Aptargroup Inc (ATR) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2006 first quarter results conference call. [OPERATOR INSTRUCTIONS] Introducing today's conference call is Mr. Ralph Poltermann, Vice President and Treasurer of AptarGroup. Please go ahead, sir.

Thank you. 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 these 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 repost a replay of this conference call on its 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; Carl Siebel, President and Chief Executive Officer of AptarGroup and Steve Hagge, Executive Vice President and Chief Financial Officer. I would now like to turn the conference over to Mr. Siebel.

Thank you. Ladies and gentlemen, good morning. This is Carl Siebel. Before I discuss our performance in the quarter, I would like to comment briefly on the change which we have made in our segment disclosures. We included in yesterday's release our new format for sector disclosure. In the past, our segment reporting, which includes sales and profitability information in our segment disclosures was based upon our business units' reporting structure.

We have been moving towards looking at our businesses more on a market basis. This year, we changed our internal financial reporting system to be in line with this. And as a result, this prompted a change in the content of our segment disclosure starting with the first quarter of 2006. A member of senior management leads each segment management [force]. Steve leads the closure segment. Peter Pfeiffer has the pharma segment and I lead the beauty and home segment. I've asked Peter Pfeiffer, our Vice Chairman, to join us on the call to be available to answer any specific questions you may have regarding the pharmaceutical segment. Questions about the other markets will be answered by Steve or myself.

Now, let's take a look at the quarter. Overall, we reported an increase in sales for the quarter. Looking at sales by segment. Beauty and home sales increased mainly due to acquisitions. The closure segment sales increased due to increased product sales, particularly in the food and beverage market. Price increases related to rising cash flows and the acquisition of CCL Dispensing during the quarter. And the pharma segment sales increased due to increased product and custom tooling sales. Changes in exchange rates hurt the goals and sales for the quarter.

Operationally, we had a strong quarter but our reported results were significantly impacted by the new accounting standard related to stock option expense. This new rule that requires recording expenses for stock options beginning in 2006, affects comparability of information between the years. Beginning of the first quarter of this year, our results includes stock option related costs. Whereas in prior years, stock option expense was not recorded on the face of our statements. Please keep this in mind when you analyze our results. On a comparable basis, our earnings per share, excluding stock option expense in the first quarter of 2006 was $0.68, compared to $0.60 per share last year, or up 13%.

Looking forward, excluding changes in exchange rates. We expect overall sales by the beauty and home and closure segments to increase in second quarter of 2006 over the prior year. And sales of the pharma segment are expected to decrease due lower tooling sales and negative currency effects. I'd like to remind you that the second quarter results for the prior year included $0.09 per share positive effect from reduced taxes on Government grants in Italy and R&D tax credits received in the United States. On a comparable basis, by this I mean excluding stock option expense in 2006 and the tax items I just mentioned that were recorded last year; diluted earnings per share for the second quarter are expected to be in the range of $0.74 to $0.79 per share versus $0.72 per share last year, for an increase ranging from 3% to 10%.

I would like to now turn it over to Steve who provide more detailed information about are results.

Thanks, Carl. And good morning, everyone. I will review our financial highlights and then we will be happy to answer any of your questions. Looking at the quarter, reported sales increased 9%, and as Carl mentioned, changes in exchange rates suppressed our top-line growth by about 5%. Our custom tooling sales in the quarter increased approximately 7 million from the previous year. And finally, acquisitions counted for 25.6 million of sales for the quarter.

As Carl mentioned earlier, we changed our segment disclosures beginning with the first quarter of 2006. Excluding changes in exchange rate, sales in each of the segments increased by 14% compared to the prior year. We started recording costs related to stock options on the face of our income statement in the first quarter of the year. This change had a negative impact on pretax earnings of $7.1 million or about a bottom line impact of $0.13 a share.

Bottom line, we reported earnings per share at $0.55, compared to $0.60 per share a year ago but the lack of direct comparability of the reported earnings due to the change in accounting for stock options need to be considered. Reported EPS would have increased by 13%, excluding the change in stock option accounting versus the decrease reported.

From a geographical standpoint, sales to customers by our European operations represented approximately 61% of net sales in both years. And sales to customers by our U.S. operations accounted for 30% of sales, again, in both periods. Free cash flow, defined as cash flow from operations less capital expenditures; for the quarter was approximately $6 million, compared to 7 million in the prior year. Our cash flow from operations for the quarter was a little over 30 million in both years. While our capital expenditures in the quarter were approximately 26 million, compared to 25 million in 2005.

We spent 4.6 million to repurchase 86,000 shares during the quarter at an average cost of 54 a share. And we have an outstanding authorization at the end of the quarter to repurchase approximately an additional 1 million shares. The mix of our debt between fixed and floating rates at the end of the quarter is approximately 45% fixed, 55% floating, with an average interest rate of a little over 5%. Our return on average equity was approximately 12%, and the net debt to net cap is approximately 15% at the end of the quarter.

Now, as we look forward, total cash outlays for capital expenditures in 2006 are expected to be similar to our depreciation and amortization expense for the year. We estimate that the amounts to be in the area of $110 million, which will again, vary depending on where exchange rates goes.

As previously mentioned, in the first quarter of 2006, we began recording stock option expense on the face of our income statement. Looking at the second quarter, we expect that this will have a negative impact on our results by about $0.04 per diluted share. This is based on a projected pretax expense of $2.1 million. The majority of which will be recorded in selling, research and development administrative line on our income statement.

Also as Carl said, I want -- I wanted to also point out that in 2005, we had a positive tax impact of $3.2 million related to some U.S. R&D credits and some changes in Italian law, which will not repeat in 2006. And this amounted to approximately $0.09 a share. Finally, our overall effective tax rate for 2006 is expected to be in the area of 32%. At this time, we'd be glad to answer any questions. We can take some questions at this point.

Thank you, ladies and gentlemen. [OPERATOR INSTRUCTIONS] Our first question or comment comes from George Staphos. Your line is open.

Thanks, guys. Good morning.

Good morning, George.

A quick one first. Can you -- Steve, I missed it, what was the geographic breakdown of sales, Europe and U.S.?

Geographic was 61% of sales side from both -- between the U.S. and Europe customers and 30% --

Got it.

-- from U.S.

Steve, could you give us a breakdown on the rough revenue growth ex-currency across your old traditional product lines; fragrance, cosmetics, personal care, pharma, et cetera?

What we are going to do, George, is given now we've got the market segment, I am going to try to break those down between the markets, so you've got those.

Okay.

First of all, let me deal the beauty and home division. The overall increase was 14% excluding FX. And in the personal care side of that, we were up 15% quarter to quarter. Fragrances/cosmetic was up 17% and we were down about 5% in household. Those are the three main categories in that market.

Got it.

In closures, our personal care business was up about 11%, household was down about 12, and we were up 33% in our food and beverage market. And finally in pharma, as I said, we were up 14%.

Got it. Why was household down so much?

I think it's more of a timing issue. What we added is just -- we later started to see some of the Wal-Mart impact on pulling back some of the inventories. It is a smaller sector for us, so by definition, it gets a little more volatility.

Steve, could you remind us if you talked in the past about the so-called Wal-Mart effect, what it might mean for you over this year? I realize it is kind of hard to gauge something like this.

It is really a challenge, George. I think right now -- what we are starting to see is our customers, the Proctor's of the world, Unilever, are indicating they are starting to see some slow down. And I think that's even their case publicly. We have anticipated some slowdown with Wal-Mart, particularly with our U.S. operations in the second quarter, which is kind of baked into some of our numbers. So indirectly, we don't expect this to be a long-term problem but more a quarter or two issue.

Okay. Do you think that from your supply chain sources that there will be something of a whip effect? In other words, if Wal-Mart slows down 1% -- I am just pulling a number out for illustration -- that the vendors into them may slow down or pull back 2%, and you could see it magnifying throughout the chain? Or is too hard to call it right now?

I think it's too hard to call it. And even if it does tend to have a whip going down and then a whip going back up the other way, as people start to readjust inventories. But we haven't seen that at the present time.

Thanks. I'll be back.

Thank you. Our next question or comment comes from Amanda Tepper from J.P. Morgan.

Good morning, everyone.

Good morning, Amanda.

I wanted to talk about the fragrance pumps. I think you said in the press release it was flat year-over-year but then you are saying that ex-currency, everything was up. So specifically, on the fragrance side, what exactly are the trends volumes versus pass-throughs?

Let me give you a quick overview before on that Amanda and then I will let Carl deal with the volume stuff. Remember included in the numbers I gave you are acquisition. So if I take -- of that 17% increase in fragrance/cosmetic, the majority of the increase was related to the acquisitions we had last year.

Okay.

So, that's a little bit of a disconnect that you are getting. But Carl, maybe you can talk about the pump markets specifically.

Yes. We really have a very strong beginning of the first quarter. Generally it was extraordinary strong for us in the fragrance/cosmetic business. And we continued through the whole first quarter very strong order income. And so specifically on the high-end markets, the business has picked up and we right now for the second quarter, we have -- we believe that we will see very, very good increase in sales over the preceding year. And in effect, we are much better -- we will be utilizing much better our capacities in the second quarter than we did in the first. So they were -- they are sort of between the very good order income in the first quarter and the sales there. And the sales in the second quarter, there is a major gap to the positive.

Okay. And when you say "sales," this is really volumes? It is not just resin passes, right?

No, remember that in the fragrance pump business, the percentage of raw material is comparatively small. And in fact, there is also not an automatic market acceptance pass-through as we have it in the closure business, where, in effect when raw material price goes down we have to adjust to the down side. When they go up, we are able to adjust to the upside. And it's not as much accustomed in the fragrance business. And anyway the percentage of plastic material in the pump manufacturing for the fragrance business is very small.

Okay. And what are you seeing in general across all your businesses in terms of acquisitions, which has always been a good growth driver for you guys? Are there good opportunities still out there?

Well, there are still good opportunities out there. As you know last year, we have done more acquisitions than we have ever done. We continue in our strategy of looking for potential either in new technologies, new products, geographic expansion. And we are not necessarily just looking for growth and for being much bigger. We want something which fits into our strategy. And some of those acquisitions like the MBF acquisition last year, the EP Spray acquisition last year, are good examples of that. Because in both cases we are adding something to our product offering and our capabilities and technology, which we didn't have. So we have -- we are still evaluating opportunities. And we still have some of those but naturally, we can not comment on details at this point.

Sure. And then lastly just getting used to your new segment reporting. Can you give us a sense other than the options expense that is in your corporate expense and "other" line, what else is running through the other sales and other expenses line?

Steve.

Yes, on "the other" you've got Corporate expenses and options would be the biggest issues in the "other expense" side. The inter-Company sales elimination are just between segments and it is relatively small on a consolidated basis.

Yes. And then you are left with 58 or 60 million of revenues that's just other things you're selling to third parties?

Yes.

Thank you, our next question or comment comes from Chris Manuel of Key Bank Capital. Your line is open.

Good morning, gentlemen.

Good morning, Chris.

Steve, could you help us with -- you went through those numbers, I think earlier, for growth by some of the segments but that included acquisitions. Could you help us get back to what some of the core growth numbers ex-acquisition might have been in there?

Sure, let me try it. Again, beauty and home -- again, we will do it by the three segments. Beauty and home -- these are all going to be ex-currency. So ex-currency, I said was 15% increase in personal care. Excluding acquisition, that would be up 5%.

Okay.

Fragrance/cosmetic was an increase of 17%. Ex-acquisition was basically flat. Household was a -5%. Ex-acquisition would have been a -6%. Than't in the beauty home category. In closures, personal care up 11% before acquisitions, stripping out acquisitions, we have been up 6%. Household was -12% and wasn't impacted. And food was up 33% and also was not impacted in terms of the acquisition. And our pharma, 14% increase was also not impacted by any acquisition.

Okay, perfect. And I think you mentioned that pharmaceutical sales may be down in the next quarter. I don't know if Peter is on line, if you can talk a little bit about what you are seeing there? My understanding was there were potentially some diabetes drubs that could be coming online and a replacement for Flonase and some others. Can you talk a little about the pipeline and what you're seeing there and what you think we might have over the next two or three to four quarters?

This is Peter Pfeiffer speaking. Yes, I'll talk a little bit on that. First of all, I think the decline in the second quarter is mainly because of reducing of custom orders. We had in the second quarter last year, a very high sales in this area. The pharma sales for the second quarter will be up. The new introduction of this generic version of Glaxo's Flonase does not really effect the second quarter yet. As you might be aware, Glaxo has become a new competitor in this field. Glaxo is offering a new product to the market. They are selling these [products] to the market. We are seeing some of the effects there already. We got some orders from [Luxan] for the rest of the year. There are, by the way, other customers looking at this specific product of the generic version of Flonase. But for the time being, it's very difficult to predict what will happen during the year.

Okay. Thank you very much. And then the last question I wanted to ask was on the resin side, last quarter, you talked about -- that there was a hit as pass-throughs kicked in particularly in your closure segment. Was there any benefit this quarter as resin costs were relatively flat or came off a shade that may have helped you?

Well, as we -- in the first quarter, prices for plastic and raw materials went somewhat down. However, the system is that when prices goes down and up, we adjust correctly as agreed with the customers and as is usual in this market. Looking forward, with the very strong increase -- recent increase in oil prices, we may see again a change in the tendency and go back to price -- cost increases. Which then will trigger a gain in the closures business. And also the pass-through of those increases. And there's always a lag in bringing it down the cost -- the price decreases to the customers. And there is lag also when the prices increase. So, in general, there is a time advantage when the prices go down, and there is a time disadvantage when the price goes up.

As Carl said with it going down, we probably had a slight benefit as a result of that in the first first quarter. Prices went down. We passed through the decrease which occurred in February, and then they started going back up again in March. So, we just probably have a small positive on our U.S. operations. Resin costs in Europe didn't change very much.

Thank you very much, gentlemen.

Thank you, our next question or comment comes from Steven O'Brien of Wellington Management. Your line is open sir.

Yes, on the option expense was there anything one-time in the first quarter, the impact was $0.13, it was $0.03 last year, $0.04 affected second quarter, was anything that was kind of one-timish in the first quarter?

Yes, there is, Steve. If you look at it because of the new accounting rules, we got about $0.09 a share was an unusual charge that doesn't recur in the other quarters. We're going to probably be in the area of $0.03 to $0.04 a share per quarter going out, and that $0.09 a share relates to the vesting. Normally when these things get amortized, the options get amortized over a three year period. But in the new accounting rules, there is a new requirement if someone is either retirement eligible, which in our plan means age 55 with 10 years of experience, you have to then immediately expense the option the day it is granted. So, we had some options granted in the first quarter and that's why you see an acceleration of the expense.

Okay. And one other small question. What was the tooling revenues this quarter? I know you mentioned it. I missed it.

I think it was about $12 million. It was about $12 million this quarter. It was around $5 million last year.

Okay. Thank you.

Thank you, our next question comes from Jason Rogers of Great Lakes Review. Your line is open.

Good morning. I wondered if you could comment on the flat perfume sampling system? If you're seeing any additional traction there?

The flat sampling system, which we call [SSG] is designed specifically to be introduced inside of the magazines. And has been welcomed by the industry as a true revolution of the invention. The publicity we got up to now about a lot of this is excellent. We also got the prestigious FiFi Award in the United States for a break through innovation, and up until now, we are working on several major projects.

Now, you have to understand that it is a completely new technology. It is competing as far as the magazines are concerned, is it is competing with the scent strips, which are much less expensive evidently. But also the research, which was done by "Us Weekly" after the introduction of Pleasures from Estee Lauder in December, showed that the extra sale of the Pleasure product following this advertising was much, much better than they had ever had with with a direct advertising like this than with scent strips, for example. As I said, we have several projects presently working on. But it takes also for product like this to be introduced, you need some time for compatibility studies at our customers. So we will see the biggest -- a much bigger impact in our sales beginning in 2007.

Also, this sample can be used in other ways. It can be used in department stores. It could be clipped to the invoice for the consumer. It would be equipped to use for travel. It has multiple application possibilities. A much shorter success is our new easy spray sampling pump, which has several technical advantages. And where we have been able to fill our capacity much faster than we've ever had with a new product introduction.

So getting a major part of that part of this market with a more traditional but very much improved product. But it is seen visibly by the marketers as a major advantage for them. And we are gaining in this interesting market of sampling, we are gaining major market share.

Okay. That is the bag on valve system --?

No, the -- what I am just mentioning is really the vials with the little stopper, than more and more with a spray system system with a small pump. The samples, which are given away by the retailers to the consumers. And there is a very interesting worldwide market, which is going very fast where we have been only a very small participant. And we are looking at gaining market share much faster than we would ever have expected due to this new product.

The bag on valve system is a very different and very new technology, which we didn't have and which we acquired essentially through the EP Spray system acquisition. Yes we had a development also that we have been selling successfully. But now we have together with what we had before ourselves, we have an interesting market share there. And one of the products, which has been introduced to the U.S. market, is Coppertone from Schering. And Schering is reporting large increase in market share, very high success because of the advantage of this product that allows spraying in any position and the separation of the product from the preparer. The very environmental free -- environmental protective product.

And with this one, we have several very new, exciting actions, also in the pharmaceutical field. And due to the success with the Coppertone products, we have already introduced that technology into our U.S. operations and have started to produce that product in the United States.

Great, thank you.

Thank you. Our next question or comment comes from Ghansham Panjabi of Wachovia.

Good morning.

Good morning.

Going back to the raw materials. I understand you have resin pass throughs in your contract, do you have pass throughs for aluminum costs as well?

Traditionally, we did not have that. But we have been able to negotiate last year several major contracts where we also were able to include he pass through for aluminum.

And how much does aluminum account for in terms of cost. Maybe a dollar amount?

Steve, I don't --.

I don't have that number off my head. It's certainly, in some of the packages, it is very dependent on package to package on the fragrance side. It is a -- I don't have it, Ghansham, off the top of my head.

Okay, all right.

It is more important in the fragrance pump business than the plastic.

All right. And just in fragrance and cosmetics. Can you comment on your customers' outlook? Maybe their new product pipeline relative to maybe a year ago?

Our new product pipeline is at least as strong as a year ago. But we continue to achieve a very high percentage of market share on all new product launches. And our market position has certainly been maintained, if not increased, at the high end of the market with new product launches. And that is one of the reasons, including actually also our new product introduction of our own products, that we see a very strong second quarter and fragrance/cosmetic coming up.

Right. But I am just curious as to your customers' outlook. Are they worried about the consumer? Are their new products --?

No, up until now it seems that our major international fragrance customers are rather optimistic, which also shows in our order income. There are several elements helping to that. And it is difficult to differentiate and give a number which influences more or which is less important. Number one, I think that the first time since several years the general economy in Europe is improving. So overall, that should help. Secondly, it seems that the Christmas season was reasonably successful. Thirdly, the emerging development markets, beginning in Europe with Eastern Europe and Russia, South America, and Asia -- you see this in the disclosures, in the reporting from some of our major customers; are growing double digits in areas of 15%, 20%, 25%. So, that's another element which is naturally helping our volumes.

Okay, great, thank you.

Thank you. Our next question or comment comes from Todd Peters of American Century. Your line is open.

Good morning. Thank you for taking my question. On your guidance, I just wonder how much of the guidance for the second quarter is kind of either related to your comments about Wal-Mart and their inventory issues with your customers and how much is on the pharmaceutical side?

Well, one impact certainly -- and it is very, very difficult to make a good judgment call there. But as we said before we have figured in some of that into our second quarter forecast on the beauty and home segment, and somewhat on the closures segment. The pharmaceuticals side, as we have said, is influenced by tough comparisons with last year in terms of molds. Because last year we had some extraordinary large projects with equipment and molds being purchased by our customers, which does not repeat. So, the pharmaceuticals side this year in second quarter we expect certainly lower sales and not repeat the same volume. The other side is the currency impact, which is also potentially depressing some of our sales and profits in the -- by the translation of those from Euro to dollar.

All right, thank you.

Thank you, our next question and comment comes from Mike Hamilton of RBS Dain.

Good morning.

Hi Mike.

I was wondering if you could comment on the relative mix of your tooling in the quarter in terms of market served?

The -- I think the majority of it, Mike, of the $12 million we had was -- let's see. I think it was coming back into the personal care market and also into the pharma market. Those are the two biggest markets in the quarter.

Good enough

I don't have the exact amounts in front of me.

Okay. How -- if you could spend a couple of minutes on what we are seeing in SimpliSqueeze in expansion there?

We're starting -- again in the SimpliSqueeze categories, we've continued to see expansion into the food/beverage market. There's been several new products introduced in Europe and to the food market. In the condiments, we have expanded in several new ketchup areas in Europe. We have also expanded into the Asian market into two new beverages, which are sports-type drinks in Asia. So overall, the market -- the 33% the closures is seeing in terms of food/beverage growth, I would say a good 20% of that 33 is related to increase in SimpliSqueeze. We continue to see applications increase and market segments improving.

And I assume you're getting some pull through from SimpliSqueeze into other categories.

Absolutely. As a matter of fact, we are starting it in Welch's jelly. Went back out with the SimpliSqueeze product and that's influencing other people into the category. So, we've seen, we're actually even now looking some applications for SimpliSqueeze going into the cosmetic category. So, there's a lot of things still, I think, in terms of future growth potential.

Thanks.

Thank you, our next question or comment comes from Tim Burns of Cranial Capital.

Good morning, everyone.

Good morning.

It's tough for people like myself who are what they call "sometimers" to have these segments change. So, I just want to let you know the pain you are putting us through.

I feel it ourselves, by the way, Tim.

I hear you. What was driver behind the change? Was it a function of new IT? Or just better focus on the downstream operations?

I think, Tim, it's not really -- for us it's more of an evolution. We have been looking, and frankly, in these calls talking more and more about market segments.

Yes.

And what we have done, is started in '06, we've realigned our financial reporting to reflect that. And since the SEC requires us to disclose how we look at the business internally, it is more of a -- it's not a radical move for us, it's more of an evolution.

Got it. Where would the aerosol valves be located? It's across all three or at least a couple of segments?

The aerosol valves. We have two systems of aerosol valve. One, is the standard continuous action aerosol valve, it's also referred to as one inch valve. And that is used in the home sector exclusively. And then we have the aerosol metering valves. And that's not completely but mainly in the pharmaceutical sector.

Got it. So that business, which has been somewhat challenging based on competition and hard drive for new business, is now kind of filtered away into these segments. And the margins overall for those categories are impacted by how well the aerosol valve business does.

The sampling yes. Yes, naturally it is somewhat impacted. But we have been concentrating -- we continue to concentrate on the improvement of the margin in the aerosol valve sector. Yes, it is one of our more lower margin business but we also have improved it quite considerably over the last year through innovation.

Got it.

And some considerable technology and productivity improvement, which also got us major cost reductions. But I will say maybe it is 50/50, maybe a little more by innovation. But in any case that business that is also growing, has been improving and continues to improve going forward in terms of margins.

Got it. Okay. Steve, with Carl and Peter on the line, I kind of have one interesting question. And you guys have a business model that is very unique, I think. You actually buy companies and for the most part let them continue on with their own lives. And a lot of people have asked me how do they do it? How are their margins as good as they are, given what appears to be any other packaging business segment duplicative expenses and overhead? But there's an offset, right? There's an innovation offset, there's a competition offset against sister companies. Does this stay the same or is there a point in the future where you could drop out $50 million of cost?

I think, Tim, if you go back, and the key to AptarGroup's success historically, has been innovative products. I think it is important that when you look at our businesses, what we do is try to leverage one of our businesses off another.

And I think a good example of that is this acquisition that we talked about last year called MBF. That is in the fragrance business. We are using that to sell additional pumps into that market,and the whole assembly around the fragrance part. The other thing we are doing is sharing cost savings issues on the manufacturing through all of our operations. So in terms of duplicative overhead, there may be a little bit, but I think what we find is that there is certainly the offset of being more innovative products, more quick reaction to our customers. Our smaller operations can react very quickly to customer needs. And we are finding that to be very helpful, in both the United States, Europe and frankly around the world. Carl, I don't know if you or Peter --?

I would like to add one aspect in addition to what you are saying; is that not naturally -- Tim, very important is that these -- all these units fit in our strategy. They have to comply, whatever we do they have to comply with our strategies and they are coordinated on this way. Secondly, the important part of the way we are managing this is, as you described it, is the motivation of the people we get with that. And we believe that on one side, yes, we may have, as Steve pointed out, we may have some duplication of overhead. But this is more than compensated by the motivation of our people and their capability to service faster customers and their creativity. Because only if you have very highly motivated people do you get very good creativity.

Got it. And I kidded with somebody at one point and said; "if you want to go see Aptar at a trade store, you'd better bring your sneakers." And I think that's true.

It is true. [Laughter]

And then the last question I had for you, everybody is all hung up here on this Wal-Mart proclamation. You'd think they were the world. But I understand it's a current business issue and you have to deal with it. But longer term, what does Wal-Mart really want? They want higher profit yielding packages on their store shelf.

Yes.

So, what changes for you guys? Strategy-wise, yes okay, you take a hit here on volume short-term so they can play some inventory profit gains. But long-term Wal-Mart has got as many problems as anybody else. Which is they've got to figure out how to turn that real estate into something more valuable, and it takes innovative products to do so.

Absolutely. That is exactly the point. If they do what -- what they are saying that they want better -- better differentiation of the products they are selling and more innovation, that plays exactly into our strategy. So, there should be an opportunity. And you described it as good as is possible by saying; "okay, we may take short-term hit together unfortunately with our customers, the marketers." This will ebb out and eventually we will come back to business -- normal business and then we will have long-term hopefully. These people pushing for more innovation.

I think the interesting -- Tim, just to tie a little bit to what Carl said, the product we came out last year that we have been talking about, this bag on valve system for Coppertone. That went in at a top price point for that. That's over $7 to $8 a can and that is the largest-selling SKU within Wal-Mart. Those are the types of products that they are looking for. So for us, it's more -- they really are wanting to go higher up in terms of the value add, in our view.

It seems like they want smaller products, because they are pushing concentration with higher price points. That's the ultimate model for them. And I would think that's right up your alley. They will be dispensed somehow. So, I did have one last question. I am sorry about being a hog but I don't get to talk to you guys that frequently. Food and beverage has always an area that -- you kind of came last to that market because you didn't feel like the economic model or business model was ideal as some of the other models you serve but you continue to charge ahead. I am not sure how big that segment is. But apparently the profitability there and the returns aren't so bad because otherwise maybe you wouldn't charge ahead.

Well, absolutely, and I think if you look at the food/beverage, we are now starting to see -- we've come up with a concept with a jar, with a hinge side on the jar. We are now starting to see people in the food side, in the jar category looking for these hinged devices, which is are in snacks, which are in peanut butter. There is -- we are still a very small element in the food side. The value-added packaging, at least in our experience, continues to grow in that segment. And I think we are well-positioned for that growth in the future.

Right. Listen, good luck in the second quarter. I will try to get sick and boost your pharma sales to make up for the shortfall in Q2.

Get really sick.

Good luck, guys.

Thank you.

Another question or comment from Mr. George Staphos from Bank of America. Your line is open sir.

Hi, guys. A couple of quick ones and ticky tack stuff. First of all, Steve, what was the net of transaction versus translation in the quarter, was it meaningful?

It was pretty small in terms of the net position.

Okay. So, less than $1 million in?

Yes.

Okay. And then, I just want to make sure I understand the response you gave I think to Steve's question on options expense. So, every first quarter, might there be an accelerated options expense as you give options to people who are technically at retirement age?

Technically that would be the case. And, again, if we -- historically the Company has given options in January. And again, what normally would happen -- and, again, I would hate to get into my philosophical disagreement with the FASB here. But to me if you've got somebody who is 55 years old. Now, all of a sudden instead of taking that over the vesting period, you have to take it at day one. You have to expense it 100% day one. So, in terms -- after we get down -- if everything stayed the same, three years from today, then you're going to find it to be pretty average. You're not be getting the big blips on a year-to-year basis. But right now it is a first quarter issue.

So, until you change your approach to executive comp, we should expect the first quarter should have -- I don't know, a double or maybe tripling of what your quarter run rate is or is that too extreme?

No, I think -- at least double. And then also keep in mind, George, the other thing we've had to do is we've had to adjust for prior grants to now do the vesting. So, not only do we get today's grants updated for this vesting issue, we had last year's and the years before that we had to take a full vesting on. So, it is a doubling plus a doubling.

Okay. All right. Thanks, guys. Good luck this quarter.

Thanks.

Thank you.

[OPERATOR INSTRUCTIONS] We do have another question or comment from Mr. Chris Manuel of KeyBanc Capital. Your line is open again, sir.

Good morning, just two questions for you. One is, can you talk a little bit about where you are at now with capacity? Several of these acquisitions you've done over the past year or so, EP Spray, MBF and I believe even AirlesSystemss were exclusive to Europe. Can you talk about where you are at with regards to bringing capacity to North America or to Asia and what the potential add to capacity could be?

In the EP Spray case, you are absolutely right, because the -- that business was essentially done in Europe and they were selling not very much outside Europe. But with the combination then with our secret [perfect] division within B&H, within beauty and home, we were -- we started marketing the product, the products and their technology within the United States. And we were very successful with Schering's Coppertone. And to the point that our capacity in Europe were filled. And not sure the customer preferred to have local supplies, so we have installed a manufacturing line in our operations. And that is up and running since about two or three weeks and is already sold out. So, that business we are transferring there.

We are also looking at potential other areas that we believe for the time being between Europe and the USA, we will be able -- we will limit it and maybe do some export in other areas as needed. Talking about the MBF, decorating technologies. It was very clear that because that was acquired to reinforce our product offering at the high end of the perfumery and cosmetic markets and we would need that around the world. We are right now looking at extending this and moving that capability to South America. Most likely to Brazil where there are several very large customers in the high end perfumery market, which we are already supplying with our closures and pumps. And we are -- we will also consider -- move that into our Chinese operations. But the first step may be to go into South America. The next step then potentially into Asia.

Okay. And the last question I wanted to ask you was; as we take a step back and kind of put on a big picture philosophical hat, you guys have historically had organic growth. Some of the best in the packaging industry. 6% to 8% over the past decade plus. As you keep -- that will begin to start replacing more and more of your own products. Is there any reason to believe that that organic growth rate would decline or any reason to believe that it should accelerate from where we are today?

Well, we certainly believe that we will be able to maintain the 6% to 8% growth. We are not really replacing to a large extent with our new product offerings existing products. We are in many cases getting into new applications like the one I just mentioned with the Coppertone, is just one example of many. And we are believing that through our efforts in terms of cost production, redeployment efforts, innovation, as I said, geographic expansion, we should be able potential also to -- rather increase than decrease. Let's put it this way.

Okay. Very good. Thank you very much.

You are quite welcome.

Thank you very much. There are no further questions in queue at this time. I would now like to turn the conference over to Mr. Siebel.

Ladies and gentlemen, I would like to thank every one of you for participating in our call today. So, thank you and goodbye.

Ladies and gentlemen, this concludes today's conference. We would like to thank you for your participation. You may all disconnect and have a wonderful day.