U.S. pension expense decreased by $0.5 million in the second quarter, to $3.6 million, as a result of the effects of increased asset balances associated with improved 2009 investment returns, partially offset by increases in the present values of pension obligations associated with lower, market-based discount rates.  Similar quarterly decreases are expected through the remainder of the year.

Stock-based compensation expense decreased $1.4 million compared to the prior-year quarter due primarily to the effects of changes in the Company's share price, which declined during the current quarter and had risen during the same period last year. Other unallocated corporate, general and administrative costs were $0.9 million higher in the quarter due to increased performance-based compensation costs for 2010 and higher external consulting service costs.

Net interest expense of $3.8 million was $0.4 million higher in the 2010 quarter primarily as result of lower capitalization of interest. Excluding items described in "Restructuring and Other Items", the quarterly effective tax rate was 23.0% in the current period, compared to 24.2% in the prior-year period, due primarily to the shifting geographic mix of earnings.

Net income includes $1.6 million of equity in earnings of affiliated companies in which the Company owns a minority interest.  The $1.0 million increase compared to the prior-year quarter was primarily attributed to improved operating results in Daikyo Seiko, Ltd., in which the Company holds a 25% equity ownership interest.

Restructuring and Other Items

In the fourth quarter of 2009, West announced a restructuring plan for certain U.S. businesses.  During the second quarter of 2010, $0.4 million of related restructuring costs were incurred ($0.2 million after-tax), and a total of $1.0 million of related charges have been incurred in the first six months of 2010.  The Company expects to incur a total of between $0.5 million and $0.7 million in related restructuring charges during the remainder of 2010. Also included in results for the second quarter of 2010 was $0.5 million of discrete tax costs resulting primarily from an increase in self-assessed taxes for an earlier year.

Financial Guidance

The Company's updated revenue and earnings expectations for calendar year 2010 are summarized as follows:

The Company's guidance has been revised to reflect its current expectations for 2010. Notable changes to earlier guidance include an approximately $0.11 per share increase in the adverse effects of foreign exchange on full-year operating results, and $0.04 per share of incremental R&D and marketing costs associated with new product development initiatives. The balance of the change reflects the more cautious forecast of product mix in the second half of 2010, net of other changes in estimates for the year.

The Company expects that comparisons of results for the remainder of 2010 to corresponding 2009 periods will be less favorable than in the first two quarters of the year. Atypical seasonality in the Company's sales during 2009 resulted in much stronger results in the second half of that year, an effect that was more pronounced because of the benefits of substantial non-recurring sales associated with the H1N1 pandemic, which contributed approximately $0.16 per share in the second half of 2009, and of a relatively weak U.S. dollar. At assumed exchange rates, currency will have an adverse impact of between $0.10 and $0.12 per share in the second half of 2010 compared to the 2009 period. The effects of these items on comparative results are expected to be more significant in the fourth quarter than in the third quarter of 2010.

The Company now expects that full-year 2010 capital spending will be between $100 million and $110 million.

The items described in "Supplemental Information and Notes to Non-GAAP Financial Measures", which are excluded from calculation of Adjusted Diluted EPS, and similar items that are incurred during the remainder of the year, are also excluded from the guidance for Adjusted Diluted EPS for the year 2010.

SOURCE West Pharmaceutical Services, Inc.