(ATR) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to AptarGroup's fourth quarter 2007 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 Treasure 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 the forward-looking statements, please refer to AptarGroup's SEC filings.

Information in this conference call is relevant on the day 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 were 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 and forward-looking information contained therein.

Participating on this call today are Peter Pfeiffer, President and Chief Executive Officer of AptarGroup and Steve Hagge, Executive Vice President, CHief Operating Officer and Chief Financial Officer.

I would now like to turn the conference over to Mr.

Pfeiffer.

Good morning, everyone.

This is Peter Pfeiffer I realize that I have a strong German accent and that my English is certainly not as good as Carl Siebel's.

In light of this, I would not take it personally if you ask me for clarification when we get to the question and answer section.

I will briefly summarize our press release and then comment on our Beauty & Home segment.

Steve will then provide insight on our Pharma and Closures segments and follow his segment specific comments with his usual review of our financials.

I would like to take a moment to point out that the results we will be discussing were achieved under the leadership of Carl, who retired at the end of the year from his position of President and CEO of AptarGroup.

He deserves recognition for these exceptional results as well as for developing the strong senior management team that will continue to execute the Company strategy for future success.

Fortunately, we will continue to profit from his experience, while he continues to serve as director of the Company.

Turning to the results.

I'm pleased to report that 2007 was our 42nd consecutive years of increased sales and the strongest year in the history of the Company.

We topped off the year with a record fourth quarter, which is noteworthy in the light of the tough comparisons to the strong fourth quarter of the prior year.

Sales and profits increased in every segment.

As we highlighted in the press release, we also benefited from gain on the sales of our Australian operation.

This action was taken with the intention of further unlocking the strategic growth opportunities in Australia by selling this unit to a recognized leader in Australia.

I would like to point out that we are not abandoning this market, rather the direct presence we have had there in the past will effectively change to an indirect form through license and distribution agreements we have in place with the buyer of the business.

Now I would like to provide some color on the largest segment, the Beauty & Home segment.

For the fourth quarter of 2007, excluding changes in exchange rates, Beauty & Home segment sales increased 6% over the prior year.

This is mainly comprised of a 7% increase in sales to the personal care market, a 5% increase in sales to the fragrance cosmetic market and an 8% increase in sales to the household market.

In the personal care market, interest continues to grow for our Bag-On-Valve systems and Twist-To-Lock aerosol valve actuator technology that eliminates the need for overcaps..

Strong demand continues for our fragrance sample systems, including our miniature spray pumps for vials as well as our thin spraying sample system known as Imagine.

We will be expanding our product offering by introducing to the market new assistance for cosmetic lotion samples.

Interest in the use of our pumps for salad dressing sprays continues to grow.

We previously mentioned that Wish-Bone and (inaudible) are marketing salad dressing products in spray form using our pumps.

I'm happy to say that Newman's Own has just introduced several flavors of natural salad mist using our pumps.

Lastly, I would like to mention that to precision ourselves for the future, we have recently begun a business process improvement initiative, including a new SAP system, that will allow us to better manage our businesses by providing more visibility across all of our operations, to leverage better practice worldwide, and most importantly, to better serve our customers.

I would now like to turn the call over to Steve.

Thanks, Peter, and good morning, everyone.

I'll provide my comments and then Peter and I will be happy to answer your questions.

First, looking at our pharma market.

The fourth quarter of 2007 continued to be strong for the segment.

Excluding changes in exchange rates, the Pharma segment sales increased 8% in the quarter, mainly due to increased sales of pumps.

The improved profitability of the Pharma sector in the quarter reflects operational improvements in addition to higher product sales.

From a new product stand point, near the middle of last month Glaxo's Veramyst nasal spray for the treatment of allergies, that we've discussed in the past, was approved in Europe under a different brand name.

Looking at our Closures segment, overall both sales and income increased in the quarter.

We continue to experience some weakness in demand in the personal care market in the U.S., and this resulted in some underutilization of capacity in the U.S.

Excluding changes in exchange rate, Closures segment sales increase 4%.

This was comprised of a 4% decrease in sales to the personal care market, a 21% increase in sales to the food beverage market, and an 8% increase in sales to the household market.

Looking at new products in the segment, we increased -- we saw increased interest in our simply squeeze closures for beverages, our easy open jar lids that replace large screw-off caps and finally our new pinpoint system for cosmetic applications.

Now I'd like to summarize our consolidated results for the quarter.

As you've seen our overall reported sales increased approximately 15%.

Changes in exchange rates accounted for 9% of the increase, resulting in organic growth for the quarter of 6%.

Since we're on LIFO in the U.S., higher material costs negatively impacted the quarter by about $2 million on a pretax basis compared to the prior year.

From a geographic standpoint, sales to customers by our European operations represented approximately 63% of net sales this year versus 62% of sales last year, while sales to our customers by U.S.

operations accounted for 26% of sales this year versus 28% of sales last year.

Diluted earnings per share from continuing operations increased 24% to $0.47 per share up from $0.38 per share in the prior year and our total reported earnings per share was $0.50 per share, which includes a $0.03 per share gain on the sale of our Australian operation.

Now because this operation was immaterial, we only are reflecting the gain on the sale in our discontinued operations line.

Free cash flow, which we define as cash flow from operations less capital expenditures, continue to be strong in the quarter with $39 million generated compared to $23 million generated a year ago.

Our cash flow from operations for the quarter was roughly $86 million in the current year compared to $49 million in the prior year.

And our capital expenditures were around $47 million in the quarter compared to $26 million in the fourth quarter last year.

We spent approximately $19.6 million to repurchase roughly 473,000 shares during the quarter at an average cost of a little over $41 per share.

At the end of the quarter, the remaining shares authorized for repurchase was around 2 million.

The mix of debt at the end of the quarter comes to be roughly 40% fixed versus 60% variable, with an average interest rate about 5.5%.

On a gross basis, our debt to capital is around 24% and on a net basis debt to cap is approximately 4%.

Briefly looking at the full year 2007.

As Peter talked about, 2007 was an outstanding year for the Company with increases in both sales and profitability.

Reported sales increased approximately 18%.

Changes in exchange rates accounted for about 7% of this increase, acquisitions about 1%, leaving an organic growth rate for the year of around 10%.

Our preliminary breakdown of sales by product for the year would be that pumps will remain about 50% of our total sales for the Company, closures will be about 24% of our overall sales, that's down from 26% a year ago, while valves will be about 15% of sales compared to 14% a year ago and other about 11% compared to 10% a year ago.

From a geographic standpoint, sales to our European operations represented approximately 62% of net sales this year compared to 61% last year, while sales to customers by our U.S.

operations accounted for 27% of the sales this year compared to 29% last year.

Free cash flow for the year was approximately $135 million versus $90 million in the prior year, or an increase of 50%.

Our cash flow from operation was $273 million in the current year compared to over $198 million in the prior year, while our capital expenditures were around $138 million compared to $108 million in 2006.

Diluted earnings per share from continuing operations for the year increased 36% to $1.95 per share from $1.43 per share in the prior year.

Looking forward into 2008, presently, we expect our depreciation amortization in 2008 to be in the area of about $130 million.

We expect our cash outlays for capital expenditures in 2008 to be in the area of $170 million.

Again, both of these may vary based on where exchange rates for the year end up.

There are two major items that cause our projected 2008 capital expenditures to exceed depreciation and amortization.

First is about $25 million for the new SAP system that Peter talked about.

And secondly, we have a facility in the United States in the New York area which is coming off lease in the middle of 2008.

That's about $10 million and we will be acquiring that facility.

Our effective tax rate for 2008 is expected to be in the area of $0.30 to $0.31 a share.

Now, looking forward, diluted earnings per share for the upcoming quarter expected to be in the range of $0.46 to $0.49 per share versus $0.41 per share in the first quarter of 2007.

This represents an increase in the range of 12% to 20% for the quarter.

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

(OPERATOR INSTRUCTIONS) Our first question comes from Chris Manuel from KeyBanc Capital Markets.

Morning, Chris.

Good morning, gentlemen.

I guess good afternoon to you, Peter.

I'm here in the states so it's good morning for me, too.

Couple of questions for you.

First congratulations on a terrific quarter.

I wanted to ask about with the number of the fragrance cosmetic and personal care companies reporting some disappointing results through the end of the year and we're hearing of a pending slowdown in consumer spending, could you maybe give us a little color as to what you think or how you view the market here in North America and how your business could potentially stand up in such an environment?

Yes, Chris.

It's right.

We have seen some weakness in the U.S.

market, especially for the closures markets.

We have not seen the same weakness in the Beauty & Home pump market.

As you know, AptarGroup is very diversified in our markets regionally we are selling, so we are seeing good growth in other markets than the United States, for example, Europe is still doing very well.

We are growing in our sales in the developing markets like South America and Asia, and we have -- we are seeing good growth also in the Eastern Europe markets, especially in Russia as our customers also see -- you have seen maybe some of the announcements of Loreal and others which are in the same situation.

So yes it's difficult for the time being in the states, but we are less hurt worldwide.

Okay, very good.

As a follow-up to that, would there be any reason to expect that-- I know last year your organic growth was roughly 10% for the full year.

We've often talked about a long-term rate being something in that 6 to 8 range.

With the new product pipeline that you have, would there be any reason to anticipate that, even in spite of some of this maybe just U.S.

based softness, that 2008 couldn't as well be something in more of a normalized 6 to 8 range?

Does that still sound realistic?

I think, Chris, as we go into 2008 we expect that it would be somewhat more normalized.

It's difficult to predict where the full year's going to come out.

But as you can see, as we looked at our earnings coming into the first quarter, we're still pretty cautiously optimistic that it's going to be a good year.

We have a very tough comparison to the large increase in 2007, which was 13% year-to-date.

Okay, perfect.

I'll jump back into queue.

Thanks.

Our next question comes from Ghansham Panjabi from Wachovia Securities.

Morning, guys.

This is actually Phil calling in for Ghansham.

Quick question.

In the press release it appears that the language around the competitive environment was a little more pronounced.

Have you seen activity pick up on the competition front and are you seeing less discipline on the pricing from your competitors?

Have you lost any market share potentially?

First of all, we are still market leader, especially in all fields where we are serving.

So we have seen quite a bit growth.

The competitive environment is difficult and still will be difficult off in the future but the growth rates we have achieved in the past we think we have not lost market share.

Okay.

What about on the pricing front?

I mean, are you seeing any less discipline on the pricing front from your competitors potentially?

I think when you look at the whole pricing environment, I don't know that we've seen it increase significantly.

What we have and what Aptar will continue to do is to focus on new innovative products.

That continues to distinguish us in the marketplace and gives us our best competitive advantage.

Okay.

On that front, do you have any new game changes for '08, similar to your very successful platform Simply Squeeze?

Again, I think if you go back and look at it across the board, we've had always, I think as in the past, we do small, a lot of small incremental change.

Okay.

Talked about the sampling system.

Peter again alluded to that.

We'll be introducing new sample systems for lotion products in 2008.

Our Bag-On-Valve system continues to expand and we talked about that in the third quarter with the GlaxoSmithKline toothpaste introduction for Aquafresh.

So we see lots of new applications coming back in in our food and beverage business.

We're seeing that the new salad dressing we're now expanding in spray form.

So there's lots of new what I'd call smaller opportunities.

Okay.

Just not one huge opportunity that is out there.

Okay, thank you very much.

Our next question comes from Ross Gilardi from Merrill Lynch.

Good morning, thank you.

Hi, Ross.

I just had a couple of questions just going back to fragrance and cosmetic.

You see you called out softness in the U.S.

personal care market.

You didn't specifically call out weakening in the fragrance and cosmetic business.

Could you just address that a little bit and then just talk a little bit more about what you're seeing in terms of customer inventories in the chain, so forth?

I mentioned already that we have seen some weakness in the closure business, not so much in the pump business.

One of the reasons might be that we are seeing some shift in the packaging from closures, suspension closures to, for example, our well systems.

One example is the sun care market where our second vial systems are used instead of dispensing closures.

So there is a shift between different packagings.

Going forward, I don't know, there will be -- we are seeing that this market's growing as in the past, so we are not seeing any different or any change in the markets specifically.

I think, also, Ross, just going back directly to your question, too, on the fragrance side, again, I think a lot of the major fragrances still are European based and we're still seeing a lot of growth to that.

So when we're hearing slowing of sales, it tends to be more slowing of sales to U.S.

consumers as opposed to necessarily our customers, who are also doing a lot of exports themselves.

So frankly, our backlog in the fragrance cosmetic area continues to be pretty strong, particularly in light of the strong 2007 we had.

Okay.

Thank you.

Then on Pharma, could you just talk a little bit more about the outlook for new drugs?

And then lots of pharma companies seem to be complaining about a weak cold and flu season in the fourth quarter.

Do you think that impacted your volumes at all?

First of all, I think, if you look at our pharma business in 2007 as a whole, we're very pleased with it, given its growth.

So we had strong organic growth in 2007.

As I mentioned in my remarks, the other plus that we saw was this new Veramyst allergy product of GlaxoSmithKline in January of this year just received approval in Europe.

There's a product that you may have seen on an over-the-counter product called Mucinex that is getting a lot of advertisement it is now in pump form and we're on that product.

I think when you see general comments on the pharma market, it's important to note that Aptar deals in a very specific niche of that market, and frankly, when we go back in and look at sales from Glaxo, AstraZeneca in our niches, those seem to be doing pretty well.

Okay, thank you.

Just a quick question on your balance sheet.

You've got over $300 million in cash sitting on your balance sheet and the stock has come in.

It looks like you were buying back stock at $41 a share in the fourth quarter.

At this point, what's preventing you guys from doing a much more aggressive buyback in this environment?

As we've said in the past, it's an area we continue to look at.

Frankly we continue to spend money on the buyback together with dividends.

But you're right, our first priority still continues to be acquisitions.

As you look at the market today, with the changes in the credit market and some of the other things going on externally, we think that the acquisition front is a net positive for Aptar given the strength of the balance sheet.

So the board of directors is certainly very much aware of the cash position and continues to look on it each meeting at what the various alternatives are.

And we will continue.

We've got about 2 million shares left in the buyback and we will continue to be in the marketplace.

Are there any particular -- you talked about some of your priorities for acquisitions or some of the characteristics that you look for in terms of opportunities to leverage mere core technologies and geographic expansion and so forth.

But is one of the segments more of a priority for you in terms of making acquisitions at this point?

I think we look at opportunities in all of the segments.

It tends to be not segment based.

Certainly in the Pharma, Beauty & Home and Closures we have made acquisitions, mostly in the Beauty & Home and Closures segment in the past.

We continue to look at the Pharma segment in areas to way to expand.

I wouldn't say that there's a priority of one over the other.

Okay.

Thanks a lot, guys.

Our next question comes from Meggan Friedman with William Blair.

Hi, guys.

A couple of questions.

First of all, you talked in the press release about being committed to pass raw material cost increases along where possible.

Is there any sense from, or do you have any sense from customers on their ability to pass along increasing raw materials costs.

I think one of the reasons how they could do this is introducing new product.

With using newer packaging systems they are able to increase their prices and put in there the raw material increases.

I think also, Meggan, when you get some of the size of the increases in raw materials, it frankly is not an option for us not to be able to pass it through to maintain any kind of profitability.

That's certainly evident with our customers.

That doesn't make it easy.

But it does at least make it -- everyone else of their other suppliers are in the same position.

Then can you talk a little about Pharma margin trends?

You've talked in the past about 25%, I believe, as kind of a base margin target.

Last quarter you did about 29%.

Can you just talk a little about the fluctuation there and how we should be thinking about that?

Well, again, I think we're very happy with the overall margins in the pharma market, which as you said has exceeded 25%.

It will vary from quarter to quarter based on the mix of products, which includes tooling and some of the other mixes in our product category.

We are still targeting to be above the 25%, couldn't give you any more specifics than that.

And then just a housekeeping question.

Can you provide any color on tooling revenue for the quarter.

It's about the same as last year.

I think it was around $24 million in both quarters.

Great.

Thank you.

Our next question comes from Claudia Hueston from JPMorgan.

Hi, just a couple of questions.

One you mentioned underutilized capacity in the closures business.

I wondered if you could just elaborate a little bit there.

And then are there ways to adjust your production systems to maybe better optimize that going forward or improve efficiency there or is that something that's sort of likely to continue in the next couple of quarters?

What we've seen is, and we've seen this actually starting a little bit in the third quarter late second quarter, was some softness in the U.S.

closure market.

That continued into the fourth -- we right now anticipate that that's cost us about $2 million in terms of underutilized absorption.

Now what we are doing is we're readjusting what we mold on the outside, because this is primarily plastic injection molding.

We continue to monitor that from quarter to quarter, try to move product in from our outside suppliers.

The other thing what we're seeing, though, is as we go from the fourth to the first quarter, we're also seeing some of that business start to pick up a little bit.

So we expect to see improvements from the fourth to the first quarter in that business segment.

Okay, that's helpful.

That's great.

Just on the business process improvement, can you just comment a little bit on the timing of that rollout and then any sense of the potential savings from it over time?

The reason why we have done this, by the way, is that AptarGroup uses several different ERP systems worldwide and we were facing the problem that we have to update these systems in the near future, so with this we decided to change the whole system and introduce a new S.A.P.

system in the course of a business process improvement.

We will see with this new system some synergies in the different divisions and we are also seeing better visibility through all of the operations.

So we will be able to, for example, calibrate the capacities worldwide and these kind of things, which we today, because the systems are not harmonized, are not always able to do.

And those savings should start to filter through this year?

We'll be mostly -- we are doing most of the expending in 2008, it's more of a 2009 future before we'll start to see significant savings.

Perfect, thanks very much.

Then just Steve, I wondered if you had any guidance on the corporate cost and how we should think about the option expense in 2008.

Again, I think option expense will be somewhat lower going into 2008.

We haven't made a calculation to that.

The key issue, as you know, Claudia, is that because we issue options in January and the timing of how the accounting works, we take a bigger hit for the option expense in the first quarter than we do for the rest of the year, but I would expect it to be somewhat lower than it's been in the past.

Okay, thanks a lot.

Our next question comes from Greg Halter with Great Lakes Review.

Good morning, guys.

Good morning, Greg.

Regarding the Australian business, I just want to make sure I have this right, that as you presented the income from discontinued operations, does that include the operation as well as the gain on the sale of the business?

No.

Greg, because it's been so immaterial for us it was actually on a gross basis less than $10 million in revenue and since we will continue to sell in that region around $6 million net impact, we don't show any of the continuing operations in that discontinued line.

The only thing that's in there is the gain on the sale.

Okay.

So only the gain.

Okay.

I know we've talked about this in the past relative to the plant in France, I think it is a closure plant that was having some troubles.

Just wondered if you could provide a status update there.

The good news on the facility is we've made significant operational improvements to the facility.

We are seeing year to year improvements in terms of where our financial position are.

The negative has been we've seen some movement.

We've seen a lot of growth in Europe today in the beverage area.

That tends to be produced out of our German facility.

So net impact we've see some reduction in sales out of our French operation, which has somewhat mitigated some of the operational side.

However, what we have come back and been able to demonstrate, is we have been able to turn it around from an operational side and continue to see year on year improvements.

Okay.

You gave the tooling for the quarter.

What was it for the full year?

Again, it is about the same, it is right around 60 million, give or take a little bit, consistent between both years.

Okay.

Relative to the S.A.P.

system, I think, Peter, you had mentioned that you already used several of them.

I presume that means you have some experience.

We've had some bad experiences with other companies putting in S.A.P.

systems or just in general E.R.P.

systems.

Just wondering what you guys are doing, either on an external basis or internal, to make sure the system gets deployed the way it should, at least, and does not disrupt your business?

First of all, Greg, we have already introduced SAPs in the past in several of our divisions.

The problem was that they did not really talk to each other very well.

That's the one change.

We are using outside consultants to do this, also.

We are including experts and do this.

By the way, we had never had a bad experience with the introduction of S.A.P.

in the past.

Let's keep it that way.

Just wondered if you had any kind of market share data between the three divisions on whether or not you feel you've gained or lost share within the last year in 2007?

I think there's nothing that we've got that would come back that is from an outside source.

I think if you look at the sales growth, though, Greg, in terms of the organic sales growth, we're very comfortable that we've actually gained share in all of our market segments.

The growth rates themselves have been very strong in 2007.

I think on the last quarter, on the personal care market, you had talked about a possible inventory contraction.

I'm just wondering if that's real or not or how you would phrase or couch that now?

We continue to hear from some customers that there is some inventory being taken out of the channel.

Remember when we are talking out of the channel it's all the way through the end consumer.

So we think that that's still a factor.

At least we're hearing that from even some of our other competitors in the sector.

But it's hard for us to come back and quantify.

I don't know how much it would be impacting the quarter.

Okay.

Then one last one on the resin costs.

If you had to put a figure on a year-over-year increase, where would you say that's looking and just wondering if you're having any increased difficulties or changes in terms of getting that on a pass-through basis?

And if there has been any difference in the time lags.

Time lags are basically the same as what they have been in the past.

It is very different in terms of the resin increase between the U.S.

and Europe.

Europe has been maybe -- again, it depends on points in the year because if you remember in the states, when we started '07, resin went down for a couple months and then started to spike and spiked up pretty considerably til we get at the end of the quarter.

I think a year on year, we may be as much as even 20% over last year.

Europe is certainly somewhat less than that because they've been insulated to the oil cost, I think.

I don't have that number in front of me, Greg.

Okay, thank you.

That's helpful though.

Our next question comes from Mike Hamilton of R.B.C.

Dain.

Here I thought Carl had lost the stadium and he's still doing victory laps.

Couple questions.

First one is just if you can give a little bit of perspective and detail on tooling.

What was the relative mix across businesses and are there any products flowing near-term here that you're able to talk about from that?

I think, again as I said, tooling overall is about the same.

If you look at it, we've got tooling coming out of the pharma markets down a little bit from year to year, it is about down about $1.5 million.

If you look at where in the Beauty & Home area, we're down about $2 million.

So we'd be up in those things since they were about equal, we're about up the $3 million, $4 million in the overall pharma side or closures side, excuse me.

Which typically has a lot nearer lead time to product launch.

There is no question.

I think when you take the tooling, both Closures and Beauty & Home, tend to end up following very quickly on with products.

The pharma's a much longer lead time as they may be getting ready for new product introductions one to two years out.

Right.

Basically things front half of '08 that we should be seeing that you'll be able to talk about.

I think you've get two things, though again when you look at tooling for us, it's a positive.

We look at it as a positive because we have the new products.

Sometimes, however, it's replacing existing products so it may not be all incremental sales.

It may be replacing sales that we had with other tooling in the past.

We look at it as positive because we're going to continue to have the sales.

But I'd be cautionary to say it's all incremental.

Next question's kind of a bigger picture on emerging market activity.

Historically going through your customer, you've had fairly limited window on a lot of these markets in terms of where inventory is stacked in pipelines, et cetera.

Is the visibility getting better as some of these areas mature?

It's a tough question.

I think what we're doing is -- what we are hearing from our customers, like Peter mentioned before, LVMH, they continue to say that they are getting good sell-through in these markets.

It's for us almost impossible to find out if they have got that sitting in inventory or if it's been through the consumer.

But there's a consistent theme from our major customers that they are selling more and more product.

Our assumption is they're getting a better handle on that inventory.

But frankly that's more of a guess than it is anything that we can see factually.

Right.

Okay, thanks.

That's it for me.

Our next question comes from Chris Manuel with KeyBanc Capital Market.

Good morning, again.

Just a couple quick follow-ups.

In the press release you talked about some cost containment efforts, I think,that you were working on here.

Can you elaborate on those?

Is there anything in particular that you're doing along those lines?

Really, Chris, I think it's pretty broad based.

If you come across what we're doing is our efficiencies, we talked about the French facility and closures.

Our operations are quite a bit up in terms of our throughput that we are looking at.

We're doing new technology, for example, in our molding to be able to give us more product coming out.

I wouldn't say that there's one thing.

We're looking at capacity utilizations.

We're -- one of the things that has helped us this year and helped the margins is that we have expanded in our developing markets.

We are now getting better at filling those facilities, utilizing some of those fixed costs.

So I don't know that there's one initiative, other than this new initiative Peter talked about in terms of the business process that's out there, but there's no one initiative in 2007 that we could isolate as to being the main driver of the cost cutting.

That's very good.

Then second follow-up question was can you elaborate a little more on to -- it sounds like a brand new sample system for lotion and I think you mentioned similar to the Imagine system that you use for fragrance.

Can you elaborate on that a little bit?

I'm assuming it would be a market that is smaller than the fragrance opportunity but could be pretty sizable nonetheless.

By the way, Chris, we having two systems for the lotion assembly system.

One is miniature pump with a vial, which is already offered to the market.

The other one is not yet really on the market.

It's a system, a flat system which is resealable which goes a little bit like the Imagine.

We are seeing a big market for this in the future.

We are pretty optimistic, as we are for the whole sampling market.

We are growing quite well in this area.

When will that product be commercially available?

The miniature pump with the vial is already available and the next one will be in the course of this year or beginning of next year.

Then the final question, Peter, is I believe you have a new pharma plant coming online late '08.

It's primarily to serve the new landmark system.

Could you give us an update there?

I'm assuming that's also a piece of why CapEx is up a bit year-over-year.

Can you maybe give us a little more of an update there.

Is the timing of that still third, fourth quarter?

When should we expect some contribution from that to start to come online?

Yes, we are going to be on schedule with this new pharma facility in France and we hope that this will be operational in the course of next year.

So we will be moving into this operations because we need the increase of capacities, especially in the valve business, the metering valve business, and landmark, as you mentioned is another product which is foreseen to be produced in this facility.

Chris, I was just there a couple weeks ago.

We're pretty much on target.

I think we'll be operational in the third quarter.

Okay.

So operational in the third quarter.

The last question is, I know you can't comment on any particular things that you may or may not be looking at, but would you characterize the acquisition pipeline today as better, the same, bigger, the same, or smaller than it would have been, say, six months or a year or so ago?

I think for us it's probably bigger.

When I say bigger, means maybe not necessarily in number of companies but companies that I think are realistic now in terms of what we could buy in terms of pricing.

I think if you look at Aptar's balance sheet it's a very strong balance sheet.

And given the way the credit markets are today, positions us very well for the future.

So I think today, as we go through the remainder of 2008, I think that market is actually bigger practically than what it was.

As been in the past, we will and have been continuing to focus on, in a lot of case, smaller acquisitions that are tuck-in acquisitions, which we are able then to expand geographically or product-wise.

Again, the market I would view right now is more opportunistic for Aptar than it has been in the past couple years.

Thank you very much, and good luck in the rest of the year.

Thank you.

Our next question comes from Brian Rafn from Morgan Dempsey.

Good morning, guys.

Good morning, Brian.

Can you give us a sense, you guys had talked about some of your lead edge technology and customers moving over to new packaging systems, like your Bag-On-Valve.

Is that a process of you having to educate your customers or is there awareness of what's available?

Does that pull that demand through?

Usually, Brian, we are educating our customers.

We are presenting them our new product, our new inventions in presentations we are doing to their marketing people or to their purchasing people.

So the input is coming, in most cases, from our side, but we also use them as a source for new ideas.

The requirements from their side, the final consumer needs are one of the resource for new ideas for us.

So it is both ways basically I would say.

Peter, also, are you seeing in this kind of ability and Steve's talked in the past about the Europeans very good at specific trying to diversify their products and giving through packaging different venues.

Are you seeing from your clients' adoption cycles accelerating, say maybe over the last five or six years in adopting new packaging or is it still about the same?

I would say that is the clear trend to improve the packaging.

You see the packaging is one of the distinction of factors if you wanted to have a brand emerge, one of the ways to do this is to use innovative packaging and people realize this more and more in using our ideas.

By the way, the ideas are also spilling over from the different markets.

There is an exchange of ideas between pharmaceutical and cosmetics, also.

Okay.

Peter, is there any difference between the brand image differentiation between U.S.

companies versus European?

Are the adoptions of that about the same (inaudible) or better awareness?

I think they are approaching each other.

In the past, there was much more personalized packaging in Europe.

This is now spilling over more and more to the United States.

It's basically the same, I would say.

Okay.

Correct me if I'm redundant in this.

On the cosmetic side, what are you guys seeing on new product launches maybe high end versus lower end, more economy brands?

We have this -- still the products we have which are very successful, like our Bag-On-Valve is one of the products.

Talking about another new product which will come out is a product for the wrinkle creams.

Wrinkle creams and organic formulations is a big trend in the cosmetic areas.

There we are using ideas from the pharmaceutical areas.

So we will introduce a pump which gives the possibility to have preservative free formulations, which is very important in the organic formulations, for example.

We are using technologies which are already introduced in the pharmaceutical market.

You have preservative free pumps there.

You will use this technology in the personal area.

Okay.

Let me ask you, jumping over to kind of the packaged food and the beauty side or the personal care side.

With the rise in pricing from commodities, you're seeing at the retail level if companies can't raise prices, they're playing around with packaging sizes, whether it be shampoo or milk.

You used to get 16 ounces for $2.69 in the U.S.

now it's 12 or 10 ounces.

Are you seeing much demand in maybe the packaging staying the same but the size of the profile changing?

I think you've got a couple things going on in that area, Brian.

One is actually I don't think there's one trend.

You got two trends that are happening.

One if you take the discount stores, the Sams, the Costco's.

You're actually seeing bigger sizes with, in this case, using pumps as opposed to a dispense in closure.

Then you go down to the whole travel market and for us, that's becoming a bigger segment where that three ounces or less becomes a much beggar sector.

What we're seeing is new package developed around shampoos, conditioners, fragrances, that meet that travel size.

That's a real plus because those tend to get used up much quicker, the use up rate.

And actually for our customers, the pricing is much more elastic there.

They've got much more pricing capability.

Okay.

Steve, you were talking about the M&A pipeline.

Can you give us a sense today versus say five years ago what the size may be in dollar term sales?

You're always talking about these kind of niche bolton acquisitions.

What is, given the size of Aptar's sales revenue base, what is consumable now in an acquisition say today in 2008 versus maybe five years ago?

I think if you look -- certainly it's a good point because as we've gotten bigger.

We've always said to the street that we want to keep the balance sheet investment grade, while we don't have investment grade debt out there today.

When we run through the metrics on that, again, in today's market it's realistic we could end up borrowing probably up to $800 million, $900million and still be in that.

I think our practical size is we could do deals $750 million, $800 million on the high side but I think it's the most important to come back it's less -- it is not a size factor that we're looking for.

It's really does it fit strategically with us.

And if it's a big acquisition that's fine, if it fits strategically.

We don't need the acquisitions just for growth sake.

We've got a lot of internal organic growth that we can still come from out existing product lines.

Okay.

Okay.

Anything on where you've seen say the last since perhaps the August meltdown in the credit markets?

Are you seeing multiples on EBITDA come down at all?

Yes.

I think you have two things.

You have -- I think that's a slower process.

The sellers a lot of times are looking back at early 2007 saying these were the multiples that were paid, I'd still like those.

I think the reality of that, those tend to becoming -- smaller the multiples tend to be coming back to more of the range, frankly, where Aptar pay.

So I think that's a time process and I think the reality's becoming more and more that the multiples are coming in-line with where we've been in the past.

Can you put a number on that, Steve?

Is it coming down from 12, 14, 8 or can you give us a sense?

It's all over the board.

You've seen some in our sector that were at 9 to 10, 11, 12, they are probably moving back, 6, 7 in those 8 areas.

But I mean it's very dependent on the deals.

Can you also give us a sense what you're seeing in SG&A salary and wage inflation and then healthcare costs both in Europe and the U.S.?

In Europe, a lot of the healthcare costs, for example, is built into the social system.

It is part of the normal social costs, so it is not as much of a fluctuating element as you have in the U.S.

In the states, we're seeing pretty much typical medical inflation and we're pretty much experienced based in that area in terms of we pay based on the claims.

So we've been -- I think we were last year up 4% to 5%.

We are expecting maybe a 3% to 4% increase this year with our cost containment area.

Then the rest, I think salaries et cetera are inflation based.

Inflation based.

Thanks.

Okay, superb job, guys, as always.

Thanks.

Next question is a follow-up from Greg Halter.

Yes.

You have over $300 million in cash now.

Just wondering where that's held and what it's invested in?

The bulk of that is held in our European operations and it is all AAA rated short-term securities.

We have pretty strong, if you look back, financial controls around that.

So we're not looking at mortgage-backed securities.

Now, the world continues to change, as everyone knows, depending on what you find, what would be a AAA rated yesterday may not be that today.

Right now we have a very short-term philosophy on the investments with high investment grade opportunities.

So there's no I.O.s or P.O.s or anything like that?

No.

Great.

Thank you.

Next up we have a question from Susan McGarry from Granahan.

Hi.

It sounds like you're not seeing any weakness in any markets in Europe.

But I was wondering if you could go into a little more detail about what you are seeing in Europe, which markets are stronger, which markets maybe are decelerating a bit?

For Europe, you might be aware, Germany's doing reasonably well in the past year.

Since many, many years we have overcome a recession there.

We are seeing some slowdown in Italy and France but not really severe for the time being.

I mentioned already the Eastern Europe countries, which are doing very well, especially Russia and especially in the high end of the market.

So the growth rates are coming down a little bit but not really comparable to what we are seeing in the downturn in the United States.

I think the other thing, Susan, it's important to note that when we talk our European sales, a lot of those sales also go to European customers who then take those around the world.

The French perfumers being one and our pharma companies who distribute their products.

Our products tend to be more world based than they are just economic based in that sector.

Thanks.

Our next question comes from Ross Gilardi from Merrill Lynch.

Just a quick follow-up.

On the pharma expansion in France, to fill that facility up are you still waiting for FDA -- do you still need some of your customers to get FDA approval for some of their products?

Yes, the Landmark, for example, needs to go through that process.

Now, the advantage we have is we are still seeing significant growth in our metered dose, which is meter dose valves which are used on the asthma product.

That growth itself we needed additional space.

So there you get some immediate benefit for.

Some of the other ones we will be waiting for some of the approval processes for our customers over the next couple years.

Given your expectation of having the facility operational by the third quarter, what's baked into that for Landmark?

What was your expectation there?

We won't have significant, in fact I don't know if we'll have any sales of Landmark this year and we'll be doing some, what we would call, sales for testing for our customers in the market for approval side for the FDA.

But in terms of market sales we won't have any.

What's baked into our plan is actually sales continuing with the increase in terms of the meter valve, which is our biggest gross side for that particular expansion short term.

Whose product is Landmark again?

Right now we are looking at it from -- there's like three to four different companies are looking at it.

Oh, I see.

And do you -- are there any significant start-up costs that we need to think about for the second half of the year with that facility?

Shouldn't be significant.

We'll be start running to depreciation, but we'll staff that as we need additional people rather than just adding people wholesale.

If anything, it would be a slight increase in the depreciation side, which, again, we've included in the estimates for depreciation for the year.

Okay.

Just Claudia was asking you about option expense earlier and you said it was going to be a little bit less.

When you say a little bit is that $0.01or $0.02 or is it more than that?

At this point, it's still early enough.

We haven't gone through all the final calculations on it, Ross.

I don't have that number for you.

But right now, again, we're expecting it to be less than what is was last year.

That's the only thing I, directionally I know that is which way it's going.

Okay.

Thanks, guys.

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