UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[x]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-11846

AptarGroup, Inc.

DELAWARE (State of Incorporation)		36-3853103 (I.R.S. Employer Identification No.)

475 WEST TERRA COTTA AVENUE, SUITE E, CRYSTAL LAKE, ILLINOIS 60014

815-477-0424

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act. (Check one):

Large accelerated filer þ                     Accelerated filer o                     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (July 19, 2007).

		Common Stock		68,709,444

AptarGroup, Inc.

Form 10-Q

Quarter Ended June 30, 2007

INDEX

Part I.		FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2007 and 2006			1
		Condensed Consolidated Balance Sheets -June 30, 2007 and December 31, 2006			2
		Condensed Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 2007 and 2006			4
		Notes to Condensed Consolidated Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			20
Item 4.		Controls and Procedures			20
Part II.		OTHER INFORMATION
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			21
Item 4.		Submission of Matters to a Vote of Security Holders			21
Item 6.		Exhibits			21
		Signature			22
Section 302 Certification
Section 302 Certification
Section 906 Certification
Section 906 Certification

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

In thousands, except per share amounts

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Net Sales		$	472,876			$	398,625			$	922,717			$	774,093
Operating Expenses:
Cost of sales (exclusive of depreciation shown below)			318,595				268,518				618,855				522,304
Selling, research & development and administrative			65,805				58,087				139,530				120,457
Depreciation and amortization			30,944				28,250				60,181				55,163
			415,344				354,855				818,566				697,924
Operating Income			57,532				43,770				104,151				76,169
Other Income (Expense):
Interest expense			(4,612	)			(3,897	)			(9,455	)			(7,707	)
Interest income			1,756				830				3,378				1,741
Equity in results of affiliates			111				137				268				243
Minority interests			1				(86	)			18				(132	)
Miscellaneous, net			(820	)			(422	)			(1,210	)			(935	)
			(3,564	)			(3,438	)			(7,001	)			(6,790	)
Income Before Income Taxes			53,968				40,332				97,150				69,379
Provision for Income Taxes			17,000				12,664				30,602				21,901
Net Income		$	36,968			$	27,668			$	66,548			$	47,478
Net Income Per Common Share:
Basic		$	0.54			$	0.39			$	0.96			$	0.68
Diluted		$	0.52			$	0.39			$	0.93			$	0.66
Average Number of Shares Outstanding:
Basic			69,037				70,078				69,113				70,114
Diluted			71,443				71,722				71,886				72,378
Dividends Declared Per Common Share		$	0.13			$	0.10			$	0.24			$	0.20

See accompanying notes to condensed consolidated financial statements.

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

In thousands, except per share amounts

		June 30,				December 31,
		2007				2006
Assets
Current Assets:
Cash and equivalents	$		195,223			$	170,576
Accounts and notes receivable, less allowance for doubtful accounts of $11,406 in 2007 and $10,963 in 2006			380,144				320,969
Inventories, net			258,464				226,455
Prepaid expenses and other current assets			60,500				44,820
			894,331				762,820
Property, Plant and Equipment:
Buildings and improvements			248,885				236,743
Machinery and equipment			1,284,054				1,212,386
			1,532,939				1,449,129
Less: Accumulated depreciation			(944,948	)			(872,241	)
			587,991				576,888
Land			14,648				14,189
			602,639				591,077
Other Assets:
Investments in affiliates			3,578				3,388
Goodwill			214,059				207,882
Intangible assets, net			18,430				19,820
Other non-current assets			4,280				7,025
			240,347				238,115
Total Assets	$		1,737,317			$	1,592,012

See accompanying notes to condensed consolidated financial statements.

AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

In thousands, except per share amounts

		June 30,				December 31,
		2007				2006
Liabilities and Stockholders’ Equity
Current Liabilities:
Notes payable	$		152,353			$	100,583
Current maturities of long-term obligations			26,447				26,841
Accounts payable and accrued liabilities			318,962				272,761
			497,762				400,185
Long-Term Obligations			146,479				168,877
Deferred Liabilities and Other:
Deferred income taxes			32,245				33,741
Retirement and deferred compensation plans			44,231				40,134
Deferred and other non-current liabilities			8,040				2,112
Commitments and contingencies			—				—
Minority interests			553				563
			85,069				76,550
Stockholders’ Equity:
Preferred stock, $.01 par value, 1 million shares authorized, none outstanding			—				—
Common stock, $.01 par value			789				392
Capital in excess of par value			217,265				195,343
Retained earnings			893,211				844,921
Accumulated other comprehensive income			134,872				109,505
Less treasury stock at cost, 10.2 and 9.3 million shares as of June 30, 2007 and December 31, 2006			(238,130	)			(203,761	)
			1,008,007				946,400
Total Liabilities and Stockholders’ Equity	$		1,737,317			$	1,592,012

See accompanying notes to condensed consolidated financial statements.

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

In thousands, brackets denote cash outflows

Six Months Ended June 30,		2007				2006
Cash Flows From Operating Activities:
Net income	$		66,548		$		47,478
Adjustments to reconcile net income to net cash provided by operations:
Depreciation			57,993				53,506
Amortization			2,188				1,657
Stock option based compensation			10,840				9,255
Provision for bad debts			621				891
Labor redeployment			(233	)			(558	)
Minority interests			(18	)			132
Deferred income taxes			(5,168	)			(4,202	)
Retirement and deferred compensation plans			2,380				2,196
Equity in results of affiliates in excess of cash distributions received			(268	)			(195	)
Changes in balance sheet items, excluding effects from foreign currency adjustments:
Accounts receivable			(49,955	)			(37,481	)
Inventories			(26,096	)			(12,690	)
Prepaid and other current assets			(5,335	)			(2,840	)
Accounts payable and accrued liabilities			32,916				14,871
Income taxes payable			7,296				5,458
Other changes, net			(1,470	)			(82	)
Net Cash Provided by Operations			92,239				77,396
Cash Flows From Investing Activities:
Capital expenditures			(56,198	)			(55,106	)
Disposition of property and equipment			813				5,146
Intangible assets acquired			(506	)			(1,924	)
Acquisition of businesses			(5,151	)			(21,315	)
Collection of notes receivable, net			93				199
Net Cash Used by Investing Activities			(60,949	)			(73,000	)
Cash Flows From Financing Activities:
Proceeds from notes payable			51,478				19,055
Proceeds from long-term obligations			—				4,642
Repayments of long-term obligations			(23,000	)			(6,639	)
Dividends paid			(16,603	)			(14,030	)
Proceeds from stock options exercises			10,919				9,817
Purchase of treasury stock			(37,122	)			(22,672	)
Excess tax benefit from exercise of stock options			2,774				1,052
Net Cash Used by Financing Activities			(11,554	)			(8,775	)
Effect of Exchange Rate Changes on Cash			4,911				8,640
Net Increase in Cash and Equivalents			24,647				4,261
Cash and Equivalents at Beginning of Period			170,576				117,635
Cash and Equivalents at End of Period	$		195,223		$		121,897
Supplemental Non-cash Financing Activities:
Capital lease obligations	$		—				1,780

See accompanying notes to condensed consolidated financial statements.

AptarGroup, Inc.

Notes to Condensed Consolidated Financial Statements

(Amounts in Thousands, Except per Share Amounts, or Otherwise Indicated)

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of AptarGroup, Inc. and its subsidiaries. The terms “AptarGroup” or “Company” as used herein refer to AptarGroup, Inc. and its subsidiaries.

     In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of consolidated financial position, results of operations, and cash flows for the interim periods presented. The accompanying unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Accordingly, these unaudited consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.

     Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) 123(R), “Share-Based Payment”. This statement replaces SFAS 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion (“APB”) 25. SFAS 123(R) requires that all share-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. Also under the new standard, excess tax benefits related to issuance of equity instruments under share-based payment arrangements are considered financing instead of operating cash flow activities. The Company has adopted the modified prospective method of applying SFAS 123(R), which requires the recognition of compensation expense on a prospective basis.

     Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Income Tax Uncertainty in Income Taxes” (“FIN 48”). As a result of the implementation of FIN 48, the Company recognized a $1.6 million increase in the liability for income tax uncertainties. The increase was accounted for as a reduction to the January 1, 2007 balance of retained earnings, as required by FIN 48.

NOTE 2 - INVENTORIES

At June 30, 2007 and December 31, 2006, approximately 20% and 21%, respectively, of the total inventories are accounted for by using the LIFO method. Inventories, by component net of reserves, consisted of:

		June 30,				December 31,
		2007				2006
Raw materials		$	92,586			$	84,470
Work in progress			61,940				49,377
Finished goods			107,458				95,403
Total			261,984				229,250
Less LIFO Reserve			(3,520	)			(2,795	)
Total		$	258,464			$	226,455

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill since the year ended December 31, 2006 are as follows by reporting segment:

		Pharma			Beauty & Home					Closures				Total
Balance as of December 31, 2006		$	23,158			$	148,073			$	36,651			$	207,882
Acquisitions (See Note 11)			—				3,472				—				3,472
Foreign currency exchange effects			539				1,597				569				2,705
Balance as of June 30, 2007		$	23,697			$	153,142			$	37,220			$	214,059

The table below shows a summary of intangible assets as of June 30, 2007 and December 31, 2006.

						June 30, 2007												December 31, 2006
Weighted Average						Gross												Gross
Amortization						Carrying				Accumulated				Net				Carrying				Accumulated				Net
Period (Years)						Amount				Amortization				Value				Amount				Amortization				Value
Amortized intangible assets:
Patents			14			$	17,793			$	(10,672	)		$	7,121			$	17,267			$	(9,750	)		$	7,517
License agreements and other			8				21,864				(10,555	)			11,309				21,196				(8,893	)			12,303
Total intangible assets						$	39,657			$	(21,227	)		$	18,430			$	38,463			$	(18,643	)		$	19,820

     Aggregate amortization expense for the intangible assets above for the quarters ended June 30, 2007 and 2006 was $1,114 and $866, respectively. Aggregate amortization expense for the intangible assets above for the six months ended June 30, 2007 and June 30, 2006 was $2,188 and $1,657, respectively.

Estimated amortization expense for the years ending December 31 is as follows:

2007		$	4,257
2008			4,059
2009			3,394
2010			2,687
2011			1,087

     Future amortization expense may fluctuate depending on changes in foreign currency rates. The estimates for amortization expense noted above are based upon foreign exchange rates as of June 30, 2007.

NOTE 4 – TOTAL COMPREHENSIVE INCOME

AptarGroup’s total comprehensive income was as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Net income		$	36,968			$	27,668			$	66,548			$	47,478
Add: Foreign currency translation adjustments			14,541				42,678				25,383				60,287
Net gain/loss on derivatives (net of tax)			(85	)			—				(81	)			—
Pension liability adjustment (net of tax)			(33	)			—				64				(19	)
Total comprehensive income		$	51,391			$	70,346			$	91,914			$	107,746

NOTE 5 – RETIREMENT AND DEFERRED COMPENSATION PLANS

Components of Net Periodic Benefit Cost:

Three months ended June 30,

		Domestic Plans								Foreign Plans
		2007				2006				2007				2006
Service cost		$	947			$	987			$	385			$	344
Interest cost			772				661				416				348
Expected return on plan assets			(668	)			(604	)			(180	)			(146	)
Amortization of prior service cost			1				1				(50	)			18
Amortization of net loss			161				151				194				149
Net periodic benefit cost		$	1,213			$	1,196			$	765			$	713

Six months ended June 30,

		Domestic Plans								Foreign Plans
		2007				2006				2007				2006
Service cost		$	1,924			$	1,974			$	768			$	673
Interest cost			1,510				1,322				819				682
Expected return on plan assets			(1,355	)			(1,208	)			(352	)			(285	)
Amortization of prior service cost			2				2				33				36
Amortization of net loss			180				302				252				294
Net periodic benefit cost		$	2,261			$	2,392			$	1,520			$	1,400

EMPLOYER CONTRIBUTIONS

The Company previously disclosed in its financial statements for the year ended December 31, 2006, that it expected to contribute approximately $1 million to its domestic defined benefit plans and approximately $1.9 million to its foreign defined benefit plans in 2007. As of June 30, 2007, the Company has contributed approximately $0.7 million to its foreign plans and has not yet contributed to its domestic plans.

NOTE 6 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company maintains a foreign exchange risk management policy designed to establish a framework to protect the value of the Company’s non-functional denominated transactions from adverse changes in exchange rates. Sales of the Company’s products can be denominated in a currency different from the currency in which the related costs to produce the product are denominated. Changes in exchange rates on such inter-country sales impact the Company’s results of operations. The Company’s policy is not to engage in speculative foreign currency hedging activities, but to minimize its net foreign currency transaction exposure defined as firm commitments and transactions recorded and denominated in currencies other than the functional currency. The Company may use foreign currency forward exchange contracts, options and cross currency swaps to hedge these risks.

     The Company maintains an interest rate risk management strategy to minimize significant, unanticipated earnings fluctuations that may arise from volatility in interest rates.

     For derivative instruments designated as hedges, the Company formally documents the nature and relationships between the hedging instruments and the hedged items, as well as the risk management objectives, strategies for undertaking the various hedge transactions, and the method of assessing hedge effectiveness. Additionally, in order to designate any derivative instrument as a hedge of an anticipated transaction, the significant characteristics and expected terms of any anticipated transaction must be specifically identified, and it must be probable that the anticipated transaction will occur.

FAIR VALUE HEDGES

The Company has an interest rate swap to convert a portion of its fixed-rate debt into variable-rate debt. Under the interest rate swap contract, the Company exchanges, at specified intervals, the difference between fixed-rate and floating-rate amounts, which is calculated based on an agreed upon notional amount.

     As of June 30, 2007, the Company recorded the fair value of derivative instrument of $0.6 million in other non-current assets with a corresponding increase to debt related to the fixed-to-variable interest rate swap agreement with a notional principal value of $20 million. No gain or loss related to the change in fair value was recorded in the income statement for the three and six months ended June 30, 2007 or 2006 as any hedge ineffectiveness for the period was immaterial.

CASH FLOW HEDGES

As of June 30, 2007, the Company had one foreign currency cash flow hedge. A French entity of AptarGroup, AptarGroup Holding SAS, has hedged the risk of variability in Euro equivalent associated with the cash flows of an intercompany loan granted in Brazilian Real. The forward contracts utilized were designated as a hedge of the changes in the cash flows relating to the changes in foreign currency rates relating to the loan and related forecasted interest. The notional amount of the foreign currency forward contracts utilized to hedge cash flow exposure was 6.7 million Brazilian Real ($3.5 million) as of June 30, 2007. There were no foreign currency forward contracts utilized to hedge cash flow exposures as of June 30, 2006.

     During the six months ended June 30, 2007, the Company did not recognize any net gain (loss) as any hedge ineffectiveness for the period was immaterial, and the Company did not recognize any net gain (loss) related to the portion of the hedging instrument excluded from the assessment of hedge effectiveness. The Company’s foreign currency forward contracts hedge forecasted transactions for approximately five years (March 2012).

HEDGE OF NET INVESTMENTS IN FOREIGN OPERATIONS

A significant number of the Company’s operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of the Company’s foreign entities. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on the Company’s financial condition and results of operations. Conversely, a weakening U.S. dollar has an additive effect. The Company in some cases maintains debt in these subsidiaries to offset the net asset exposure. The Company does not otherwise actively manage this risk using derivative financial instruments. In the event the Company plans on a full or partial liquidation of any of its foreign subsidiaries where the Company’s net investment is likely to be monetized, the Company will consider hedging the currency exposure associated with such a transaction.

OTHER

As of June 30, 2007, the Company recorded the fair value of foreign currency forward exchange contracts of $0.2 million in accounts payable and accrued liabilities and $2.2 million in deferred and other non-current liabilities in the balance sheet. All forward exchange contracts outstanding as of June 30, 2007 had an aggregate contract amount of $84.6 million.

NOTE 7 – COMMITMENTS AND CONTINGENCIES

The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. Management believes the resolution of these claims and lawsuits will not have a material adverse or positive effect on the Company’s financial position, results of operations or cash flow.

     Under its Certificate of Incorporation, the Company has agreed to indemnify its officers and directors for certain events or occurrences while the officer or director is, or was serving, at its request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers liability insurance policy that covers a portion of its exposure. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of June 30, 2007.

NOTE 8 – STOCK REPURCHASE PROGRAM

During the quarter ended June 30, 2007, the Company repurchased 680 thousand shares for an aggregate amount of $25.2 million. As of June 30, 2007, the Company has outstanding authorizations to repurchase up to approximately 3 million shares. The timing of and total amount expended for the share repurchase depends upon market conditions.

NOTE 9 – EARNINGS PER SHARE

AptarGroup’s authorized common stock consists of 99 million shares, having a par value of $.01 each. Information related to the calculation of earnings per share is as follows:

						Three months ended
	June 30, 2007								June 30, 2006
		Diluted				Basic				Diluted				Basic
Consolidated operations
Income available to common stockholders	$		36,968		$		36,968		$		27,668		$		27,668
Average equivalent shares
Shares of common stock			69,037				69,037				70,078				70,078
Effect of dilutive stock based compensation
Stock options			2,401				—				1,642				—
Restricted stock			5				—				2				—
Total average equivalent shares			71,443				69,037				71,722				70,078
Net income per share	$		0.52		$		0.54		$		0.39		$		0.39

		Six months ended
		June 30, 2007								June 30, 2006
		Diluted				Basic				Diluted				Basic
Consolidated operations
Income available to common stockholders		$	66,548			$	66,548			$	47,478			$	47,478
Average equivalent shares
Shares of common stock			69,113				69,113				70,114				70,114
Effect of dilutive stock based compensation
Stock options			2,764				—				2,258				—
Restricted stock			9				—				6				—
Total average equivalent shares			71,886				69,113				72,378				70,114
Net income per share		$	0.93			$	0.96			$	0.66			$	0.68

NOTE 10 – SEGMENT INFORMATION

The Company operates in the packaging components industry, which includes the development, manufacture and sale of consumer product dispensing systems. The Company is organized into three reporting segments. Operations that sell spray and lotion dispensing systems primarily to the personal care, fragrance/cosmetic and household markets form the Beauty & Home segment. Operations that sell dispensing systems to the pharmaceutical market form the Pharma segment. Operations that sell closures to each market served by AptarGroup form the Closures segment.

     The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The Company evaluates performance of its business segments and allocates resources based upon earnings before interest expense in excess of interest income, stock option and corporate expenses, income taxes and unusual items (collectively referred to as “Segment Income”).

Financial information regarding the Company’s reportable segments is shown below:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Total Sales:
Beauty & Home		$	253,030			$	211,113			$	497,426			$	409,035
Closures			122,102				109,731				242,563				215,460
Pharma			101,275				81,686				189,219				156,643
Other			385				386				701				612
Total Sales			476,792				402,916				929,909				781,750
Less: Intersegment Sales:
Beauty & Home		$	2,844			$	3,530			$	5,282			$	6,144
Closures			570				289				1,050				530
Pharma			118				225				161				568
Other			384				247				699				415
Total Intersegment Sales		$	3,916			$	4,291			$	7,192			$	7,657
Net Sales:
Beauty & Home		$	250,186			$	207,583			$	492,144			$	402,891
Closures			121,532				109,442				241,513				214,930
Pharma			101,157				81,461				189,058				156,075
Other			1				139				2				197
Net Sales		$	472,876			$	398,625			$	922,717			$	774,093
Segment Income:
Beauty & Home		$	26,443			$	19,752			$	52,575			$	36,385
Closures			13,363				12,186				27,344				22,723
Pharma			26,356				19,848				49,038				36,911
Corporate Expenses & Other			(9,338	)			(8,387	)			(25,730	)			(20,674	)
Income before interest and taxes		$	56,824			$	43,399			$	103,227			$	75,345
Interest expense, net			(2,856	)			(3,067	)			(6,077	)			(5,966	)
Income before income taxes		$	53,968			$	40,332			$	97,150			$	69,379

NOTE 11 – ACQUISITIONS

On February 15, 2007 the Company acquired Moderne Verpackungssysteme GmbH (“MVS”) for approximately $5.2 million in cash. No debt was assumed in the transaction. MVS, located in Germany, is a supplier of bag-on-valve assembled products.

The excess of the purchase price over the fair valve of assets acquired and liabilities assumed was allocated to Goodwill. Goodwill of approximately $3.5 million was recorded on the acquisition. The condensed consolidated statement of income includes MVS’ results of operations from February 15, 2007, the date of the acquisition and is part of the Beauty and Home reporting segment.

NOTE 12 – STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) 123(R), “Share-Based Payment”. This statement replaced SFAS 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion (“APB”) 25. SFAS 123(R) requires that all share-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. Also under the new standard, excess tax benefits related to issuance of equity instruments under share-based payment arrangements are considered financing instead of operating cash flow activities. The Company has adopted the modified prospective method of applying SFAS 123(R), which requires the recognition of compensation expense on a prospective basis. Accordingly, prior period financial statements have not been restated.

     SFAS 123(R) upon adoption requires the application of the non-substantive vesting approach which means that an award is fully vested when the employee’s retention of the award is no longer contingent on providing subsequent service. Under this approach, compensation costs are recognized over the requisite service period of the award instead of ratably over the vesting period stated in the grant. As such, costs would be recognized immediately, if the employee is retirement eligible on the date of grant or over the period from the date of grant until retirement eligibility if retirement eligibility is reached before the end of the vesting period stated in the grant. For awards granted prior to adoption, the Company will continue to recognize compensation costs ratably over the vesting period with accelerated recognition of the unvested portion upon actual retirement.

     The Company issues stock options and restricted stock units to employees under Stock Awards Plans approved by shareholders. Stock options are issued to non-employee directors for their services as directors under Director Stock Option Plans approved by shareholders. Options are awarded with the exercise price equal to the market price on the date of grant and generally become exercisable over three years and expire 10 years after grant. Restricted stock units generally vest over three years.

     Compensation expense recorded attributable to stock options for the first half of 2007 was approximately $10.8 million ($7.6 million after tax), or $0.11 per share (basic and diluted). The income tax benefit related to this compensation expense was approximately $3.3 million. Approximately $10.2 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales. Compensation expense recorded attributable to stock options for the first half of 2006 was approximately $9.2 million ($6.0 million after tax), or $.09 per share (basic and diluted). The income tax benefit related to this compensation expense was approximately $3.2 million. Approximately $8.7 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.

     The Company uses historical data to estimate expected life and volatility. The weighted-average fair value of stock options granted under the Stock Awards Plans was $9.32 and $8.05 per share in 2007 and 2006, respectively. These values were estimated on the respective dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

     

Stock Awards Plans:
Six months ended June 30,		2007				2006
Dividend Yield			1.4	%			1.6	%
Expected Stock Price Volatility			24.6	%			24.8	%
Risk-free Interest Rate			4.8	%			4.3	%
Expected Life of Option (years)			7.0				7.0

There have been no grants under the Director Stock Option Plan during the second quarter of 2007. The fair value of stock options granted under the Director Stock Option Plans in 2006 was $8.63 per share. These values were estimated on the respective date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

Director Stock Option Plans:
Six months ended June 30,		2007				2006
Dividend Yield			—				1.5	%
Expected Stock Price Volatility			—				24.8	%
Risk-free Interest Rate			—				5.1	%
Expected Life of Option (years)			—				7.0

A summary of option activity under the Company’s stock option plans as of June 30, 2007, and changes during the period then ended is presented below:

 

		Stock Awards Plans								Director Stock Option Plans
						Weighted Average								Weighted Average
		Shares				Exercise Price				Shares				Exercise Price
Outstanding, January 1, 2007			7,327,874			$	18.70				220,000			$	20.68
Granted			1,249,500				30.49				—				—
Exercised			(668,048	)			14.37				(54,000	)			13.77
Forfeited or expired			(11,266	)			23.00				—				—
Outstanding at June 30, 2007			7,898,060			$	20.92				166,000			$	22.93
Exercisable at June 30, 2007			5,450,848			$	17.60				138,000			$	22.34
Weighted-Average Remaining Contractual Term (Years):
Outstanding at June 30, 2007			6.5								6.7
Exercisable at June 30, 2007			5.4								6.4
Aggregate Intrinsic Value ($000):
Outstanding at June 30, 2007		$	115,601							$	2,096
Exercisable at June 30, 2007		$	97,916							$	1,825
Intrinsic Value of Options Exercised ($000) During the Six Months Ended:
June 30, 2007		$	13,140							$	1,024
June 30, 2006		$	9,212							$	36

     The fair value of shares vested during the six months ended June 30, 2007 and 2006 was $9.5 million and $8.2 million, respectively. Cash received from option exercises was approximately $10.9 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $4.0 million in the six months ended June 30, 2007. As of June 30, 2007, the remaining valuation of stock option awards to be expensed in future periods was $8.3 million and the related weighted-average period over which it is expected to be recognized is 1.5 years.

     The fair value of restricted stock unit grants is the market price of the underlying shares on the grant date. A summary of restricted stock unit activity as of June 30, 2007, and changes during the period then ended is presented below:

     

						Weighted-Average
		Shares				Grant-Date Fair Value
Nonvested at January 1, 2007			15,700			$	24.66
Granted			14,512				30.63
Vested			(9,114	)			23.27
Nonvested at June 30, 2007			21,098			$	29.36

     Compensation expense recorded attributable to restricted stock unit grants for the first half of 2007 and 2006 was approximately $400 and $200, respectively. The fair value of units vested during the six months ended June 30, 2007 and 2006 was $212 and $409, respectively. The intrinsic value of units vested during the six months ended June 30, 2007 and 2006 was $290 and $749, respectively. As of June 30, 2007 there was $114 of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted average period of 1.5 years.

NOTE 13 – REDEPLOYMENT PROGRAM

The Company announced in the third quarter of 2005 a plan to reduce and redeploy certain personnel in its French fragrance/cosmetic operations. The objective of this plan is to better align production equipment and personnel between several sites in France to ultimately reduce costs and maintain competitiveness. This plan will be implemented in phases and is now expected to be completed in the fourth quarter of 2007. The plan anticipates a headcount reduction by the end of 2007 of approximately 90 people. Total costs associated with the Redeployment Program are expected to be approximately $7 to $9 million before taxes over the Redeployment Program period and primarily relate to employee severance costs. The following table below highlights the pre-tax amount incurred in the period and the ending liability at the end of June 30, 2007. All charges related to the Redeployment Program are included in Cost of Sales in the condensed consolidated statement of income.

     

						Charges For
		Beginning Reserve				The Six Months												Ending Reserve
		At 01/01/07				Ended 06/30/07				Cash Paid				FX Impact				At 06/30/07
Employee severance		$	995			$	418			$	(686	)		$	28			$	755
Other costs			—				177				(177	)			1				1
Totals		$	995			$	595			$	(863	)		$	29			$	756

NOTE 14 – INCOME TAX UNCERTAINTIES

The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a $1.6 million increase in the liability for income tax uncertainties. This increase was accounted for as a reduction to the January 1, 2007 balance of retained earnings, as required by FIN 48. The Company’s policy is to recognize interest and penalties accrued related to unrecognized tax benefits as a component of income taxes. The total amount of accrued interest and penalties as of January 1, 2007 was $1.1 million.

     As of January 1, 2007, the total amount of unrecognized tax benefits is $7.0 million, of which $6.2 million, if recognized, would impact the effective tax rate. In the first quarter of 2007, the Company incurred unfavorable tax audit settlements of $500 thousand which were part of the January 1, 2007 unrecognized tax benefits. For the next twelve months, the Company does not anticipate material changes to its income tax uncertainties.

     The Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The major tax jurisdictions the Company files in with years still subject to income tax examinations are listed below.

		Tax Years
Tax		Subject to
Jurisdiction		Examination
United States – Federal			2003–2006
United States – States			2002–2006
France			2004–2006
Germany			2002–2006
Italy			2002–2006
Switzerland			1997–2006

NOTE 15 – STOCK SPLIT

On April 18, 2007, the Board of Directors approved a two-for-one stock split that was effected in the form of a stock distribution to shareholders of record as of the close of business on May 2, 2007 for distribution on May 9, 2007. All historical weighted average share and per share amounts were restated in this Form 10-Q to reflect the stock split.

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OR OTHERWISE INDICATED)

RESULTS OF OPERATIONS

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Net Sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales (exclusive of depreciation shown below)			67.4				67.3				67.1				67.5
Selling, research & development and administration			13.9				14.6				15.1				15.6
Depreciation and amortization			6.5				7.1				6.5				7.1
Operating Income			12.2				11.0				11.3				9.8
Other income (expense)			(0.8	)			(0.9	)			(0.8	)			(0.8	)
Income before income taxes			11.4				10.1				10.5				9.0
Net income			7.8	%			6.9	%			7.2	%			6.1	%
Effective Tax Rate			31.5	%			31.4	%			31.5	%			31.6	%

NET SALES

Net sales for the quarter and six months ended June 30, 2007 were a record $472.9 million and $922.7 million, respectively, and represented an increase of 19% over the same periods a year ago. The average U.S. dollar exchange rate weakened compared to the Euro in 2007 compared to 2006, and as a result, changes in exchange rates positively impacted sales and accounted for approximately 6% of the 19% sales growth for the quarter and six months ended June 30, 2007. Sales from acquired companies accounted for approximately 1% of the increase in sales for the quarter and six months ended June 30, 2007. The remaining 12% of sales growth was due primarily to increased demand for our innovative dispensing systems.

     For further discussion on net sales by reporting segment, please refer to the segment analysis of net sales and segment income on the following pages.

The following table sets forth, for the periods indicated, net sales by geographic location:

		Three Months Ended June 30,																Six Months Ended June 30,
		2007				% of Total				2006				% of Total				2007				% of Total				2006				% of Total
Domestic		$	124,816				26	%		$	119,004				30	%		$	247,442				27	%		$	231,347				30	%
Europe			295,984				63	%			243,580				61	%			575,833				62	%			473,059				61	%
Other Foreign			52,076				11	%			36,041				9	%			99,442				11	%			69,687				9	%

COST OF SALES (EXCLUSIVE OF DEPRECIATION SHOWN BELOW)

Our cost of sales as a percent of net sales increased slightly to 67.4% in the second quarter of 2007 compared to 67.3% in the second quarter of 2006.

The following factors positively impacted our cost of sales percentage in the second quarter of 2007:

Leveraging of Fixed Manufacturing Costs: The increase in sales volumes across all three market segments allowed us to better leverage our fixed overhead manufacturing expenses as a percentage of our net sales.

Favorable Product Mix. Increased sales of our products to the pharmaceutical market which traditionally generate higher margins helped positively impact our cost of sales percentage in the second quarter. In addition, the success of our bag-on-valve product line utilizing our value added accessories for continuous spray sun care products also had a positive impact on our cost of sales percentage.

Lower Compliance Costs For The Pharma Industry. In the prior year we incurred additional costs in our Pharma segment due to more stringent quality standards on certain of our products. These costs include, among others, higher personnel-related costs to assure the level of quality demanded by this market and higher scrap associated with the destruction of non-usable components. A majority of these costs did not reoccur in 2007 and as a result had a positive impact on our cost of sales percentage in the first half of 2007.

The following factors negatively impacted our cost of sales percentage in the second quarter of 2007:

Rising Raw Material Costs. Raw material costs, in particular nickel, which is used in some of our components continued to increase in the second quarter of 2007 over 2006. We estimate that the increased nickel charges negatively impacted our cost of goods sold in the quarter by approximately $1.7 million. In addition, resin cost also increased in the second quarter compared to the prior year.

Weakening of the U.S. Dollar. We are a net importer from Europe into the U.S. and other countries of products produced in Europe with costs denominated in Euros. As a result, when the U.S. dollar or other currencies weaken against the Euro, products produced in Europe (with costs denominated in Euros) and sold in currencies that are weaker compared to the Euro, have a negative impact on cost of sales as a percentage of net sales.

Increased Sales of Custom Tooling. We had a $3.0 million increase in sales of custom tooling in the second quarter of 2007. Traditionally, sales of custom tooling generate lower margins than our regular product sales and thus, an increase in sales of custom tooling negatively impacts cost of sales as a percentage of sales.

Our cost of sales as a percent of net sales decreased to 67.1% in the first half of 2007 compared to 67.5% in the first half of 2006. The decrease is primarily due to the same factors mentioned above excluding the comment on sales of custom tooling. We estimate that the increased nickel charges negatively impacted our cost of goods sold in the first half of 2007 by approximately $2.7 million.

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

Our Selling, Research & Development and Administrative expenses (“SG&A”) increased by approximately $7.7 million in the second quarter of 2007 compared to the same period a year ago. Changes in currency rates accounted for approximately $3.1 million of the increase in SG&A in the quarter while acquisitions accounted for approximately $0.9 million of the increase in SG&A in the quarter. The remainder of the increase is due primarily to normal inflationary cost increases. SG&A as a percentage of net sales decreased to 13.9% compared to 14.6% of net sales in the same period of the prior year primarily due to the leveraging of higher sales volumes.

     SG&A increased by approximately $19.1 million in the first half of 2007 compared to the same period a year ago. Changes in currency rates accounted for approximately $7.4 million of the increase in SG&A while acquisitions accounted for approximately $1.8 million of the increase in SG&A in the first half. Another $1.6 million of the increase relates to an increase of stock option expense which occurred in the first quarter of 2007. The remainder of the increase is due primarily to normal inflationary cost increases. SG&A as a percentage of net sales decreased to 15.1% compared to 15.6% of net sales in the same period of the prior year primarily due to the leveraging of higher sales volumes.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased approximately $2.7 million in the second quarter of 2007 to $30.9 million compared to $28.3 million in the second quarter of 2006. Changes in currency rates accounted for approximately $1.4 million of the increase in depreciation and amortization in the second quarter while acquisitions accounted for approximately $0.5 million of additional depreciation and amortization expense in the quarter. Depreciation and amortization as a percentage of net sales decreased to 6.5% in the second quarter of 2007 compared to 7.1% for the same period a year ago.

     Depreciation and amortization increased approximately $5.0 million in the first half of 2007 to $60.2 million compared to $55.2 million in the first half of 2006. Changes in currency rates accounted for approximately $3.1 million of the increase in depreciation and amortization in the first half of 2007 while acquisitions accounted for approximately $0.9 million of additional depreciation and amortization expense compared to the prior year. Depreciation and amortization as a percentage of net sales decreased to 6.5% compared to 7.1% for the same period a year ago.

OPERATING INCOME

Operating income increased approximately $13.8 million in the second quarter of 2007 to $57.5 million compared to $43.8 million in the same period in the prior year. The increase is primarily due to the increase in sales and favorable product mix mentioned above. Acquisitions added approximately $0.8 million in operating income during the quarter. Operating income as a percentage of net sales increased to 12.2% in the second quarter of 2007 compared to 11.0% for the same period in the prior year.

Operating income increased approximately $28.0 million in the first half of 2007 to $104.2 million compared to $76.2 million in the same period in the prior year. Increases in sales volumes are the primary reason for the overall net increase in operating income for the first half of the year. Acquisitions added approximately $1.5 million to operating income in the first half of the year. Operating income as a percentage of sales increased to 11.3% in the first half of 2007 compared to 9.8% for the same period in the prior year.

NET OTHER EXPENSE

Net other expenses in the second quarter of 2007 increased slightly to $3.6 million from $3.4 million in the same period in the prior year primarily reflecting increased interest expense of $0.7 million and an increase in foreign currency losses of approximately $0.5 million. The increase in interest expense is due primarily to higher average interest rates and higher

borrowing levels. Partially offsetting these two items was an increase in interest income of approximately $0.9 million due primarily to the increase in cash on the balance sheet.

     Net other expenses for the six months ended June 30, 2007 increased to $7.0 million from $6.8 million in the same period in the prior year primarily reflecting increased interest expense of $1.7 million and an increase in foreign currency losses of approximately $0.5 million. The increase in interest expense is due primarily to higher average interest rates and higher borrowing levels. Partially offsetting these two items was an increase in interest income of approximately $1.6 million due primarily to the increase in cash on the balance sheet.

EFFECTIVE TAX RATE

The reported effective tax rate increased slightly to 31.5% for the three months ended June 30, 2007 compared to 31.4% in the second quarter of 2006.

     The reported effective tax rate decreased slightly to 31.5% for the six months ended June 30, 2007 compared to 31.6% in the first half of the prior year.

NET INCOME

We reported net income of $37.0 million and $66.5 million in the second quarter and six months ended June 30, 2007, respectively compared to $27.7 million and $47.5 million for the same periods in the prior year.

BEAUTY & HOME SEGMENT

     Operations that sell spray and lotion dispensing systems primarily to the personal care, fragrance/cosmetic and household markets form the Beauty & Home segment.

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Net Sales		$	250,186			$	207,583			$	492,144			$	402,891
Segment Income (1)			26,443				19,752				52,575				36,385
Segment Income as a percentage of Net Sales			10.6	%			9.5	%			10.7	%			9.0	%

(1) Segment Income is defined as earnings before net interest, stock option and corporate expenses, income taxes and unusual items. The Company evaluates performance of its business units and allocates resources based upon Segment Income. For a reconciliation of Segment Income to income before income taxes, see Note 10 – Segment information to the Consolidated Financial Statements in Item 1.

     Net sales for the quarter ended June 30, 2007 increased 21% in the second quarter of 2007 to $250.2 million compared to $207.6 million in the second quarter of the prior year. The weakening U.S. dollar compared to the Euro positively impacted sales and represented approximately 6% of the 21% increase. Acquisitions only accounted for approximately 1% of the sales increase. Sales excluding foreign currency changes to the personal care market increased approximately 25% in the second quarter of 2007 compared to the same period in the prior year. Acquisitions accounted for 1% of the 25% increase in sales to this market. Sales of our products excluding foreign currency changes to the fragrance/cosmetic market remained strong and increased 10% in the second quarter of 2007 compared to the second quarter of 2006. Acquisitions accounted for 2% of the 10% increase in sales to this market. General market demand both in the high and low end of the market continues to be strong especially in developing markets such as Latin America, Eastern Europe and Russia.

     Net sales for the first six months of 2007 increased 22% in the first six months of 2007 to $492.1 million compared to $402.9 million in the first six months of the prior year. The weakening U.S. dollar compared to the Euro positively impacted sales and represented approximately 6% of the 22% increase in sales. Acquisitions only accounted for approximately 1% of the sales increase. Sales excluding foreign currency changes to the personal care market increased approximately 21% in the first half of 2007 compared to the first half of 2006. Sales of our products excluding foreign currency changes to the fragrance/cosmetic market increased more than 14% in the first half of 2007 compared to the first half of 2006. Acquisitions accounted for approximately 3% of the 14% increase in sales to this market.

     Segment Income in the second quarter of 2007 increased approximately 34% to $26.4 million compared to $19.8 million reported in the same period in the prior year. Acquisitions had an immaterial impact on the segment income in the quarter. The increase in segment income is due primarily to the significant increase in sales to the personal care and fragrance/cosmetic market as well as a favorable mix of products sold.

     Segment Income in the first six months of 2007 increased approximately 44% to $52.6 million compared to $36.4 million reported in the same period in the prior year. Acquisitions had an immaterial impact on the segment income in the first six months. The remainder of the increase is primarily due to the same reasons mentioned previously.

CLOSURES SEGMENT

The Closures segment designs and manufactures primarily dispensing closures. These products are sold primarily to the personal care, household and food/beverage markets.

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Net Sales		$	121,532			$	109,442			$	241,513			$	214,930
Segment Income			13,363				12,186				27,344				22,723
Segment Income as a percentage of Net Sales			11.0	%			11.1	%			11.3	%			10.6	%

     Net sales for the quarter ended June 30, 2007 increased approximately 11% in the second quarter of 2007 to $121.5 million compared to $109.4 million in the second quarter of the prior year. The weakening U.S. dollar compared to the Euro positively impacted sales and represented approximately 4% of the 11% increase. Acquisitions accounted for approximately 2% of the 11% sales increase. Sales excluding changes in foreign currency and acquisitions to the personal care market increased approximately 3% in the second quarter of 2007 compared to the same period in the prior year, while sales to the food/beverage market increased 12% and sales to the household market increased 6%.

     Net sales for the first six months of 2007 increased approximately 12% in the first six months of 2007 to $241.5 million compared to $214.9 million in the first six months of the prior year. Once again, the weakening U.S. dollar compared to the Euro positively impacted sales and represented approximately 4% of the 12% increase. Acquisitions accounted for approximately 2% of the 12% sales increase. Sales excluding foreign currency changes and acquisitions to the personal care market increased approximately 8% in the first six months of 2007 compared to the same period in the prior year, while sales to the food/beverage market increased 3% and sales to the household market increased 14%.

     Segment Income in the second quarter of 2007 increased approximately 10% to $13.4 million compared to $12.2 million reported in the same period in the prior year. The increase in segment income is primarily derived from increased sales volumes in Europe during the quarter, partially offset by rising resin costs. Acquisitions had an immaterial impact on segment income in the second quarter.

     Segment Income in the first six months of 2007 increased approximately 20% to $27.3 million compared to $22.7 million reported in the same period of the prior year. The increase in segment income is primarily derived from increased sales volumes in the first six months in Europe as well as a positive product mix in North America. Acquisitions had an immaterial impact on segment income in the first six months of 2007.

PHARMACEUTICAL SEGMENT

Operations that sell dispensing systems to the pharmaceutical market form the Pharma segment.

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Net Sales		$	101,157			$	81,461			$	189,058			$	156,075
Segment Income			26,356				19,848				49,038				36,911
Segment Income as a percentage of Net Sales			26.1	%			24.4	%			25.9	%			23.6	%

     Our net sales for the Pharmaceutical segment grew by 24% in the second quarter of 2007 to $101.2 million compared to $81.5 million in the second quarter of 2006. Changes in foreign currency rates positively impacted the sales growth and accounted for approximately 6% of the 24% sales growth. Sales of tooling to customers increased in the second quarter of 2007 compared to the same period in the prior year and represented approximately 5% of the sales growth in the quarter. The remainder of the increase in sales is due primarily to strong sales of our metered dose inhaler valves used on asthma products and our nasal spray pumps primarily used on allergy related products.

     Our net sales for the Pharmaceutical segment grew by 21% in the first six months of 2007 to $189.1 million compared to $156.1 million in the first six months of 2006. Changes in foreign currency rates positively impacted the sales growth by approximately 7% for the first half of 2007. The remaining 14% increase in sales again was due to the strong demand for our metered dose inhaler valves as well as strong demand for our nasal spray pumps, primarily for allergy related products. Sales of tooling to customers was flat for the first six months of 2007 compared to the same period in the prior year.

     Segment Income in the second quarter of 2007 increased approximately 33% to $26.4 million compared to $19.8 million reported in the same period in the prior year. The significant improvement in profitability is primarily due to the increase in product sales as well as improved manufacturing quality leading to lower costs compared to the prior year second quarter.

     Segment Income in the first six months of 2007 increased approximately 33% to $49.0 million compared to $36.9 million reported in the same period in the prior year. Once again, the higher sales volumes combined with improved manufacturing quality were the main reasons for the increase in profitability in the first six months of 2007.

FOREIGN CURRENCY

A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a material impact on the translation of the financial statements of our foreign entities. Our primary foreign exchange exposure is to the Euro, but we have foreign exchange exposure to South American and Asian currencies, among others. We manage our foreign exchange exposures principally with forward exchange contracts to hedge certain transactions and firm purchase and sales commitments denominated in foreign currencies. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial statements. Conversely, a strengthening U.S. dollar has a dilutive effect. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Changes in exchange rates on such inter-country sales could materially impact our results of operations.

QUARTERLY TRENDS

Our results of operations in the second half of the year typically are negatively impacted by customer plant shutdowns in the summer months in Europe and operational plant shutdowns in December. In the future, our results of operations in a quarterly period could be impacted by factors such as changes in product mix, changes in material costs, changes in growth rates in the industries to which our products are sold, recognition of equity based compensation expense for retirement eligible employees in the period of grant and changes in general economic conditions in any of the countries in which we do business.

     Our estimated stock option expense on a pre-tax basis (in $ millions) for the remainder of the year compared to the prior year is as follows:

		2007				2006
Third Quarter			1.6				2.1
Fourth Quarter			1.6				2.0

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash flow from operations and our revolving credit facility. Cash and equivalents increased to $195.2 million from $170.6 million at December 31, 2006. Total short and long-term interest bearing debt increased in the first six months of 2007 to $325.3 million from $296.3 million at December 31, 2006. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholder’s equity plus Net Debt) decreased slightly at the end of June 2007 to 11% compared to the prior year end of 12%.