Aptargroup Inc (ATR) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to ApatarGroup's fourth quarter and 2009 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 ApatarGroup. Please go ahead, sir.

Thank you, Devin. Before we begin, I would like to point out the discussion to follow includes forward-looking comments and that actual results or outcomes could differ materially from those projected or contained in these 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 ApatarGroup'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 the conference call on its website as a service to those investors who are not able to listen today, the information contained in the replay should 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 ApatarGroup; 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 over the conference to Peter Pfeiffer.

Thank you, Ralph. Good morning, everyone. I will comment on our overall results and I will discuss our beauty and home segments and then provide some information on the transition that will be taking place in our organization during 2010. Steve will follow me with his comments on our Closures and Pharma segments and then Bob will review the financials.

The year 2009 was one of the most difficult years we have ever faced but it ended on a strong note with improvements in margins compared to prior year in every segment which led to the record fourth quarter results. Briefly summarizing the year, the economy affected the beauty and home segment the most, especially in the fragrance and cosmetic market. We benefited from the diversification of our business as Pharma segment was relatively stable. Closure segment showed growth in food and beverage market due to continued conversions and sales in developing markets were strong throughout the year.

Focusing specifically on the quarter overall, the weaker dollar relative to the prior year helped our results. Also, demand trends continue to improve from the third quarter. In the fourth quarter, we posted our first quarter leading (inaudible) in core sales in 2009 over the prior year. Continued cost reductions and better utilization of our facilities led to the record fourth quarter earnings. Looking forward, the strong quarter results are certainly encouraging. We've seen an increase in the incoming flow rate and we believe that inventory levels have reached the bottom. Overall, we continue to be cautiously optimistic as the long-term visibility is still not absolutely clear.

Turning now to our beauty and home segments. We saw improvement in both sales and income for the beauty and home segments in the fourth quarter. Compared to the prior year, reported sales increased 12%. Changes in exchange rates positively affected sales by 9%. Excluding currency changes, sales increased 3%. Our customers continue to be cautiously in demand from each of the primary markets served by beauty and home segments was mixed.

Excluding changes in exchange rate, sales to the fragrance and cosmetic market decrease 2%, sales to the personal care market increased 15% and sales to the housewares market increased 11%. Concerns about the transition of the flu virus led to continued strong demand for our spray or lotion pumps which are used to dispense antibacterial or liquid soap products. Regarding the business realignment mentioned in the press release, that will be occurring during 2010.

Last, we have been -- in the past we have been marketing our products on the various historical brand names. We are transitioning to marketing our products on the free brand name, Aptar Beauty and Home, Aptar Pharma, Aptar Food and Beverage. Each of these new brands will be able to sell all of our products through customers in their markets. This realignment of our business will result in us becoming completely market-focused. It is specifically designed to allow us to better serve our customers by making it easier for them to do business with us and at the same time our understanding of their business so that we can offer even more innovative products to meet their needs. We will be revising our historical segment financial information during 2010 and we expect to begin reporting in the new segment information beginning in 2011. I now would like to turn the call over to Steve.

Thanks, Peter. Good morning, everyone. I'll provide my comments on the Closures and Pharma segment then turn the call over to Bob to review our financial results. First, looking at the Closure segment, compared to the prior year, reported sales in the quarter increased 4%. Changes in exchange rates positively impact sales by around 5% and acquisition we made in the fourth quarter of 2008 accounted for 1% of the sales. Excluding currency changes in acquisition, core sales declined by 2%. The pass-through of lower resin cost was a drag of 7% and lower custom tooling sales in the closure segment was a drag of another 5%. Adjusting out these two items, core product sales would have been up around 10%. Excluding changes in -- excluding currency changes in acquisition, sales to the personal care market decreased 2% and, again, adjusting for resin pass-through and the lower custom tooling sales, core product sales to the personal care market increased approximately 9%. Excluding currency changes in acquisitions, sales to the food beverage market also decreased about 2%. And, again, adjusting for the resin pass-through and the lower tooling sales, sales to the food beverage market on a comparable basis would have increased 16%.

Segment income both from an absolute dollar and as a percentage of sales standpoint increased from the prior year. Segment income for the fourth quarter of this year includes approximately $1.4 million of expenses related to our previously announced restructuring. As was the case in our beauty and home segment, demand continued to be strong for our small diameter closures that are used in the hand sanitizer market.

Now, looking at our Pharma segment, reported sales increased 7% mainly due to a 9% positive impact from changes in exchange rates on the translation of sales. Excluding changes in exchange rate, sales declined about 2% in the quarter. The decline in sales excluding currency is mainly due to decreased demand for our metered dose valves.

Turning briefly to new products, Nycomed launched in the UK, their Instanyl nasal spray medication for the management of post-operative cancer pain. They used our nasal spray pumps. You may remember this, we previously announced this new product was launched in Germany and Denmark in earlier quarters. Now, I'll turn it over to Bob to discuss the financials.

Thank you, Steve. Good morning, everyone. I'll provide my comments and then Peter, Steve and I will be happy to answer your questions. First, I would like to comment on the results for the quarter. As you have seen in the press release, our overall reported sales increased 9%. Changes in exchange rates positively impacted sales by approximately 8%. Excluding currency changes and acquisitions, sales increased 1% in the fourth quarter. From a geographic standpoint, sales to customers by our European operations represented approximately 59% of sales compared to 60% last year while sales to customers by our US operations accounted for 28% of sales in both years. During the quarter, we recorded expenses totaling $1.8 million pretax related to our consolidation and severance program.

When comparing our fourth quarter results to last year's results, please keep in mind that the fourth quarter of last year included a favorable $5.2 million pretax or about $0.05 per share after tax benefit for the reduction in our LIFO reserve. Last year's earnings per share for the fourth quarter excluding the favorable LIFO impact was about $0.41 per share. The decrease in the LIFO reserve last year was mainly due to a significant decrease in resin costs during the fourth quarter of last year. Reported diluted earnings per share increased to $0.52 per share from $0.46 per share in the prior year. Consolidation severance charges after tax negatively impacted the fourth quarter of 2009 earnings per share by about $0.02 a share. Excluding this, earnings per share were $0.54 per share.

Free cash flow, which we define as cash flow from operations less capital expenditures, was roughly $29 million for the quarter versus $21 million in the prior year. Our cash flow from operations for the quarter was $71 million compared to about $67 million in the prior year. And capital expenditures were $42 million in the quarter compared to $46 million in the same quarter of last year.

During the quarter, we spent approximately $18 million to buy back approximately 500,000 shares of our common stock and our repurchase authorization at the end of the quarter was approximately 3.7 million shares. The mix of debt at the end of the quarter is roughly 65% fixed versus 35% variable and an average interest rate of about 4.25%. On a gross basis, our debt to capital is about 21% while on a net basis, it is nearly zero.

Briefly, turning to the year, reported sales decreased approximately 11% and changes in exchange rates accounted for about 5% of that decrease. Acquisitions counted for about 1% increase leaving an organic sales decline of about 7% for the year. Free cash flow for the year was an all-time record of approximately $149 million versus roughly $66 million in the prior year. Our cash flow from operations for the year was about $294 million in the current year compared to about $270 million in the prior year while capital expenditures for the year finished at around $145 million compared to about $204 million in 2008. Reported diluted earnings per share year-to-date decreased to $1.79 per share versus $2.18 per share last year. Reported diluted earnings per share for the year includes $0.07 per share negative impact from consolidation severance charges.

Looking forward, presently, we expect depreciation and amortization for all of 2010 to be in the area of $140 million with capital expenditures expected to be in the area of $125 million. I would like to point out that these amounts could vary depending upon changes in exchange rates. The effective tax rate for the full year in 2010 is expected to be in the range of 32% and 33%. No significant reorganization charges are expected for 2010.

When you're looking at the first quarter 2010 guidance in relation to the fourth quarter 2009 just finished, please keep in mind that due to accounting rules, our stock option expense is heavily weighted to the first quarter of each year. As a result, stock option expense is higher by about $0.05 per share and the first quarter of 2010 compared to the fourth quarter of 2009. Lastly, we currently estimate the diluted earnings per share for the first quarter of 2010 will be in the range of $0.48 to $0.53 per share compared to $0.38 per share in the prior year. At this time, Peter, Steve and I would be happy to answer your questions.

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

Thanks, hi, everyone, good morning and good afternoon. Congratulations on the year given the challenges. A few questions. I guess, first, can you give us a bit more color in terms of what's been behind the deceleration or decline and meter dose valves in Pharma, if I heard you right? And then also if you give us a bit more color in terms of what's been happening with tooling sales and why hopefully that should pick up as the year goes on. Then I had a couple of follow-ons.

I'll take -- George, this is Steve. I'll take the meter valve. It is more of a timing issue. We've seen some slowdown in terms of orders, particularly from the developing markets due to some inventory corrections. That would be mostly in Latin America and in eastern Europe. And, again, we think that those should rebound pretty much as we get into 2010. The second area in terms of tooling, we actually do get fluctuations year to year. So, I don't know that you can read much into the tooling area and, again, the overall year we're only down about $6 million compared to where we were at the end of 2008. So, again, we don't read very much into that. We have a good backlog of new projects we're working on in 2010.

Ok.

I was just going to add that 2008 was a record and that was partially due to some major food introductions in the last quarter of last year. So, as Steve said, it is primarily just on the closure side and not something that is really a significant indicator for us.

Ok. Just quickly, on meter dose valves into emerging markets, from your vantage point, do you -- have you already seen a pickup in the first quarter or is this something you expect to happen in 2010 but timing wise it is indeterminate?

It is indeterminate in 2010. I wouldn't want to come back and comment on quarter by quarter.

Ok. The realignment by end market makes a lot of sense. I guess the question I would have is given some past realignment work that the Company has gone through, I think you changed the reporting segments a few years ago, why is now the right time as opposed to maybe a few years ago or maybe a few years hence from now, why is now the right time to finally do this realignment?

Good morning, George. It is Peter.

Hey, Peter, good afternoon.

Good afternoon. First of all, you've correctly identified the movement is in line with our strategy we had in the past year. We have done some realignment in the past. This was basically the next step. It was basically triggered by two reasons. One of the reasons was we wanted to make it easier for our customers to make business with ApatarGroup. You might remember that in the past ApatarGroup was selling its products through five different brands, two different markets and customers.

Yes.

We are realigning the business into markets, purely markets. In the past, Aptar Pharma and Aptar Beauty and Home was already market-oriented. Closures was a pure product oriented segment. Now, with the new structure, we are all fully market-oriented. Each of these segments will present all ApatarGroup products to their customers. Now, why now? Basically, it was time to do it. And also the situation of the overall markets helped us to change, change is not always is very easy. And in a crisis time, change is better accepted than in normal times. But, as we said, it was in line with our strategy and there was no specific other reason for that.

Ok. I'll turn it over. I'll be back in the queue. Thanks, guys.

Thank you. Our next question comes from Mr. Ghansham Panjabi of Robert W. Baird.

Hey, guys, good morning.

Good morning, Ghansham.

On your comments related to competitive pricing in both Beauty and Home and Closures, can you give us color on whether the pricing environment eroded or was it relatively stable?

Good morning, Ghansham.

Good morning.

We were always very competitive pricing market in the past years. And it basically has not changed. Everybody in the crisis situation is fighting for business. They're all trying to cover and to use their capacities, but there was no extraordinary price competition in the past year.

Is it isolated, Peter, to a specific region or are you seeing the same sort of pricing pressure in the US as well as in Europe, too?

It is basically all over the world. It is in the emerging market as well as in the developed market in Europe and the United States. There is no big difference.

Ok. And, Bob, one for you. What do you expect the impact was from FX on EPS during the quarter? Thank you.

Ghansham, typically, we said it is difficult for us to hang a particular number on that because that, what we can calculate is obviously the top line translation impact but we do have some offsets on importing products through different regions. If I had to throw a number out there, I would probably say somewhere in the area of $0.01 to $0.02 per share positive.

Ok, thank you.

Our next question comes from Ms. Claudia Hueston of JPMorgan.

Thanks very much. Good morning. Just a couple of questions. One, I was hoping you could talk more about the trends you saw from a geographic standpoint, particularly in the Beauty and Home business and the Closures business. Are you seeing much of a difference in terms of European demand versus US versus developing markets?

Good morning, Claudia.

Good morning.

What we have seen in the last few months is an upturn in the market clearly. If you look at the year -- the Christmas sales, for example, our customers in Europe and also the United States better than expected business. So, this gave us already some indication that there is an improvement in the market situation in Europe and in the United States. It was very good overall in the emerging markets. Latin America was all year long very positive growing as well as the Asian market. So, it seems that the business comes to a normal level but, once again, it is very difficult to predict how the future looks like. Keep in mind that in Europe, for example, there is the tendency of higher unemployment which could affect the demand and also in the United States we are still not over the crisis. So, we are cautiously optimistic as we said in our press release.

The other thing, Claudia, a little bit on the closure side because I think you've got another dynamic in closures which is positively impacting that and that's the conversion from nondispensing to dispensing systems in the food beverage market. So, as Peter said, in our personal care side we saw stronger trend in the US in the personal care closures market in the fourth than we saw in Europe. We saw strong food beverage sales really across both Europe and the US.

Ok. That's very helpful. Thank you very much. And then just one question from a cost side. It seemed like you did a nice job again on managing your costs in the quarter. Can you just talk a little bit about the progress you've made and then just any update on where your asset utilization is at this point?

Claudia, we are constantly trying to improve our cost situation around the world. This is a constant effort of our management and it will continue. So, we hope that this cost containment we have done in the last month will help us in an upturn market. I think it continues.

On the capacity side, Claudia, when you look at it again, it will be dependent on the markets that we serve. For example, today in our fragrance cosmetic we're probably running again at about 70% of capacity, depending on some of our Closure lines, we're running somewhat stronger than that. In our Pharma lines, we've got adequate capacity going into 2010 for most of our product lines.

Ok, great, thank you.

Thank you. Our next question comes from Meggan Friedman of William Blair and Company.

Good morning, good afternoon and congratulations on the strong quarter.

Good morning, Meggan.

Thank you, Meggan.

A couple of questions for you, first, on the Pharma pipeline, you're using kind of more language around kind of stability there. Can you characterize the pipeline? Is it still as strong as it was? And then can you provide an update on the timing for the dosage counter?

First of all, the market overall, it has been -- in terms of projects that we're working on continue to be as strong as they've been in the past. So, that continues to be done very well. I think some of the -- what we say stable is that we saw some significant growth if you remember back in 2008 in some of the eastern European markets and some of the developing markets. That did get impacted by some of the economic crisis in 2009 and that's kind of why we have more of a stabilization rather than the growth. In terms of the dose counter, we continue to progress with that. We're working with several customers. One of our customers frankly had a bit of a setback. They look like they will be delayed coming into the US market by about a year, but they're still on track to come back into Europe. So, overall, our progress continues to do well. The actual functioning of our device continues to do very well.

Is that the manufacturer that would be the furthest ahead still?

That's the one that would be the furthest ahead, that's correct.

Ok. And then can you maybe talk a little bit -- we've seen private label make inroads on branded products here and especially during the recession. I know you work with both sides. Can you talk about what you're seeing in terms of how you fit in with branded companies to address this threat? And maybe from the framework of the time line for new product development for customers across your major categories, is it more front or back half weighted as a result?

Let me come back and try to deal -- first of all, we have benefited as a company in 2009 with private labels because most of the private label in terms of how they launch the dispensing function, they still want the convenience that we offer. So, we've not seen anybody move away from a dispensing system that was a branded product into a nondispensing system that was an over-the-counter product. So, we've seen growth there. And in fact, last year, we're actually seeing the store brands are actually trying to create their own identity in certain cases to try to give more sales impact. So, we've been working with them on the design. And I think, again, that helps us going forward. The other area though, in terms of the Proctors and Gambles and the unilevers of the world, all of them, and we start to see this now, have made commitments to either redesigning, reintroducing, coming up with new products and we started -- we feel, start to see an impact of that in terms of our sales and personal care markets in the fourth quarter and as we go into 2010. So, overall, Meggan, we tend to be cautiously optimistic, as Peter said, going forward.

Wonderful. And then one last question. On uses of cash, any changes to your priorities there and can you talk about the pipeline for acquisitions? Thanks.

Meggan, we are continuously looking at opportunities of acquisitions. I will say it in one word, it needs two to tango. You need someone who is willing to sell and someone who is willing to buy. Our list is long. We are, as in the past, looking at acquisitions. It has to fit our strategy. It has to bring us something. We're not making acquisitions just for growth reasons. It has to bring us either new technologies, new regions, new products, something like this. Otherwise, we would not spend our money just for getting bigger.

And how are multiples looking in terms of expectations?

If you look at the multiples, and I think we've continued to be optimistic, I think basically the multiples have come back down through 2009. The challenge is, as you know, is not necessarily the multiple, it is going to be what the projections are going to be for these companies going forward. I think we're cautiously optimistic there will be more opportunities as we go into 2010 and the acquisition market than we've seen over the last couple of years.

Wonderful. Thank you.

Thank you. Our next question comes from Tim Burns of Cranial Capital.

Good afternoon and good morning.

Good morning.

Tim, how you doing?

Good. Hey, just a question. Historically, you had these five brands that seemingly operated autonomously and I recall I used to tell investors that it was a unique model and Aptar was kind of like the manager of these activities but these individual units were very entrepreneurial, in some cases still run by the original founder or what have you. I think it was [Pfeiffer, Sequest, Vella, Emsar] and MBF. I guess what I would ask is what's changed and will these groups operate like a wolf pack? I mean obviously Pharma is pretty straightforward but when you get into the fragrance and cosmetic, food and beverage and what have you, there's probably a lot of cross marketing that's going to be done and I was just curious if you thought this would be a positive or something that's going to require a little work.

To give you a short answer on your question, it is correct. We had in the past different more or less entrepreneurial units selling the product to the market. This strategy was very helpful in the market which was growing quite quickly. So, they were sometimes competing on the market with each other.

Right.

Now, you have seen the tendencies in the last years with all of the consolidations on the market side. It did not make sense anymore to contact different customers with three or four sales organizations. So we came to the conclusion that we have to change this. We have to consolidate these market efforts and bring all of the sales organizations together. So, we will have now, once again, three segments which will operate pretty entrepreneurial, having their own tasks dedicated to markets, using all of their knowledge to bring new products to these markets and going forward. So, we are -- we think there is a new structure. We are answering the questions of our customers better than in the past.

Got it. And I had a question for Mr. Kuhn. The DNA in CapEx for 2010, could you repeat that?

Sure. We expect DNA, Tim, for 2010 to be about $140 million.

Ok.

We would expect CapEx to be somewhere around $125 million, obviously excluding any wild currency fluctuations.

Ok. Then the last question I guess with the World Cup coming up, do you guys have products for both the pub and the hospital or how does that work?

We'll continue to work on it. We don't as much for the pub right yet, but we'll continue to work on that.

All right. Well, great quarter. Looking forward to the first.

Thanks, Tim.

Thank you. Our next question comes from Chris Manuel of Keybanc Capital Markets.

Good morning, gentlemen.

Hi, Chris.

A couple of questions for you. Let me follow up kind of where Tim was going. As we think about the division realignment and what I've heard a few times is that as we go to the customer to realign into these three different marketing units, I think one of the strengths that you had before, what you used to talk about at different times was doing independent R&D so you almost didn't get [heard] as you were looking at new product opportunities and developing new products. From an R&D standpoint, are you centralizing those activities as well?

Good morning, Chris. Chris, we are somehow realigning also the R&D in marketing activities. We are focusing these R&D and marketing activities according to so-called market applications. So, we are concentrating our future organizational R&D to specific problems of our customers. We think we will be better able to offer to our customers problem solving. So, the new focus that will be no longer an internal competition in the R&D as we had in the past. We are refocusing the R&D to the -- to our customer's needs.

But will that in any way -- you traditionally spent, I think, 3.5% of sales on R&D by streamlining that. Will that result in any savings or bring that down potentially?

No. No, certainly not. We will spend the same amount of money but focusing the money to specific product solutions which we think will be a success on the market.

Ok. That's helpful. The other question I had is as you think about the mix of business, it looked like Closures you did considerably better than what I would have thought on the profit line. Is there anything with mix of business? Do some of these, whether it be hand -- well, I guess that wouldn't necessarily fit in that category but is there anything with mix that may have been beneficial or how do you think about that?

On the closure side again, the reported numbers somewhat disguised the strength of the business. So, if you stripped out kind of tooling and the currency issues and resin, we actually had about a 10% product growth year on year. That has a tremendous leveraging activity given some of the cost savings that we've done for the year so that we see that when it goes down on utilization, we also get the benefit going forward. And, secondly, I would say mix was not as big of an impact but we continue to see strong growth in the food and beverage as we see markets continuing to convert the coffee creamer market now, that market continues to do well and, frankly, we were a nonfactor in that a year and a half ago. So, we still see lots of conversion activities going on.

Ok, that's helpful. The other question I would ask along those lines is you had a very strong fourth quarter, better than I think expectations. It sounds like order momentum picked up throughout the fourth quarter. As you sit here today and you've given us guidance for the first quarter, is that -- how do you think about that order momentum? Do you view out in the end markets as this being a, for lack of a better term, a restocking event at some of the inventory -- at the retailer level or do you think that actual throughput to customers is kind of matched to that as well at the consumer level?

Chris, I think we don't think that this is a restocking. That's not what we're seeing. The order income is still pretty short term. So, it seems as if the people are reacting on the sell up of the market. So, we have had, as I already mentioned, pretty good Christmas season in Europe and the United States and now the people are reacting on that. I don't think that this is a restocking and the people will be cautious also in the future because of their visibility for the next quarter and more is very rough. So, it is not clear for our customers how the market will develop.

That's helpful. Last question I had was on other new product activities as we look forward. Have you seen a pickup in your R&D activities or customer quests within certain areas whether it be geographically or whether it be specific end markets that you're selling to? And, if so, could you -- there's been a lot of dialogue from some on the personal care side from the branded product waiting to go out and now it is restarting innovations. Just kind of wanted to see how those all fit together.

I think there is still a lot of activity in new products ongoing. The problem which we have is to say when this market -- these products will hit the market. Our customers are still pretty cautiously introducing new products but the activity on our side with our customers is pretty high. So, we are seeing a lot of remodeling of products. We are seeing new products coming out. But, once again, it is very difficult to predict when our customers are deciding to launch the new product.

Ok. Thank you much.

Thank you. Our next question comes from Chip Dillon of Credit Suisse.

Yes, good morning and afternoon. First question is just quickly on the segment realignment that I guess you'll show us next year. I know this is very simplistic but are you basically going to take some of the current closure segment and put it into the beauty and home? Is that the way to sort of think about that and that the remaining closure segment will be food and beverage and basically Pharma doesn't change?

That's exactly the case, Chip. By the way, good morning. That's what we're doing. We are reintegrating the closure business into beauty and home, Pharma and food and beverage. And we created the food and beverage segment because this is one of the fastest-growing markets in ApatarGroup in the past and there are a lot of activities in this market coming out of the beauty and home area and even from the Pharma area and vice versa. We're integrating products from Closures into the Pharma area. There were some nasal sprays coming out of this. So, it is an activity exactly as you described of reintegrating Closures into the other market fields.

Ok. And this may not even be much of an issue but could you just talk a little bit about your changes in pension expense from 2009 to 2010 and funding differentials?

Sure, Chip. The pension expense for 2009 was about $9 million. We're expecting that to be approximately the same in 2010. As far as contribution levels, this year we funded about $28 million worldwide. That compared to about $8.7 million last year. The main reason for that is we began funding some previously unfunded plans in Europe. We would expect this year's funding to be somewhere in the area of $13 million to $15 million.

Got it. The last thing is it kind of fair to think in terms of you mentioned your 35% of your debt short term which certainly is not that much but on the other hand it is very tempting to say the good times, low rates may not last forever. Would you say you're probably waiting to see if and when an opportunity might pop up or several on the acquisition front before you might address that or should we expect that to sort of remain a constant level of short-term debt even if you don't do any acquisitions?

No, I mean, Chip, we're always continuing to look at the balance between the fixed and the variable debt but I think you're right on. I think to see any kind of significant change in that, it would probably relate more to a potential acquisition than anything else. We're always looking to balance the fixed and the variable. We look at that on a regular basis.

Got it. Thank you.

You're welcome.

Thank you. Our next question comes from David Woodyatt of Keeley Asset.

Keeley Asset. Yes, you mentioned in the closure area, the core product sales when you exclude not only currency but also the rise and the pass-through and the tooling sales were up 10%. Could you give us that same number for the other two segments?

The other two segments, David, didn't -- they're not as heavily weighted on the resin so there's less of a resin impact in the beauty and home in the Pharma market. So, really, it is just more currency and acquisitions. But just to repeat some of the numbers for the beauty and home area, personal care increased 15% excluding FX in the quarter. Fragrance and cosmetic was down 2% in the quarter excluding FX and household was up 11% in the quarter excluding FX.

And Pharma, after FX was down about 2% overall quarter to quarter.

Ok. Thank you.

You're welcome.

Thank you. Our next question comes from Mike Hamilton of RBC.

Hello, everyone.

Hey, Mike, how you doing?

Great. Congratulations on the proof of the business model in 2009.

Thank you.

Could you -- just a trivia question for me, could you comment on fourth quarter DNA and what was in there to give hockey stick in the quarter?

Sure. There are a couple of things we can point to. First, we did go live in the quarter at two of our locations on our SAP initiative. So that then started the depreciation of that project. Currencies also with the weaker dollar, also impacted a higher DNA. Also, we accelerated some depreciation and amortization on fixed assets according to GAAP looking at useful (inaudible) and things like that. So I would say it is a combination of those three items.

And probably tilted to the last one?

Not so much. I mean it is -- I would say it is pretty evenly weighted between the depreciation on the new software implementation and the latter. Probably the least impacted was the currency but generally those three are the main items.

Thanks for the help and congratulations.

Thank you, Mike.

Thank you.

Thank you. (Operator Instructions) Our next question comes from George Staphos of Bank of America.

Thanks. Hi, guys. Three questions. Back to the realignment. Will the realignment allow you to potentially further reduce the number of facilities you're working from and potentially down the road reduce head count? It would seem if there was some overlap by an end market basis there was probably capacity that was aligned relative to your previous structure as well that you maybe don't need as much down the road. Would you agree with that comment and how should we think about it?

George, it was not our intention to reduce the work force. It was not our intention to close any kind of facilities. It was to better use our assets we have and to use our people which are already available to serve our customers.

Right.

Neither the reduction of people nor closing facilities was the intention of the realignment.

Peter, I understand that you said there are no charges in 2010 for the (inaudible) you're contemplating. I appreciate your comments just a second ago, but if you become more effective as a company and utilizing your people and utilizing your assets, that would suggest then that you create available capacity. So, if you're not contemplating closures from this, might it mean that capital spending and hiring for that matter grow at a much lesser pace relative to revenue as we go into the recovery?

That's exactly what I meant with better using our capital -- today's assets and maybe this will end up in lower CapEx in the next years.

It certainly should also -- as we reallocate the people, we are not going to be needing to add the same number of people as we continue to grow the business. Again, it is more of an asset utilization play.

Ok. Appreciate the comments there. Back to another question that had come up before. It sounds like the varying moving pieces on the revenue line, whether it is foreign exchange or resin, masked the overall volume trend that we had seen and created on a percentage basis very strong and certainly versus our model better than expected percentage margins. Realizing those components on the revenue line can change over time as well, do you expect that the dollar margins that you're running at across your businesses, with reasonable probabilities now, there are no guarantees on this, can be maintained into 2010 given whether you're seeing right now, adjusting for seasonality?

I think so. I think what we've done is we've got cost savings built in. We don't see those flipping out just because demand comes up. As you said, long-term, as we grow, we'll always have to look at that. In the short term, we're relatively optimistic we'll be able to keep the savings that we've already been able to generate.

Last question, guys, and I'll turn it over. For all of you, maybe perhaps most for Bob, as I pulled up my model here, given the fact that you've done such a great job of paying down debt over the years and generating cash flow and should be congratulated for that, you're now at a point where because there is no leverage on the net basis, economic profit at least from our analysis turned negative. And so I guess the question I think maybe Chris had mentioned it before and some other folks had as well, how should we think about you now utilizing your over capitalized balance sheet in the next year or two because you're at a point now where it is actually harming the value, at least from some analysis, whereas if you could find some productive use for the capital it would be helpful for the share price all else equal. Thanks, guys, good luck in the quarter.

Sure. George, I think what's important to keep in mind is when you look at the cash and the debt side, a large portion of that cash is in Europe and not in the US. So, again, for us, the use of cash is going to be primarily related to acquisitions. As we mentioned in the third quarter last year, we talked about stepping up our buyback in absence of any acquisitions. We did that in the fourth quarter. We would expect that to continue into 2010. But primarily, I mean we're -- as Peter had mentioned, we're not going to just spend the cash for the sake of spending the cash on acquisitions. We're always looking at -- for something that's going to add something either strategically, technologically or geographically. I understand the concern but at this point, we're certainly not going to run out and spend that unless something comes up strategically.

Bob, what would be wrong with doing some sort of levering event because, again, your capital structure is inefficient right now, at least from our vantage point. And then should you find the right opportunity down the road, presumably, your investors would be very happy to invest with you in that. What would be the problem with doing some levering up now to return value to shareholders and then should you find the right investment coming back to the markets?

The issue with the return on the value of shareholders is it is typically a short-term phenomenon that gets forgotten the next year after that.

You should look at the sealed air case histories in the early 1990s. I'm not sure I would agree with that but keep going.

Well, I think, George, this is Steve, I think the other side is we're very early into the recovery process. Frankly, as we looked at a year ago at this time, no one was really looking at acquisitions other than distressed properties. What we've seen is the last quarter some more stabilization coming to the market and as we look at 2010, more realistic opportunities so rather than coming back, I do think we always have to take a look at the balance sheet, as Bob just mentioned. We do that with the Board. We do that as management. But I'm convinced as we go into 2010, having the ability and the balance we have today gives us tremendous strategic advantages and transactions that we think will be coming up during the year.

Ok. Thanks again, guys. Appreciate your patience. Have a good quarter.

Thanks.

Thank you, George.

Thank you. Our next question comes from Andy Ramer of Fiduciary Management.

Yes, good morning. Will the realignment have any kind of impact on your implementation of SAP?

Not significant. Basically, the one SAP project that we had actually fits very well with going to the realignment. So, we look at it as an enabler to the process not as a negative.

Thank you. I'm show nothing further questions at this time. I would like to turn the conference call back to Mr. Pfeiffer for closing comments.

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

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