Bausch Health Companies Inc (BHC) 2003 Q2 法說會逐字稿

Welcome to the ICN Pharmaceuticals second quarter 2003 earnings results conference call. (CALLER INSTRUCTIONS). At this time for opening remarks and introductions, I would now like to turn the conference over to Ms. Eileen Pruette, General Counsel of ICN. Please go-ahead.

Good morning and welcome everyone to today's call. Before we begin the call, I would like to call your attention to the fact that this presentation may contain forward-looking statements that may involve risks and uncertainties including but not limited to projections of future sales, royalty income, operating income, regulatory approval processes, litigation related to and competition from generic products, success of efforts to develop, acquire and market new products and to refocus marketing of existing products, marketplace acceptance of the Company's products, success of the Company's strategic repositioning initiatives and the ability of management to execute them, cost-cutting measures and other risks detailed from time to time in the Company's Securities and Exchange Commission filings. In addition, certain information related to this presentation is furnished in the investor relation's section of the Company's Web site at www.icnpharm.com pursuant to the rules and regulations of the Securities and Exchange Commission.

On the call today are Robert W. O'Leary, ICN's Chairman and Chief Executive Officer, Timothy C. Tyson, President and Chief Operating Officer and Bary G. Bailey, Chief Financial Officer. Wes Wheeler, President North America, Willi Wu, Controller, and Phil Loburg, Treasurer, are also here and available to answer questions during the Q&A session.

Now I would like to turn the call over to Mr. O'Leary. Rob?

Thank you Eileen. Good morning everyone. Thank you for joining us on today's call. This morning, we announced our second quarter results for 2003. Revenues from continuing operations in the second quarter were 183.5 million, slightly ahead of the second quarter last year. Revenues include strong performance from our specialty pharmaceutical business in which product sales are up 15 percent over the second quarter last year Partially offset by 21 percent decline in royalty revenues at Ribopharm. Income from continuing operations in the second quarter totaled 17.4 million or 21 cents per diluted share compared with 21.9 million or 31 cents per diluted share in the second quarter last year after you exclude the nonrecurring and unusual items that were booked last year.

Second quarter results also show strong improvement over the first quarter of this year. It demonstrates our continued strategic execution with momentum building in our core business. Revenues in the second quarter were up 19 percent over the first quarter this year while income from continuing operations was nearly 30 percent higher than the previous quarter.

Bary, Mr. Bailey, will walk through the detailed financial results with you in a few minutes. I'd like to give you an overall perspective on the quarter however and point out the factors that drove our performance.

Consistent with our strategic direction announced in November last year, we are pleased to report our renewed focus on our specialty pharmaceutical business has begun to bear fruit. Specialty pharmaceuticals performed remarkably well this quarter, better than our own expectations and decidedly ahead of last year. The improvement in this business was primarily driven by strong performance in North America and Europe both of which came in well ahead of expectations and the prior year.

Our emphasis on North America, the world's largest pharmaceutical market, is bearing fruit as well. With the impact of wholesale inventories in the US behind us behind us and with solid performance by our leading products, our North American business turned in a very strong quarter and is beginning to build momentum that augers well for the future.

Although sales in Latin America were slightly ahead of last year, our business is facing challenges due to economic pressures and reduced government funding. Tim, Mr. Tyson, will tell you more about how we're dealing with these issues by wrapping up our sales force and redirecting our sales efforts toward retail pharmacies, which are becoming an important focus of sales in Mexico. Tim will talk about each of our regions in more detail shortly, including an update of progress on our strategic plans.

Our Ribopharm operations experienced the greatest challenge this quarter. As you know Ribopharm operations are driven by royalties from the sale of ribavirin by Schering-Plough and Roche. As ribavirin shared with you in the second quarter results this past week, royalty revenues were down more than 20 percent from the second quarter last year. I know that many of you follow ribavirin very closely and are well aware of the challenges reported by Shering with respect to market competition from Roche and trade inventory levels in the US since early this year. These challenges certainly did not go away in the second quarter. In addition the recent lower cost summary judgment ruling in our patent litigation in favor of the generic manufacturers has cast a cloud over branded ribavirin sales in the United States for the remainder of this year.

Because of this decision, we believe that Shering and Roche will face generic competition in the US much sooner than some may have expected. This could have a significant impact on Ribopharm royalty revenues in 2003 and of course our bottom-line. The confluence of these recent events has created an environment that makes it difficult for us to have any visibility into future ribavirin sales at this time. Plus, it's problematic to make any projections of Ribopharm's royalty revenues.

In spite of this challenge, we're driving the Company toward profitable business model that will not depend on royalty revenue for future growth while managing our business toward long-term growth and shareholder value. We believe our efforts are already being realized in the stronger and more sustainable performance this quarter from the specialty pharmaceutical business and we are just beginning.

As Tim will indicate, we're finalizing the strategic plans we have been talking about all year that will dramatically increase efficiency in our operations and also, drive top-line growth in our business.

It's important to note to you that the new management team, Tim and Wes, have been here nearly six months and we are on the cusp of announcing some significant improvements, we believe, in our operations that will dramatically improve things for the future. While it's perhaps a little premature to share the specifics of those details with you now, Tim will give you additional texture about where we are going and we do expect to be making major announcements in the not too distant future about those efficiencies now moving forward very aggressively and expect to have more to share with you in the near future.

With that, I will turn the call over to Tim for a review of the specialty pharmaceutical operations.

Thank you Rob and welcome everyone. As Rob indicated, our specialty pharmaceuticals business this quarter turned in a very strong performance growing 15 percent growth compared to the same time last year. This performance was driven largely by North America and Europe. Latin America sales were up slightly compared to last year but as Rob mentioned, faced some challenges this quarter. I will spend a few minutes talking about regional performance, highlight product contributions and specific initiatives that are already underway.

We are very encouraged by the improvements in our North American operations. We consider North America to be our most important market opportunity. It represents about 50 percent of the overall worldwide pharmaceutical market. Yet, North American sales for ICN in the past have only represented about 20 to 25 percent of our overall sales. We view the potential upside opportunity in this market to be significant.

Our decision to concentrate more effort in this important market is already paying off. North American product sales of $26.1 million this quarter increased 34 percent over the same period last year and 70.6 percent over the first quarter of this year and operating income increased 89 percent in the second quarter to $9 million compared to the same period last year. This significant improvement was driven by several factors.

Firstly, as we indicated last quarter, our wholesale inventory efforts in the United States were completed in April, two months ahead of schedule. Our second quarter therefore, includes about two months of sales that more closely reflect retail demand, whereas last year at this time, we were just beginning these inventory reduction measures. We continue to carefully monitor wholesale buying patterns to assure that wholesale inventories remain properly aligned with retail sales.

Secondly, our new promotional efforts and focus have resulted in stabilization and growth of our core dermatological products in North America specifically, Efudex and more recently Kinerase. Efudex continues as the actinic keratoses market leader with a 51 percent market share in the United States. In spite of a new competitive product introduction, Efudex has recaptured about 2 percent market share since the fourth quarter 2002 for IMS data. Kinerase, an antiaging cosmeceutical, has shown significant growth in the past several weeks following a revised focus and extensive media coverage. We recently resized and restructured our U.S. sales force to increase reach and frequency in the specialist community and expect sales of our dermatology products to contribute to future growth. Our recent re-launch of Oxsoralen, an effective puba (ph) treatment for severe psoriasis, will also contribute to future growth.

Mestinon, our leading global brand and product for the treatment of myasthenia gravis continues to be a strong global product. Our generic defense strategy in the United States, implemented in January 2003, has been highly effective at retaining business, about 15 percent above typical generic erosion models. Sales of Librax, a product used in gastrointestinal pain and cesamet, a synthetic cannaboid sold in Canada, also showed strong performance this quarter.

Finally, a focus on managing expenses and gross margin while investing in appropriate promotional activities has resulted in the 89 percent improvement in operating income previously mentioned.

European product sales of 59.3 million were also well ahead, increasing 20 percent. Operating income in Europe of $9.3 million was 59 percent ahead of last year. Europe's strong results were primarily driven by sales of products in the infectious disease and specialty neurology categories. Major contributors were Virazole, Ancotil and Mestinon.

Virazole was approved in Russia for the treatment of HFRS, a viral disease, and has seen significant use in the treatment of RSV and other adenyl (ph) viruses. Mestinon performed well as a result of strong promotion in conjunction with the Myasthenia Gravis Association.

Dermatix, a new product for the treatment and management of scars, has been launched in Germany, the United Kingdom, Austria, Switzerland, Spain and Holland. Initial market feedback has been very favorable. This product will be launched in a number of additional markets in the coming months.

These impressive results were achieved in spite of tremendous challenges with German health care reform, reference-pricing legislation in Spain and Italian price control.

Latin America sales totaled $33.7 million in the second quarter and although representing a 3 percent increase over the prior year, we experienced a number of challenges in Latin America this quarter. Latin America sales reflect a negative currency impact, lower sales volumes due to generic competition and weaker market demand. In Mexico, the market most significantly impacted, we have realigned our sales force territories and increased our sales force by about 100 sales representatives. We have also revised our targeting strategies to improve sales force efficiency and effectiveness. As pharmacies now play a major role in generic switching in Mexico, we've also begun pharmacy calls to reduce pharmacy substitution for our products. We've launched two new regional products in Mexico during this quarter, Isophase (ph), an antiacne product, and Uridol (ph), a combination muscle relaxant and analgesic.

Clearly, our core business has shown remarkable improvement this quarter, but we know that we have a lot of work ahead of us in order to build a sustainable business model that will deliver meaningful value.

Since the beginning of this year, we've been sharing with you our thoughts on ICN's overall strategic direction. Though we are not ready to discuss the details quite yet, we are working aggressively to finalize our strategic plan for driving profitability and shareholder value. In our strategic plan, we will lay out the markets where we will focus our attention, the core brands that will drive performance on a global, regional and local level along with our sales and promotional efforts towards these brands. We will also discuss our internal and external strategies to drive future growth. In addition, really detail our master plan for delivery on our commitment to restructure our operations to a comprehensive global manufacturing and supply chain rationalization effort that we expect will significantly reduce our costs. We are also developing a plan to leverage our international buying power through global procurement initiatives.

Our teams have already begun many of these efforts. We are moving forward aggressively with our growth plan and identifying key acquisition targets. We are working on 20 to 25 line extension and reformulation opportunities internally and are busy evaluating business development opportunities that will expand our portfolio. We also expect to soon be able to communicate other opportunities for significant cost savings. You already know about our previously disclosed $21 million reduction in G&A. We experienced additional improvements this quarter. We're developing plans to reduce inefficiencies and to develop additional financial benefits for the Company. We are also focused on research and development through our excellent scientific capabilities at Ribopharm and our reformulation efforts at ICN.

Now Bary will provide you with a detailed review of our financial statement. Bary?

Thank you Tim and thank you everyone for joining us. You've heard a lot already regarding our improvement on the top line. I am going to focus most of my discussion on the bottom line and then discuss our cash position and the balance sheet.

We report three primary measures of bottom-line performance, net income, income from continuing operations and loss from discontinued operations. I will spend most of my time talking about income from continuing operations as that reflects our ongoing business.

Looking straight at the income statement you can see that income from continuing operations in the second quarter totaled 17.4 million or 21 cents per diluted share compared to 50.6 million or 56 cents per diluted share a year ago. It's important to note as Rob highlighted earlier, similar to the fourth quarter, the second quarter had no nonrecurring or unusual items reflecting our return to more normalized operations. You may recall however, that last year's results were significantly affected by nonrecurring and unusual items as well as a gain reported on the Ribopharm initial public offering. Nonrecurring and unusual items in the second quarter of last year totaled 179.9 million and consisted primarily of expenses recorded as a result of the change in board and management occurring after last year's proxy contest and our strategic repositioning and expenses related to the Ribapharm IPO.

In addition, we recorded a loss in the second quarter of last year of 43.3 million on the repurchase of debt related to the Ribapharm IPO. Excluding these items, income from continuing operations in the second quarter of last year was 25.9 million, a 31 cents per diluted share.

With respect to the second quarter, earnings were negatively impacted by the effects of fluctuations in foreign currency. On the top line, our revenues were positively impacted in the aggregate by approximately $6 million. Operating expenses were similarly impacted but to a greater extent, resulting in foreign currency having a negative impact from income from operations of $1.4 million. In addition to the impact on income from operations, foreign currency fluctuations affected other income as a result of our cash management efforts.

As you may recall, ICN has had the long-standing practice of preserving the economic value of our cash holdings by keeping the majority of our international cash balances in U.S. dollars. While this mitigates local economic and political risk and helps us particularly in Argentina, the results and periodic gains and losses for accounting purposes when we translate to local U.S. dollar cash assets into local currency for financial reporting purposes. When we then translate the local currency financial statement back into U.S. dollars for GAAP reporting, an equal and offsetting entry is recorded in stockholders equity. As a result, in the 2003 second quarter ICN recorded approximately 6 million of losses in other expense due to the weakening of the U.S. Dollar in relation to the Euro, Canadian dollar and Mexican Peso. In the same period last year, ICN recorded $5 million gain from similar cash balances when the U.S. Dollar was strengthening. Essentially the recent weakening of the U.S. Dollar resulted in $11 million swing from a gain to a loss for financial reporting purposes when comparing this quarter to the same period last year while on true U.S. dollar economic terms, the Company experienced no impact.

The foreign currency fluctuation in other income were eliminated from the latest quarter and the same quarter in the prior year. And the same shares used in the respective diluted EPS calculations were used, as well as the respective tax rates of 38 percent and 38 -- 37 percent. The impact to earnings per share in the second quarter of 2003 would be an increased EPS of 4 cents while in the same quarter in 2002 would experience a reduction in EPS of 3 cents. We are taking steps to mitigate the impact of foreign currency though on a prospective basis.

Gross margin for the quarter of 63 percent reflects a decrease when compared to 68 percent in the same period last year. The decrease is primarily due to a change in the geographic mix in sales, inefficiency in our plant manufacturing operations in certain regions and certain costs incurred to facilitate the execution of the Company's strategy related to the rationalization of the Company's global manufacturing and supply chain.

Selling expense in the current quarter increased over the same period last year resulting in an increase in sales. G&A expenses were lower in the current quarter versus the same period last year reflecting our continued efforts to maintain strict control of overhead costs.

ICN recorded a loss from discontinued operations in June 2003 quarter of 2.6 million compared to a loss of 18.2 million in the same quarter last year. Included in income this quarter was a loss of $6.6 million, net of related tax benefits on the sale of our Russian operations and the research products and diagnostic division of our ICN Biomedicals. Prior period amounts have been reclassified to properly reflect the discontinued operations.

I must note the remaining businesses to be divested include the Dissymmetry (ph) division of Biomedicals and our manufacturing operations in the Czech Republic and Hungary. The net book value of these businesses net of related tax amounts and I must note accumulated translation, totaled $25 million at June 30. Without accumulated translation, the amount is as reported on the financials in the attachments to the earnings release is 29 million. We continue to receive strong interest in these businesses and remain on track to complete their disposition before the end of this year.

Cash at June 30 totaled 402.3 million. Let me put this number in perspective. One year ago, our cash balance was 288 million. At the end of 2002, it was down to 245 million. Just one quarter ago, cash was 302 million. For the balance of 402 million at June 30 represents a significant increase than last year and is nearly 100 million higher than reported last quarter. Our divestiture activity so far this year has added 55 million in cash and we believe our cash on hand therefore, is sufficient to fund our ongoing operations for the foreseeable future even after funding the acquisition of the 20 percent interest in Ribapharm held by third parties.

I want to conclude my remarks with a few brief words about our past guidance. I remind you that the previous guidance we gave of $1.20 to $1.25 per share for 2003 included an assumption that Ribapharm's royalty revenue would be consistent with those reported in the previous year. As Rob mentioned at the start of our call, recent events in the hepatitis C marketplace, the summary judgment position from the lower court in our patent litigation last month, has caused us to step back and question past assumptions on Ribapharm royalty revenues in 2003. In light of these uncertainties about the royalty stream, we are no longer comfortable with these assumptions. As we gain more clarity, we ought to have more to share with you later this year we hope to have more to share with you later this year. We believe however, that our specialty pharmaceuticals business remains on track and we expect to meet or exceed our expectations for this business.

With that, I will turn the call back to Rob for closing remarks.

Thank you Bary and thank you Tim. As you heard this morning, we continue to execute on a number of fronts. Our specialty pharmaceutical business has shown remarkable improvement and is beginning to gain momentum. Clearly, we have a lot of work ahead of us but we also have a lot of opportunities. We believe ICN is on the right path toward sustainable growth.

We also continue to make excellent progress in our strategic repositioning efforts. We are barely halfway through the year and our teams have been able to divest our most challenging operations and to do so well ahead of schedule. The interest level in our remaining divestitures operations is very high. We now are confident we will wrap up our divestiture activities by the end of the year.

While the Ribapharm royalties represent a near-term challenge in the U.S., our focus is on the specialty pharmaceutical business. We have a number of initiatives now in the final stages of development to improve this business. We hope to share these with you soon. We're managing our business toward long-term growth and shareholder value and we hope to share our confidence and excitement with you about the future.

We have all seen the developments in our tender offer for Ribapharm including the press release issued yesterday morning regarding the amendment and extension of our offer. We are obviously pleased that we have reached an agreement with the Ribapharm board with regard to eliminating the rights plan. Because the tender offer is ongoing and subject to continued litigation, our ability to answer questions on the call today may be somewhat constrained.

This has been a challenging time for all concerned at Ribapharm. But I want to take this opportunity to acknowledge the high respect and admiration we have for the scientists and employees of Ribapharm and the extraordinary work that they have done and continue to do, throughout this process.

Thank you for your time today. We would now like to open up the call to questions. Operator, may we have the first question please?

Please limit yourself to one question at a time. (CALLER INSTRUCTIONS) David Hoon (ph) of Advent.

Hi. Can you tell me what capital expenditure was for the quarter and also what cash from operations was?

Phil Loburg, Treasurer?

Yes. Cash was running in the 20s for the year and was approximately 3 million for the quarter and operating cash flow we will have with our 10-Q filing, Dave. You can get EBITDA off our table (inaudible).

Tony Fineli of Sandspoint Partners (ph).

Yes hi. I am wondering if you could, given the patent situation with Ribapharm, kind of go through the logic for purchasing it back rather than just sort of letting it go away?

This is Rob, Tony. Our view is that the interest and focus there on Ribapharm is primarily in the future, the R&D capability within the Company and the scientific personnel and what's in the pipeline in the laboratory. The royalty stream was always not necessarily the strong part of that -- looking at that. It's always been something that gives us an eye toward the future and we think that future has strong potential but obviously, for much of this discussion, there are some differences of value on that subject but we think at this price, it is still very much worth doing.

Dan Lewchanski (ph) of Merrill Lynch.

Yes. I was curious about the RNA acquisition, why you would choose to use the cash rather than use equity as some of the other companies in your industry have done, do a stock swap? What your thoughts on that were?

This is Bary Bailey. We have had a number of discussions with both ICN and RNA shareholders on this topic. As you know from a cash standpoint, the returns in the market are not that great. When we look at the relative return on investment and what we as management and board, view as the value of our equity we felt that was the most appropriate currency to use for the acquisition.

I would add we have a growing confidence in the specialty pharmaceuticals ability to generate cash, as well. And frankly, we think, while we have no specific plan, this is certainly only the first step in our growth plan. We want to save our equity for future possibilities.

Cliff Tanaker with ITrust Capital (ph).

Yes, good morning.

Good morning.

I wanted to ask you at the end of the second quarter, what was the total of the assets of discontinued operations? Was that 29 million?

This is Bary again. Yes, it reflects 29 million but that number does not include the impact of the accumulated transition that is over on in the equity section. That's why I gave you the net number as 25 million, when you take that into account. Compared to what was reported in the first quarter where we had about 148 million, we sold the Russian business for 55 million; we sold the diagnostics and research business in our Biomedicals. We reflected a tax benefit that is now up in the regular set of the financials instead of down in discontinued operations, so that carries some of that difference from what was in the first quarter.

If I could underscore, one of the reasons the numbers on the discontinued operations at this particular -- at the end of this quarter look a little different is because of what's happened in our Biomedicals sales. The Biomedicals business was comprised of three pieces, research products, diagnostics and dysymmetry. Diagnostics and research products were the weaker elements of that business by far, dysymmetry being the jewel in that package but unfortunately, those two businesses were on the books at a higher value. So we now have less to sell than most -- the piece of that Biomedicals business that is likely to bring us the finest return.

(CALLER INSTRUCTIONS). David Hoon of Advent.

Could you comment on your dividend policy and also, if you have any plans for restructuring your debt?

This is Bary again. We have a long-standing policy of paying dividends. We have not changed the policy. The Board has not. I have not heard any plans to do so for the near future.

Relative to restructuring debt, as you are aware, that is a convertible. The conversion feature is somewhat out of the money, I will say, and the yield on it on a relative basis if you exclude the conversion feature, is not bad. We are obviously though cognizant of what's going on in the marketplace and the relative cost of other opportunities and so, we are looking at those but we don't have any formal plans at this time.

Thank you.

Steve Forrest of Milton Partners (ph).

It's actually Mike Honeggar (ph). I was wondering on the RNA acquisition, could you explain to us a little more the significance of raising the minimum condition to 2/3?

Is it Mike?

Yes.

Mike, this is Rob. There's not much to explain. It was an element insisted upon by the Ribapharm board. It was an element of negotiation.

Stephen Long of Cafe Capital Financial (ph).

Hi good morning. Thanks for taking the question. The first question is on the guidance, are you ready to give a minimum range at this time?

This is Bary. No. As we mentioned in the prior discussion, we will be coming back to shareholders in the later part of this year as we get more information but we are very positive about our prospects on the specialty pharmaceutical business as we move forward.

Dan Lewchanski of Merrill Lynch.

I wondered if you could illuminate a little bit more on your mentioning of acquisition of line extensions and just sort of in a general way, what your plans are? Thank you.

Okay, this is Tim Tyson. Thank you Dan for the question. Our growth strategy is to focus on the major markets in the world, the top 10 that represent about 85 percent of the worldwide market and a couple of key products and to supplement those with lifecycle management activity for reformulations and line extensions of products that we believe there is opportunity to influence and to grow. We are also looking for opportunities to add to our portfolio through acquisition of products that have some synergy with our key therapeutic areas in the specialty pharmaceutical business to be able to accelerate our growth.

I would add Dan, that ICN had not historically had what you would call an ongoing lifecycle management program so that we have a number of older drugs, more mature drugs that should have been -- had reformulation efforts started at an earlier point in their lifecycle. What Wes Wheeler, the head of our global marketing program in North America and Tim have done in these few short months is begun the catch up phase of starting reformulations on the most attractive opportunities within those existing products and put in place a process that will begin to initiate for our future earlier reformulation and line extension activities in the lifecycle of our less mature drugs, as well. So we are basically doing a catch up piece of work now which will have some nice benefit for us as we get into later in the year and next year and we are putting a process in place much like our attitude on how we handle inventory so that we don't ever find ourselves in this sort of position again. But we should expect that because we've been behind and not had the advantage of this kind of activity in the past, somewhere in the months ahead, we are going to get somewhat of a double bump from the catch up and from now having in place an ongoing program in lifecycle management.

(CALLER INSTRUCTIONS). Cliff Tanaker with ITrust Capital.

Yes, I just had a second question. I wanted to know, you mentioned that the growth in the North American pharmaceuticals business in the second quarter was driven by increased kind of selling and marketing efforts and I'm wondering if you could kind of outline what is your marketing unit look like in North America as well as what effort in the second quarter helped to increase the sales?

This is Tim Tyson. There are a couple of things we are focused on in North America. Number one, we've hired a professional that understands and has significant experience in the marketplace, Wes Wheeler, President of the organization, and he supplemented his team with people who have good knowledge and experience. We focused on the products where there is opportunity. I mentioned Efudex, which is the market leader in actinic keratosis and Kinerase. We have done some lifecycle management activity and we've refocused our sales force. We've totally rebuilt our promotional platform and our targeting activity. We are looking at the opportunities for influencing the marketplace in the managed care sector and build a team around that and the third party payers and we've also revised our sales force. We let 20 people go and hired 20 additional or new people to improve the competency and we added to our sales force after a detailed size and structure analysis to be able to influence the marketplace. All of those activities are paying off and we're seeing some great benefit and the last thing that has made a major improvement is developing good relationships with the 3 major wholesalers to manage the wholesale activities in the marketplace.

Michael Stanski of Trudor Investment (ph).

Two questions. Tim, could you talk about where you are as far as far as your review of the manufacturing facilities? Should we see any write-offs in the future? How comfortable do you feel in reviewing that? And second, do you feel the Company is at a point where it can handle from a marketing standpoint, end licensing any products and where you stand as far as timing on that?

The first question Michael, thanks for the question. We have gone through some significant activities in the manufacturing analysis and we are nearing a position where we will be making a proposal, making some decisions and we committed to communicating by the end of the year that strategy and our thoughts about the implications to the business and I am comfortable now that we will be able to communicate that earlier than previously indicated to you and that we are feeling very good and we have great opportunity there and I think you'll see when we are able to talk about the detail, that we will be aggressive at challenging that operation and improving our efficiency.

The second part of your question, the write-off question is totally dependent upon decisions that we will take and we will communicate implications of the manufacturing rationalization when we communicate that plan.

Tim, will those be cash write-offs?

I'm sorry Michael?

Will those write-offs be cash Bary, or book write-offs?

No, as we have mentioned, as we have met with a number of you all, we are expecting if we go through a rationalization efforts, there's likely to be book adjustments to the assets. We are expecting those won't be cash write-offs.

The second question regarding the ability and timing on end licensing?

Michael, as you know, our promotional activities and the people that are focused on those are looking for opportunities for new messages and new opportunities. We are absolutely ready for and able to take on acquisition products and to bring them to the marketplace and focus on driving some growth.

Thank you.

Michael, I am going to add while we are not prepared today to talk specifically about the manufacturing rationalization program, we will get back to you in the months ahead about that. I want to leave you with a clear impression that what we are looking at is a dramatic restructuring of this Company. We are not going to be playing around the edges with this thing. The divestiture program is going to be a significant assist in eliminating the complexity and volume of our manufacturing facilities around the world. But even after that is done, the plan that Tim is working on will dramatically change the profile of this company and our manufacturing and supply chain operations, so we are looking at something that will have a very significant effect we believe, on our cost of goods sold.

At this time, there are no further questions. I will now turn the call back over to Mr. Robert O'Leary.

Thank you all very much for being with us this morning. It's a lot of fun to report to you on some of the fruits of the efforts that have been going on for, particularly these last six months and the setup of those activities in the months before that. There's no question that we've got the right team in place here and that this company is about ready to take off. I hope you see that foreshadowed in the second quarter results and we expect to drive forward in the remainder of the year and finish '04 -- finish '03 on a high note and take us into a strong '04. Thank you all for your participation today. We look forward to talking to you in the near future.

(CALLER INSTRUCTIONS).