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Executives

Matthew DellaMaria - Vice President, Investor Relations

Stephen Hagge - President and Chief Executive Officer

Robert Kuhn - Executive Vice President, Chief Financial Officer and Secretary

Analysts

Matt Wooden[ph] - Robert W. Baird

Christopher Manuel - Wells Fargo Securities

Earnie[ph] – Credit Suisse

Gregory Halter - Great Lakes Review

Ryan Sundby - William Blair & Company

Brian Gary Rafn - Morgan Dempsey

Todd Wenning – Morningstar

AptarGroup, Inc. (ATR) Q3 2012 Earnings Conference Call November 2, 2012 9:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup’s 2012 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) Introducing today’s conference call is Mr. Matt DellaMaria, Vice President, Investor Relations. Please go ahead, sir.

Matthew DellaMaria

Thank you, (Audio Gap) call with an overview of our quarterly performance. Bob will then discuss our financial results in greater detail, after which we’ll open it up for questions.

Information that will be discussed on today’s call includes some forward-looking comments. Actual results or outcomes could differ from those projected or contained in the forward-looking statements. Please refer to AptarGroup’s SEC filings to review factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements. We will post a replay of this conference call on our website. AptarGroup undertakes no obligation to update the forward-looking information contained therein.

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

Stephen Hagge

Thanks, Matt, and good morning, everyone. First of I would like to say our thoughts go out to the families who were affected by the terrible storm this week. I am sure many of you on the call today were impacted in some way and I want to thank you for making the effort to participate in today’s conference all. Thankfully, none of our people were harmed during the storm and none of our facilities were significantly damaged. We have 5 facilities in the region, all were affected by loss of power for a couple of days, and as of today 4 were back online and 1 is still waiting for power to be restored. Right now it’s too early to say what impact this will have on our business.

Yesterday we reported results for the third quarter. The consistent focus by our people on our customer end markets combined with the diversity of our business once again allowed us to achieve growth in a challenging environment. As anticipated, currency exchange rates continue to have a significant negative effect on our sales and earnings and we saw softness in selected markets. The softness is coming from certain customers remaining cautious given the current level of economic uncertainty and in some markets due to inventory management efforts. In spite of the challenges we continue to execute our strategy and we remain committed to investing in our research and development efforts. I remain encouraged by the good level of project dialog we are having with our customers across each of our segments.

Now looking at our segments performance for the quarter. Our Beauty & Home segment was negatively affected by the softness in the European beauty market, but this was offset by growth in the personal care markets. The beauty market is where we saw the most caution on the part of our customers in the quarter. However, project activity remains at a good level for our Beauty & Home products, and we participated in several new launches for our customers this quarter, which include Procter & Gamble’s new James Bond 007 Fragrance, which was introduced with our spray pump. Several new fragrance were equipped with our unique retro valve atomizer, including (inaudible) lily divine fragrance. In the personal care area, Guess brand introduced two men’s body deodorants in Europe using our spray systems and locking actuators. In the Home care market, the Glade brand’s fall collection of air fresheners are equipped with our twist to lock actuators.

Now, looking at our Pharma segment, demand for our nasal delivery devices from the prescription drug market increased over the prior year, but this growth was not enough to offset the decline in sales to the consumer and healthcare market, which was down principally due to softer demand from Eastern Europe. The fact that last year at this time our consumer healthcare business was growing at around 30%. We’re particularly pleased that our innovative dose indicator known as Landmark has been launched on two products since September. One of these being an asthma medication in Europe and the other an allergy medicine in the US. This is an exciting entry into the market with our patient friendly dose counting technology.

In the quarter, there were several interesting consumer healthcare launches which include various nasal moisturizing products using our nasal spray pumps in Europe and two ophthalmic product introductions, one in Switzerland and one in Argentina. We also include the results of Aptar Stelmi for the first time. Bob will go over the impact to their results in the quarter in his comments.

We are extremely pleased with the progress of Aptar Stelmi integration and the efforts of the combined team to make sure the business continues to grow uninterrupted. Our customer feedback has been very positive and the demand for Aptar Stelmi’s product has been strong throughout 2012. As we mentioned in the press release, volumes were up 9% in the third quarter compared to the prior year. We continue to be excited about the opportunities to grow this business.

Now turning to our food and beverage segment. Our food and beverage segment had a very good quarter. We are very pleased with the tremendous growth in the beverage market and this is on top of exceptional growth in the prior year. The beverage market is one that we had very little presence in only a couple of years and now with our market focused strategy we are penetrating new categories and have been growing even beyond our targeted growth rates for the past two years.

We continue to benefit from the success of major launches like Kraft Mio Water Flavoring, Tropicana’s new 89 ounce Kraft style package and with several isotonic beverage products around the global, including one of the leading sports drinks in China. In the quarter, growth in the beverage market was offset by some continued softness in the food markets. Our recent softness in the food market is primarily due to volume softness in the food industry and the losses on business in Salad Dressing market. I am happy to report that our Lincolnton facility continues to ramp up production and we’re encouraged by the new project activity for that facility.

Regarding a few new products launched this quarter, in the food market one of our pouch closures was chosen for a package for Agaga [ph] syrup in France, for Kraft’s Kenco instant coffee package was rolled out with our custom closure in Europe and in Latin America beverage market, our simply squeeze sports closure was chosen by Coke for their designed bottled water.

In a press release, we also announced the plan to optimize certain capacity in Europe. Due to increased production efficiencies and to better position the company for future growth in Europe, we will transfer and consolidate production capacity involving 12 facilities. Two of the related facilities are expected to close and this would impact approximately a 170 employees. The locations involved in the operation optimization plant are facilities that are serving the beauty, personal care, food, beverage, and consumer healthcare markets. These actions are part of our long term strategy intended to prepare us for future growth. We are benefitting from our continual investment in efficient production equipment and our ability to adapt to the changing needs of the markets we serve. In this instance, we look at product lines, supply chains and production capacity. We identified ways to streamline certain production technologies, reduce complexity for our people and our customers, and optimize our production footprint. This allows a more efficient deployment of capital to support our growth in Europe in the future.

As we look ahead to the fourth quarter, we expect further challenges in the fourth quarter, including continued currency exchange rate headwinds, ongoing softness in certain markets driven by economic uncertainties, and decreased demand for our prescription nasal spray pumps, mainly due to the generic allergy market having high levels of inventory at this time. It appears that the inventory management issue affecting our prescription nasal spray pumps is isolated to the fourth quarter. Nevertheless, we remain optimistic that our market focused approach will yield new applications for innovative dispensing device technologies and we look forward to new opportunities for growth.

Now, I will turn it over to Bob who will review our quarterly financial results in more detail.

Robert Kuhn

Thank you, Steve and good morning everyone. As announced in our press release on a constant currency basis and excluding the Aptar Stelmi acquisition, our core sales grew 2% in the third quarter. Aptar Stelmi added 4% to our sales growth. You may recall that our guidance for the third quarter had anticipated a $0.01 per share negative effect from Aptar Stelmi. However, after all the acquisition accounting adjustments were finalized, Aptar Stelmi’s result actually had a negative impact of $0.02 per share in the quarter.

Earnings were also negatively affected by changes in currency exchange rates. We estimate that the net negative impact from transaction and translation on earnings was approximately 7%. We reported earnings per share of $0.62 compared to $0.72 a year ago. If current exchange rates had been in place last year, we would have had reported $0.67 per share. Last year’s earnings per share also included a positive impact of $0.02 coming from a lower effective tax rate.

Turning to free cash flow which we define as cash flow from operations less capital expenditures, in the quarter we had a positive free cash flow of approximately $76 million compared to nearly $72 million a year ago. On a gross basis, debt-to-capital is about 22%, while on a net basis, it is roughly 14%. We were active in our share repurchase program once we exited the Aptar Stelmi transaction blackout period and we spent approximately $30.8 million to repurchase 610,000 shares in the quarter. We had approximately 2.8 million shares authorized for repurchase at the end of the third quarter.

The Board of Directors also declared a quarterly dividend of $0.22 per share payable on November 28th to shareholders record at the close of business on November 7th.

Turning to our business segments. Our Beauty & Home segments reported sales decreased 7% from the prior-year. Changes in currency exchange rates had a negative effect of 8%. Therefore, on a core basis, segment sales were up 1%. Looking at our markets on a constant currency basis, sales to the beauty market decreased 2% from the prior year, while sales to the personal care markets increased 6%. Sales to the Home care market decreased 14%, the most of that was related to lower tooling sales in the quarter.

Our Pharma segments reported sales increased 7%, but if we back out the impact of the Aptar Stelmi acquisition, which accounted for 18% of that growth, and we add back the negative impact coming from changes in exchange rates, we can see that our core sales declined 2% in the quarter. Looking at our markets on a constant currency basis, sales to the prescription market, excluding the Aptar Stelmi acquisition, increased 4%, while sales to the consumer healthcare market decreased 13%.

Our Food & Beverage segment reported sales growth of 12%. Currencies also had a negative impact of about 4%, therefore, core sales were up 16% over the prior-year. On a constant currency basis, sales to the beverage market were again very strong and were up 56% compared to the prior-year, while sales to the food market decreased 4%.

Looking at our year-to-date results. On a year-to-date core sales, excluding changes in currency rates and acquisitions, core sales increased 3% over the prior year. Aptar Stelmi added 1% to our year-to-date reported sales, but had a negative impact of $0.08 per share due to the transaction costs and the acquisition accounting adjustments required in the third quarter. For the first nine months of the year, we reported earnings per share of $1.86 compared to $2.08 a year ago. If this year’s exchange rates had been in place last year, we would have reported $1.95 per share. Prior year earnings per share also includes a positive impact of $0.04 from last year’s lower effective tax rate.

Just a few comments on our announced operations optimization plan. The charges related to the plant are expected to be approximately $18 million, of which $13 million will be cash costs and $5 million will be non-cash expenses. These amounts could change depending on changes in exchange rates. The charges will be recorded at the time they are recognized according to GAAP accounting rules. And annual savings are expected to be approximately $12 million and we expect to start seeing some impact from savings late next year.

Looking forward, presently we expect depreciation and amortization for 2012 to be in the area of $140 million with capital expenditures expected to be in the area of $180 million. I would like to point out that these amounts could vary depending on changes in exchange rates.

We currently anticipate that our full year tax rate will be between 33% and 34%. I would also like to point out that we expect currency headwinds to continue into the fourth quarter though with potentially less of an impact that we’ve seen in the third quarter. The average exchange rates for the euro to the US dollar in the fourth quarter of 2011 was 1.35, whereas recent spot rates have been around 1.29 and this was used for our forecast for the fourth quarter.

We currently estimate that diluted earnings per share for the fourth quarter of 2012 will be in the range of $0.53 to $0.58 per share, compared to $0.57 per share reported in the prior year fourth quarter, had today’s currency exchange rates been in place a year ago. We estimate that the prior year’s fourth quarter earnings per share would have been approximately $0.54 per share. Our fourth quarter earnings per share guidance does not include any potential impact from our announced European operations optimization plan.

At this time, Steve and I would be glad to answer any of your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Ghansham Panjabi from Robert W. Baird. Your question please.

Matt Wooden[ph] - Robert W. Baird

Good morning. This is Matt Wooden[ph] sitting in for Ghansham today. How are you? Did you guys comment on the inter-quarter trajectory of volumes, we’re just trying to figure out if the pace of sales was consistent month-to-month and any indication if this is continued, just one month in to the fourth quarter?

Stephen Hagge

No, we’re not going to – we can’t talk about the fourth quarter yet, but generally our sales were pretty consistent throughout the third quarter. We didn’t see any significant trend up or downwards, it was very very consistent month-to-month-to-month.

Matt Wooden[ph] - Robert W. Baird

And then on the inventory management issue, it is specific to one customer or what gives you confidence that the impact will be limited to the fourth quarter?

Stephen Hagge

A couple of things on that Matt. It comes up because, mostly to the generics here in the United States – comes from across a couple of different customers and it seems like they all of them have got sufficient inventories going in. Now, one of the things that gives us confidence that is the fourth quarter issues we’re already seeing orders being placed by these customers for first quarter delivery. So, it looks to be more of an inventory correction at year end rather than a sustained reduction in terms of their sales.

Matt Wooden - Robert W. Baird

And then lastly, have you guys quantified what’s included in your guidance for that inventory management issue?

Stephen Hagge

Again, we haven’t, there is not one specific number, it includes that the overall estimates that we’ve given you do include that.

Matt Wooden - Robert W. Baird

Okay, thank you.

Stephen Hagge

Thanks.

Operator

Thank you, our next question comes from the line of Christopher Manuel from Wells Fargo. Your question please.

Christopher Manuel - Wells Fargo Securities

Good morning gentleman. A couple of different questions here, first, when you think about --early thoughts about capital for ’13 and I know you are probably in the middle budget processes and things of that nature. One of the areas that you’ve seen a good bit of growth here still is that the Stelmi piece, and (inaudible) set up 9% in the quarter and I believe that was becoming relatively capacity constraint. As you think about 2013, is it reasonable to anticipate capital kind of stays the same and how quickly potentially could you get some capacity in place, can you just give maybe some update on where you stand with utilization rates with Stelmi and how quickly you could be able some capacity in line to continue to grow faster?

Stephen Hagge

Well, that is a good question Chris and as we talked about on the last call, with the significant double digit increase that we’re seeing at Stelmi in terms of sales, there is some capacity contraction right to our challenges, we’ve actually come back in place with some GAAP capacity increase orders that we’re going to be producing now and have to have in places we get into early 2013. So, overall I don’t think there is going to be at this point anything major that’s there, that’s more of the normal ongoing kind of, lets called it depreciation replacement cycle, but we’re actually trying to deal with that now, so we’re in place to deal with that as we go through the last part of this year and into next year.

Christopher Manuel - Wells Fargo Securities

Okay, so no thoughts as you said today to add an additional facility or anything then?

Stephen Hagge

Again, we’re going to continue to look at that and we’re with it being relatively area we’re still studying that as in the new facility would probably be targeted initially at the U.S, but we are not ready to make a determination what that timing of that would be.

Christopher Manuel - Wells Fargo Securities

Okay, that is helpful and then two other quick ones, one is on the European, the restructuring program. I think you talked about $13 million of savings in total. Is all of that essentially EBIT improvement or is some of that cash improvement coming from maybe working capital reductions or things of that nature that as you consolidate facilities and inventory things of that nature?

Stephen Hagge

You know the savings, we talked about the current exchange rate are above $12 million once the whole plan is put in place and that is going to take a period of time, but the majority of what we are looking there is EBIT improvement and there will be an addition to that some cash, some working capital improvements that we anticipate, but that is not in the number we’ve given here.

Christopher Manuel - Wells Fargo Securities

Okay, that is helpful and then the last question I had is as we look at and you kind of talked about this little in the earlier question I think from Matt, but when we think about the impact from the pharma pieces it likely then to be that we would anticipate a negative organic growth quarter out of pharma here in Q4, given this inventory issue or how is it, is there any way possible that we could kind of understand and maybe if this wasn’t there what she has been able to do or something – somehow we can get arms around to quantify it?

Stephen Hagge

It is a good question but it is difficult for me to answer, I mean I think even if you look at the third quarter one of the things we saw in the third quarter last year we had about a 15% pharma growth which was outside of our normal growth rate so as we look to the fourth quarter as you are talking about it, we’ve seen good generic growth and we anticipate that on a long term basis. But it is really difficult to just isolate what it would have done. I do think it is reasonable that we can have either flat to slightly down in terms of organic growth in the pharma segment as we get into the fourth with some of the inventory issues that we’re foreseeing now. Offsetting that, what I think, this is still a big positive is that we still are seeing margins for this business on our legacy pharma business still holding within that 25 to 30% area. In fact we were at almost 28% in the quarter and I think with Stelmi, we are looking at the margins being pretty much as we anticipated in the acquisition and our EBITDA margins also trending in the same way.

Christopher Manuel - Wells Fargo Securities

Okay, that is helpful. Good luck guys.

Stephen Hagge

Thanks.

Operator

Thank you, our next question comes from the line of Albert Kabili from Credit Suisse, your question please.

Earnie[ph] – Credit Suisse

Hi, it is actually Earnie[ph] here. First question, can you sort of give us the trends that you’ve seen across the regions Latin America, Asia and Europe and the U.S.?

Robert Kuhn

Sure, for the third quarter. Third quarter, similar to the second quarter was up slightly at 1%, Europe overall was down 3% compared to last year third quarter and as we talked about in the press release, Latin America and Asia were still strong. Latin America was up 14% and Asia was up 26% and again those are core sales growth and those do not include Stelmi activity.

Earnie[ph] – Credit Suisse

Okay and then just, a quick follow up. A competitor recently commented on some market share gains, I guess. How are you seeing your market share and how would characterize the level of competition in the market now?

Stephen Hagge

Again that is going to be very different across the segments. I think if you take a look at it from ours, overall we are confident we are continuing to be at work, gain market share in almost all of our markets, you can see that in the food beverage side as they continue to go through trend, the transaction cycle. In our beauty markets there has been some acquisition activity in that space and we at this point are confident that if anything we’ve actually gained some market share through some of those transition issues, so overall I’d say we’re positive in terms of where we at from a competitive positioning.

Earnie[ph] – Credit Suisse

Okay, that is helpful. Good luck in the quarter.

Operator

Thank you and ladies and gentle just as a reminder please limit yourself to two questions and one followup. Our next question comes from the line of Brian Rafn from Morgan Dempsey, your question please.

Brian Gary Rafn - Morgan Dempsey

Good morning Steve and good morning Bob. Give me a sense of what you guys are running, if you can kind of break up. I won’t ask capacity utilization, but how many shifts would be guys be running say in U.S. factories versus Europe, is it shift, shift and half or maybe what you running full time versus overtime in the two areas?

Stephen Hagge

I think in general side Brian if you look at it, we actually run 24 hours a day in most of our facilities. I’d say in the U.S. we tend to run 7 days a week while in Europe it may be 6 days in different times depending on the country and the regulatory environment, but given our equipment for the most part we are running a 24-hour per day basis at least on a 5-day a week base.

Brian Gary Rafn - Morgan Dempsey

Okay, how would you guys, well let’s say frame out the kind of the cosmetics perfume and watch your senses Christmas holiday 2012 versus say previous years?

Stephen Hagge

You know, overall I think our customers again we’ve set a pretty - I think cautious, they are not pessimistic at all and I think we can kind of split this businesses as we look going forward. One thing it’s important I think the diversity of our business has helped. As far as skin care business, these lotions, the anti-aging, those continue to do extremely well and frankly we saw strong growth even in the third quarter in that. The fragrance business we’re seeing new introduction and we would anticipate that kind of – the Christmas season would be probably up 1 to 2% at least what are customers are thinking, compared to where they were a year ago on a worldwide basis, but are not being down at all.

Brian Gary Rafn - Morgan Dempsey

Okay and then just one follow up Steve. With some retardancy in the Asian economy as European have in the banking crisis, things being kind of malaise. A lot of companies consumer prices are focusing on Latin South America. If you look at your product groups, what would be for Latin South America, would it be cosmetics, perfume, cleaners, is it a food and beverage market, what would be big market demanders in those areas by kind of like product line?

Stephen Hagge

Well the biggest one in Latin America for us in terms our business is in kind of the beauty business, both fragrance products as well as cosmetics. We tend to be the market leader there and by the way Brazil for example I think is the second largest producer of fragrance or beauty products in the world. So, that market and as Bob said continues to do well for us and it is growing at about 14%. One of the things we feel good about there is that, while today we have a strong beauty presence we are also now expanding in personal care. We are doing more in the food and beverage market and we are seeing more in the pharma market. So, we see kind of growth potential for the other segments, but our strength today is in the beauty side in Latin America.

Brian Gary Rafn - Morgan Dempsey

Thanks.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Gregory Halter from Great Lakes Review, your question please.

Gregory Halter - Great Lakes Review

Yeah, thank you. Hello, relative to the Stelmi costs on the P&L, were those primarily contained in cost to sales or not?

Robert Kuhn

Greg this is Bob, you’ve got the majority of that in cost of sales, you’ve got about $3.8 million that flushed through cost of sales, and that was on the write up of the inventory at the acquisition date and then the remainder is going to be in your depreciation and amortization of the write up to fixed assets and the intangibles.

Gregory Halter - Great Lakes Review

Alright and on the core basis, excluding Stelmi, just wondering how your receivables and inventory came out on a year-over-year basis, and I realize there is some currency issues in there as well, or currency impacts.

Robert Kuhn

And actually, it was pretty consistent with where we have been in terms of turns in inventory and AR, so actually we’ve made some improvements in both of those areas from a cash flow perspective, but generally we haven’t seen anything of concern stretching out longer collection periods or anything like that, if anything we’re making a stronger focus there.

Gregory Halter - Great Lakes Review

Alright and one last one for you. Just wanted to get your outlook on risen costs, both here in the U.S. and overseas.

Robert Kuhn

In general, I think if you look it with that kind of views, but less than we see it relatively flat, maybe a small uptick in the States and a small down turn in Europe, but again I think right now what we are seeing in the industry as it seems to be relatively flat on a worldwide basis.

Gregory Halter - Great Lakes Review

Thank you.

Robert Kuhn

Thanks Greg.

Operator

Thank you. Our next question comes from the line of Todd Wenning from Morningstar. Your question please.

Todd Wenning – Morningstar

Good morning everyone. Did you see any trends from the pharma companies from this quarter migrating from traditional delivery systems to (inaudible) this quarter?

Stephen Hagge

No, again I think in terms of one quarter those trends are really difficult for any of our pharma customers to go so they tend to be in delivery systems really for multi multi years, in fact right from the life of the product. So, what we have seen and I mentioned this, at sometimes I think we lose sight of it. One of the pluses is we’ve entered into a new market field this year for ophthalmics and we are starting to see more and more introduction, that is a very large volume potential for Aptar and you know we continue to see new customers entering new products with dispensing devices. So, that together with the land mark counting device that we’ve introduced gives us some more reach into those market places.

Todd Wenning – Morningstar

Great and then going into the fourth quarter do you see any change from your traditional sort of research and development spend as it relates to sales?

Stephen Hagge

No, in fact one of the things that we did and I think this is important as we look back at that 2008 – 2009 period Aptar continued to invest in the R&D and I think that bolstered very well as we got into ’10 and ’11 and here in to ’12. We continued to do the same, so as we look forward that commitment to the long term it is really that innovative part of our business is what makes us successful. We are going to continue to invest in that.

Todd Wenning – Morningstar

Great, thanks. Just a quick one on the dividend, was there any discussion about raising the pay off this quarter since you’ve been on $0.22 per share for more than a year now?

Stephen Hagge

We could, the board continues to look at that, we tend to look at our payout ratios in terms of where we are at. So, it’s a discussion at the Board and will then continue to evaluate it on a meeting by meeting basis.

Todd Wenning – Morningstar

Okay, great. Thanks so much guys.

Stephen Hagge

Thanks.

Operator

Thank you. Our next question is a follow-up question from the line of Brian Rafn from Morgan Dempsey, your question please.

Brian Gary Rafn - Morgan Dempsey

Yes, a question for you Steve. The Wall Street Journal had an article back a couple of weeks ago. It was not directly related perhaps to what you guys had talked about Kimberly Clarke, International Paper exiting Europe in tissues and diapers, and personal products, not maybe the gels, the shampoos, the stuff you guys do but the overall comment was the European consumers, it was really unprofitable to be there. How tough it has been in the Malays [ph] that we have seen with the Europeans from the different products that you would sell in that area?

Stephen Hagge

First of all, I think we have to come back and take a look at our products. If you look at the products we sell in the personal care market and kind of the food beverage, those tend to stay in Europe. So, that would be kind of a local type of product. I mean, that’s always been a challenging market, but I think we bring enough value add to the products we sell to be able to make those profitably. When you look at our beauty products, particularly the prestige beauty products, even though we show those as European sales because they are produced in France for example, those are really worldwide products and the introduction of those I think around the world. The packaging to those are actually critical to the success of the product. So, again, I wouldn’t tell you that they are easy markets, but certainly we have got no intention of exiting Europe. The European optimization plan that we’ve put in place, I think it will facilitate future growth in Europe as we make entries into new application fields in new areas throughout the system.

Brian Gary Rafn - Morgan Dempsey

Okay. You and I have chatted in the past and you have talked about Europe being really the driver in packing innovation, size, color, shapes, dispenser technologies. Given the kind of retarded economies, the Malays [ph] in Europe, has that innovation leadership at all suffered?

Stephen Hagge

I don’t know if it suffered, what I do see is some of the other regions starting to more and more catchup. So, if you look at Latin America for example, some of the things they are doing and some of the things in Asia, instead of Europe being the clear leader, I think they still have a lot of innovation but I would see the other regions now stepping up a little bit more and also trying to give more innovation around that.

Brian Gary Rafn - Morgan Dempsey

Okay. And then, we have all been certainly tired of the election stuff. Is there any pivot you think relative to either Obamacare going through or Obamacare being struck down relative to the long term development in the pharmaceutical drug areas in product launches, in new innovations, is the election either way going to have an effect in that area?

Stephen Hagge

I don’t think it has a short term impact, I think if you look at Obamacare long term, there is probably more – there will be more people getting back into the system which probably could have a net positive impact on us. But it’s really too hard to come back and give you specific to that Brian.

Brian Gary Rafn - Morgan Dempsey

Yes, okay. And then just one more. I am not going to ask you, Bob, but I will ask you, we’ve talked in the past – you guys don’t have a huge position in large pump dispensers, a little more of a commodity area. Have you done anything in that area at all or looked at acquisitions?

Stephen Hagge

Well, we’ve looked at that. We have actually introduced a large 4cc pump that we have now producing in Europe and we are selling to selected markets there. So, that’s a market that we are looking at but again we are being selective in terms where we go and not as much to the commodity marketplace.

Brian Gary Rafn - Morgan Dempsey

Okay. Thanks, Steve.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Jon Andersen from William Blair, your question please.

Ryan Sundby - William Blair & Company

Hi, it’s actually Ryan Sundby in for Jon.

Stephen Hagge

Hi Ryan.

Ryan Sundby - William Blair & Company

Hi, thanks for taking my question. From an expense standpoint, selling R&D and administrative expense declined pretty meaningfully on a sequential basis. I guess, despite whatever some expenses really due to stormy, could you guys maybe touch on some of the initiatives you have in place to help control costs? And then, how should we think about that line going forward? Thanks.

Robert Kuhn

I think one of the important things I want to point out is when you look at on a gross basis currency is obviously impacting that number. So, if I would have stripped out Stelmi and currency, we would have been relatively flat on an SG&A perspective quarter to quarter. We don’t have any one specific initiative that would tell you about but it is an area that we do continually try to focus on, we are trying to control hiring and non-essential type of travel, those types of things. It’s similar to what we did in the ’08, ’09 period. So, we are paying close attention to it, but you sometimes can get fooled on the face of the financials if you don’t strip out the currency side of that.

Ryan Sundby - William Blair & Company

Okay, got it. Thanks, guys.

Stephen Hagge

Thanks.

Operator

Thank you. This does conclude the question and answer session of today’s program. I would like to hand the program back to Mr. Steve Hagge.

Stephen Hagge

Again, we want to thank everybody for participating and look forward to talking to you next quarter.

Operator

Thank you ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

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