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AptarGroup, Inc. (NYSE:ATR)

Q4 2008 Earnings Call

February 6, 2009 9:00 am ET

Executives

Ralph Polterman - Executive Vice President, Treasurer

Peter H. Pfeiffer - President and Chief Executive Officer

Stephen J. Hagge - Chief Operating Officer

Robert Kuhn - Chief Financial Officer

Analysts

George Staphos - Banc of America

Claudia Hueston - J.P. Morgan

Chris Manuel - KeyBanc Capital

Meggan Friedman - William Blair & Company

Mike Hamilton - RBC Capital

Greg Halter - Great Lakes Review

Susan McCary - Granahan

Operator

Welcome to the AptarGroup's fourth quarter 2008 annual results conference call. (Operator Instructions) Introducing today's conference call is Ralph Polterman, Executive Vice President and Treasurer of AptarGroup.

Ralph Polterman

Before we begin I would like to point out that the discussion to follow includes some forward-looking comments and that actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. To review important factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements, please refer to AptarGroup's SEC filings.

The information in this conference call is relevant on the date of this live call. Although the company will post a replay of this conference call on its website as a service to those investors who are not able to listen today, information contained in the replay will be dated and to be used for background information only. The company undertakes no obligation to update material changes and forward-looking information contained therein.

Participating on this call today, are Peter Pfeiffer, President and Chief Executive Officer of AptarGroup, Steve Hagge, Executive Vice President and Chief Operating Officer, and Bob Kuhn, Executive Vice President and Chief Financial Officer. I would now like to turn the conference over to Mr. Pfeiffer.

Peter H. Pfeiffer

Good morning everyone. This is Peter Pfeiffer. I will briefly comment on our overall results and outlook and then provide some comments on our beauty & homes statement. Steve will then provide insight in our closures and pharma segments and Bob will review our financials.

Focusing on our overall results for the quarter, our results were adversely affected by the breadth and severity of the economic slowdown as well as the stronger dollar. The strength of the pharma segment sales helped us offset the weakness we faced in our beauty & home and closure segments. Although we took action during the quarter to reduce costs, we could not completely offset the negative impact of softer demand.

Turning to the full year, I would like to remind you that 2007 was a record year for us and as a result we were up against tough comparisons in 2008. In spite of this, we reported record sales and profits for the year. The year 2008 was comprised of two distinctly different halves with the strength of the first half being offset somewhat by the slowdown in the second half.

Looking forward, our visibility continues to be very limited. Presently we expect that the conditions we saw in the fourth quarter will continue into the first quarter and that our first quarter results will be adversely impacted by continued underutilization of our capacity.

We are intensifying our review of our operations in an attempt to further reduce costs and minimize underutilization of capacity, while at the same time balancing the needs to the precision for the long-term growth of the company and continuing to focus on innovations.

In light of the tough economic and credit environment some of our customers have expressed to us their desire to become more closely aligned to companies like Aptar, that are innovative and financially strong.

These comments support our confidence that the diversity of our business model, along with our commitments to innovation, our strong balance sheet, and our experienced management team, will help us through these difficult business conditions.

Focusing to the beauty & home segment, for the fourth quarter of 2008, excluding changes in exchange rates, sales in the beauty & home segment decreased 2% from the prior year. Acquisitions accounted for about 1% of sales.

Our customers are being very cautious in this uncertain environment and we experienced weak demand in each market served by the beauty & home segment. Excluding changes in exchange rates, sales through the personal care market were flat. Sales through the fragrance cosmetic market decreased by 3%, and sales through the household market decreased 11%. Underutilized capacity due the weak demand led to a decline in the beauty & home segments income.

Regarding new products, a new mass market airless system for cosmetic products was introduced to the market and Colgate launched a new soft soap package using our lotion pumps with custom decorative features.

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

Stephen J. Hagge

I will provide my comments and turn the call over to Bob to review our financial results.

First, looking at the closure segment, around the end of October we purchased the remaining 50% of a joint venture we had in Spain. This relatively small acquisition will allow us to improve our closures market position in Western Europe by better serving the local Spanish market as well as a number of global customers. The cost of the acquisition was in the area of $6.0 million.

Compared to the prior year, fourth quarter reported sales increased 3%. Changes in exchange rates was a drag on sales of about 6%. The acquisition I just mentioned above accounted for about 1% of sales. Sales growth, excluding currency and acquisition, was 2% in the quarter and mainly due to resin pass-throughs.

Excluding currency impact, increases by markets were as follows: we had a 6% increase in sales to the personal care market; a 12% increase in sales to the food/beverage market; and a 29% decrease in sales to the household market.

We saw increased demand in the U.S., particularly from the personal care and the food/beverage markets. About half the decrease in sales to the household market was due to lower custom tooling sales in the quarter. The balance of the household decrease was mainly coming from Europe. The underutilization from low sales volumes adversely affected the closure segment income, resulting in income for the quarter that was less than the prior year.

On a positive note, our pinpoint dispensing system, which has a conical shaped silicone tip, has recently been introduced on products marketed by Neutrogena, L’Oreal, and Estee Lauder and we see continued increased interest in this system.

In addition, our dispensing closure has entered a new market in the U.S. as they were introduced on a non-dairy creamer that was recently launched under the White Waves International Delight brand.

Now looking at our pharma segment, organic growth in the pharma segment continued to be strong. Segment income for the quarter was slightly ahead of the prior year’s level due to the mix of sales as well as the negative effects of exchange rates.

Reported sales grew 3%. Changes in exchange rates was a 7% drag on sales. Sales excluding changes in exchange rate increased 10% in the quarter with acquisitions accounting for 1% of this growth. Sales of both metered dose inhaler valves and spray pumps increased in the quarter.

A new allergy medication called AstraPro, which is marketed by MEDA Pharmaceuticals, was approved in the U.S. last month and uses one of our nasal spray pumps.

Lastly, I would like to mention that in 2009 we are expanding our pharma manufacturing capacity in the U.S. The first stage of this will be focused on adding U.S. capacity to mold pharma components. This will allow us to improve our responsiveness to the needs of our pharma customers in the U.S.

Now I will turn it over to Bob to discuss the financial highlights.

Robert Kuhn

I will provide my comments and then Peter, Steve, and I will be happy to answer your questions.

First I would like to summarize our consolidated results for the quarter. As you have all seen, our overall reported sales decreased 6%. Changes in exchange rates were a drag of 8% and sales for acquisitions accounted for 1%, resulting in organic sales growth for the quarter of 1%.

From a geographic standpoint, sales to customers by European operations represented approximately 60% of net sales compared to 63% last year while sales to customers by U.S. operations accounted for 28% of sales this year versus 26% in the prior year.

Corporate expenses were significantly lower in the fourth quarter or 2008 mainly due to the fact that changes of our LIFO reserve are included in corporate expenses. Due to resin costs decreasing significantly in the fourth quarter from the third quarter, the LIFO reserve decreased by approximately $5.2 million in the quarter.

The tax rate in the fourth quarter of 2008 was slightly higher than the prior year due to the mix of income on a geographic basis in the quarter.

Diluted earnings per share from continuing operations decreased slightly to $0.46 from $0.47 per share in the prior year.

Total net income per share of $0.50 per share in the prior year included a $0.03 per share gain on the sale of our discontinued Australian operations.

Our cash flow from operations for the fourth quarter Wing Street $67.0 million compared to about $86.0 million in the prior year and capital expenditures were $46.0 million in the quarter compared to $47.0 million in the same quarter of the last year.

Free cash flow, which we define as cash flow from operations less capital expenditures, was $21.0 million for the quarter versus $39.0 million in the prior year.

As we previously announced, we suspended our share repurchases during the quarter and our repurchase authorization at the end of the quarter remained at 4.5 million shares. It is likely that we will get back into the repurchase mode during the first quarter of 2009, albeit on a moderate basis.

The mix of dept at the end of the quarter is roughly 80% fixed versus 20% variable and the average interest rate is around 5.5%. On a gross basis debt to capital is about 20% while on a net basis it is approximately 8%.

Briefly turning to the full year, reported sales increased approximately 9% and changes in exchange rate accounted for about 4% of the increase, resulting in an organic growth rate of 5% for the year.

Now I would like to discuss the preliminary breakdown of sales by product for the year. Pumps represented approximately 48% in 2008 versus 50% in the prior year. Closures remain constant at 24% in both years. Aerosol valves remain constant at 15% in both years, and other increased to 13% versus 11% in the prior year.

From a geographic standpoint sales to customers by European operations represented approximately 62% of net sales in both years while sales to customers by U.S. operations accounted for 26% of net sales in 2008 versus 2007 in the prior year.

Our cash flow from operations for the year was about $270.0 million in the current year compared to about $273.0 million in the prior year, while capital expenditures for the year were around $204.0 million compared to about $138.0 million in 2007.

Free cash flow for the year was approximately $66.0 million versus roughly $135.0 million in the prior year.

Diluted earnings per share from continuing operations for 2008 increased 12% to $2.18 per share versus $1.95 per share in the prior year.

Total net income per share for 2007 included the $0.03 gain of the sale of discontinued operations that I mentioned in my fourth quarter comments.

Pension plans have been getting a lot of attention recently and I would like to briefly address this. Our pension expense in 2008 was approximately $8.4 million and it is expected to be in the area of $9.5 million in 2009. From a cash flow standpoint we funded approximately $8.7 million in 2008 and we expect to fund approximately $20.0 million in 2009.

Looking forward, we do not expect volumes in the first quarter of 2009 to change significantly from the fourth quarter volume levels.

Presently we expect depreciation and amortization for 2009 to be in the area of $130.0 million. We are planning on reducing capital expenditures significantly from 2008 levels and capital expenditures for the year 2009 is expected to be $130.0 million or less. I would like to point out that these 2009 amounts could vary depending upon exchange rates.

The effective tax rate for the full year 2009 is expected to be in the area of 29% to 31%.

The decline from $0.46 earnings per share recorded in the fourth quarter of 2008 to our estimated range of earnings for the first quarter of 2009 is mainly comprised of two items. First, we do not expect resin prices to decrease in the first quarter and as a result the benefit from the reduction of the LIFO reserve we had in the fourth quarter is not expected to repeat in the first quarter of 2009. Secondly, option expense will be significantly higher in the first quarter compared to the fourth quarter. As consistent with prior years our option expense is heavily weighted toward the first quarter of each year.

At this time we will be glad to answer any of your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from George Staphos - Banc of America.

George Staphos - Banc of America

I just wanted to dig a little into the LIFO effect. So I guess the take is you were pulling through the P&L a greater amount of higher cost inventory relative to what was occurring in the market, which in turn, for some of your business, was leading to perhaps lower selling prices just because of normal price recess. Is that the way to think about it?

Robert Kuhn

No. Actually the LIFO means that our costing was based on the last in first out, so with prices, resin prices in particular, decreasing significantly in the fourth quarter, our costs were priced at the lower resin cost while as our selling prices remained constant through the quarter.

George Staphos - Banc of America

You mentioned you are going to be in the market perhaps in the first quarter repurchasing shares but you also mentioned you would only be doing a moderate amount of activity. From the standpoint of repurchasing the shares for the benefit of the company at a lower price, why even mention it here if it’s only going to be moderate?

Stephen J. Hagge

The reason we had indicated we were actually going to be out of the market, at the end of the third quarter, because of some or the liquidity issues and we were uncertain as to the market. So what we are really doing is letting the market know, and again, what we buy is still uncertain at this point, but it’s likely we will be in the market during the first quarter of 2009.

George Staphos - Banc of America

But do you even need to say that in the first place?

Stephen J. Hagge

Again, we’re doing it more from a full disclosure standpoint. Because we had said we were going to be out, it is a different approach that we’re taking to the market.

George Staphos - Banc of America

What we’ve seen here in the last several quarters, for understandable reasons, is a declining trajectory on earnings. First quarter guidance is in line with that. What needs to occur within you businesses, or within the markets, for this trend not to continue into the second and third quarters of 2009? Do you need to see a pickup in personal care?

And within your expectations for the year, even though you’ve only shared what you’re looking at for the first quarter, how should we think about pharmaceutical where the margins have hung in very, very well and I guess at some point in the past that you would see a little bit of debradation there.

Peter H. Pfeiffer

First of all, I think the shrinking margins are mostly linked to the decline of the market. The lower demand from the customer side triggered some underutilization of our capacity and we were not as quickly as possible able to adapt our customer [inaudible]. In the future we will see less drops in the future in this respect. Maybe Steve can give you something on the pharma markets.

Stephen J. Hagge

I think, too, just to tag on to Peter’s comment, the other thing we have seen is the dollar has continued to strengthen as we have gotten particularly the fourth quarter and into the first quarter. So, if you look at the first quarter last year, the Euro to the dollar was $1.50. Right now it’s running below $1.30. So that will be a headwind just on pure translation.

George Staphos - Banc of America

But don’t you always get the benefit on the transaction side there?

Stephen J. Hagge

But it’s not a full one-to-one offset. For example, we’re down 8% today in top-line growth in the quarter. It won’t be 8% bottom line but it’s probably close to 6% bottom-line impact just on the translation, net of transaction, side. So it’s not a one-to-one offset.

George Staphos - Banc of America

It just sounds like it will be hard for the run rate to improve much in the next few quarters until either the market improves or you get more traction on your cost reduction programs?

Stephen J. Hagge

Yes. And again, I think if you look at the first quarter that’s pretty much what we’ve said, is that right now there is a lot of uncertainty. Now this is pretty much focused more to not all our markets. We are seeing good growth in our food/beverage market and as you pointed out, in our pharma markets we have seen good growth throughout 2007 and 2008. That market has historically been less sensitive to the economic pressures.

There is always a risk of that going forward but we think we are looking at more stability in the pharma market as we go through the rest of 2009.

Operator

Your next question comes from Claudia Hueston - J.P. Morgan.

Claudia Hueston - J.P. Morgan

Can you talk a little about this issue or underutilized capacity, which we have heard a lot about over the last of quarters? Where is it most acute and what business lines? And can you talk a little more specifically about what you are doing to help fix it and how we should think about the timing of some better optimization of assets?

Peter H. Pfeiffer

The underutilization of the capacity is mainly in the closure area and in the beauty & home area. Depending on the areas also, it is more in the United States than Europe.

What we are doing, and have already done, we have had extended shutdowns during the holiday seasons. We have reduced labor. And we also have eliminated some discretionary spending. And going forward, if the situation is the same as we are facing today, we are looking closer into these organizations and trying to find other ways of reducing our costs.

Stephen J. Hagge

And I think the challenge also for us is balancing. Because I think as Peter said, we are looking very closely at the costs, but we are hearing customers like Proctor & Gamble, Colgate, who have become to say the inventories may be too low. And we want to be able to be responsive when the market does return.

Because we are still confident that the market, for our product in particular, will respond. Now how quickly that comes, it’s hard to estimate. But we’ve also got to make sure we balance that cost reduction flexibility to be able to respond to our customers.

Claudia Hueston - J.P. Morgan

Building off that comment around inventories, do you have any sense of how much destocking there was in the fourth quarter and where things stand now? And maybe some comments on how January looked.

Stephen J. Hagge

We are not going to comment specifically on January, but I think the inventories have probably been the biggest negative impact in the fragrance market, which you have seen companies like Estee Lauder who have reported some of the Christmas sales.

Some of our personal care products have less sensitivity to that inventory area. So it is very different customer to customer so I think the broader base would be in the beauty & home and closures is where we have seen it certainly much more than we have seen it in the pharma area.

Operator

Your next question comes from Chris Manuel - KeyBanc Capital.

Chris Manuel - KeyBanc Capital

In your release you specifically talked about some delaying of customers reducing inventory, which we’ve just been talking about, but also delaying product launches and things of that nature. Could you give a little more color to at least what areas you are seeing that in? Is that more in fragrance cosmetic or is some of that in food & bev, or is some of that personal care, household, etc.?

Peter H. Pfeiffer

It seems it is mainly in the fragrance area. Some of the customers are delaying, postponing their new launches. We have not seen any cancellation of new launches. So they are becoming more cautious going into the future. But this is also very much depending on the customers. We are seeing some of the customer which are accelerating their new launches in the next year because their policy is to react in the crisis with new innovative products which they wanted to introduce in 2009.

So for them it is very important to have somebody like AptarGroup to help them to do this. So it’s a very mixed message in the markets. It’s not for all customers the same.

Chris Manuel - KeyBanc Capital

So mostly the only place you are seeing delays is in beauty & home, or in the fragrance cosmetic. Are you seeing any curtailment to new product launches where they would have said they wanted 10 units and they are saying to cut that back to 7, or things of that nature as well?

Stephen J. Hagge

For the most part what they’re doing is in the fragrance area they are targeting those for the second half of the year. Right now the customers are saying they still want to stay with their initial volume requests.

And again, I think going back to Peter’s remark, it’s very critical for them not to sell, this is a way for them to stimulate their own business. We were looking at Proctor & Gamble’s conference call and they’re talking about getting new innovations is the way to keep their market shares. So it is a critical factor for a lot of our customers.

Chris Manuel - KeyBanc Capital

To tie up the overcapacity, in the near term issue, can you talk a bit about the actions you have taken in the last 60, 90, 120 days to adjust your capacity or your production more in line with what you are seeing in demand and how that’s going to improve as we work through the year, absent demand picking up on its own?

Peter H. Pfeiffer

We have temporarily closed some facilities in the area and we have reduced the personnel. Labor cost reduced. That was the initial step. Going forward, we are looking closely through our overall operations and looking at what we can do. As Steve has mentioned, we will not cut these operations to the bone because we want to keep flexibility.

Chris Manuel - KeyBanc Capital

I guess what I’m looking for is, absent demand picking back up or a restructuring announcement, why this overcapacity isn’t going to continue to plug you until the potential, as demand picks up, maybe third or fourth quarter of the year?

Stephen J. Hagge

We continue to take a look. We are reducing shifts, for example. We have reduced overtime, or stopped overtime in a lot of our operations.

The other big thing is we are bringing, where we were maybe subcontracting in certain parts of our business, we brought that back inside.

But, frankly, we do have a large fixed cost base and before we start cutting into that, which then could affect the service levels when the market rebounds, we want to make sure that it’s going to be a very sustained long-term drop. And today our customers aren’t telling us that.

Chris Manuel - KeyBanc Capital

On the pharma side of the business, thus far it’s held up very well. I was looking back at what I think were some of your comparisons, it looks like first quarter is a very tough comparison, as well as for the full year you had some tough comps. Do you think that pharma full year looks more, given the tough comps and maybe some discretionary component within there, do you think it can continue to grow or do you think it’s more of a potential flattish business for 2009?

Stephen J. Hagge

It’s a tough question because we have had very good growth, double-digit growth over 2007 and 2008. I still that the pharma business has some growth but probably come back to more historical growth levels that we were seeing which could be in that mid-single digit area.

Again, you pointed out, which I think is correct, the pharma business is not immune from the economic issues, it’s just not as significantly affected. So far we have not seen significant drop offs at our pharmaceutical backlog. But that’s a very difficult one to project what’s going to happen throughout the full year.

Operator

Your next question comes from Meggan Friedman - William Blair & Company.

Meggan Friedman - William Blair & Company

Could you elaborate a bit on the impact of mix on the pharma business? Is that drug-specific or is that category-specific, like branded versus generic versus OTC?

Stephen J. Hagge

It’s very broad. It’s hard to come back and comment on the total because what we’ve seen is in the mix area I think we were a little over 26% operating profit in the quarter, which is kind of within the lower end of our normal range between 25% and 30%. So it is different between some of our customer-to-customer basis and product-to-product. So it is not one specific product line that I could come back and comment on the mix.

Meggan Friedman - William Blair & Company

If we do end up seeing a trade down from prescription drugs to some of your OTC products, particularly on the allergy side, what does that do, generally, to margins?

Stephen J. Hagge

Actually that wouldn’t have a big impact on us. Our margins on our OTC products versus prescription are not significantly different and the potential benefit you get there is we may able to expand volumes.

So prescription today is restricted just because of the number of prescriptions. If something would go over-the-counter maybe what we would get is more volume coming out of that.

Meggan Friedman - William Blair & Company

Following up on the discussion about orders being delayed, can you talk about the balance sheet risks that you might face if some of those delays become cancellations?

Stephen J. Hagge

I’m not sure what you mean by balance sheet risks on that. Certainly right now, as you can see, the balance sheet is very strong. And I don’t see a major risk on, we’re not carrying any inventories or anything for any of those customers because of the delay.

Meggan Friedman - William Blair & Company

While we’re on the balance sheet, can you talk a little about your debt balance and what your plans are for cash?

Robert Kuhn

You can see that the cash balance in the quarter came down significantly from the third quarter. We were able to tax-effectively borrow $100.0 million from our European operations and we used that to pay down our existing short-term debt. So currently we have about a $200.0 million line of credit, of which we have had $25.0 million used at the end of the fourth quarter.

Looking into 2009, we only have $25.0 million of current maturities of long-term debt due, the biggest piece is a $21.0 million repayment in May.

Operator

Your next question comes from Mike Hamilton – RBC Capital.

Mike Hamilton – RBC Capital

Could you comment a little this cycle versus past on what you are seeing and getting anecdotally in terms of customer, obviously in the very near term we are seeing huge mix shifts as customers get much more price sensitive than what we’ve seen in recent times. Realizing that your customers takes the whole array and you have commented on where some of them are going with innovation, what is your sense broadly? Particularly when we get into emerging markets where the discretionary income gets even tighter.

Peter H. Pfeiffer

For us the emerging markets still are pretty strong. So the growth, especially in Brazil, in the past quarter was good. So we are not yet seeing the crisis spilling over to all of these emerging markets.

It is a special situation this time. We have never seen such a long crisis in the past. How the consumers and customers will react on that, it is not yet really clear. We are seeing in some areas people are still spending, in others they are cutting back their discretionary spending. So it’s a very mixed message and it’s very difficult for us to predict what is going to happen.

Stephen J. Hagge

But I do think, one of the other comparisons we have had in the past, kind of our traditional core business is more of a consumer staple, our personal care business, some of the food & beverage business. And while people may be trading down from a brand to, for example, a store brand, they still want the convenience and we still see our dispensing systems on even the store brands.

So I think that gives us a good base as we go forward in this. Certainly right now the biggest risk area for us is more the fragrance market. Our cosmetic market seems to be doing reasonably well. But the fragrance market in the short term is the one we are seeing the biggest volatility in.

Mike Hamilton – RBC Capital

You commented a little on the opportunities that come on this kind of market environment, what is your sense in the acquisition arena? What areas of your portfolio would you like to be able to address the most and to the degree that you are willing to comment, on what you think is happening in market shares. Feel free to comment there, too.

Peter H. Pfeiffer

Certainly the strong balance sheet of AptarGroup gives us some opportunities in these times. Some of our smaller competitors seem to have some financial difficulties and we are closely looking to use opportunities which are open now. So this for us is a good situation.

On the other hand it’s also the strong balance sheet also helps us in front of our customers. Many of our customers are looking to the financial strength of their suppliers, as we do also on our suppliers, which is very important in these difficult times, and we are seeing that our strong balance really is a competitive advantage today.

So it’s not only on the acquisition side that it is a plus, it’s also an advantage on the business side.

Mike Hamilton – RBC Capital

As you ponder the next three years of your business areas, where do you think we are going to see the most dynamic changes in market conditions and competitive conditions?

Stephen J. Hagge

That’s a tough question, I think, when you look at it. What we are doing is focusing kind of with our key customers and we do think that the key customers will continue to grow, even in this market. When you look at the acquisition front, we certainly are looking at a lot of potential pharmaceutical opportunities, as well as opportunities in the beauty & home and closure area.

What we’re really looking back over the next three years is to continue to do what we have done in the past, innovate new products, which we think will be able, from our standpoint, to be able to sustain the growth, and add to that on acquisitions that make sense.

Operator

Your next question comes from Greg Halter - Great Lakes Review.

Greg Halter - Great Lakes Review

I heard some brief comments about tooling, but did you give the dollar amount, either for the quarter or for the year in 2008?

Robert Kuhn

In the fourth quarter of 2008 tooling was about $20.0 million versus $23.5 million in the fourth quarter of 2007, so a decrease of $3.5 million. And year-to-date, tooling sales were about $66.4 million. That compares to about $59.4 million, so we had about a $7.0 million increase in the year.

Greg Halter - Great Lakes Review

Any kind of outlook you have for 2009, directionally?

Robert Kuhn

We don’t expect it to change dramatically year-over-year. We do have tooling project in the pipeline year-over-year but it’s very difficult for us to tell. Typically we’re not expecting that number to change dramatically.

Greg Halter - Great Lakes Review

Can you comment on what, if any, kind of price pressure you are seeing?

Peter H. Pfeiffer

With the reduced resin prices we are seeing some price pressure in our area, the fragrance cosmetic area, beauty & home area. We are in discussion with these customers. In the closure areas we are usually passing through the prices going up and going down so that is not a big issue for us.

In the other areas, we are trying to negotiate the prices. They are linking a little also with the reduced volumes which are asked from our customers so they are trying to keep the advantage of their reduced customer [inaudible] in our pockets.

Greg Halter - Great Lakes Review

And relative to resins and the costs there, can you explain what you see going forward relative to resin costs.

Stephen J. Hagge

That’s a tough question because frankly, we didn’t see the dramatic drop that occurred in December of this year. What we are hearing from the industry is that prices have got to come down quite a bit from where they were, certainly in the middle of 2008. Right now we are expecting more stability as opposed to continued price drops. At least that’s what we’re hearing from the market at the present time.

Greg Halter - Great Lakes Review

If you could comment on the quality of your receivables, that would be helpful, and if there are any large accounts in particular that you may be concerned about, or just large accounts in general.

Robert Kuhn

That is something that we take a very close look at, obviously due to the current economic environment. We’re keeping a close eye on the collection patterns and what not. But, no, we don’t have any significant identified risks that I would speak of today.

Greg Halter - Great Lakes Review

On the cash, I know you made some comment there. But just wondered if you could comment on where the cash is held and what it’s invested in currently and what kind of rate you are receiving?

Robert Kuhn

As has been in the past, most of our cash is held in Europe and most of the cash is invested in certificates of deposit or notes issued by very strong banks. We have seen the rates, in the fourth quarter, returns of about 5%. Those have been coming down towards the end of the quarter and we are expecting rates to decrease to about 2% to 2.5% in the first quarter.

Greg Halter - Great Lakes Review

I know you made some comments about M&A and so forth, but what are your thoughts, given this current credit environment that we’re in, on your maximum debt to either dollars or percentage of cap or to EBITDA or whatever measure you may look at?

Stephen J. Hagge

Everything is a bit changing in this market, as you are aware, but we have kind of tried to target that our balance sheet would stay investment-grade, assuming that we had publicly traded debt. In a rough number, that would give us debt to cap of about 50%, if you run the numbers that are just on the rating agencies. So if you run those numbers, given where we’re at today, there’s a lot of room for potential growth in that, giving us a lot of flexibility. So again, as I think Peter touched on in the acquisitions, we think the balance sheet will be a strong competitive advantage as we go through 2009 in the M&A area.

Greg Halter - Great Lakes Review

Can you repeat the new products that you talked about in beauty & home? There was Colgate and something else.

Peter H. Pfeiffer

There was a airless system which is used by one of our subsidiaries. It’s a piston system for the mass markets.

Greg Halter - Great Lakes Review

And Steve, you had mentioned something on the pinpoints for Neutrogena, L’Oreal, and someone else.

Stephen J. Hagge

Estee Lauder was the other one that we had, that are out there today. So it’s a new system that we introduced, primarily in 2008, and we are seeing growing enthusiasm. And I think the other key one for us is we have not gotten back into the dairy market through a non-dairy creamer for coffee, which is the first time we have been into that marketplace, so that opens up a whole new category for us.

Greg Halter - Great Lakes Review

I’m a little confused. You said you just got back into it or this is the first time ever.

Stephen J. Hagge

Of any substance, it’s the first time that we’ve gotten back into it in the U.S.

Greg Halter - Great Lakes Review

Any comment on how Simply Squeeze is doing?

Stephen J. Hagge

It continues to do well. If you look at a lot of our food/beverage market, a lot of the food/beverage, particularly the condiment, are using the valve system. So we are continuing to see growth in that area. So overall, it’s meeting expectations.

Operator

Your final question comes from Susan McCary - Granahan.

Susan McCary - Granahan

On the pharma business, when you talk about being a mid-single digit grower for 2009 is that excluding foreign currency? Or what is the foreign currency assumption there?

Stephen J. Hagge

It’s excluding foreign currency. So when we talk about growth, we’ve always tried to strip out the currency side.

Susan McCary - Granahan

Is that for the entire year for 2009 or is that just for the first quarter?

Stephen J. Hagge

Again, what we’re looking at is very difficult right now to see where the economic impact might be in the pharma so what we’ve planned on is kind of more moderate growth than we had in 2007 and 2008 so it’s more of a forward-looking issue.

Susan McCary - Granahan

Could you go into a bit more detail about the household market and personal care market within beauty & home, like what was strong, what was weak?

Stephen J. Hagge

I could give you a little on the household. We saw some weakness, particularly in some laundry product areas, which was probably the biggest area we saw the hit at. So we had some products there. On the personal care side it tended to be, there wasn’t one specific area we saw. Again, we had some very strong year-before areas in terms of body sprays for teenagers. Those seemed to stabilize in the market and maybe we’re not getting the same type of growth we had in those sectors going into 2009.

Offsetting that is the new bag-on-valve business that we got is doing very well where we’re getting quite a bit of growth in terms of sun care and those products seem to be going into the market with increasing shares.

Susan McCary - Granahan

You talked about your customers not cancelling new launches. I guess that was mostly in fragrance. And your customers saying they aren’t expecting a sustained downturn and that they are still committed to product development. Apart from what they are saying on conference calls, are you actually seeing them continue to be committed to product development? And I’m mostly thinking not fragrance.

Peter H. Pfeiffer

Yes. We are in close contact with these customers and they are working on several new product lines for them. Steve has already mentioned most of them, they will come out in the second half of the year 2009. They are very keen to introduce new products, innovative products. I talked recently with the L’Oreal people, they are looking forward in the next year to, they had very little new introductions in 2008, they are increasing their introductions in 2009, much more than in the past. They are trying to offset the downturn in the market by introducing attractive new products, basically.

Operator

There are no further questions in the queue.

Peter H. Pfeiffer

I would like to thank everyone for participating in today’s call.

Operator

This concludes today’s conference call.

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