UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008

OR

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

FOR THE TRANSITION PERIOD FROM                      TO                     

AptarGroup, Inc.

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

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

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 o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company 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 (October  21, 2008).

Common Stock                      67,511,022

AptarGroup, Inc.

Form 10-Q

Quarter Ended September 30, 2008

INDEX

Part I.		FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Condensed Consolidated Statements of Income — Three and Nine Months Ended September 30, 2008 and 2007			1
		Condensed Consolidated Balance Sheets -September 30, 2008 and December 31, 2007			2
		Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2008 and 2007			4
		Notes to Condensed Consolidated Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			19
Item 4.		Controls and Procedures			19
Part II.		OTHER INFORMATION
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			20
Item 6.		Exhibits			20
		Signature			21
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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 September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Net Sales		$	532,180			$	485,692			$	1,615,757			$	1,408,409
Operating Expenses:
Cost of sales (exclusive of depreciation shown below)			366,637				330,438				1,102,325				949,293
Selling, research & development and administrative			73,843				65,773				234,486				205,303
Depreciation and amortization			32,537				32,065				99,864				92,246
			473,017				428,276				1,436,675				1,246,842
Operating Income			59,163				57,416				179,082				161,567
Other Income (Expense):
Interest expense			(5,261	)			(4,880	)			(14,204	)			(14,335	)
Interest income			3,475				2,222				10,334				5,600
Equity in results of affiliates			194				158				417				426
Minority interests			(43	)			(22	)			(24	)			(4	)
Miscellaneous, net			(635	)			(303	)			(1,320	)			(1,513	)
			(2,270	)			(2,825	)			(4,797	)			(9,826	)
Income Before Income Taxes			56,893				54,591				174,285				151,741
Provision for Income Taxes			17,242				15,196				52,460				45,798
Net Income		$	39,651			$	39,395			$	121,825			$	105,943
Net Income Per Common Share:
Basic		$	0.59			$	0.58			$	1.79			$	1.54
Diluted		$	0.57			$	0.56			$	1.72			$	1.48
Average Number of Shares Outstanding:
Basic			67,670				68,488				67,958				68,902
Diluted			69,937				70,909				70,812				71,717
Dividends Declared Per Common Share		$	0.15			$	0.13			$	0.41			$	0.37

See accompanying unaudited notes to condensed consolidated financial statements.

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

In thousands, except per share amounts

		September 30,				December 31,
		2008				2007
Assets
Current Assets:
Cash and equivalents		$	301,180			$	313,739
Accounts and notes receivable, less allowance for doubtful accounts of $11,385 in 2008 and $11,139 in 2007			383,234				360,736
Inventories, net			260,845				272,556
Prepaid expenses and other current assets			65,026				56,414
			1,010,285				1,003,445
Property, Plant and Equipment:
Buildings and improvements			283,874				264,535
Machinery and equipment			1,473,872				1,408,761
			1,757,746				1,673,296
Less: Accumulated depreciation			(1,071,760	)			(1,033,544	)
			685,986				639,752
Land			17,204				16,756
			703,190				656,508
Other Assets:
Investments in affiliates			4,954				4,085
Goodwill			225,618				222,668
Intangible assets, net			14,921				17,814
Other non-current assets			7,224				7,430
			252,717				251,997
Total Assets		$	1,966,192			$	1,911,950

See accompanying unaudited notes to condensed consolidated financial statements.

AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

In thousands, except per share amounts

 

		September 30,				December 31,
		2008				2007
Liabilities and Stockholders’ Equity
Current Liabilities:
Notes payable		$	151,173			$	190,176
Current maturities of long-term obligations			24,680				25,983
Accounts payable and accrued liabilities			347,077				349,030
			522,930				565,189
Long-Term Obligations			224,221				146,711
Deferred Liabilities and Other:
Deferred income taxes			25,534				28,613
Retirement and deferred compensation plans			43,466				42,787
Deferred and other non-current liabilities			8,951				9,079
Commitments and contingencies			—				—
Minority interests			787				553
			78,738				81,032
Stockholders’ Equity:
Preferred stock, $.01 par value, 1 million shares authorized, none outstanding			—				—
Common stock, $.01 par value			800				794
Capital in excess of par value			253,209				229,022
Retained earnings			1,044,521				950,566
Accumulated other comprehensive income			172,206				214,294
Less treasury stock at cost, 12.5 and 11.2 million shares as of September 30, 2008 and December 31, 2007			(330,433	)			(275,658	)
			1,140,303				1,119,018
Total Liabilities and Stockholders’ Equity		$	1,966,192			$	1,911,950

See accompanying unaudited notes to condensed consolidated financial statements.

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

In thousands, brackets denote cash outflows

 

Nine Months Ended September 30,		2008				2007
Cash Flows From Operating Activities:
Net income		$	121,825			$	105,943
Adjustments to reconcile net income to net cash provided by operations:
Depreciation			96,072				88,908
Amortization			3,792				3,338
Stock option based compensation			9,916				12,389
Provision for bad debts			1,827				677
Labor redeployment			—				(452	)
Minority interests			24				4
Deferred income taxes			(4,437	)			(10,151	)
Retirement and deferred compensation plans			815				3,841
Equity in results of affiliates in excess of cash distributions received			(220	)			(426	)
Changes in balance sheet items, excluding effects from foreign currency adjustments:
Accounts receivable			(37,618	)			(33,207	)
Inventories			5,508				(21,639	)
Prepaid and other current assets			(7,571	)			(4,914	)
Accounts payable and accrued liabilities			8,060				30,586
Income taxes payable			(6,387	)			12,861
Other changes, net			11,555				(939	)
Net Cash Provided by Operations			203,161				186,819
Cash Flows From Investing Activities:
Capital expenditures			(157,287	)			(90,626	)
Disposition of property and equipment			592				2,570
Intangible assets acquired			(755	)			(976	)
Acquisition of businesses, net of cash acquired			(13,166	)			(5,151	)
Investment in affiliates			(807	)			—
(Issuance) collection of notes receivable, net			(960	)			129
Net Cash Used by Investing Activities			(172,383	)			(94,054	)
Cash Flows From Financing Activities:
Proceeds from notes payable			—				79,713
Repayments of notes payable			(38,616	)			—
Proceeds from long-term obligations			100,000				—
Repayments of long-term obligations			(23,579	)			(24,408	)
Dividends paid			(27,870	)			(25,542	)
Proceeds from stock options exercises			12,813				12,476
Purchase of treasury stock			(57,569	)			(56,818	)
Excess tax benefit from exercise of stock options			3,886				2,980
Net Cash Used by Financing Activities			(30,935	)			(11,599	)
Effect of Exchange Rate Changes on Cash			(12,402	)			18,331
Net (Decrease)/increase in Cash and Equivalents			(12,559	)			99,497
Cash and Equivalents at Beginning of Period			313,739				170,576
Cash and Equivalents at End of Period		$	301,180			$	270,073

See accompanying unaudited 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, 2007. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.

NOTE 2 — INVENTORIES

At September 30, 2008 and December 31, 2007, approximately 23% of the total inventories are accounted for by using the LIFO method. Inventories, by component net of reserves, consisted of:

		September 30,				December 31,
		2008				2007
Raw materials		$	101,566			$	101,993
Work in progress			57,878				59,894
Finished goods			109,462				115,774
Total			268,906				277,661
Less LIFO Reserve			(8,061	)			(5,105	)
Total		$	260,845			$	272,556

NOTE 3 — GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill since the year ended December 31, 2007 are as follows by reporting segment:

		Pharma				Beauty & Home				Closures				Total
Balance as of December 31, 2007		$	25,413			$	158,537			$	38,718			$	222,668
Acquisitions (See Note 11)			3,714				3,421				—				7,135
Foreign currency exchange effects			(842	)			(2,594	)			(749	)			(4,185	)
Balance as of September 30, 2008		$	28,285			$	159,364			$	37,969			$	225,618

The table below shows a summary of intangible assets as of September 30, 2008 and December 31, 2007.

						September 30, 2008												December 31, 2007
			Weighted Average			Gross												Gross
			Amortization			Carrying				Accumulated				Net				Carrying				Accumulated				Net
			Period (Years)			Amount				Amortization				Value				Amount				Amortization				Value
Amortized intangible assets:
Patents			14			$	18,703			$	(12,946	)		$	5,757			$	19,194			$	(12,230	)		$	6,964
License agreements and other			7				24,133				(14,969	)			9,164				23,557				(12,707	)			10,850
Total intangible assets			10			$	42,836			$	(27,915	)		$	14,921			$	42,751			$	(24,937	)		$	17,814

     Aggregate amortization expense for the intangible assets above for the quarters ended September 30, 2008 and 2007 was $1,297 and $1,150, respectively. Aggregate amortization expense for the intangible assets above for the nine months ended September 30, 2008 and September 30, 2007 was $3,792 and $3,338, respectively.

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

2008		$	4,779
2009			4,147
2010			3,678
2011			2,199
2012			1,130

     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 September 30, 2008.

NOTE 4 — TOTAL COMPREHENSIVE (LOSS)/INCOME

AptarGroup’s total comprehensive (loss)/income was as follows:

     

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Net income		$	39,651			$	39,395			$	121,825			$	105,943
Add: Foreign currency translation adjustments			(134,675	)			53,547				(41,973	)			78,930
Net gain/(loss) on derivatives (net of tax)			5				35				(602	)			(46	)
Pension liability adjustment (net of tax)			169				(703	)			488				(639	)
Total comprehensive (loss)/income		$	(94,850	)		$	92,274			$	79,738			$	184,188

NOTE 5 — RETIREMENT AND DEFERRED COMPENSATION PLANS

Components of Net Periodic Benefit Cost:

     

Three months ended September 30,

		Domestic Plans								Foreign Plans
		2008				2007				2008				2007
Service cost		$	1,109			$	977			$	419			$	397
Interest cost			883				738				556				326
Expected return on plan assets			(755	)			(687	)			(212	)			(183	)
Amortization of net loss			48				1				193				(23	)
Amortization of prior service cost			1				19				20				267
Net periodic benefit cost		$	1,286			$	1,048			$	976			$	784

Nine months ended September 30,

		Domestic Plans								Foreign Plans
		2008				2007				2008				2007
Service cost		$	3,045			$	2,901			$	1,275			$	1,165
Interest cost			2,611				2,248				1,689				1,145
Expected return on plan assets			(2,309	)			(2,042	)			(644	)			(535	)
Amortization of net loss			60				3				583				10
Amortization of prior service cost			3				199				61				519
Net periodic benefit cost		$	3,410			$	3,309			$	2,964			$	2,304

EMPLOYER CONTRIBUTIONS

In order to meet or exceed minimum funding levels required by U.S. law, the Company has contributed $3.2 million as of September 30, 2008 to its domestic defined benefit plans. The Company may make additional discretionary contributions to its domestic defined benefit plans prior to the end of 2008. The Company plans to make contributions in 2008 to certain of its European pension plans that have not been funded in the past. Accordingly, the Company expects to contribute approximately $8 million to its foreign defined benefit plans in 2008 and as of September 30, 2008, has contributed approximately $0.4 million.

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 September 30, 2008, the Company recorded the fair value of the derivative instrument of $1.0 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 $15 million. No gain or loss related to the change in fair value was recorded in the income statement for the three and nine months ended September 30, 2008 or 2007 as any hedge ineffectiveness for the period was immaterial.

CASH FLOW HEDGES

As of September 30, 2008, 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 5.5 million Brazilian Real ($2.9 million) as of September 30, 2008. The notional amount of the foreign currency forward contracts utilized to hedge cash flow exposure was 6.7 million Brazilian Real ($3.7 million) as of September 30, 2007.

     During the nine months ended September 30, 2008, 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 certain forecasted transactions for three and a half 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 weakening U.S. dollar relative to foreign currencies has an additive translation effect on the Company’s financial condition and results of operations. Conversely, a strengthening U.S. dollar has a dilutive 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 September 30, 2008, the Company recorded the fair value of foreign currency forward exchange contracts of $2.2 million in accounts payable and accrued liabilities and $1.9 million in deferred and other non-current liabilities in the balance sheet. All forward exchange contracts outstanding as of September 30, 2008 had an aggregate contract amount of $109.4 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 September 30, 2008.

NOTE 8 — STOCK REPURCHASE PROGRAM

On July 17, 2008, the Company’s Board of Directors authorized the Company to repurchase an additional four million shares of its outstanding common stock. There is no expiration date for this repurchase program.

     During the quarter ended September 30, 2008, the Company repurchased 535 thousand shares for an aggregate amount of $20.7 million. As of September 30, 2008, the Company has outstanding authorizations to repurchase up to approximately 4.5 million additional shares. The timing of and total amount expended for the share repurchase depend upon market conditions. While we believe our balance sheet remains strong, we have decided to temporarily suspend the repurchase of the Company’s common stock in order to conserve cash in the short term due to the recent worldwide credit crisis. We will continue to evaluate this decision in the future.

NOTE 9 — EARNINGS PER SHARE

AptarGroup’s authorized common stock consists of 199 million shares, having a par value of $.01 each. Information related to the calculation of earnings per share is as follows:

     

		Three months ended
		September 30, 2008								September 30, 2007
		Diluted				Basic				Diluted				Basic
Consolidated operations
Income available to common stockholders		$	39,651			$	39,651			$	39,395			$	39,395
Average equivalent shares
Shares of common stock			67,670				67,670				68,488				68,488
Effect of dilutive stock based compensation
Stock options			2,261				—				2,415				—
Restricted stock			6				—				6				—
Total average equivalent shares			69,937				67,670				70,909				68,488
Net income per share		$	0.57			$	0.59			$	0.56			$	0.58

		Nine months ended
		September 30, 2008								September 30, 2007
		Diluted				Basic				Diluted				Basic
Consolidated operations
Income available to common stockholders		$	121,825			$	121,825			$	105,943			$	105,943
Average equivalent shares
Shares of common stock			67,958				67,958				68,902				68,902
Effect of dilutive stock based compensation
Stock options			2,845				—				2,804				—
Restricted stock			9				—				11				—
Total average equivalent shares			70,812				67,958				71,717				68,902
Net income per share		$	1.72			$	1.79			$	1.48			$	1.54

NOTE 10 — SEGMENT INFORMATION

The Company operates in the packaging components industry, which includes the development, manufacture and sale of consumer product dispensing systems. 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, 2007. 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 September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Total Sales:
Beauty & Home		$	275,501			$	261,135			$	855,269			$	758,561
Closures			142,548				127,065				421,756				369,628
Pharma			118,351				100,817				351,052				290,036
Other			31				336				204				1,038
Total Sales			536,431				489,353				1,628,281				1,419,263
Less: Intersegment Sales:
Beauty & Home		$	3,847			$	2,522			$	10,941			$	7,804
Closures			124				546				811				1,596
Pharma			249				258				573				419
Other			31				335				199				1,035
Total Intersegment Sales		$	4,251			$	3,661			$	12,524			$	10,854
Net Sales:
Beauty & Home		$	271,654			$	258,613			$	844,328			$	750,757
Closures			142,424				126,519				420,945				368,032
Pharma			118,102				100,559				350,479				289,617
Other			—				1				5				3
Net Sales		$	532,180			$	485,692			$	1,615,757			$	1,408,409
Segment Income:
Beauty & Home		$	21,701			$	25,561			$	77,904			$	78,136
Closures			12,616				12,494				36,669				39,838
Pharma			34,408				29,407				99,275				78,445
Corporate Expenses & Other			(10,046	)			(10,213	)			(35,693	)			(35,943	)
Income before interest and taxes		$	58,679			$	57,249			$	178,155			$	160,476
Interest expense, net			(1,786	)			(2,658	)			(3,870	)			(8,735	)
Income before income taxes		$	56,893			$	54,591			$	174,285			$	151,741

NOTE 11 — ACQUISITIONS

At the end of March 2008, the Company acquired 70% of the outstanding shares of Next Breath LLC (“Next Breath”) for approximately $4.1 million in cash. No debt was assumed in the transaction. Next Breath, located in Baltimore, Maryland, is a contract service organization specializing in analytical testing of nasal and inhalation products on behalf of pharmaceutical, biotech, drug delivery and device companies. Next Breath’s annual sales are approximately $2.0 million. The excess purchase price over the fair value of assets acquired and liabilities assumed was allocated to Goodwill. Goodwill of approximately $3.7 million was recorded on the transaction. Next Breath is included in the Pharma reporting segment.

     In April 2008, the Company acquired the equipment, inventory and intellectual property of CCL Industries’ Bag-on-Valve business (“CCLBOV”) for approximately $9.3 million in cash. No debt was assumed in the transaction. CCLBOV’s annual revenues are approximately $9.0 million. The excess purchase price over the fair value of assets acquired was allocated to Goodwill. Goodwill of approximately $3.4 million was recorded on the transaction. CCLBOV was located in Canada but the assets purchased were transferred to existing AptarGroup facilities in the U.S. before the end of the second quarter. CCLBOV is included in the Beauty and Home reporting segment.

     Neither of these acquisitions had a material impact on the results of operations in 2008 and therefore no proforma information is required.

NOTE 12 — STOCK-BASED COMPENSATION

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 nine months of 2008 was approximately $9.9 million ($7.1 million after tax), or $0.10 per share (basic and diluted). Approximately $9.1 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 nine months of 2007 was approximately $12.4 million ($8.7 million after tax), or $0.13 per share basic and $0.12 per share diluted. Approximately $11.6 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 $10.02 and $9.32 per share in 2008 and 2007, 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:
Nine months ended September 30,		2008				2007
Dividend Yield			1.4	%			1.4	%
Expected Stock Price Volatility			22.4	%			24.6	%
Risk-free Interest Rate			3.7	%			4.8	%
Expected Life of Option (years)			7.0				7.0

The fair value of stock options granted under the Director Stock Option Plan was $12.08. There were no stock options granted under the Director Stock Option Plans in 2007. 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:
Nine months ended September 30,		2008				2007
Dividend Yield			1.3	%			—
Expected Stock Price Volatility			22.3	%			—
Risk-free Interest Rate			3.8	%			—
Expected Life of Option (years)			7.0				—

A summary of option activity under the Company’s stock option plans as of September 30, 2008, 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, 2008			7,405,338			$	21.34				153,000			$	22.70
Granted			1,252,000				37.52				4,000				44.16
Exercised			(761,047	)			15.60				—				—
Forfeited or expired			(37,429	)			32.58				—				—
Outstanding at September 30, 2008			7,858,862			$	24.42				157,000			$	23.25
Exercisable at September 30, 2008			5,415,491			$	20.33				153,000			$	22.70
Weighted-Average Remaining Contractual Term (Years):
Outstanding at September 30, 2008			6.3								5.4
Exercisable at September 30, 2008			5.2								5.3
Aggregate Intrinsic Value ($000):
Outstanding at September 30, 2008		$	115,203							$	2,510
Exercisable at September 30, 2008		$	101,700							$	2,510
Intrinsic Value of Options Exercised ($000) During the Nine Months Ended:
September 30, 2008		$	20,242							$	—
September 30, 2007		$	15,274							$	1,024

     The fair value of shares vested during the nine months ended September 30, 2008 and 2007 was $10.4 million and $9.5 million, respectively. Cash received from option exercises was approximately $12.8 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $5.2 million in the nine months ended September 30, 2008. As of September 30, 2008, the remaining valuation of stock option awards to be expensed in future periods was $7.5 million and the related weighted-average period over which it is expected to be recognized is 1.4 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 September 30, 2008, and changes during the period then ended is presented below:

     

						Weighted-Average
		Shares				Grant-Date Fair Value
Nonvested at January 1, 2008			21,098			$	29.36
Granted			9,824				34.44
Vested			(9,183	)			28.48
Nonvested at September 30, 2008			21,739			$	32.03

     Compensation expense recorded attributable to restricted stock unit grants for the first nine months of 2008 and 2007 was approximately $0.4 million. The fair value of units vested during the nine months ended September 30, 2008 and 2007 was $262 and $212, respectively. The intrinsic value of units vested during the nine months ended September 30, 2008 and 2007 was $324 and $290, respectively. As of September 30, 2008 there was $41 of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted average period of 1.2 years.

NOTE 13 — 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 September 30, 2008 was $1.4 million.

     The Company had approximately $7.4 and $6.5 million recorded for income tax uncertainties as of September 30, 2008 and December 31, 2007, respectively. The amount, if recognized, that would impact the effective tax rate is $6.7 and $6.0 million, respectively. The Company anticipates that $0.4 million of the income tax uncertainties amount will be resolved with the settlement of income tax audits over the next 12 months.

NOTE 14 — FAIR VALUE

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards SFAS No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective as of the beginning of our 2008 fiscal year. However, the FASB deferred the effective date of SFAS No. 157, until the beginning of our 2009 fiscal year, as it relates to fair value measurement requirements for nonfinancial assets and liabilities that are not remeasured at fair value on a recurring basis. These nonfinancial assets and liabilities include goodwill, other nonamortizable intangible assets and unallocated purchase price for recent acquisitions which are included within other assets. We partially adopted SFAS No. 157 as it relates to financial assets and liabilities at the beginning of our 2008 fiscal year and our adoption did not have a material impact on our financial statements.

     The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

	•		Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
	•		Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
	•		Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

As of September 30, 2008, the fair values of our financial assets and liabilities were categorized as follows:

		Total				Level 1				Level 2				Level 3
Assets
Interest rate swap (a)		$	965			$	—			$	965			$	—
Total assets at fair value		$	965			$	—			$	965			$	—
Liabilities
Forward exchange contracts (b)		$	4,145			$	—			$	4,145			$	—
Total liabilities at fair value		$	4,145			$	—			$	4,145			$	—

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 September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Net Sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales (exclusive of depreciation shown below)			68.9				68.0				68.2				67.4
Selling, research & development and administration			13.9				13.6				14.5				14.6
Depreciation and amortization			6.1				6.6				6.2				6.5
Operating Income			11.1				11.8				11.1				11.5
Other income (expense)			(0.4	)			(0.6	)			(0.3	)			(0.7	)
Income before income taxes			10.7				11.2				10.8				10.8
Net income			7.5	%			8.1	%			7.5	%			7.5	%
Effective Tax Rate			30.3	%			27.8	%			30.1	%			30.2	%

NET SALES

Net sales for the quarter and nine months ended September 30, 2008 were a record $532 million and $1.6 billion, respectively, and represented increases of 10% and 15%, respectively, over the same periods a year ago. The average U.S. dollar exchange rate weakened compared to the Euro in 2008 compared to 2007, and as a result, changes in exchange rates positively impacted sales and accounted for approximately 7% and 9% of sales growth for the quarter and nine months ended September 30, 2008, respectively. Sales from acquired companies were not material for the quarter and nine months ended September 30, 2008. The remaining sales growth was due primarily to increased demand from our pharmaceutical customers as well as price increases to offset the rising input costs in our Closures and Beauty and Home segments.

     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 September 30,																Nine Months Ended September 30,
		2008				% of Total				2007				% of Total				2008				% of Total				2007				% of Total
Domestic		$	138,116				26	%		$	127,363				26	%		$	401,532				25	%		$	374,805				27	%
Europe			321,165				60	%			297,877				61	%			1,016,384				63	%			873,710				62	%
Other Foreign			72,899				14	%			60,452				13	%			197,841				12	%			159,894				11	%

COST OF SALES (EXCLUSIVE OF DEPRECIATION SHOWN BELOW)

Our cost of sales as a percent of net sales increased to 68.9% in the third quarter of 2008 compared to 68.0% in the third quarter of 2007.

The following factors negatively impacted our cost of sales percentage in the third quarter of 2008:

Rising Input Costs. Input costs, in particular resin, tinplate, utilities and transportation costs, continued to increase in the third quarter of 2008 over 2007, primarily in the U.S. and Europe, but also in the rest of the world. While we attempt to pass these rising input costs along in our selling prices we experience a lag in the timing of passing on these cost increases.

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.

Underutilized Overhead Costs in Certain Operations. Certain of our business operations in the Beauty & Home and Closures business segments saw a decrease in unit volumes produced and sold and as a result of the lower production levels, overhead costs were underutilized, thus negatively impacting cost of goods sold as a percentage of net sales.

The following factors positively impacted our cost of sales percentage in the third quarter of 2008:

Improved Product Mix. Sales to the pharmaceutical market in the third quarter of 2008 increased 17% compared to the prior year third quarter and therefore positively impacted or lowered our cost of sales as a percentage of net sales as margins on our pharmaceutical products typically are higher than the overall company average.

Our cost of sales as a percent of net sales increased to 68.2% in the first nine months of 2008 compared to 67.4% in the first nine months of 2007. The increase is primarily due to the same factors mentioned above. In addition, sales of custom tooling increased $11.1 million in the first nine months of 2008 compared to the comparable period in 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.

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

Our Selling, Research & Development and Administrative expenses (“SG&A”) increased by approximately $8.1 million in the third quarter of 2008 compared to the same period a year ago. Changes in currency rates accounted for approximately $4.2 million of the increase in SG&A in the quarter. The remainder of the increase is due primarily to normal inflationary cost increases, higher bad debt expense and higher professional fees related to several corporate initiatives. SG&A as a percentage of net sales increased to 13.9% compared to 13.6% of net sales in the same period of the prior year primarily due to the higher bad debts and professional fees.

     SG&A increased by approximately $29.2 million for the nine months ended September 30, 2008 compared to the same period a year ago. Changes in currency rates accounted for approximately $17.7 million of the increase in SG&A. The remainder of the increase is due primarily to the reasons mentioned above as well as higher research and development costs in the first quarter. SG&A as a percentage of net sales decreased to 14.5% compared to 14.6% of net sales in the same period of the prior year primarily due to the reduction in stock option expense in the first nine months of $2.5 million.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased approximately $0.5 million in the third quarter of 2008 to $32.5 million compared to $32.1 million in the third quarter of 2007. Changes in foreign currency rates accounted for $2.1 million of the increase. Depreciation and amortization as a percentage of sales decreased to 6.1% of net sales for the third quarter of 2008 compared to 6.6% in the same period of the prior year.

     Depreciation and amortization increased approximately $7.6 million in the first nine months of 2008 to $99.9 million compared to $92.2 million for the first nine months of 2007. Changes in foreign currency rates accounted for $8.8 million of the increase. Depreciation and amortization as a percentage of sales decreased to 6.2% of net sales for the nine months ended September 30, 2008 compared to 6.5% in the same period of the prior year.

OPERATING INCOME

Operating income increased approximately $1.7 million in the third quarter of 2008 to $59.2 million compared to $57.4 million in the same period in the prior year. The increase is primarily due to the increase in sales of our products to the pharmaceutical market and the continued strength of the Euro compared to the U.S. dollar which is having a positive impact on the translation of our results in U.S. dollars. This was partially offset by higher cost of goods sold and SG&A costs mentioned above. Operating income as a percentage of net sales decreased to 11.1% in the third quarter of 2008 compared to 11.8% for the same period in the prior year.

     Operating income increased approximately $17.5 million in the first nine months of 2008 to $179.1 million compared to $161.6 million in the same period in the prior year. The increase is primarily due to the increase in sales of our products mentioned above and the continued strength of the Euro compared to the U.S. dollar. Operating income as a percentage of sales decreased to 11.1% in the first nine months of 2008 compared to 11.5% for the same period in the prior year.

NET OTHER EXPENSE

Net other expenses in the third quarter of 2008 decreased to $2.3 million from $2.8 million in the same period in the prior year primarily reflecting increased interest income of $1.3 million partially offset by increased interest expense of $0.4 million and $0.3 million increase in miscellaneous expense primarily due to foreign currency losses. The increase in interest income is due primarily to higher average cash and equivalents on the balance sheet.

     Net other expenses for the nine months ended September 30, 2008 decreased to $4.8 million from $9.8 million in the same period in the prior year primarily reflecting increased interest income of $4.7 million. The increase in interest income is due primarily to higher average cash and equivalents on the balance sheet.

EFFECTIVE TAX RATE

The reported effective tax rate increased to 30.3% for the three months ended September 30, 2008 compared to 27.8% in the third quarter of 2007. The lower effective tax rate in the third quarter of 2007 is due primarily to a positive tax benefit in the third quarter of last year related to tax law changes in Germany. During the third quarter of 2007, the German government approved a

reduction in the income tax rate effective January 1, 2008. This tax law change reduced the Company’s net deferred tax liability by approximately $2.3 million, or approximately $0.03 per share.

     The reported effective tax rate decreased slightly to 30.1% for the nine months ended September 30, 2008 compared to 30.2% in the first nine months of the prior year. As mentioned above, the prior year effective tax rate was positively impacted by the reduction in the Company’s net deferred tax liability. This year, the effective tax rate is being impacted by the reduction of the German and Italian statutory tax rates effective in 2008 as well as higher research and development credits expected to be received in France in 2008.

NET INCOME

We reported net income of $39.7 million and $121.8 million in the third quarter and nine months ended September 30, 2008, respectively, compared to $39.4 million and $105.9 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 September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Net Sales		$	271,654			$	258,613			$	844,328			$	750,757
Segment Income (1)			21,701				25,561				77,904				78,136
Segment Income as a percentage of Net Sales			8.0	%			9.9	%			9.2	%			10.4	%

(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 September 30, 2008 increased 5% in the third quarter of 2008 to $271.7 million compared to $258.6 million in the third quarter of the prior year. Acquisitions did not have a material impact on the sales growth in the third quarter. Changes in exchange rates positively impacted sales by approximately 6% during the quarter. Excluding changes in exchange rates, sales decreased 1% in the third quarter of 2008 compared to the same quarter of the prior year. Sales to the personal care market excluding changes in currency and acquisitions remained flat in the third quarter of 2008 compared to the same period in the prior year, due primarily to lower sales volumes in Europe. Sales to the fragrance/cosmetic market excluding changes in currency and acquisitions decreased 1% in the quarter compared to the third quarter of 2007 as growth in the developing markets was not enough to offset weakening demand in Europe and North America.

     Net sales for the first nine months of 2008 increased 12% in the first nine months of 2008 to $844.3 million compared to $750.8 million in the first nine months of the prior year. The weakening U.S. dollar compared to the Euro positively impacted sales and represented approximately 9% of the 12% increase in sales. Acquisitions did not materially impact the sales growth in the first nine months of 2008. Sales to the personal care market excluding foreign currency changes increased approximately 3% in the first nine months of 2008 compared to the same period in the prior year primarily due to strong sales of our bag-on-valve product line and lotion pumps during the first half of the year. Sales to the fragrance/cosmetic market excluding foreign currency changes increased approximately 4% in the first nine months of 2008 compared to the same period in the prior year primarily due to strong sales of our mini-packaging products in Europe as well as continued growth in the developing markets in the first nine months of the year.

     Segment income in the third quarter of 2008 decreased approximately 15% to $21.7 million compared to $25.6 million reported in the same period in the prior year. Acquisitions did not materially impact segment income in the quarter. The decrease in segment income is due primarily to the rising input costs particularly in North America but also in Europe on materials such as resin, tinplate and phosphoric acid used in the metal anodization process. In addition, weakening demand and lower sales volumes primarily in Europe negatively impacted the segment income in the quarter.

     Segment income in the first nine months of 2008 decreased slightly to $77.9 million compared to $78.1 million reported in the same period in the prior year. Acquisitions had an immaterial impact on segment income in the first nine months. Weakening demand in the third quarter combined with our inability to raise selling prices fast enough to keep pace with the rising input costs, primarily in North America, were the primary reasons for the lack of growth in segment income for the first nine months of 2008.

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 September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Net Sales		$	142,424			$	126,519			$	420,945			$	368,032
Segment Income			12,616				12,494				36,669				39,838
Segment Income as a percentage of Net Sales			8.9	%			9.9	%			8.7	%			10.8	%

     Net sales for the quarter ended September 30, 2008 increased approximately 13% in the third quarter of 2008 to $142.4 million compared to $126.5 million in the third quarter of the prior year. Changes in exchange rates positively impacted sales by approximately 7% during the quarter. Increased selling prices due to the rising cost of resin in the quarter accounted for approximately 5% of the remaining sales growth. Sales excluding changes in foreign currency to the personal care market increased approximately 3% in the third quarter compared to the same period in the prior year reflecting increased demand in North America which helped offset weakening demand in Europe and Brazil. Sales excluding changes in foreign currency to the food/beverage market increased 19% as new customer launches primarily in North America helped drive the strong growth in the quarter. Sales excluding changes in foreign currency to the household market decreased 13% primarily due to lower tooling sales which accounted for approximately 7% of the 13% decrease and lower sales of laundry care products in Europe.

     Net sales for the first nine months of 2008 increased approximately 14% to $420.9 million compared to $368.0 million in the first nine months of the prior year. Once again, the weakening U.S. dollar compared to the Euro positively impacted sales and represented approximately 7% of the 14% increase. Increased selling prices due the rising cost of resin for the first nine months accounted for approximately 4% of the sales growth and sales of custom tooling accounted for the remaining 3% of the sales growth. Sales excluding changes in foreign currency to the personal care market increased approximately 3% for the first nine months of 2008, while sales excluding changes in foreign currency to the food/beverage market increased 21% for the first nine months of 2008. Partially offsetting this growth was a decrease in sales excluding changes in foreign currency to the household market of approximately 11%.

     Segment income in the third quarter of 2008 increased approximately 1% to $12.6 million compared to $12.5 million reported in the same period in the prior year. The positive impact of the higher sales volumes in North America, primarily to the food/beverage market was offset by lower demand in Europe and Brazil leading to under utilization of capacity. In addition, the normal delays we experience in passing on increased resin costs in the form of price increases also negatively impacted segment income in the quarter.

     Segment income in the first nine months of 2008 decreased approximately 8% to $36.7 million compared to $39.8 million reported in the same period of the prior year. Weak demand in North America in the first half of the year combined with weakening demand in Europe and Brazil in the third quarter led to underutilization of capacity during the first nine months of 2008 and, as mentioned previously, our normal delays in passing on increased resin costs in the form of price increases also negatively impacted the segment income in the first nine months of 2008.

PHARMACEUTICAL SEGMENT

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Net Sales		$	118,102			$	100,559			$	350,479			$	289,617
Segment Income			34,408				29,407				99,275				78,445
Segment Income as a percentage of Net Sales			29.1	%			29.2	%			28.3	%			27.1	%

     Our net sales for the Pharma segment grew by 17% in the third quarter of 2008 to $118.1 million compared to $100.6 million in the third quarter of 2007. Changes in foreign currency rates positively impacted the sales growth and accounted for approximately 7% of the 17% sales growth. The remainder of the increase in sales is due primarily to an increase in sales of our metered dose inhaler valves used on asthma medication and an increase in sales of our nasal spray pumps primarily used on allergy related products. Sales to pharmaceutical companies offering generic versions of allergy medication in the U.S. were strong in the third quarter.

     Our net sales for the Pharma segment grew by 21% in the first nine months of 2008 to $350.5 million compared to $289.6 million in the first nine months of 2007. Changes in foreign currency rates positively impacted the sales growth by approximately 11% for the first nine months of 2008. The remaining 10% increase in sales was due to an increase in demand for our metered dose inhaler valves as well as an increase in demand for our nasal spray pumps, primarily for allergy related medication.

     Segment income in the third quarter of 2008 increased approximately 17% to $34.4 million compared to $29.4 million reported in the same period in the prior year. The increase in profit is primarily due to the increase in product sales compared to the prior year third quarter.

     Segment income in the first nine months of 2008 increased approximately 27% to $99.3 million compared to $78.4 million reported in the same period in the prior year. Once again the higher sales volumes and improved product and customer mix were the main reasons for the increase in profits in the first nine months of 2008.

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 last quarter of the year typically are negatively impacted by 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.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash flow from operations and our revolving credit facility. Cash and equivalents decreased to $301.2 million from $313.7 million at December 31, 2007. Total short and long-term interest bearing debt increased in the first nine months of 2008 to $400.1 million from $362.9 million at December 31, 2007. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholder’s equity plus Net Debt) increased at the end of September 2008 to 8% compared to 4% at December 31, 2007.

     In the first nine months of 2008, our operations provided approximately $203.2 million in cash flow compared to $186.8 million for the same period a year ago. In both periods, cash flow from operations was primarily derived from earnings before depreciation and amortization partially offset by an increase in working capital needs to support the growth of the business. During the first nine months of 2008, we utilized the majority of the operating cash flows to finance capital expenditures and share repurchases.

     We used $172.4 million in cash for investing activities during the first nine months of 2008, compared to $94.1 million during the same period a year ago. The increase in cash used for investing activities is due primarily to $66.7 million more spent on capital expenditures in the first nine months of 2008 compared to the first nine months of 2007. The increase in capital expenditures is primarily related to the purchase of a building in the U.S. that had previously been leased, the expansion of our Pharma segment facilities in France and Germany, investment in a new worldwide ERP system, and investments related to capacity increases for certain of our product lines. Cash outlays for capital expenditures for 2008 are estimated to be approximately $180 million but could vary due to changes in exchange rates as well as the timing of capital projects.

     We used approximately $30.9 million in cash from financing activities in the first nine months of 2008 compared to $11.6 million in cash provided in the first nine months of the prior year. We refinanced some of our short term variable rate debt with a $100 million fixed rate private placement debt in the quarter. $25 million of the private placement debt has a five year maturity and a fixed interest rate of 5.41% while the remaining $75 million matures in ten years and carries a 6.03% fixed interest rate.

Our revolving credit facility and certain long-term obligations require us to satisfy certain financial and other covenants including:

		Requirement		Level at September 30, 2008
Debt to total capital ratio		Maximum of 55%		26%