OVERVIEW

The following discussion is intended to further the reader's understanding of the consolidated financial condition and results of operations of our Company. It should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and accompanying notes included in our 2011 Annual Report. These historical financial statements may not be indicative of our future performance. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks discussed in Part I, Item 1A of our 2011 Annual Report and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Throughout this section, references to "Notes" refer to the footnotes to our condensed consolidated financial statements (unaudited) in Part I, Item 1 of this Quarterly Report on Form 10-Q, unless otherwise indicated.

Our Operations

Our business operations are organized into two reportable segments, which are aligned with the underlying markets and customers they serve. Our reportable segments are the Pharmaceutical Packaging Systems segment ("Packaging Systems") and the Pharmaceutical Delivery Systems segment ("Delivery Systems"). Packaging Systems develops, manufactures and sells primary packaging components and systems for injectable drug delivery, including stoppers and seals for vials, closures and other components used in syringe, intravenous and blood collection systems, and prefillable syringe components. Delivery Systems develops, manufactures and sells safety and administration systems, multi-component systems for drug administration, and a variety of custom contract-manufacturing solutions targeted to the healthcare and consumer-products industries. In addition, Delivery Systems is responsible for the continued development and commercialization of our line of proprietary, multi-component systems for injectable drug administration and other healthcare applications. We also maintain global partnerships to share technologies and market products with affiliates in Japan and Mexico.

Second Quarter 2012 Financial Performance Highlights

· Net sales were $324.8 million, an increase of 5.5% from the same period in 2011.

· Gross profit was $98.7 million, an increase of 16.7% from the same period in 2011, and our gross margin increased by 2.9 percentage points.

· Operating profit was $35.6 million, an increase of 28.1% from the same period in 2011.

· Net income was $15.6 million, a decrease of 22.4% from the same period in 2011.

We achieved higher net sales in both the Packaging Systems and Delivery Systems segments during the three months ended June 30, 2012, as compared to the same period in 2011. The overall sales growth was primarily the result of continued increases in pharmaceutical packaging sales due to customer product launches and validation activity. Net sales originating in the United States were $152.7 million, an increase of 8.9% from the same period in 2011, reflecting higher domestic demand for pharmaceutical packaging components. Net sales generated outside of the United States were $172.1 million, an increase of 2.6% from the same period in 2011, which reflected higher demand in Europe and continued growth in the Asia-Pacific region. Excluding the unfavorable effects from currency translation, our non-U.S. net sales increased 13.3% and our consolidated net sales increased 11.3% from the same period in 2011.

Gross profit increased by $14.1 million during the three months ended June 30, 2012, as compared to the same period in 2011, primarily due to a favorable mix of products and sales volume, sales price increases, and improved production efficiencies, all of which were partially offset by the impact of increased raw material costs and wage, benefit and other cost increases.

Operating profit improved by $7.8 million during the three months ended June 30, 2012, as compared to the same period in 2011, primarily due to the increase in gross profit described above and a decrease in restructuring and other items, both of which were partially offset by increases in R&D and SG&A costs.

Net income decreased by $4.5 million, or $0.12 per diluted share, during the three months ended June 30, 2012, as compared to the same period in 2011, primarily due to a loss on debt extinguishment of $11.6 million, or $0.27 per diluted share, related to our repurchase of $158.4 million in aggregate principal amount of our Convertible Debentures, representing 98.06% of the outstanding principal amount of Convertible Debentures. Funding for the transaction was provided under our revolving credit facility during the month of June 2012. In July 2012, we concluded a private placement issuance of $168.0 million in senior unsecured notes, in order to provide longer-term financing and to reduce the borrowings under our revolving credit facility. For future periods, we expect the refinancing of our Convertible Debentures to be accretive to earnings, as a result of the elimination of the dilution to earnings per share that would have occurred upon conversion. See Note 7, Debt, for further discussion.

RESULTS OF OPERATIONS

We evaluate the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, adjustments to annual incentive plan expense for over- or under-attainment, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that management considers not representative of ongoing operations. Such items are referred to as other unallocated items and generally include restructuring and related charges, certain asset impairments and other specifically-identified income or expense items.

For the purpose of aiding the comparison of our year-over-year results, we often refer to net sales and other financial results excluding the effects of changes in foreign currency exchange rates. The constant-currency amounts are calculated by translating the current year's functional currency results at the prior-year period's exchange rate. These re-measured results excluding effects from currency translation are not in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") and should not be used as a substitute for the related U.S. GAAP financial measures. The non-U.S. GAAP financial measures are incorporated into our discussion and analysis as management uses them in evaluating our results of operations, and believes that this information provides users a valuable insight into our results.

Percentages in the following tables and throughout the Results of Operations section may reflect rounding adjustments.

Net Sales

The following table presents net sales, consolidated and by reportable segment:

                           Three Months Ended          Six Months Ended
                                June 30,                   June 30,
($ in millions)             2012          2011         2012         2011
Packaging Systems        $    235.8      $ 222.2     $   471.5     $ 438.0
Delivery Systems               89.2         86.4         169.9       166.9
Intersegment sales             (0.2 )       (0.7 )        (0.3 )      (1.6 )
Consolidated net sales   $    324.8      $ 307.9     $   641.1     $ 603.3

Consolidated net sales increased by $16.9 million, or 5.5%, for the three months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $17.9 million. Excluding foreign currency effects, net sales for the three months ended June 30, 2012 increased by $34.8 million, or 11.3%, as compared to the same period in 2011. A favorable mix of products and sales volume contributed 7.9 percentage points of the increase and sales price increases contributed 3.4 percentage points of the increase.

Consolidated net sales increased by $37.8 million, or 6.3%, for the six months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $23.9 million. Excluding foreign currency effects, net sales for the six months ended June 30, 2012 increased by $61.7 million, or 10.2%, as compared to the same period in 2011. A favorable mix of products and sales volume contributed 7.2 percentage points of the increase and sales price increases contributed 3.0 percentage points of the increase.

Packaging Systems - Packaging Systems' net sales increased by $13.6 million, or 6.1%, for the three months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $15.5 million. Excluding foreign exchange effects, net sales for the three months ended June 30, 2012 increased by $29.1 million, or 13.1%, as compared to the same period in 2011. A favorable mix of products and sales volume contributed 8.6 percentage points of the increase, and sales price increases contributed 4.5 percentage points of the increase. During the three months ended June 30, 2012, there continued to be strong growth in sales of our high-value pharmaceutical packaging products, including Westar®-processed and coated closures, FluroTec™-coated closures, the Envision™ line of vision-inspected components, and Daikyo and Daikyo RSV (ready-to-sterilize validated) products.

Packaging Systems' net sales increased by $33.5 million, or 7.6%, for the six months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $20.6 million. Excluding foreign exchange effects, net sales for the six months ended June 30, 2012 increased by $54.1 million, or 12.4%, as compared to the same period in 2011. A favorable mix of products and sales volume contributed 8.5 percentage points of the increase, and sales price increases contributed 3.9 percentage points of the increase. The same factors that drove the increase for the three months ended June 30, 2012 contributed to the growth for the six months ended June 30, 2012.

Delivery Systems - Delivery Systems' net sales increased by $2.8 million, or 3.3%, for the three months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $2.4 million. Excluding foreign exchange effects, net sales for the three months ended June 30, 2012 increased by $5.2 million, or 6.1%, as compared to the same period in 2011. The majority of the sales increase reflects lower margin tooling revenue for contract manufacturing customers in Europe. Sales price increases contributed 0.8 percentage points of the increase.

Delivery Systems' net sales increased by $3.0 million, or 1.8%, for the six months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $3.3 million. Excluding foreign exchange effects, net sales for the six months ended June 30, 2012 increased by $6.3 million, or 3.8%, as compared to the same period in 2011. The majority of the sales increase reflects lower margin tooling revenue for contract manufacturing customers in Europe. During the six months ended June 30, 2012, our contract manufacturing sales increased, as well as sales of the eris safety syringe system, our drug reconstitution devices, and the SmartDose electronic patch injector system, as compared to the same period in 2011, while Daikyo Crystal Zenith® ("CZ") and consumer product sales decreased. Sales price increases contributed 0.8 percentage points of the increase.

The intersegment sales elimination, which is required for the presentation of consolidated net sales, represents the elimination of components sold between our segments.

Gross Profit

The following table presents gross profit and related gross margins,
consolidated and by reportable segment:

                              Three Months Ended          Six Months Ended
                                   June 30,                   June 30,
($ in millions)               2012           2011         2012         2011
Packaging Systems:
Gross Profit                $    82.7       $  69.2     $   167.9     $ 142.4
Gross Margin                     35.1 %        31.1 %        35.6 %      32.5 %
Delivery Systems:
Gross Profit                $    16.0       $  15.4     $    31.9     $  30.2
Gross Margin                     17.9 %        17.9 %        18.8 %      18.1 %
Consolidated Gross Profit   $    98.7       $  84.6     $   199.8     $ 172.6
Consolidated Gross Margin        30.4 %        27.5 %        31.2 %      28.6 %

Consolidated gross profit increased by $14.1 million, or 16.7%, for the three months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $5.1 million. Consolidated gross margin increased by 2.9 percentage points for the three months ended June 30, 2012, as compared to the same period in 2011, primarily as a result of a favorable mix of products and sales volume, and sales price increases, all of which increased the consolidated gross margin by 3.7 percentage points. Improved production efficiencies also increased our consolidated gross margin by 0.8 percentage points. These favorable items were partially offset by the impact of increased raw material costs, which reduced our consolidated gross margin by 0.9 percentage points, and wage, benefit and other cost increases, which reduced our consolidated gross margin by 0.7 percentage points.

Consolidated gross profit increased by $27.2 million, or 15.8%, for the six months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $6.9 million. Consolidated gross margin increased by 2.6 percentage points for the six months ended June 30, 2012, as compared to the same period in 2011, primarily as a result of a favorable mix of products and sales volume, and sales price increases, all of which increased the consolidated gross margin by 4.0 percentage points. Improved production efficiencies also increased our consolidated gross margin by 0.5 percentage points. These favorable items were partially offset by the impact of increased raw material costs, which reduced our consolidated gross margin by 1.1 percentage points, and wage, benefit and other cost increases, which reduced our consolidated gross margin by 0.8 percentage points.

Packaging Systems - Packaging Systems' gross profit increased by $13.5 million, or 19.5%, for the three months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $4.9 million. Packaging Systems' gross margin increased by 4.0 percentage points for the three months ended June 30, 2012, as compared to the same period in 2011, primarily as a result of sales price increases and a favorable sales mix, reflecting the success of high-value product offerings, all of which increased Packaging Systems' gross margin by 5.2 percentage points. Improved production efficiencies also increased Packaging Systems' gross margin by 0.5 percentage points. These favorable items were partially offset by the impact of increased raw material costs and increased wages, benefits and other costs, which reduced Packaging Systems' gross margin by 1.2 percentage points and 0.5 percentage points, respectively.

Packaging Systems' gross profit increased by $25.5 million, or 17.9%, for the six months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $6.6 million. Packaging Systems' gross margin increased by 3.1 percentage points for the six months ended June 30, 2012, as compared to the same period in 2011, primarily as a result of a favorable mix of products and sales price increases, all of which increased Packaging Systems' gross margin by 5.0 percentage points. Improved production efficiencies also increased Packaging Systems' gross margin by 0.2 percentage points. These favorable items were partially offset by the impact of increased raw material costs and increased wages, benefits and other costs, which reduced Packaging Systems' gross margin by 1.5 percentage points and 0.6 percentage points, respectively.

Delivery Systems - Delivery Systems' gross profit increased by $0.6 million, or 3.9%, for the three months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $0.2 million. Delivery Systems' gross margin remained constant at 17.9%, as the impact of improved production efficiencies, which increased Delivery Systems' gross margin by 1.8 percentage points, was offset by the mix of products sold and the impact of wage, benefit and other cost increases, both of which decreased Delivery Systems' gross margin by 0.9 percentage points, respectively.

Delivery Systems' gross profit increased by $1.7 million, or 5.6%, for the six months ended June 30, 2012, as compared to the same period in 2011, despite an unfavorable foreign exchange impact of $0.3 million. Delivery Systems' gross margin increased by 0.7 percentage points, for the six months ended June 30, 2012, as compared to the same period in 2011, primarily as a result of improved production efficiencies, which increased Delivery Systems' gross margin by 1.3 percentage points. The mix of products sold and sales price increases also increased Delivery Systems' gross margin, by 0.2 percentage points. All of these favorable items were partially offset by the impact of wage, benefit and other cost increases, which reduced Delivery Systems' gross margin by 0.8 percentage points.

Research and Development ("R&D") Costs

Three Months Ended Six Months Ended June 30, June 30, ($ in millions) 2012 2011 2012 2011

R&D costs $ 8.2 $ 7.3 $ 16.5 $ 14.2

R&D costs increased by $0.9 million, or 12.3%, and $2.3 million, or 16.2%, for the three and six months ended June 30, 2012, respectively, as compared to the same periods in 2011, primarily as a result of development work on the SmartDose electronic patch injector system.

Selling, General and Administrative ("SG&A") Costs

                             Three Months Ended          Six Months Ended
                                  June 30,                   June 30,
($ in millions)              2012           2011          2012         2011

SG&A costs                 $    54.4       $  46.4     $    105.7     $ 97.1
SG&A as a % of net sales        16.8 %        15.1 %         16.5 %     16.1 %

SG&A costs increased by $8.0 million, or 17.2%, for the three months ended June 30, 2012, as compared to the same period in 2011, primarily due to increases in incentive compensation costs, stock-based compensation expense and the U.S. pension expense, all of which were partially offset by foreign currency translation effects, which decreased SG&A costs by $1.8 million. The increase in incentive compensation costs resulted from our current achievement expectations related to our incentive plan, and the increase in stock-based compensation expense was primarily due to the impact of higher share prices on our deferred compensation plan liabilities, which are indexed to our share price. SG&A costs also increased during the three months ended June 30, 2012, as compared to the same period in 2011, due to annual wage increases.

SG&A costs increased by $8.6 million, or 8.9%, for the six months ended June 30, 2012, as compared to the same period in 2011, primarily due to increases in incentive compensation costs, stock-based compensation expense and the U.S. pension expense, all of which were partially offset by foreign currency translation effects, which decreased SG&A costs by $2.3 million. The increase in incentive compensation costs resulted from our current achievement expectations related to our incentive plan, and the increase in stock-based compensation expense was primarily due to the impact of higher share prices on our deferred compensation plan liabilities, which are indexed to our share price. SG&A costs also increased during the six months ended June 30, 2012, as compared to the same period in 2011, due to annual wage increases.

Restructuring and Other Items

Other income and expense items, consisting primarily of gains and losses on the sale of fixed assets, foreign exchange transaction gains and losses, and miscellaneous income, are generally recorded within segment or corporate results. Certain restructuring, impairments and other specifically-identified gains and losses considered outside of the control of segment management are not allocated to our segments.

The following table presents restructuring charges and other income and expense items for our segments, and corporate and other unallocated items:

                                                 Three Months Ended              Six Months Ended
                                                      June 30,                       June 30,
($ in millions)                                 2012             2011           2012           2011
Segments                                     $     (3.4 )     $      0.5     $     (4.2 )    $     0.3
Corporate and other unallocated items:
Corporate                                             -             (0.1 )            -           (0.1 )
Restructuring and related charges                   0.3              1.3            0.7            3.2
Impairment charge                                   3.4                -            3.4              -
Special separation benefits                           -              2.1              -            2.1
Acquisition-related contingencies                   0.2             (0.7 )          0.4           (0.7 )
Consolidated restructuring and other items   $      0.5       $      3.1     $      0.3      $     4.8

The majority of the segments' other income and expense items for the three and six months ended June 30, 2012 was attributable to services provided to, and the reimbursement of certain costs from, a Delivery Systems' customer. The majority of the segments' other income and expense items for the three and six months ended June 30, 2011 was attributable to foreign exchange transaction losses experienced by our subsidiaries on non-functional currency trade obligations.

Restructuring and related charges - During the three and six months ended June 30, 2012, we incurred restructuring and related charges of $0.3 million and $0.7 million, respectively, associated with the restructuring plan announced in December 2010. Charges incurred during the three and six months ended June 30, 2012 were primarily facility closure costs associated with the 2011 closure of a plant in the United States and a reduction of operations at a manufacturing facility in England. During the three and six months ended June 30, 2011, we incurred restructuring and related charges of $1.3 million and $3.2 million, respectively, associated with the restructuring plan announced in December 2010. Charges incurred during the three and six months ended June 30, 2011 were primarily for employee severance and benefits, as well as asset transfer and facility closure costs. We currently expect to incur additional charges related to the 2010 plan of approximately $1.2 million during the remainder of 2012.

Impairment charge - During the second quarter of 2012, as a result of continuing delays and lower-than-expected demand, we updated the sales projections related to one of our Delivery Systems' product lines. The revised projections triggered an impairment review of the associated assets. Our review concluded that the estimated fair value of the product line no longer exceeded the carrying value of the related assembly equipment and intangible asset and, therefore, an impairment charge of $3.4 million was recorded during the second quarter of 2012. We estimated the fair value of the asset group using an income approach based on discounted cash flows.

Special separation benefits - During the three and six months ended June 30, 2011, we incurred $2.1 million in special separation benefits related to the retirement of our former President and Chief Operating Officer. These costs consisted primarily of stock-based compensation expense. The respective equity compensation arrangements were amended to allow certain of his awards to continue to vest over the original vesting period instead of being forfeited upon separation, resulting in a revaluation of the awards and acceleration of expense.

Acquisition-related contingencies - During the three and six months ended June 30, 2012, we increased the SmartDose contingent consideration by $0.2 million and $0.4 million, respectively, due to accretion expense. During the three and six months ended June 30, 2011, we reduced the eris contingent consideration by $0.8 million, bringing the liability balance to zero at June 30, 2011. This reduction reflects our assessment that none of the contractual operating targets will be achieved over the earnout period, which ends in 2014. Partially offsetting this reduction was accretion expense related to the SmartDose contingent consideration.

See Note 2, Restructuring and Other Items, for further discussion.

Operating Profit

The following table presents operating profit by reportable segment, corporate
and other unallocated costs:

                                           Three Months Ended          Six Months Ended
                                                June 30,                   June 30,
($ in millions)                             2012          2011         2012         2011
Segments:
Packaging Systems                        $     50.5      $  38.1     $   104.1     $  80.1
Delivery Systems                                5.5          2.4           7.8         4.2
Corporate and other unallocated items:
Corporate                                     (16.5 )      (10.0 )       (30.1 )     (23.2 )
Other unallocated expense                      (3.9 )       (2.7 )        (4.5 )      (4.6 )
Consolidated operating profit            $     35.6      $  27.8     $    77.3     $  56.5

Consolidated operating profit increased by $7.8 million, or 28.1%, for the three months ended June 30, 2012, despite an unfavorable foreign exchange impact of $3.2 million. Consolidated operating profit increased for the three months ended June 30, 2012 primarily due to the increase in consolidated gross profit described above and the decrease in restructuring and other items described above, both of which were partially offset by the increases in R&D and SG&A costs described above.

Consolidated operating profit increased by $20.8 million, or 36.8%, for the six months ended June 30, 2012, despite an unfavorable foreign exchange impact of $4.4 million. Consolidated operating profit increased for the six months ended June 30, 2012 primarily due to the increase in consolidated gross profit . . .