Aptargroup Inc (ATR) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's second-quarter results conference call. (Operator Instructions). 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 some forward-looking comments and that actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. To review important factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements, please refer to AptarGroup's SEC filings.

The information in this conference call is relevant on the date of this live call. Although the Company will post a replay of this conference call on its website as a service to those investors who 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 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 now like to turn the conference call over to Peter.

Good morning, everyone. 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 into our Closures and Pharma segments, and Bob will review our financials.

Focusing on the quarter overall, we are encouraged that by the fact that each of our business segments continued to be profitable and second quarter earnings overall increased from the first quarter of this year. Relative to the prior year, business conditions continued to be challenging, and our sales were adversely affected by the stronger dollar and decreases in demand, particularly in our Beauty & Home segments. We are continuing our cost savings activities in an effort to offset as much as possible the negative impact of the weak demand on our quarterly results.

Looking at income on a segment basis compared to the prior year, Beauty & Home segment income decreased from both an absolute dollar and percentage of sales standpoint. Despite lower sales and restructuring charges, the Closures segment income increased from both an absolute dollar and percentage of sales standpoint, and our Pharma segment income decreased from an absolute dollar standpoint, mainly due to a stronger dollar but it increased as a percentage of segment sales.

We previously announced the consolidation of two dispensing closure manufacturing operations in France, as well as several sales offices in North America and Europe. We recorded some expenses relating to these activities in the quarter, and most of them were recorded by the Closures segment.

Our visibility continues to be very limited. On a positive note, we saw some increases in demand late in the second quarter. This leads us to believe that the situation appears to be stabilizing, and looking forward we are cautiously optimistic.

Turning now to the Beauty & Home segment, reported second-quarter sales for the segment decreased 26%. Changes in exchange rates adversely affected sales by 9%. Excluding currency changes, sales declined by 17% in the quarter, mainly due to the softness in fragrance and cosmetic markets.

Our customers continue to be very cautious, and we experienced weak demand in each market served by the Beauty & Home segment. Excluding changes in exchange rates, sales to the fragrances cosmetic market decreased 24%, sales to the personal care markets decreased 5%, and sales to the household market decreased 4%. Continued underutilized capacities due to the drop in demand caused a decline in the Beauty & Home segment income from the prior year.

Briefly turning to some examples of new applications in our products, the use of convenient dispensing systems on private label products continues to expand. For example, our lotion pump was introduced on a new moisturizing daily lotion by CVS. Our Bag-On-Valve systems were launched on both self-tanning sprays, as well as an aloe vera moisturizing spray by Ultra, and our Bag-On-Valve system with specialized actuator were launched on both a sunscreen, as well as an ultra-sheer sunblock under Target's private-label brand called up & up.

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

Thanks, Peter, 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, compared to the prior year, second-quarter reported sales decreased 15%. Changes in exchange rates negatively impacted sales by about 9%. An acquisition made in the fourth quarter of last year accounted for 2% of sales. So excluding currency changes in acquisitions, sales declined by 8% in the quarter, and all of this decline was due to the pass-through of a lower resin cost.

Changes by market excluding currency impacts were as follows. We had an 18% decrease in sales to the personal care market and a 24% increase in sales to the food/beverage market. However, there was a large shift in custom tooling sales to the food beverage market from the personal care market compared to a year ago. Adjusting for this shift in tooling sales, sales to the personal care market would have decreased by 12% versus the 18% I previously mentioned, and sales to the food/beverage market would have been up 12% versus the 24% increase that I talked about earlier. Please keep in mind, though, that these personages have the resin pass-through included in them.

Segment income includes approximately $2.8 million of expenses related to our previously announced restructuring. Despite lower sales and the restructuring costs, segment income expressed in both dollars and as a percent of sales increased over the prior year level. This reflects the success of our cost savings and profit improvement efforts throughout the segment.

Focusing on new products in the Closures area, one of our Tube Top Closures is used on a redesigned kids sun care lotion package again targeted -- under Target's private-label called up & up. So this is the offset to what Peter talked about in the Beauty & Home segment. Our Dispensing Closures were introduced on a package by Avon for their solutions, their AM and PM series. Our Closures are used on Schering-Plough's recently re-staged Coppertone for Water Baby sunscreen lotion, and our new pinpoint system was launched on an eye cream by Kal.

Now looking at the Pharma segment, reported sales declined 12%, mainly due to a 10% negative impact coming from changes in exchange rates on the translation of these sales. Excluding changes in the exchange rates, sales declined by 2% in the quarter. Segment income for the quarter was lower than the prior year, primarily due to the negative impact of exchange rates. But, as you can see, segment income as a percent of sales improved over both the prior year and the prior quarter.

Turning briefly to new products in the Pharma segment, Glaxo's Veramyst allergy medication has been approved now in China, and also one of our nasal spray pumps has been approved by the FDA for use on a generic medication to treat osteoporosis.

Now I will turn it over to Bob to discuss our financials.

Thank you, Steve, and good morning, everyone. I will provide my comments, and then Peter, Steve and I will be happy to answer your questions.

First commenting on the results of the quarter, as you have seen, our overall reported sales decreased 20%. Changes in exchange rates accounted for 9% of the decrease, resulting in a decline in organic sales of 11% for the quarter.

From a geographic standpoint, sales to customers by our European operations represented approximately 57% of net sales compared to 64% last year, while sales by our US operations accounted for 29% of sales this year versus 24% in the prior year. We are expanding slightly the scope of our restructuring program, and depending upon exchange rates, we expect the total costs to be incurred to be in the area of approximately $7 million. Once completed, annual savings from these actions are now projected to be in the area of $3 million to $4 million pretax with most of the savings expected to be realized beginning next year. During the quarter we recorded expenses totaling $3.1 million pretax related to this.

Net interest expense increased mainly for two reasons. We have higher interest rate on our US borrowings, and also the interest rate on our investments in Europe is lower this year compared to the prior year. As footnoted in the income statement of our press release, we have modified the treatment of French R&D credits. Basically what was recorded as a credit against income taxes in the past is now being recorded as a reduction of R&D expense.

Reported diluted earnings per share decreased to $0.41 per share from $0.64 per share in the prior year. Restructuring charges after tax negatively impacted earnings-per-share by $0.03 per share. Excluding this, earnings-per-share were $0.44 per share. Despite the decline in our net income in the quarter compared to last year, free cash flow increased significantly. Our cash flow from operations for the quarter was $90 million compared to about $59 million in the prior year. Capital expenditures were $37 million in the quarter compared to $48 million in the same quarter of last year. That leaves free cash flow defined as cash flow from operations less CapEx, $53 million in the quarter versus $11 million in the prior year.

During the quarter we spent about $3.4 million to buy back approximately 108,000 shares during the quarter. Our repurchase authorization at the end of the quarter was approximately 4.3 million shares. The mix of debt at the end of the quarter is roughly 75% fixed versus 25% variable, and the average interest rate is around 5.1%. On a gross basis, debt to capital is about 20%, while on a net basis, it is approximately 4%.

Briefly turning to the six months, reported sales decreased approximately 19%, and changes in exchange rates accounted for about 9% of the decrease. Acquisitions accounted for about 1% increase, leaving a decrease in organic sales of about 11%. Reported diluted earnings per share year-to-date decreased to $0.79 per share versus $1.16 per share last year. Reported diluted earnings-per-share includes the $0.03 per share negative impact from the restructuring charges that I mentioned during my second-quarter comments.

Looking forward we expect depreciation and amortization for all of 2009 to be in the range of $125 million to $130 million with CapEx expected to be in the same range. I would like to point out that these 2009 amounts could vary depending upon changes in exchange rates. The effective tax rate for the full year of 2009 is expected to be in the area of 31% to 32%.

Lastly, I would like to emphasize that the range of our EPS guidance that we mentioned in our press release does not include any restructuring charges. At this time Peter, Steve and I will be glad to answer any of your questions.

(Operator Instructions). George Staphos, Bank of America.

I just wanted to get a sense for what kind of sequential trends you are seeing heading into the third quarter in some of the harder hit areas.

George, we are seeing -- from the end of the second quarter, we have seen some increases in order inflow, especially in the personal care market. We have seen some of the increase in coming orders also on the low end of the fragrance and cosmetics markets. But we still have a very short visibility at the high end of the market in the fragrance and cosmetics. So it seems that they are -- the situation is continuing as in the past. What we are still seeing is a pretty high activity on new product developments. Projects also on the higher end of the market is ongoing. The problem is there that we do not really know when these products will come to the market.

And again maybe, George, on the Closures side, if you look at the business, overall business we started to see picking up in the second quarter. That was really our first segment that started to go down about a year ago. So I think that is a bit encouraging. We expect that to continue as we go into the third quarter, and overall Pharma backlogs continue to be pretty consistent where they have been in the past.

When you look at the supply chain, I realize it is very, very difficult, especially within fragrance and cosmetics. Clearly you have seen some pickup in orders. That is a positive. What visibility do your customers have on the supply chain, and what inventory might remain that needs to be purged if any? And at this juncture, what is their read on the consumer, and what kind of holiday selling season we might have within fragrance and cosmetics?

There it is still very difficult to get a clear answer from our customers. Their visibility themselves seems to be as unclear as ours is. What we are seeing is that the Eastern markets, for example, Russia, especially in the high end of the fragrance/cosmetics market, has basically disappeared. This was one of the growth reasons in the last years, two years. There we are seeing a major drop in the demand.

On the European and North American markets, it seems that the drop is not as big, and we are still seeing some reduction in the supply chain. That is the reason why it is not coming up -- picking up as quickly as we thought it was.

Last question and I will turn it over. You did a wonderful job on margin, at least looking at our model. Congratulations on that. I realize it is probably hard to generalize, but I want to ask you anyway -- were there any two or three initiatives or types of initiatives that you are working on in this quarter that helped drive the pickup in margin and improvement in dollar profits despite -- sequential anyway -- despite what we saw going on with volume?

I think overall, George, on that, it really is, as you said, it is a broad-based initiative. We have cut back significantly on discretionary spending across all of the segments. We have reduced a lot of our labor that we don't need on an ongoing basis, and we are probably down almost 8% of overall labor. A lot of that is temporary labor. (multiple speakers)

(multiple speakers) -- down about 8%?

About 8% overall from about a year ago. So we have significantly reduced a lot of the direct labor and been able to do that pretty cost-effectively. So it is broad-based cost-cutting efforts across all of the segments.

Can you keep the cost there if volume picks up, or do you need to ratchet that back pretty quickly as well?

Well, I think overall as volume picks up, we will see an improvement in overall margins. We will be picking up, if you will, in the direct labor because that is directly associated with the products. But we would expect that we will be able to continue to leverage on the overheads that we have in place. And, by the way, that is a key issue for us because one of the key things that we look at is making sure we are ready when business picks up.

Ghansham Panjabi, Robert Baird.

Peter, I'm a little surprised on your comment that the backlog has picked up for new products and some of the premium products. That seems to be very inconsistent with what your larger customers are saying in terms of stressing value, etc., just sort of acknowledging that the consumer is going to be weak for an extended period at time. So just give us some color as to where specifically are you seeing an improvement in your backlog?

First of all, the activity for new products is picking up in certain areas, not the order inflow on the high-end of the market. The order income is picking up in the low end of the business and in the personal care business. So there it is different, and it is very difficult to say when the new projects are coming to the market and turning into orders. So this is a big difference.

Is that true geographically as well? I mean is the US sort of at that inflection point and Europe is still a little bit behind, or how would you characterize your --?

It is very much depending on the customers. There are some customers which are more aggressive in new products and innovations than others. So on both parts of the businesses in North America and in Europe, you see customers which are focusing on newer product lines. There are other customers which are more risk adverse and are trying to keep their decisions closer to the low activity.

Chris Manuel, KeyBanc.

A couple of questions for you. First of all, I kind of want to maybe help me flesh out both George and Ghansham's question a little bit. The pickup that you saw towards the end of the quarter, I think you have indicated a couple of areas it is in. Could you maybe help us with directionally the magnitude?

As we look at your first-quarter numbers, I think your total organic company growth was in the neighborhood of minus 9%, and second quarter here it looks like it is minus 10%, minus 11%. Was it the last few weeks of the quarter, something of that nature? Is it with what you are seeing in activity suggest that at least thus far looking as though it is a flattish or as though it is less negative? Can you help us understand maybe the magnitude?

It is very difficult. What we are seeing is an increased order inflow. How much and how consistent this will be is another question. You see our customers now are aware that the response time from our side in supply is very short. So it could be a blimp. It could be a long-term trend. What we are seeing was in the last weeks of the second quarter an order income increase once again in certain areas. Only how much this will turn into a real big pickup in the third quarter, it is very difficult to judge.

The other thing, Chris, to come back to tied to that is that I think this is also demonstrating that inventories across the whole supply chain are very tight. So what we are finding is you can get stock out pretty quickly, and if you get any push in demand, we are going to see spikes in orders going forward.

Okay, that is helpful. So, as you have given us sort of a data point for the third quarter embedded into your earnings guidance, would that reflect the pickup you saw late in the quarter being sustained? Would that be -- how are you thinking about that issue given us sort of a range or a data point there?

Yes, it is a tough question. What we really -- and I think if you look at it, we saw probably the low point in our orders in the fourth quarter of last year. That improved a bit in the first quarter. Overall results improved from the first to the second, and I guess it is more of a general trend. I don't think it -- so yes, embedded in some of that is some of those pickups and some of that inventory, but it is difficult to come back and go. It is not a huge momentum. As you can see in the earnings estimates, it is not a huge momentum swing.

Okay, that is helpful. As we think about new product launches and things of that nature, you indicated that there are a good number of things in the pipeline. In the past you have said it looks like folks seem to be kind of scaling back in size in launches and things of that nature, but still having a lot of activity. Is that a trend that is continuing, A)? And then B), have you seen -- we kind of had some data points hearing that customers have gone out and begun to -- your customers have gone out and begun to cull their product offerings, pull out some smaller products that have not been doing so well as an effort to kind of concentrate their markets a little more. Anything along those lines that you are seeing?

Yes, I mean what I mentioned, the newest activity for new products is ongoing. It is the same as we have seen in the past months. That customers are reducing their SKUs is a trend which is true, but it does not really maybe affect our businesses. Because when they are changing the SKUs, usually the tendency is they keep the consumer convenience, and we are also on the other -- on the reduced SKUs. So the overall volume we do not see declining.

Okay, that is helpful. Thank you, gentlemen.

Meggan Friedman, William Blair.

I wanted to try to get a little more color on the Pharma segment performance. Can you provide any more color on performance by asthma versus allergy or branded versus generic there?

I think the generic side continues to be, frankly, quite a bit stronger than last year and even stronger than we had anticipated going into the year. So our generic activity has done very well. When you look at the split, probably our softest business in the Pharma today is coming from our customer sales to some of the developing markets, developing markets being Latin America and Eastern Europe.

We saw quite a bit of growth in sales to those which were primarily over-the-counter type products in 2007 and 2008. What seems to be happening is those are stabilizing. So, in fact, they are not seeing the same growth projection. Those tend to be primarily allergy and some asthma, but it is a lot of allergy-related. So when you looked at it, there is not a big swing between asthma and allergy on an overall basis. It tends to be more where the market segments are with again the generics doing particularly well in 2009.

That is helpful. Then how should we be thinking about the organic contraction there? Is that a matter of lapping a difficult year-over-year comparison? Is it a timing issue with new product development, or, as you said, does it have to do with the developing markets?

Well, certainly it has to do a little bit with -- I mean part of it is lapping. We were up the last two years over 10% or right around that 10% growth area in the Pharma market. Our long-term growth projections have been in the area of 6% to 10%. So we were on the high end of that last year. So you are going to get some swings on a year-to-year, quarter-to-quarter basis.

I think, though, what has been most important for us is, even in a very difficult market worldwide, we are seeing our Pharma market being flat, which I would tend to think is an overall particularly positive standpoint given what we have seen in some of the discretionary spending areas, particularly in the United States and Europe.

Then can you also talk about the drivers of the continued strength in Pharma margins? Is that mixed? How should I be thinking about that?

A lot of it -- certainly what we -- the margins we have indicated in the past should be between 25% and 30%. They have been in that 30% area, 29% to 30% the last two quarters. Part of that is mixed. Part of that is where we are selling the product. So I would say the trends are going to continue to be in that 25% to 30% area, and it is difficult to project exactly what the margins are quarter to quarter. So we are very comfortable with those margins going forward.

Great, and then one final question here. The dosage counters, can you provide any additional color on when you believe we might see FDA approval there?

Again, we are looking at if things go as everything would be expected, we would be hoping to be on the market in the first quarter of 2010. So approval coming later this year.

Greg Halter, Great Lakes Review.

I wonder if you could discuss your SAP initiative. I think you have got something that you're working on in that area.

Yes, Greg. We are introducing SAP for the whole company worldwide. It is one of the biggest projects of AptarGroup in the past. We have postponed a little bit the introduction of SAP by one month because we want to finish all the necessary testing and to be sure that we are doing the right thing. But overall it is going very well. So we are basically on time, and we are expecting to introduce this in the beginning of August in the first divisions of AptarGroup.

Yes, and I think that is probably the key area is that we will be introducing this on a step-by-step basis, operation by operation. So we are basically, as Peter said, on time and within budget. The first one will be going live in the third -- our first operation will be going live in the third quarter.

Okay. And was there any positive or negative from LIFO reserve in the quarter?

No, Greg, this is Bob. The LIFO was only about 0.1%, if you will, of the change in EPS. It was about a $575,000 impact in the quarter, and that was slightly less than what it was in the second quarter of last year.

Was that favorable or unfavorable?

It was an increase, so it was unfavorable.

Okay. And relative to the charges for the rest of the year, which I understand are not in your guidance -- I think there is about $4 million left -- will you expect that to be $2 million, $2 million over the next two quarters or $3 million, $1 million? How does that -- how do you think that will play out?

You know, it is always difficult due to the accounting rules to know exactly when those are going to fall. But right now we think that about $2.6 million thereabouts will fall into the third quarter, and then the remainder will be in the fourth quarter.

Okay, great. And any thoughts on merger acquisition activity given the changes in the markets, as well as your cash position and debt position are much more favorable now than they have been in years I guess.

Greg, we are always looking for opportunities in this area. The situation is certainly different from the past. The multiples have come down. But also not all of the targets we are looking at are willing to move in these times, so we are working on it. We have a list of possibilities, but we usually don't go into the details there.

Right, okay. And on the custom tooling -- Steve, I think you touched on that -- but what was the total dollars in custom tooling this year versus last?

Okay, Greg. I can give you that number. In total on a consolidated basis for the quarter, custom tooling sales were about $15.9 million, and that compares to $17.5 million in the second quarter of last year. So on a reported basis, we were down about $1.6 million. If you were to exclude currencies, we were basically flat.

Okay. And we noticed that you did not raise the dividend as it was raised last year. Any thoughts on that?

Again, we tried to target a certain payout ratio. That is how we have been working with the board. So given where the earnings are right now, we have been able to maintain the dividend, and we will continue to look at it on a quarter by quarter basis.

Mike Hamilton, RBC.

I am wondering if you can just comment at all on whether you are seeing any changes in competitor responses in here?

I mean, Mike, we all are in a very special situation today. The market is very difficult. Everybody is trying to look to fill their capacities. So in general, the competitive situation has not really changed. I mean everybody is fighting for business, and the better one will win.

But what we are seeing for the time being is that our customers are looking more and more to have partners which are financially strong, which are stable and long-term oriented. And with this, we think that we have an edge on our other competitors.

Any particular areas where pricing is particularly sharp right now?

Yes, we've spent many, many years in a very competitive environment, so pricing is always an issue in our business. I could not figure out a special area where price is going out of the normal range.

Claudia Hueston, JPMorgan.

I was hoping you could just talk about what is implied in your guidance in terms of foreign exchange assumptions and resin cost assumptions, and then maybe just any comments more broadly on where you see resins tracking over the second half of the year?

I will take the currency side. Basically we don't try to project where we think the rate is going to be at the end of the quarter. What we do is we basically benchmark off of where the rate is at the time we do the projection. So if you look at last year third quarter, the average dollar euro rate was about 150. And at the time we did our projections, we are at about 140, which is where the rate is today.

I will take -- on the resin side, as we have seen resins move up somewhat as we went into the second quarter, frankly, the resin picture is a bit cloudy as we get into the second half. As you are aware, there has been some capacity coming on in the Middle East. But offsetting that, there has been some reduction in supply and again some reduction in supply in both Europe and North America. Again, just to reemphasize, when we talk resin, we are primarily talking polypropylene here.

So our best guess at this point is that we would see more of a stability in pricing. Right now there is still some upward pressure on the price. But we think the second half that may be mitigated to some degree and more stability. But it is a tough guess right now as some of the large resin companies readjust their capacity.

Okay. And then I was hoping you could just maybe provide a little bit more color on the volume trends in Closures, which were a little bit better than what I had expected. So maybe just a little bit of color in terms of the food and household segment in particular.

Well, again, if you came back from us, for the quarter we were about flat when you took out resin pass-through in the personal care from last year's level when we were still seeing very good increases in the food/beverage side of the market. What we have seen is we would expect going into the third that the personal care will on a comparative basis be somewhat better than what we saw a year ago and continued the strong growth that we have in the food/beverage as we expand into new categories, salad dressing categories, some of the water, sports drink categories we are continuing to grow in.

So overall the growth we have had in those on a volume basis on the food and beverage side has been in the area of 15% to 20% compounded. We would expect to be probably in that 15% area going forward for the remainder of the year.

(Operator Instructions). Brian Rafn, Morgan Dempsey.

Give me a sense I kind of jumped on late -- Steve, you have always talked about some of the consumer products with launching new packaging from the standpoint of differentiation be it size or color or shape. How has that been affected by the general malaise in the economy?

You know, it is very different from sector to sector. I think the one area of a real plus that we are seeing in that is our growth in the food/beverage that I was talking about. A lot of that is going to more convenient packaging.

What we were seeing is also coming back is moving towards in the private label area. You know, the house brands moving to more convenient dispensing to be able to come back and compete with branded drugs.

So overall I would say that the trend towards convenience is still there. What we have seen is it is not convenient being a more expensive necessarily dispensing system. It is a cost-effective dispensing system. So we are seeing areas in terms of food, those types of areas, where they want convenient dispensing at a competitive price, and we have been able to do that from a technology standpoint over the last nine months or so. So I don't think the big trend has changed.

Okay. The trend in changing packaging sizes where, you know, it is an inflation issue, whether it is shampoo or salad dressing where you going from 16 ounces to 12 ounces, how much of your new product volume has been playing around with that inflation kind of hedge where they are playing around with volumes?

Boy, that is difficult for us to estimate. You get two trends to that. You actually have smaller sizes like you talked about in reducing going from 12 ounces to 8 ounces. And then you also have in some of our personal care going to the, let's call it the Sam's Club, the club size where there are bigger dispensing packages, cheaper per ounce type areas.

So we're getting a blend to that. I don't know that there is one specific trend in new products. What we have seen, though, is still a movement on the travel packages continues to be positive for us. You know that 3 ounces or less if they are going -- certainly our customers are looking to be able to come back and be a factor in that market on the personal care and fragrance side.

Okay. On the warehouse -- the wholesale clubs -- Steve, you guys have never been real big in the giant pump area. Is that an area that you would look or consider, or is that just an area that the margins are not acceptable?

We are continuing to look at that. In fact, we have actually got developments going on in that side to address those. Because it has been a niche market. We think our technology, we actually have some improvements in the technology to help in that area.

Okay. Anything on specific products, Bag-On-Valve, Blister Pack, SimpliSqueeze, anything on there that you are seeing trends?

I mean what we are seeing is a continued use of the Bag-On-Valve system because this gives really advantages to the application of our products. As I have mentioned already, there are some new products coming out, for example, for the Target private label products. So it's a continued trend, and we are seeing some new products coming out in this area, also in the future.

Okay. Peter, you talked about in the M&A area, and I'm assuming multiples of EBITDA have come down. Can you give us a sense as to how far they have come down in your area in packaging?

It is very difficult to say because it depends from company to company. It is coming down. The problem is now that the people who wanted to sell they are not very happy with these trends. So the negotiations are still very tough.

Okay. So you are seeing a real reluctance on the seller to sell at these prices?

Right, right.

I think what you are seeing, Brian, is companies today are in two camps. One, given the economic side, if you are financially reasonably well off, it's not a great market to sell into.

On the other hand, we are seeing opportunities where for debt reasons or even operational reasons that there's opportunities where people in effect are getting forced to look at selling parts of their business or the whole business.

Do you see any -- you guys mentioned it -- do you see any flight to quality Safe Harbor where somebody has maybe been a competitor and it is just getting very, very difficult, so they look to a larger parent like an AptarGroup?

That is the case in several occasions we had these discussions with some of the companies. That is one of the reasons why -- by the way, AptarGroup seems to be a very much liked buyer for these kinds of companies traditionally.

Okay. A question for you, Steve. International accounting standards, have you guys done any more analysis as to how that in the next few years how that is going to affect earnings power or balance sheets?

I can take that one, Brian. Yes, we continue to evaluate the impacts that it may have. There are some rumors out there with everything going on in the economy and whatnot that the current SEC Chairman is rumored to not be so much in favor with the current timeframes, and there may be a delay out there. But right now we don't see any significant impacts on our business, but we do continue to evaluate them.

Okay. And then just finally, with Washington going after certainly higher tax revenues, anything on repatriating foreign profits vis-a-vis higher potential forward rates?

You know, there is a lot of -- obviously in Obama's proposed tax legislation, there's a lot of very complicated proposals embedded in his Green Book, as they call it. What is going to ultimately end up who knows by the time it gets through the Senate and whatnot. But yes, there is a potential for higher corporate taxes when all is said and done. But it is still too early at this point to really know exactly what part of that is going to pass and not.

Okay. Can you just give us a sense from a standpoint of capacity utilization -- I know that is difficult -- how many shifts would you guys be running, say, in Europe versus the United States with kind of a rough estimate where you guys might be operating on a capacity utilization basis?

Brian, this depends very much on the product. We still have some products which are pretty well used on the market side. Others are less capacity-wide used. So it depends -- usually we are using between two and three shifts in Europe and the same also in the United States.

Okay. Thanks, guys.

Tim Burns, Cranial Capital.

We were talking earlier about pharmaceuticals and generics versus corporate names. With the whole push on healthcare, who knows if anything ever gets done again, but it sounds like it might happen this time. They are already seemingly going to get commitments from the drug companies to reduce costs, and then this concept of setting up a national health insurance plan to put pressure on the private plans and especially the insurance companies. I mean if somebody were to stand back and look at that and say, how could Aptar build a device or package that helps solve the problem? I mean I don't know if you guys think about that like when you're having your third coffee break of the day or whatever -- I'm just kidding, Steve. But I mean, in theory what do they want to do?

They want to get you into the hospital for a diagnosis. They want to prescribe the right drug. But most importantly, they want to make sure that you take the drug correctly with efficacy and don't show up again. And I'm just wondering if the counter I think is a good solution, an interim solution. But I mean we are almost -- I think we could almost be talking about some type of implantable device that pumps the medicine as programmed. It is just one less thing to worry about and makes the healthcare industry far more effective. Because at the end of the day, does it really matter what the device cost if you are coming back three or four times?

First of all, could we hire you as our R&D guy for our Pharma because you have some very good ideas. We are also working on it --

But I need to live in Berlin if that is okay.

Not necessarily. But you were mentioning one thing, which is very important also for the future, is the compliance monitoring of drugs. There's a lot of waste of drugs because people are not correctly using the drugs, and this is one of the areas where AptarGroup is working already since many years. And the counting devices is only one of the directions we are going. So it is very important; it is very helpful. And, Steve, maybe --

Well, I think again the other thing that you touched upon, one of the negatives the US -- this is a US FDA issue -- one of the problems is it takes forever to get through the FDA. If you have a new product starting today, it is probably five years to get through.

The big advantage I think with Aptar coming back is we do see a movement going to generic drugs. And, frankly, we are on quite a few generics, and I think that will be -- we will benefit from that site as those markets expand. And, as Peter said, we continue to work with our drug companies to be able to differentiate.

One of the areas we have talked about in the past has been eliminating the syringe, which basically needs to be applied generally by a medical professional. If we can get away from the syringe and be able to self administer through a more convenient dispensing, we can increase the dosage and the usage of the product. So those are areas we are continuing to work with our customers on.

So it sounds like it's like a ladder, and you are already in the generic drug business in a big way. You are working with compliance counters, and the syringe elimination would be another solution. And then kind of like the implantable, if you will, the Jason Bourne version. Maybe you can get Jason Bourne to like authorize your product or something, but -- you know, from The Bourne Identity. But so that would be like maybe ladder five, you know. But at that point, it is really -- it drives costs down for the entire healthcare system.

Yes, again and it is really -- from ours is continuing to try to work on convenience and innovation in the Pharma industry that is consistent with our other segments.

Got you. And then I had one other question. In terms of -- I guess in terms of what you all are trying to do with the so-called -- the new, new customers, the Targets and the CVSs of the world, you have made mention that these are not necessarily really expensive packs that puts these new clients on their behind. But that they are smartly engineered and function as a -- I think I have always heard you guys say that it is a smart device made inexpensively. And I think -- should there not be a larger demand for these types of products?

Tim, we have seen this trend in Europe already several years ago, two years ago, that the private labels are coming up, and it is not necessarily a cheaper device which they are using. They want to match the branded products. So they have to look at the shelf as the branded products, and in most cases they are using the same convenient dispensing systems as the branded products. So it is a general trend, which is coming up. Sure, in today's situation they are also looking for cheaper solutions, but still convenience for them is very, very important.

Got you. Well, listen, thank you very much, and keep on pumping. Have a nice weekend.

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

If there are no further questions, I would like to thank everybody for participating through our today's call. Wish you a nice weekend. Thank you very much. Good-bye.

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