Aptargroup Inc (ATR) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's third quarter of 2005 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 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 conference 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 and 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 now like to turn the conference over to Mr. Siebel.

Thank you, Ralph. Ladies and gentlemen, good morning, this is Carl Siebel. 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 yesterday's release, we reported record third quarter sales and strong operational results. Our sales growth was primarily driven by increased volumes and price increases. Sales for the personal care, pharmaceutical, and food markets increased whereas sales to the fragrance, cosmetic, and household markets were flat compared to the prior year.

Lower tooling sales of approximately $11 million in the third quarter of this year suppressed our top-line growth. Our reported third quarter results were adversely affected by charges recorded related to our previously announced plan to reduce and redeploy some of our workforce in our French fragrance cosmetic operations.

We are excited about the acquisition of MBF that we have announced earlier this month. They are a leading designer and manufacturer of decorative packaging components primarily for the high end of the fragrance/cosmetic market. They have advanced molding capabilities as well as expertise in decorating such as metalization and lacquer finishing of plastic components. This acquisition expands our product range and allows us to better serve our customers in this specific market.

I would like to take a moment to discuss the impact of the devastating hurricanes in the United States, which occurred late in the quarter. Fortunately, none of our operations are located in the areas affected by these storms. As most of you are probably aware, the extent of damage to the oil and related refining industries continues to be assessed. Resin prices have increased, and further increases have been announced. It is difficult to predict other effects these storms will have on our customers, suppliers, and end consumers. However, I would like to point out that diversification of our business from a geographic standpoint buffers us somewhat compared to other companies where their business concentrated more in the United States.

Business conditions, specifically in the U.S., are quite challenging, particularly in the area of raw materials, transportation, and energy costs. We plan to continue to aggressively control costs and intend to increase prices to mitigate the adverse effect of increasing costs.

Looking at the fourth quarter, we are up against very tough comparisons. In the fourth quarter of last year, we had a high level of sales to the pharmaceutical market for generics, which we do not expect to repeat in the fourth quarter of this year. As a result, we anticipate that diluted earnings per share for the fourth quarter, excluding charges for our redeployment program in France will be in the range of $0.62 to $0.67 per share versus the record fourth quarter 2004 earnings of $0.65 per share.

I would like to turn it over to Steve for his comments.

Thanks, Carl, and good morning, everyone. I'll review our financial highlights, and then Carl and I will be happy to answer any of your questions.

First, as we look at the third quarter, as Carl mentioned, we had a good quarter from an operational standpoint. Reported sales increased approximately 5% while excluding the impact of foreign currency translation sales grew by approximately 4% over the prior year.

Custom tooling sales were approximately $7 million in the quarter, a decrease of approximately $11 million from the prior-year level. The decrease is custom tooling sales adversely affected our top-line growth by about 3%.

Looking at total sales to each of the markets for the quarter but excluding changes in foreign currency rates, our personal care market grew 8%; our fragrance/cosmetic market was flat; pharmaceutical market grew 5%; our household market was flat; and our food/beverage market grew 5%.

The decrease in tooling primarily affected the growth rates in the personal care and the food market. Excluding the decline in tooling, sales to the personal care market were up 13%, and in the food/beverage market were up 17%.

As Carl mentioned, we recorded a pretax charge of $3 million related to the reduction and redeployment of some of our workforce in our French fragrance/cosmetic operations. After tax, this amounted to $2 million, or $0.06 per diluted share. A slightly higher tax rate in the third quarter of '05 versus the prior year adversely affected their earnings per share by about $0.01 per share. Bottom line -- we reported earnings per share of $0.69 compared to $0.68 per share a year ago. And if we exclude the charges related to the workforce changes in France I just mentioned, earnings per share were $0.75 per share, up 10% over the prior year.

From a geographic standpoint, sales to customers by our European operations represented 59% in the current year compared to 58% a year ago, and sales to our customers by our U.S. operations accounted for 31% of our quarterly sales versus 32% a year ago.

Excluding changes in exchange rates, the dispensing system segment sales increased about 3%, and our SeaquistPerfect segment sales increased about 9%.

Cash flow from operations for the quarter was a record for us at $81 million versus $51 million in the prior year. Our capital expenditures in the quarter were approximately $25 million in both years, '05 and '04.

During the quarter, we spent around $10 million to repurchase approximately 200,000 shares of stock at an average cost of just under $50 per share. The remaining authorization at the end of the quarter is almost $1.3 million.

Our return on average equity was approximately 12%, and our net debt to net capital at the end of the quarter is approximately 8%.

Now, taking a look at the first nine months of the year, reported sales increased 9% whereas sales, excluding the impact of foreign currency translation, grew approximately 7% from the prior year. Tooling sales for the first nine months of this year were approximately $15 million less than the prior year.

On a year-to-date basis, we reported diluted earnings per share of $2.10 versus a reported EPS of $1.86 per share in the first nine months of the prior year, or an increase of 13%. The year-to-date earnings per share includes $0.09 per share positive impact from two tax items we talked about in the second quarter and the $0.06 per share negative impact from the French workforce-related charges recorded in the third quarter.

Our cash flow from operations for the nine months was approximately $154 million compared to $133 million in the prior year, and our capital expenditures for the year were approximately $75 million compared to $76 million in the prior year.

Again, now, we look forward, regarding the acquisition of MBF that Carl has discussed, it's not expected that this acquisition will have a significant impact on our 2005 results, but we do expect it to be accretive in 2006.

Charges in the fourth quarter of this year related to the personnel changes in our French fragrance/cosmetic operations are expected to be in the range of $300,000 to $600,000 on an after-tax basis, and our overall tax rate for the quarter -- for the fourth quarter of 2005 is expected to be in the range of $0.32 to $0.33.

Lastly, our total cash outlays for capital expenditures in 2005 are expected to be in the range of $100 million to $105 million and depreciation in the area of $100 million, and these will vary somewhat depending on what happens with the exchange rate as we go through the quarter.

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

[OPERATOR INSTRUCTIONS] Amanda Tepper from J.P. Morgan.

Good morning, this is Scott Levine for Amanda. I have a couple of questions. Number one, trying to reconcile the cash balance, which declined by about what appears to be about $5 million with the operating cash flow that you generated during the quarter, I know you said about $10 million on the repurchase. I'm wondering if there is anything else in there that we're missing?

No, I think it's just normal cash operations. There was nothing substantive in the quarter.

Okay. And with regard to the fragrance and cosmetics market, I know last quarter you talked about new product launches heading into year-end, and the market still appears to be flat. Any additional news on that front -- how things are looking heading into the holidays?

As usual and especially to the end of the year, it is really very difficult to make predictions. Our business continues to be very short-term. We continue to observe that we get a higher percent -- ever-higher percentage of orders for the same months during the months, and that is especially happening in the last quarter with December being very difficult to predict.

Now, if we look at the business, in general, the cosmetic side of the business is comparatively strong, and we also start to see considerable success in our new products, specifically in the sampling area. That will not have a tremendous volume effect in the fourth quarter but certainly because of the excellent reception of these new products, we believe this will have a major impact in 2006.

The comparison, and I alluded to this already -- the comparison with last year fourth quarter is really tough because we had last year, in December, a very, very strong month. We were really surprised by that.

There is also another effect, which happens like a fashion from time to time, that customers are high in the market are switching between plastic components and metal components, and at this time we have a product mix effect at some major customers, which are moving from metal components to plastic and potentially metallized plastic components.

Okay, and one last question -- it looked like the household sector was growing okay last couple of quarters and is flattening out about this quarter. I was wondering if you could talk a little bit more about that?

There is really -- and you already mentioned that. We had very strong growth the first two quarters, and the third quarter was somewhat more flat. However, we are not aware of any significant reason for that. It's just a movement between quarters. In total, if you look at the nine months, the growth in the household market for us was quite satisfying.

Ghansham Panjabi from Wachovia Securities.

This is actually Phil Ng calling for Ghansham Panjabi. I noticed that top-line fell off a bit this quarter. I just wanted to get -- and that was primarily from a decline in custom tooling. Should we use the current run rate, going forward?

Well, I think you've got -- as usual, the custom tooling is very specific to the quarters, Phil. So I think if you look at it, the run rate was, roughly, 8% if you back out currency on a 7% to 8% on an operational basis, and that's been kind of our target as we've looked, going forward, on a long-term basis. Again, as Carl alluded to, it's difficult in the fourth quarter because a lot of the uncertainty is to project exactly where the fourth quarter is going to come out. But I think, over time, between 6% and 10% is a realistic, long-term growth rate for the company.

Okay, and in terms of -- I know you commented a little bit about the new product launches on this fragrance side as well as the sample. What about the pharmaceutical? I think you were talking about several product launches on the customer end last quarter.

I don't know whether if we were expecting specifically something for the last quarter of 2004. As you know, the business is extremely long-term. There are some very exciting, very long-term projects. For example, the dry powder inhaler area, we have -- we are effectively in some products with some customers in their third pharmaceutical clinical trials, and we have some products, which may come out in 2006. For the fourth quarter, we do not expect anything significant.

Chris Manuel from Keybanc Capital.

This is the real Chris Manuel. Anyway, a couple of questions for you -- first of all, can you talk a little bit about -- I heard what you're saying with guidance, that you're running against some difficult comparisons, but if -- looking at what changes year-over-year, other than pharma potentially being a little bit weaker than it was last year, when you've got the addition of EP Spray, that may add, I don't know, about a penny or so. Your new acquisition may not help. You're going to get under organic growth. Help me reconcile what might be some of the other factors, or are there other factors involved, that could potentially make the fourth quarter of this year be worse than the fourth quarter of last year?

The first biggest issue is really the generics, as I mentioned before. Our customers on the generic sites, and we're talking -- I guess you are fully aware about the Flonase product from Glaxo -- we're filling the pipeline for an expected release by the FDA for generic products for the Flonase product. And that, by the way, that release has not happened. However, we had unexpectedly high sales in the generics. In the beginning, in the third quarter, especially in November and December 2004, and that -- naturally, because there was no FDA approval for these customers and for these products, that is now completely dried out. We have zero.

On the other hand, mitigating that somewhat is that Glaxo themselves have continued to purchase, which they would not have done, if the generics would have been out, at least not, I guess, in the same level of sales. This is the biggest impact, which we are up to in the comparison between 2004 and 2005.

I may like to remind you also that predictions are extremely difficult at this point. There is the question of the impact on the end consumers by the cost increases for the consumers on the energy sector. There is the general problem of prediction for the fourth quarter, which is more difficult than any other quarter with a December effect, and last year, at the same time of the year, we were very wrong with our prediction for the result of 2005 quarter at the beginning of the quarter, which only -- fortunately, it was on the positive side -- which only underlines the difficulty to tell you today what's really going to happen specifically in the month of December. And in December last year, not only we were surprised by stronger-than-expected sales in the pharmaceutical market but also by very strong sales to the perfume/cosmetic market in December, which was unusual.

As far as new product introductions and, as I mentioned before, we have two major new product launches of ours. Here I am talking about our devices, which we started to supply in the fourth quarter, and which have been received very well by the customers, and there we believe that this will have some impact on the fourth quarter 2005 but specifically going forward into 2006.

Okay, but let me zero in on one piece of -- what you were talking about there. In your press release you called out higher raw materials, transportation, energy, and the need for intent to use some price increases to mitigate. Is there anything there, along the lines of, let's say, resin costs moving up that you've got a lag in pass-throughs that could be negatively impacting you in the fourth quarter that would reverse itself out in next year?

Yeah, that is true, you hit it right on the head. Clearly, there is always we are optimistic that we continue to be able to pass on our price increases, but there is a 30-day lag. And that impact -- that has an impact on the fourth quarter because of unusually high increases of cost. We have a 30-day delay that has an impact on our guidance.

Okay. The last question I want to ask you before I turn it over is EP Spray. There has been some discussion there to negotiate with customers here in North America where the product -- you haven't been supplying the product at present. Can you give us any update there on adding capacity for the bag-on-valve here in North America or any contracts you may have?

Yes, there is a very important customer of ours where we have already been supplying our special activator and valve system but not yet the bag-on-valve system, and the customer wants also to use the EP Spray technology. We have already all of the necessary equipment. We are preparing for installation of that equipment in the U.S. at the end of the fourth quarter, beginning of the first quarter 2006, and that is expected to add some significant sales and margins to our business in that area. EP Spray is developing quite well, in general, and specifically the acceptance and penetration of that new technology in the market is surprisingly good.

George Staphos from Banc of America.

It's Arun [ph], actually, for George. Just a couple of quick questions -- following up on Chris's question on resin -- can you just give us a little bit more clarity on any supply issues you're having with resin? We've heard talk that there's been force majeures, and if that's causing any of the problem that you guys experienced?

Up to this point, we were successful in assuring sufficient supply in the third quarter, and we are optimistic, also, going forward in this respect in the fourth quarter. At this point, I'd like, also, to remind you that present supply issues primarily a problem which we have in North America, not so much in the rest of the world. However, North America's business represents only 30% of our sales. So we are relatively less, maybe, impacted by this than other businesses may be.

Okay, great, thanks. And so any of the problems that you've seen here on the cost side, how would you describe, as far as transportation, energy, anything else -- that environment in Europe as well -- is it an equal impact or less?

Well, it seems that the cost increases for the resins are somewhat less in Europe than they are in the United States, but they are still significant, and I guess -- and the same thing is true -- also there are worldwide cost increases for transportation and energy. So it's not only on the resin side. And we're trying to pass these costs onward right to our customers in effect not only in the closure business but also in our other businesses. We have actions in place at this time already to increase the prices, in general, and we are optimistic that we will be able to pass these costs on to our customers.

Okay, great, yeah. And then just on the cash flow -- it is again strong this quarter -- what have you guys been seeing as far as possible uses of that cash flow, going forward? I mean, obviously, you bought back some more shares this quarter -- what about further uses as far as acquisitions and dividends and further buyback?

Well, I guess, Arun, you can see that subsequent to the quarter we announced approximately a $50 million deal for the MBF, which Carl also talked about. So we are continuing to be active in the acquisition market, looking for strategic transactions, and we're also very aware, frankly, that some of the transactions have been somewhat pricey. So we've been selective in what we've been looking at.

We are also continuing to be active in the stock repurchase. So I think, as we've gone forward, we're still going to be looking for value-added acquisitions, and we'll continue in the repurchase activity as it makes sense in the marketplace.

Okay, great. Actually, I had one more follow-up on the resin issue. You did say that there were further increases going through. Can you just quantify that for us, and I believe that's mainly in polyethylene for you guys? Is that correct?

Well, the biggest issue we have is polypropylene. We do use some polyethylene, but our key material is polypropylene. And when we've talked about those, there have certainly been announced increases in October, which have gone through, and then there's a lot of discussion about proposed increases over the next two months. It's still uncertain as to how much those are going to be.

Okay, but October's have fully been implemented then?

Well, October rates came back up. They moved up. It depends on the type of resin but basically there were significant increases in the month of October.

Okay, and just lastly, the volume trends obviously will continue to help offset some of that. How is it, so far, in this quarter as far as travel or look into fragrance and cosmetic and some other areas that you're seeing?

In the fragrance/cosmetic market on one side, we see continued product launch activity of our customers. But the customers are very prudent at this point, potentially expecting a reduction in consumer demand, in general, because of the inflationary issues. The order book, as such, in the high-end of the fragrance market, and the orders which were received in August and September were rather strong but very short term, and, really, the issue is, as I mentioned before, how to predict what's going to happen in November and December. Then, again, last year we had a sudden surge of demand in November/December, which we had never seen ever before in a given year because normally December was a very low month. Therefore, we are up to tough comparisons compared to the fourth quarter of 2004. And, again, the prediction is extremely difficult.

Do you think there is any pre-buying going ahead of price increases or is that allowed?

No, because none of our products are really standard of the shelf product. It's all custom made. And in the contrary, what we are seeing is that the customers got used to, due to the improved technology and logistics, and due to our improved capabilities with a very, very high and short-term capability to supply, the customers are constantly reducing their inventories. [inaudible] inventory trying to reduce their risk, and there is definitely -- I don't think there is any pre-buying.

Jason Rogers from Great Lakes Review.

Hi, guys, it's actually Greg Halter. I wondered what EP added to your sales and pretax profits in the quarter?

It was relatively small. I think it was probably, in the area of sales, is a little over $3 million coming back on the revenue side, and slightly under $1 million in terms of profitability on a pretax basis.

Okay, and I know you've talked about price increases, but looking at the third quarter what did price add to your top line?

We're estimating -- again, it's difficult given the mix issues for us, and you've got resin escalators, et cetera, but our estimates at this point, it's in the area of 1% on a year-to-year comparison.

And, again, looking at the future, you've talked about some price increases there. In general, what type of increases are you looking at putting in place?

Well, I think the biggest side right now -- the challenge for us in a heavily increasing raw material market is to be able to, at a minimum, recover the raw material and out-of-pocket costs. That's the primary focus right now. So that's what we're putting through in terms of our resin pass-throughs, with our closure business, and also, as Carl mentioned, some of the pump-and-valve business. So we're in the process of going through that now.

Okay, I think about a year ago, maybe a year ago in November, you had an issue with a resin supplier. Has anything come from that yet or come out of that yet?

No, that is still ongoing. The issue, which we had, is that we are -- we don't think that Aptar is a small company, but compared to the resin suppliers, we are still small, and they are very powerful, and it's very difficult. So up to now, we have not much recuperated from this cost. We are still working on that and still negotiating. I hope we will, but at this point we have not much recuperated.

Okay, and is approximately 50% of your debt still at variable interest rates?

That's correct.

And what was your average rate in the quarter?

I think it's right around 4.5% to 5%.

Okay, and one final question relates to price pressure from some of the folks in Asia and so forth. Can you characterize what you're seeing presently there and what your outlook is for that, going forward?

Well, our environment, not only from Asia but in general, has always been quite price competitive, and where we are seeing some of that is specifically in the low end of the fragrance business and the low end of the personal care market. But the issue which our customers have is that in the environment which I explained was very short-term decisions and very short-term visibility, the logistics supplying from Asia custom-made products like ours, is, with few exceptions, very difficult for suppliers from far away from 8,000 or whatever miles. And there is some impact of that. We have also had some impact by our customers moving the production of their finished product to Asia. So, really, the customer, in a way, disappears in the U.S. or Europe. But up to now it has not been a material impact on our business.

Okay, and -- sorry, but I have one last one relating to the SimpliSqueeze. Can you discuss any new wins you may have there, either on a food side or on the water side?

Let me start by an example, which is neither food nor water, which is toothpaste, and the toothpaste that has been the first product ever been put on the market by Colgate recently, using our SimpliSqueeze system to improve the dispensing. We think this is significant. We have some other projects with major customers equally in toothpaste we are working on. So SimpliSqueeze is continue to penetrate that technology nearly in all our markets.

And since you mentioned food and beverage, on the beverage side we gained a new product launch in Poland with SimpliSqueeze for a water product -- same thing in England. In both cases, these are significant volumes and good margins. So that's really on the food and beverage side, the acceptance of inverted packaging. On the food side, for example, on the ketchup, we continue to increase -- we see the utilization of SimpliSqueeze by Heinz and others. There are other products -- salad dressings, chocolate dressing, honey, and so on -- we gain markets with this, and there is more and more conversion going to inverted and using our SimpliSqueeze product line.

And the Colgate toothpaste -- is that now being sold, and is that in the U.S.?

Yes, it's in the U.S. In fact, it is their upscale line just called Luminous, which is they're putting a lot of advertising dollars behind it. It just hit the market within the last probably three weeks. So it's got a new formulation for Colgate, and they're going to be targeting most of their upscale lines now with the SimpliSqueeze product. So, for us, it's a really exciting new, if you will, category breakthrough.

And there is another one, which has nothing to do with SimpliSqueeze -- there is a new Listerine pocket breath freshener on the market using our pump systems. And that has had very good initial success on the retail market and is continuing to drive our sales there. So that's, again, also maybe a new category for us and for the pump business. So that's also a very exciting new product launch for us.

Mike Hamilton from RBC Dain.

One, if you could give some clarification -- I couldn't follow the discussion on tooling outlook for fourth quarter. You had a strong tooling sales level last year. What's your feeling on comparison here?

I think we will be down in the fourth quarter right now based on expectation of tooling compared to the fourth quarter of last year. When we announced, really, at the end of last year that it was an unusually high year at $58 million in overall sales. In '03, for example, we were about $33 million. We think that $33 million to $35 million is more of a normal run rate for us. So it's difficult to project when all these projects will come back, but I would -- I think we're $7 million in the quarter and, in rough numbers, we could be $7 million to $9 million in the fourth.

Could you walk through -- intuitively, the slowdown in tooling would lead me to believe that in personal care and food/beverage, you've got slower new product launches ahead, but it sounds, from a lot of your discussion, that that's just not the case.

No, it's not really the case because, remember, the tooling is always for custom product and not for stock products. Our emphasis and our margin potential lies, evidently, with our own product development and our own new product launches, which then will not lead, with very few exception, to custom tooling sales. So new product activity using our products is not necessarily based on us selling the tooling, in the contrary.

On more of a macro picture, Avian flu issue -- are you seeing any of your fragrance/cosmetic customers changing behavior?

No, we did not realize -- I am not aware of any of that. However, on the positive side, there seems to be a preparation of certain disinfectant and soap product to be put on store, maybe, and to be prepared so customers are -- presently, we see an increase in demand for our dispensing systems for this category, a significant increase, because the desire of the consumer to protect himself and wash more often and so on, may lead to an additional demand.

Would you take a stab at what percentage of your business that involves resin is purely a customer pass-through?

I think if you look at it, the biggest one was probably about 25% of Aptar, rough numbers, is the closure business, and that's pass-through. We probably have another 15% to 20% of the business that's got pass-throughs of raw materials of which resin would be a part. And then the rest is negotiated and depends on customer-by-customer, contract-to-contract.

Then, finally, any launches expected on the pharma side front half of '06 as you see things now?

We cannot comment on those, and there are -- we have some products with some customers, which are in clinical trials -- advanced clinical trials, which we hope maybe to be launched next year. But, as you know, the predictability of things like FDA approval and so on is extremely difficult. But we have a very good number of new product developments with customers. The portfolio, in general, is certainly at least at the same level as in the past.

Timothy Byrnes from Cranial Capital.

I wonder, Steve, could you tell us roughly -- I mean, if you took EP Spray and MBF, what kind of annualized sales will those two technology acquisitions provide us for the years to come?

Well, I think that if you looked, EP Spray has got an area of about $50 million to $55 million of revenue at the present exchange rate -- excuse me, MBF's got about $50 million. EP Spray is probably in the area of $20 million and growing. So let's say in the area of $70 million on incremental basis.

These things could grow to be a $100 million leg of the business pretty quickly it sounds like.

Yeah, I think that -- we start -- certainly, the EP Spray technology is going to play a niche position, but we think it's an interesting niche in the MBF -- one of the areas that we're going to be able to do is to be able to expand that technology that today is pretty focused only in France, and we're going to have the capability to be able to take that into regions like the U.S., South America, et cetera.

Gotcha, and MBF is an interesting one, because you guys are normally buying some kind of real chunky technology for pushing product out of a container. And this one, it seems, it's more of a displacement of metal with a metallic plastic or a metallized plastic. Or do they have other capabilities that we just don't see in the press release?

If you would allow me to explain a little better the strategy behind that.

Please.

For the high-end perfumery customer, the choice of the pump is important but maybe equally important is the design of everything which goes around that. And some of our customers would go first directly to somebody like MBF and have them design around the pump, and there may have been even cases where the supplier would try to buy the pumps from the pump supplier, and we get in the position of second-tier supplier rather than being what is our normal business, first-tier supplier.

And the combination of the technologies of MBF and the technologies of our existing divisions in the pump business for the high-end perfumery market reinforces our overall offering in our overall technology and improves our capability to sell the pumps, at the same time, we will also improve the capability to sell the MBF technology.

So it is really diversification and the combination of the two reinforces the overall Aptar position in the high end of the fragrance and cosmetic market.

Gotcha, so it sounds like the conceptual design will -- they know they're going to put a pump in there, but the way it's going to look may come first, is that what you're saying?

Yes, you've got it absolutely right.

Okay, so what you want to do is be at the initial conception of the whole design.

Right.

And then you drag in your pump system along with it.

Very well understood, yes.

Gotcha -- that's what I thought. And this ability to metallize and displace, let's say, metal components, it's an interesting attribute, correct?

Absolutely, they have a very interesting technology in this area and, in some cases, customers -- or in many cases, customers in the high-end market buy the metal shells, which are put into the whole system, in other cases to reduce the cost they are using the metallization of the components. And the quality of the metallization and the quality of the technology of MBF is certainly at the forefront in this industry. And, therefore, the combination again, we have been -- in effect, we have been using sometimes MBF as a sub-supplier for us, for example, for metallization in some of our businesses, and we have also had design capability ourselves in our business, and then we sub-contract it to people like MBF. The full combination and integration of all these technologies with our pump business will reinforce our market position.

So it's multi-faceted. I think I now understand it. Now, I guess, the other question is you could now take this to China, you could take it to North America?

Right, that is exactly what we are planning to do.

Okay, so there's incremental business, there's probably some margin enhancement.

Right.

Gotcha, okay. And then EP Spray, a lot of that has to do with, like, 360 spray capability, is that correct?

That is absolutely right. If you look at the Schering product for suntan lotion, Coppertone, which is out on the market, which seems to be a tremendous sales success for Schering, is because of the combination on one side of our locking-activated system which is patented, which is very successful, together with the bag-on-valve technology, which, as you said, allows the consumer to really use the product in all positions. And so, suntan, for example, it's actually ideal.

And the other thing, too, Tim, it's a product that doesn't really come in contact with a propellant. So you also have -- also easier formulation issues to deal with.

It's pure, it's very pure.

Right.

So will this product line kind of kick in as we had -- I guess we start shipping that stuff -- well, it depends on which part of the world, right, but I know here we're not going to see the sun again until July or something.

Well, these kinds of products are filled already, in some cases, in the fourth quarter of the preceding year. They start filling very early.

Okay, so that's -- we'll start to see that happening then?

Yes, and we're now expanding already because one of the major customers wants to introduce the bag-on-valve system, and we will move the technology to the U.S. now.

Okay. Last, I have two other questions; I'll try to be quick. People that convert resin right now are being treated like pariahs, especially in packaging and other areas just because the risk that investors perceive. We all know that this situation is going to eventually work itself away. But isn't it a very opportune time for a strong financially secure company like yours to kind of maybe accelerate the M&A front?

Well, I think, Tim, if you look at it -- I think we are in the market, we continue to look at opportunities. So I don't know if by itself it's an accelerator. I think the market itself maybe come back and pricing gets a little bit more realistic, which is certainly a help in the market. The MBF acquisition occurred probably before the resin, but we're not going to change our strategy because of an event. We're going to continue to look at things that make strategic sense and then the only area I see that could help is if, all of a sudden, prices become more realistic. It may make the activity higher level.

Right, we also get the sellers selling an EBITDA stream that might not really be there and still expecting relatively high multiples, but I guess at some point here there may be some bargains, and I'm just wondering -- I know you're in the market. I shouldn't have to reiterate that, but it might be interesting to see what happens. There are some great values out there in the public markets right now, as you know.

And then, Carl, the last question I had for you was, you guys -- it sounds like what we've heard today is that there is still just a lot of new-product development, but we keep hearing that purchasing managers and marketing people are being told, "Listen, we've got a cost problem that we've got to get through this system, and hold up on the new product activity." Could you be seeing a lag in that new-product development activity in your business or are you just serving markets that can't afford to stop?

Actually, it's different from market to market. In general, I guess I need to answer no to your question. We did not see a lag at this point. What we have rather seen in the past, there was very few customers who were -- and that always happens that while we don't want patented products because then we're depending on one supplier, but that if there is an interesting, really exciting, innovative product, which would help the customer, in his eyes, to maybe expand his market share like, for example, the Schering product for the suntan lotion, which is sold at a considerably higher price, then we have always been able to sell. And you will see, for example, in the sampling market, you will see, by the end of the year, some very, very interesting new product launches, which, again, has an added cost for our customer. The customer doesn't hesitate to bring it out because it's really innovative, and it adds consumer convenience.

Gotcha, so in other words the sampling might actually be somewhat counter-cyclical to the ongoing business. In other words, they're willing to spend and promote. And sampling, if I recall, hasn't been historically a huge business for you.

That's exactly the point. We have been very small in this area, and we have not gone in with Me Too products at lower price. We have developed and gone in with really something different, which is adding considerably to consumer convenience and also gives a better value for the advertising dollar of our customer, and we see that we will expand in that business, and it will be a new market for us.

Is there any example of this product that we could see in the marketplace that you can talk about?

In December.

In December, okay. Well, if you have any that grow hair, please send me a sample.

I will try it on me first.

We have a follow-up question from Amanda Tepper from J.P. Morgan.

Hi, this is Scott Levine for Amanda -- a couple of quick ones. Taking the MBF discussion a step further, are there any other particular markets that you'd be looking to do acquisitions in, and if you could comment a bit on the pipeline and what it looks like in terms of opportunities out there?

Let me take the acquisition side. Again, we are going to continue to look at the dispensing -- I mean -- our focus is on the dispensing area or things that are around the dispensing area, which is kind of in the MBF technology side. You know, we've announced last year that we've acquired dry powder technology, which will help our pharmaceutical business over the next three to five years. So we are continuing to look in different marketplaces. But, as you know, we can't comment on any specific acquisition opportunities that might exist.

Okay, and one follow-up just quickly on the charges. Was there any cash components of the charges taken in the quarter and/or what's the timing in terms of any cash component for the charges taken in Q4?

There's probably a half a million dollars out of the $3 million that were cash-based, and the $2.5 million will occur either in the fourth or the first quarter of '06.

We have another follow-up question from Jason Rogers from Great Lakes Review.

I was interested in your estimation of the adoption rate for inverted packaging and SimpliSqueeze. It seems growth has been going well in both of those areas. But do you anticipate any point there could be an acceleration of adoption that could lead to some higher growth rates?

Well, we believe we are in an accelerated mood in this respect now. We see a considerable expansion of the utilization of inverted packaging, which really promotes the SimpliSqueeze technology. One example is, again, the ketchup area -- in the ketchup area our customers are expanding to more and more SKUs converting from normal dispensing closures to the SimpliSqueeze system. We see considerable success also in other food areas where it is honey, it is mustard, chocolate syrup, and so on.

In the water area, the beverage area, we continue to be successful. So we think that this has contributed over the last years and will continue to contribute, and the interest -- the product development activity we have at this point makes us optimistic, also, going forward.

In the household market, do you see that trend just starting to ramp up now? Because we haven't seen too many -- there's been some, but not as much activity in the food and beverage market for the inverted packaging in the household area.

In the household area, we may be just at the beginning. Again, there we also have some project for the future, as long as you are in the project development region, it's difficult to predict whether a customer will finally go out on the market, but we are convinced that even in that market, there is a potential, and the customers are ready to pay higher cost potentially for an improved customer -- consumer convenience.

Yeah, Jason, in that market, on the household side, one of our customers is Clorox with their Soft Scrub product. That's been in regional test, and it's going to be going national on a SimpliSqueeze forum. So as you've seen in those markets, it tends to be once you get one or two brands that are out there, the follow-on can come pretty quickly.

Our next follow-up question is George Staphos from Banc of America.

It's Arun again, sorry. Just one quick follow-up to the resin issue -- if resin held constant at these levels, some crazy event, but if it did, would you guys catch up completely in the fourth quarter or when do you expect that to roll through?

Well, it's always a 30-day delay, but we would expect, with that 30-day delay to catch up.

Right, so assuming that they do go up again, and then stay constant in, say, '06, it would be the same time lag and possibly by the first quarter you'd be on track again?

Right. Under the assumption that all material price stays flat, yes.

Does your guidance include the further charges that you see or further price increases that you see on resin for November and December?

I think, in the guidance, remember what we're doing is we're hoping to recover the costs. So what we've got in the guidance is in the quarter, frankly, reflects a negative because right now there's a timing issue that we're -- until we see this thing clarify a little bit, it's hard to predict where the increases are at. So if you're in a lag, you've got a negative on a fast, increasing marketplace. So we'll have to see when that starts to flatten out.

Right, but the fourth quarter guidance that you've given does include some additional increases for resin in the fourth quarter, correct?

Yes, correct, so there is a negative impact in terms of the fourth quarter until we get it stabilized.

I am showing no further questions. Mr. Siebel, would you like to continue with any further remarks?

No, thank you very much, but I would like to conclude and thanking everyone for participating in our call today. Thank you and goodbye, everybody.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, you may all disconnect. Have a great day.