艾利丹尼森 (AVY) 2004 Q4 法說會逐字稿

Good morning and welcome to the Paxar Corporation 2004 earnings conference call. (Operator Instructions) It is now my pleasure to introduce our host Bob Powers, Vice President of Investor Relations of Paxar Corporation. Thank you. Mr Powers, you may begin.

This is our Paxar Corporation fourth quarter 2004 conference call. On the line for management will be Arthur Hershaft Chairman, and Chief Executive Officer and Larry Segall Vice President and Controller. This morning before the market opened, Paxar reported fourth quarter 2004 results. Management will now provide additional commentary on the results, as well as a look to the future. As an any questions you have maybe addressed to management. Please be advised that certain statements about the future outlook related to Paxar Corporation involved a number of factors effecting the company's businesses and operations that could cause future results to different materially from those contemplated by forward-looking statements. Those factors include general economic conditions, the performance of the company's operations within the business markets around the world, as well as other factors set forth in Paxar's 2003 annual report on Form 10-K. for further explanation, participants are asked to refer to the final paragraph of Paxar's earnings release. Arthur Hershaft will now begin the management presentation. Arthur?

Thanks Bob. Good morning and welcome to our fourth-quarter conference call. I am going to ask Larry Segall to review the performance in the fourth quarter, and then I will provide some commentary on the year as well as '05 and going forward. So, with that, Larry?

Thank you, Arthur and good morning, everyone. I am delighted to begin today with a record of Paxar's record fourth quarter performance. Sales reached $207 million and these sales represented a 7 percent increase over the $195 million level in 2003. And they were also higher than the 195 to $200 million range that we previously announced as fourth quarter guidance. As discussed today in the press release, 4 percent in the quarter was driven by organic growth, with 3 percent added by foreign exchange. We take a geographic look at our business in the quarter. It shows that our Asia Pacific region reports strong 17 percent sales growth. EMEA, our Europe Middle East Africa region, increased by 5 percent. And our America's region contributed 2 percent growth. Gross margin was 38.7 percent in the quarter, and that compares to a prior year gross margin of 36.6 percent, and that translates into a 210 basis point improvement.

Once again, gross margin directly benefited from our continuing program to reduce manufacturing costs and improve operating efficiencies in the company's existing facilities. And also, from our 2003 consolidation of a number of U.S. and UK facilities which improved capacity utilization and efficiency throughout all of 2004. SG&A expenses of $61 million in the quarter were 29.4 percent of sales. That compares to $54.6 million or 28 percent of sales a year ago. The dollar increase in SG&A included variable related increases, a number of incremental expenses, and foreign exchange. These were partially off set by fixed cost containment efforts in the current year and by prior year cost reduction initiatives which provided savings in 2004. And in addition, in 2003, comparable SG&A also benefited from a number of year-end adjustments.

Our operating income in the quarter was $19.3 million or 9.3 percent of sales. In 2003, operating income was 7.1 million or 3.7 percent of sales including restructuring and other charges. Excluding these items, 2003 operating income would have been 16.7 million or 8.6 percent of sales.

In addition, for the full year of 2004, geographic operating income as a percentage of sales for the Americas EMEA and Asia Pacific regions was approximately 12 percent, 8 percent, and 17 percent.

Back to the fourth quarter. Net income was $12.7 million or 31-cent per share. That compares with $10.9 million or 28 cents per share on a pro forma basis in 2003. That is a 17 percent year-over-year increase in net income, and 11 percent increase in earnings per share. These record high fourth-quarter earnings equalled the upper end of the per share guidance for the quarter, which was 27 to 31 cents per share. Based on full year 2004, earnings by business unit, the global tax rate mix resulted in an effective income tax rate of approximately 23 percent. And in 2005, we again project a 23 percent effective income tax rate. Turning to the topic of guidance.

For the first quarter 2005, we are estimating that sales will be in the range of 196 million to $201 million with earnings per per share in the range of 22 to 25 cents. For the full year of 2005, we project earnings per share in the range of $1.23 to $1.35 on sales of 839 million to $859 million. Let me also mention at this time, that the 2005 outlook does not include the impact of the closing Hillsville plant, which was discussed in the Form 8K filed with the SEC filed on 2005. This action is projected to impact the first quarter in the range of 3 cents to 4 cents per share, and 4 cents to 6 cents per share for the entire year. And additionally, the above outlook does not include any impact from the expensing of stock options, which will be required in 2005, beginning in the third quarter.

Turning our attention to the balance sheet, we finish the year with $92 million of cash and cash equivalents. That was up from $64 million a year ago. This increase is primarily attributable to the 86 million dollars of cash generated from operations, plus $4 million of proceeds from the exercise of stock options, off set by $37 million of net capital expenditures and $27 million of pay down of all of our revolver debt this year.

As mentioned last quarter, there have been no outstanding borrowings under our credit facility since its complete pay down in the first quarter of 2004. and consequently, long-term debt remain constant at $163 million and total debt was $167 million, reflecting some borrowings at the local business unit level. Total debt to total capital of 27.5 percent was lower than the 34 percent level of the year ago. Accounts receivable was $133 million at December 31, up from the $127 million level at the end of 2003. The increase was due in large part to the greater sales of 2004 and none the less, day sales outstanding improved by five days in 2004. Inventories were $101 million at December 31st. That compares to $94 million at the end of '03 with inventory days showing a two day improvement year-over-year. Focusing now on cash flow, we generated operating cash flow of $86 million in '04, as I just mentioned, in 2003 we reported $36 million. This increase of $50 million results primarily from an increase in net income and net cash charges of $38 million and from $12 million of positive changes in our working capital. Depreciation and amortization were $32.4 million in 2004, and $30.2 million in 2003. Capital expenditures were $38.7 million in 2004 and $32.8 million in 2003. With the increase reflecting capacity in our Asia Pacific region. In 2005, we are projecting capital expenditures of approximately $40 million and depreciation of $35 million. Arthur, that completes my remarks today.

Thanks, Larry. I would like to take a few minutes to look back on '04, the whole year and relate back to a program that we talked about on other conference calls Back to Basics. Just briefly, I will run through the accomplishments of our management team. Sales increased 13 percent. That was a major focus. Margin improvement, margins improved gross margin improved 100 basis point. SG&A were reduced by 50 basis point. Operating income went from 7.3 to 9.0., as a percent of sales. Working capital -- as a percent of sales increased one and a half percent, and cash flow from operations improved $50 million. Cash balances, Larry said, went from 64 to 92, and long-term debt went from 190 to 163 million.

So, all of the areas that we talked about at the beginning of the year that were going to be a major focus for the corporation really turned out extremely well for the company, and really positions us very well as we go into '05 and beyond. Having said that, let's talk about '05. Larry mentioned the Hillsville plant closing. I want to briefly comment on that. Almost all of our plant closings in '03 related to our label business, the woven label business that by historical nature always had lots of small manufacturing plants. We had a strategy in place that said as business began to migrate, we would consolidate these plants one by one. That would be the last consolidation in that range. We expect a pay back, by the way, of the closure of that plant in about 8 months. We do not expect any further consolidations to take place for the balance of the year.

Having said all of that, in addition to with those closures -- with that closure. We are also in '05 expanding our business in Sri Lanka, Bangladesh and eastern Europe. We have significant expansions taking place as we begin to adjust for the contraction of business in one area and expansion of business in another area. I want to briefly comment on the two searches that have been underway for quite awhile. They continue to be underway. Hopefully, we will be able to try to conclude some of the searches in the next 90 to 120 days. Taking a lot longer than we thought. We are very careful and hopefully we will be successful in a short period of time.

I want to comment briefly on a variety of things that the corporation is working on that we see will positively impact the company going forward. First of all, brand security. That is the whole idea of combining antitheft products into both tags and labels. We see that as a growth area. We expect real growth for '05 in that area. Brand protection of the ability for us to, you know, protect customers from counterfeiting is a big growth area for us and we expect that to be a big in '05. Distributive printing for fabrics and tickets. We are going to be introducing new equipment that can be deployed across the world to handle variable information for fabrics and tickets, and we expect that to be very important as we go forward. We -- the global wrap up of our production for RFID printing for both products and printers, we expect that gradually ramp up. Our volume has picked up considerably in January , and we see that increasing every single month. We opened in Miamisburg an RFID test facility and conference center, where we have readers from three or four different manufacturers, and we can test cartons and the placement of labels on cartons and cases. And we can test different RFID labels and readers.

So that is -- that has been really a very important introduction for us, and we've gotten very good reception from our customers. Just to comment on the elimination of quotas. That took place January 1st. But basically, the impact of those elimination of quotas, we saw primarily in the second, third, and a bit more in the fourth quarters as people began to adjust their production and moving more into the Asia Pacific and China was a main are beneficiary of that business. '04 was the year in which we were going to focus on integrating the acquisitions that we had done in the end of '03, as well as focus on the fundamentals of our business. '05 is the year where I think we would go back and begin to focus on acquisition again. We are successful on acquisitions and we are going to be aggressively pursuing an acquisition program. With that, I would like to turn over for questions, and what is our moderator's name?

Darcy.

We will now be We will now be conducting the question-and-answer session. the question-and-answer session. (Operator Instructions) Thank you, our first question would come from Bob Labick from CJS Securities.

Good morning.

Hi Bob.

Good morning. First question, you touched on it a second ago, could you give us more color on acquisitions? Tell us about your criteria for an acquisition? Where you might look, what product areas or regions? I mean potential acquisitions when they could happen, et cetera, et cetera.

I don't think I can be that specific, but I will comment briefly, you know, to say that we are looking both in the RFID area, as well as in the Asia Pacific region for companies that -- or for products expansion of product lines and/or expansion of market share. And that's probably all I could do. I think we are working, have been working for some time with the number of companies. But, that's something that is hard to predict.

Generally, what accretive, would you look for say one, or would you look for -- you know, horizon or how would you judge that in terms of what you would pay?

I think we have always looked for companies that we could make accretive pretty darn fast. So we are not in the business of doing businesses that are dilutive.

In terms of RFIDs. Could you give us an update on your expectations this year. Last year was minimal sales of plus or minus. Around a million dollars. Any chance of growth off of that for your sales? What would make that significantly bigger? Any chance that item marking becomes a reality in the X quarters or where do you stand on that?

I think there is a sort of a gradual ramp up of RFID, both printers and supplies. We would kind of look at maybe $3 to $4 million worth of business, 3 to 5 million. in '05. It is kind of what we are looking at and that's up from almost very, very little minimal business in '04. Item marketing, in my view is something that the first of all, I think it particularly applies to apparel. (technical difficulty). I don't know what happens.

I can hear you again.

It is particularly applied to a, where there is a close loop with a retailer. I think the original research that I read about RFID, and you probably read as well, indicated item marketing might take in place in '07, '08, '09, or '10. Our feeling here is that theres a really big pay back for a lot of folks, and we have a lot of people looking at what RFID can do for them. We have been involved in other conferences with a whole variety of retailers testing RFID item marketing, and we think that is going to happen probably sooner rather than later, as some of this research has predicted. So, is it there yet? No. But it certainly is coming.

Great. I will get back in queue. Thank you.

Thank you. Our next question will come from David Zacks from Hockey Capital.

Yes hi. I have a couple of questions. The first one is ,If you could lay out the assumptions that you are using the size for the earnings range, if there is an embedded expense for RFD spending or above the base. It seemed like a wide range given the projection for '05?

I think our guidance is pretty much standard. What we have, you know, have been doing now for several years. We have got a certain sort of range that we use and we use exactly the same sort of range that we used in past years. The second part of your question is, do we have embedded in our costs, RFID spending, you bet. Our RFID spending will go up in '05 from '04, to support what we believe to be is you know, a significant potential for the corporation as we go in the latter part of '05, '06 and '07.

Any chance you could quantify what the RFID expense is looking at. It sounds like a million dollars in '04. How much is it going to be in '05.

We will spend somewhere near 3 to 5 million, and that's up from probably 1, 1.5. From '04.

In the 3 to 5 million revenue that you are expecting, is that printers, tags, or everything?

That is everything.

Okay. Because I was under the impression, that there was a significant tag order for the second half that we were looking at with European retailer. They were planning to roll that based on successful trials. That have been delayed or not baked into your '05 budget.

That is not something we have baked into the budget because it is something that is still in test trials.

So there could be slippage on the roll out date.

We don't know about the roll out date. Right now, we are still in tests.

If you could talk a little bit , you pointed out the anti-counterfeiting initiatives, and the EAS initiatives, could you give us some framework of how big those businesses were in '04 and sort of the size potential of the markets as you see them developing over the next couple of years?

I think it is significant. I think one of the really unpenetrated areas for both EAS, for a very very long time has been on apparel. It is difficult to do source tagging for apparel. We see that growing. That is something we are involved in for several years now. It is growing more and more, and as we go forward, we are going to see an expansion of that. Hard to quantify it, but we could see potentially this year , our revenue in that area doubling.

Any off -- of what kind of base?

Hard to say, David. It is not hard to say, I just don't have that information in front of me. We could certainly talk to you about that.

Okay. So EAS and anti-counterfieting -- with the two combined -- do you see that doubling or is it each ---

I think - I think -- really combined, we see that going up significantly. I think EAS will be close to double and anti-counterfeiting could go up by 20 or 30 percent.

In your revenue per label or per tag in the different products are substantially higher? Yes. More converting existing labels to a higher revenue label than it is new customer growth?

No, or it could be additional labels. It could be --- most of the EAS products are really an additional label that is sewn into the garment.

Okay. And the margins on these businesses, aside from the fact that the revenue per label are higher, the margins would be correspondingly higher as well. But a higher profit margin or dollar contribution per label.

Everything we do, we try to make as much money as we can.

All right. I will get back in line. Thanks.

Thank you, our next question will come from Chris Kapsch from Black Diamond Research.

I have a follow-up on the guidance looking at '05, if you look at the revenue range for the full year, it looks like the range is between 4 and a little less than 7 percent and that sort of number would be much more modest compared to the accomplishment in '04. I am just wondering if you could talk about what the drivers would be that could cause the company to come in at the low end or the high end of that range or beyond the high end.

Well, I think that a lot of what I talked about, that is, I think our general guidance is set for business as usual. There is a lot of very important things that we are working on, that are not, -- that you really can't quantify and put in what we consider to be a budget and/or guidance. So upper end of guidance is going to consider the potential for some of these things coming to fruition. The lower end is -- you know, we are in the cyclical market. And you know, anything could happen if retail sales fall up dramatically. We are impacted by that. So, it is just you know, a normal kind of range for us, actually. And you know, one, though it anticipates market conditions being unflavor. The top end it really anticipates some things to come to fruition this year.

If I focus on the mid-point of both the sales guidance and the bottom line guidance and sort of back out a margin. It looks like just a modest improvement. Would imply modest improvement at the margin line and considering it looks like the leverage benefit you are getting. Utilization coupled with mixed enhancement from the surveillance and counterfeiting sort of margin kick that you get. It seems like that perhaps the implied operating margin guidance here is on the conservative side. Could you please speak to that?

In general, we are very careful and very conservative. So, we are also in a business that we can't particularly look out -- you know, that far out to really get our hands on what the market is going to be like 6 or 9 months from now. So, I think in general, we want to make sure that we have got guidance that we can that we can deliver on. So, I think your answer is yes. It is a conservative view.

Okay.

That's our nature.

Got you. One follow up on RFID. The comment about item level. I think it is pretty public knowledge that you have been working exclusively with the big retailer and the UK on apparel item marketing, but you mentioned that you are working with a number of -- I think -- customers. Just wondering if you can sort of talk or speak to the sort of quantify maybe the number that you are working with. And you said that you thought item level was going to happen sooner than the pundance predicted in '07, '08, '09 time frame. I was wondering if -- level of confidence -- it could be -- item level -- it could be an '05 occurrence, in terms of early adopters.

My comment is that this is probably more a sort of late '05, '06, you know, for early adopters as compared to '08, 09. That's a big jump, and the market is moving very, very rapidly in terms of costs coming down, and people beginning to see the benefit of the technology. At least on the apparel side. -- apparel side. And that's the -- the number of customers, I would say we are probably. We are talking to just about everybody. I don't think there is any anybody that is. We are not the only ones. There are people that are big integrators that -- and big software companies that are really setting up what they call "item marking labs" on both the United States and Europe. Item marking is people recognize this is a rich area for people to get into. So there is a lot of people talking about item marketing. And not just us, or one retailer or half a dozen retailers. I would say there is probably half a dozen companies we are talking to on a global basis that are very, very interested in this. What does it mean? At this point, it doesn't mean any more than they have a lot of interest, and they are exploring whether or not this is a business model that makes sense for them. Can they make a business case out of it? And you know, that is kind of what you might expect.

Okay. Thanks.

(Operator Instructions) The next question will come from Tod Cohen with MTT Advisors. Please go ahead.

Good morning. Question, Art, is if you guys could help us understand a little bit more clearly what your opportunity is in RFID, and what I mean is what parts of that business are you participating in? I think there is in general a lot of confusion, over who is doing what in this arena. So where do you fit in? Are you doing printers? What about the labels? And then on the item marking for RFID, where does that chip go? Does it go into the actual label in the garment, or does it go somewhere else on the gar ment. On the piece of apparel. Could you explain that a little bit?

First of all, we participated two areas. One in the case and pallet world. In the case and pallet world, we manufacture printers and readers that readers that are embedded in. We manufacture the labels or tags that go through those printers with transponders inserted into them. We have an integration ability where we can integrate both the printers and the supplies into our customer's middle wear, and we have an after service group that will service this equipment upgrade it as needed, et cetera. So our focus cuss is that area of RFID. We are focused on consumer goods manufacturers, obviously, and retailers including the apparel manufacturers of the world. On item marking, item marking is more than likely to take place with the use of both the self adhesive label, for some packaged goods, as well as, a tag that would be attached to apparel. When that makes sense. And we would be, we would be supplying both the ticket tag and label. We would do after service. We would supply the equipment, which would have the reader. We would supply service bureau activities around the world. 39 service bureaus to supply the apparel industry. And we also would handle the data management that is needed to be able to send the information into these printers that are located many places around the world, and bring that information back to the customer's middle wear or ERP systems. That is how we play in both of those areas. I hope that is helpful.

It is. Could you tell us again, where this facility is that you set up for kind of RFID individual testing.

Yes, Miamisburg, Ohio. It is very good.

Is it up and running?

It is up and running. I think we opened it in ba the middle of December.

Okay. Let me see if there is anything else here. Yeah, and the spending figure for RFID, did you say 3 to 5 million.

Yes.

Okay Great. Thank you.

You're welcome.

Our next question comes from Robert Hoffman of Sandalwood Capital. Okay. Thank you for taking the call. Two separate questions. I will ask the first one and come back for the second. On the succession planning you talked about, hopefully having some news within the next 90 to 100 days. Are you referring to both the Cheif Operation officers or more on the CFO side.

More focused on the Chief Operating Officer side.

On the Chief Operating Officer side. Okay. I guess trying again to dig deeper a little bit into your guidance. You know, Asia Pacific continues to be a bigger piece and growing rapidly. You talk about EAS essentially doubling, counterfeiting, both of these seem to be newer areas. Meaning it is not cannibalizing another product that your selling. So I guess I'm having trouble reconciling that if Asia Pacific continues to grow, and you think it will. You add on all these new products. There is something we are missing in terms of why the revenue guidance is low single digits or middle single digits?

think as Asia Pacific grows, obviously, we see a sort of a little bit of balancing with growth and shrinkage. So there is a balance act. Some of these new products that we talked about are being sort of launched as we speak and some of them will roll out in March and April. A lot of that is not anticipated, hard to put our finger on in terms of impact. So a lot of that is really not in the guidance.

Okay.

So that -- I don't know if that explains it. But that is kind of what we do.

So the guidance is kind of not in the new product driven, it is more old product -- given kind of changes going on around the world. A Pacific growing. Maybe shrinking a bit or at least not growing.

It is market share growth. Market share and market growth. It doesn't -- it does not anticipate something that would be hard for us to quantify and a little bit uncertain, at this point, particularly when we put this together. So that other things that could you know, impact the company favorably, are not particularly in that guidance.

One final question on the overall market. You mentioned that if consumer spending were to drop, that might have an effect. I was under the impression that you were more volume driven and has less to do with whether the guy marks things down. Which is going into the consumer spending rather than the number of schemes that are produced.

You are actually right. But, if the volume in retail slows down dramatically. Then sooner or later people stop buying the same number of items. Does that happen? It hasn't happened in awhile. But it could happen, and although we don't anticipate that happening as we go forward. This is something that is hard to know. Retail did not have a good January. You know, one month doesn't mean anything. But it as very volatile area.

Are there statistics on the units of apparel out there? In terms of whether they are growing, shrinking or whatever.

Yes, there sure are.

Thank you.

Our next question comes from Steven Klein of Concept packaging.

Good morning, Arthur. I haven't heard anyone say congratulations on such a fine year. So I would like to represent everybody in that respect. I think it is just terrific what Paxar has done and growing trend is outstanding. I have asked you this before. You keep mentioning about cyclical apparel industry and it has it's up and downs. In reference to RFID how aggressive is it looking into other industries to cover the downturn in the apparel industry?

Well, we really are focused where, we are focus a much broader way today than we have been. Because we opened up our sales efforts to the consumer goods channel in general. That is a much larger than where we were focused on retail and apparel. So I think that's a pretty big step for us. Being that we like to focus. So that broadens it quite a bit.

Is your present sales department able to go beyond the textile industry or would that require us to go into other industries a -- an added or another type of a sale department. Trained individuals to go into other areas.

You know what, that is something I ought to cover with you off line.

Okay. You mentioned you going into acquisitions, anything on the table as far as dividend or cash or stock type thing for the future?

It is something that gets raised. I think right now, we are not contemplating a stock or cash dividends.

Pretty much going into acquisitions at this time?

Grow the business.

Grow the business better that way.

Yes.

All right. Thank you Arthur. Keep it up.

Next question is from Peter Reid of C L King and Associates.

I know you are preparing for eliminating quotas by shifting assets around the world but is there going to be a seismic shift, now that it is happening or just all a gradual process?

I think, Peter, that we began to see that shift probably mid '04. And as volume increased as you know. For the seasonality of apparel. It is 4 to 6 months in advance. So that people that are working on -- for instance, spring '05, they are beginning to prepare for spring '05 back in late second quarter and third quarter. So I think, we began to see the shift from our point of view, prior to January 1st and my guess is, a lot of people are waiting around to see exactly what happens to who has the capacity to produce what they need, when they need it. But I don't think all of a sudden it is January 1st, everybody said ready, set go.

Is the general shift into China or other Asian countries.

It is a lot of areas. China is benefiting probably more than lots of folks but a lot of people are cautious about putting too many eggs in one basket. This is an across the board improvement for the Asia Pacific region.

You think you guys have made all the moves necessary. I know you are looking for more capacity in Asia, but at this point you are prepared for what is happening?

Yes, we we are, we expanded pretty dramatically in China and Sri Lanka and other places. And this is going throughout '04 and we will continue through '05. We are expanding and we did anticipate the growth.

On the other question, On the EAS and anti-counterfeiting, is that based on RFID technology as well?

No, not really. Some of it is, other there are are a different number of technologies. But will will is a RFID technology. Acoustical magnetic technology or EM technologies. There is a variety of technologies depending on what technology the retailer chooses. But, sooner or later , I think probably that most people believe that EAF and RFID will at some point sort of merge, and you will be able to have one unit that will provide both, but that's probably a bit in the future.

Okay. Thank you very much.

Thank you, our next question will come from Todd Cohen from MTT Advisors.

Just a couple follow ups. This GEN 2 standard was validated here recently. When do you see, -- has that helped the progress in the adoption phase here? and then when do you see everybody kind of getting up to that standard to price of tags, these days, in general? Kind of the at the Walmart D.O. D level, can you talk about that at all? And who the CEO technologies is that you are working with working with defense stuff?

They are an integrator that focuses on the D.O. D and so, we are working as a joint partnership. As they begin to do more and more integration with companies that supply the department of defense. We would be the partner for our aspect of it which would be the printers and supplies. As far as GEN2 is concerned it was at the end of December, it was approved and I don't think there is too many people are anticipating seeing any of that happen much before the probably the third quarter of this year. At the earliest. So, you know, I don't know. Maybe that is late 05, I think it is good, in general. But it will be awhile before people begin to adopt it.

What happens between now and then.

Well, will is a whole different. There is three or four protocols out there that are being used and every day we are shipping those products and every day lots of people are shipping those products and using different protocols. Now everyone will go to the second generation.

s everything you are shipping, arthur, pretty much test phase type stuff for everybody.

No. Some of it is testing but a whole lot of is moving right into distribution centers.

Okay. And then the price of the tags?

Pretty much the same. Still in the kind of, you know 30 to 40 cent range, depending on what it is. And that may come down eventually.

How about the tags going on pallets and things going in and out of Walmart.

It is probably in that range. Maybe, it depend if it is a small tag. It could come down to 25 cent. Between 25 and 40 cent, depending on what people are using.

Great. Thanks.

Our next question will come from a follow up of Chris Kapsch from Black Diamond Research.

I did have a follow up on the comment earlier about RFID shipments picking up significantly in January. I am just curious if that was more towards your printers and kits and seeing some acceptance and traction in your service bureau concept? or is it a combination of both? And just how do you see -- now that the Walmart January 1st date has come and gone, how do you see the service bureau flap and chip concept, if you will, progressing here as it relates to Paxar?

I don't think our service bureau for the moment has been a major factor. I think the fact that we have all the service bureaus located all around the world is something we need to talk more about to our customers, and I think personally think that that is the real advantage for us. People don't have to buy the technology. They can just buy the product. So I think that could be really important. What was your other question?

The pick up in RFID sales in January, was it more towards the printers and kits.

It is really both. But it is probably 60 percent on the high side. We are just seeing a gradual ramp up of more and more people utilizing more and more of its supplies. After all those printers put out there. They weren't put out there as boat anchors. People are going to -- put products through that. and you can see that.

And in the past, you did throw some metrics our about the Walmert supplies, specifically, I think being engaged in conversations with something like 250 to the top 300. I'm wondering if you could sort of update us on those conversations and how many of those have been converted to actual customers in adopting the Paxar platform?

I really don't have that specifically, Chris. In front of me. So, I would have to put you off on that question.

Okay. I will circle back, thanks.

Okay, we do have a final question coming from Ron Health of FMI

Nice quarter, nice year. Congratulations on continuing momentum there.

Good.

Just some thoughts. I think you gave out margins, did you give out margin break downs earlier in geographic earlier in the call? America's 12 Europe 8 , and Asia Pacific 17, is that right?

Yes, it was.

Just curious. Maybe you can discuss the 8 percent that is going out in that European geography. What has to be done there to continue to move that up in terms of profitability? Do you have more consolidation to occur in the region? And then I have a follow up question as well.

I don't think it is consolidation. I think we have done about all the consolidation we are going to do. I think we now need to -- in order to get that margin up. We probably need to have a common ERP system across Europe that we are working on. We are beginning to actually implement this year. We need some probably joint and common distribution center capability. We need to sort of use our capability for common infrastructure to take cost out of our European market. And it is not to say, we can't get the 8 to 10, but I think primarily Europe is made up of 17 individual business units in almost as many countries and that is complex.

Does the -- just the way Europe, the businesses run in Europe. Or do the different nationalities and countries prevent that from occurring, at least to some degree.

With a common market and common currency that is covering more and more country, we have the ability going forward to really do some infrastructure integration as compared to manufacturer integration. And I think that's where we are headed.

I take it you are doing that in the United States, obviously, and that is sort of the blueprint you would have for Europe over the next few years.

That's correct. We did it in the United States and in North America and all of North America, and we are pursuing the same platform, both in Asia and in Europe.

Then, on a second question or area, Arthur, I wanted to see if you could talk about the capital budget for '05 and beyond. I think Pete Reid asked about this earlier but -- you know, maybe -- you did mention, You asked about an area and all of the Asia. Everything that we are reading is suggesting China is going to be the big winner and other countries and - - yeah, they are going to ship things over and as we develop our networks. Things will shift further east. It seems, I got to ask, what are you doing in the smaller country there. Then why would you be really focusing on China, or maybe I am reading it wrong, in a significant portion of those capital dollars are going to China.

Yeah, I think we have got a significant portion probably somewhere between 30 and 40 percent going into China. But there is you know, the other countries are also growing. Where expanding in doubling in our plant and Sri Lanka. Doubling our plant in Bangladesh. And we're going to be expanding in India. We have a lot of places we are expanding. It isn't going to be just China. It will be a variety of countries in the Asian market.

These are quota free, Arthur, I am guessing.

Everyone is quota free.

But they all have their own capabilities. Whether it is woven labels or printed or depending on exactly what the capabilities are in the country?

I think every country has their own set of specialties -- that are some are better in making one sort of product versus another. So that our customers, if they are looking for knit products. They might go to one country. If their looking for men's bottoms, they might go to another country. So, It is the whole region that will benefit. I think.

Well, that sounds good. So, congratulations. Thank you.

Thanks, Rob. Okay.

Gentlemen, no further questions. Do you have any further closing comments. Do you have any closing comments?

Yes, I do. I want to thank everybody for spending the time with us, and we look forward to speaking to you next quarter. Have a good day.

Ladies and gentlemen very much for your participation in the audio conference. (Operator Instructions) Thank you. Have a wonderful day.