西式醫藥服務 (WST) 2006 Q3 法說會逐字稿

Hello, and welcome to the West Pharmaceutical Services third quarter earnings conference call. Following today's presentation there will be formal question and answer session. Until that time all lines will remain in a listen only fashion. [OPERATOR INSTRUCTIONS] Today's conference is being recorded. If there are any objections, you may disconnect at this time. I'd now like to introduce today's conference host, Ms. Theresa Kelleher, ma'am you may begin.

Thank you. Good morning everyone and welcome to the West Pharmaceutical Services third quarter 2006 results conference call. As you know, we issued our results this morning. The release has been posted on the company's website located at www.westpharma.com. If you have not received a copy of this announcement, please call Financial Dynamics at 212-850-5600 and a copy will be sent to you immediately.

Before we begin, I would like to remind you that certain statements that may be made by management or the company, orally, may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements set forth anticipated results based on management's plans and assumptions. Such statements give our current expectations or forecast of future events. They do not relate strictly to historical or current facts.

In particular these include statements concerning future actions, future performance, or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. We have tried, wherever possible, to identify such statements by using words such as estimate, expect, intend, believe, plan, anticipate and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or conditions.

We cannot guarantee that any forward-looking statement will be realized. If known or unknown risks or uncertainties materialize or if underlying assumptions are inaccurate, actual results could differ materially from past results, and those expressed or implied in any forward-looking statements. For a non-exclusive list of those factors which could cause actual results to differ from expectations, please refer to the factors listed in today's press release.

Investors are advised, however, to consult any further disclosures the company makes on related subjects in the company's 10K, 10Q and 8K reports. The company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This call is being recorded on behalf of West Pharmaceutical Services, and is copyrighted material. It cannot be rerecorded or rebroadcast without the company's express permission. Your participation on this call implies your consent to our taping. Once management has concluded their remarks we will open the floor for questions. At this time I would like to turn the call over to Dr. Don Morel, Chairman and CEO.

Thank you Theresa. Good morning everyone, and welcome to West's third quarter conference call. As Theresa mentioned, I'm joined today by Bill Federici and Mike Anderson.

I'm pleased to report that the positive trends experienced during the first half of the year continued through the third quarter, resulting in very strong growth in terms of sales, operating profit, and earnings. West continues to enjoy increasing demand for key product offerings in our most important market segments, mainly coated and Westar process closures for the biotechnology space, laminate and plunger components for insulin packaging and delivery systems, and prefilled syringe components in Europe.

We also experienced significant broad based unit growth in components for pharmaceutical packaging and more modest growth in several product lines within our disposable medical device business, such as components for IV administration systems and disposable syringe plungers. We also believe the primary market drivers we discussed in our Q2 call will continue to create positive demand for injectable packaging and delivery systems.

These drivers include the pipeline of new therapeutics within the biotechnology sector, customer and market requirements for even higher standards of cleanliness, increased healthcare spending in Europe, and continued conversion to prefilled syringes as a delivery platform. All indications are that theses trends will continue to drive sales over the long term.

From a financial standpoint, the third quarter continued the strong performance generated during the first half of the year. Revenues grew to $218.4 million and operating profit increased $6.5 million to $19.7 million. This resulted in earnings from continuing operations of $0.35 per fully diluted share, an increase of 59% versus the $0.22 reported in the third quarter of 2005.

As detailed in this morning's release, our results were negatively impacted by a restructuring charge within our Daikyo affiliate, and an impairment charge related to one of our reconstitution products, both partially offset by a tax gain.

Our revenue growth was fueled by a combination of organic growth in our core pharmaceutical packaging business, and contributions from the acquisition of Tech and Medimop. While operating profit grew as a result of stronger product mix and our focus on lean manufacturing within our plant.

Our balance sheet remains fundamentally very sound, with a strong cash position and a debt to total capital ratio of just over 37%. Bill will discuss our financial performance in greater detail in a few minutes.

I'd first like to provide some additional commentary on our pharmaceutical systems and Tech Group operations. By all measures 2006 has been a tremendous year for the pharmaceutical system segment, as this business continued to experience very good organic growth. Sales increased to $153.7 million overall, or just over 20%. Sales growth in North America was particularly strong, again driven by increased demand for Fluro Tec coated closures and Westar treated components, and broad based higher demand for serum and [lyophilization] closures. Tied into the increased sales of small volume closures, we have also seen very strong growth in Flip-Off seals, just as we did in the first half of the year.

As previously discussed in our Q2 call, Teflon coated product sales strengthened further during the quarter, and have returned to levels we experienced before the raw materials change related surge in 2004 and subsequent softening in late 2005.

In Europe many of the factors that produced very strong sales growth during the first half of the year continue through third quarter, albeit at a slower rate. The region again experienced sales growth driven by general strong demand for standard products, coated prefilled syringe components, and components used for the packaging of insulin. The Asia Pacific and South America regions also turned in solid sales gains, although off a modest revenue base.

In terms of our gross margin for the quarter, I'm quite pleased with an improvement of 3.6 margin points, to 32.6% when compared with the third quarter of 2005. Our improving operating performance during the quarter was due to a combination of product mix and our lean initiatives in the operating units. We were able to largely mitigate the impact of increased costs for labor, energy and raw materials through a combination of running lean in our operations, contractual raw material price adjustments, and recognizing the benefit of economies of scale associated with higher production throughput.

Our current backlog remains strong for the segment at just under $200 million, and business booked for the fourth quarter is in line with expectations. Based on our nine month year-to-date results and the current outlook for Q4 we expect the pharmaceutical systems segment to have a record year over all.

Although the extremely strong growth we have seen in Europe will moderate somewhat, long term growth in the pharmaceutical packaging area requires that we invest now to create critical capacity in key product lines. Over the next three to four years we will invest approximately $400 million of capital in Europe and Asia to develop infrastructure to satisfy demand. This includes Westar and Fluro Tec capacity, vision systems and advanced manufacturing technology.

We are also pursuing a series of major capacity expansions, including the construction of two facilities in the People's Republic of China. It is our expectation that the cost of building and equipping these operations will be approximately $80 million over the next five years. The first facility is targeted for completion in 2009, and will manufacture a specialized IV closure for a major European customer. This facility will provide additional capacity to satisfy growing demand and the anticipated conversion of several major markets to plastic bottles for IV fluids.

The second facility will be a rubber factory, with capacity targeted for the domestic China market. Our target is to have this operating unit online by 2011.

During the third quarter our European team completed negotiations for the lease of attractive land near [Sujav] that can accommodate both facilities and executed a cooperative joint venture agreement to partner with a local manufacturer. We have an excellent project team assembled, and fully expect to break ground on the first facility in January of 2007.

Finally, it's important to note that these investments are being made to address the long term growth drivers critical to our business, the aging population in the western world, growth in biologic therapeutics, and broader access to advanced healthcare in developing markets. We will continue to provide periodic updates on these key projects in future calls.

In our Tech Group operations, sales grew to $66.9 million, $49.4 million of which was due to the May 2005 acquisition of Tech. Demand was strong for a range of products, including disposable drug delivery systems, the Exubera device, baby nursery assemblies, a range of consumer products, and intercompany sales of plastic buttons used for vial seals in the pharmaceutical systems segment.

Our results were impacted somewhat by two customer programs experiencing regulatory delays in the U.S. However, these programs should be back on schedule during the first quarter of 2007.

Production of the Exubera device for Nektar also continued to ramp up during the quarter. To date Tech has manufactured and delivered all units ordered under the current production plan.

The consolidated gross margin for the segment was 13.1%, a .7 percentage point increase versus the comparable period of 2005. For the acquired Tech business, the gross margin was 13%, a 2.4 percentage point improvement over last year's third quarter, due largely to volume increases and a more favorable product mix.

Our future focus for Tech will be to drive improvement in our overall margins through a shift to a higher percentage of sales from proprietary West products, and rationalize the existing programs that are not satisfying our internal targets.

I would now like to turn the call over to Bill Federici, who will provide additional commentary on our financial performance. Bill?

Thank you Don, and good morning everyone. A table is included in the earnings release that breaks out our reported results by segment and details the impact of the businesses we acquired in 2005. This table should help you follow along with my comments today.

In the release we reported third quarter 2006 income from continuing operations of $11.8 million or $0.35 per diluted share, significantly stronger than the $7.1 million or $0.22 per diluted share recorded in the third quarter of 2005.

Consolidated sales in the quarter were $218.4 million, a 20.3% increase over Q3 2005 sales, 2.3 percentage points of which related to currency.

The three 2005 acquisitions are included in both Q3 sales amounts and resulted in net $13.8 million or 3.8 percentage points of the 2006 Q3 sales increase.

If we excluded currency effects and acquisitions, our 2006 Q3 sales increased 14.2% over Q3 2005 sales.

The company's core pharmaceutical systems division performed very well in the quarter, with sales of $153.7 million, 15.8% above 2005 third quarter sales, excluding both the impact of our 2005 acquisitions and currency effects.

Growth in our domestic markets was particularly strong this quarter at 19.7%, also excluding acquisitions. The demand increase in pharmaceutical systems North America region resulted largely from stronger demand for West's coated components, and those employing our Westar post manufacturing processes.

In addition, North America sales of the company's Flip-Off seals and standard syringe components for disposable medical devices were also significantly stronger.

Pharmaceutical systems international sales grew by 9.3% in the quarter versus the prior year quarter, excluding acquisition and currency effects.

As we predicted, European sales grew at a slower rate than in recent quarters. Growth was driven by continued demand for pharmaceutical packaging components used in both prefilled syringe systems and vials for high growth insulin, biotech and oncology drugs in the pharmaceutical and biotech markets.

Also contributing to our European revenue growth was the increase in sales of components employing West's advance coating materials and/or those that are Westar processed.

The Tech Group segment achieved sales of $66.9 million in the quarter, 19.3% above sales in the prior year quarter, with .7% due to exchange. Most of the increase was from sales generated by the portion of the Tech Group acquired in May of 2005.

Sales related to our production of Nektar's ultra component insulin inhalation device accounted for approximately $8.1 million or 60% of the year-over-year growth. Demand for insulin pens and other diabetes related products also continued to increase, both in the U.S. and in Europe.

In addition, sales in the consumer and industrial products markets increased nicely due to stronger demand for certain consumer product components.

As noted in our release, consolidated gross profit margins for the quarter were 26.9% versus the 24.1% margins we achieved in the same quarter of 2005. Gross margins in the pharmaceutical systems segment were especially strong, increasing over the prior year quarter by 3.6 margin points, with most of the improvement in the North America unit.

Our sales volume generating improved overhead absorption, a favorable product mix, efficiencies from our lean programs and the impact of price increases more than offset higher raw material, utilities, plant, overhead and labor costs.

In the Tech group segment, gross margins improved by .7 margin points over the prior year quarter, due primarily to the impact of volume increases and a more favorable product mix, including sales in the Nektar's Insulin inhalation device.

Consolidated Selling General and Administrative expenses increased by $6.4 million in the quarter, vs. the prior year quarter. The increase was primarily attributed to increased compensation costs related to headcount additions and annual salary adjustments. Higher costs associated with the company's U.S. pension plan increased outside service costs, higher incentive compensation costs and the impact of the company's rising stock price on stock-based compensation.

As a percentage of sales, Q3 2006 SG&A expenses, at 17%, were equal to third quarter of 2005 levels. Net interest expense was $2.7 million in the quarter, $1 million below the expense incurred in last year's third quarter. The decrease was primarily due to the reduced interest rates brought about by the first quarter refinancing of the company's senior notes.

Of significance also is that the result in this year's quarter included the $0.03 impact of a write-off due to an impairment of assets in one of our business units, prompted by a customer's reduced volume projections; a write off of fixed assets at Daikyo, our 25% joint venture partner, that resulted in a $0.02 per share loss on our equity in that venture and a $0.02 favorable impact of a reduction in our tax reserves.

While there were no one-term charges, or tick ups in the Q3 2005 results, you may recall that results were somewhat depressed by a number of operating items, including slower sales of coded products, due to the prior year raw material change related orders and higher raw material and energy costs.

On a year-to-date basis, West has reported 2006 income from continuing operations of $46.8 million, or $1.39 per diluted share, vs. income from continuing operations of $32.4 million, or $1.00 per diluted share recorded for the first nine months of 2005. Year-to-date reported earnings from continuing operations include the impact of a $5.9 million pre-tax charge from refinancing debt obligations and a tax benefit of $700,000 including interest resulting from the favorable conclusion of a claim for an earlier tax period. Excluding the net impact of these items, our year-to-date earnings from continuing operations are $1.50 per diluted share.

Turning to the balance sheet and liquidity, the company's balance sheet at September 30th, cash balance was $44.8 million. And working capital totaled $127.3 million. Much of the cash balance resides in Europe and Asia and we expect to utilize the cash to continue to pay down European debt and fund our capital activities there.

Debt at September 30th was $241 million, down from the $281 million at year-end, due to our repayment of borrowings primarily in Europe. The debt to total invested capital ratio at quarter end was 37.1%, a decrease from the year-end due to our reduced debt levels and increased equity position. Operating cash flows were $38.7 million for the quarter and capital expenditures were $20.4 million, with 48% of the quarter's capital focused on new product and expansion capital.

We expect full-year capital expenditures to total between $80 million and $90 million, reflecting the additional capacity, the additional capital we addressed in last quarter's need for capacity expansions in Europe and Asia to meet increasing customer demand.

Our facilities in Europe continue to operate near capacity, due to continued high demand. This has prompted a further acceleration of our capacity expansion plans. As a result, we now expect 2007 capital spending, to approximate $110 million to $125 million, an increase to our previous estimate of approximately $100 million, and, expect similar Cap Ex per year for the next several years.

Our reported backlog at September 30th remains strong at $208 million, compared to last September's backlog and also to our 2005 year-end backlog of $183 million. Our current backlog includes certain orders related to customer inventory management, anticipation of customer market launches and customer reaction to increasing West planned lead times.

In summary, we experienced another strong operating quarter. I'd now like to turn the call back to Don Morel. Don?

Thank you, Bill. With the strengthening of demand in North America and our current backlog in Europe, we now believe Q4 earnings per diluted share will fall in the range of $0.38 to $0.42. Also, due to forecasted long-term growth in key market segments and geographic growth, especially in Europe and Asia, and in particular China, we will continue to invest appropriately to maintain our global leadership position and assure capacity to meet forecasted demand.

As Bill stated earlier, we now anticipate capital spending of $80 million to $90 million for 2006 and spending approximately $110 million to $125 million in 2007. Management also continues to assess a range of acquisition and technology licensing opportunities to further strengthen our core product line.

This concludes our commentary for this morning. Bill and I would now be pleased to answer any questions you might have. Operator?

[OPERATOR INSTRUCTIONS]

And our first question comes from Arnie Ursaner, from CSJ Securities.

It's Arnie Ursaner, from CJS Securities and good morning to you.

A couple questions; obviously, Q3 normally is pretty tricky for you because you have a lot of moving parts related to customer capacity additions and shut downs so, a couple questions related to that.

Can you give us a feel for whether there was any surge activity, in your view, in Q3 that might've affected your margin or any - any issues related to customer expansion that would've had a positive or negative impact in the quarter?

I think they're pretty hard to quantify, Arnie, if we had any surge activity. And again, we saw nothing out of the ordinary. It would've been related to, I think, some forward orders for certain customers that were shutting down for expansion.

You know, in terms of items that could be pulled out and directly related to the margin improvements, I think that's really an effect of product mix and the lean initiatives that were underway in the plants.

I was going to go to that on my next question. Tooling revenues in the quarter, do you have any breakdown on either - on the segments, please?

That was relatively flat, Arnie, quarter-to-quarter, from this year to last year; about $8 million worth.

Got it. And, I would want to focus a little bit more on the gross margins, because the trends there are terrific. And again, the more - the more you continue to have these more-value-added products, I know it's a little early to be thinking about '07 guidance; I mean you'll give that in February. But can you broadly discuss your view of trends over, let's say, '07, for gross margin, particularly in the pharmaceutical system side?

I think, Arnie, what - a couple things. First off, we are running our plants pretty hard, especially in the pharma systems segment. And, we've also talked about adding capacity, you know, putting in additional M&E in Europe and Asia, to meet increased customer demand.

As you think about that, longer-term, we have a very positive view of being able to increase margins. The problem is, as you know, mathematically, as you add capacity, and you start to run the plants at less of a breakneck pace, you're going to have some lessening of the margins, over the short-term.

So, we haven't quantified that and we'll get to some of that when we get to the 2007 guidance at the end of - when we talk in February. But directionally, over the long-term, we don't see any fundamental change. We continue to believe that through efficiency, selling more - a higher - a better mix of products and through continued lean initiatives, we believe that the margins will increase over time. It's just that you need to, in the short-term; you need to take a little bit step back as we're adding that capacity.

Okay, I'll jump back in queue. Thank you.

Thank you, and our next question comes from Steven Postal, of Lehman Brothers.

Thanks a lot and good morning, guys. I hopped on the call on the late side, so I apologize if you've already gone over some of these things, but, you know, I guess, one of my first questions is on some of the comments you've made previously about R&D investments. I know you're not giving 2007 guidance right now, but could you perhaps talk about how those investments have gone and if you see the same level of growth in R&D investments in 2007?

I think overall, they've gone very well. We basically split R&D into two categories. One we call innovation and one we call product expansion and development that lies within the regions. The innovation group has to look longer-term in the kind of three to five or 10 year horizon. We expect that we're gong to continue to increase those investments as we go forward, as it's critical to the life blood of the franchise.

As we see projects come in that are more customer-specific, the expenditures on the product line extension activities will go up and down a little bit. But again, overall, given the trends in the market, especially in bio-tech, we expect those to increase as well.

But we think we've got a very healthy launch schedule for some new things that will be detailed in our February call for 2007. But, we're pretty excited about what's coming out of the pipeline for the next couple of years.

How should I think about potential leverage in the SG&A line, obviously because of what you said about investments, we didn't see much of that in '06 but, you know, is it fair to say that you're still not going to see much leverage form the SG&A line because of these continued investments next year?

I think that's pretty fair. The other thing to keep in mind is that over the last couple of years, you know, we've gone from managing a $400 million business to managing a $900 million business. And that's going to require some new and different skill sets to manage that level of complexity globally.

So, we're going to be looking to selectively add some heads in certain key functions, particularly on the financial side, on the marketing side to be able to effectively manage the business.

Okay, fair enough and then, just a question about Exubera, and again, you may have gone over this, but obviously, you know, I read some commentary about what may be end user demand for the product. To the extent that there is a change in demand, how would that - how would you guys be sensitive to a change in end user demand?

It's not a large portion of our revenues overall. We're not that sensitive to it. But again, we're in a ramp up pattern based on the orders that we've seen and, to date, we've produced every unit that's been put into the manufacturing queue.

So, it's an important product but, overall, given the level of the revenues, we're not that sensitive to it.

Steve, in case you missed it, it was $8.1 million in the quarter.

Got you, okay. I did - I think you put that in the press release (multiple speakers).

And, you know, I have - I appreciate the conservatism that you guys seem to be, you know, using in your guidance for sales growth. Can you just, maybe, elaborate on some of the comments you've provided on sales trends?

I mean, it just seems that sales have been so strong, and you've been conservative so long, what makes you still want to retain that conservative outlook?

Well, we've seen some extraordinary things in the last couple of years in terms of growth in the biotech segment, new products that have come out, expanded indications for those products, and also conversion of existing systems into more advanced packaging components.

We just think that that will moderate somewhat. In some respects we were playing a little bit of catch up from the early part of 2002/2003 in the marketplace. But there's a whole bunch of things that can work against you as work for you. We're just trying to be prudent with our guidance.

And also Steven, we also mentioned that we're running the plants pretty hard now. We have done some underlying market research, and we believe that those numbers make a lot of sense. But you also have to recognize that there are physical limits to what we can do in terms of growing the business. As we continue to put more capital in there's a lag between when we put the money in and when we're able to get the commercial sales dollars out. So it's a, as Don said, there's a lot of moving parts, but fundamentally we see the increases muting a little bit toward the range that we talked about, the high single digit increases.

Understood. Okay, very impressive report there, thanks a lot for the comments.

Your next question comes from Arnie Ursaner of CJS Securities.

Hi, good morning again. Can you, obviously your capital spending plans are rapidly accelerating, could you just remind us of your funding plans for the cap ex, and the desired capital structure please?

Right now the way we have our debt structured we have enough debt capacity existing at this point in time to handle the near term needs of our capital program. All that being said, we are looking at, right now, working with our board, looking at a number of financing alternatives to enable us to have some dry powder to take care of this and any other things that may come up over the three to five year time horizon.

But I think in terms of structure, Arnie, we manage fairly conservatively. We like a debt to cap ratio somewhere in the low to mid 40s as being somewhat optimal for us.

Got it. One of the big changes in, thinking about your business, is raw material costs last year just clobbered you in Q3, there was a lot of variability. At the moment could you just freshen up the key raw materials you use, trends you're seeing right now, and to the extent they've been coming down a fair amount and you tend to negotiate on an annual basis with customers, what your customers are telling you as you begin the negotiation process for next year.

You kind of have to break that into a couple of different categories. Remember on the plastic side many of the contracts are spot price based, so when changes in polypropylene or polyethylene or many of the commodity resins take place, the up or down change there happens effective immediately.

There are some other contracts where it's adjusted on a quarterly basis, and although we lag a little bit, it tends to work its way through the system.

On the pharmaceutical side of the business, of course, the principal raw material is synthetic butyl rubber, and there worldwide capacity is fairly tight. Right now we have, as we announced recently, executed a five year supply agreement with our major supplier there, and we think we're in pretty good (indiscernible) shape from both a supply standpoint and a pricing standpoint.

The other major material is aluminum, which goes into the seals that are used on the pharmaceutical side of the business as well. And there I believe the pricing has been stable to dropping. So we're getting a little push back on the negotiations front, but the environment's a lot better than it was in terms of stability versus the end of '05 after the hurricanes.

And Arnie you are right, on the rubber side, as Don mentioned, the contracts don't, all our big customers are under long term contracts, and those contracts have annual escalators. But on the supply side we also have long term contracts, so we have some natural price breaks built in on that side as well. So we benefit when the prices go up, it's a lagged effect, but we also are slower as the prices come down on both the supply side and on our customer pricing side.

Okay. Two more follow on questions on new products. We hear a lot in the press about RFID identification on injectable drugs, and I know you have spoken about it. Can you freshen that up and give us a sense of where we stand for you in this initiative? And at your analyst day you much more broadly spoke about new product initiatives, you are very significantly increasing R&D to try to develop them. Can you give us a feel for what we might look for in '07 for new products as well?

I'll answer the second question first and say if you wouldn't mind I'll take a pass until we release in February. What we're going to do is provide a little bit broader description of some of the new product launches that are going to take place for the full year. As I said before, it's pretty exciting and we've got some nice things that are going to be coming to the market.

With regard to the first part of your question, on RFID, we recently launched a new product called [Wespectra] which is a combination of a number of tamper evidence and anti counterfeiting features, one of which is RFID. There's a lot of excitement around RFID, both at the bulk and at the unit level. It's going to take a little while for it to work its way into the commercial sector, because one, the customers have to go through trials on their lines with regard to the machinery working with the new seals. But the second is that the industry has to settle out a little bit on the reading systems for actually detecting the RFID signal.

So it's going to come, we're well positioned; we've got a nice product there. We're just going to have to keep an eye on it for the next year or two to see how the customer trials unfold, and what happens over all with the reading technology.

Don my understanding was there was a legislative change where the government, which had broadly mandated this, is forcing an action -- I thought it was at year end '07.

I don't know, but I can research that for you Arnie.

OK, look forward to seeing you in January at our conference, and again very nice quarter. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS]

And at this time I'm showing no further questions, and would like to turn the meeting back over to West's Chairman and CEO, Mr. Don Morel.

Thank you operator. The company's performance through the first nine months of the year has been extremely good, and is the direct result of the hard work of West's more than 6,000 employees worldwide. Based on the level and composition of our backlog we are in excellent position to achieve our full year operating goals and earnings in the range of $1.88 to $1.92, as outlined in the press release.

We do expect that sales growth in the fourth quarter will moderate somewhat, as we experience uncertainty due to changing customer inventory strategy and ongoing customer planned shutdowns in Europe to install new capacity. At this point our order book is very healthy, and in general our plans are operating at a very high level.

Looking ahead to 2007 we will provide annual earnings guidance during our February year end call. For management our priorities going forward are fairly simple, execution of our expansion projects on schedule, and within budget, investing in innovation, and shifting Tech's product mix to a higher percentage of West's proprietary products.

By concentrating on these three objectives we should be a in a good position to deliver a good year with sales increasing between 7% and 9% overall, and operating profit between 12% and 15% for 2007.

Over all the business is in excellent shape, we look forward to finishing the year on a strong note and setting the stage for 2007. Thank you very much for your time today.

And thank you for participating in today's teleconference, and have a good day.