Executive Overview

The following significant events occurred during the second quarter of 2012:

· Sales increased 14.3% on a reported basis compared to the second quarter of 2011. Sales, excluding currency impact, increased 20.2%.

· Gross margins increased on a reported basis to 36.9% from 28.2% in the second quarter of 2011. Gross margins, excluding currency impact, increased to 35.4% in the second quarter of 2012.

· Debt, net of cash, decreased $5,050 during the second quarter of 2012.

Critical Accounting Policies

Based on events occurring subsequent to December 31, 2011, the Company is updating certain Critical Accounting Policies disclosed in the Company's 2011 Form 10-K Annual Report.

Income Taxes

The Company applies an asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities, and tax credit carryforwards, on a taxing jurisdiction basis using enacted tax rates in effect for the year in which the differences are expected to reverse or the tax credit carryforwards are expected to be realized. The recoverability of deferred tax assets is dependent upon the Company's assessment that it is more likely than not that sufficient future taxable income of the appropriate character will be generated in the relevant tax jurisdictions to utilize the deferred tax assets. When the Company determines that future taxable income will not be sufficient to utilize the deferred tax assets, a valuation allowance is recorded. The Company's domestic valuation allowances primarily relate to federal foreign tax credits, alternative minimum tax credits, and other net deferred tax balances, excluding deferred tax liabilities on indefinite-lived intangibles, in the U.S. where profitability has been uncertain. The Company's foreign valuation allowances primarily relate to net operating loss carryforwards in foreign jurisdictions with little or no history of generating taxable income or where future profitability is uncertain.

Valuation of Deferred Tax Assets

Future realization of the tax benefits of existing deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character within the reversal, carryback or carryforward periods available under applicable income tax laws. U.S. GAAP requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) such assets will not be realized. The valuation of deferred tax assets requires judgments in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns, and future profits subject to tax by various jurisdictions. The Company's accounting for deferred taxes represents management's best estimate of those future events. Changes in current estimates, due to unanticipated events, could have a material impact on the Company's financial condition and results of operations.

Critical Accounting Policies (continued)

Assumptions and Approach Used in Assessing the Need for a Valuation Allowance

The Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. If, based on the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, the Company records a valuation allowance on all or a portion of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified.

This assessment, which is completed on a taxing jurisdiction basis, takes into account a number of types of evidence, including the following:

· Nature, frequency, and severity of current and cumulative financial reporting losses. A pattern of objectively-measured recent financial reporting losses is heavily weighted as a source of negative evidence. The Company generally considers cumulative pre-tax losses in the three-year period ending with the current quarter to be significant negative evidence regarding future profitability. The Company also considers the strength and trend of earnings, as well as other relevant factors. In certain circumstances, historical information may not be as relevant due to changes in the Company's business operations;

· Sources of future taxable income. Future reversals of existing temporary differences are heavily-weighted sources of objectively verifiable evidence. Projections of future taxable income exclusive of reversing temporary differences are a source of positive evidence only when the projections are combined with a history of recent profits and can be reasonably estimated; and

· Tax planning strategies. Prudent and feasible tax planning strategies that would be implemented to maximize utilization of expiring tax credit carryforwards would be evaluated as a source of additional positive evidence.

Valuation Allowance Assessment

In 2003, the Company's assessment of the need for a valuation allowance against domestic deferred tax assets considered, among other things, current and past performance, cumulative losses in recent years from domestic operations, and a shift in the geographic mix of forecasted income. Considering the pattern of then-recent domestic losses, the Company gave significant weight to projections showing future domestic losses for purposes of assessing the need for a valuation allowance. This assessment resulted in a determination that it was more likely than not that domestic deferred tax assets would not be realized, and as such, a valuation allowance against net domestic deferred tax assets was recorded.

A sustained period of domestic profitability along with expectations of future domestic profitability of sufficient amounts and character is required before the Company would change its judgment regarding the need for a full valuation allowance against net domestic deferred tax assets. The Company currently expects to achieve three-year cumulative domestic pre-tax income by the end of 2012, and expects in the fourth quarter of 2012 to complete an evaluation of its domestic profitability in the future and to consider the weighting to be assigned to these projections.

Although the weight of positive evidence related to cumulative domestic income and projected domestic income is increasing, the Company has determined it does not yet have sufficient positive evidence to support a reversal of the domestic valuation allowance at this time.

Critical Accounting Policies (continued)

However, continued improvement in domestic operating results along with continued expectations of sustainable domestic profitability could lead to a reversal of a significant portion of the Company's domestic valuation allowance by the end of 2012. Until such time, consumption of tax attributes to offset profits may reduce the overall level of deferred tax assets subject to valuation allowance.

At this time, the Company estimates that if domestic profitability is sustained through the end of 2012 and expectations of future domestic profitability can be reasonably estimated, some or all of the domestic valuation allowance attributable to net temporary differences, alternative minimum tax credits, and research and experimentation tax credits could be released by the end of 2012. Additionally, it is possible that some portion of the domestic valuation allowance attributable to federal foreign tax credits could be released, and the Company is currently evaluating what portion, if any, this could be.

At December 31, 2011, the Company's valuation allowance against net domestic deferred tax assets, excluding deferred tax liabilities for indefinite-lived intangibles of $2,349, was $76,569. The Company's domestic deferred tax assets consist of net temporary differences and other deferreds of $18,584, alternative minimum tax credits of $3,070, research and experimentation tax credits of $1,630, and federal foreign tax credits of $50,936.

For each reporting period that Cambrex experiences positive domestic operating results until the valuation allowance is released, the Company expects to have low effective tax rates as tax expense continues to be recorded only for those jurisdictions without valuation allowances. After the domestic valuation allowance reverses the Company expects to experience more normal effective tax rates, approaching the combined statutory tax rates of the jurisdictions in which it operates.

Results of Operations

Comparison of Second Quarter 2012 versus Second Quarter 2011

Gross sales in the second quarter of 2012 of $77,142 were $9,658 or 14.3% higher than the second quarter of 2011. Excluding a 5.9% unfavorable impact of foreign exchange reflecting a stronger U.S. dollar, compared to the second quarter of 2011, sales increased 20.2% as a result of higher volumes sold (22.2%) partially offset by lower pricing (-2.0%). Controlled substances and generic active pharmaceutical ingredients ("APIs") were the main contributors to increased sales in the second quarter of 2012.

The following table reflects sales by geographic area for the three months ended June 30, 2012 and 2011:

Three months ended June 30,

                         2012                 2011

Europe              $       36,999       $       41,848
North America               33,860               19,864
Asia                         3,129                2,190
Other                        3,154                3,582
Total gross sales   $       77,142       $       67,484

Gross margins in the second quarter of 2012 increased to 36.9% from 28.2% in the second quarter of 2011. Excluding a favorable impact from foreign currency, second quarter of 2012 margins increased to 35.4%. Excluding the foreign currency impact, gross margins were positively impacted by increased plant efficiencies resulting from higher production volumes, and favorable product mix partially offset by lower pricing. Lower pricing eroded margins by approximately 1.1% in the second quarter of 2012. Gross profit in the second quarter of 2012 was $28,445 compared to $19,057 in the same period last year.

Results of Operations (continued)

Comparison of Second Quarter 2012 versus Second Quarter 2011 (continued)

Selling, general and administrative ("SG&A") expenses of $11,959 in the second quarter of 2012 increased compared to $9,191 in the second quarter of 2011. The increase is primarily the result of increased personnel related expenses, accruals for higher annual incentive awards, higher expenses related to stock-based compensation as a result of the Company's higher stock price, and higher medical expenses and professional fees. SG&A, as a percentage of gross sales, was 15.5% and 13.6% in the second quarters of 2012 and 2011, respectively.

Research and development ("R&D") expenses of $2,592 were 3.4% of gross sales in the second quarter of 2012, compared to $2,572 or 3.8% of gross sales in the second quarter of 2011. Higher expense was offset by the impact of foreign exchange.

Operating profit in the second quarter of 2012 was $13,894 compared to $7,294 in the second quarter of 2011. As described above, increased profits, primarily driven by higher sales volumes, were partially offset by lower pricing and higher operating expenses.

Net interest expense was $678 in the second quarter of 2012 compared to $605 in the second quarter of 2011. Higher interest expense was driven by higher interest rates partially offset by lower average debt. The average interest rate on debt was 2.3% in the second quarter of 2012 versus 1.5% in the second quarter of 2011. The increase in the interest rate in the second quarter of 2012 is mainly due to the Company's interest rate swaps entered into in the first quarter of 2012 which fixed the interest rate on $60,000 of its variable rate debt.

Equity in losses of partially-owned affiliates of $383 and $303 in the second quarters of 2012 and 2011, respectively, primarily represents the Company's portion of Zenara's net loss. These amounts include amortization expense of $238 and $288, for the second quarters of 2012 and 2011, respectively.

The tax provision from continuing operations in the second quarter of 2012 was $2,889 compared to $1,911 in the second quarter of 2011. The effective tax rate in the second quarter of 2012 was 22.5% compared to 28.7% in the second quarter of 2011. The effective tax rate improved during the quarter due to an increase in profitability in the U.S. where the Company is able to utilize tax attributes to offset domestic tax expense. The Company's effective tax rate has been and is expected to remain highly sensitive to the geographic mix of income.

In 2009, a subsidiary of the Company was examined by a European tax authority, who challenged the business purpose of the deductibility of certain intercompany transactions from 2003, and issued two formal assessments against the subsidiary. In 2010, the Company filed an appeal to litigate the matter. The first court date related to this matter was held in 2011, after which the court issued its ruling in favor of the Company. However, this ruling has been appealed by the tax authorities and only applies to the smaller of the two assessments made by the authorities related to this matter. The first court date for the larger of the two assessments is scheduled for September 2012. The Company still believes this dispute to be in the early stages of the judicial process since any ruling reached by any of the courts may be appealed, and as such the final date of resolution and outcome of this matter are uncertain at this time. However, within the next twelve months it is possible that factors such as new developments, settlements or judgments may require the Company to increase its reserve for unrecognized tax benefits by up to approximately $8,000 or decrease its reserve by approximately $5,200, including interest and penalties. If the court rules against the Company in subsequent court proceedings, an approximate payment of between $6,000 and $9,000, including interest and penalties, will be due immediately while the case is appealed. The Company has analyzed these issues in accordance with guidance on uncertain tax positions and believes at this time that its reserves are adequate, and intends to vigorously defend itself. During the first quarter of 2012, the tax authorities completed a general examination of the subsidiary's 2008 tax return, and issued a small assessment against the

Results of Operations (continued)

Comparison of Second Quarter 2012 versus Second Quarter 2011 (continued)

subsidiary. The assessment, which had already been provided for in the Company's reserves, was settled in April 2012.

Income from continuing operations in the second quarter of 2012 was $9,928, or $0.33 per diluted share, versus $4,757, or $0.16 per diluted share in the same period a year ago.

Comparison of First Six Months of 2012 versus First Six Months of 2011

Gross sales in the first six months of 2012 of $147,701 were $18,563 or 14.4% higher than the first six months of 2011. Excluding a 4.3% unfavorable impact of foreign exchange reflecting a stronger U.S. dollar, compared to the first six months of 2011, sales increased 18.7% as a result of higher volumes sold (20.7%) partially offset by lower pricing (-2.0%). Controlled substances, generic APIs and products utilizing the Company's drug delivery technology were the main contributors to increased sales in the first six months of 2012.

The following table reflects sales by geographic area for the six months ended June 30, 2012 and 2011:

Six months ended June 30,

                        2012               2011

Europe              $      74,540       $   77,407
North America              63,808           40,468
Asia                        4,947            5,809
Other                       4,406            5,454
Total gross sales   $     147,701       $  129,138

Gross margins in the first six months of 2012 increased to 34.4% from 28.3% in the first six months of 2011. Excluding a favorable impact from foreign currency, margins in the first six months of 2012 increased to 33.3%. Excluding the foreign currency impact, gross margins were positively impacted by increased plant efficiencies resulting from higher production volumes, and favorable product mix. Lower pricing eroded margins by approximately 1.2%. Gross profit in the first six months of 2012 was $50,873 compared to $36,512 in the same period last year.

SG&A expenses of $21,919 in the first six months of 2012 increased compared to $18,279 in the first six months of 2011. The increase is primarily the result of higher personnel related expenses, sales and marketing expenses and higher medical expenses. SG&A, as a percentage of gross sales, was 14.8% and 14.2% in the first six months of 2012 and 2011, respectively.

R&D expenses of $4,950 were 3.4% of gross sales in the first six months of 2012, compared to $5,632 or 4.4% of gross sales in the first six months of 2011. The decrease is largely due to the impact of foreign exchange.

Operating profit in the first six months of 2012 was $24,004 compared to $12,601 in the first six months of 2011. As described above, increased profits, primarily driven by higher sales volumes, were partially offset by lower pricing and higher operating expenses.

Results of Operations (continued)

Comparison of First Six Months of 2012 versus First Six Months of 2011
(continued)

Net interest expense was $1,329 in the first six months of 2012 compared to $1,178 in the first six months of 2011. Higher interest expense was driven by higher interest rates partially offset by lower average debt. The average interest rate on debt was 2.1% in the first six months of 2012 versus 1.5% in the first six months of 2011. The increase in the interest rate is mainly due to the Company's interest rate swaps entered into in the first quarter of 2012 which fixed the interest rate on $60,000 of its variable rate debt.

Equity in losses of partially-owned affiliates of $591 in the first six months of 2012 represents the Company's portion of Zenara's loss of $853 and income of $262 related to an investment in a European joint venture. Equity in losses of partially-owned affiliates of $667 in the first six months of 2011 represents the Company's portion of Zenara's loss. Zenara's losses include amortization expense of $494 and $570, for the first six months of 2012 and 2011, respectively.

The tax provision from continuing operations in the first six months of 2012 was $5,094 compared to $3,429 in the first six months of 2011. The effective tax rate in the first six months of 2012 was 23.1% compared to 31.1% in the first six months of 2011. The effective tax rate improved during the first six months due to an increase in profitability in the U.S. where the Company is able to utilize tax attributes to offset domestic tax expense. The Company's effective tax rate has been and is expected to remain highly sensitive to the geographic mix of income.

In 2009, a subsidiary of the Company was examined by a European tax authority, who challenged the business purpose of the deductibility of certain intercompany transactions from 2003, and issued two formal assessments against the subsidiary. In 2010, the Company filed an appeal to litigate the matter. The first court date related to this matter was held in 2011, after which the court issued its ruling in favor of the Company. However, this ruling has been appealed by the tax authorities and only applies to the smaller of the two assessments made by the authorities related to this matter. The first court date for the larger of the two assessments is scheduled for September 2012. The Company still believes this dispute to be in the early stages of the judicial process since any ruling reached by any of the courts may be appealed, and as such the final date of resolution and outcome of this matter are uncertain at this time. However, within the next twelve months it is possible that factors such as new developments, settlements or judgments may require the Company to increase its reserve for unrecognized tax benefits by up to approximately $8,000 or decrease its reserve by approximately $5,200, including interest and penalties. If the court rules against the Company in subsequent court proceedings, an approximate payment of between $6,000 and $9,000, including interest and penalties, will be due immediately while the case is appealed. The Company has analyzed these issues in accordance with guidance on uncertain tax positions and believes at this time that its reserves are adequate, and intends to vigorously defend itself. During the first quarter of 2012, the tax authorities completed a general examination of the subsidiary's 2008 tax return, and issued a small assessment against the subsidiary. The assessment, which had already been provided for in the Company's reserves, was settled in April 2012.

Income from continuing operations in the first six months of 2012 was $16,966, or $0.57 per diluted share, versus $7,612, or $0.26 per diluted share in the same period a year ago.

Liquidity and Capital Resources

During the first six months of 2012, cash provided by operations was $15,507 versus $13,466 in the same period a year ago. The increase in cash flows provided by operations in the first six months of 2012 compared to the first six months of 2011 was largely due to higher net income and lower pension contributions in the first six months of 2012 partially offset by increased inventory production, slower collections of accounts receivable and higher environmental remediation payments related to discontinued operations.

Liquidity and Capital Resources (continued)

Cash flows in the first six months of 2012 related to capital expenditures were $6,884 compared to $4,690 in 2011. The majority of the funds in 2012 and 2011 were used for capital improvements to existing facilities.

Cash flows used in financing activities in the first six months of 2012 were $17,902 compared to cash flows provided by financing activities of $168 in the same period a year ago. The cash outflows in 2012 were used to pay down the Company's credit facility.

As a result of the items described above, cash and cash equivalents decreased $10,094 in the first six months of 2012.

In November 2011, the Company entered into a $250,000 five-year Syndicated Senior Revolving Credit Facility ("Credit Facility"), which expires in November 2016. The Company pays interest on this Credit Facility at LIBOR plus 1.75% - 2.50% based upon certain financial measurements. The Credit Facility also includes financial covenants regarding interest coverage and leverage ratios.

The Company was in compliance with all financial covenants at June 30, 2012.

In March 2012, the Company entered into an interest rate swap with a notional value of $60,000, at a fixed rate of 0.92%, maturing in September 2015. The Company's strategy has been to cover a portion of its outstanding floating rate debt with fixed interest rate protection. At June 30, 2012 the Company had floating rate debt of $80,000, of which $60,000 is fixed by an interest rate swap.

The Company believes that cash flows from operations, along with funds available from the 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.

The Company's forecasted cash flow from future operations may be adversely affected by various factors including, but not limited to, declines in customer demand, increased competition, the deterioration in general economic and business conditions, increased environmental remediation, returns on assets within the Company's domestic pension plans that are significantly below expected performance, as well as other factors. See the "Risk Factors" section of the Company's Annual Report on Form 10-K for the period ended December 31, 2011 for further explanation of factors that may negatively impact the Company's cash flows. Any change in the current status of these factors could adversely impact the Company's ability to fund operating cash flow requirements.

Impact of Recent Accounting Pronouncements

Fair Value Measurement

In May 2011, the FASB issued "Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements" that established a framework for how to measure fair value and the disclosures required about fair value measurements. The updated guidance is largely consistent with fair value measurement principles that existed prior to the update and became effective on January 1, 2012. The effect of adopting this update did not have a material impact on the Company's financial position or results of operations.

Impact of Recent Accounting Pronouncements (continued)

Comprehensive Income

In June 2011, the FASB issued "Comprehensive Income - Presentation of Comprehensive Income." This amendment gives companies two options for presenting other comprehensive income ("OCI"). An OCI statement can be included with the income statement, which together will make a statement of total comprehensive income. Alternatively, companies can have an OCI statement separate from an income statement, but the two statements will have to appear consecutively within a financial report. This amendment is effective for fiscal quarters and years beginning after December 15, 2011. The effect of adopting this amendment did not have an impact on the Company's financial position or results of operations.

Testing Goodwill for Impairment

In September 2011, the FASB issued "Intangibles-Goodwill and Other: Testing Goodwill for Impairment" to simplify the goodwill impairment test. The change allows companies to first decide whether they need to do the two-step test by allowing companies to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A business no longer has to calculate the fair value of a reporting unit unless it believes it is very likely that the unit's fair value is less than the value carried on the balance sheet. This amendment also includes examples of how the amended test should be carried out. This amendment is effective for annual and interim tests performed for fiscal years beginning after December 15, 2011. The effect of adopting this statement did not have an impact on the Company's financial position or results of operations.