Welcome to the West Pharmaceutical Services second quarter 2012 conference call. [Operator Instructions] This call is being recorded on behalf of West and is copyrighted material; it cannot be rerecorded or rebroadcast without the company's express permission. Your participation in this call implies your consent to our taping. If you have any objection, you may disconnect at this time. And now, I'd like to turn today's meeting over to Mr. John Woolford from Westwicke Partners.

Thank you, Operator. Good morning everyone, and welcome to West's second quarter 2012 results conference call. We issued our financial results this morning and the release has been posted in the Investors section on the company's website located at www.westpharma.com. If you have not received a copy of this announcement, please call Westwicke Partners at (443) 213-0500 and a copy will be sent to you immediately. Posted on the company's website is a slide presentation that management will refers to in their remarks today. The presentation is in PDF format. Should you require it, a link to a free download of software that will enable users to view the presentation is also available on the website. I remind you that statements made by management on this call and in the presentation will contain forward-looking statements within the meaning of the U.S. Federal Securities Law and that are based on management's beliefs and assumptions, current expectations, estimates and forecast. Statements that are not historical facts, including statements that are preceded by, followed by, or that include words such as estimate, expect, intend, believe, plan, anticipate and other words in terms of similar meaning are forward-looking statements. West's estimated or anticipated future results, product performance or other non-historical facts are forward-looking and reflect our current perspective on existing trends and information. Many of the factors that will determine the company's future results are beyond the ability of the company to control or predict. These statements are subject to known or unknown risks or uncertainties, and therefore, actual results could differ materially from past results and those expressed or implied in any forward-looking statement. You should bear this in mind as you consider forward-looking statements. For a non-exclusive list of factors, which could cause actual results to differ from expectations, please refer to today's press release. Investors are also advised to consult any further disclosures the company makes on related subjects in the company's 10-K, 10-Q and 8-K reports. Except as required by applicable securities law, the company undertakes no obligation to publicly update forward-looking statements whether as a result of new information, future events or otherwise. In addition, during today's call management may make reference to non-GAAP financial measures including adjusted operating profits and adjusted diluted EPS. These measures and their component parts have no standardized meaning prescribed by U.S. GAAP and therefore, may not be comparable to, and should not be viewed as a substitute for, U.S. GAAP operating income and diluted EPS. Reconciliations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in materials accompanying this morning's earnings release. At this time, I'd like to turn the call over to Don Morel, West's Chairman and CEO. Don?

Thanks you very much, John, and good morning everyone. Welcome to West's second quarter 2012 conference call. I'm joined this morning by Bill Federici, our Chief Financial Officer; and Mike Anderson, our Treasurer and primary Investor Relations contact. As a reminder, we will refer to the slides that John mentioned in our prepared remarks this morning. The slides can be found through our website www.westpharma.com, under Investors. However, if you have difficulty accessing the files, the content of those files is covered both in this morning's release and in our commentary. As we presented in our April call, 2012 started strongly and indeed that momentum has carried through the second quarter. For the last 3 months, as highlighted on Slide 3 and in the release, West generated record consolidated sales of $324.8 million, representing a 5.5% growth at actual rates or 11.3% excluding the effects of currency exchange versus the second quarter of 2011. Our sales growth resulted from a favorable product mix and when combined with pricing actions from earlier in the year improved by operating efficiencies and lean initiatives, our gross margin improved by 2.9 percentage points to 30.4%. Although SG&A rose moderately, second quarter adjusted operating income was $39.5 million, yielding very strong quarterly adjusted diluted earnings per share of $0.79. Order patterns remain favorable with approximately 85% of expected third quarter production booked and our confirmed backlog remains at a very healthy $305 million, approximately 10% higher than the same period in 2011. As a result of our strong first half and our visibility into demand for the next 6 months, we are increasing our full year adjusted EPS guidance to $2.60 to $2.70 per share. Even with a headwind of the strengthening dollar and an assumed euro conversion rate of $1.22 for the remainder of…

Thank you, Don, and good morning, everyone. We issued our second quarter results this morning, reporting net income of $15.6 million or $0.45 per diluted share versus the $0.57 per diluted share we reported in the second quarter of 2011. Excluding the effects of special items like the quarter's -- current quarter's debt extinguishment loss and impairment charge, and the smaller restructuring in acquisition earn out adjustment, second quarter 2012 earnings were $0.79 per diluted share versus $0.62 we earned in Q2 2011, a net increase of 27%. Those non-GAAP measures are detailed on Slides 13 to 15. The net effect of our debt refinancing activity is expected to be accretive to earnings per diluted share in future periods by eliminating the dilutive effect of the underlying 2.9 million shares associated with the tendered convertible debt. Our current guidance indicates 2012 accretion of approximately $0.04 to $0.05 per share based on unexpected results. Turning to sales, Slide 6 shows the components of our consolidated sales increase. Consolidated second quarter sales were at record $324.8 million, an increase of 11.3% over second quarter 2011, excluding exchange effects. The favorable mix and pricing added sales of $35 million in the current quarter. Packaging System sales increased by $29 million or 13.1% over same quarter 2011 sales excluding exchange effects. Our favorable sales mix and modest volume increases accounted for 8.6 percentage point to the increase. Sales price increases in Packaging Systems contributed the remainder of the increase. Sales growth in our high value products increased 28% versus the prior-year quarter excluding exchange. Our Q2 2012 sales comparisons to the prior-year period continued to benefit from our customers product launch, customer inventory management actions and activities, in advance of customer product and plant relocations. In addition, the sales price increase in the first…

Thanks very much, Bill. This concludes our remarks for this morning. And we now will be pleased to answer any questions you might have.

[Operator Instructions] Our first question comes from Arnold Ursaner from CJS Securities.

First question is a simple one for Bill, with given the timing of the convert, what was your end of quarter share count or how should we think about share count on a go forward basis?

That's -- you remember what -- at the end of the quarter, we had the converts added there. So you would have 2.9 million less shares, but you have the weighted average debt, so the convert shares were outstanding for about 170 days or so. And there are not going to be included for about just under 200 days. So when you think about it, you should use for the full year about 35.8 million shares versus what it would be if we had left them outstanding for the whole year, about 37.3 million shares.

And embedded in your press release, you talked about a $3.8 million of income recognized in connection with the development of a proprietary product. The couple of questions about that which area is that in? Is that in delivery?

Yes.

I know you're probably constrained about how much you can tell us, but is it a one-time or is it something where there will be some legs related to it?

There will more feeds, milestones et cetera associated with that development agreement.

And you can appreciate, Arnold, many of the development agreements that are customer funded are task related, so that there will be some lumpy revenues for delivery as we forward.

Is there any more built in the back half of the year for that?

For that program, yes.

There is a small amount built into that for the fourth quarter.

Similar to what you had this quarter?

Less than that.

And going back to in Q1, you had highlighted a pretty sizeable delivery at high margin for a customer launch. Did you also have one in Q2?

The continuing effects continued into Q2 for that same launch.

But there was not a second product launch that was introduced.

It is the same one and the impact of it was felt in Q1, but continued into Q2.

Little different question for Don, your leading competitor was acquired recently. Can you comment on how do you think it may change industry dynamics?

There are actually kind of number 3. I assume you're referring to Aptar's acquisition of Stelmi?

Correct.

Clearly, Aptar has made a strategic decision to look at the injectable market. It compliments their existing pharmaceutical business on the pulmonary side. They have a very strong franchise in valves for metered dose inhalers. It bears watching, certainly they are going to invest and try and grow that business. Any effects will probably not be seen, for I would guess, a period of maybe 3 to 5 years because of the regulatory mode around the business.

[Operator Instructions] Our next question comes from Ross Taylor from C.L. King.

I just had a couple of really simple questions. The $3.8 million, I just wanted to make sure I understood or heard that that's kind of more of a milestone type of payment?

It's actually a payment for developing cost that we had incurred during the year.

And how much of the customer inventory stocking is kind of completed at this point, or how much might it impact revenue during the second half?

I think it's difficult to put a quantitative handle on that, Ross. It's been mostly into disposable device of that. We've seen it creep over into the pharma side. Our expectation it's likely to tailor off.

And my last question, I just wanted to clarify a number that Bill, gave out towards the end of his prepared remarks, but I think he mentioned the expected 8% to 11% organic growth, on a kind of normalized basis excluding some of these inventory?

No. You see that's the total number excluding exchange rate to 11%, Ross. And included in that number is about 3% to 4% of those things you talked about, the special kind of non-normal run rate issues. We look at it and we say, we're somewhere between 5% and 7% normalized growth.

We have Arnold Ursaner online with CJS Securities with the follow-up.

I guess my question go in fact to what I was asking before, to the extent I would add back -- or I'm sorry, subtract out the $3.8 million one-time income from the delivery area. Your margin there was dramatically lower than you've been running. I know you mentioned a lot of contract manufacturing, so first of all am I on the right track that it would been much lower ex that? And then speak to the 80% of contract, are you winding down previous contracts you had? And are you in fact, finding some offsets that we should think about for next year to fill it in at hopefully better margin?

Let me take the first part of your question. Arnie, if you take the $3.8 million now, you'd also have to take out the expenses that were incurred during the year that this was a reinvestment of. So yes, when you say it's a one-time reimbursement of prior development cost incurred. So you'd have to take nearly both of them out and you'd end up somewhere close to the same number. But your general comments about it being less of a favorable mix and therefore less profitable, is true. That is in fact the case, our proprietary device sales were 20% of total which is equivalent to what it was in the prior year. But some of those proprietary devices were at the lower end of the proprietary device margin scale. So they weren't nearly as profitable as, say, the CZ was and as you know CZ was short about $200,000 compared to the prior-year quarter. So those all things added together, the number isn't terribly, dramatically different from what we have here. But there was an impact from that $3.8 million.

But Bill, you had the expenses in the different period?

They were in the first and second quarter. Some of that was incurred in 2011, but again not all of it.

The second part of your question Arnie is that, we haven't necessarily deemphasized the contract part of the business. It happens to be growing very robustly this year. Customer demand in the assemble devices, that we're doing has been very, very strong. So that's actually rising a little bit faster than sales on the proprietary side. And because proprietary is a lot lower, that the ratio was maintained at that 80-20 kind of level. If you recall, when we talked about our 5 year plan at the Investor Day, our expectation was, once the validation and stability is done on many of the proprietary systems, when you get into the mid-14, mid-15 timeframe, you start to get a dramatic shift in that ratio with a proprietary increasing.

Just clarify a couple questions on the backlog. I want to make sure I have the number right. Was it $305 million or $320 million of backlog?

$305 million.

And again, if it's reflecting the changing in currencies and your volume embedded in that backlog is growing quite dramatically, is that correct?

No. The volume is actually is showing fairly modest growth. What you're seeing a lot of the effect of mix where you've got a very high demand for the higher value products and also the effect of price.

And going back to your 28% growth in high-value products, that's a very sizeable number. And I guess, the question I have is, you did show good margin improvement, but what are the offsets? Why wouldn't you -- if the margins on your high-value products are double or triple of the lower margin products, I'm surprised you wouldn't have had even stronger margin performance. What's holding it back?

You're talking about gross margin. We can answer that for you. I mean, there are increased costs associated with our, raw materials were up in the Packaging Systems space, 1.2 margin points. And you had currency running the other way from you. And you had general inflationary cost, so a full 4 margin point increase in Packaging Systems margins already is pretty spectacular. And we're very happy with it, yes. When you think about, if you just took the margin differential between the standard products and high value product, you're absolutely right. It's roughly closing in on being double. But you do have to take into consideration the raw material price increases and other general inflationary increases as an offset.

Your next question comes from Alanna Crank from Barclays.

It's Alanna Crank for Lara Marsh's [ph] team here at Barclays. Just a quick question on the recent agreement you announced that Amgen back in June. Have you guys received any additional feedback from manufacturers of the result or any additional interest in the CZ product?

CZ interest is really being driven by general market conditions. We can't comment further on the Amgen agreement. But if you follow what's happening, generally within our space in injectables, concerns about delamination of glass and about breakage, are getting more and more attention. So I think generally the market is taking a look at alternatives to glass in a broader sense, and that's where we see the interest.

Also with NovaPure being a relatively recent launch, when you think about where you are now with that launch versus where we saw you back at your Analyst Day, where are guys versus your original expectations? Are customers seeing the value proposition there despite the higher prices?

The time lag has been relatively short since the Investor Day. The feedback that we're hearing is very, very positive, but again to make these switches does not happen overnight, because of the regulatory requirements. But we do believe when we look at the uptick [ph] of Westar at 10 years ago, that NovaPure will in large part follow that trajectory. So over the next 6 to 24 months, we think we're going to see increases.

That was our last question. And now I will turn the call over to Don Morel for his closing comments.

Thank you very much operator, and thanks everyone for your time this morning. We look forward to talking with you again in early November when we provide our third quarter results and an early look into our revenue expectations for 2013. Thanks very much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.