Aptargroup Inc (ATR) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's fourth quarter and 2008 annual 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, Executive Vice President and Treasurer of AptarGroup. Please go ahead sir.

Thank you Giovan.

Before we begin, I would like to point out that the discussion to follow includes 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 not able to listen today, information contained in the replay will be dated, and is to be used for background information only.

The Company undertakes no obligation to update material changes in forward-looking information contained therein. Participating on this call today are Peter Pfeiffer, President and Chief Executive Officer of AptarGroup, Steve Hagge, Executive Vice President and Chief Operating Officer, and Bob Kuhn, Executive Vice President and Chief Financial Officer.

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

Good morning, everyone. This is Peter Pfeiffer. I will briefly comment on our overall results and outlook, and then provide some comments on our Beauty & Home segment. Steve will then provide insight on our Closures and Pharma segments, and Bob will review our financials.

Focusing on our overall results for the quarter, our results were adversely affected by the breadth and severity of the economic slowdown, as well as the stronger dollar. The strength of the Pharma segment's sales helped us offset the weakness we faced in our Beauty & Home and Closures segments. Although we took actions during the quarter to reduce costs, we could completely offset the negative impact of softer demand.

Turning to the full year, I would like to remind you that 2007 was a record year for us, and as a result, we were up against tough comparisons in 2008. In spite of this we reported record sales and profits for the year. The year 2008 was comprised of two distinctively different halves, with the strength of the first half being offset somewhat by the slowdown in the second half.

Looking forward, our visibility continues to be very limited. Presently, we expect that the conditions we saw in the fourth quarter will continue into the first quarter, and that our first quarter results will be adversely impacted by continued underutilization of our capacity. We are intensifying our review of our operations in an attempt to further reduce costs, and minimize underutilization of capacity, while at the same time balancing the need to be positioned for the long term growth of the Company, and continuing to focus on innovations.

In light of the tough economic and credit environment, some of our customers have expressed to us their desire to become more closely aligned with companies like Aptar, that are innovative and financially strong. These comments support our confidence that the diversity of our business model, along with our commitments to innovation, our strong balance sheet, and our experienced management team, will help us through these difficult business conditions.

Focusing to the Beauty & Home segment, for the fourth quarter of 2008, excluding changes in exchange rates, sales in the Beauty & Home segment decreased 2% from the prior year. Acquisitions accounted for about 1% of sales. Our customers are being very cautious in this uncertain environment, and we experienced weak demand in each market served by the Beauty & Home segment.

Excluding changes in exchange rates, sales to the personal care market were flat. Sales to the fragrance/cosmetic market decreased by 3%, and sales to the household market decreased 11%. Underutilized capacities due to the weak demand, led to a decline in the Beauty & Home segment's income. Regarding new products, a new mass market airless system for cosmetic products was introduced to the market, and Colgate launched a new Softsoap package, using our lotion pumps with custom decorative features.

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

Thanks and good morning, everyone. I will provide my comments, and then turn the call over to Bob to review our financial results.

First looking at the Closures segment, around the end of October, we purchased the remaining 50% of a joint venture we had in Spain. This relatively small acquisition will allow us to improve our Closures market position in Western Europe by better serving the local Spanish market, as well as a number of global customers. The cost of the acquisition was in the area of $6 million.

Compared to the prior year, fourth quarter reported sales decreased 3%. Changes in exchange rates was a drag on sales of about 6%. The acquisition I just mentioned above, accounted for about 1% of sales. The sales growth excluding currency and acquisition was 2% in the quarter, and mainly due to resin pass-throughs. Excluding currency impact, increases by market were as follows, we had a 6% increase in sales to the personal care market, a 12% increase in sales to the food/beverage market, and a 29% decrease in sales to the household market.

We saw increased demand in the US, particularly from the personal care and the food/beverage markets. About half of the decrease in sales to the household market was due to lower custom tooling sales in the quarter. The balance of the household decrease was mainly coming from Europe. The underutilization from low sales volumes adversely affected the Closures segment income, resulting in income for the quarter that was less than the prior year.

On a positive note, our pinpoint dispensing system, which has a conical shaped silicon tip, has recently been introduced on products marketed by Neutrogena, L'Oreal, and Estee Lauder. We see continued increased interest in this system. In addition, our dispensing closure has entered a new market in the US, as they were introduced on a nondairy creamer, that was recently launched under the White Waves International Delight brand.

Now looking at our Pharma segment. Organic growth in the Pharma segment continued to be strong. Segment income for the quarter was slightly ahead of the prior year's level, due to the mix of sales, as well as the negative effects of exchange rates.

Reported sales grew 3%. Changes in exchange rate was a 7% drag on sales. Sales excluding changes in exchange rate increased 10% in the quarter, with acquisitions accounting for 1% of this growth. Sales of both metered dose inhaler valves and spray pumps increased in the quarter.

A new allergy medication called Astropro, which is marketed by Meta Pharmaceuticals was approved in US last month, and uses one of our nasal spray pumps. Lastly I would like to mention that in 2009, we are expanding our Pharma manufacturing capacity in the US. The first stage of this will be focused on adding US capacity to mold Pharma components. This will allow us to improve our responsiveness to the needs of our pharma customers in the US.

Now I will turn it over to Bob to discuss the financial highlights.

Thank you, Steve. Good morning everyone. I will provide my comments, and then Peter, Steve and I will be happy to answer your questions. First I would like to summarize our consolidated results for the quarter. As you have all seen our overall reported sales decreased 6%. Changes in exchange rates were a drag of 8%. Sales from acquisitions accounted for 1%, resulting in organic sales growth for the quarter of 1%.

From a geographic standpoint, sales to customers by European operations represented approximately 60% of net sales, compared to 63% last year, while sales to customers by US operations, accounted for 28% of sales this year, versus 26% in the prior year.

Corporate expenses were significantly lower in the fourth quarter of 2008, mainly due to the fact that changes of our LIFO reserve are included in corporate expenses. Due to resin costs decreasing significantly in the fourth quarter from the third quarter, the LIFO reserve decreased by approximately $5.2 million in the quarter.

The tax rate in the fourth quarter of 2008 was slightly higher than the prior year, due to the mix of income on a geographic basis in the quarter. Diluted earnings per share from continuing operations decreased slightly to $0.46 per share, from $0.47 per share in the prior year. Total net income per share of $0.50 per share in the prior year, included a $0.03 per share gain on the sale of our discontinued Australian operations.

Our cash flow from operations for the fourth quarter was $67 million, compared to about $86 million in the prior year. And capital expenditures were $46 million in the quarter, compared to $47 million in the same quarter of the last year. Free cash flow which we define as cash flow from operations less capital expenditures was $21 million for the quarter, versus $39 million in the prior year.

As we previously announced, we suspended our share repurchases during the quarter, and our repurchase authorization at the end of the quarter remained at 4.5 million shares. It is likely that we will get back into the repurchase mode during the first quarter of 2009, albeit on a moderate basis.

The mix of debt at the end of the quarter is roughly 80% fixed versus 20% variable, and the average interest rate is around 5.5%. On a gross basis, debt to capital is about 20%, while on a net basis, it is approximately 8%.

Briefly turning to the full year, reported sales increased approximately 9%, and changes in exchange rates accounted for about 4% of the increase, resulting in an organic growth rate of 5% for the year.

Now I would like to discuss the preliminary breakdown of sales by product for the year. Pumps represented approximately 48% in 2008, versus 50% in the prior year. Closures remain constant at 24% in both years. Aerosol valves remain constant at 15% in both years, and Other increased to 13%, versus 11% in the prior year.

From a geographic standpoint, sales to customers by European operations represented approximately 62% of net sales in both years, while sales to customers by US operations accounted for 26% of net sales in 2008, versus 2007 in the prior year. Our cash flow from operations for the year was about $270 million in the current year, compared to about $273 million in the prior year, while capital expenditures for the year were around $204 million, compared to about $138 million in 2007.

Free cash flow for the year was approximately $66 million, versus roughly $135 million in the prior year. Diluted earnings per share from continuing operations from 2008 increased 12% to $2.18 a share, versus $1.95 per share in the prior year. Total net income per share for 2007 included the $0.03 per share gain of the sale of discontinued operations, that I mentioned in my fourth quarter comments.

Pension plans have been getting a lot of attention recently, and I would like to briefly address this. Our pension expense in 2008 was approximately $8.4 million, and it is expected to be in the area of $9.5 million in 2009. From a cash flow standpoint, we funded approximately $8.7 million in 2008, and we expect to fund approximately $20 million in 2009. Looking forward, we do not expect volumes in the first quarter of 2009 to change significantly from the fourth quarter volume levels.

Presently we expect depreciation and amortization for 2009 to be in the area of $130 million. We are planning on reducing capital expenditures significantly from 2008's level, and capital expenditures for the year of 2009 is expected to be $130 million or less. I would like to point out that these 2009 amounts could vary depending upon exchange rates.

The effective tax rate for the full year 2009 is expected to be in the area of 29 to 31%. The decline from $0.46 earnings per share recorded in the fourth quarter of 2008, to our estimated range of earnings for the first quarter of 2009 is mainly comprised of two items. First, we do not expect resin prices to decrease in the first quarter, and as a result, the benefit from the reduction of the LIFO reserve we had in the fourth quarter, is not expected to repeat in the first quarter of 2009.

Secondly, option expense will be significantly higher in the first quarter, compared to the fourth quarter; as consistent with prior years, our option expense is heavily weighted for the first quarter of each year.

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

(Operator Instructions). Sir our first question comes from George Staphos from Bank of America.

Thanks. Hi everyone, good morning and good afternoon. I just wanted to dig a little bit more into the LIFO effect. So I guess the take is you were pulling through the P&L a greater amount of higher cost inventory, relative to what was occurring in the market, which in turn for some of your business was leading to perhaps lower selling prices, just because of normal price resets. Is that the way to think about it?

No. Actually George, the LIFO means that our costing was based on the last-in, first-out. So with resin prices in particular decreasing significantly in the fourth quarter, our costs were priced at the lower resin cost, while our selling prices remained constant through the quarter. That is why we get that.

Oh right. Got it. Thanks for that. Secondly, you mentioned you are going to be in the market, perhaps in the first quarter repurchasing shares, but you also mentioned that you are only going be doing a moderate amount of activity. From the standpoint of maybe repurchasing the shares for the benefit of the company at a lower price, why even mention it here then, if it is only going to be moderate?

The reason. This is Steve, George.

Hi, Steve.

We had indicated we were actually going to be out of the market at the end of the third quarter because of some of the liquidity issues, and we were uncertain as to the market. So what we are really doing is letting the market know, and again whether, what we buy is still uncertain at this point, but it is likely we will be in the market during the first quarter of 2009.

But do you even need to say that in the first place?

Well, again we are doing it more from a full disclosure standpoint, because we said we were going to be out it is a different, it is a different approach that we are making to the market.

Okay. Fair enough. Then I guess the last question, what we have seen here in the last several quarters for understandable reasons is a declining trajectory on earnings, first quarter guidance is in-line with that.

What needs to occur within your businesses, or in the markets for this trend not to continue really into the second and third quarters of 2009? Do you really need to see a pick up in personal care, and within your expectations for the year, even though you have only shared what you are looking at for the first quarter, how should we think about pharmaceutical where the margins have hung in very, very well, and I guess there has been some, at some point in the past, that you would see a little bit of degradation there? Thanks, guys. Good luck in the quarter.

George, this is Peter. First of all I think the shrinking margins are mostly linked to the decline of the market. The lower demand from the customer side triggered some underutilization of our capacities, and we were not as quickly as possible able to adapt our price structure to that. We are working on this also in the future. So we will see less drops in the future in this respect.

Okay.

Maybe Steve can give something to the pharma market?

Well I think just to tag onto Peter's comment, George. The other thing that with we have seen is the dollar has continued to strengthen as we have gotten particularly through the fourth quarter, and into the first quarter. So, if you look at the first quarter last year, we were the Euro to the dollar was $1.50. Right now it is running below $1.30. So that will be a headwind just on pure translation.

Don't you always get the benefit on the transaction side there?

But it is not a full 1 to 1 offset. For example, we are down 8% today in top line growth in the quarter. We are going to see, it won't be 8% bottom line, but it is probably close to 6% bottom line impact, just on the translation net of transaction side.

Okay.

So it is not a 1 to 1 offset.

So it just sounds like it will be hard for the run rate to improve much in the next few quarters until either the market improves, or you get more traction on your cost reduction programs?

Again I think that if you look at the first quarter that is pretty much what we have said is that right now there is a lot of uncertainty. Now this is pretty much focused more to not all of our markets.

I mean we are seeing good growth in our food/beverage market, and as you pointed out in our Pharma markets we have seen good growth throughout 2007-2008. That market has historically been less sensitive to the economic pressures. We think there is always a risk of that going forward, but we think we are looking at more stability in the Pharma market as we go through the rest of 2009.

Thanks for the details.

Our next question comes from Claudia Hueston from JPMorgan.

Hi. Thanks very much. I was hoping you could talk just a little bit about this issue of underutilized capacity, which we have heard a lot about over the last couple of quarters. Where is it most acute in what business lines, and can you talk maybe a little bit more specifically about what you are doing to help fix it, and maybe how we should think about the timing of some better optimization of assets?

So the underutilization of the capacity is mainly in the Closure area and in the Beauty & Home area. Depending on the areas also, it is more in the United States and Europe. What we are doing and have already done, we have had extended shutdowns during the holiday seasons, we extended the shutdowns.

We have reduced labor, and we also are going, we have eliminated some discretionary spending. Going forward, if the situation is the same as we are facing today, we are looking closer into these organizations, and trying to find other ways of reducing our costs.

And I think really the challenge also for us, Claudia is balancing, because I think as Peter said, we are looking very closely at the cost, but we are hearing customers like Procter & Gamble, Colgate, say the inventories may be too low, and we want to be responsive when the market does return, because we are still confident that the market for our products in particular will respond.

Now how quickly that comes it is hard to estimate, but we also have to make sure we balance that cost reduction from the flexibility, and be able to respond to our customers.

Yes, thanks. That is quite helpful, and maybe just sort of building off of that comment around inventories, do you have any sense of how much destocking there was in the fourth quarter, and where things stand now, and maybe just some comments on how January looked?

Again, we are not going to comment specifically on January, but if you have seen, I think the inventories have probably been the biggest negative impact in the fragrance market, we have seen companies like Estee Lauder, who have reported some of the Christmas sales. Some of our personal care products have less sensitivity to that inventory area. So it is very different customer to customer. So I don't know if I can give you, I think the broader base would be in the Beauty & Home and Closures, is where we have seen it, certainly much more than we have seen it in the Pharma area.

Okay. Thank you.

Our next question comes from Chris Manuel from Keybanc Capital.

Good morning, gentlemen.

Morning, Chris.

Good morning, Chris.

A couple of questions for you. First, if I could circle back to in your release you specifically talked about some delaying, of customers reducing inventory, which we have just been talking about, but also delaying product launches, and things of that nature? Could you maybe give us a little more color as to, at least what areas you are seeing those in? Is that more in fragrance/cosmetic, or is some of that in food and bev, is some of that personal care, household, et cetera?

Hi, Chris. You are seeing this mainly in the fragrance area. Some of the customers are delaying, postponing their new launches. We have not seen any cancellation of new launches. They are becoming more cautious going into the future.

We are seeing, this is also very much depending on the customers. We are seeing some of the customers which are accelerating their new launches in the next year because their policy is to react in the crisis with new innovative products, which they wanted to introduce in 2009. So for them it is very important to have somebody like the AptarGroup to help them do this. So it is a very mixed message in the market. It is not for all customers the same.

Okay. So mostly the only place you are seeing delays is in Beauty & Home, or in the fragrance/cosmetic. Are you seeing any, oh for lack of a better term, curtailments to new product launches, where they would have said they wanted ten units, and they are only saying cut that back to seven, or things of that nature as well?

No, I think Chris, this is Steve. For the most part we are still, those are what they are doing is in the fragrance area they are targeting those for the second half of the year. Right now the customers are saying they still want to stay with kind of their initial volume requests.

And again I think going back to Peter's, it is very critical for them not to sell just, this is a way for them to stimulate their own business, we were looking at Proctor and Gamble's conference call, and they were talking about getting new innovations as a way to keep their market share. It is a critical factor for a lot of our customers.

Okay. And maybe just to kind of tie up the overcapacity on the near term issue, can you talk a little bit about maybe the actions, or things you have taken in the last 60, 90, 120 days to adjust your capacity, or your production more in-line with what you are seeing in demand, and how that is going to improve, as we work through the year, absent demand picking up on it's own?

We have temporarily closed some facilities in the area, and we have reduced the personnel. Labor cost reduced. That was the initial step. Going forward, we are looking closely to our overall operations, and looking at what we can do as Steve has mentioned. We will not cut to the bone at these operations, because we want it to be, to keep flexibility.

Okay. Maybe a little color, what I am looking for is to absent demand picking back up, or a restructuring announcement, why this overcapacity isn't going to continue to plug you, until potentially demand picks up maybe third or fourth quarter of the year?

It is difficult Chris, from ours, we continue to take a look, we are reducing shifts for example. We have reduced overtime, or stopped overtime in a lot of our operations. The other big thing is we are bringing where we were maybe subcontracting in certain parts of our business, we brought that back inside.

But I mean frankly we do have a large fixed cost base, and before we start cutting into that, which then could affect the service levels if the, or when the market rebounds, we want to make sure that it is going to be a very sustained long term drop, and today our customers aren't telling us that.

Okay. One last question if you will, on the Pharma side of the business, thus far it has held up very, very well, and I was looking back at what I think were some of your comparisons, it looks like first quarter is a very, very tough comparison, as well as for the full year you had some tough comps. Do you think that Pharma full-year looks more given the tough comps, and maybe some discretionary component within there, do you think it can continue to grow, or do you think it is more of a potential flattish business for '09?

It is a tough question because we have had very good growth, double digit growth really over 2007 and 2008. I still think that the Pharma business has some growth, but probably coming back to more historical growth levels that we were seeing, which could be in that mid-single digit area, and again, you pointed out, Chris which I think is correct, the Pharma business is not immune from the economic issues. It is just not as significantly affected.

So far we have not seen significant drop-offs in our pharmaceutical backlog. But that is a very difficult one to project what is going to happen throughout the full year.

Okay. Thank you very much.

Our next question comes from Meggan Friedman from William Blair.

Hi. Thanks for taking my questions.

Morning.

Could you maybe start by elaborating a little on the impact of mix on the Pharma business? Is that drug-specific or category-specific, like branded versus generic versus OTC?

It is very broad. It is hard to come back and comment on the total, because what we have seen is in the mix area, we were a little over 26% operating profit in the quarter, which is within the lower end of our norm range between 25 and 30. So it is different between some of our customer to customer basis and product to product. So it is not one specific product line that I could come back and comment on the mix.

Okay. If we do end up seeing kind of a tradedown, from prescription drugs to some of your OTC products, particularly on the allergy side, what does that do kind of generally to margins?

Actually, that wouldn't have a big impact on us. Our margins on our over the counter versus prescription are not significantly different, and the one potential benefits you get there is we may be able to expand volumes. So prescription today is restricted, just because of the number of prescriptions. If something would go over the counter, maybe we will get more volume coming out of that.

Okay. Thank you. And then, following up on some of the discussion about orders being delayed, can you talk a little bit about the balance sheet risks that you might face if some of those delays become cancellations?

I am not sure what you mean by balance sheet risks on that. I mean certainly right now, as you can see the balance sheet is very strong.

Okay.

I don't see a major risk, we are not carrying any inventories or anything for those customers because of the delay.

Okay. That was my question. On the balance sheet as well, can you talk a little bit about the debt balance and what your plans are for cash?

Sure. You can see that the cash balance in the quarter came down significantly from the third quarter. We were able to tax effectively borrow $100 million from our European operations, and we used that to pay down our existing short term debt.

So currently, we have about a $200 million line of credit, of which we have had $25 million used at the end of the fourth quarter. Looking into 2009, we only have $25 million of current maturities of long term debt due. The biggest piece is a $21 million repayment in May.

Thank you.

Our next question comes from the line of Mike Hamilton from RBC.

Hello, everyone.

Morning.

Could you comment a little bit this cycle versus past, on what you are seeing and getting anecdotally in terms of the customer? Obviously in the very near term we are seeing huge mix shifts, as customers get much more price sensitive than what we have seen in recent times. And realizing that your customers take the whole array, and you have commented on where some of them are going with innovation, what is your sense broadly, particularly when we get into emerging markets, where the discretionary income gets even tighter?

Hi Mike. For us the emerging markets still are pretty strong. So the growth in especially Brazil in the past quarter was good, so we are not yet seeing the crisis spilling over to all of these emerging markets.

It is a special situation this time. We have never seen such a long crisis in the past, how the customers or consumers will react on that, it is not yet really clear. We are seeing in some areas people are still spending. In others they are cutting back their discretionary spending. So it is a very mixed message, and very difficult for us to predict what will happen.

But I do think, Mike, one of the other comparisons we have had in the past, is that kind of our traditional core business is more of a consumer staple, our personal care business, some of the food/beverage business, and while people may be trading down from a brand to for example a store brand, they still want the convenience, and we still see dispensing, our dispensing systems on even the store brands.

So I think that gives us a good base as we go forward in this. Certainly right now the biggest risk area for us is more the fragrance market, our cosmetic market seems to be doing reasonably well, but the fragrance market in the short term is the one we are seeing the biggest volatility in.

You commented a little bit on the opportunities that come on this kind of market environment. What is your sense in the acquisition arena, what areas of your portfolio would you like to be able to address the most, and to the degree that you are willing to comment on what you think is happening in market shares? Feel free to comment there, too.

Certainly the strong balance sheet of AptarGroup gives us some opportunities in these times. Some of our smaller competitors seem to have some financial difficulties, and we are closely looking to use opportunities which are open now. So this for us is a good situation.

On the other hand, it is also the strong balance sheet also helps us in front of our customers. Many of our customers are looking to the financial strength of their suppliers, as we do also on our suppliers, which is very important in the most difficult times. And we are seeing that our strong balance sheet really is a competitive advantage today. So it is not only the acquisition side. It is also an advantage on the business side.

Maybe just for clarification, as you ponder the next three years of your business areas, where do you think we are going to see the most dynamic changes in market conditions and competitive conditions?

That is a tough question, I think, Mike when you look at it, what we are doing is focusing kind of with our key customers, and we do think that the key customers will continue to grow even in this market. I mean when you look at the acquisition front, we certainly are looking at a lot of potential pharmaceutical opportunities, as well as opportunities in the Beauty & Home and Closure area.

But it is I guess what we are looking back the next three years is to continue to do what we have done in the past, innovate new products, which we think we will be able from our standpoint to be able to sustain the growth, and add to that on acquisitions that make sense.

Thanks. Thanks for the insights.

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

Yes. Good morning. Morning.

Good morning, Greg.

I haven't heard you or some brief comments about tooling, but did you give the dollar amount, either for the quarter or year in '08?

Sure, Greg I can give you those figures. In the fourth quarter of '08, tooling rose about $20 million, versus $23.5 million in the fourth quarter of 2007. So a decrease of $3.5 million let's say. Year-to-date, tooling sales were about $66.4 million. That compares to about $59.4 million. We had about a $7 million increase in the year.

Okay. And any kind of outlook that you have for 2009 directionally?

We don't expect it to change dramatically year-over-year. We do have tooling projects as we do at this point in the pipeline year-over-year, but it is very difficult for us to tell. Typically with we are not expecting that number to change dramatically.

Can you comment on what if any kind of price pressure you are seeing?

With the reduced resin prices, we are seeing some price pressure in our areas, in the fragrance/cosmetic area, Beauty & Home area. We are in discussion with these customers. In the Closure areas, we are usually passing through the prices going up and going down, so there it is not a big issue for us.

In the other areas, we are trying to negotiate the prices. We are linking this a little bit also with the reduced volumes, which are asked from our customers. So we are trying to keep the advantage of the reduced costs for resins in our pockets.

Okay. And relative to resins and the cost there, can you explain what you see going forward, relative to resin costs?

Yes. It is a tough question because frankly we didn't see the dramatic drop that occurred in December of this year. What we are hearing from the industry is that prices have not come down quite a bit from where they were certainly in the middle of 2008.

Right now we are expecting more stability, as opposed to continued price drops. At least that is what with we are hearing from the market at the present time.

And if you could comment on the quality of your Receivables that would be helpful, and if there are any large accounts in particular that you may be concerned about, or just large accounts in general?

No. Greg that is something that we are taking a very close look at, obviously due to the current economic environment. We are keeping a close eye on the collection patterns and what not, but no we don't have any significant identified risks that I would speak of today.

Okay. And on the cash, I know you made some comment there, but just wondered if you could comment on where the cash is held, and what it is invested in currently, and what kind of rate you are receiving?

Sure. As this has been in the past most of our cash is held in Europe. And most of the cash is invested in Certificate of Deposits, or notes issued by very strong banks. We have seen the rates in the fourth quarter return to about 5%. Those have been coming down towards the end of the quarter, and we are expecting rates to decrease to about 2 to 2.5% in the first quarter.

Okay. Still better than the US. I know you made some comments about M&A, and so forth, but what are your thoughts given this current credit environment that we are in, on your maximum debt, either dollars or percentage cap, or to EBITDA, or whatever measure you may look at?

Everything is changing in this market, as you are aware. But we have tried to target that our balance sheet would stay investment grade, assuming that we had publicly traded debt. That in the rough numbers would give us debt to cap of about 50%, if you run the numbers that are just on the rating agencies.

So there is still if you run those numbers and given where we are at today, there is a lot of room for potential growth in that, giving us a lot of flexibility. So again I think as Peter touched on in the acquisitions, we think the balance sheet will be a strong competitive advantage as we go through 2009 in the M&A area.

Okay, okay. Can you repeat the new products that you talked about in Beauty & Home, I think there was Colgate, and I think there was something else?

There was an airless system, which was introduced by one of our subsidiaries, it is a piston system for the mass markets.

Okay, and then Steve, I think you had mentioned something on the pin point for Neutrogena, L'Oreal, and there was someone else?

Estee Lauder was the other one that we had, that are out there today. So it is a new system that we have introduced, primarily in 2008, and we are seeing growing enthusiasm. I think the other key one for us is we have now got back into as I mentioned into the dairy market through a nondairy creamer for coffee, which is the first time we have been into that marketplace. So that opens up a whole new category for us.

I am a little confused. You said you just got back into it, or this is the first time ever?

It is the first time we have of any substance, that we have gotten back into it in the US.

Okay. All right. That sounds good. Any comment on how SimpliSqueeze is doing?

It continues to do well. If you look at a lot of our food/beverage market, a lot of the food/beverage, particularly the condiments, are using the valve system, so we are continuing to see growth in that area. Overall it is meeting expectations.

Okay, great. Thank you.

(Operator Instructions). Our next question comes from Susan McGarry from Granahan.

I have a few questions. On the Pharma business, when you talk about being a mid-single digit grower for '09, is that excluding foreign currency, or what is the foreign currency assumption there?

It is excluding foreign currency. So when we talk about growth, we have always tried to strip out the currency side.

Okay. And is that for the entire year, or just for the quarter, that your thinking is?

Again what we are looking at is very difficult right now to see where the economic impact might be in the Pharma. So what we planned on, is kind of that more moderate growth than we had in 2007 and 2008. So it was more of a forward-looking issue.

Okay. Now I was wondering if you could go into a bit more detail about the household market, and personal care market, within Beauty & Home, like what was strong, what was weak, just a little more detail would be helpful?

To give you little bit on the household, on the household side we had some, we saw some weakness, particularly in some laundry product areas, which was probably the biggest area we saw the hit at. So we had some products there. I don't know, on the personal care side, it tended to be, there wasn't one specific area we saw, again we had some very strong year before areas, in terms of body sprays for teenagers, the Axe products, those seem to have stabilized in the market, and maybe we are not getting all of the same type of growth we had in those sectors going into 2009.

Offsetting that is the new Bag-On-Valve business that we got is doing very well. We are getting quite a bit of growth in terms of sun care and those products seem to be going into the market with increasing shares.

Now you talked about your customers not canceling new launches. I guess that was mostly in fragrance, and your customers saying they are not expecting a sustained downturn, and still committed to product development. Apart from what they are saying on conference calls, are you actually seeing them continue to be committed to product development, and I am mostly thinking not fragrance?

Yes. We are in close contact with these customers, and we are working on several new product lines for them. Steve already mentioned most of them will come out in the second half of the year, 2009. They are very keen to introduce new products, new innovative products.

I have talked with the L'Oreal people. They are looking forward in the next year to, they had very little new introductions in 2008. They are increasing their introductions in 2009, much more than in the past. They are trying to offset the downturn of the market, by introducing new, attractive new products basically.

Great. Thank you.

Thanks, Susan.

I am showing no further questions. I would like to turn the call back over to Mr. Pfeiffer.

I would like to thank everyone for participating in today's call. Thank you and good-bye.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.