西式醫藥服務 (WST) 2011 Q3 法說會逐字稿

Welcome to the West Pharmaceutical Services Third Quarter 2011 Conference Call. At this time, all participants are in a listen-only mode. My name is Jo and I will be your Operator for today.

This call is being recorded on behalf of West and is copy-writed material. It cannot be rerecorded or rebroadcast without the Company's express permission. Your participation in this call implies your consent to our taping. If you have any objection, you may disconnect at this time.

Now I would like to turn today's meeting over to Mr. John Woolford from Westwicke Partners. Sir, you may begin.

Thank you, Operator. Good morning, everyone, and welcome to West's Third Quarter 2011 Results Conference Call. We issued our financial results this morning and the release has been posted in the Investor section on the Company's website, located at www. westpharma .com. If you have not received a copy of this announcement, please call Westwicke Partners at 443-213-0500 and a copy will be sent to you immediately.

Posted on the Company's website is a slide presentation management will refer to in their remarks today. The presentation is in PDF format. Should you require it, a link to a free download of software that will enable users to view the presentation is also available on the website.

I remind you the statements made by Management on this call and in the presentation will contain forward-looking statements within the meaning of US federal securities law and that are based on Management's beliefs and assumptions, current expectations, estimates and forecasts. Statements that are not historical facts, including statements that are proceeded by, followed by, or that include words such as; estimate, expect, intend, believe, plan, anticipate and other words and terms of similar meaning are forward-looking statements.

Estimated or anticipated future results, product performance or other non-historical facts are forward-looking, and they reflect our current perspective on existing trends and information. Many of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict. These statements are subject to known or unknown risks or uncertainties, and therefore, actual results could differ materially from past results and those expressed or implied in any forward-looking statement. You should bear this in mind as you consider forward-looking statements.

For a non-exclusive list of factors which could cause actual results to differ from expectations, please refer to today's press release. Investors are also advised to consult any further disclosures the Company makes on related subjects in the Company's 10-K, 10-Q and 8-K reports. Except as required by applicable securities law, the Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, during today's call, Management may make reference to non-GAAP financial measures, including adjusted operating profit and adjusted diluted EPS. These measures and their component parts have no standardized meaning prescribed by US GAAP, and therefore, may not be comparable to and should not be viewed as a substitute for US GAAP operating income and diluted EPS. Reconciliations of the non-GAAP financial measures to the most comparable financial results compared in conformity to GAAP are provided in materials accompanying this morning's earning release.

At this time, I would like to turn the call over to Don Morel, West's Chairman and CEO. Don?

Thanks very much, John. Good morning, everyone. Welcome to West's Third Quarter 2011 Conference Call. As John mentioned, this morning Bill and I will again refer to PowerPoint slides during our comments, which can be accessed on www.westpharma.com, clicking on Investors and then Presentation. In the event you cannot access the slides, their content is covered both in this morning's release and our remarks.

As we have done in past calls, I will begin with a quick snapshot of our third quarter numbers and summarize progress on key programs. Bill will then discuss our financial results in greater detail and provide an update on our outlook for the final three months of the year. I will then finish up with some comments on our long-term outlook and will then be pleased to take your question.

Beginning with an overview of the third quarter, as summarized on slide three; consolidated sales grew just over 8% to $293.6 million versus the third quarter of 2010, with favorable currency effects contributing 4.7 percentage points of the increase. Excluding the effects of currency, the Packaging Systems segment grew 3.4% and the Delivering Systems segment 2.4%, fully inline with expectation.

Our consolidated gross margin improved to 27.7% from 27.5% in the third quarter of 2010, and when combined with a modest increase in SG&A, produced growth and adjusted operating profit of 15.6% and adjusted diluted earnings per share of $0.53 per share versus $0.46 per share during the third quarter of 2010, an increase of just over15%.

In the Pharmaceutical Packaging segment, sales growth was comprised of a more positive sales mix of high-value products and volume increases, combined with the positive impact of the raw materials surcharge implemented during the third quarter. Revenue growth was quite strong in Europe, with solid increases in Asia and South America, as well. We also benefited from stronger sales through our partner, Daikyo. In North America, the previously discussed loss of revenues from a bio format change and FDA actions at certain customer manufacturing facilities were mostly offset by gains in existing product lines and new products like Envision.

In the Delivery Systems segment, sales grew just over 2%, excluding currency effects, to $84.5 million, driven primarily by growth of self-injection systems in the contract business. Sales of proprietary products were roughly comparable to the second quarter and include CZ sample sales of approximately $2 million. R&D expense in the segment increased as we accelerated development work on the electronic-patch-injector to meet demand for devices that could be potentially be used in human trials sometime in 2012.

In summary, our strong results for the quarter were due to excellent execution by our operating teams across the globe. Given the strength of our backlog, we should see a strong finish to the year, subject to currency fluctuations and customer management of their year-end inventories.

On slide four, we list highlights for our major expansion and development programs. In the Packaging Segment, I am pleased to report that we remain on schedule with our major capacity expansion projects in India and China. When operational, these plants will provide peak capacity for the Asia, Pacific and Mideast regions, where we are forecasting significant volume growth over the next five years.

We continue to be very pleased with the strong market uptake of Envision, our new vision-inspected closures, which will generate full year revenues of $8.6 million in North America, $7.5 million ahead of 2010 when it was launched.

CZ sample demand for the 1ml syringe lessened slightly during the quarter, due to lower than expected demand in Europe. We believe this is a near term issue, related to the availability of validated clinical and commercial filling capacity and fully expect volumes to pick up once these lines begin operation.

We continue to feel the broad range of inquiries from custom container configurations and proprietary design work. And overall market interest in alternative packaging solutions for sensitive drugs remains quite strong. Customer interest in the SmartDose system remains high, thus we have increased spending on the development of the injector to ensure sample availability early next year. During the quarter, we also signed our first substantial development agreement for a SmartDose system which will utilize the CZ cartridge, compatable with existing filling lines.

Overall, the third quarter for West was very solid, delivering increased sales and earnings in a challenging environment. Our key long-term programs remain on schedule, our backlog remains strong, and our pricing actions have started to offset increased prices for key raw materials. We should finish the year with a strong quarter, setting the stage for healthy sales growth in 2012.

I would now like to turn the call over to Bill. Bill?

Thank you, Don, and good morning, everyone. We issued our third quarter results this morning, reporting net income of $16.9 million or $0.49 per diluted share versus the $0.51 per diluted share we reported in the third quarter of 2010. Our third quarter results are summarized on slide five of the accompanying PowerPoint presentation.

As explained in the release, results in both periods included restructuring charges, adjustments to our liabilities for contingent consideration from recent acquisitions, and discrete tax items. Excluding the effect of these items in both periods, third quarter 2011 earnings were $0.53 per diluted share versus the $0.46 we earned in Q3 2010, a net increase of 15%.

Turning to sales, slide six shows the components of our consolidated sales increase. Consolidated third quarter sales were $293.6 million, an increase of 3.5% over third quarter 2010 sales, excluding exchange effects.

Packaging Systems sales increased 3.4% over same quarter 2010 sales, excluding favorable exchange effects. Sales price increases in Packaging Systems contributed approximately 2.4 percentage points of the increase. Favorable sales mix and volume accounted for the remainder of the increase. Geographically, increases were strongest in Europe. North America sales growth was hampered by the loss of approximately $2.6 million in sales versus the prior year quarter due to customer regulatory issues affecting two customers' products. Sales of high-value products, in total, saw modest increases in the quarter versus the prior year quarter, held back by those regulatory issues.

Delivery System sales increased 2.4% over sales in the prior year quarter, excluding exchange. Higher demand for various consumer products and contract manufactured healthcare devices drove the sales increase. Sales of proprietary products represented 19% of the segment's revenue in the quarter, slightly down from the prior year's quarter's 20%. CZ sales in development activity were approximately $2 million in the quarter, $400,000 less than the prior year quarter. Overall, sales growth for Delivery Systems was affected by scheduled price reductions at one of our contract manufacturing customers.

As provided on slide seven, our consolidated gross profit margin for the quarter was 27.7% versus the 27.5% margin we achieved in the third quarter of 2010. Packaging Systems' third quarter gross margin was 31.6%, 110 basis points above the third quarter 2010 gross margin.

During the 2011 third quarter, we implemented a sales price surcharge which, combined with other contractually scheduled price increases, helped offset the cost of higher raw materials. Our European favorable sales volume and mix in the quarter more than compensated for the customer-specific sales issues in the US. Our plants performed at a high level during the quarter with favorable material usage, labor and other cost-savings helping to drive the improved gross margins. The increased raw material costs and customer-specific sales issues in the US had a combined 2.7 percentage point negative impact on Q3 gross profit margins.

Delivery System's third quarter gross margin was 18.2%, 180 basis points below the 20% prior year margin. The net decrease in selling price to a contract manufacturing customer in Europe explains most of the decrease in margins. Although the segment experienced overall sales growth during the third quarter, the majority of it was in our contract manufacturing operations. Margins on proprietary products declined versus the prior year quarter due to additional costs incurred at capacity to our production facilities.

As reflected on slide eight, Q3 2011 consolidated SG&A expense increased by $800,000 versus the prior year quarter, including the $1.4 million impact of foreign exchange. Excluding exchange effects, SG&A declined $600,000 from Q3 2010 levels. Stock-based compensation costs declined by $1.1 million in the quarter-to-quarter comparison, offset partially by higher incentive compensation, outside services and pension expense. As a percentage of sales, third quarter 2011 SG&A expense was 15.5% versus 16.5% in the third quarter of 2010.

Slide nine shows our key cash flow metrics. We generated $39.7 million of operating cash flow in the third quarter, $8.3 million less than in the prior year quarter, with the difference due to the timing of pension fund contributions.

Capital additions of $28.6 million remain in the quarter, $12.5 million more than in the prior year quarter. Approximately $16 million of the capital was spent on new products and expansion efforts, including a project for expanding manufacturing capacity of CZ syringes at our Scottsdale, Arizona facility and about $5 million of CapEx accrued for our new headquarters building, as well as progress on the construction of our rubber manufacturing site in China.

We are expecting to spend approximately $115 to $120 in capital this year, excluding the accrual of approximately $31 million of costs associated with our planned new corporate office and research facility, which will be funded upon its completion at the end of 2012 or early 2013.

Slide ten provides some summary balance sheet information. Our balance sheet continues to be strong, and we are confident that our Business will provide necessary future liquidity. Our cash balance at September 30th was $119.2 million, $9 million above our December 2010 balance. Nearly all of our cash is overseas, bout two-thirds of which is not available to be repatriated to the US without incurring significant tax consequences.

Debt at September 30th was $378 million, $19.6 higher million higher than at year-end, with $3.7 million of the increase due to exchange. The remaining increase was due to additional net borrowings on our revolving debt facility. Our net debt, the total invested capital ratio at quarter end, was 27.2%, 120 basis points lower than the year-end ratio.

Working capital totaled $274.2 million at September 30th, $7.3 million higher than at year-end. We had approximately a $26 million increase in accounts receivable, excluding FX, due to higher current quarter sales levels versus Q4 of 2010. The increase in current assets were largely offset by the reclassification of $50 million of our private placement notes to current liabilities, reflecting their stated maturity date of July 2012.

We revised our full year 2011 guidance in this morning's release. That revised guidance is summarized on slide 11. We have based our revised guidance on an exchange rate of $1.37 per euro. Our previous guidance was based on $1.45 per euro. Every $0.01 increase in the dollar/euro exchange rate increases EPS by one-third of $0.01 for Q4.

Full-year sales expectations have improved moderately to reflect our year-to-date sales results, currency expectations, and our current sales order backlog. Consolidated gross profit margins are expected to be 28.3%, 30 basis points lower than our previous expectations and lower than the 28.8% we achieved in 2010. Our margin estimates take into consideration our year-to-date results, mix of sales, our current backlog composition, and current estimates of pricing actions, as well as raw materials and production costs increased estimates. The combined effects of the euro rate difference and the current margin expectations resulted in adjusted diluted earnings per share range of $2.28 to $2.35 for 2011.

Our backlog stands at $271 million, 13.4% higher than at September 2010, excluding exchange effects. Nearly $70 million of the backlog is scheduled for delivery in 2012, approximately $10 million more than at this time in 2010. Our full year earnings guidance reflects a currency neutral increase in adjusted diluted earnings per share ranging from 4% to 7%, compared to the $2.10 we earned in 2010.

I would now like to turn the call back over to Don Morel. Don?

Thanks very much, Bill. Turning to our long-term outlook for the Business; as outlined in this morning's release, we recently completed a critical review and assessment of our strategic plan. From this analysis, we've updated our five-year financial plan and long-term outlook, which supports the following conclusions. First, given the broader trends in the market, we are convinced that our strategic focus is on target and has the potential to create consider value for our shareholders.

Second, we remain on track to achieve our original goals for sales and margin expansion within our Pharmaceutical Packaging segment, potentially generating revenues in excess of $1 billion annually by the end of 2014, with operating margins in the range of 18% to 20%. We have a strong mix of new products coming to market, such as Envision, supported by the brand value of existing products, such as Westar and FlouroTec. These products are well-positioned to benefit from continued growth in biologics, where we see the key categories of oncology, diabetes and autoimmune disease growing faster than the overall market. We will also benefit from growth in developing markets, such as Brazil, India and China.

Third, CZ vials and syringes and the platforms that integrate CZ-based containers, like SmartDose, are uniquely positioned to satisfy the stringent quality requirements for biologics packaging. We have seen no experimental data from the testing and qualification of CZ containment systems to date that dampens our or our customers' enthusiasm for the commercial potential of these products. However, we think it is realistic to assume large-scale commercialization of CZ systems will take place later than originally forecast, most likely in the late 2014 or early 2015 time frame, due to several factors.

First, securing filling time on currents customer manufacturing lines has proved very difficult, due to market demand for those products. Virtually all capacity in place is being used to satisfy patient requirements and breaking into clean room operations is both costly and time consuming. Second, depending on the availability of validated filling capacity that can accommodate CZ syringes and vials, we anticipate a range of customers initiating formal stability in 2012, a delay of roughly six to 12 months from our original plan. And finally, the timing of validation stability trials and eventual regulatory filings is the sole decision of our customers.

Collectively, we believe the combined business is capable of delivering revenues in the range of $1.7 billion to $1.9 billion by the end of the planning period in 2016, with a consolidated operating margin in the high teens, depending on vial product mix and the contribution of sales growth from CZ systems.

This concludes our formal remarks for today. And Bill and I would now be pleased to answer any questions. Operator?

(Operator Instructions). First question comes from Arnie Ursaner from CJS Securities. Please proceed.

Good morning.

Good morning, Arnie.

Don, my first question is -- thinking about your view of next year for revenue growth of 4% to 6%. How much of that is from price, and how much of that would be from volume?

I will take that one, Arnie. Basically, the way we are looking at it is, right now we see price increases of approximately 2%, and the rest being volume and mix. If you remember, going back to 2009 -- this level of price increase will be a little more than what we have seen on average in the past. However, if you liken this period to the 2009 period where we had just been through the 2008 surge in raw material prices, we got about 2.5% increase in 2009. Given where we are with the raw material price increases this year and our ability to pass those increases on to contracted customers in the Packaging Systems space in the following year, on average, we believe that 2% makes sense.

So the Q3 surcharge that you put in, is that embedded in your view for all of Q4 and for next year?

Yes. The surcharge is embedded in the Q4 number. It is not embedded in the 2012 number. The 2012 number is really a combination of price increases to non-contracted customers, which is akin to a surcharge, but it is not because it is normal and customary, we do those on January 1st. And we have the roll-over of customer contracts, which accounts for about half of the business that occurred during the year. And those will, again, be reflective of the increase in material costs that we have seen in the 2011 period.

I'm sure it is in your press release, but I missed it. Your Q3 backlog number?

$271 million.

Thank you. And Don, you mentioned in the product development update slide, you have a partnership solution pending? Can you expand a little bit on what that means?

We have been in discussions with a partner to have dedicated filling capacity for CZ. We expect to have that wrapped up and, we hope, announced in the very near future. But it will give us critical clinical filling capability for the 1ml syringe and the potential for modest commercial volumes of about three to five million units, so a key step in the CZ commercialization process.

And what's the benefit of a partner? You guys couldn't create the capacity yourself?

There is a very unique and specific engineering skill set involved in filling biologics. The partner that we have chosen to work with is the leader in this area. They have extraordinary installed capability and have worked with many of the leading biologics companies. Currently, we couldn't hope to duplicate that experience, either from an expense standpoint or from a timing standpoint and meet our goals.

I have some follow-ups, but I will jump back in queue and let some others have a chance.

Thanks, Arnie.

Thank you. The next question comes from the line of Dave Windley from Jefferies. Please proceed.

Hi, thanks for taking the questions.

Good morning.

On the follow-up to Arnie's last question there on the filling capacity; if I remember correctly, this was a topic that was discussed some time ago, and I was -- maybe I didn't remember correctly, but I thought you had some capacity already partnered, not in place, owned, but partnered. Is that wrong? Is this the first capacity partnership you would have?

I need to clarify a little bit. What we do is cost share the machinery that was put into place within their filling facility. But it is the first partnership for us of that type. And the reason we announced it earlier was, as we've said, it takes about 18 months to get one of these machines made, once you finish the requirement specification. The machine was delivered about eight months ago, I believe. And since that time, it has been all engineering validation and training runs.

And so while we are on the topic, would your clients then pay this partner -- is there some type of profitability arrangement that you would get out of this? Or would you do -- or would you, with this partner, do this work largely at cost just to get the client moving on CZ?

You will see some nominal profit. Fundamentally, we will supply the packaging systems and gain from the sale. They will provide the engineering and filling expertise to produce the samples that are either used for formal stability or for commercial sale. So their profit and sales are generated off the filling activity.

We will share -- we will not share in the profits of a venture, if that's what you're thinking. When Don speaks of partnering, he means we have shared in the cost of putting that line into place.

Right, okay. On the Delivery Systems -- older traditional business, the contract manufacturing price decreases I know happen from time to time. I was -- I'm failing to observe the pattern in them. And wondered if you could spell out how frequently those are contracted to happen? And how should we be thinking about future additional price decreases in contract manufacturing?

This one was actually announced earlier in the year. It was a product that we made out of our Ireland facility. It is somewhat of a unique case, where they actually brought on a second source and a low cost venue. And for us to retain a large part of that business, we ended up cutting price to secure it. It happens from time to time. It is not like it is on a regular basis. But when some of these products reach the mature part of the sales curve, they seek cost reductions in their overall cost of goods to maintain their profitability. And that's what happened here.

Okay. From a balance sheet standpoint, Bill -- on the cash balances, if I heard you correctly, you said most of the cash is overseas and unable to be repatriated. Wondering how much cash -- if you could spell out the cash balances that you would need to leave in place to run the Business? And if a repatriation bill were to get passed, with jobs or whatever, what your plan would be to move the cash and then what to do with the cash?

Sure -- and let me back up. We have -- rough numbers -- $120 million worth of cash. About two-thirds of that, so about $80 million, is what we would consider to be trapped due to -- if we were to repatriate, we would incur some significant tax costs. Your point about the repatriation is a correct one. If the government were to allow us to repatriate, we certainly would take advantage of that.

There are amounts that we need. For instance, we need cash to build China and India. We need cash in some of these locations for normal operating activities. There's about -- of the $120, if you break it down, we have $40 that we can and are in the process of bringing back to the US, that will be pretty much without any significant tax consequences. Of the remaining $80, there is probably in the order of $50 million of that, a little over half that, would be able to be repatriated if there were a tax holiday on repatriation. The rest of it, in the order of $30 million to $40 million, would be something that we would leave.

There is one particular area. We have about $30 million worth of cash in Israel that would be very, very difficult to extract from there. However, as we have seen in the past, we have made a number of technology acquisitions, both on -- in that space. And certainly could and are able to use that cash to make, not only additions to capital -- CapEx, but also M&A acquisitions where appropriate.

Okay, great. Thanks for the detail. I will fall back in the queue.

Thanks, David.

Thank you. The next question comes from the line of Ross Taylor from CL King. Please proceed.

Hi, I just have two questions. Going back to the organic revenue forecast for 2012; 4% to 6% range is maybe just a slight acceleration from, at least by my computations, about 4.5% organic growth in the first three quarters of year. Kind of the bulk of the modest acceleration you expect for next year, due to that higher pricing that you reflected previously. I wonder if unit and mix might be changing much from year-to-year?

Yes, in fact -- and just to remind you, the way we break it out, the 4% to 6%, about 2% -- a little over 2% is what we are considering price, and the rest of it is volume and mix, mostly mix. It is not a tremendous amount of volume. If you think about it, in the Packaging Systems space, it is all driven by the products that Don laid out for us. The new Envision product, which is getting good traction, and additional sales of high-value products using Westar and FlouroTec.

On the Delivery Systems side, it is more proprietary-based products as opposed to -- higher percentage of proprietary based products as opposed to the percentage we have today, which in the third quarter, was 19%, just to remind you of the number, as well as the contract manufacturing side, some additional sales in certain of the healthcare-related areas.

Okay. That helps. And my final question relates to some of the CZ revenues. I think you mentioned large scale commercial revenues wouldn't begin until 2014 or early 2015. But would you expect to have some customers with commercialized product on the market prior to that, even at lower volume? And would that be material in your view?

Yes, you have to remember there are customers on the market with commercial volumes now. So through our Diakyo partners, we do one product which is a vial here in the US. You can almost get any scenario down, depending on when they have the ability to break into their filling suites. And that is the one thing that's caused us to kind of recast our expectations. The demand on their production right now is extremely high. For us to get samples on formal stability, we either have to do it on the lines they're producing on now for existing drugs or they have to look outside at contract falling capacity. Hence the importance of the partner that we're finalizing on the filling side.

Single product can really drive the needle in this category, as we have talked about before. So if you have unit volumes of anywhere from five to ten million for a single drug in a pre-filled, the revenue in OP driver is considerable. My expectation is that if we get a range of things up on formal stability in that 2012 timeframe, earliest is probably early 2014 for it to go commercial. So you are right in that Q1, Q2 2014 to Q1 2015 begin to see volumes ramp up for either the 1ml syringe, or potentially, for a device that includes a cartridge.

Okay. That's helpful. Thank you.

Thanks, Ross.

Thank you. The next question comes from the line of Larry Marsh from Barclays Capital. Please proceed.

Hi, guys, good morning. Actually, this is Elliott Feldman filling in for Larry. How you guys doing? Just a quick question -- and most my questions have been answered at this point. Just about your long-term growth that you talked about, Don -- actually, maybe this question is for Bill; I know you mentioned at your Analyst Day last year about a return on invested capital goal of about 17% by 2014. I was wondering, with the updated outlook, are you in a position to confirm that here today? Or are you pushing them out to 2016? I was trying to get a sense of returns over the next couple years. I know ROIC is in the high single-digit range right now. So just trying to get a sense for that, given the updated outlook.

You have to remember that what we put out there is really directional, in terms of aspiration, not guidance, in any way, shape or form. But depending on the timing of volume ramp up on CZ, you can expect to see that ROIC number north of 15%, somewhere in that 2014, 2015 timeframe. And it will also depend. in some respects, on the mix of products that are coming out of the Packaging side of the Business. Ultimately, we don't think that driving that number north of 15% in the 2015 range is out of the question.

Thank you, guys.

Thank you, Elliot.

Thank you. (Operator Instructions). Your next question comes from the line of Arnie Ursaner from CJS Securities. Please proceed.

Hi, a couple of quick follow-ups. The cost of your headquarters facility last quarter was $27 million and this quarter it's $31 million, is that correct?

Yes, the current estimate is about $31 million. I don't think that it is a significant increase based on anything other than estimates of cost and timing. It is really not a change, Arnie.

Okay. And in the last quarter, we talked about a couple of client issues that were impacting revenue. I just want to freshen those up. You had one customer going from single dose to ten-dose, and at that time, I think you indicated for the year -- you thought you would do $500,000 in revenue versus [8 to 10]. I assume you had very little of that revenue in Q2 and that --

That was $2.6 million. It's that -- and the regulatory problem with the other customer, those two issues were -- had an adverse impact of $2.6 million in sales and $1.9 million to OP in the quarter.

And the issue with the single dose going to ten dose packaging, have you seen that shift to any other products? Is this a new trend that we ought to be keeping an eye on?

We have not seen it in any other customers. This was a one-op, we believe, as a defensive measure against a generic.

And I want to focus again on the five-year or longer-term guidance or views. I know it is not formal guidance, but it was always based on a hockey stick in 2014. One of the questions I think investors will grapple with, and maybe you can help them, is as you think about 2014 -- the ramp between 2011 and 2014, we are in a much more stable environment through that entire period rather than the explosive growth you had hoped for. I am trying to balance new products in CZ, for example, versus the traditional products in thinking about the ramp to 2014.

The difficulty in the sensitivity analysis is the power of the CZ container franchise. As I spoke about when I was answering Ross' question, it is such a powerful multiplying effect, you are trying to tap down your expectations to what we think is realistically achievable. In terms of the original 2014 plan, clearly, that curve is going to moderate. How it swings up is going to depend on the speed of uptake. It shifted out, as we said, about six to 12 months. We don't know whether the back end of the curve will keep the same slope, will moderate, or may increase. And again, in this industry, what you typically see is slow first adoption and then very rapid second adoption.

I think that may be it for my questions. Thanks.

Thanks, Arnie.

Thank you. I would now like to turn the call over to Don Morel for closing remarks.

Thank you very much, Operator. After a strong third quarter, we appreciate your time today. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Please have a good day.