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West Pharmaceutical Services, Inc. (NYSEARCA:SIL)

Q2 2008 Earnings Call Transcript

August 5, 2008 9:00 am ET

Executives

Theresa Kelleher – IR, FD

Don Morel – Chairman and CEO

Bill Federici – VP and CFO

Analysts

Arnie Ursaner – CJS Securities

Jim Sidoti – Sidoti & Co.

Adam Blizzard [ph] – Lehman Brothers

Ross Taylor – CL King

Operator

Welcome to the West second quarter earnings conference call. At this time, all participants are in a listen only mode. (Operator instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the meeting over to Ms. Theresa Kelleher from FD. Ma'am, you may begin.

Theresa Kelleher

Thank you. Good morning, everyone, and welcome to the West second quarter 2008 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 FD 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 of the company 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 product, 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 condition. 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 result 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 10-K, 10-Q and 8-K 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 re-recorded or rebroadcast without the company's express permission. Your participation on this call implies to 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 floor over to Dr. Don Morel, Chairman and CEO.

Don Morel

Thank you, Theresa, and good morning, everyone. Welcome to West second quarter conference call. Thank you for joining us today. As Theresa mentioned, I'm joined this morning by our Chief Financial Officer, Bill Federici, and by Mike Anderson, our Treasurer and primary Investor Relations contact. As we’ve done in prior calls, I’ll begin with a brief summary of our consolidated results, provide an update on several key programs, and then review our guidance for the year. I will then turn the call over to Bill who will take you through our quarterly results in greater detail.

We are very satisfied with our overall performance during the quarter. Consolidated revenues grew 5.9% to $279.3 million. On a non-GAAP basis, excluding non-recurring items for comparison purposes, adjusted operating profit grew 7.2% to $37.4 million and earnings per diluted share grew to $0.73 versus $0.68 in the second quarter of 2007. Gross margin improved to 29.9%, a positive change of eight-tenths of a percent versus Q2 2007 despite the decline in sales of some high margin items.

Through the first six months of the year, adjusted earnings from continuing operation were $1.45 per diluted share, putting us in good position to achieve our performance targets for the year. Organic growth in key pharmaceutical system product lines coupled with the positive effects of foreign currency translation more than offset sales declines caused by the market exit of the Exubera insulin inhaler, more restrictive reimbursement criteria for erythropoietin stimulating agent or ESA drugs, the discontinuation of manufacturing of diagnostic components and other small shifts in our product mix.

Collectively, these issues created a shortfall of about $20 million in our Q2 revenue when compared with last year’s second quarter. In addition, despite lower revenues, the performance of the segment improved substantially due to strong demand for certain key products and an intense focus on controlling costs. Clearly, the big story for the first six months has been the substantial rise in the price of crude oil and the subsequent impact on energy costs on petroleum derived raw materials. We have worked aggressively to mitigate these cost increases on our profitability through a combination of SG&A spending controls, further efficiency in cost savings initiatives in our operations, price increases and raw material surcharges where appropriate.

While these initiatives will cover a significant percentage of the negative impact of higher energy and lost materials costs, the contractual lag with several large accounts and potential further price increases from vendors during the remainder of 2008 will have a moderate effect on our operating profit for the full year, primarily in north America. Our full year guidance includes our best estimate of the full year impact of these cost increases. We also continue to benefit significantly from our exposure to foreign currency, particularly the euro as more than half of our sales originate outside the North American market.

Turning to some important ongoing projects, we have maintained our investment plan in both our innovation programs and our IT platform upgrade to SAP in North America. We have completed Phase I of the SAP project on schedule and with budget. Phase II which is well underway focuses on a complete upgrade of our North America shopware systems and integration of these system with SAP at the manufacturing plant level. We expect the first plant to shift over to SAP in the fourth quarter.

On the innovation program front, I am pleased to report that we’ve launched the Daikyo Crystal Zenith silicone-free pre-fillable syringe during the second quarter. Sample requests from potential customers remain strong, especially within the biotech segment where the technical performance of CZ has well defined advantages over other packaging options. We’ve also entered into several customers funded R&D agreement for custom solutions and proprietary applications of CZ outside of traditional vials and syringes.

In terms of our expansion projects, construction in the new plastic facility in Kin-Ku [ph] China is in full swing. The foundation is being completed and work on the building structure is now well underway. We anticipate completion of the facility in early 2009 with manufacturing validation in the third quarter and commercial production shortly thereafter. In our Essweiler, German facility, the building for additional molding in Westar processing has been completed. Installation and validation of the manufacturing equipment is now underway and molding should begin in late Q4. The water system for Westar processing should be validated in early 2009 with commercial production starting shortly thereafter. I had the opportunity to tour the facility in early July and it really is quite impressive.

We have completed the installation of the compounding facility at our Kinston, North Carolina plant which will go into commercial operation during the third quarter, and we’ve begun the expansion of our Clearwater, Florida facility which produces aluminum overseal.

From an organization standpoint, Matt Mullarkey joined the company as Chief Operating Officer last week. Having previously worked in rubber manufacturing, supply chain and logistics and healthcare, Matt brings a broad base of experience in managing complex global operations to his position. Steve Ellers will continue as President of the company and in keeping with our succession planning gradually transition his operating responsibilities to Matt through the remainder of 2008. Steve will then continue to support our global expansion efforts, especially in China and India, in addition to working more closely with our partner Daikyo. He will also dedicate more time to identifying and analyzing new product technology and acquisition opportunities.

Looking ahead in the short term, many of the challenges previously discussed will remain with us till the end of the year. Specifically on the ESA front, although Amgen’s Q2 sales were a little stronger than forecast, we do not foresee any measurable improvement in the ESA related business this year for the following reasons. First, as you know, on July 30, the FDA mandated more restrictive labeling of Aranesp and Procrit for certain cancer patients which is expected to further limit volumes.

Second, our internal forecast indicates that customers that manufacture these products still have inventories of our products to work through. And finally, recent regulatory changes in both the US and the EU may lead to additional limits on reimbursement. We also expect to incur higher energy and raw material costs versus the first six months of the year. Thus our execution of lean programs and pricing actions to mitigate these increases will be critical in order to achieved our full year target.

And although our backlog remains very healthy, we continue to carefully monitor our customers’ order pattern. We have no doubt that they will aggressively manage their own inventories through the end of the year. Taking these considerations into account, we continue to forecast that full year adjusted earnings will fall in the range of $2.40 to $2.50 per share despite the challenging economic climate. However, on an adjusted basis, excluding the impact of lost sales form 2007, and the impact of currency translation, this will represent sales growth in excess of 7% for the full year and earnings growth of 15% right in line with our expectation.

Looking at the longer term, the fundamentals driving our growth remain intact and we believe we are well positioned to take full advantage of the primary drivers in our key market segments, both in terms of our global capacity and innovative new product launches.

With that, I’d like to turn it over to Bill for his comments on the financials. Bill?

Bill Federici

Thank you, Don, and good morning, everyone. As indicated in this morning's release, West reported second quarter 2008 income from continuing operations of $28.7 million or $0.82 per diluted share, including a net after-tax gain of $3.3 million for the combined effect of two items

a $4.2 million after-tax gain relating to an additional payment received from the contract settlement we reached with our customer Nektar with regard to the discontinuation of Pfizer’s Exubera, and a $900,000 after-tax restructuring charge incurred in connection with the Tech Group restructuring program we announced last December.

We expect to incur in the third and fourth quarters an additional $1.5 million to $2.5 million of charges to conclude our restructuring activities and an additional $3.5 million of Exubera facility charges while we reconfigure the facility to begin to produce other device products. As such, our ultimate gain on the Nektar contract settlement is expected to be approximately $4 million.

Excluding the $0.09 positive effect of these two items on our current period earnings, second quarter 2008 earnings from continuing operations were $0.73 per diluted share, compared to last year's second quarter operating earnings of $0.68 per diluted share, which included $0.06 of discrete tax benefits. Reported earnings in last year’s second quarter were $0.74 per diluted share. It is important to note that last year’s $0.68 second quarter included $20.2 million or $0.15 per diluted share of sales of the Exubera device, anemia drug components and disposable medical device components, products for which we have almost no associated 2008 revenues.

The company's consolidated sales in the quarter were $279.3 million, a 5.9% increase over second quarter 2007 sales. Excluding exchange effects, the consolidated sales declined by 0.9%, versus the prior year quarter. At $212.6 million, Pharma Systems segment second quarter sales were 12.3% above 2007 second quarter sales with 8.4 percentage points of the increase due to currency. The relatively modest growth was expected due to the $10 million impact of a decline in sales associated with the ESA drug situation that Don described, and with the discontinued production of certain disposable medical device components in Europe. That decline reduced year-over-year segment sales growth by 5.8 percentage points.

Excluding the effect of both the lost sales and currency translation gains, second quarter 2008 Pharma Systems sales grew 9.7% which is more in line with our longer term growth expectations. Sales on non-coated stoppers used in vial packaging for a variety of products, flip-off seals, and sales of the company’s safety and administration system products more than offset the expected sales decline in Pharma Systems.

The Tech Group segment generated sales of $69.6 million in the quarter, 4.9% below sales in the prior year quarter excluding exchange, largely due to lost Exubera sales. In the second quarter of 2007, sales of the Exubera device were $10.2 million. Sales of packaging for our customers’ OTC product also declined by $4.2 million from last year’s second quarter. Serving to partially offset these sales losses were increases in several specific customer products, including IV and blood filter products manufactured in our Michigan and Puerto Rico facilities, the SpoutPak closure for juice and dairy cartons, components used in an intranasal allergy product and an insulin pen.

Looking at margins, consolidated gross profit margins for the quarter were 29.9%, eight-tenths of a margin point better than the 29.1% margins we achieved in the second quarter of ‘07. This margin was achieved despite a nearly one point drop in consolidated gross margin attributable to the lost Nektar, anemia drug packaging, and disposable medical device sales. Gross margins in the Pharma Systems segment were 34.4%, one percentage point lower than last year's second quarter, with much of the decline due to lower margins in the North America unit. The margin decline primarily reflects a less favorable mix of sales, and increased raw material cost, direct manufacturing expenses and plant overhead costs in support of expanding manufacturing capacities.

In the Tech Group, margins increased over the prior year quarter by 2.4 margin points to 14.9%. The margins improvement was due to increased manufacturing efficiencies now that several of new product transitions have been completed, a decrease in plant overhead costs stemming from our manufacturing restructuring efforts, and increased activity within our tooling and engineering facilities. The cumulative effect of the margins improvement more than offset the impact of the loss of Exubera device revenues, which resulted in $3.3 million of Q2 2007 gross profits.

Consolidated SG&A expenses increased by $2.7 million or 7% in the current quarter versus the prior-year quarter. The net increase was due primarily to foreign currency translation, an increased compensation cost due to annual salary adjustments and severance obligations. Partially offsetting these increases were declines in stock based compensation expense, intangible asset amortization expense and pension expense.

As a percentage of sales, second quarter 2008 SG&A expenses were 14.6%, roughly on par with our second quarter 2007 levels. Net interest expense was 1.8 million higher than the 2007 second quarter expense mostly due to lower interest income as we had less cash on hand throughout the quarter than we did in last year’s second quarter when we had just competed our convertible debt offering. The effective tax rate for the quarter was 27.6%, which includes the taxes on our gain on the Nektar settlement. Our annual effective tax rate for 2008, excluding any discrete tax items, is currently estimated at approximately 27%.

Our balance sheet remains strong, and our business continues to provide necessary liquidity. The company's cash balance at June 30 was $102.3 million, down $6 million from year-end, primarily due to the payment of tax obligations in Brazil and increased working capital requirements. Cash flow from operations was $55.8 million in the quarter. Working capital totaled $264.9 million at June 30, approximately equal with last quarter and about $35 million higher than at year end.

Debt at June 30 was $398.2 million, and our net debt to total invested capital ratio at quarter end was 34.9%, 2 percentage points lower than at year-end. We incurred capital expenditures of $30.4 million in the second quarter, with the majority of the capital focused on new product and expansion activities, mostly for our Pharma Systems, North America, Europe and Asia capacity expansion, and our IP initiatives.

Looking ahead, our order backlog at June 30 remains healthy at $250 million, $11.9 million lower than our year-end backlog of $253 million, excluding exchange effects. We continue to expect full year sales of approximately $1.08 billion at actual exchange rates and consolidated gross margins are now expected to approximate 29.1% taking into account current raw material pricing.

We also continue to expect 2008 adjusted earnings per diluted share to be between $2.40 and $2.50. That estimate excludes restructuring costs, the gain on our contract settlement with Nektar, and assumes an average exchange rate of $1.50 per euro for the second half of the year. Included in our EPS estimate is the adverse impact versus 2007 results of $0.44 per diluted share representing the lost sales for Nektar, the anemia drug components, and disposable medical device components, partially offset by the full year expected favorable currency effect of the weak US dollar of $0.18 per share.

We also estimate that the adverse impact of higher raw material and energy costs at about $3 million or $0.06 per diluted share compared to where we started the year. That amount reflects the higher market price for underlying commodities such as oil, natural gas, mitigated by the effects of our purchasing agreement which actually delayed the effects of spot market commodity price changes, as well as our product pricing and lean activities. Adjusting for the lost sales and currency impacts would result in an increase in estimated year-over-year sales of 7% and EPS growth of 15%, both are in line with our longer term growth expectations.

We continue to expect that full year capital expenditures will be approximately $145 million at current exchange rates. We also expect that much of our capital will be expended for needed capacity for key products at multiple locations around the globe.

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

Don Morel

Thanks very much, Bill. This concludes our prepared remarks for this morning, and we'd now be pleased to answer any questions that you might have. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question is from Arnie Ursaner. You may ask your question and please state your company name.

Arnie Ursaner – CJS Securities

Hi, this is Arnie Ursaner, CJS Securities. Good morning.

Don Morel

Good morning, Arnie.

Arnie Ursaner – CJS Securities

Couple of questions if I can, can you quantify the losses you incurred in Q2 at Grand Rapids, please?

Bill Federici

Yes, Grand Rapids was actually breakeven for the quarter, in second quarter of ’08. And if you remember in the second quarter of ’07, we lost approximately 600,000 at Grand Rapids.

Arnie Ursaner – CJS Securities

That’s one of the key factors in the margins improvement in Tech Group?

Bill Federici

Yes, it is.

Arnie Ursaner – CJS Securities

Okay. You mentioned in your prepared remarks that you plan to reconfigure the facility that you have for Exubera for other devices, are these likely to be for the Tech Group or are they likely to be for the pharmaceutical side?

Don Morel

A combination of both. There will no doubt be some molding work done for third parties in the custom molding business but as CZ and some of the products come on line, we expect that molding capacity to go towards those items.

Arnie Ursaner – CJS Securities

Because in Tech Group you had some excess capacity, more than 50% or so operating rates, so I would have been surprised if you were expanding capacity for that.

Don Morel

No, it is more converting that facility into a clean room molding operation.

Arnie Ursaner – CJS Securities

Okay. In your pharmaceutical segment you mentioned 2.6 million increase in tooling development and lab services revenue, typically those are much lower margin revenue, can you comment on the impact you think you had in the quarter?

Bill Federici

Actually the impact was slightly positive versus the last year second quarter, Arnie. And if you remember last year, throughout the year in fact, we had some under absorption of the overheads coming out of that engineering group. So, we have done a better job of filling up the pipeline plus with our restructuring activities we took out some of the costs in that group.

Arnie Ursaner – CJS Securities

You mentioned in your prepared remarks that you saw a $0.06 hit to the year from higher raw materials embedded in the guidance, can you comment what the impact was in Q2, in other words is it $0.06 for the balance of the year or is it –

Bill Federici

Yes, it is $0.06 for the balance of the year. Through the first six months, we were able to offset most of the increases that we saw through lean pricing initiatives, mix, et cetera.

Arnie Ursaner – CJS Securities

Final question for Don, in your comments, you mentioned cost and inventory management policy is going to impact our near term results and the term you used is require our attention. Does that mean you are actually getting some price relief from your customers given your raw material costs?

Don Morel

Arnie, but the comment was more aimed at traditional things we see in the second half of the year. As you know, we’ve got a couple of key customers whose fiscal year end September 30, and as we work through the plant shutdowns in Europe and the end of the year, obviously, we keep a close eye on what our customers are doing, and it’s a little bit more difficult to predict than the first half of the year.

Arnie Ursaner – CJS Securities

I will jump back in queue and look forward to seeing you guys next week at our conference.

Don Morel

Thanks, Arnie.

Operator

Thank you. Jim Sidoti, you may ask your question and please state your company name.

Jim Sidoti – Sidoti & Co.

Good morning, it’s Jim Sidoti of Sidoti & Co.

Don Morel

Hi, Jim. Good morning.

Jim Sidoti – Sidoti & Co.

A quick question on the commodity pricing, is that something that you think gets worse in the back half of the year just because the inventory in the front half was what prior the rise – prior to the increase in oil prices?

Bill Federici

Partially, Jim, what – if you remember the way our contracts with our suppliers work, we have a series of – there are two major contracts, they have a series of price brakes built in where you don’t see an increase in the price of material coming to you until the cost of the underlying commodities go above certain bands. And what that does is it acts to help slow down the increases and we saw that throughout the first half of the year. We do expect to see them accelerate. We’ve had some fairly bullish increases in the underlying raw materials that are indexed to oil and natural gas. So, but we are also starting to see some of that come down now. It’s anybody’s guess, I am not a betting man in terms of where we expect those commodity prices to go in the future. What we have been able to do is included in that that $3 million (inaudible) is our best guess as to where we believe those prices are going. We do have right now built in the current pricing into those estimates.

Jim Sidoti – Sidoti & Co.

Okay. So, that was my next question, so you assume that oil for the back of the year stays in this $120 to $130 range?

Bill Federici

No, what we do is actually we have the oil coming down slightly in the back half of the year but again it’s a graduated thing.

Jim Sidoti – Sidoti & Co.

Okay. And then the price increases that you are pushing on your customers, do they all kick in in the quarter or are those things that start to kick in the back half of the year?

Don Morel

No, they will kick in largely in the back half of the year, Jim.

Jim Sidoti – Sidoti & Co.

Okay. So, that should help offset the increased cost?

Don Morel

Yes.

Bill Federici

And remember that $3 million is a net number. Okay, that’s net of what we believe we will be able to get through these price increases.

Jim Sidoti – Sidoti & Co.

Understood. Okay, thank you very much.

Bill Federici

Thank you, Jim.

Operator

Thank you. Adam Blizzard [ph], you may ask your question and please state your company name.

Adam Blizzard – Lehman Brothers

Lehman Brothers, good morning, guys.

Don Morel

Good morning, Adam.

Adam Blizzard – Lehman Brothers

I guess just following up on the last question, if you could comment maybe on the magnitude on the price increases that you are expecting?

Don Morel

It depends on rubber and aluminum price. You can tell probably in the low single digits to mid singles on average.

Bill Federici

And we try no to be very specific, Adam, as you can imagine.

Adam Blizzard – Lehman Brothers

Understood. I guess next question just kind of end of last year I think it was like four or five larger contracts that you renewed, I guess for the end of this year what should we be thinking about the larger customers that you guys need to get resolved?

Don Morel

Well, Adam, out of those five, we only have one that is still outstanding and the only reason that hasn’t been resolved is because of the spike that we’ve seen in the oil prices. So we are trying to work our way through the appropriate PPI as part of our agreement. To the best of my knowledge, we don’t have any contracts of the magnitude of the four that were renewed early this year and late last year coming up for renewal. There are some smaller ones that are in the kind of two to three year range, but nothing of the magnitude we faced over the last six to 12 months.

Adam Blizzard – Lehman Brothers

And those – remind me the ones last year, I think they were like three to seven year agreements on average?

Don Morel

There were a couple that were in the three to five year range and there was one that seven.

Adam Blizzard – Lehman Brothers

Okay. And then lastly I guess maybe over the three to six months, has anything changed in the acquisition environment for your guys or any interest in kind of expanding the platform?

Don Morel

A lot of interest in expanding the platform. There are some interesting opportunities out there. For us, it is the discipline around the valuations and the multiples we are willing to pay. We will see how it goes, but there are some interesting opportunities out there.

Adam Blizzard – Lehman Brothers

Thanks a lot, guys.

Don Morel

Thank you.

Operator

(Operator instructions) Our next question is from Ross Taylor, you may ask your question and please state you company name.

Ross Taylor – CL King

Hi, it is Ross Taylor with CL King.

Don Morel

Good morning, Ross.

Ross Taylor – CL King

Hi. Just a couple of questions, Don, in your remarks I think you said that you are not anticipating much change in demand for your products that are used with the anemia drug, is this a change in your expectation from the start of the year?

Don Morel

I think it shifted out a little bit. We thought we would see some return in the late third and early fourth quarter. But again that was a projection ahead of the mandated label change by the FDA. So, our expectation now is that any sales will be moderate till the end of the year and that will start to see that pick up again in ’09 although it will not return to the levels that we’ve seen prior to the warning.

Ross Taylor – CL King

Okay. And you also related to the resin CZ, can you give any feedback you’ve heard from customers, or just a little bit more color on kind of what you are seeing in the uptake or response from your customers?

Don Morel

I think the color is all positive. As you know, there are some technical issues with current glass syringes that the market is looking to overcome. The response that we’ve seen from the clients that have tested CZ is very, very positive. As you know with our systems, we eliminate the use of silicone oil, we don’t see the aggregation problems that are consummate [ph] with the use of silicone. Stability has been very, very good. There are filling trials underway and there are long term stability trials underway. So, from my vantage point, the response has been extraordinarily encouraging, and that’s on the traditional vial and syringe side. I think what’s more interesting is that over the last six months in the material option, we’ve seen some non traditional applications emerge for CZ which actually are covered by development agreements for us. So, the customer in effect for the proprietary work is footing all of the R&D costs. So, I would say very positive to date.

Ross Taylor – CL King

O, that’s helpful. And last question and I think you probably answered this already with some of your responses to the prior question but you assume oil prices basically say flat from here. I mean given the lag built into some of your purchasing contracts, when would you be through all the price increases you’d see from your vendors?

Bill Federici

That’s an interesting – good question. Ross, I think – let me just clarify one thing. I think we are seeing it already, number one, and we are expecting some (inaudible) into that estimate that we have, the $3 million net number. We are not expecting it to stay at the $129 I guess this morning or $120 something this morning wherever it ended up. With the way the contracts work on the supply side, again, we will have natural brakes built in. There are approximately I think there are a number of price increments that they could push on to us in the pricing. We’ll start to see those starting on August 1 and they will come depending on what happens going forward with the price of oil, we’ll determine how that goes. In terms of when do we expect to see the full pricing effect, my guess would be that it wouldn’t be at least till the end of this year before you would see the full effect.

Ross Taylor – CL King

Ok, all right. That’s helpful. Thanks very much.

Bill Federici

You are welcome.

Don Morel

And just remember, Ross, that part of that will be offset because we will have a series of price increases going through the end of the year with the contract that are covered by PPI and CPI adjusted. We haven’t seen those prices roll in now because they are under contract. The price increases have been largely due to accounts that are on an order to order basis.

Ross Taylor – CL King

Okay, that’s good point. Thanks

Don Morel

You are welcome.

Operator

At this time I am showing no further questions. I’d like to turn the call over to Don Morel.

Don Morel

Thank you very much, operator, and thanks to everyone for your time this morning. During the first half of the year, our performance has been very good despite the economic climate and the sales shortfalls in key products versus ‘07. And while the remainder of 2008, we’ll likely not see a dramatic change in the global economic conditions, we remain confident in our ability to deliver our projected full year results. Thank you again.

Operator

Thank you. This concludes today’s conference. Thank you for participating, you may disconnect at this time.

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