregate notional value of $60,000, at an average fixed rate of 4.48%, all with
maturity dates of October 2010.  The Company’s strategy has been to
cover a portion of its outstanding bank debt with interest rate
protection.  At September 30, 2009, the coverage was approximately 48%
of the Company’s variable interest rate debt.  At September 30, 2009
the Company had variable debt of $124,000, of which $60,000 is fixed by interest
rate swaps.  Interest expense under these agreements, and the
respective debt instruments that they hedge, are recorded at the net effective
interest rate of the hedged transactions.  The fair value of these
agreements was based on quoted market prices and was in a loss position of
$2,559 at September 30, 2009.  This loss is reflected in the balance
sheet under the caption “Accrued expense and other current
liabilities.”


12
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars in thousands, except share
data)





(8)
            Derivatives
      and Hedging Activities (continued)





The
Company increased other comprehensive income by $340 and $981, respectively,
related to interest rate swaps for the three and nine months ended September 30,
2009.  The Company reclassified a pre-tax loss of $643 and $1,865 from
AOCI into interest expense related to interest rate swaps for the three and nine
months ended September 30, 2009, respectively.  Assuming current
market conditions continue, approximately $2,340 is expected to be reclassed out
of AOCI into interest expense within the next 12 months.





(9)
            Fair
      Value Measurements





U.S. GAAP
establishes a valuation hierarchy for disclosure of the inputs to the valuations
used to measure fair value. This hierarchy prioritizes the inputs into three
broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities; Level 2 inputs are quoted prices
for similar assets and liabilities in active markets, quoted prices for
identical or similar assets in markets that are not active, inputs other than
quoted prices that are observable for the asset or liability, including interest
rates, yield curves and credit risks, or inputs that are derived principally
from, or corroborated by, observable market data through correlation; Level 3
inputs are unobservable inputs based on the Company’s assumptions used to
measure assets and liabilities at fair value. A financial asset or liability’s
classification within the hierarchy is determined based on the lowest level
input that is significant to the fair value measurement.





The
following tables provide the assets and liabilities carried at fair value
measured on a recurring basis as of September 30, 2009 and December 31,
2008:





Fair
      Value Measurements at September 30, 2009 using:Description
            
            Total
            
            
            Quoted
      Prices in Active Markets for Identical Assets (Level 1)
            
            
            Signifcant
      Other Observable Inputs (Level 2)
            
            
            Significant
      Unobservable Inputs (Level 3)Foreign
      currency forwards, assets
            
            $
            172
            
            
            $
            -
            
            
            $
            172
            
            
            $
            -Interest
      rate swaps
            
            
            (2,559
            )
            
            
            -
            
            
            
            (2,559
            )
            
            
            -Total
            
            $
            (2,387
            )
            
            $
            -
            
            
            $
            (2,387
            )
            
            $
            -





Fair
      Value Measurements at December 31, 2008 using:Description
            
            Total
            
            
            Quoted
      Prices in Active Markets for Identical Assets (Level 1)
            
            
            Signifcant
      Other Observable Inputs (Level 2)
            
            
            Significant
      Unobservable Inputs (Level 3)Foreign
      currency forwards, assets
            
            $
            808
            
            
            $
            -
            
            
            $
            808
            
            
            $
            -Foreign
      currency forwards, liabilities
            
            
            (1,486
            )
            
            
            -
            
            
            
            (1,486
            )
            
            
            -Interest
      rate swaps
            
            
            (3,541
            )
            
            
            -
            
            
            
            (3,541
            )
            
            
            -Total
            
            $
            (4,219
            )
            
            $
            -
            
            
            $
            (4,219
            )
            
            $
            -


13
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(9)
            Fair
      Value Measurements (continued)





The
Company’s derivative assets and liabilities include foreign exchange forward
contracts and interest rate swap contracts that are measured at fair value using
observable market inputs such as forward rates, interest rates, the Company’s
credit risk and its counterparties’ credit risks. Based on these inputs, the
derivative assets and liabilities are classified within Level 2 of the valuation
hierarchy. Based on the Company’s continued ability to enter into forward
contracts and interest rate swaps, the Company considers the markets for our
fair value instruments to be active.





As of
September 30, 2009, there has not been any significant impact to the fair value
of the Company’s derivative liabilities due to its own credit risk. Similarly,
there has not been any significant adverse impact to the Company’s derivative
assets based on the Company’s evaluation of its counterparties’ credit
risks.





(10)
            Comprehensive
      Income/(Loss)





The
following table shows the components of comprehensive income/(loss) for the
three and nine months ended September 30, 2009 and 2008:





Three
      months ended
            
            
            Nine
      months endedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      income
            
            $
            2,963
            
            
            $
            2,797
            
            
            $
            13,160
            
            
            $
            8,879Foreign
      currency translation
            
            
            9,902
            
            
            
            (24,022
            )
            
            
            13,731
            
            
            
            (11,018
            )Unrealized
      gain/(loss) on hedging contracts, net of tax
            
            
            1,006
            
            
            
            (293
            )
            
            
            1,826
            
            
            
            (311
            )Pension,
      net of tax
            
            
            273
            
            
            
            132
            
            
            
            812
            
            
            
            397Total
            
            $
            14,144
            
            
            $
            (21,386
            )
            
            $
            29,529
            
            
            $
            (2,053
            )





(11)
            Retirement
      Plans and Other Postretirement
Benefits





Domestic
Pension Plans





The
components of net periodic pension cost for the Company’s domestic plans for the
three and nine months ended September 30, 2009 and 2008 are as
follows:





Three
      months ended
            
            
            Nine
      months endedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Components
      of net periodic benefit costInterest
      cost
            
            $
            857
            
            
            $
            878
            
            
            $
            2,571
            
            
            $
            2,634Expected
      return on plan assets
            
            
            (731
            )
            
            
            (1,021
            )
            
            
            (2,193
            )
            
            
            (3,063
            )Amortization
      of prior service costs
            
            
            109
            
            
            
            109
            
            
            
            327
            
            
            
            327Recognized
      actuarial loss
            
            
            136
            
            
            
            24
            
            
            
            408
            
            
            
            72Net
      periodic benefit cost
            
            $
            371
            
            
            $
            (10
            )
            
            $
            1,113
            
            
            $
            (30
            )


14
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(11)
            Retirement
      Plans and Other Postretirement Benefits
  (continued)





The
Company has a Supplemental Executive Retirement Plan for key
executives.  This plan is non-qualified and unfunded.  Net
periodic benefit costs for the three months ended September 30, 2009 and 2008
were $84 and $77, respectively.  Net periodic benefit costs for the
nine months ended September 30, 2009 and 2008 were $252 and $231,
respectively.





International
Pension Plan





The
components of net periodic pension cost for the Company’s international plan for
the three and nine months ended September 30, 2009 and 2008 are as
follows:





Three
      months ended
            
            
            Nine
      months endedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Components
      of net periodic benefit costService
      cost
            
            $
            121
            
            
            $
            137
            
            
            $
            363
            
            
            $
            411Interest
      cost
            
            
            170
            
            
            
            218
            
            
            
            510
            
            
            
            654Recognized
      actuarial loss
            
            
            30
            
            
            
            33
            
            
            
            90
            
            
            
            99Amortization
      of prior service cost
            
            
            (1
            )
            
            
            (2
            )
            
            
            (3
            )
            
            
            (6
            )Net
      periodic benefit cost
            
            $
            320
            
            
            $
            386
            
            
            $
            960
            
            
            $
            1,158





Other
Postretirement Benefits





Cambrex
provides certain postretirement health and life insurance benefits to all
eligible retired employees.  Such plans are self-insured and are not
funded.  The net periodic benefit cost for the three months ended
September 30, 2009 and 2008 was $8.  The net periodic benefit cost for
the nine months ended September 30, 2009 and 2008 was $24.  See Note
13 for a discussion of subsequent events related to these benefits.





(12)
            Contingencies





The
Company is subject to various investigations, claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of its
business activities.  The Company continually assesses all known facts
and circumstances as they pertain to all legal and environmental matters and
evaluates the need for reserves and disclosures as deemed necessary based on
these facts and circumstances.  These matters, either individually or
in the aggregate, could have a material adverse effect on the Company's
financial condition, operating results and cash flows in a future reporting
period.





Environmental





In
connection with laws and regulations pertaining to the protection of the
environment, the Company and its subsidiaries are a party to several
environmental proceedings and remediation investigations and cleanups and, along
with other companies, have been named potentially responsible parties (“PRP”)
for certain waste disposal sites ("Superfund sites").  Additionally,
the Company has retained the liability for certain environmental proceedings
associated with the sale of the Rutherford Chemicals business.


15
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(12)
            Contingencies
      (continued)





Each of
these matters is subject to various uncertainties, and it is possible that some
of these matters will be decided unfavorably against the Company.  The
resolution of such matters often spans several years and frequently involves
regulatory oversight or adjudication.  Additionally, many remediation
requirements are not fixed and are likely to be affected by future
technological, site, and regulatory developments.  Consequently, the
ultimate liability with respect to such matters, as well as the timing of cash
disbursements cannot be determined with certainty.





In
matters where the Company has been able to reasonably estimate its liability,
the Company has accrued for the estimated costs associated with the study and
remediation of Superfund sites not owned by the Company and the Company's
current and former operating sites.  These accruals were $6,201 and
$6,226 at September 30, 2009 and December 31, 2008, respectively.  The
decrease in the accrual includes payments of $290 partially offset by increases
to reserves of $100 and the impact of currency of $165.  Based upon
available information and analysis, the Company's current accrual represents
management's best estimate of the probable and estimable costs associated with
environmental proceedings including amounts for investigation fees where full
remediation costs may not be estimable at the reporting date.





CasChem





As a
result of the sale of the Bayonne, New Jersey facility, the Company became
obligated to investigate site conditions and conduct required remediation under
the New Jersey Industrial Site Recovery Act.  The Company submitted a
sampling plan to the New Jersey Department of Environmental Protection (“NJDEP”)
and is awaiting approval.  The results of the completed and proposed
sampling, and any additional sampling deemed necessary, will be used to develop
an estimate of the Company's future liability for remediation costs, if
any.





Cosan





In
response to the NJDEP, the Company completed its initial investigation and
submitted the results of the investigation and a proposed Remedial Action Work
Plan (“RAW”) to the NJDEP for its Cosan Clifton, New Jersey site.  The
NJDEP subsequently rejected the RAW and requested additional investigative work
at the site and that work is on-going.  The reserve was $1,177 at September
30, 2009 which is based on the initial remedial action plan.  The results
of the additional investigative work may impact the remediation plan and
costs.





Additionally,
the Company has recorded a liability of $923 for the Cosan Carlstadt, New Jersey
site based on the investigations completed to date and the proposed RAW
submitted to the NJDEP for their approval.  The NJDEP has subsequently
required the Company to perform additional investigative work prior to approval
of the RAW.  The results of this additional investigative work may impact
the remediation plan and costs.




Berry’s
Creek





The
Company received a notice from the United States Environmental Protection Agency
(“USEPA”) that two former operating subsidiaries of the Company are considered
PRPs at the Berry’s Creek Superfund Site in New Jersey.  The operating
companies are among many other PRPs that were listed in the notice. 
Pursuant to the notice, 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 of PRPs and filed a response to the USEPA agreeing to
jointly negotiate to conduct or fund an appropriate remedial investigation and
feasibility study of the Berry’s Creek Site.  The PRPs have engaged
consultants to evaluate investigation and remedial alternatives and develop a
method to allocate related costs among the PRPs.  As of September 30,
2009 the Company’s reserve was $309 to cover the initial phase of investigation
based on a tentative agreement on the allocation of the site investigation costs
among the PRPs.  The investigation is expected to take several years
and at this time it is too early to predict the extent of any additional
liabilities.


16
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(12)
            Contingencies
      (continued)





Nepera,
Inc. – Maybrook and Harriman Sites





Nepera,
Inc. (“Nepera”) is named a PRP of the Maybrook Site in Hamptonburgh, New York by
the USEPA in connection with the disposition, under appropriate permits, of
wastewater at that site prior to Cambrex's acquisition of Nepera in
1986.  The USEPA also issued the Company a Notice of Potential
Liability and the Company signed a Consent Decree to complete the Record of
Decision (“ROD”) and has provided the USEPA with appropriate financial
assurance, including a letter of credit to guarantee the obligation under the
Consent Decree.





Nepera is
also named a responsible party of the Harriman, New York production facility by
the New York State Department of Environmental Conservation.  A final
ROD was issued which describes the remediation plan for the
site.  Implementation of the ROD is on-going.





As of
September 30, 2009, the reserve recorded on the books was $1,300 and represents
the Company’s best estimate to complete both RODs.





Solvent
Recoveries Superfund Site





A
subsidiary of the Company is one of approximately 1,300 PRPs at a Superfund site
(“the Site”) in Southington, Connecticut, once operated by Solvent Recoveries,
Inc.  The PRP group has completed a Remedial Investigation/Feasibility
Study and the USEPA has proposed remediation of the Site.  In 2008,
the Company agreed to enter into a consent decree and settlement with the other
PRPs and the USEPA whereby the Company agreed to pay a settlement amount of $353
with an initial payment of $106 and the remaining $247 to be paid in
installments over time as the remediation proceeds.  The Company has
reserved for the unpaid portion of the settlement and has entered into a letter
of credit to guarantee the payment obligation under the settlement.





Newark
Bay Complex Litigation





CasChem
and Cosan have been named as two of several hundred third-party defendants in a
third-party complaint filed in February 2009, by Maxus Energy Corporation
(“Maxus”) and Tierra Solutions, Inc. (“Tierra”).  The original
plaintiffs include the NJDEP, the Commissioner of the NJDEP and the
Administrator of the New Jersey Spill Compensation Fund, which originally filed
suit in 2005 against Maxus, Tierra and other defendants seeking recovery of
cleanup and removal costs for alleged discharges of dioxin and other hazardous
substances into the Passaic River, Newark Bay, Hackensack River, Arthur Kill,
Kill Van Kull and adjacent waters (the “Newark Bay Complex”).  Maxus
and Tierra are now seeking contribution from third-party defendants, including
subsidiaries of the Company, for cleanup and removal costs for which each may be
held liable in the lawsuit. Maxus and Tierra also seek recovery for cleanup and
removal costs that each has incurred or will incur relating to the Newark Bay
Complex.  The Company expects to vigorously defend against the
lawsuit. At this time it is too early to predict whether the Company will have
any liability in this matter.


17
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(12)
            Contingencies
      (continued)





The
Company is involved in other environmental matters where the range of liability
is not reasonably estimable at this time and it is not determinable when
information will become available to provide a basis for adjusting or recording
an accrual, should an accrual ultimately be required.





Litigation
and Other Matters





Lorazepam
and Clorazepate





In 1998
the Company and a subsidiary were named as defendants (along with Mylan
Laboratories, Inc. (“Mylan”) and Gyma Laboratories of America, Inc. (“Gyma”)) in
a proceeding instituted by the Federal Trade Commission (“FTC”) 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 alleged violations of the Federal Trade Commission
Act arising from exclusive license agreements between the Company and Mylan
covering two APIs (Lorazepam and Clorazepate).  The FTC and Attorneys’
General suits were settled in February 2001.





All cases
have been resolved except for one brought by four health care insurers. In 2008
the District Court, in this remaining case, entered judgment after trial against
Mylan, Gyma and Cambrex in the amount of $8,355, payable jointly and severally,
and also a punitive damage award against each defendant in the amount of
$16,709.  In addition, the District Court ruled that the defendants were
also subject to a total of approximately $7,000 in prejudgment interest. 
The parties will appeal the awards.





Cambrex
paid $12,415 in exchange for a release from Mylan and full indemnity in 2003
against future costs or liabilities in related litigation brought by purchasers,
as well as potential future claims related to this matter.  Cambrex expects
any payment of the judgment against it to be made by Mylan under the indemnity
described above.





Other





The
Company has commitments incident to the ordinary course of business including
corporate guarantees of certain subsidiary obligations to the Company’s lenders
related to financial assurance obligations under certain environmental laws for
remediation; closure and third party liability requirements of certain of its
subsidiaries and a former operating location; contract provisions for
indemnification protecting its customers and suppliers against third party
liability for manufacture and sale of Company products that fail to meet product
warranties and contract provisions for indemnification protecting licensees
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 while the 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 indemnification agreements is unlimited;
however, the Company has a Director and Officer insurance policy that covers a
portion of any potential exposure.  The Company currently believes the
estimated fair value of its indemnification agreements is not material based on
currently available information, and as such, the Company has no liabilities
recorded for these agreements as of September 30, 2009.


18
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements (Continued)


(dollars
in thousands, except share data)





(12)
            Contingencies
      (continued)





Cambrex's
subsidiaries are party to a number of other proceedings that are not considered
material at this time.





(13)
            Subsequent
      Events





The
Company has evaluated subsequent events through the issuance date of this Form
10-Q.





On
October 29, 2009, the Company approved the termination, effective December 31,
2009, of certain post-retirement health and life insurance benefits previously
provided to eligible retired employees.  The Company expects this
decision will result in an increase to pre-tax income in the fourth quarter 2009
of approximately $1,500.




In
October 2009, the Company was named in a lawsuit by the former owners of a
business acquired in 2006 by the Company’s subsidiary.  The subsidiary
was subsequently sold with the Bioproducts and Biopharma segments in 2007. The
lawsuit alleges the Company and its codefendants failed to pay certain
accelerated milestone payments that the Company estimates to be $4,800. The
Company believes that it is entitled to indemnification from the purchasers of
the Bioproducts and Biopharma segments for any potential costs, expenses and
damages related to this lawsuit and therefore, has no reserve recorded as of
September 30, 2009. Further, Cambrex believes that the complaint lacks merit and
should it be necessary, the Company intends to vigorously defend against the
lawsuit.


19
 Table of Contents


CAMBREX
CORPORATION AND SUBSIDIARIES


(dollars
in thousands, except share data)





Item2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations





Executive
Overview





The
following significant events occurred during the third quarter
2009:




·
            Sales
      increased 2.3% on a reported basis compared to third quarter
      2008.  Sales, excluding currency impact, increased 6.1%, or
      $3,459.


·
            Gross
      margins increased on a reported basis to 29.3% from 28.7% in the third
      quarter 2008. Gross margin, excluding currency impact, increased to 32.0%
      in the third quarter 2009.


·
            Operating
      profit improved to $5,627 from $4,542 in the third quarter
      2008.


·
            Debt,
      net of cash was $78,713 at the end of the third quarter 2009, a $4,330
      improvement during the current
quarter.





Results of
Operations





Comparison
of Third Quarter 2009 versus Third Quarter 2008





Gross
sales in the third quarter 2009 of $57,802 were $1,294 or 2.3% above the third
quarter 2008.  Excluding a 3.8% unfavorable impact of foreign
exchange, reflecting a stronger U.S. dollar, sales increased
6.1%.  The increase is primarily due to higher volumes of an active
pharmaceutical ingredient (“API”) used in the Company’s polymeric drug delivery
technology, increased generic revenues resulting from the timing of orders and
higher controlled substances and custom development
revenues.  Partially offsetting these increases were lower sales of
two APIs manufactured under long-term supply agreements and a feed additive for
which a contract was terminated earlier in 2009.





The
following table reflects sales by geographic area for the three months ended
September 30, 2009 and 2008:





Three months ended September
      30,2009
            
            
            2008North
      America
            
            $
            22,586
            
            
            $
            19,465Europe
            
            
            30,765
            
            
            
            33,029Asia
            
            
            2,592
            
            
            
            1,041Other
            
            
            1,859
            
            
            
            2,973Total
      gross sales
            
            $
            57,802
            
            
            $
            56,508





Gross
margins increased to 29.3% in the third quarter 2009 from 28.7% in the third
quarter 2008.  Cost reductions and favorable product mix were the main
drivers of the higher margins.  This was partially offset by lower
pricing of generic APIs and an API manufactured under a long-term supply
agreement.  Gross margins were unfavorably impacted 2.7% due to
foreign currency exchange.





Selling,
general and administrative expenses of $9,295 or 16.1% of gross sales in the
third quarter 2009 increased from $8,767, or 15.5% in the third quarter 2008.
The increase is a result of higher legal fees and personnel costs partially
offset by a favorable impact of foreign currency.


20
 Table of Contents


Results of Operations
(continued)




Comparison
of Third Quarter 2009 versus Third Quarter 2008 (continued)





Research
and development (“R&D”) expenses of $2,026 were 3.5% of gross sales in the
third quarter 2009, compared to $1,772 or 3.1% of gross sales in the third
quarter 2008.  The increase is primarily due to higher costs related
to the development of new products and technology platforms.





Restructuring
expenses for the third quarter 2008 were $321, the majority of which consists of
rent and related costs associated with the closure of the New Jersey R&D
facility.





Strategic
alternative costs for the third quarter 2008 were $833, primarily consisting of
costs associated with a project to streamline the Company’s legal
structure.





Operating
profit in the third quarter 2009 was $5,627 compared to $4,542 in the third
quarter 2008.  Excluding restructuring expenses and strategic
alternative costs of $1,154 recorded in 2008, operating profit was flat quarter
over quarter.  An unfavorable impact of foreign currency and higher
administrative spending mostly offset higher gross margins as discussed
above.





Net
interest expense was $1,111 in the third quarter 2009 compared to $956 in the
third quarter 2008.  Third quarter 2009 results reflect lower interest
income in the third quarter 2009 compared to the same period last year as a
result of lower interest rates.  Higher average debt was mostly offset
by lower interest rates during the quarter.  The average interest rate
on debt was 3.6% in the third quarter 2009 versus 4.7% in the third quarter
2008.





The
effective tax rate for the third quarter 2009 was 34.8% compared to 9.8% in the
third quarter 2008. The tax provision in the third quarter 2009 was $1,584
compared to $304 in the third quarter 2008.  The increase is due to
changes in the geographic mix of pre-tax earnings, the enactment of reduced tax
rates in Sweden and tax benefits related to the favorable resolution of certain
tax matters in the three months ended September 30, 2008.  The Company
maintains a full valuation allowance against its domestic, and certain foreign,
net deferred tax assets and will continue to do so until an appropriate level of
profitability is sustained or tax strategies can be developed that would enable
the Company to conclude that it is more likely than not that a portion of these
net deferred tax assets would be realized.  As such, improvements in
pre-tax income in the future within these jurisdictions where the Company
maintains a valuation allowance may result in these tax benefits ultimately
being realized.  However, there is no assurance that such improvements
will be achieved.





Net
income in the third quarter 2009 was $2,963, or $0.10 per diluted share, versus
$2,797, or $0.10, per diluted share in the same period a year ago.





Comparison
of First Nine Months 2009 versus First Nine Months 2008





Gross
sales for the first nine months of 2009 of $177,568 were $6,872 or 3.7% below
the first nine months of 2008.  Excluding an 8.3% unfavorable impact
of foreign exchange, reflecting a stronger U.S. dollar in the first nine months
of 2009 versus 2008, sales were 4.6% higher than the same period last
year.  The increase is primarily due to higher volumes of an API
used in the Company’s polymeric drug delivery technology, higher controlled
substances, an API manufactured under a long-term supply agreement and custom
development revenues.  Partially offsetting these increases were lower
sales of generic APIs and a feed additive for which a contract was terminated
earlier in 2009.


21
 Table of Contents


Results of Operations
(continued)




Comparison
of First Nine Months 2009 versus First Nine Months 2008 (continued)





The
following table reflects sales by geographic area for the nine months ended
September 30, 2009 and 2008:





Nine months ending September
      30,2009
            
            
            2008North
      America
            
            $
            61,040
            
            
            $
            65,200Europe
            
            
            103,256
            
            
            
            104,911Asia
            
            
            7,382
            
            
            
            8,228Other
            
            
            5,890
            
            
            
            6,101Total
      gross sales
            
            $
            177,568
            
            
            $
            184,440





Gross
margins were flat at 31.4% in the first nine months of 2009 compared to the
first nine months of 2008.  Gross margins were favorably impacted 2.5%
due to foreign currency exchange.  Excluding the foreign currency
impact, the decrease in margins is mainly due to lower pricing related to our
generics products and an API manufactured under a long-term supply
agreement.





Selling,
general and administrative expenses of $26,889 or 15.1% of gross sales in the
first nine months of 2009 decreased from $31,511 or 17.1% in the first nine
months of 2008.  The decrease in expense is due primarily to lower
spending at the operating sites and the impact of foreign currency exchange
partially offset by higher legal fees.





R&D
expenses were $5,924 or 3.3% of gross sales in the first nine months of 2009
compared to $5,945 or 3.2% of gross sales in the first nine months of
2008.  The results reflect the increased utilization of certain
R&D personnel on revenue-generating custom development projects resulting in
these costs being classified as either inventory or cost of goods offset by
higher costs related to the development of new products and technology
platforms.





Restructuring
expenses for the first nine months of 2008 were $1,469, consisting of rent and
related costs associated with the closure of the New Jersey R&D facility and
costs associated with the restructuring of the corporate office.





Strategic
alternative costs for the first nine months of 2008 were $1,408, consisting of
costs associated with a project to streamline the Company’s legal structure,
change-in-control benefits and costs associated with the modification of
employee stock options due to the payment of the special dividend in connection
with the 2007 divestiture of the businesses that comprised the Bioproducts and
Biopharma segments.





Operating
profit in the first nine months of 2009 was $22,951 compared to $17,642 in the
first nine months of 2008.  The results reflect lower administrative
expenses at the operating sites, lower strategic alternative and restructuring
costs and the favorable impact of foreign currency partially offset by lower
gross profit.





Net
interest expense was $3,410 in the first nine months of2009
compared to $2,302 in the first
nine months of2008.  The first nine months of2009
results reflect higher average debt partially offset by lower interest rates
compared to the first nine months of 2008, lower interest income and lower
capitalized interest.


22
 Table of Contents


Results of Operations
(continued)




Comparison
of First Nine Months 2009 versus First Nine Months 2008 (continued)





The
average interest rate on debt was 3.9% in the first nine months of2009 versus
4.9% in the first nine months of2008.





The
effective tax rate for the first nine months of 2009 was 33.1% compared to 40.3%
in the first nine months of 2008.  The tax provision in the first nine
months of 2009 was $6,520 compared to $6,002 in the first nine months of
2008.  The increase is due to changes in the geographic mix of pre-tax
earnings, the enactment of reduced tax rates in Sweden and tax benefits related
to the favorable resolution of certain tax matters in the nine months ended
September 30, 2008.  The Company maintains a full valuation allowance
against its domestic, and certain foreign, net deferred tax assets and will
continue to do so until an appropriate level of profitability is sustained or
tax strategies can be developed that would enable the Company to conclude that
it is more likely than not that a portion of these net deferred tax assets would
be realized.  As such, improvements in pre-tax income in the future
within these jurisdictions where the Company maintains a valuation allowance may
result in these tax benefits ultimately being realized.  However,
there is no assurance that such improvements will be achieved.





In July
2009, the Company’s Italian subsidiary received a preliminary report from the
local taxing authority related to an audit of the subsidiary’s 2006 tax
return.  This report challenged the deductibility of certain intercompany
transactions for 2006 and the benefits related to a transaction initiated in
2003.  In October 2009, the Company formally responded to the preliminary
report. The Company expects the tax authority to either respond in the Company’s
favor, or issue a formal assessment prior to December 31, 2009 based upon the
merits of the Company’s response.  If the tax authority were to disagree
with the Company’s position on these issues, the Company estimates an
assessment, excluding penalties, could be levied against this subsidiary for up
to $7,000 based upon the preliminary report.  Although it is early in the
process at this time, the Company has analyzed these issues in accordance with
guidance on uncertain tax positions and believes its reserves are adequate, and
intends to defend itself.





In
September 2009, the Company’s Swedish subsidiary was examined by the local
taxing authority. The tax authority has questioned certain significant
intercompany balances and transactions.  The Company expects to file a
response to the inquiry in November 2009.  The Company expects it to
take several months before a formal audit report is issued.  If the
tax authority were to disagree with the Company’s position on these issues, the
Company estimates the preliminary assessment would be less than $2,000.Although it is
early in the process at this time, the Company has analyzed these issues in
accordance with guidance on uncertain tax positions and believes its reserves
are adequate, and intends to defend itself.





Net
income for the first nine months of 2009 was $13,160, or $0.45 per diluted
share, versus $8,879, or $0.31 per diluted share, in the same period a year
ago.





Liquidity and Capital
Resources





Cash and
cash equivalents increased $12,805 in the first nine months of 2009.  
During the first nine months of 2009, cash provided by operations was $19,556
versus cash used in operations of $2,902 in the same period a year
ago.  The increase in cash flows from operations in the first nine
months of 2009 versus the first nine months of 2008 is due primarily to the
unusually large cash payments required in 2008 related to change-in-control and
restructuring payments, and better year to date inventory management during
2009.




Cash
flows in the first nine months of 2009 related to capital expenditures were
$9,651 compared to $22,908 in 2008.  The majority of the funds in 2009
were used for a new mid-scale Pharma manufacturing facility in Karlskoga, Sweden
and capital improvements to existing facilities.  The majority of the
funds in 2008 were used for the new facility in Karlskoga, Sweden, an API
purification facility in Milan, Italy and capital improvements to existing
facilities.


23
 Table of Contents


Results of Operations
(continued)




Liquidity
and Capital Resources (continued)





Cash
flows provided by financing activities in the first nine months of 2009 was $156
compared to $19,428 in the same period a year ago.  Cash inflows in
2009 and 2008 related to net borrowings used for domestic operations, capital
expenditures and payments related to certain accruals.





Many of
Cambrex’s contracts are short-term in duration.  As a result, the Company
must continually replace its contracts with new contracts to sustain its
revenue.  In addition, certain of the Company’s long-term contracts may be
cancelled or delayed by clients for any reason upon notice.  The Company
currently has a long-term sales contract that accounts for approximately 10% of
annual sales that is scheduled to expire at the end of 2013.  There is no
guarantee that this contract will be renewed.  The Company also has a
contract for certain drug delivery products that accounted for nearly 4% of
annual sales in 2008 that expired in September 2009.  The Company has
tentatively agreed on certain commercial terms for a new multi-year agreement
and believes a final agreement will be signed.  However, should a new
commercial agreement not be signed, it is likely that the parties will pursue
certain legal actions to enforce their respective rights, specifically, the
customer has filed an opposition to the Company’s patent in the European Union
related to the products sold under this contract and is also seeking a patent
for a competing product in certain jurisdictions including the European
Union. The Company believes it has enforceable intellectual property rights
and should a new agreement not be signed it intends to enforce these rights as
necessary. While the outcome of these actions is uncertain, should the
customer’s opposition or patent application be successful, it would unfavorably
impact the Company’s sales volumes and pricing compared to the previous
contract.





The
Company believes that cash flows from operations along with funds available from
a revolving line of credit will be adequate to meet the operational and debt
servicing needs of the Company, but no assurances can be given that this will
continue to be the case, especially in light of the recent unprecedented
volatility in worldwide credit markets.  The Company was in compliance
with all financial covenants at September 30, 2009.





Impact of Recent Accounting
Pronouncements





Fair
Value Measurements





The
Company adopted the Financial Accounting Standards Board (“FASB”) Statement
“Fair Value Measurements” related to nonfinancial assets and nonfinancial
liabilities effective January 1, 2009.  This statement defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles (“GAAP”), and expands disclosures about fair value
measurements.  This statement applies whenever another standard
requires (or permits) assets or liabilities to be measured at fair
value.   The standard does not expand the use of fair value to
any new circumstances.  The effect of adopting this pronouncement did
not have a material impact on the Company’s financial position or results of
operations.





Disclosures
about Derivative Instruments and Hedging Activities





The
Company adopted the FASB’s Statement “Disclosures about Derivative Instruments
and Hedging Activities” effective January 1, 2009.  This statement
requires enhanced disclosures about derivative and hedging activities and
thereby improves the transparency of financial reporting.  This
statement also encourages, but does not require, comparative disclosures for
earlier periods at initial adoption.  The effect of adopting this
pronouncement did not have an impact on the Company’s financial position or
results of operations.


24
 Table of Contents


Employers’
Disclosures about Postretirement Benefit Plan Assets





In
December 2008, the FASB issued “Employers’ Disclosures about Postretirement
Benefit Plan Assets.”  This statement provides guidance on additional
disclosures about plan assets of a defined benefit pension or other
postretirement plan.  This statement is effective for fiscal years
ending after December 15, 2009.  Upon initial application, the
provisions of this pronouncement are not required for earlier periods that are
presented for comparative purposes. The Company is currently evaluating the
disclosure requirements of this new statement.





Subsequent
Events





The
Company adopted the FASB’s Statement “Subsequent Events” effective June 30,
2009.  This statement establishes general standards of accounting for,
and disclosure of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  This
statement requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date, that is, whether that
date represents the date the financial statements were issued or were available
to be issued.  The effect of adopting this pronouncement did not have
a material impact on the Company’s financial position or results of
operations.





FASB
Accounting StandardsCodificationand the
Hierarchy of GAAP





The
Company adopted the FASB’s Statement “TheFASB
Accounting StandardsCodificationand
the Hierarchy of Generally Accepted Accounting Principles” effective September
30, 2009.  This statement provides for the FASB Accounting Standards
Codificationto
become the single official source of authoritative, nongovernmental U.S.
GAAP.  This statement does not change GAAP but reorganizes the
literature.





Measuring
Liabilities at Fair Value





In August
2009, the FASB issued “Fair Value Measurements and Disclosures —Measuring
Liabilities at Fair Value.”  This update provides amendments to “Fair
Value Measurements and Disclosures – Overall”, for the fair value measurement of
liabilities.  This update provides clarification for circumstances in
which a quoted price in an active market for the identical liability is not
available, how to estimate the fair value of a liability and how to determine
the quoted price.  The amendments in this update reduce potential
ambiguity in financial reporting when measuring the fair value of
liabilities.  This update is effective for the first reporting period
beginning after issuance.  The Company is currently evaluating the
potential impact of this update.





Revenue
Arrangements with Multiple Deliverables





In
September 2009, the Emerging Issues Task Force (“EITF”) issued “Revenue
Arrangements with Multiple Deliverables.” This issue addresses how to
determine whether an arrangement involving multiple deliverables contains more
than one unit of accounting, and how to allocate the consideration to each unit
of accounting.  This issue will supersede EITF 00-21 “Revenue
Arrangements with Multiple Deliverables.”  This issue eliminates the
use of the residual value method for determining allocation of arrangement
consideration; and allows the use of an entity's best estimate to determine the
selling price if vendor specific objective evidence and third-party evidence can
not be determined.  This issue also requires additional disclosure to
provide both qualitative and quantitative information regarding the significant
judgments made in applying this issue.  In addition, for each
reporting period in the initial year of adoption, this issue requires disclosure
of the amount of revenue recognized subject to the measurement requirements of
this issue and the amount of revenue that would have been recognized if the
related transactions were subject to the measurement requirements of Issue
00-21.  This issue is effective for revenue arrangements entered into
or materially modified in fiscal years beginning after June 15,
2010.  Early adoption is permitted.  The Company is
currently evaluating the potential impact of this issue.


25
 Table of Contents


Forward-Looking
Statements





This
document may contain “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under The
Securities Exchange Act of 1934, as amended, including, without limitation,
statements regarding expected performance, especially expectations with respect
to sales, research and development expenditures, earnings per share, capital
expenditures, acquisitions, divestitures, collaborations, or other expansion
opportunities.  These statements may be identified by the fact that
they use words such as “expects,” “anticipates,” “intends,” “estimates,”
“believes” or similar expressions in connection with any discussion of future
financial and operating performance.  Any forward-looking statements
are qualified in their entirety by reference to the factors discussed throughout
this Form 10-Q.  Any forward-looking statements contained herein are
based on current plans and expectations and involve risks and uncertainties that
could cause actual outcomes and results to differ materially from current
expectations including, but not limited to, global economic trends,
pharmaceutical outsourcing trends, competitive pricing or product developments,
government legislation and regulations (particularly environmental issues), tax
rate, interest rate, technology, manufacturing and legal issues, including the
outcome of outstanding litigation disclosed in the Company’s public filings, the
Company’s ability to satisfy the continued listing standards of the New York
Stock Exchange, changes in foreign exchange rates,  uncollectible
receivables, loss on disposition of assets, cancellation or delays in renewal of
contracts, lack of suitable raw materials or packaging materials, the Company’s
ability to receive regulatory approvals for its products and other factors
described in Item 1A “Risk Factors” within this Form 10-Q.  Any
forward-looking statement speaks only as of the date on which it is made, and
the Company undertakes no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or
otherwise.  New factors emerge from time to time and it is not
possible for the Company to predict which will arise.  In addition,
the Company cannot assess the impact of each factor on its business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking
statements.





For
further details and a discussion of these and other risks and uncertainties,
investors are cautioned to review the Cambrex 2008 Annual Report on Form 10-K,
including the Forward-Looking Statement section therein, and other filings with
the U.S. Securities and Exchange Commission.  The Company undertakes
no obligation to publicly update any forward-looking statement, whether as a
result of new information, future events or otherwise.


26
 Table of Contents


Item3.
            Quantitative
      and Qualitative Disclosures about Market
Risk





There has
been no significant change in the Company’s exposure to market risk during the
first nine months of 2009.  For a discussion of the Company’s exposure
to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative
Disclosures about Market Risk,” contained in the Company’s Annual Report on Form
10-K for the period ended December 31, 2008.




Item
      4.
              Controls
      and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Our management, with the participation of our chief executive officer
and chief financial officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period covered by this
Form 10-Q.  Based on that evaluation, our chief executive officer and
chief financial officer have concluded that, as of the end of such period, our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by 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 the SEC’s rules and forms and (ii) accumulated and
communicated to management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
  Changes
in Internal Control over Financial Reporting
 
 There has
been no change in our internal control over financial reporting (as defined in
Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
quarter covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.


27
 Table of Contents


PART II - OTHER
INFORMATION





CAMBREX
CORPORATION AND SUBSIDIARIES





Item1.
            Legal
      Proceedings





See the
discussion under Part I, Item 1, Note 12 to the Consolidated Financial
Statements.





Item1A.
            Risk
      Factors





Factors
That May Affect Future Results





The
following risk factors and other information included in this Quarterly Report
on Form 10-Q should be carefully considered.  If any of the following
risks occur, the Company’s business, financial condition, operating results and
cash flows could be materially adversely affected.  The risks and
uncertainties described below are not the only ones the Company
faces.  Additionally, risks and uncertainties not presently known to
the Company or that it currently deems immaterial also may impair its business,
financial condition, operating results and cash flows in the
future.





Risks Relating to Cambrex’s
Business





Companies
may discontinue or decrease their usage of Cambrex’s services.





The
Company has observed increasing pressure on the part of its customers to reduce
spending, including the use of its services and products, as a result of
negative macro-economic trends and various market dynamics specifically
affecting the pharmaceutical industry.  These customers could
discontinue or decrease their usage of Cambrex’s services and products,
including as a result of the global economic slowdown.





New
technologies, competition or a reduction in demand for Cambrex’s products could
reduce sales.





The
markets for the Company’s products are competitive and price
sensitive.  The Company’s competitors may lower prices on products in
the future and the Company may, in certain cases, respond by lowering its
prices.  Conversely, failure to anticipate and respond to price
competition may hurt Cambrex’s market share. Some of the Company’s competitors
also have significant financial, operational, sales and marketing resources, and
experience in research and development (“R&D”) which may reduce the
Company’s level of business.  Companies may develop new technologies
that would compete with the Company’s products or render its products
obsolete.  Several of Cambrex’s customers, especially those that buy
its generic active pharmaceutical ingredients, have internal capabilities
similar to Cambrex’s.  In addition, demand for the Company’s products
may weaken due to a reduction in R&D budgets, loss of distributors or other
factors.





The
Company believes that customers in its markets display loyalty to their initial
supplier of a particular product.  Therefore, it may be difficult to
generate sales to potential customers who have purchased products from
competitors.  To the extent the Company is unable to be the first to
develop and supply new products, its competitive position may
suffer.


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The
Company’s failure to obtain new contracts or renew existing contracts may
adversely affect its business.





Many of
Cambrex’s contracts are short-term in duration.  As a result, the Company
must continually replace its contracts with new contracts to sustain its
revenue.  In addition, certain of the Company’s long-term contracts may be
cancelled or delayed by clients for any reason upon notice.  The Company
currently has a long-term sales contract that accounts for approximately 10% of
annual sales that is scheduled to expire at the end of 2013.  There is no
guarantee that this contract will be renewed.  The Company also has a
contract for certain drug delivery products that accounted for nearly 4% of
annual sales in 2008 that expired in September 2009.  The Company has
tentatively agreed on certain commercial terms for a new multi-year agreement
and believes a final agreement will be signed.  However, should a new
commercial agreement not be signed, it is likely that the parties will pursue
certain legal actions to enforce their respective rights, specifically, the
customer has filed an opposition to the Company’s patent in the European Union
related to the products sold under this contract and is also seeking a patent
for a competing product in certain jurisdictions including the European
Union. The Company believes it has enforceable intellectual property rights
and should a new agreement not be signed it intends to enforce these rights as
necessary. While the outcome of these actions is uncertain, should the
customer’s opposition or patent application be successful, it would unfavorably
impact the Company’s sales volumes and pricing compared to the previous
contract.





Failure
to obtain products and raw materials from third-party manufacturers could affect
Cambrex’s ability to manufacture and deliver its products.





The
Company relies on third-party manufacturers to supply many of its raw materials
and intermediates.  In addition, the Company has a single source for
supplies of some raw materials to its products.  Manufacturing
problems may occur with these and other outside sources.  If such
problems occur, the Company cannot ensure that it will be able to manufacture
its products profitably or on time.





Disruptions
to the Company’s manufacturing operations 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 be adversely affected by
disruptions of these operations.  Any significant disruption of those
operations for any reason, such as labor unrest, power interruptions, fire, or
other events beyond the Company’s control could adversely affect its sales and
customer relationships and therefore adversely affect its business. While
insurance coverage may reimburse the Company, in part, for profits lost from
such disruptions, any sustained reduction in the Company’s ability to provide
these products would negatively impact its sales growth expectations, cash flows
and profitability.





Failure
to win early stage business opportunities can cause difficulty in winning future
opportunities with that customer.





Certain
products the Company sells are incorporated into its customers’ drug
manufacturing processes. In some cases, once a customer chooses a particular
product for use in a drug manufacturing process, it is unlikely that the
customer will later switch to a competing alternative. In many cases, the
regulatory approvals related to a drug product will specify the products
qualified for use in its making. Obtaining the regulatory approvals needed for a
change in the manufacturing process is time consuming, expensive and uncertain.
Accordingly, if a customer does not select the Company’s products or services
early in its manufacturing design phase for any number of reasons, the Company
may lose the opportunity to participate in the customer’s manufacturing of such
product. Because the Company faces competition in this market from other
companies, it is at risk that its competitors could win significant early
business with customers making it difficult for the Company to recover
late-stage opportunities with higher volumes.





Litigation
may harm the Company or otherwise negatively impact its management and financial
resources.





Complex
or extended litigation could cause the Company to incur large expenditures and
distract its management.  For example, lawsuits by employees,
stockholders, counterparties to acquisition and divestiture contracts,
collaborators, distributors, customers, or end-users of the Company’s products
or services could be very costly and substantially disrupt its
business.  Disputes from time to time with such companies or
individuals are not uncommon, and the Company cannot be assured that it will
always be able to resolve such disputes out of court or on terms favorable to
the Company.





Refer to
Note 12 for a discussion of the Company’s environmental and legal
matters.


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 Table of Contents


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 is diligent in designing and
implementing safety procedures to comply with the standards prescribed by
federal, state, local and foreign regulations, including the European
Commission’s Registration, Evaluation and Authorization of Chemicals (“REACH”)
regulation, the risk of accidental contamination of property or injury to
individuals from these materials cannot be completely eliminated.  In
the event of such an incident, the Company could be liable for any damages which
could adversely affect its business.  Additionally, any incident could
shut down the Company’s research and manufacturing facilities and
operations.





The
Company generates waste that must be transported to approved storage, treatment
and disposal facilities.  The transportation and disposal of such
waste are required to meet applicable state and federal statutes and
regulations.  The storage, treatment and disposal of such waste
potentially exposes the Company to environmental liability if, in the future,
such transportation and disposal are deemed to have violated such statues or
regulations or if the storage, treatment and disposal facilities are inadequate
and are proved to have damaged the environment.





The
Company is also party to several environmental remediation investigations and
cleanups and, along with other companies, has been named a potentially
responsible party for certain waste disposal sites.





Refer to
Note 12 for a discussion of the Company’s environmental and legal
matters.





Potential
product liability claims, errors and omissions claims in connection with
services the Company performs and potential liability under 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 injury or
death to persons using such products, even though the Company does not presently
market or sell the products to end users.  The Company seeks to reduce
its potential liability through measures such as contractual indemnification
provisions with clients (the scope of which may vary from client-to-client, and
the performances of which are not secured), exclusion of services requiring
diagnostic or other medical services, and insurance maintained by
clients.  The Company 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 the scope of the indemnification agreements, if the indemnity,
although applicable, is not performed in accordance with its terms or if the
Company’s liability exceeds the amount of applicable insurance or
indemnity.  In addition, the Company could be held liable for errors
and omissions in connection with the services it performs.  The
Company currently maintains product liability and errors and omissions insurance
with respect to these risks.  There can be no assurance, however, that
the Company’s insurance coverage will be adequate or that insurance coverage
will continue to be available on terms acceptable to the Company.





The
Company also indemnifies its officers and directors for certain events or
occurrences while the officer or director is, or was, serving at the Company’s
request in such capacity.  The maximum potential amount of future
payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has a Director and Officer
insurance policy that covers a portion of any potential exposure.  The
Company could be materially and adversely affected if it were required to pay
damages or incur legal costs in connection with a claim above its insurance
limits.


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 Table of Contents


While
the Company has what it believes to be adequate insurance coverage, any claims
beyond its insurance coverage may result in substantial costs and a reduction in
its available capital resources.





The
Company maintains property insurance policies covering physical damage to its
equipment, facilities, buildings and inventory; employer’s liability insurance
generally covering death or work injury of employees; product liability
insurance covering product liability claims arising from the use, consumption or
operation of its products; public liability insurance covering certain incidents
to third parties that occur on or in the premises of the company; business
interruption insurance and directors and officers liability insurance, among
others.  The Company does not maintain key man life insurance on any
of its senior management or key personnel.  The Company’s insurance
coverage, however, may not be sufficient to cover any claim for product
liability, damage to its fixed assets or injury to its employees.





Loss
of key personnel could hurt the Company.





The
Company depends on its ability to attract and retain qualified scientific and
technical employees as well as a number of key executives.  There can
be no assurance the Company will be able to retain key personnel, or to attract
and retain additional qualified employees.  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 Company depends on the success of
attracting new and retaining existing customers’ projects and their continued
business.





The
Company has recently made substantial investments in all of its manufacturing
facilities.  With the completion of these new facilities, the
Company’s fixed costs have increased.  If the Company is not able to
utilize the facilities to capacity, its margins could be adversely
affected.





Global
growth is subject to a number of economic risks.





The
current global economy affects businesses such as Cambrex’s in a number of
ways.  The current equity market and tightening of credit in financial
markets adversely affects the ability of the Company’s customers to obtain
financing for significant purchases and operations and could result in a
decrease in or cancellation of orders for its products and services as well as
impact the ability of the Company’s customers to make payments. The Company
believes that cash flows from operations, along with funds available from a
revolving line of credit, will be adequate to meet the operational and debt
servicing needs of the Company, but no assurances can be given that this will
continue to be the case.  Given the current state of the worldwide
credit markets, 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 of one or more participant banks.  Strengthening of the rate
of exchange for the U.S. dollar against certain major currencies such as
the Euro, Swedish krona and other currencies also adversely affects the
Company’s results.





The
Company has a significant amount of debt.





The
Company has a $200,000 revolving credit facility of which $124,000 was
outstanding at September 30, 2009.  This facility expires in April of
2012.  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 be in default.  This current debt arrangement
requires the Company to comply with specified financial ratios. The Company’s
ability to comply with these ratios may be affected by events beyond its
control.





Even if
the Company is able to meet its debt service obligations, the amount of debt it
has could adversely affect the Company by limiting its ability to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements, or other purposes.  It also places the
Company at a disadvantage relative to its competitors who have lower levels of
debt, while making it more vulnerable to a downturn in its business or the
economy in general.  It also requires the Company to use a substantial
portion of its cash to pay principal and interest on its debt, instead of
investing those funds in the business.


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 Table of Contents


The
Company’s liquidity, business, financial condition, results of operations and
cash flows could be materially and adversely affected if the 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 significant
portion of the funds held in these accounts exceed insurable
limits.  If any of the financial institutions where the Company has
deposited funds were to fail, the Company may lose some or all of its deposited
funds that exceed the insurance coverage limit. Such a loss would have a
material and adverse effect on the Company’s liquidity, business, financial
condition, results of operations and cash flows.





A
payment failure by any large customer or multiple smaller customers could
adversely affect the Company’s cash flows and profitability.





Historically,
the Company has not experienced any significant bad debt or collection problems,
but such problems may arise in the future. The failure of any of the Company’s
customers to make timely payments could require the Company to write off
accounts receivable or increase provisions made against its accounts receivable,
either of which could adversely affect the Company’s cash flows and
profitability.





The
Company has significant inventories on hand.





The
Company maintains significant inventories and has an allowance for slow-moving
and obsolete inventory. Any significant unanticipated changes in future product
demand or market conditions, including the current uncertainty in the global
market, could also have an impact on the value of inventory and adversely impact
the Company’s results of operations.





International
unrest or foreign currency fluctuations could adversely affect the Company’s
results.





The
Company’s international revenues, which include revenues from its non-U.S.
subsidiaries and export sales from the U.S., represent the majority of its
product revenues.





There are
a number of risks arising from the Company’s international business,
including:





·
            the
      possibility that unfriendly nations or groups could boycott its
      products;




·
            general
      economic and political conditions in the markets in which it
      operates;




·
            potential
      increased costs associated with overlapping tax
  structures;




·
            more
      limited protection for intellectual property rights in some
      countries;




·
            unexpected
      changes in regulatory requirements;




·
            the
      difficulties of compliance with a wide variety of foreign laws and
      regulations;




·
            longer
      accounts receivable cycles in certain foreign countries;
    and




·
            import
      and export licensing requirements.





In
addition, a significant portion of the Company’s business is conducted in
currencies other than the U.S. dollar, which is its reporting
currency.  The Company recognizes foreign currency gains or losses
arising from its operations in the period incurred.  As a result,
currency fluctuations between the U.S. dollar and the currencies in which the
Company does business have caused, and will continue to cause, foreign currency
transaction gains and losses.  The Company cannot predict the effects
of exchange rate fluctuations upon its future operating results because of the
number of currencies involved, the variability of currency exposures, and the
potential volatility of currency exchange rates.  The Company engages
in limited foreign exchange hedging transactions to mitigate 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 the full effects of
exchange rate fluctuations.


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 Table of Contents


Cambrex’s
operating results may unexpectedly fluctuate in future periods.





The
Company’s revenue and operating results have fluctuated, and could continue to
fluctuate, on a quarterly basis.  The operating results for a
particular quarter may be lower than expected as a result of a number of
factors, including, but not limited to, the timing of contracts; the delay or
cancellation of a contract; the mix of services provided; seasonal slowdowns in
different parts of the world; the timing of start-up expenses for new services
and facilities; changes in government regulations; and unfavorable exchange
rates with the U.S. dollar.  Because a high percentage of the
Company’s costs are relatively fixed in the short term, such as the cost of
maintaining facilities and compensating employees, any one of these factors
could have a significant impact on the Company’s quarterly
results.  In some quarters, the Company’s revenue and operating
results may fall below the expectations of securities analysts and investors due
to any of the factors described above.  If such event occurred, sales
of common stock by existing holders would cause the trading price of the
Company’s common stock to decline, even if the decline in revenue did not have
any long-term adverse implications for the Company’s business.





The
possibility the Company will be unable to protect its technologies could affect
its ability to compete.





The
Company’s success depends to a significant degree upon its ability to develop
proprietary products and technologies.  However, the Company cannot be
assured that patents will be granted on any of its patent
applications.  The Company also cannot be assured that the scope of
any of its issued patents will be sufficiently broad to offer meaningful
protection.  The Company has patents issued in selected countries,
therefore, third parties can make, use, and sell products covered by its patents
in any country in which the Company does not have patent
protection.  In addition, issued patents or patents the Company
licenses could be successfully challenged, invalidated or circumvented so that
its patent rights would not create an effective competitive
barrier.  The Company provides its customers the right to use its
products under label licenses that are for research purposes
only.  These licenses could be contested, and the Company cannot be
assured that it would either be aware of an unauthorized use or be able to
enforce the restrictions in a cost-effective manner.





If a
third party claimed an intellectual property right to technology the Company
uses, it may need to discontinue an important product or product line, alter its
products and processes, defend its right to use such technology in court or pay
license fees.  Although the Company may, under these circumstances,
attempt to obtain a license to such intellectual property, it may not be able to
do so on favorable terms, or at all.  Additionally, if Cambrex’s
products 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
ability to sell certain products or receive licensing revenues.





The
Company could be subject to goodwill impairment charges in the
future.





Under
U.S. GAAP, the Company is required to evaluate goodwill for impairment at least
annually.  If the Company
determines that the fair value is less than the carrying value, an impairment
loss will be recorded in the Company’s
statement of operations.  The determination of fair value is a highly
subjective exercise and can produce significantly different results based on the
assumptions used and methodologies employed.  If the Company’s
projected long-term sales growth rate, profit margins or terminal rate are
considerably lower and/or the assumed weighted average cost of capital is
considerably higher, future testing may indicate impairment and the Company
would have to record a non-cash goodwill impairment loss in its statement of
operations.


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 Table of Contents


Assessments
by various tax authorities may be materially different than the Company has
provided for and it may experience significant volatility 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
proposed assessments.  In recent years, the Company utilized
significant tax attributes in the form of foreign tax credits and U.S. net
operating loss carryforwards to reduce or eliminate potential tax expense
related to the repatriation of funds into the U.S. resulting from the 2005 Jobs
Creation Act and from the sale of the businesses that comprised the Bioproducts
and Biopharma segments in 2007.  While the Company believes that it
has adequately provided for 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 different than it has provided.





The
Company may pursue transactions that may cause it to experience significant
charges to earnings that may adversely affect its stock price and financial
condition.





The
Company regularly reviews potential transactions related to technologies,
products, product rights and businesses complementary to its
business.  These transactions could include mergers, acquisitions,
divestitures, strategic alliances or licensing agreements.  In the
future, the Company may choose to enter into these transactions at any
time.  As a result of acquiring businesses or entering into other
significant transactions, the Company may experience significant charges to
earnings for merger and related expenses.  If the Company is not able
to successfully integrate the acquired business to create the advantages the
acquisition was intended to create, it may affect the Company’s results of
operations and the market price of its common stock.  Furthermore, if
the Company is unable to improve the operating margins of acquired businesses or
operate them profitably, it may be unable to achieve its growth
strategy.





Risks Related to Cambrex’s
Industry





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 Food and Drug Administration (“FDA”) and
comparable regulatory authorities in other countries.  The Company’s
business, as well as its customer’s business depends in part on strict
government regulation of the drug development process.  Legislation
may be introduced and enacted from time to time to modify regulations
administered by the FDA and governing the drug approval process.  Any
significant reduction in the scope of regulatory requirements or the
introduction of simplified drug approval procedures could have a material
adverse effect on the Company’s business.





Violations
of cGMP and other government regulations 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 United States must be operated in
conformity with current Good Manufacturing Practices (“cGMP”) regulations as
required by the FDA and other comparable regulatory authorities in other
countries and for certain products, the Drug Enforcement Agency.  The
Company’s facilities are subject to scheduled periodic regulatory and customer
inspections to ensure compliance with cGMP and other requirements applicable to
such products.  A finding that the Company had materially violated
these requirements could result in regulatory sanctions including, but not
limited to, the FDA withholding approval of new drug applications or supplements
and the denial of entry into the U.S. of products manufactured at non-compliant
foreign facilities, the loss of a customer contract, the disqualification of
data for client submissions to regulatory authorities and a mandated closing of
the Company’s facilities.  Any such violations would have a material
adverse effect on the Company’s business.  Cambrex’s customers are
typically subject to the same, or similar, regulations and any such violations
or other actions by regulatory agencies, including, but not limited to, plant
shutdowns or product recalls that eliminate or reduce the Company’s sale of its
products or services could negatively impact the Company’s
business.





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 Table of Contents





The
outsourcing trend in the preclinical and clinical stages of drug research and
development may decrease, which could slow the Company’s growth.





The
success of the Company’s business depends to a certain extent on the number of
contracts and the size of the contracts that it may obtain from pharmaceutical
companies. Over the past several years, the Company has benefited from increased
levels of outsourcing by pharmaceutical companies of their drug R&D
activities. A slowing of the outsourcing trend could result in a diminished
growth rate in the Company’s sales and adversely affect its business, financial
condition and results of operations.


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 Table of Contents


Item6.
            Exhibits





1.
            Exhibit 31.1 – Section 302 Certification Statement
      of the Chief Executive Officer.


2.
            Exhibit 31.2 – Section 302 Certification Statement
      of the Chief Financial Officer.


3.
            Exhibit 32    – Section 906
      Certification Statements of the Chief Executive Officer and Chief
      Financial Officer.


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 Table of Contents


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





CAMBREX
      CORPORATIONBy
            /s/ Gregory P. SargenGregory
      P. SargenVice
      President and Chief Financial Officer(On
      behalf of the Registrant and as theRegistrant's
      Principal Financial Officer)





Dated:  November
4, 2009






37