Question-and-Answer Session
Operator
Thank you. We will now begin the question and session. [Operator Instructions] The first question comes from the line of Laurence Alexander of Jefferies you may ask your question
Laurence Alexander - Jefferies & Company
I guess the first question is on the recent... the JV with Site Controls. Can you talk a little bit about your longer term strategy in terms of energy and maintenance savings and whether there should be an extra platform for GCS?
Michael J. Monahan - Vice President, External Relations
Sure. As you know, one of the key factors for our customers, one of the key concerns they've got is energy savings as they go forward. Also as you know, of the total cost of cleaning, our products represent the smallest portion, labor and energy represent the larger portion. So as we are able to deliver better cost efficiencies for our customers, we are able to add more value to them. The energy prices have risen; that's became a greater concern to them. So through products such as Apex and the systems we have with them that help our customers focus on their energy and cost savings, we are able to bring more value through them. We think that Site Controls offers additional potential force over the long term to help further reduce energy costs for our customers.
Laurence Alexander - Jefferies & Company
Just to drill into that a little bit more, you've mentioned in the past that you might eventually be moving into HVAC or air quality. And that is something that they have targeted as well. Is this sort of the... should we look for more work on the quality side of your business.
Michael J. Monahan - Vice President, External Relations
Well in the HVAC, we were referring to GCS on the repair side and in air quality, we are developing solutions on... for institutional and some other divisions and how they would deal with their quality issues on the interior. Site Controls would be different. They would be looking at the energy consumption of those. So that's something that we'll be developing with Site Controls, as we go forward.
Laurence Alexander - Jefferies & Company
Okay. And separately, can you address the arbitration in pest and whether that is settled or if there is anything still pending and how that affects morale in the segment?
Michael J. Monahan - Vice President, External Relations
Well, in terms of where we're at, we have filed an appeal to vacate the judgment on the arbitration award. In terms of morale, I don't think it's had a negative impact on the morale of our folks in the field.
Laurence Alexander - Jefferies & Company
Thank you.
Michael J. Monahan - Vice President, External Relations
Thank you, Laurence.
Operator
Next question P.J. Juvekar with Citigroup.
Unidentified Analyst
Hi Mike. This is Eric Katzman [ph] for P.J. I was wondering if you could talk a little more detail on how SAP implementation is progressing in Europe and when do you expect to see a material improvement in margin?
Michael J. Monahan - Vice President, External Relations
Well, as I mentioned, they have moved to the build stage for SAP. So we have not started implementation. That won't start until summer of 2008 and then we'll be rolling that out over a phase period which I think is about 18 months as we roll it out to those various countries.
Unidentified Analyst
And on Healthcare, how much top-line growth are you forecasting for 2008 and how much growth is weighted for the Microtek Medical?
Michael J. Monahan - Vice President, External Relations
We haven't done our plan yet for 2008. So, we don't have a formal forecast. But I think as we look to Healthcare, our objective is to have that business growing double-digits, going forward and obviously Microtek will be a part of that growth.
Unidentified Analyst
Thank you.
Operator
Next question John Roberts, Buckingham Research.
John Roberts - Buckingham Research
Hi Mike.
Michael J. Monahan - Vice President, External Relations
Hi John. How are you doing?
John Roberts - Buckingham Research
It seems like your stock came under some pressure when Henkel announced their acquisition of National Starch. Did you have any discussions with them during the past quarter about the disposition of their ownership?
Michael J. Monahan - Vice President, External Relations
Yes, we really have nothing to report there. I mean we talk to Henkel all the time but there is really nothing to report. They haven't stated what they are going to do with the shares and I think they will do it in a public way. So until then, we're just kind of waiting and seeing.
John Roberts - Buckingham Research
And then secondly, you mentioned that the wastewater market kind of weighed on the water treatment business. I know it's not big but I didn't think that wastewater is being a big part of your water treatment business.
Michael J. Monahan - Vice President, External Relations
Well to begin, our water treatment business is a small business for us. And the wastewater is a portion of what we do there. It's primarily in the F&B customers and if you lose a few accounts there in a small business, it has an impact.
John Roberts - Buckingham Research
Okay. Thank you.
Operator
Question, Gary Bisbee, Lehman Brothers.
Gary Bisbee - Lehman Brothers
Hi Mike. Couple of questions. You mentioned last few quarters, finished goods cost in Europe, in particular has been an issue, and I guess I wanted to dig into that a little bit. Is that just a product of the de-centralized structure you've had and you are changing there in efficiencies with that or is there some reason you're having a harder time getting pricing in Europe and in other areas?
Michael J. Monahan - Vice President, External Relations
Well I think it's kind of all those things. I mean first of all, we have said before that we don't view ourselves as having a highly efficient supply chain in Europe. The systems there have been set up on a country-by-country basis. So we don't feel that we have got the efficiencies of a highly integrated system throughout Europe and that's part of what we are working for with the ERP system that we are developing in Europe. Secondly, we've had raw material price increases as has others, throughout our raw material prices. That has affected us. And lastly, regarding pricing, that's one of the things that we're focusing on, the sales force training, is to enable our people to get them the right tools and training, to be able to be more aggressive on pricing and get the type of pricing that we need. So I think in answer, Gary, it's all... really all the three things that you touched on. And I think we've got effective programs in place for all three of those going forward. It's just that they are going to take time, and with the sales force training takes time, the ERP takes time, the logistics chains take time to happen.
Gary Bisbee - Lehman Brothers
Okay. Andany updates on the management transition you had there and how that's progressing. Is there... are there any issues within certain countries, now that you are trying to manage the whole thing from one place or is that going pretty much as expected as planned?
Michael J. Monahan - Vice President, External Relations
No, I think it's pretty much as expected. I mean we've said that we are going to our move to our regional headquarters in Zurich. That involves a limited number of people that will be involved in the move. In terms of the management changes, that's already been announced. Jim White was put in place. There was a couple of divisional shifts around there but nothing more than that. So, I think that right now we've got a good team in Europe and they have got a good plan and it's just implementing that plan and getting the time to have those results show up.
Gary Bisbee - Lehman Brothers
And then just one last housekeeping one. What... do you know approximately today, what the interest rate is on your commercial paper program, the rate you're paying?
Michael J. Monahan - Vice President, External Relations
No, 5%, 6%.
Gary Bisbee - Lehman Brothers
Okay.
Michael J. Monahan - Vice President, External Relations
Something like that. I can follow up on that one Gary when I check.
Gary Bisbee - Lehman Brothers
Thank you.
Operator
: Next question Dmitry Silversteyn, Longbow Research.
Dmitry Silverstein - Longbow Research
Good morning Michael, a couple of questions. A number of that have already been answered but looking at your working capital, it's gone up in the quarter which was somewhat unusual looking back at what happened in the previous years. So I am just wondering if there is anything beyond that if you're building inventory anywhere or have any problems collecting accounts receivables.
Michael J. Monahan - Vice President, External Relations
No I think it's primarily the euro.
Dmitry Silverstein - Longbow Research
Okay, so just an impact of a foreign currency.
Michael J. Monahan - Vice President, External Relations
Yes.
A: Dmitry Silverstein: Okay.
Michael J. Monahan - Vice President, External Relations
Yes. Foreign currencies in general, euro in specific.
Dmitry Silverstein - Longbow Research
Got you. And then second quick question on GCS, can you give us an idea of what was the loss rate for the business in the fourth quarter... on the third quarter? And I know you talked about it being somewhat less so in the first quarter... in the fourth quarter. At which point in 2008 can we look for the business to start trending above breakeven?
Michael J. Monahan - Vice President, External Relations
Well, we said second half of '08 is when we expected to break in the profitability.
Dmitry Silverstein - Longbow Research
Okay and the first part of the question, what was the losses on the third quarter compared to the previous couple of quarters?
Michael J. Monahan - Vice President, External Relations
Loss in the quarter is about $5.7 million.
Dmitry Silverstein - Longbow Research
That's quite a bit, I guess it's going back over to beginning of the year in terms of losses. I thought they were supposed to trend down over the year.
C: Michael J. Monahan: Well all we said is the third quarter would be the last quarter in which we saw a large loss. We've said in the fourth quarter... beginning in the fourth quarter we expect to sequentially improve profitability. And the reason of the third quarter was that size is we had extra costs as we completed the ERP system for GCS, number one. Number two is you are running two systems basically in 2007 versus 2006, you get the old system with the new system. And then third, you had additional people onsite at GCS because... basically trying to catch anything that fell out as you went through that implementation process. So we look for the fourth quarter profitability to improve over the third quarter. So to us, it was pretty much as expected to have things running this way.
Dmitry Silverstein - Longbow Research
Okay. Can I have a final...
Michael J. Monahan - Vice President, External Relations
And again that points to the top line improvement, which I think is the exciting part of GCS. As I said, we have seen a sequential improvement from one to five to seven, now to 12% top line growth, and we expect that to continue and as that top line continues, obviously you are going to see that impact profitability as well.
Dmitry Silverstein - Longbow Research
Fair enough. And then the last question on the balance sheet, obviously build up some cash there and turn down your debt, you are going to reverse that with the pending acquisition of Microtek. Are there other thoughts for using the balance sheet beyond just to offsetting dilutions with the share repurchases and kind of steady as you go, dividend increases? Your balance sheet now is getting to be somewhat under leveraged I would say. Is that something that you guys are thinking about?
Michael J. Monahan - Vice President, External Relations
Well first of all our target is 35% to 40% so especially when we get the Microtek acquisition in a few weeks, we expect to be at 38%, so great to be at the heart of that. And we have improved our total debt to total capital from around 30% I think, about year or year and a half ago up to 38% now. Then the last piece is as mentioned before, we're still waiting to see what Henkel does. So I think, we're in a pretty good shape. I think we are appropriately levered at this point and we still have enough room for acquisitions and other events going forward to, let us take advantage of those opportunities.
Dmitry Silverstein - Longbow Research
Did I read you correctly that if Henkel does decide to sell their shares that you will be standing ready to participate in the purchasing some way?
Michael J. Monahan - Vice President, External Relations
We haven't said what we're going to do. We want to see what Henkel puts on the table first and then we'll be able to make our judgment after that. What we've consistently said though is that whatever happens in this situation, we will do what we think is in best interest of the shareholders and we'd do a very shareholder friendly action.
Dmitry Silverstein - Longbow Research
Fair enough. Thank you, Michael.
Dmitry Silverstein - Longbow Research
Thank you. Hey Gary, an answer your question on the commercial paper, it's 4.75%. That's a little high.
Operator
Next question, Ed Yang, CIBC World Markets.
Edward Yang - CIBC World Markets
Hi, Mike.
Michael J. Monahan - Vice President, External Relations
Hi, Ed. How are you doing?
Edward Yang - CIBC World Markets
Great. On the a commercial paper funding for Microtek, is that something that you typically do with acquisitions or are you unsatisfied with some of the rates that are available for longer term funding?
Michael J. Monahan - Vice President, External Relations
No, it's just typical short terms funding for some time.
Edward Yang - CIBC World Markets
Okay.
Michael J. Monahan - Vice President, External Relations
Yes, and as we said... as we see things develop here we'll look at permanent funding options later.
Edward Yang - CIBC World Markets
Okay. On the... in other news, on the staph infections have been in the news lately particularly with schools. Can you mind us what products you sell for the education sector currently? And whether that mix will change going forward as you gain more infection control expertise?
Michael J. Monahan - Vice President, External Relations
Did you say specifically to the educational sector?
Edward Yang - CIBC World Markets
Yes, or in... I guess are there opportunities to leverage some of your new found expertise in healthcare to other areas where you do business?
Michael J. Monahan - Vice President, External Relations
Well I think education is purely one market, but healthcare is the one that's far bigger, as we've talked about before and you saw at our investor day HAI as healthcare acquired infections, is a huge issue in the U.S. It's killing over 100,000 people per year, cost of system over... well over $30 billion a year, and MRSAs are a significant part of that healthcare acquired infection problem. So for us, as we go forward, we'll be marketing not only our products but also training programs etcetera for healthcare schools, other places that have those problems, trying to address those solutions with our products and programs. We've got some products now. We want to develop more as we go forward to deal with the evolving issues in these markets.
Edward Yang - CIBC World Markets
And Mike as you integrate Microtek, are you going to be able to ramp penetration of some of Microtek's products into your other sectors as well? Are there any sort of transferability of those products?
Michael J. Monahan - Vice President, External Relations
Well Microtek's primary product is draping for equipments and patients. So I am not sure if there is much application outside of the healthcare area.
Edward Yang - CIBC World Markets
Okay thank you.
Michael J. Monahan - Vice President, External Relations
Thank you.
Operator
Next question Rob Koort, Goldman Sachs.
Robert Koort - Goldman Sachs
Thanks good afternoon Mike.
Michael J. Monahan - Vice President, External Relations
Hey Robert.
Robert Koort - Goldman Sachs
Question really around what's going on in Europe and how much of what you are seeing is the external environment? Or do you think it's possible some of it may be company specific and how have things changed do you think since your competitor pulled out of the U.S. and got more aggressive in Europe?
Michael J. Monahan - Vice President, External Relations
Well I don't think there has been much change in the competitive situation in Europe since JohnsonDiversey pulled out of the U.S. I think it's pretty much as before. In terms of what's going on in Europe, I think we are seeing where there... a forecast of the slowdown in the general economy but more specific to us, I think that we've said before that while our business in Europe has been doing okay, at 4% to 5% growth we don't think that's good enough. So no matter what the situation, we think that we want to get much stronger growth out of Europe. And that has been our focus and that's why we're doing investments that we're doing across the board in the top line on expenses to drive the bottom line, funding the training for the sales force, the tools for the sales force etcetera, such that we can get much stronger results.
Robert Koort - Goldman Sachs
Okay, thanks.
Michael J. Monahan - Vice President, External Relations
Thank you.
Operator
: Next question Bruce Simpson, William Blair.
Bruce Simpson - William Blair & Company, LLC
Hi Mike. Can you talk a little bit about raw material pricing, where that is, either this quarter or year-to-date versus year ago and then... but the balances between that incremental cost pressure and the incremental revenue you got from price hikes, how those have been trending against one another this year?
Michael J. Monahan - Vice President, External Relations
Well raws are relatively flat to 2006. They have come in, sort of as we have expected them to. In terms of pricing, our pricing has allowed us, as you can see in the gross margin to improve upon that raw material cost and expand our margins.
Bruce Simpson - William Blair & Company, LLC
So, it sounds like the incremental revenue from higher prices has more than offset whatever additional costs you have from raws?
Michael J. Monahan - Vice President, External Relations
Exactly.
Bruce Simpson - William Blair & Company, LLC
Okay that's all I have got this time, Mike. Thanks.
Michael J. Monahan - Vice President, External Relations
Thank you.
Operator
Question, Rosemarie Morbelli, Ingalls & Snyder.
Rosemarie Morbelli - Ingalls & Snyder LLC
Good afternoon, Michael.
Michael J. Monahan - Vice President, External Relations
Hello, Rosemarie. How are you?
Rosemarie Morbelli - Ingalls & Snyder LLC
I am fine. Thanks. Regarding the international business, one of your comments earlier was that you expected that at some point Europe would have or could reach 14% margin and it would be higher for Latin America and Asia Pacific. Where do we stand today? Since Europe is much larger than the other two. Does it have at this moment, a higher margin and the others are catching up and going to be above, or are they already above the European margin?
Michael J. Monahan - Vice President, External Relations
No, Europe margins are in the 9% range and Latin America, Asia Pacific are in the low double-digits. So they are already... Latin America and Asia Pacific are higher. And as far as improvement in Europe, what we've said is we are undertaking a number of efforts to improve those but those are going to take time to show up. We still think that there is a potential to get European margins into the 13% to 14% range, as you mentioned but that's going to depend on us getting the ERP systems in place in terms of us getting the sales force well trained, well equipped to go out and sell more aggressively etcetera. And all those things are at work but they take time to develop. We've just started the rollout to the sales and service force, the ERP doesn't get implemented until starting in the summer of next year. So it's going to take a little time to get those margins but we are confident that we are going to get there.
Rosemarie Morbelli - Ingalls & Snyder LLC
Okay. Are those the only changes or are there other things you are doing in Europe that we should kind of, keep track of?
Michael J. Monahan - Vice President, External Relations
Well, we have talked about the major things that are going on in Europe, the major initiatives, we have got. So I think those are things that we are key.
Rosemarie Morbelli - Ingalls & Snyder LLC
Okay. And then if we look at North America, since the end of the second quarter, have you seen in some of the markets you served the beginning of an impact from the economic slowdown?
Michael J. Monahan - Vice President, External Relations
If you look at lodging for example. Lodging is actually expected to improve in to 2008, if you look at rooms sold. If you look at restaurant trends, it's maybe down a 0.5% this year in terms of traffic but the last few months, we've actually seen improvement in it. So, overall we'd say it's a good, not great environment for restaurants and lodging.
Rosemarie Morbelli - Ingalls & Snyder LLC
And when you look at food and beverage, this is probably where it would be affected more in terms of the breweries and those kind of areas.
Michael J. Monahan - Vice President, External Relations
Yes. We haven't seen any real fundamental changes in those markets.
Rosemarie Morbelli - Ingalls & Snyder LLC
In the corporate expense of $6.8 million this quarter is higher than trend and I understand that you are investing more. But were there some things special, a higher expense, a higher level of investment in this quarter versus what is coming our way or is that close to $7 million the new booking number?
Michael J. Monahan - Vice President, External Relations
Well, corporate expense excluding the special charges was around 6...
Rosemarie Morbelli - Ingalls & Snyder LLC
6.8 you cited.
Michael J. Monahan - Vice President, External Relations
And we think that that's roughly what it's going to be for the foreseeable future.
Rosemarie Morbelli - Ingalls & Snyder LLC
Okay, it was closer to 7 Michael, if I take out the one time tranche. So that brings us closure to $7 million and that is a good number to look forward to.
Michael J. Monahan - Vice President, External Relations
That will be... it will be around of 6, 6.5 range yes, might be a little bit less next year.
Rosemarie Morbelli - Ingalls & Snyder LLC
Okay and then lastly if I may in the margin decline on the other services. Is it because of the higher expenses on GCS or has pest somehow lost a little bit of its margin?
Michael J. Monahan - Vice President, External Relations
No, it's GCS.
Rosemarie Morbelli - Ingalls & Snyder LLC
Totally.
Rosemarie Morbelli - Ingalls & Snyder LLC
Yes.
Rosemarie Morbelli - Ingalls & Snyder LLC
And then, and so did margins there... pest for margin improved or was it flat?
Michael J. Monahan - Vice President, External Relations
Pest margins were similar to last year.
Rosemarie Morbelli - Ingalls & Snyder LLC
Okay. All right, thanks a lot.
Michael J. Monahan - Vice President, External Relations
Thank you.
Operator
Question Chris Shaw, UBS.
Chris Shaw - UBS
Hey Mike, how you doing?
Michael J. Monahan - Vice President, External Relations
Good Chris. How are you?
Chris Shaw - UBS
Good. Just curiously on... in Europe you talked about mix. I just want to figure out maybe if I can figure it out in the future but what shifted in the mix exactly and what was driving that shift?
Michael J. Monahan - Vice President, External Relations
There is a little more equipment than chemical.
Chris Shaw - UBS
It's simply that?
Michael J. Monahan - Vice President, External Relations
Yes, in the F&B and the professional products area.
Chris Shaw - UBS
Okay. And then also... what's the... have you guys been adding sales force? Then sort of where is that standing right now because I know you guys often give a stat to that.
Michael J. Monahan - Vice President, External Relations
Well we expect for the full year to be up about 4% to 5%.
Chris Shaw - UBS
That doesn't change.
Michael J. Monahan - Vice President, External Relations
Yes. Really no change there. Pretty much across the board.
Chris Shaw - UBS
That's all I have. Thanks Mike.
Michael J. Monahan - Vice President, External Relations
Thank you.
Operator
[Operator Instructions]. Next question Mark Gulley, Soleil Securities.
Mark Gulley - Soleil Securities
Hey Michael. I have three questions. When I go back to the investor day, I think one of the strategies in Europe might have been to try to gain some market share at the expense of competitors, either JohnsonDiversey or smaller ones. Are you able to do that now with all the changes going on or is that on hold?
Michael J. Monahan - Vice President, External Relations
No, I mean we're still targeting to take share from the competitor, I mean. What we're trying to do is layer on improve training for the sales force to make them better than they are today. That's all. So, we continue to be aggressive. We continue to focus on taking share from competition. We continue to focus on delivering better service solutions to our customers. Just as we always have. We've got a new renewed focus on new products. So, what we hope to do is layer on top of the sales force, more effective tools and their arsenal to approach customers to be more effective in selling, better penetration, through customers, more products and solutions to customers.
Mark Gulley - Soleil Securities
Okay. Second question was can we expect to see more healthcare-related acquisitions given your emphasis on that... conference?
Michael J. Monahan - Vice President, External Relations
Absolutely.
Mark Gulley - Soleil Securities
And then can you provide any color there? What does the pipeline look like... what does the prices and deals look like? That sort of thing.
Michael J. Monahan - Vice President, External Relations
Well, I mean healthcare acquisitions are going to be more costly than the non-healthcare acquisitions, simply because of the growth and profitability of those businesses. In terms of the pipeline, we've got a number of deals we're looking at, but there's not much more I can say because as you know a deal isn't final until you've got to sign the deal.
Mark Gulley - Soleil Securities
Last question is... when you move people from Dusseldorf to Zurich, will it be a non-recurring charge you'll take for that relocation and will the smaller corporate staff in Zurich have a meaningful impact on European margins?
Michael J. Monahan - Vice President, External Relations
Yes there will be a charge. It's in the special charge, so that's viewed as a non-recurring factor for the relocation, for the people, the incentives to moves etcetera.
Mark Gulley - Soleil Securities
That was part of that in the third quarter, did I miss it or it's more like comp?
Michael J. Monahan - Vice President, External Relations
Just a tiny bit in the third quarter, there is more that will be shown in the future quarters but again that will show up in special charges.
Mark Gulley - Soleil Securities
Right, again will that have an impact on overall European margins when that's all taken care of, those costs are out or is it pretty de minimis?
Michael J. Monahan - Vice President, External Relations
Yes, it's a little too early to talk about that part of it. Again the move costs are special charges that will be specifically identified, since you will be able to see those.
Mark Gulley - Soleil Securities
Yes, thanks Mike.
Michael J. Monahan - Vice President, External Relations
Thanks. I mean ultimately Mark, as you know the reason for all this stuff is to improve European margins. We believe that the regionalization will allow us to grow faster and operate more efficiently in Europe and that's the goal of these activities that we're doing.
Mark Gulley - Soleil Securities
Thank you.
Michael J. Monahan - Vice President, External Relations
Thanks.
Operator
Next question, Robert Felice, Gabelli & Company.
Robert Felice - Gabelli & Company
Hi Mike. Most of my questions have been answered; just have one or two more. You mentioned that GCS lost $5.7 million during the quarter, what's the year-to-date loss?
Michael J. Monahan - Vice President, External Relations
I've got to take a look here, about $13 million.
Robert Felice - Gabelli & Company
Okay and then by how much do you expect to narrow that in the fourth quarter, off of the $5.7 million this quarter?
Michael J. Monahan - Vice President, External Relations
We haven't forecasted operating margins or profits by division, but we think will be improving over the fourth quarter.
Robert Felice - Gabelli & Company
Okay but still, operating at a fairly large loss?
Michael J. Monahan - Vice President, External Relations
Well it will be a smaller loss than the third quarter, and we expect the loss to sequentially decrease through the second half of 2008 when we expect it to turn profitable.
Robert Felice - Gabelli & Company
Okay I guess, what I am trying to pin down is as you look to '08, by how much of a tailwind do you expect GCS to be. So it looks like it will probably be somewhere around $16 million or $17 million loss for the full year. How much do you expect to narrow that gap in '08?
Michael J. Monahan - Vice President, External Relations
I think you probably are looking at $10 million to $12 million swing.
Robert Felice - Gabelli & Company
Okay so probably $0.03 to $0.05 benefit?
Michael J. Monahan - Vice President, External Relations
Yes.
Robert Felice - Gabelli & Company
Okay. Thanks for helping me with that.
Michael J. Monahan - Vice President, External Relations
Thank you.
Operator
Our last question comes from Jeff Zekauskas, J.P. Morgan.
Jeffrey Zekauskas - J.P. Morgan
Hi. Good afternoon, Mike.
Michael J. Monahan - Vice President, External Relations
Hi, Jeff.
Jeffrey Zekauskas - J.P. Morgan
At the beginning of your call, did you break out volumes, price, acquisition and currency for the company as a whole?
Michael J. Monahan - Vice President, External Relations
Yes, we did.
Jeffrey Zekauskas - J.P. Morgan
Could you remind me what those numbers were? Forgive me.
Michael J. Monahan - Vice President, External Relations
Sure. Volume and mix was 5%, pricing was 2%, currency was 3% and acquisitions were negligible.
Jeffrey Zekauskas - J.P. Morgan
And with oil prices having stepped up sharply over the past few weeks, does that make a difference to your raw material profile or does it not?
Michael J. Monahan - Vice President, External Relations
Yes, it does. But remember that one of the bigger issues is the capacity situation.
Jeffrey Zekauskas - J.P. Morgan
I am sorry, the capacity situation?
Michael J. Monahan - Vice President, External Relations
Well that, while oil prices are a significant factor in our raw material costs, probably the greater factor is that there is not an access to supply. And therefore as the dollars weaken, we have seen greater exports of product. There's now lot of excess capacity to allow our pricing to decline.
Jeffrey Zekauskas - J.P. Morgan
Just lastly, do you have longer term gross margin targets?
Michael J. Monahan - Vice President, External Relations
We do. I mean the target is basically higher. What we have said is, we would like to have them exceed the 2004 level but beyond that we don't have a specific numerical target because the way we view it is we want to continue to grow our gross margin. The second thing is as our model develops if we get more service businesses, that will have an impact on the gross margins because you know they tend to have lower gross but also lower SG&A and therefore you can have comparable, if not better, operating margins. What we focus on at the end of the day is the operating margins and that's where we are going to continue to focus our efforts to improve our results.
Jeffrey Zekauskas - J.P. Morgan
Do you have longer term operating margin targets?
Michael J. Monahan - Vice President, External Relations
We do. I mean our objective is to grow at about 50 basis points per year.
Jeffrey Zekauskas - J.P. Morgan
Thanks very much.
Michael J. Monahan - Vice President, External Relations
Thank you.
Operator
I would like to turn the meeting back over to Mr. Michael Monahan for closing remarks.
Michael J. Monahan - Vice President, External Relations
Well everyone thanks for your time today. We appreciate your attention and have a great week. Thank you.
Operator
Thank you for participating in today's conference. You may disconnect at this time.
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