Aptargroup Inc (ATR) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup’s 2002 Fourth Quarter and Year End Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. Introducing today’s conference call is Mr. Ralph [Porterman], Vice President [in charge] of AptarGroup. Please go ahead sir.

Good morning everyone. Before we begin, I would like to point out that the discussion that follows includes some forward-looking comments and that actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. For review of important factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements, please refer to AptarGroup’s SEC filings. The information in this conference call is relevant on the date of this live call. Although the Company will post a replay of this conference call on it’s website, as a service to those investors who are not able to listen today, information contained in the replay will be dated and should be used for background information only. The Company undertakes no obligation to update material changes in forward-looking information contained therein.

Our speakers for today are Mr. Carl Siebel, President and Chief Executive Officer for AptarGroup and Mr. Steve Hagge, Executive Vice President and Chief Financial Officer. I would not like to turn the conference over to Mr. Siebel.

Thank you Ralph. Good morning everyone. This is Carl Siebel. I will briefly discuss the quarter and the outlook before turning over to Steve Hagge, who will provide more detailed information about our results.

In yesterday’s release the reported earnings per share for the fourth quarter were significantly higher than the depressed level of the prior year and better than we had expected. Compared to the fourth quarter of last year, sales in the pharmaceutical market decreased, as we had expected from the strong 2001 level. Our sales for the fragrance/cosmetic, personal care, household and food and beverage markets increased sharply from the prior year.

Several items had a negative impact on earnings for the quarter, including; number one, lower sales through the pharmaceutical markets; number two, continued price competition; and number three, increased insurance and pension costs. However, offsetting these negatives are the following: lower interest expense, cost savings efforts at all of our operations worldwide and better utilization of overhead due to increased sales through the other markets, as I have mentioned, previously.

We are particularly proud of the continued success and profitability improvement of our SeaquistPerfect segment, which produces aerosol valves for markets other than the pharmaceutical markets, as well as certain spray and lotion pumps, primarily for the personal care markets.

EBIT for this segment increased dramatically in the quarter and for the year. It was almost double the year 2001 level. Across all of our businesses, the level of new project activity continues to be high with our customers, increasing their focus on differentiation and convenience in their packaging.

You may have noticed that inverted food packages have received attention in the press recently. The inverted ketchup products, offered by both Heinz and Hunts, use our SimpliSqueeze system and each was identified as one of the best new products of 2002 by both USA TODAY and BUSINESS WEEK. These same products were awarded winners in the food category by the FOOD AND DRUG PACKAGING MAGAZINE. Such awards have helped increase awareness of our simply squeeze system and stimulated interest by a number of other marketers.

Now looking at the year, while our results for the whole year came in less than we had predicted at the beginning of the year, and that was mainly due to the delay in the recovery in the fragrance / cosmetic markets, we are pleased that we have followed record sales and profits for the year.

The [deosification] of our products, market served and our geographical presence, as well as our focus on cost containment helped us achieve these record annual results.

Looking ahead, the situation in the Middle East is tenuous and it is impossible to predict how developments there may impact our customers and the end consumers. Aside from this, the positive momentum that we saw in late 2002 in the personal care, fragrance / cosmetic and food and beverage markets, is expected to continue into 2003.

Weakness in sales in the pharmaceutical market is expected to continue into early 2003, but improve as the year progresses. Subject to development in the Middle East, if any, we anticipate diluted earnings per share for the first quarter of 2003 to be in the range of $0.48 to $0.53.

Lastly, we have made available on our website, several documents relating to [call for governance] I invite you to review them at your convenience. At this time, Steve will review the financial results.

Thanks Carl, and good morning everyone. I’ll review the financial information and then Carl and I will be happy to answer any of your questions. First of all, looking at fourth quarter, reported sales increased 14% while Core Sales increased approximately 9% from the prior year.

Looking at Core Sales to each of our markets for the quarter, our sales for the food market were up almost 50%, the fragrance / cosmetic market up in the low teens, personal care in the low teens, household market up in the low single digits, while pharmaceutical sales were down upper single digits. And our other non-packaging area was about the same as the previous year.

Excluding non-reoccurring charges, our quarterly operating margin increased to 11.5% versus 9% last year. We recorded goodwill amortization or 925,000 in the fourth quarter last year, whereas there was no goodwill amortization reported this year under the new accounting rules.

Below the operating income line, lower net interest expense helped improve our overall bottom line. The effective tax rate for the fourth quarter was approximately 30% versus 33% for the first nine months of 2002, and around 35% in the fourth quarter of the prior year.

The reduced income tax rate reflects our success with tax planning activities that have effectively allowed us to utilize some net operating loss carried forward in the fourth quarter. In addition, I’d like to point out that the 2001 tax rate was adversely affected by the non-deductible goodwill amortization.

Reported diluted earnings per share for the quarter were $0.50 per share versus $0.27 per share reported last year, and, alternatively, excluding the Strategic Initiative charges and goodwill amortization in the prior year. Comparable earnings per share for the fourth quarter of the prior year $0.31 per share.

From a geographic standpoint, sales to customers by our European operations represented approximately 58% of net sales in the quarter versus 55% last year. And sales to customers by U.S. operations accounted for 33% of sales in the quarter versus 36% of sales last year.

Excluding the non-reoccurring charges, operating income in both Europe and U.S. increased. European operations represented 70% of total operating income in the quarter compared to 84% last year. U.S. operations represented 34% of total operating income versus 38% in the prior year. The reconciling difference between the European and U.S. operating income to the total operating income before charges is other income from our foreign operations, corporate expenses and [inter] geographic consolidation eliminations.

Cash flow from operations, as shown on our statement of cash flow for the quarter, was approximately $43 million versus approximately 40 million last year. From a balance sheet perspective, our return on average equity was approximately 12% and our net debt to net capital was approximately 19%.

Capital expenditures for the quarter were approximately 26 million, brining year-to-date total to approximately 89 million. And during the quarter we purchased approximately 50,000 shares at an average cost of around $28.50 a share, which brings our total repurchased shares since conception of our stock repurchase program, to 1,335,000 shares at an average cost of around $26.00 a share.

Now taking a look at the full year 2002, overall sales as reported increased 4% while Core Sales increased approximately 2% from the prior year. Looking at preliminary break-down of sales by product and market, the percentage of sales by product is as follows: for pumps, they represent approximately 60% of our overall sales compared to 62% a year ago; dispensing closures, 22% in 2002, which is the same level as in 2001; our aerosol valves represented 15% of 2002, up from 14% a year ago and sales of our other product lines were around 3% compared to 2% a year ago.

As a percent, looking at the markets, they’ve changed modestly between years. Personal care is 32% at the end of 2002, up from 31 a year ago; fragrance / cosmetic is down to 29% from 32 last year; pharmaceutical sales represented 23% in 2002, up from 22%; household remained the same at 9% in both years, and our food and beverage market sales were 7% compared to 6% a year ago.

Diluted earnings per share were $1.82 per share versus $1.61 a share reported in 2001. Excluding the non-reoccurring charges recorded in both years and the goodwill amortization in the prior year, earnings per share was $1.92 per share versus $1.87 on a comparable basis in the prior year.

Non-reoccurring charges recorded in the year included Strategic Initiative, as well as a patent dispute settlement, whereas the unusual charges recorded in the prior year related only to our Strategic Initiative.

Cash flow from operations for the year was approximately $155 million versus $128 million in the prior year.

Looking forward, total cash outlays for capital expenditures in 2003 are expected to be in the area of 80 to 85 million with depreciation and amortization expected to be in the same range. I want to point out that both of these amounts may change, somewhat, depending on what happens to the exchange rate.

Our effective tax rate for 2003 is expected to be in the area of 33 to 34% versus the approximately 22% in 2002.

Finally, I’ll take a moment to discuss the exchange rate. As you’re all aware, the Euro has significantly strengthened versus the dollar. The Euro averaged around $0.88 per share in the first quarter of 2002 and most recently has been in the area of $1.07.

This represents a 22% strengthening of the Euro, with a little over half of our sales come from Europe, sales will be positively affected by the stronger Euro at 10% all else being equal. However, I would like to point out that since we’re a net importer to the U.S., the higher cost of imports offsets most of the positive impact from translation, resulting in minimal net positive impact on the bottom line.

At this point, Carl and I would be glad to answer any of your questions.

[Caller instructions]

Our first question comes from Dan [Khoshaba] with Deutsche Bank. You may go ahead sir.

Hi. Good morning guys. Good quarter. I know that it’s a minimal impact about the currency because of the shipping products from Europe to the U.S., but what was the impact, Steve, I guess, in the quarter of the weak U.S. dollar?

Well, the net impact between translation and transition is probably a slight positive of under $100,000.

Okay so it was really minimal. And, you know, in the past few years, it seems like it’s been fairly difficult, at least for me, to determine whether or not the increased demand for some of your products was an improvement in, kind of, the economy, and therefore the willingness of the consumer to spend versus an inventory rebuilding process after a weak period of time. Carl, can you comment, perhaps, on what your customers are saying? How much of the improved demand in some of these markets that you mentioned is genuine buying on the part of the consumer or how much of it might be actually inventory rebuilding?

We should rather see this as – when we compare this to 2002, for example, the last quarter of 2002 to the preceding period, then what happens is that we come out of a period of de-stocking of our customers, specifically in the fragrance / cosmetic market. But, also, and that was very strong in 2000 – 2001 in the pharmaceutical markets. Then the increase comes because now the order patterns, or the order quantities from our customers, gets, again, closer to the real consumption.

We were depressed, we believe, first in the pharmaceutical market, 2000/2001 and then 2001/2002 in the perfume and cosmetic market, by de-stocking and now we’re getting closer to the real consumption. We saw that – you may remember that I said in the past, that we had, especially in the high-end of the perfumery and cosmetic markets, a – we had periods 2002, comparing 2001 going down 25-30% in demand in our sales. And if you look at the announcements of our customers, nobody has ever said it’s down 25-30%. So, there was clearly a de-stocking from some exuberance visibly in the years, especially, 1999/2000 in, the fragrance cosmetic markets.

And we believe that beginning, really – we saw mid of November, we saw starting a recovery of the perfume and cosmetics market, specifically in the high-end, which is continued into the first quarter of 2003, and we believe that it’s just showing us that it’s getting us closer to the consumption and that the de-stocking is finished, which is also underlined by the fact that month to month, we saw that our sales at the end of a given month were higher than our expectation or calculation at the first of that same month.

So, we believe that they are now very short-term. We also had a very unusual high sales in December in the fragrance / cosmetic market, which normally – in normal years, would have been very, very low months. So, that, again, for us, seems to indicate that the inventories have been depleted and now we’re getting more closer to the consumption.

Okay, so you would expect to see, perhaps, this kind of growth over the next few quarters, hopefully?

Hopefully, yes. What we can say at this point is that the momentum which we saw building in the fourth quarter continues in the first quarter, we’re expecting the first quarter – our ore sales to be up about 10%. And then if you look at the rate of exchange movement – if the rate of exchange stays where it presently is, that we’ll add another 10%. So, in our top line, we’ll be 20% plus, as we expect, at this point, for the first quarter.

Okay. Last question, why is pharmaceutical sales lower?

We have seen, again, some de-stocking at some customers in the fourth quarter that seems to be continuing also in the beginning of the first quarter and we are optimistic that we have not lost any market share. We’ve not lost any customers. And we expect that, from what we see today, that we will see a gradual improvement in that business, looking forward into 2003.

Okay, thanks Carl.

You’re welcome, Dan.

Thank you. Our next question comes from David [Facs] of Hockey Capital. You may go ahead sir.

I had a couple of questions. One, if you could walk us through the cap ex number for this year and how you spent the money, in terms of maintenance versus growth projects, same for the ’03 budget. Second question on the relationship with [Wyeth], you put out a press release a couple of weeks ago saying that that had changed. If you could, kind of, amplify on that a little bit? And, also, talk about any new products that you have launching – any significant new product launches for ’03. Thanks.

Carl, why don’t you – it’s probably easier for you to handle the Wyeth and the new products and then I can handle the cap ex this year.

As far as Wyeth is concerned was buyers who have made the decision to cancel the contracts which we had signed with them in 2002 that was not due, and have to underline, to the performance of our product. It had nothing to do with it. It also means that we are free to offer that product to other potential customers. And we have some interest in that.

We had made a press release in 2002 announcing that this contract therefore – we needed to make a press release also to tell you about the cancellation in spite of the fact that the cancellation of this contract is financially not material to our results, neither in 2002 nor in 2003.

As far as new product launches is concerned; you may have seen, potentially, that there is a move in the food business to more inverted packaging, and with inverted packaging a move to our SimpliSqueeze system, there have been some major food product launches in 2002, some of them were highlighted by USA TODAY when they elected that product as one of the best innovations in 2002.

It was also highlighted in BUSINESS WEEK that we received this packaging award and all this is, naturally, driving potential other customers to use the same kind of system. So, we see a very interesting movement now to go to plastic inverted packaging using our [spill sweets] simply squeeze system.

We have, in the perfume and cosmetic market, we see continued activity in the product launches of our customers. What is important there to note is that why we had that also in 2002, we were suffering due to the reasons that I mentioned already, in business on [recurring] products of our customers and that has picked up since November, significantly.

We have a lot of new products in the pipeline. We have several very interesting products in the pharmaceutical business. We have not only the food area, also the beverage area where we expect significant growth going into 2003. So, basically, you could say that the new product activity in all our markets is very good at this point.

This is just a follow-up on the pharma side of it. You’re suggesting it had a high single-digit down fourth quarter, yet it’s the highest margin business, which sort of attributes to what’s happening to the rest of the portfolio. You’re suggesting, then, that the first quarter in pharma is going to be soft and then you expect a progressive ramp in pharma through the year. Should we expect pharma to be up mid single-digits, high single-digits, flat for all over ’03?

Well, under the present circumstances, [medians] on forecast are very, very difficult. That’s true for all of our business. Due to the uncertainties of political uncertainties and the difficulty to predict how the consumers will react in their buying pattern, purchasing patterns, how our customers will let impact outside events on their plans – to make forecasts going beyond the first quarter is very difficult. However, we like to underline that we are cautiously optimistic for total 2003, and we have a very good outlook at this point for the first quarter of 2003.

I was just thinking that given that most of your pharmaceutical users have either asthma or allergies, I don’t think that would be affected by war, so I would –

Yes, we hope so. I would agree with that. And the only thing we do not have a handle on is the inventory movements. And we have had that always. We have tried very hard to get a handle on this and talking with our customers. The only thing in the pharmaceutical business we know is that we are, in most cases, the sole supplier to these products, so we’re depending on the success of the customers on the market and we are depending on, as I mentioned, inventory movement up and down.

Has there been any affect on the business due to the over-the-counter approval for Claritin and other asthmatic products?

No, up to this time, we don’t believe so.

Great. And then, on the cap ex question, thanks.

Yes, David, on the cap ex side, again, a percentage of our business, approximately, we spend about 30% of our capital on new products. Maintenance business is another 30% of the total capital that we spend. These would be comparable between both 2002 and projected 2003. And then generally, capacity expansion, which is new facilities, expanding market places, etc., will be about 25.

So that makes up the bulk of our capital spending.

Our next question comes from Robert McDormand with Investment Counselors of Maryland. You may go ahead, sir.

Could you talk a little bit about the pharmaceutical business? Your dispensers, I guess, are part of the drug approval process, so you have some, I guess, visibility as to future opportunities. It seems to have slowed down a little bit – the business, and I wonder if the promise of aerosol dispensing of things other than just asthma drugs, has waned a little bit?

First, as a general observation, we do not believe that the promise of dispensing through nasal dispensers or by aerosols has very much changed. In the – I’d like to underline, also, that the fourth quarter 2002 is a very tough comparisons to 2001 because in 2001 we had a very strong fourth quarter. So, again, those short-term movements have to be seen as disconnected to the long-term future of the business.

We continue to be very optimistic for that. We have a lot of projects. We have projects, also, beyond asthma. We have, for example, some projects for insulin. As one example, working with one of our major customers which will be dispensed by metering out through the mouth and we have – that’s just one example. There are many other potential applications.

And, in general, the advantages of a application of a product rather than through a needle, going through a dispensing system through the nose by a nasal pump application all through the lung with a metering valve application is – that [cafluence] of the consumer and the patient is certainly as valid as existing in the past.

Another area where we see short-term growth potential, in general, is the asthma applications by meter-dosed inhalers. They are through our long-term development over the last years of systems to dispense the new propellants by placing the CFCs by so-called HFAs is moving our market share up and therefore, we have above-average goals in that area, which we have seen already in 2002, which is continuing to 2003 and 2004.

Do you see pharma, a couple of years from now, being a significantly bigger piece of your revenues then? Well, it depends on what the other –

Well, absolutely. I mean, naturally, we hope that some of the other areas, like, for example, the food and beverage business, which is still a smaller part of our overall business, will have significant growth, as we have seen already in 2002 and as we see going into the first quarter of 2003 and further on. So there we will see interesting growth.

We see, also, especially in the U.S., much more interest than in the past, on differentiations by packaging of our customers. You have seen the introduction by [union level] the Ax male deodorant, which has been a very big success and which using one of our specializes dispensing systems, which carries a much better margin than what we had, traditionally, in the aerosol valve business. There are follow-ons like Gillette, come also with a comparable product.

So with that general movement to use packaging and especially dispensing systems for more differentiation and, also, evidently, convenience for the consumer, should splice very well. Also all our other markets, and not only the pharmaceutical market. This being said, we believe, in the long-term viability and good growth equally, certainly, in the pharmaceutical business.

Thank you. Our next question comes form Michael [Pack] of Salomon Smith Barney. You may go ahead sir.

Good morning, gentlemen. I’m calling on behalf of George [Staff]. I just had a couple of questions. Given that the pharma comps have been soft recently, is it correct to understand that the company anticipates the comps to improve in the second half of ’03 with continuing weakness in the first half in terms of top line growth?

Mike, the present expectation is that we have a somewhat slow start in January / February, but that we will be picking up sales, gradually, based on what we see in order patterns at this point.

So we can see improvement as soon as 2Q, as early as 2Q?

That’s what we see at this point. I have to caution there that, again, it is very, very difficult – also in the pharma business, the order behavior of the customers has been much shorter term than it has been in preceding years. So, our visibility is not very far at this point. But everything we know and we see, we believe, effectively, that we should see an improvement in the second quarter over the first quarter.

And, Carl, you mentioned that the Company is cautiously optimistic in ’03, could we infer that, given difficult comparisons, relatively, in the first half from looking at ’03 to ’02, that the progressions of the earnings by quarter is more back-end loaded?

Well, as we have said, the forecast, which we have given – estimates we have given for the first quarter is rather good. And, so we, in effect, do not anticipate that it is very back loaded. We have seen a good momentum in affect, frankly stronger in the fourth quarter last year than we would have thought at the beginning of the fourth quarter. We see it, at this point, [contusing] and barring any outside affects from the political scene, we believe that we will have a pretty good first quarter and we also, as I said, I’m cautiously optimistic for the whole year of 2003.

And, Carl, one last question. Given the geo-political environment and its impact on the economy, if you look across your diverse end markets, what would you say is more highly sensitive relative to the other businesses? For instance, would you think that fragrance and cosmetics would be more exposed to the economy than, say, your other markets?

It is more feelings and speculation than anything else, but if we look at the situation in the past, if you take the least dependent business of all our businesses from outside influences like this, being the pharmaceutical business, most likely more to the other end of the line would be then the perfume / cosmetic business where our, maybe, travel could again influence the business as we had seen during the Golf War in ’90 ’91. The biggest problem is, frankly, the estimation of how much is in inventory that may have a bigger influence on our business than the outside influences like that.

The part of the business of our customers in the fragrance side, depending on the duty-free and traveling has, we believe, gone down over the last two or three years. But we may be less impacted by that, than in the past. And since we also have very strong indications that, at this point, the inventory cycle is rather at the level of the large depletion of the inventories, both at our customer level and also at the retail level, may mean the influence will not be very big. But, again, as I said, it’s very difficult to predict in this, sort of, more feeling and speculation. Certainly there’s not a scientific answer I can give you.

Thank you.

Our next question comes from Greg Halter of LJR Great Lakes Review. Sir, you may begin.

Good morning. Nice to see the results that you posted. On the fragrance / cosmetic business, can you discuss the capacity utilization there between the high end and low end and what you can discern?

Your question gives me the opportunity to mention that the impact which we have seen in the inventory cycle and saw in the last two years in the low end was not very big. There was no comparable swing in the demand as we have seen in the high-end of the markets. Other than that, we really feel that at this point, we have rather a good chance for a good year in 2003 in the perfumery / cosmetic business.

Okay. Steve, the net interest expense was down quite significantly. Is there anything more beyond that that we should be reading into that $1.4 million net number?

Two things are driving it down. One is the overall net reduction in terms of net debt that the company has and then also the interest rates. Given, I think, as we’ve seen last year was the more dramatic drop in the interest rate. My estimation right now is that we will not see significant interest rate decline going into 2003, but we might be able to still have some reduction in debt. I would certainly not anticipate a dramatic of a reduction in that interest as you’ve seen ’02 to ’01, going into ’03.

So modeling about a $1.5 million net number would be reasonable?

I think going forward and given with the cash flow we’re looking to be cash positive in ’03, so I think that would be a conservative estimate going forward.

Okay, and can you comment on the pension costs for 2002 and what you’re seeing for ’03 as well?

Okay, you know, when we’ve looked at the pension, certainly as rates have come down, discount rates in the pension area have also been adjusted. Our overall net cost for expense for pension last year was approximately $3.5 million in total expense. That’s up from around 2.5 the year before, in 2001. We would anticipate of that being in the area of 4 to 4.5 million in 2003 based on current numbers.

And my last question is how many shares on left on the repurchase program and do you expect to be a purchaser in ’03?

We’ve got total shares authorized on repurchase was 3 million. We’ve purchased about 1.3, 1.4 million, so we’ve got between 1.6, 1.7 million to buy back. And certainly, depending on where the stock price is, it’s an area we’ll consider in terms of additional stock repurchases.

Thank you.

[Caller instructions] We have a follow up question from David Facs of Hockey Capital. You may go ahead, sir.

Yes, on the comment you made earlier about expecting to be free cash flow positive, cap ex is equaling depreciation, net earning will be in the 75 to $80 million, or something like that. Where does the leakage come from? Is it working capital based on this 10% revenue growth number that you’re anticipating or are there other elements of the cash flow statement that we should be paying attention to?

No, we actually – if you look at it, David, we were cash flow positive this year. I’m not sure where the question’s coming from. We were –

For ’03.

Even for ’03, we expect to be positive. And so the excess cash, at this point, will either be in terms of strategic investments, in terms of acquisitions, so I would expect to continue to generate significant amounts of cash in ’03.

And do you levering more than you currently are? I think it looks like we’re at 140’ish million of net debt at the end of the quarter. Is that a comfortable level or would you prefer to de-lever more or lever up to be more aggressive on share repurchase or strategic development?

We’re taking a look at it. Certainly, I would think – you know, we’re extremely conservative at this point on the leverage position of the company. And it could well support additional debt. In the short term what we’ve done and will continue to do, is to use cash generated against the debt side, but in future we’ll use it for potential acquisitions, share repurchasing – really we take a look at those on a regular basis in terms of what’s the best investment vehicle for the company.

As you match acquisition versus share repurchase with your stock selling, sort of 5-1/4 times forward EBITDA, how do acquisitions stack up against that? And why isn’t your stock more attractive to you given the balance sheet and the existing repurchase plan?

Well, again, if you go back and take a look at the share repurchase we had in the fourth quarter, what we’ve bet is somewhat opportunistic in terms of where the share price was. We were in the market when the stock was approximately in the 30. We actually have a blackout period that the company follows for 30 days prior to any year-end release.

So if you look at where our average share price repurchase has been in the $26 side over the last couple of years. So when market is lower we actually find that the investment in the company is better than some of the acquisition opportunities. But we still continue to aggressively look into where we can grow and what here is the balance between share repurchase and what could be acquisitions.

And, lastly, in terms of your comfort level, is it more conservative on the leveraged side, but in relationship to cash flow, was there a one-to-one debt to EBITDA, two-to-one debt to EBITDA, is there some sort of parameter that you’re comfortable with?

What we’ve said in the past, is that we’ve looked at – we wanted to, even though we don’t have public debt we want to say what would have been investment grade. When we’ve looked at that, frankly, says we could go up to almost a 50% debt to overall capital ratio from where we run the numbers and stay investment grade. So it gives us considerable room the upside in terms of any potential transactions that we might want to do.

Okay. Thanks.

Our next question comes from Steve Wilson with Wright Kintane. You may go ahead.

Yes, Steve, I wanted to understand on the cash flow, you guys did a great job and you paid off a considerable amount of debt billed cash. There’s a fair distortion of working capital I’m assuming because of foreign currency, what was the actual cash generated from working capital and what does this mean going forward, because, I mean, working off the last question, I’m seeing a lot of free cash coming out of the company and very strong operating cash flow and I don’t know how that got distorted by foreign exchange.

Right now the estimate that I’ve got is –if you look at, kind of, where we’re at of the [14 capilution] we were probably positive around $8 million or so in terms of – coming out of inventory, inventory receivables in terms of positive cash flow from the reduction there.

Going forward, our intent is to continue to focus, particularly on our inventories, which we consider to be the most manageable of those, have come down in terms of overall size and number of days. Receivables is the area we focus on but again that tends to be more market focused, you know, what are the general market conditions. So I would not anticipate as strong a reduction in the receivable area, but I would consider that we should be able to continue to bring down inventories over the next year.

And then taking, I guess my analysis is the other way, and that is how much are your cash in equivalents and debt is Euro based?

The terms of debt, of the 140 million, the bulk of that is U.S. That related to, primarily, the acquisition we did [Msar]. In terms of cash, the majority of the cash is in Euro.

So when we look at cash going up $42 million, maybe 15, 20% of that was just currency translation year-on-year.

About $10 million, roughly, of that, is currency based. So that increase of about $40 million, call it 10 million or so, of that, is currency based.

Thank you.

At this time I’m showing no further questions. I’d like to turn the call back over to Mr. Siebel.

Thank you very much. Ladies and gentlemen, I would like to thank everyone for participating today in our call. So thank you and goodbye.

Thank you. That concludes today’s conference call. You may disconnect at this time.