Aptargroup Inc (ATR) 2004 Q2 法說會逐字稿

Welcome to the AptarGroup's 2004 second-quarter results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) Today's conference is being recorded. If you have any objections you may disconnect at this time. Introducing today's conference call is Mr. Ralph Poltermann, Vice President and Treasurer of AptarGroup. Please go ahead, sir.

Good morning, everyone. Before we begin I would like to point out that the discussion to follow includes some forward-looking comments and that actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. To review 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 call on its website as a service to those investors who are not able to listen today, the 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 of AptarGroup; Mr. Steve Hagge, Executive Vice President and Chief Financial Officer. I'd now like to turn the conference over to Mr. Siebel.

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

In our yesterday's release we reported record second-quarter sales and income. Overall sales primarily increased due to higher volumes and the impact of the weaker dollar on the translation of falling sales. Looking at the markets, excluding foreign comps the translation affect, sales increased to all of our markets except for the pharmaceutical market.

Regarding the pharmaceutical market, volumes increased over the prior year period, but the mix of products sold adversely affected the total pharmaceutical sales. We mentioned $1 million of milestone revenue in the quarter relating to a pharmaceutical customer project. This milestone revenue is significant from the standpoint that it represents an alternative revenue stream for us in the pharmaceutical market going forward.

Operating margin for the quarter was negatively impacted by the following factors. First, material price increases; second, continued price competition; third, the higher cost of imports to the United States from the weaker dollar; and finally, costs related to the previously announced closing of a mold making facility.

Looking forward our outlook is optimistic for the third quarter and we expect product sales to each market to improve over the prior year. Putting aside the impact from the potential tax refunds relating to research and development credits we anticipate that diluted earnings per share for the third quarter of 2004 will be in the range of 62 to 67 cents per share versus the 51 cents per share recorded in the third quarter of 2003.

Lastly, we're committed to enhancing shareholder value. We doubled the dividend rate and announced an additional 2 million share increase in the buyback authorization. After considering the increase in the dividend rate and for aggressive (ph) share repurchases our strong balance sheet is still well positioned to allow us to take advantage of strategic opportunities in the future. I would like to turn it over to Steve for his comments on the financials.

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. Looking at the second-quarter, we reported sales increased approximately 8 percent, whereas sales excluding the impact of foreign currency translation grew by approximately 4 percent from the prior year. Our custom tooling sales in the quarter increased approximately 2 million from the prior year with most of that increase in tooling sales related to the food market.

Looking at sales in each of our markets for the quarter excluding changes in foreign currency, our personal care market was up about 5 percent; fragrance/cosmetic was up about 2; our pharmaceutical sales were down about 1 percent; household was up 8 percent; and our food sales were up almost 30 percent from a quarter -- a year ago. Cost of sales as a percent of sales during the quarter was higher than what we reported in the prior year for the reasons Carl already talked about.

As we announced in the first quarter, we are shutting down a U.S. mold making operation. Operating losses and shutdown cost related to this amounted to about $1 million. We do not expect to incur any significant costs related to this mold making operation in the future. Also, as Carl discussed, we recorded $1 million of revenue in the quarter for a milestone project for our pharmaceutical market. We also benefited during the quarter from a lower tax rate compared to the prior year. Bottom line, we reported all-time high quarterly earnings per share of 61 cents a share compared to 58 cents per share a year ago.

When you look at our sales from a geographic standpoint, sales to our customers by European operations represented approximately 60 percent of net sales in the quarter versus 59 percent last year, and sales to customers by our U.S. operations accounted for 30 percent of sales in the quarter compared to 32 percent of sales last year. This increase in our European percentage is due largely to the stronger euro compared to the prior year. Excluding changes in exchange rates, the dispensing systems segment sales increased by about 3 percent and the SeaquistPerfect segment sales increased by about 8 percent.

Looking at our cash flow, cash flow from operations for the quarter was approximately $47 million compared to 34 million in the prior year. Our capital expenditures in the quarter were approximately 33 million compared to approximately 18 million in 2003. From a balance sheet perspective our return on average equity was approximately 11 percent and our net debt to net capital at the end of the quarter is approximately 4 percent.

We repurchased approximately 100,000 shares in the quarter at an average cost of $39 per share. This brings the total number of shares repurchased since the conception to 1.53 million shares at an average cost of approximately 27.5 per share.

Now looking at our year-to-date results, reported sales increased approximately 13 percent whereas sales excluding the impact of foreign currency translation grew approximately 6 percent from the prior year. Tooling sales increased approximately 13 million over the prior year for the first 6 months. Year-to-date we reported diluted earnings per share of 118 versus reported EPS of $1.11 per share last year for the first 6 months of the year. Our cash flow from operations for the first 6 months were approximately $82 million compared to 56 million in the prior year and our capital expenditures year-to-date were approximately 52 million compared to 36 million in the prior year.

Looking forward total cash outlays for capital expenditures in 2004 are expected to be in the area of $110 million with depreciation and amortization expected to be in the area of $100 million. Both of these amounts may change depending on what happens to exchange rates throughout the remainder of the year.

As previously announced, we have filed for approximately 1.5 million of tax refunds relating to research and development expenditures incurred from the year 2000 through 2002. A recognition of these refunds is uncertain and the individual quarterly tax rates during the remainder of 2004 will vary depending when these credits are realized. Overall our effective tax rate for the year is expected to be in the area of approximately 32 percent excluding these R&D tax credits. At this time Carl and I would be glad to answer any of your questions.

(OPERATOR INSTRUCTIONS) George Staphos, Banc of America Securities.

Good morning. First question, Carl or Steve, on pharmaceuticals. Can you remind us again what some of the drivers were within the Pharma business in the quarter as you were expecting them? I remember there was some destocking that you were expecting, nonetheless the rate of performance for growth was relatively weak versus a weak comparison last year.

Yes, George, the negative driver in the second half of 2003 and in the first half of 2004 was 1 major account whereas we had talked about in the past that destocking was going on at this account. In the second-quarter we started to receive new orders there, so we think that the destocking is now over and we will see this happening in -- this improving in the third quarter and also in the fourth quarter going forward. So this comparison will become positive.

If you compare first-half 2003 with first-half 2004 we had a difficult comparison because first half of 2003 this customer was still buying at the regular level and, as mentioned, 2004 it was a weaker situation. Another driver in the pharmaceutical field is product mix. We had a reduction in the percentage of sales of pumps compared to a considerable increase and the sales of metering valves in total -- that means because metering valves carry a lower price than the pumps while they still have a very good margin. So because our product mix issue by the volumes went up in the metering valves but in the comparison and through the product mix that has a depressing effect on the total sales number.

Would it be safe to assume that the biggest driver of the acceleration that you see in what looks to be a very, very strong third quarter for the Company in total, is pharmaceutical getting back to a more normal growth rate?

Absolutely, George, that's one of the drivers. But we also see continued improvement in the perfumery/cosmetic business, specifically in the high end where we have very good orders. Since the end of the first quarter we see continued improvement in that part of the business. We see continued very strong growth in the food and beverage business, that continues also. And the personal care market is doing fine also. So in general we see improvement in all markets but we get -- let's call it a month (ph) certainly improvement in the pharmaceutical business in the second half.

Last question and then I'll turn you over to the other folks. In terms of looking at last year's quarter again, your comps were difficult in your other businesses; nonetheless the growth rates that you reported ex FX were a little bit below Aptar's standards. Was it just a comparison issue? Tell us what your trends looked like into the quarter and as you carried out into July obviously there was a lot of consternation in the market about whether the economy has been slowing or not. Thanks, guys.

George, we believe that going forward in the third and the fourth quarter we see continued improvement in the sales and the perfumery/cosmetic business. Yes, as you said, comparisons were difficult last year also. Perfumery/cosmetic in the first half was very strong which gave us difficult comparisons. This year's first half (indiscernible) first half of 2003. In the third and fourth quarter with increasing sales in perfumery/cosmetic increasing sales in the pharmaceutical business and improvement of product mix in the pharmaceutical business we believe that there is an improvement overall in the market situation for the perfumery/cosmetic market and the certain specific effects which were negative on us on the pharmaceutical side I talked about getting away.

Okay, fair enough. Thanks, guys.

Ghansham Panjabi, Lehman Brothers.

Can you just talk about what drove the gross margin increase in the second quarter versus the first quarter?

Ghansham, the biggest increase was still from some volume for us coming through and while, again, as Carl mentioned, the mix of products was difficult, we continued to get more cost savings going through the operation. So it tended to be a mix of our products being sold and it's still a better throughput in cost savings efforts that we've had in the quarter.

Can you give us an estimate of the cost-savings?

I don't have a specific number I can give you on that because it occurs in all of our business units.

Okay. And which end markets are seeing the most intense price competition in your view?

There is price competition in the low end of the perfumery/cosmetic market, and there is also some price competition stronger in the closure business. But the most -- most of the areas where we see that more than in others, while we always have listened (ph) to the competitive nature and there has always been strong competition. But if you ask where it is stronger, then I guess it is at the very low end of the perfumery markets.

One other thing, Ghansham, too, I just went back and looked at my notes. Also compared to the first quarter we had a higher tooling sales in the first quarter which carries a much lower margin than our normal product sales. So it much less, frankly, much less in the second-quarter which helps our margin percentage improvement.

Okay, that makes sense. Thanks so much.

Chris Manuel (ph), KeyBanc Capital Markets.

I just really want to follow quickly on George's question earlier. In the first quarter and second quarter I count organic growth rates in the roughly 4 percent range. Historically you've been mid to high single digits. With the pickup in the pharmaceutical and fragrance/cosmetic business in the second half, do you think that for the year you'll be able to get back to a more historical high single digit organic growth rate?

Yes, the answer is clearly yes. We expect to be in the high single digit in the third and fourth quarter.

Okay. High single digit in the second and third quarter, but do think it'll get you to high single digit for the year?

That may be difficult coming from the first half as you suggested in a lower rate, even if we hit the high single digit in the third and the fourth, in the average we won't be in the high single digits.

And the other thing, Chris, I think it's important to note is the tooling sales have an impact on the sales side. So we need to also come back and look at our product sales because last year we had some pretty significant tooling sales that went into 2003.

Okay. Along the lines of tooling, you said tooling sales were up 2 million versus last year. What were total tooling sales in the quarter?

They were about $9 million compared to 7 million last year. And again, the two big -- the markets that we sold the majority of that to was the food market and also the personal care. The food showed the biggest increase on a year-to-year basis.

Okay. Last question is share repurchase. You had about 1.4 million left on your authorization that you bumped up to I think you had about 3.4 (ph) left now that you've increased it. Should we read into this as you plan to be active in share repurchase through the back half of the year or did you just have an old authorization that was expiring or anything like that?

If we look at the -- really I think we should take a look at the 2 decisions being the dividend increase and also the increase in the share repurchase program. In total, number 1, we have certainly and the Board has always been concerned about enhancing shareholder value. So we've made that decision now, the Board has made that decision now to considerably increase the dividend and also the share repurchase program. And as you suggested, what we are planning is to be more aggressive in the second half of 2004. And you've seen -- we've also been more aggressive already in the second-quarter with a 100,000 repurchase to be more aggressive in repurchasing.

We are optimistic about the long-term aspects of the business and we believe that with these decisions which enhance shareholder value we will continue to be able to make strategic acquisitions and to fund the growth we have enough -- we have a very good capital flow. I think that it will be -- we believe that this is absolutely sufficient to fund the current business and to allow us -- we have a strong balance sheet and even with these decisions and it will allow us to make strategic acquisition that we're looking at -- constantly looking and looking at potential possibilities in this area.

Thank you very much, gentlemen.

Tim Burns, Cranial Capital.

One of the areas that you guys have been growing out and obviously seem to be doing a good job is food, up 30 percent year-over-year. Are there specific products in the pipeline and programs with key customers that will enable that to continue to grow? And as part of that question, how are the margins on that business? Is it a learning curve as you deal with these big guys or are you able to lock in decent margins as you go?

First of all, the margins are very good because it's new patented products to a large extent when we sell those projects. The projects which we have gotten in the last two years have virtually without exception been very successful for our customers. Some of these customers have gained marketshare due to our technologies and our sales to these markets (indiscernible) to these products have been quite successful. We have had 1 major project already in China in the water business 1 year ago and it was very impressive for me personally when I was traveling recently downtown Shanghai and saw a commuter bus of the city covered with advertising highlighting our dispensing system.

And we just last week secured a second major project for mineral water using our dispensing systems again in China. We also have a new project coming out for condiments with will hit the shelves in the third quarter. Again, a major product in this case in the United States using a dispensing closure for packaging which is very innovative. And we have quite a few other things in the food and beverage market in the pipeline.

You're not going to conquer the relish market are you?

We'll try hard.

Along the same lines though, household has been an area where you've been kind of hot and cold and it sounds like you're getting hot on it again. Are you going to bring the same kind of engineered solution marketing oriented package to that market? You've not really tapped it, but it sounds like you're about to?

Yes, you're right. We have come to the conclusion for our marketing efforts that for our most recent technologies there may be major opportunities. We have secured some very interesting projects already presenting new products to some of the major marketers in this area. And going forward we think, yes, we will use -- we'll not go with (indiscernible) products, we will go with innovative products which we may have already sold in other market fields to this market and we have created already some very interesting market appreciation. And we have some major projects in the pipeline.

Great. Steve, could I ask you a question.

Sure.

I may be the dumbest and slowest guy on the planet -- the milestone pharmaceutical revenue, I guess I lost track of what that was. It's an alternative revenue stream according to Carl. What exactly is that?

Essentially what happened is we have a contract with a major pharmaceutical customer related to some technology that we're working on jointly with them. Once we met a certain technical requirement, at the point we're able to record the revenue related to that. We had several project a couple years ago; we announced that we were working, for example, on another major specific development. So what we're doing is working very closely with our pharmaceutical customers, working on dispensing systems to more enhance their medicine to be able to be absorbed in the body better, etc., or more effectively used. Since these are more like research type projects, we're also paid based on achieving certain technical requirements.

I got you. So you're providing services that are adjunct to your traditional design and manufacturing of dispensing devices?

Correct. And effectively -- that's probably the best way to look at it. It's really an alignment with what we've always been doing and probably somewhat of an enhancement there.

You're the first packaging company in the world that's ever been paid for those services, you know?

This is really the fruit of an even closer than every cooperation with some of these pharmaceutical companies, where we really have been able -- in this specific case have been able to enhance the market position of this pharmaceutical company on a major productline of them.

Great. Thanks, guys. I appreciate it. Have a nice quarter, good luck in the third.

Greg Halter, LJR Great Lakes Review.

Sounds like a very good outlook there. Steve, regarding the $1 million charge on the mold making facility, was that in cost of goods sold or SG&A?

The majority of it went up in cost of goods sold was manufacturing related. There was a little bit in SG&A, but the majority of it was in cost of goods sold.

Okay. And that would have been a penny or 2 on the bottom line?

Yes, it's probably about 2 cents when you look at a tax rate of let's say 32 percent, 700,000 rough numbers 1.5 to 2 cents.

And capital spending this year budgeted now at 110 million, last quarter I think you were talking 90 million. Can you explain the differential there?

Well, part of that differential is really just exchange rates -- you can see because depreciation we talked about last quarter only also being in the 90 million area. So given where the euro has stayed we're up. So we're up about 10 million in terms of overall spending. The biggest difference there is some new products that we have coming out. Plus, if you remember in the first quarter we sold a facility in Switzerland and we actually repurchased a new facility in that area, came back and finalized the repurchase of a new facility which is about $7 million. So that's the biggest reason for the increase.

And that facility will be doing what?

Basically it's manufacturing for our pharmaceutical industry primarily for pumps.

Okay. Looking at the price pressure, which has been an issue for a while and we've discussed in the past, any change there or intensification or new players coming out of the Far East?

Not really new players. There is -- the issue is that in the Far East you have a multitude of very small, family-owned companies competing with us, copying our products and then, with essentially direct label, use very little automation offering competitive products. And we have to see how much those kind of competitors are able to take marketshare if any. The good news is that we are, as you know, since now about 10 years operating in China. We have a very good facility there. We have been -- there is an excellent growth potential in China and in Southeast Asia. From one side we have the potential price pressure from new small competitors in this area, and on the other side there is a very, very strong potential with all of our multinational customers heading up in China to serve with China and the Southeast Asian markets and giving us the opportunity then to grow with them.

Okay, that sounds good. Last quarter you talked about the raw materials side of things and the related price increases that you were pushing through in timing. How has that gone?

We have been announcing selective price increases. I mean, when I say selective, geographically selective. The first ones which we did as a general price increase to pass on some of the raw material in the pump and valve business has been successful. We are planning to do price increases also in some of the other areas. As we have mentioned in the past, there is considerable increase in plastic resin cost; most of that is consumed for (indiscernible) in the closure business with pass-through clauses. There are no pass-through clauses in the other businesses except that when we have contract with major customers we have in all these contracts a clause for passing on raw material cost. So we will be trying to continue to increase our prices for raw material cost increases for metal and maybe -- and rubber component in general and we will continue to pass on the plastic in the closures business.

Okay. Steve, do you have the figure for what food was up a year ago?

We were up last year about 50 percent on a year-to-year basis in the second quarter.

Okay. And your debt, I believe, had been around half fixed and half variable. Is that still the case?

About 55 today fixed, 45 variable. We converted about $25 million of debt that was short term in the quarter to long-term to take advantage of what has historically been low fixed rate debt, we moved into about a 7 year 5 percent loan on that side and that took place in the quarter.

Okay, great. And your average blended rate in the quarter was approximately --?

It's around 4 percent.

Okay. And you've renegotiated your revolver, correct?

Yes, that was done at the end -- really the end of the first quarter, or we did it in the quarter.

What would be in your short-term obligations then at this point, the 68.5 million?

Primarily the revolver. Again, with the U.S. borrowings under that a lot of our cash is still in Europe. We're repatriating part of that back to the states, so we would expect to see the revolver debt come down by the end of the third quarter to some degree.

Okay, sounds good. Thanks a lot, guys.

Steve Wilson, (indiscernible).

Not much left to ask at the end of the line here, but I had 2. 1, when you talk about the milestone payment, can you talk about the cost matching? Does that come through at 0 profit, does that get accrued against the cost incurred? How do you recognize the P&L?

Essentially what's happened is a lot of those costs are what we would consider to be R&D costs which are ongoing related to this project. There was some onetime costs related to some external costs. Those were taken primarily through the first and second quarter which would have showed up just in our R&D spending. So, it is not pure profit, there are certainly some expenditures. But those expenditures are also, once we've received the milestone, would not be continuing so they are also onetime.

Okay. And the second question, we've talked about this in the past. With the dollar versus the euro and you're sending materials and products back and forth. Have you looked at this and said we need to find some rebalance in terms of where we're procuring within the Aptar network to deal with the cost pressure from bringing stuff from European markets vis-a-vis where we're seeing obviously inroads from lower-cost manufacturers? Is that a process that's been carried on or is that something you're starting to look at?

That's actually something that has been ongoing for us and accelerating. We are looking -- continuing to look for sourcing of our materials on a worldwide basis for all of our units, whether that's in the U.S. for our U.S. operations or in Asia for cheaper operation. A good example of that has been over the last two years we've significantly accelerated our purchase of molds and assembly equipment that we are bringing in from areas outside the United States and Europe. Again, the biggest positive from that is the cost of labor which in the Asian area is much deeper than the Western markets. So it's an area that we're very focused on and continue to increase, frankly, on a quarter-by-quarter basis.

And the other exposure is the exposure of our finished products being produced in Europe and shipped to the U.S. or vice versa. And we have an ongoing strategy of protecting ourselves against that by producing ideally the product in the currency (ph) in which we sell it. That's why we created (indiscernible) of America and that's why we are producing -- started to produce some of our perfumery products which were initially produced in Europe for U.S. customers in the U.S. both in the pharmaceutical and in the perfume business. And that's just one example. So the idea is to try to produce with cost in the currency in which (indiscernible) sell it.

Hello? It sounded like there was a fire drill.

We had some alarm go off. We're installing some new system.

Is it safe to say that with any new program you are basing that in the country or the market where the currency it's being sold in and you're sort of over time gradually rebalancing based on new programs or is that not an automatic?

No, it cannot be automatic. But that is a medium-term manufacturing strategy which we have started already like in the last 5 years.

And I think, Steve, as you know, one of the problems to that, particularly in the pharmaceutical market, it's very difficult to replicate pharmaceutical operations and very expensive all over the world. So we have to balance what the cost of manufacturing is. While we would like to have everything balance perfectly, in some cases it's not cost-effective.

And from the regulatory authorities side it is a difficult project because when you move manufacturing from, for example, a plant in France and you want to move it to a plant in the U.S. you need FDA approval before you can do that. And there has to be a very close cooperation between the customer, being the pharmaceutical company, the FDA and us as a producer in order to get that approved by the FDA.

Right, I understand that. That's why I was curious that you had set up a new plant in Switzerland, obviously one of the high cost locations.

Again, maybe that was a misunderstanding. What we had is a facility that was there; we sold an older facility and basically we have been operating in a leased facility that we ended up purchasing. So we had already been there are we already had the approvals for that site.

Okay, thanks for clearing that up.

Edmond Griffin (ph), Blackrock.

Glad to see that you're deploying capital a little bit better. And with regards to that, increasing dividends and buying back stock, does not imply that you are not close to any acquisitions or should we not read into that?

No, to the contrary. We believe, number 1, we want to enhance, as we always wanted, shareholder value. If you look at our balance sheet and our cash flow in the past and going forward with these two decisions, we on 1 side have been able to enhance shareholder value, but we remain with a very strong balance sheet, a very strong cash flow to be able to continue to look at strategic acquisitions and to be able to do whatever we need in order to enhance our position internally and externally.

What sort of productlines are you interested in getting into? It was my understanding -- when you talked about possibly expanding in household, it was my understanding that the household market, their margins were a little bit lower than some of the other market. So I'm just trying to understand.

You're right. That may be true. If you talk about the household business, if you try to sell me too (ph) product in the household business you will most likely have a lower margin. What we are trying or what we are proposing is to offer new dispensing, innovative dispensing systems, patented in certain cases, which improve the utilization of the product by the consumer and enhance this way the market position of our customers so we're really going there with innovative product and with better margins than average.

And Edmond, just do tie back onto that; for example, we're starting to see more dishwashing detergents go inverted using our simply squeeze dispensing system. Those are value added, they look better, frankly, on the countertops. So those things we're seen beginning to grow which carry a better margin for us into that market.

One of our biggest drivers for our business has always been convenience for the consumer. And we are succeeding with offering more innovative products which improve convenience.

And then can you remind me again, to get a better understanding of your -- the labor intensity of manufacturing, can you break out cost again for me?

We've never broken down cost between the various elements. It is very different from our product base too. From productline to productline the labor cost is very different.

Okay. And then when you talked about pricing pressure, I know you've been talking about pricing pressure on the low-end of the pumps for a while now, but I'm not sure I've ever heard pressure in the closures business. Is this something new or a change in the market dynamic there?

No, it's not new. We also have felt pricing pressure in the closure business from the major customers in the past and that continues. And again, it's always the same situation. If you have a product which is not anymore protected by patents than while we still offer with those kind of products (indiscernible) and service along with the growth and we have a great variety of products still. This kind of area in large volumes, especially custom-made products, we have pricing pressure and that will continue.

Okay. And then just two little quick questions. The free cash flow for the year, your guidance?

We haven't given guidance specifically on that. You can see operating -- through the 6 months our cash flow from operations is around 82 million. Again, the capital expenditures was around 50. So we're around 30 million kind of operations after CapEx. We haven't given full guidance for the year.

And hopefully better than that with -- well, actually maybe not with working capital. But -- okay. And then one last one. The tooling, can be remind me what the margin is on the tooling sales?

It'll come back and vary. What we've done as a company is we've really not focused on making money on the tools, so in some cases you'll see 0 margin because --.

It's just cost reimbursement.

It's a cost reimbursement, and for us it's a way to come back and get the product sales.

Right, I just wanted to make sure I understood that. Okay, great. Thank you, gentlemen.

George Staphos, Banc of America Securities.

Two follow-up questions piggybacking on Edmond's and then I think Steve's question earlier. First of all, Steve, did you cite transactions in the quarter, what the impact of it was? If you did I had missed it.

No, we hadn't. The net impact between translation and transaction is a slight positive in the quarter; so you still are getting the negative impact at the margin line, but bottom line was a slight positive net.

Okay, fine. Now, just on the subject of production of pumps here in the U.S. relative to demand, how did Congers ultimately come up? Have you had any issues with that facility since you brought it online I guess last year?

No, essentially we did not have any issues. We have had, especially in the last month, very good order flow there in the perfume/cosmetic business, and we are continuing to bring equipment in because the demand is increasing for certain of our products. And on the pharmaceutical side also, we have been increasing capacity in clean new facilities in this facility. And again, we're seeing very good demand essentially. We're filled to capacity.

Okay. So even though you point to it as an issue, really transaction wasn't -- if anything was a positive for you in this quarter year-on-year?

Net, net. Remember, when we talked that we are still saying so in effect if it's let's call it 0, we still had a 4 percent impact on sales and yet we're not getting a 4 percent impact on the bottom-line.

I know. But it beats the million or so impact you've had at times.

Absolutely. No, it is. So we're actually -- and you're right on your side that it has changed somewhat, we're now more positive than we were last year when we were on the negative side.

Last question, guys. And I think I know the answer here, but I need to ask it anyway. We've seen continued erosion in the dispensing margin over the last couple years. Again, a lot of it's going to be currency. Last quarter you were down I think a couple hundred basis points year-on-year, here it wasn't quite as steep a drop-off but still down. Are we seeing a mix shift -- yes, the growth remains very solid for Aptar, but a mix shift in your business despite your new product efforts to in total lower margin or will we see this reverse in the next two to three quarters given the factors you've talked about from a product standpoint? Thanks.

The major driver for the margin was the Pharma business. As we said, George, the impact of the drop in the sales to this 1 Pharma customer because of the inventory movement was considerable. And also the mix change in the first 6 months because between pumps and valves in the pharmaceutical business had also an impact on the margin. But we saw an improvement in the margin in the second-quarter and we expect also an improvement in the margin in the third quarter.

So would it be fair, just closing the loop in on that, we could see a couple hundred basis point pickup in dispensing margins then in the second half as you now have mitigated those factors?

Yes, that's what we expect. I don't know that I would come back and go a couple hundred, but we do expect to see quarter-to-quarter improvement.

All right. Good luck in the quarter, guys. Take care.

Mike Hamilton, RBC Dain Rauscher.

Just a quick one on share repurchase. And that is that if we look at this last quarter even with getting a little bit more aggressive we're still pretty much washing with share creep on option related I'd imagine. Is the Board's intent to get a little bit more aggressive than that in the period going forward?

Yes, it is. The intent was that we would be more aggressive in the second half of year than we've been in certainly even in the second quarter.

Great. Thank you very much and congratulations.

Tim Burns, Cranial Capital.

I wanted to just touch back on the whole movement of product manufacture, sourcing and what have you. And I'm just wondering if it's not like the low-carb phase where by the time all the low-carb products get to the store people find out it's not as good for them as they thought and nobody buys the stuff. I also worry about duplication of property, plant and equipment and belief that what is today is tomorrow. I know you're managing that prudently, guys, but how do you manage something like that? Even with an acquisition -- you could be buying the worst place assets in the world or possibly something that's going to help the business for the next 10 years. How do you look at it, Steve?

What we've tried to do is take -- I mean, ultimately if you take a look at where our customers are, Tim, and we need -- for our products we need to be at least finishing those products close to our customers. It's not practical given the changes that our customers have in their endpoints to be able to -- it's not a commodity type product, they need a lot of diversification. So we look where our customers are at and than we try to source, if you will, the components or the guts of that in different places that it's most cost-effective.

But you're right, what we've done is we can't knee jerk in one -- we can't move in 2 months to China, 3 months later back to Europe because we've got facilities. So our long-term basis is to go where our customers are at and continue to try to bring them the most cost-effective product looking at how we can reduce our labor content more effectively to utilize our overheads across our whole structure.

You might be better off -- well, I hate to say that, but acting more as a broker and temporarily curtailing production at facilities rather than building new duplicative facilities. Is that crazy or am I --?

Keep in mind, one of the key sides for us, again, in the pharmaceutical market you couldn't do it. And when you even get to the fragrance market, a good part of that is the quality and the service; it's not just relying on someone else to be able to ship things. So while we do use outside molders for some of our closure business, we have to be very closely maintaining service, quality and all those other aspects and the design characteristics we've got to be close to. So you've got to be able to manage that whole process. So it would be very difficult for us to try to outsource all the manufacturing.

99 percent of our products are custom. It is all really made to the design and to the requirements of the customers, to the marketers, and to the individual product of our customer. So to imagine that we could outsource a finished product to somebody to supply a customer -- unfortunately I would say it's impossible.

It's sacrilege, too.

Yes, in a way it's also, yes. And naturally if you would do that, we have a lot of know-how accumulated over 30-40 years and to teach somebody else to do that for a short-term advantage and then being stuck afterwards with a new competitor would be maybe also a pretty dangerous game.

It's probably not easy to do this either, Pharma or high-end fragrance and cosmetic, but how about swap manufacturing? Not that you would want to do it with Rexam, but maybe there's somebody out there where you could do it on a short-term basis. I know, it's like giving away the gold chalice.

Right. The risk is that you teach and build your new competition.

There's a lot of Chinese people who will do that for you.

Right. We don't need to help them.

Okay, guys. Thanks so much.

Thank you. And now I'd like to turn the call back over to Mr. Siebel for any closing remarks.

Ladies and gentlemen, thank you to everyone for participating in our call today. Thank you and good bye.

Thank you for attending today's conference call and have a nice day.