The Cooper Companies, Inc. F4Q09 (Qtr End 10/31/09) Earnings Call Transcript

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The Cooper Companies, Inc. (NYSE:TLB) F4Q09 Earnings Call December 8, 2009 10:00 AM ET


Kim Duncan – Director of Investor Relations

Robert S. Weiss – President and Chief Executive Officer

Eugene Midlock – Senior Vice President and Chief Financial Officer

Albert White, III – Vice President Investor Relations and Treasurer


Michael Weinstein

Jeff Johnson

Larry Biegelsen

Steve Willoughby

Larry Keusch

Chris Cooley

[Josh Jennings] for Peter Bye

Amit Bhalla


Good day, ladies and gentlemen, and welcome to the Cooper Companies fourth quarter and full year 2009 earnings conference call. My name is [Chris] and I’ll be your operator for today. (Operator Instructions)

I would now like to hand the call over to our host for today, Miss Kim Duncan. Please proceed.

Kim Duncan

Good afternoon and welcome to the Cooper Companies fourth quarter and full year 2009 earnings conference call. I’m Kim Duncan, Director of Investor Relations, and joining me on today’s call are Bob Weiss, President and Chief Executive Officer; Gene Midlock, Senior Vice President and Chief Financial Officer; and Al White, Vice President Investor Relations and Treasurer.

Before we get started, I’d like to remind you that this conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including all revenue and earnings per share guidance and other statements regarding anticipated results of operations, market conditions and manufacturing restructuring plans. Forward-looking statements necessarily depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the company to differ materially from those described in forward-looking statements are set forth under the caption “Forward Looking Statements” in today’s earnings release, and are described in our SEC filings including the business section of Cooper’s annual report on Form 10-K. These are publicly available and are on request from the company’s Investor Relations department.

Now, before I turn the call over to Bob Weiss, let me comment on the agenda for the call. Bob will begin by providing some highlights on the quarter and fiscal year and then get into some specific details including new products, the market, our strategy and guidance. Following Bob’s remarks, Gene Midlock will comment on the fourth quarter and full year financial results and provide some additional guidance. We will then open up the call for questions.

We will keep the formal presentation to roughly 30 minutes of prepared remarks, followed by 30 minutes of Q&A, so the call will last a total of one hour. We request that anyone asking questions please limit yourself to only one question so we may get to as many callers as possible. Should you have any additional questions following the call, please call our Investor line at 925-460-3663. That’s 925-460-3663, and we’ll get back to you as soon as possible.

As a reminder, this call is being recorded and a copy of the press release is available on our website at under Investor Relations.

And with that I’ll turn the call over to Bob for his opening remarks.

Robert S. Weiss

Thank you, Kim, and good afternoon, good evening everyone. Q4 highlights, obviously we finished fiscal year 2009 very solid. We had a solid quarter and a solid fiscal year.

For the quarter, we generated $58.5 million of free cash flow, we de-levered to 34% debt to total capitalization, we delivered $283 million of revenue, up 6%, 4% in constant currency. Our earnings per share was $0.66 GAAP and $0.67 non-GAAP. This brought our fiscal year 2009 results to a record $1.080 billion in revenue, up 3%, 4% in constant currency, with GAAP earnings per share to $2.21 and non-GAAP which excludes the plant shutdown projects to $2.29. And yes, this was done with accruing bonuses in the fourth quarter of approximately $0.08 per share.

In the middle of delivering the solid earnings we generated $129 million of free cash flow, allowing us to de-leverage our balance sheet from debt to cap that began the year at 39% and finished below 34%. The end result is this was a great year at Cooper in what was not the best economy. The key takeaways for the year, yes, we had a solid quarter and a solid fiscal year; we delivered on our objective to gain share in the $6 billion soft contact lens industry; we delivered on our objective to transition to a cash generator from a cash consumer; we delivered on our objective to execute new product rollouts; likewise we delivered on our objective to set the stage for sustained growth going forward, and also to demonstrate that Cooper search goal is a franchise worth investing in.

Our new products are driving our growth, our emerging silicone hydrogel portfolio is delivering for the quarter. We had $40 million in silicone hydrogel revenue, up 117% versus the prior year and this brings its run rate to $160 million. For the fiscal year our silicone hydrogel sales exceeded $112 million, more than 2X the prior year. While our silicone hydrogel was doing well, our Proclear family of products put up some solid numbers at $70 million in the quarter, up 14%, and $258 million for the fiscal year, up 15% in constant currency.

Geographically our plan to grow more rapidly in Asia Pac is on track for the quarter. In constant currency Asia Pac was up 4% compared to an industry that was down 1%. Europe was up 9%, Americas was up 3% and worldwide we were up 5% in constant currency.

The market continues to prove that it is recession resistant. At the beginning of the year we predicted 0 to 4% constant currency growth, calendar year third quarter was up 4% bringing the nine months year-to-date to 3%. Highlights reflected, our one day worldwide was up 1% constant currency, multi-focals were up 20%, torics up 6%, silicone hydrogels up 21%. Regionally the Americas were up 6%, Europe 9%, and as I mentioned Asia Pac was down 1%.

Cooper Vision is gaining share, growing 1 ½ times the market. We grew 4.6% for the first nine months compared to 3.1% for the market.

A little bit about CapEx and free cash flow. A lot of attention was placed on our capitalization at the beginning of the fiscal year following the financial crisis events of September, 2008. Given our leverage at the time, we responded to the new world; the result was we delivered $129 million of free cash flow versus $50 million that was our initial estimate. We de-leveraged from 39% debt to total capitalization to under 34%. Today, due largely to a tremendous improvement in efficiency, we are running our plants at the low 60% capacity utilization.

We were manufacturing, selling more lenses with 15% less manufacturing headcount at the end of the fiscal year. Following Norfolk shutdown completion, we will have cut our manufacturing headcount close to 30% and still be manufacturing more lenses. Efficiency has translated to a huge improvement in free cash flow, CapEx has gone down due to efficiency, headcount has gone down due to efficiency. This will translate to improving gross margins, operating margins and earnings per share as we complete the shutdown in 2010.

We anticipate our CapEx requirements will stay below $100 million for the next three to five years. We therefore believe we’re still on track to deliver our strategic goal of $1.3 billion in operating cash flow and $800 million of free cash flow over a five year planning period, ending 2013.

CooperSurgical, our women’s healthcare franchise, while women’s healthcare particularly office visits is not as recessionary resistant as contact lenses, we delivered solid results by continuing to take share. There is no doubt that women delay some of their tests and procedures during tough times and by some accounts visits were down as much as double digits this year with the OB-
GYN’s. CooperSurgical finished 2009 delivering 2% growth, a 60% gross margin and a 23% operating margin. With solid results, low capital requirements, low days sales outstanding given its principally a U.S. business and a low month on hand due to the fact that many products are shipped off of a backlog, CooperSurgical as a result delivers a lot of cash. Our strategy of following the OB-GYN out of the office, into the IDF centers, the outpatient centers and hospital settings has been a resounding success. In fiscal year 2009 our sales grew 10% in the hospital products and now account for over one-third of our women’s healthcare franchise.

A little bit about strategy and guidance. We now have given our 2010 guidance. Our guidance expects the market for soft contact lens to exhibit modest growth in 2010. We expect to continue to gain share by de-leveraging our branded product families of silicone hydrogel and Proclear materials. We will continue to expand our Biofinity brand by launching a Biofinity multi-focal in 2010. This will give this great or best in class monthly modality silicone hydrogel the halo effect we’re seeing from our launch of the Biofinity toric in 2009, which saw its sales exceed its initial estimates of $8 million by more than 50%.

In 2010 we will also expand the Avaira brand, our two week modality silicone hydrogel product, by adding a toric. The two week space is primarily a U.S. and to a lesser extent a Japanese phenomena, and one not exhibiting growth in the United States. It remains, however, by far the biggest category in the U.S. accounting for more than 60% of the market. We expect adding a toric followed by a multi-focal will have a halo effect on this brand.

For the Proclear family, which now accounts for 29% of our overall CooperVision revenue, we will continue to emphasize its use as a best in class, non-silicone hydrogel product which is rapidly taking share in the non-silicone hydrogel part of the market, which today still accounts for more than 65% of the $6 billion soft contact lens market worldwide. Our strategy is to leverage the branded family of products and related private labels to target each modality, one day, two week and monthly; in each wear category, sphere, toric and multi-focal; within each geographic territory, Asia Pac, Europe and Americas; and have a best in class, non-silicone hydrogel that targets the 65% but declining non-silicone hydrogel market. That’s Proclear.

With the strength of our Biofinity, Avaira and Proclear brands, we expect to gain share in 2010. We expect the global soft contact lens market to grow 3% to 5% in constant currency and for CooperVision to grow 4% to 6% in constant currency. Given this, we are targeting revenue at the Cooper Companies of $1.1 billion to $1.160 billion or 2% to 7%, with currency having an impact of about 2% plus or minus.

Our earnings per share guidance calls for improving gross margin percentage as well as investing in sales and R&D. We expect a range of non-GAAP earnings of $2.45 to $2.55.

Our guidance for free cash flow is $120 million to $140 million, which reflects about $10 million of cash to be used in 2010 for Norfolk shutdown, which will reduce headcount by another 570 people.

Our strategic initiatives, I’ve mentioned our strategy to round out branded portfolio, Biofinity, Avaira and Proclear. We will also stay focused on lowering our cost of goods sold and improving gross margins to our targeted 60% objective through such steps as better leveraging of our increasingly efficient, high volume plants in the UK and Puerto Rico. Today we are still only in the low 60’s in terms of capacity utilization. I expect we will achieve the low 70’s by the early part of 2011, with the mid-80’s being optimal efficiency.

Revenue growth, improving gross margin percentages, lower CapEx requirements will lead to sustained free cash flow. As I mentioned, in 2010 we will continue to de-leverage our capital structure. We will also re-deploy some free cash flow to expand our women’s healthcare franchise, where in many product categories we are a solid number one globally.

Having a unique U.S. business model makes us a low risk strategy. Having a recession means many properties are available that otherwise might be too pricey in a robust economy.

In summary, before I turn it over to Gene, we delivered a solid Q4 and fiscal year 2009, solid revenue growth, improving gross profits, gross margin percentages, a solid bottom line and superb free cash flow. Our silicone hydrogel families of products are performing above expectation and beat our guidance of $100 million in 2009 by more than 12%. Biofinity toric was targeted at $8 million. It has exceeded its objective by more than 50%. We made good progress in gross profits in the fourth quarter and importantly the Norfolk integration is on track for completion in 2010. This will allow us to step up plant utilization to the upper 60’s, thereby reducing headcount, improving free cash flow and improving our gross profits towards our 60% targeted level as we enter 2011.

The market for silicone soft contact lenses repeated history as it demonstrated yet again it is recession resistant. With the expanding portfolio of our core branded product families, we are optimistic we will continue to gain market share in this great marketplace called soft contact lenses, a $6 billion marketplace.

Our women’s healthcare franchise is unique. We will direct some of our 2010 free cash flow and leverage its uniqueness by closing two to three acquisitions in a marketplace where once pricey deals are now reasonably valued.

With that, I’ll turn it over to Gene.

Eugene Midlock

Thank you, Bob. Good afternoon everyone. Thank you for joining our Q4 earnings call.

I’d like to start with a few aspects of the balance sheet as I have been doing for the last several quarters. As Bob indicated, in Q4 we generated $78.5 million of operating cash flow and had capital expenditures of $20 million, which resulted in $58.5 million of free cash flow. This was an increase from last quarter’s $56 million and hurdle and interest payment majoring the quarter on our bonds of roughly $12 million.

For the fiscal year we generated approximately $129.2 million of free cash flow, of which approximately $123 million was used to reduce total debt to $781.5 million. As an interesting note, our free cash flow per share for the year was $2.84 and we’re quite pleased with that.

Total credit availability is approximately $290.4 million and the $650 million revolver is now around $425 million. We decreased the ratio of funded debt to EBITDA from 3.16 in Q3 to 2.93 in Q4. This will result in additional interest savings of 25 basis points for the next quarter, so the revolver will now be at LIBOR plus 100 for the first quarter of this fiscal year.

We’re pleased that our cash management strategies that we employed are definitely working, and I would like to reiterate they’re not going to negatively impact the future. We have ample manufacturing capacity in the majority of our product lines, and sufficient distribution capacity for the next several years.

Inventories decreased by $22.6 million or 8% from last year, with months on hand at 6.3 compared to 8.1 last year, an excellent job by our supply chain team.

Accounts receivable were also closely monitored with DSO’s at 55 days, down from 59 days last year.

I’d like to now turn to the statement of income. Bob I think summarized our results for revenue quite adequately, so I’ll start with gross margin. GAAP consolidated gross margin was 56% versus 61% in Q4 of last year. For the full year, gross margin was 55% compared to 58% last year. On a non-GAAP basis, excluding the impact of the CooperVision manufacturing restructuring plan, the full year gross margin was 56% compared to 61% in ’08.

CooperVision reported gross margin of 56 versus 61% in Q4 of last year. For the full year it had a gross margin of 54% versus 58% in 2008. On a non-GAAP basis, gross margin was 56% versus 61% last year in Q4, and 55% versus 61% for the full year.

As was the case in prior quarters, in Q4 the continued rationalization of manufacturing operations resulted in several non-cash period charges which negatively impacted CooperVision’s gross margin. These were charges for its manufacturing restructuring plan, inventory and equipment write-offs, idle equipment and of course currency also had a negative impact on gross margin.

CooperSurgical had a gross margin of 57% in Q4 and for the full year its gross margin was 60% compared to 59% last year.

Turning to SG&A expenses, in Q4 SG&A expense increased by 2% from the prior year to $102.9 million, but decreased as a percentage of sales to 36% from 38%. For the full year, SG&A decreased by 9% to $391.6 million and decreased to 36% of revenue from 41% last year.

In Q4, R&D decreased 10% from last year to $8.3 million, but remained at 3% of revenue. For the full fiscal year, R&D decreased $33.3 million or 6% but remained at 3% of revenue. This decrease was the result of a delay in some clinical trials as well as a change in the allocation of overhead to cost of goods sold as opposed to R&D.

Bob mentioned our continued restructuring activity, and as we mentioned last quarter, CooperVision initiated restructuring plan on August of ’09 to realize additional manufacturing efficiencies. Under the plan we will relocate our soft lens manufacturing operations in Norfolk, Virginia and Adelaide, Australia to existing operations in Puerto Rico and the UK. The total cost of the plan is estimated at $25 million with $10 million to be cash related, primarily in fiscal 2010. We recognized $5.1 million of these expenses in fiscal ’09 with the balance to be recognized in fiscal 2010.

As Bob also mentioned we did accrue management bonus in Q4. The compensation and audit committees of the board met and concluded that the manufacturing restructuring plan adapted by CooperVision was in the best long term interest of the company and its shareholders. As such, these charges were excluded from the GAAP financial results for the determination of bonuses and the non-GAAP metrics were used. As a result, we accrued $0.08 per share for management bonuses in Q4. For 2010 we plan to revert to the more standard method of bonus accrual which was used in prior periods.

As a result of the various items mentioned above, our operating margin in Q4 on a GAAP to non-GAAP consolidated basis was 15% of revenue, down from 18% in Q4 of last year. For the full year, GAAP operating margin was 14%, up from 12% last year. On a non-GAAP basis the operating margin was also 14%, down from 16% in ’08. It should be noted that the only non-GAAP adjustments are in cost of goods sold, so the difference is not the result of any operating expense charges.

Interest expense decreased by $1.6 million in Q4 from last year to $10.8 million and this reflects the reduction in interest rates attributable to the maintenance of a strong fund to debt to EBITDA ratio and reduced borrowings. For the full year, interest expense was $44.1 million, down from $50.8 million in fiscal 2008.

Turning to the tax rate, the effective tax GAAP tax rate for the quarter was 6% versus 11.4% last year, and the non-GAAP rate was 6.9% versus 11.4% in 2008. The GAAP tax rate for the full year was 12.4% compared to 14.1% in ’08 and the non-GAAP tax rate was 13.3% versus 11.3% in ’08. And as an aside, the effective tax rate in the quarter was higher than we had anticipated when we provided information in our Q3 call, and that was attributable mainly to two items, one of which was the incurrence of less of the restructuring costs in fourth quarter than we had anticipated in Q3, as well as there was a change in the income tax regulations which required us to allocate a bigger percentage of cost out of the United States to lower tax rate jurisdictions. So that had the effect of increasing our effective tax rate as I mentioned.

Depreciation was $19.2 million in Q4, including $1.3 million of accelerated depreciation. Amortization was $5.4 which included a one time $1.3 million write-off of a CooperSurgical license. The total was $24.6 million in the quarter. For the full year, depreciation was $74.7 million and amortization $17.9 for a total of $92.6 million, including $8.2 million of accelerated depreciation.

Bob indicated our earnings per share for the quarter on a GAAP basis were $0.66 and on a non-GAAP basis $0.67. For the full year GAAP EPS was $2.21 and non-GAAP was $2.29.

Bob provided guidance for next year in connection with revenues. I’d like to give you a few other metrics that you can use in your models. We’re estimating a gross margin percentage of 58% to 60% consolidated. Operating expenses should be in the range of 42% to 44% of revenue. Operating margins should be 15% to 16% and the effective tax rate should be in the range of 14% to 16%.

So with that, I’ll turn the program back over to Kim for the Q&A portion.

Kim Duncan


Question-and-Answer Session


(Operator Instructions) Your first question comes from Michael Weinstein.

Michael Weinstein

The tax rate you’re assuming in the guidance for 2010 if you could clarify that, and then you had such impressive free cash flow in the last six months, why are we not assuming continuations in 2010?

Robert S. Weiss

The range of tax and I’ll let Gene correct me if I miss it, I think it’s 14% to 16% in 2010. And is it 15% to 17% on a non-GAAP basis or something like that?

Eugene Midlock

Probably 16% to 18% on non-GAAP.

Robert S. Weiss

Relative to cash flow, and cash flow of course we had $129 million of free cash flow this year, we’re targeting a range of $120 to $140 next year. You may recall we initially were targeting close to $150. We took $10 off, which is what it’s going to cost us to complete the shutdowns throughout 2010. And the other thing that happened is we were forecasting in around $100 million of free cash flow, as of September we came in at $129 million of free cash flow for this year. Assume part of that was the impressive reduction of inventory. You only get to take the cash out once so we’re assuming we’re getting some in 2010, but we also got some of what we planned on 2010 we brought forward to 2009. So that’s one of the reasons free cash flow wasn’t as good as it was in fiscal year 2009. So hopefully that answers that question. Next question?


Your next question comes from Jeff Johnson.

Jeff Johnson

Hey, just wondering, Gene, if you could review the bonus accrual absolute dollars in the quarter and maybe go through on gross margin for me, just some of the asset write-downs and [net] the amounts as I look to sequentially build my model here over the next couple quarters.

Eugene Midlock

The total dollars accrued in Q4 after tax was $3.7 million roughly which converts to $0.08. As far as the charges, you want a summary of this year’s gross margin, Jeff, or?

Jeff Johnson

Yes. Let’s assume that the charges we’re talking about 2009.

Eugene Midlock

Okay. So in the quarter, CooperVision had roughly 1.3% of the margin for inventory write-offs, roughly 0.9% on asset write-offs, idle plant of 0.7%, accelerated depreciation of 0.2% and manufacturing restructuring roughly of 0.5%. And then CooperSurgical had roughly a 3% write-off of margin for inventory, had product recall of 1.4% and accelerated depreciation of 0.8%.


Your next question comes from Larry Biegelsen.

Larry Biegelsen

On the asset writedowns in the fourth quarter those were not dollar amounts, right? And could you give us the dollar amounts on what you expect going forward so we can build our model that way, please?

Eugene Midlock

Asset write-offs roughly $2.3 million for CooperVision and that’s it. There was none at CooperSurgical.

Robert S. Weiss

As far as going forward?

Eugene Midlock

Going forward I would expect it would decrease fairly significantly from this year. We did some very intensive wall to wall asset inventory analysis, identified that equipment that’s going to be obsoleted for new technology and so forth. So it should drop off fairly significantly next quarter.

Robert S. Weiss

And we’re looking for a range next year of 58% to 60% and obviously one of the key drivers is we will still have some idle equipment next year because we’re under utilizing the plants as we continue to manage down inventory. We’ll have less headwind from currency and then you’re correct that we had some activity the last two quarters, the third quarter and the fourth quarter, relative to some equipment write-offs and to a lesser extent inventory write-offs. So that all translates to improving trends next year and we’ll move into the 58% to 60% range overall.


Your next question comes from Steve Willoughby.

Steve Willoughby

I’m just wondering if you can give us an update on two things. One, when do you expect to restart the Avaira production lines? And then two, and I’m sorry if I missed it, but when do you expect to launch both the Biofinity multi-focal and the Avaira toric?

Robert S. Weiss

Okay, the activity of the Avaira production line, at this juncture we are expecting some time the first high volume piece of equipment will be put into production sometime later in 2010. We’re having very good success with ramping up our what we call fast track, which is proving to be a very supportive and robust production effort. So that has actually helped us delay any need for reactivating the high volume line early in the year.

As far as Biofinity multi-focal we plan on launching both Biofinity multi-focal and Avaira toric in the first half of calendar year 2010. There’s been no change in that target event if you will by mid-year.


Your next question comes from Larry Keusch.

Larry Keusch

Just two things to touch on, the restructuring charges that you took in the quarter associated with Norfolk, I think you had been anticipating that would be closer to $7.5 million and you guys did under $1 million, so if you could just speak to the timing of that restructuring effort. And then the second part of the question is as you think about gross margin on a go forward basis, and you talked about the period costs, should we assume that the second half will really see the step up towards that 58% range, that 60% range that you’re looking for or is it more a steady increase through the year?

Robert S. Weiss

Okay, I’ll take the restructuring costs that Norfolk as far as the timing, it purely is timing. We’re not per se behind schedule in any of the transfers to either Puerto Rico or to the UK. And then I guess there’s a third piece which is some of our warehouse effort going to Rochester, which is a much smaller part. So we’re really talking more about the timing of the accounting for that activity. There has been no change in estimate. The aggregate amount over the two year period is still $25 million all up. So yes, it was a close call on when does that $7.5 million hit, but it’s still going to show up both by way of idle equipment, most of it was not idle but shortening the life, the utilization of the equipment and it was actual termination payments at the end of when we’re done with the needs for certain groups.

As far as gross margin trends, I would assume yes we will pick up and be improving our gross margins throughout the year, so that we would expect to finish and have a stronger gross margin towards the latter part than in the earlier part of the year as we improve efficiency and continue to reduce our headcount.


Your next question comes from Chris Cooley.

Chris Cooley

When you think about your free cash flow target for next year your goal is between $120 to $140, would you characterize for us whether the balance sheet is assumed to be a source of cash or a use of cash or neutral and maybe some color around that? I mean if I could just quickly for clarification, the guidance for fiscal 2010 it assumes only the restructuring charge from the manufacturing program, no other incremental charges in that number on the adjusted EPS number of $2.45 plus.

Robert S. Weiss

Yes, Chris, the only assumption in 2010 is the announced shutdown. No other activity is included in our guidance, the $0.28 I believe it was in guidance. As far as what are the drivers that will assist the $120 to $140 million of free cash flow next year, we’re assuming we’ll probably get another upwards, and Al or Gene correct me if I’m wrong, in the $15 to $20 million range of cash out of the balance sheet, inventory in particular. We already have a good ratio of days sales outstanding so its not that. Our implicit assumption is that we will stay below $100 million in capital expenditures next year and beyond.


Your next question comes from [Josh Jennings] for Peter Bye.

[Josh Jennings] for Peter Bye

So just a quick one on Europe and you showed solid growth there, and if you can just give us some color on what you’re seeing there in that region. And then also if you have any insight into some of the latest efforts by CIBA for injunction hearings in Europe, and whether there’s been any impact on the distribution channel due to litigation if at all.

Robert S. Weiss

Yes, you’re absolutely right. Europe has proved to be a pleasant surprise this year, just like Asia Pac has been a disappointment I think from a global perspective. But what’s driving Europe is very much Eastern Europe, which has taken off and several countries to and including Poland. And we don’t see that slowing up. Its been pretty sustaining and we’re happy with the progress we made individually in that marketplace.

As far as activity in Europe, you may recall that J & J actually won and beat CIBA in the UK. So that’s the one wrinkle throughout Europe where the shoe is on the other foot. And that’s actually one of the wrinkles in terms of any potential for a global settlement.

As far as the activity in the rest of Europe, France and Belgium where injunctions are in place, I’m not aware of any major developments the last three months. And in Germany where we expected there was a possibility that J & J might do well, it’s going slower than we anticipated. So at this juncture there’s been no major development in Germany likewise.

As far as the implications of the injunctions on Cooper and the field, we did have some noticeable impact initially in Belgium when the injunctions took place. There has been no noticeable impact in France because there was a substantial pipeline fill in anticipation of the injunction by [Visicon] and there was also in the case of France other avenues for certain large chains to access inventory. That has not been shut down at this juncture.


Your next question comes from Amit Bhalla.

Amit Bhalla

Can you quantify what type of benefit you’ll see in the gross margin from the Norfolk headcount reductions versus the base business performance? And when those benefits might hit? And then secondly, can you just give us a sense of what the CapEx requirements are for the Biofinity multi-focal and Avaira toric launches?

Robert S. Weiss

The improvement that will show up in 2011, because first we’ll move into inventory before it gets to the P&L, will be ballpark around $15 million, which will be about 1.5% in total. And that will start phasing in. We’ll start seeing some of the benefit in late 2010 and it will accelerate throughout the first quarter of 2011.

Capital requirements for Biofinity multi-focal, we have on order more lines of the Biofinity equipment and there are 12 month lead times so we’re expecting that we will probably order another couple of lines throughout this year, bringing our total line count, you may recall we started off with ten lines that can do any of the spheres, the torics or the multi-focals. We then eliminated two of the ten lines bringing it to eight. We then bought one more bringing it back up to nine and we have already on order one more. That will bring it to ten in 2010.

As far as the Avaira toric is concerned, that is not an expensive capital project in that we are converting existing toric manufacturing equipment in Puerto Rico onto that platform so it’s more conversion than it is buying strictly new equipment. I’m simplifying that a little bit, but by and large it’s not capital cash intense.


There are no further questions at this time.

Robert S. Weiss

Then if there are not, I want to thank everyone for participating in today’s call and with that we’ll be communicating to you our next conference date. I don’t know if we have that yet. We will certainly be communicating that out in the future though.

Thank you again. Good night.


Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a good day.

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