酷柏 (COO) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Q1 2010 The Cooper Companies Incorporated earnings conference call. I'll be your operator for today. At this time, all participants are in listen only mode. Later we will conduct a question and answer session. (Operator Instructions). I would now like to turn the conference over to host for today, Ms. Kim Duncan. Please proceed.

Good afternoon and welcome to the Cooper Companies first quarter 2010 earnings Conference Call. I'm Kim Duncan, Director of Investor Relations and joining me on today's call are Bob Weiss, President and Chief Financial Officer, Gene Midlock, Senior Vice President and Chief Financial Officer, and Albert White, Vice President Investor Relations and Treasurer.

Before we get started I'd like to remind you 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, manufacturing restructuring plans and acquisitions. Forward-looking statements necessarily depend on assumptions, data or methods that may be incorrect or in precise and are subject to risks and uncertainties. Risks that could cause our actual results and future actions as a Company to differ materially from those described in the 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 either publicly available and 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 highlights on the quarter and then get into specific details including new products, the market, our strategy, and guidance. Following Bob's remarks, Gene Midlock will comment on the first quarter results and provide some additional guidance. We will then open up the call for questions. We will keep the formal presentations of roughly 30 minutes for prepared remarks followed by Q & A so the call will last approximately one hour. We request anyone asking questions please limit yourself to one or two questions up front 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 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 CooperCos.com under Investor Relations and with that I'll turn the call over to Bob for his opening remarks.

Thank you, Kim and good afternoon, everyone. First of all, from a highlights point of view we started off 2010 on a very strong note.

We kept our momentum that we established in 2008, 2009. For the quarter we generated 43 million of free cash flow. We delevered to 32% from 40% debt-to-cap a year ago. We delivered 260 million in revenue up 4%. Our earnings per share was $0.49 non-GAAP and $0.44 GAAP related.

Our non-GAAP excludes the Norfolk restructuring and direct cost of acquisitions. Silicon hydrogel product line is driving top line growth. Silicon hydrogel net revenues for the quarter were up $41 million and we delivered $40 million in non-GAAP operating income up 22% from per from the prior year. Some of the key takeaways today, we had a solid quarter. We hit our internal earnings per share budget target of $0.49 non-GAAP and hurdled $0.04 of below the line foreign exchanges.

We continue to gain share in the $6 billion soft contact lens industry. For the calendar year 2009, we grew 4.9% in constant currency versus 3.4% for the industry and the fourth quarter of the calendar year we grew 4.8% constant currency and the industry grew 4.3%. We continue our cash generation mode, our trailing 12 month free cash flow was a whopping $181 million. Biofinity Toric continues on its stellar path, fiscal year Q1 2010 net revenues for silicon hydrogel was $41 million, up 151% versus the prior year. We recently earned product of choice position in silicon hydrogels at Luxotica. We continue to make good progress in rounding out our silicon hydrogel family. We continue to focus on free cash flow versus the P & L and gross profit maximization. We therefore still have idle equipment charges. Remember free cash flow proceeds the P & L optimization as inventory levels drop; however, our 22% improvement in operating income non-GAAP isn't a bad gauge. The Norfolk integration remains on track.

That's a lot of highlights. On the silicon hydrogel front, our Biofinity and Avaira are driving growth. During the fiscal quarter they achieved 41 million in revenue, that's 151% increase versus the prior year, we remain on track to launch Veratorik by June. When we lawned Biofinity Toric we got a tremendous halo effect, the Biofinity family is up 165% versus the prior year. We remain on track to test market our Biofinity multi-focal in the first half of the calendar year with a rollout of Biofinity multi-focal, we will have a complete family, spheres, torics and multi-focals. With an annualized silicon hydrogel run rate exceeding $160 million we are pleased with our progress to date. Having Biofinity and Avaira selected as product of choice at Luxotica further validates our selection of products.

Luxotica includes LensCrafters, Pearle Vision and Sunglass Hut among others. While I won't quote numbers on our expectations here, I will say we have been under indexed in chains in the past and this is a step in the right direction. Geographically, Europe continues to be a pleasant surprise for the first quarter in constant currency, gross revenue which is the way CLI Constant Lens Institute reports, was Europe was up 8%, Asia Pacific 1% and the Americas was up 11% overall gross revenue was 8%. This date on the last page of the press release for those that are interested in accessing a lot of numbers. In Europe, silicon hydrogel accounts for 21% of our business, predominantly our monthly Biofinity line. In the United States we are gaining momentum with our silicon hydrogel where they now account for 25% of our revenue. In Asia Pacific, we are partners with and working through the regulatory process for getting silicon hydrogel family approved in a two week modality in Japan. This market is picking up the new fits in Japan right now.

Let's talk briefly about the market. At the beginning of this year, at the beginning of 2009, we predicted 0 to 4% constant currency growth. For the calendar year 2009 revenues were up 3.4%, in the fourth quarter they were up 4.3% in constant currency. Highlights of gross revenues include the one day worldwide up 2%, toric is up 9%, multi-focal up 24%, silicon hydrogels increased 20% above the prior year in constant currency. Overall silicon hydrogel now accounted for 36% of the global market. Regionally, Americas was up 6%, Europe 6% and Asia Pacific was up 1%. Overall the market was up 4.3% in the fourth quarter.

The market reflects strong growth in specialty lenses, torics, for astigmatism and multi-focals all for presbyopia for the fourth quarter and calendar year. This trend is consistent with the past decade. Silicon hydrogel continues to perform well and now accounts for 36% of the global market and is 54% of the US market. The one day while doing reasonably well in the US market is where it's up 21% in the fourth quarter stalled worldwide due to Japan where it's down 5%, where one days are now the lions share of the market or 51% of the Japanese market. As a result, the global one day market growth flattened but still accounts for more than one-third of the global market worldwide.

It is believed that in Japan, new fits are trending towards two week silicon hydrogels while some of the one day wearers are cutting back on the number of days that they are wearing the product as opposed to switching to the two weeks. Just briefly, our performance by way of comps for the first fiscal quarter, we started off real well with gross revenue which is once again the way CLI is reported, the one day market we're up 10%, torics 9%, multi-phone all was up 8%, silicon gel product line up 153%, and for Cooper, silicon gel now accounts for 19% of our Cooper Vision product portfolio. Regionally the Americas was up 11%, Europe up 8 and Asia-Pac was up 1%, overall we were up 8% in constant currency.

Let's briefly talk about CapEx, cash flow, and liquidity. As I've been saying, we are now in a mode where we generate a lot of cash. Our plants are running in the low 60 percentile of utilization. We're making close to 1 billion lenses and can make another 400 million without a major expansion. We continue to improve our efficiency and believe we can do so for many years to come. Translated, we generated $43 million of free cash flow in the first quarter, CapEx dropped to below $13 million.

Our trailing 12 month free cash flow was a whopping $181 million and we have now over the past 12 months deleveraged from a debt to total cap of 40% in January of 2009 to only 32% in January of 2010. Our outlook looks optimistic. We are on target to deliver $800 million of cash flow by the end of 2013 and expect to continue to spend less than 100 million in CapEx on a yearly basis. Most of our CapEx will be new product expansion cost reduction oriented towards plant maintenance CapEx which is generally going to be below 30 million.

Cooper Surgical, our women's healthcare franchise, put up great numbers again. It's revenue up 11%, Cooper Surgical delivered double digit organic growth. Its gross profit percent stayed above 60% coming in at 61%. Its operating income margin was up 1% to 24%, excluding acquisition costs. Our hospital strategy continues to deliver very solid growth, 15% up 15%. It now accounts for 36% of our total revenues at Cooper Surgical.

We have now concluded two acquisitions which will add in excess of $10 million to the top line revenue. The first, JLJ is a patented smoke evacuation unit for use during laparoscopic surgery, including many gynecological procedures that are well established. It is an ideal add to our hospital strategy. The second acquisition which closed in February after the quarter was Her Option, an office unit used to treat excess uterine bleeding. This unit is ideally suited for our Cooper Surgical in-office sales force. Given it's a $400 million space in women's healthcare and given the procedures are now shifting out of the hospital and into the office setting, we are excited with the synergy we bring to this great technology. In 2008, there were 85,000 procedures done in the office out of more than 350,000 done in the United States. The in office component grew more than 50% in 2008 with excellent reimbursement, $3000 for doctors, a great manufacturing disposable stream, $1000 each procedure and the ability to leverage our 70 plus sales force. We believe this is the perfect match for Cooper Surgical.

Let me briefly cover guidance. We've given you some updated 2010 guidance. We've added $10 million to our revenue line for the two acquisitions that we've done this year at Surgical. There has been no change in our non-GAAP earnings per share guidance which excludes direct cost of the Cooper Surgical acquisition, mainly legal and other due diligence related cost. We have, however, increased our guidance for free cash flow reflecting continuation of the strength that has occurred in the past 12 months. As a reminder, this push on its free cash flow particularly as it relates to our push on inventory reduction is costing us and the P & L short-term in the form of idle equipment, we took out of production.

As we conclude 2010, we should expect to redeploy some of this idle equipment which is currently being charged directly to our P & L negatively impacting our gross margin. Our market guidance, last year we said constant currency would come in between 0 and 4% for the soft contact lens market and achieve 3.4%, the high end of that range. Importantly, the fourth quarter was 4.3%. As a result, I continue to see 2010 market in the range of 3 to 5% with us gaining share and coming in in the range of 4 to 6%.

Our strategy, let me just spend a couple minutes on that. Our strategy at Cooper Surgical is to continue to leverage what we have built with tuck in acquisitions, as I mentioned we've already completed two this year. Our strategy at Cooper Vision is to gain market share by promoting all modalities, one day, two week, monthly, promoting all materials, not just silicon hydro gel and being customer friendly. By that I mean we'll make a lens for a price, a custom lens for a price and we'll also private label.

I should clarify, private label does not mean sell at a lower price. In many cases it means sell under a recognized store brand name, a win-win for us and for our customer. When we go to our customers we don't tell them they have to use a one modality or the other. We let them pick whether they want a two week concept or a monthly concept. Our competition is promoting one or the other modality. When we go to our customer, we don't tell them that they have to pick or use the silicon hydrogel. We offer them a best-in-class silicon hydrogel with Biofinity, a monthly modality, and Avaira a two week modality and we also offer them a best-in-class non-silicon hydrogel with the Proclear family of one day, two week and monthly products. Remember, 35% of the market is silicon hydrogel worldwide and the other 65% is not silicon hydrogel and without a doubt, Proclear material is the best-in-class in that space.

When it comes to lens type, spheres, torics, or multi-focal, let's just say that our strength is lens design and we are good at it. When it comes to making torics and multi-focals we make very good torics and multi-focals. As a side, we are the least distracted Company of the contact lens players, following the Warburg buy out of Bausch & Lombe, our focus is more on Pharmaceuticals and refractive surgery and much less on lenses and lens care. CIBA is wondering what's the $300 million in cost cutting following their integration into Alcon will mean to each of them. In addition to all of the distractions at the parent Company with cost cutting and recalls has the distraction of losses in the courtroom which has already taken Oasis out of the market in France and Belgium markets at least directly. This also has a looming court date in the US market at the end of this month.

In summary, before yielding the floor to Gene, we're off to a great start in 2010, a solid top line and bottom line, and outstanding cash flow. Our silicon hydrogel momentum has been used in the family of Biofinity and Avaira will expand this year. Today, we have an annualized run rate in excess of $160 million. The $6 billion market for soft contact lenses continues to be healthy, finishing 2009 up 3.4% in the fourth quarter of 2009 up 4.3%. This supports our 3 to 5% market expectation in 2010. With new products, geographic expansion and the ability to leverage our plants and people, we continue to expect we'll gain share going forward. We expect improving profit margins to follow the strength of our free cash flow generation as plant utilization increases following the Norfolk integration into our two largest plants and lastly, we remain excited about our ability to find solid tuck in acquisitions that are proprietary and fit what our women's healthcare strategy and with that I'll turn it over to Gene.

Thank you, Bob. Good afternoon, everyone, and thank you for joining us in our first quarter 2010 earnings call. I'd like to start with a few comments on the balance sheet before turning to the statement of income. In Q1, as Bob indicated, we had $56.1 million of operating cash flow and CapEx of $12.9 million which resulted in free cash flow of 43.2 million. Our trailing 12 months free cash flow was a very respectable $181.6 million. Of the $43.2 million of free cash flow, approximately 88% or $38.2 million was used to reduce our debt to $743.3 million. This leaves us with approximately $353 million of credit availability. $650 million revolver is now down to around $379 million.

At quarter end, the ratio of funded debt to EBITDA was at 2.88, a decrease from 2.93 in Q4 of last year. This will result in continued interest savings of 25 basis points, we're now at LIBOR plus 100. Inventories decreased by $9 million, approximately 3.5% from last year's fourth quarter with months on hand at 6.8. Accounts Receivable were also closely monitored with Day Sales Outstanding at 61 days. As we continue to watch cash carefully with the view of generating cash and living up to our committment of retiring 50% of the free cash flow devoted to that reduction. I'd like to now turn to the statement of income. As Bob indicated, we had a pretty solid quarter in spite of the continued adverse economic climate as well as negative impact foreign currency had on our results.

Overall, consolidated revenue increased to $260.3 million, 4% above Q1 of 09 and 3% in constant currency. Cooper Vision revenue grew to $215.9 million for the quarter up 2% over Q1 of 2009, 8% in constant currency. Now, before I move on to other P & L items, I want to digress for a moment to discuss a footnote you will see in our first quarter 10-Q which we expect to file in the next day or two. You will note we recorded an out of period adjustment to increase accruals for rebate that were under accrued in Fiscal 09. This adjustment reduced the first quarter 2010 sales revenue by approximately $10.1 million. These out of period accruals were partially offset by a reduction in accrued compensation and income tax expense.

As a result, there was a decrease in net income of $6 million in Q1 of 2010. It should be noted that future compensation offsets are possible because of this matter at the discretion of the Board of Directors and the Compensation Committee. However I would be remiss to speculate or comment on any possible future actions they may deem appropriate. In addition, now that we've returned to a more traditional bonus plan, we will return to our past policy of not commenting on bonus accruals at all going forward. You can review the plan if you choose to by reviewing the 8-K we filed on February 26th. Now, I really don't want to get into the technical accounting issues with this event, but suffice it to say, we've worked very carefully with our Advisors to insure this matter was handled properly. It is important to note the adjustments are not considered material to our full year fiscal 2010 results nor any previously issued prior years financial statements.

As a final comment on this matter, I'm sure we're not alone in dealing with higher rebates. As the economy has struggled, consumers started using rebate in greater amounts. As a result, we have updated the way we handle accruals going forward to help insure that this type of an adjustment will not reoccur in any subsequent periods. Enough said about rebate.

Turning back to the profit and loss, Cooper Surgical generated $44.3 million of revenue in the quarter which represented an increase of 11% over last years first quarter with organic growth of approximately 10%. As Bob indicated, the largest contributor came from the surgical business unit which had a 15% increase over last year's first quarter and represents 36% of Cooper Surgical's total revenue up from 34% in last year's first quarter. Consolidated GAAP and non-GAAP gross margins were 58% in the quarter versus 57% last year. Cooper Vision reported a GAAP gross margin of 57% versus 56% in Q1 of last year and a non-GAAP basis its gross margin was 58% versus 56% in Q1 last year.

This increase in margin was attributable mainly to manufacturing efficiency gains partially offset by the shut down of the manufacturing activities in Norfolk, Virginia. Cooper Surgical had a gross profit margin of 61% which is slightly lower than the 62% it had last year, largely due to the foreign currency impact of products purchased internationally. Turning to SG&A, in Q1 on the GAAP basis, SG&a expenses increased by 6% from Q1 last year to $100.6 million and were 39% of sales up from 38% last year. On a non-GAAP basis, adjusting for costs incurred in acquisitions, SG&A expenses were 38% of revenue, the same as Q1 of last year. Breaking it apart, selling expenses increased 8% and are 30% of revenue versus 29% last year mainly attributable to higher sales volume. G & A expenses on the other hand decreased by 1% on a GAAP basis and 4% on a non-GAAP basis from last year and were 9% of revenue for both years

In Q1, R & D increased by 5% from Q1 of last year to $7.6 million and remained 3% of revenue. Also mentioned earlier the restructuring charges. As we indicated previously the total cost of this plan is estimated at $24 million with 10 million to be cash related primarily in this Fiscal Year. In Q1, we recognized 2.3 million of charges in the quarter of which 560,000 was in cash. As a result of the foregoing, on a GAAP basis, the operating margin was 14% of revenue up from 13% in Q1 of last year. On a non-GAAP basis, operating revenue was 15% up from 13% last year.

Cooper Vision had an operating margin of 15% on a GAAP basis and 16% on a non-GAAP basis or as Cooper Surgical had an operating margin of 23% on a GAAP basis, the same as 2009 and on a non-GAAP basis 24%. Interest expense decreased by $1.2 million in Q1 from last year to $10.2 million and this reflects again the reduction in interest rates attributable to the maintenance of a strong funded debt to EBITDA ratio and reduced borrowings. The effective tax rate on the GAAP basis for the quarter was 16.4% versus 19% last year and on a non-GAAP basis it was 18.2% versus 19% last year. We estimate that the effective tax rate for the full year is projected to be approximately 15% compared to 12% in 2009 and this increase is mainly attributable to a shift in the mix of income to higher tax jurisdictions.

Whereas we don't give quarterly guidance I will indicate that the quarterly effective tax rate for both GAAP and non-GAAP purposes should be slightly lower in Q2 than it was in Q1 and increase slightly from that in Q3 and a little bit more in Q4. Depreciation was $18.7 million in the quarter and amortization was $4.2 million for a total of $22.9 and for the full year we're projecting depreciation would be $66.9 million and amortization at $17.2 for a total non-cash charge of $84.1 million, and in Q1, our equity compensation expense was $2.8 million. That arrived and left us with earnings per share at $0.44 on a GAAP basis and $0.49 on a non-GAAP basis and as you will note when you review the 10-Q and the detailed financial statements, we had a non-cash currency loss below the yellow line of $2.3 million in Q1 which was approximately $0.04 a share. With that I'll turn it back over to Kim for the question and answer period.

Operator? We're ready to start the Q & A session.

Thank you, ladies and gentlemen. (Operator Instructions). Your first question comes from the line of Steve Willoughby with Cleveland Research.

Good afternoon guys. Thanks for taking my call. I guess first if you could just clarify on a couple of things, first on the internal growth trying to look and figure out what numbers you're talking about for internal growth compared to the numbers in the press release. You made the comment regarding gross revenue as CLI reports on what's in the press release. I'm just trying to compared to how it's been reported in the past and then I have one follow-up.

Steve, on internal growth probably the best gauge is the 8% constant currency and you obviously have the item that Gene discussed which is a catch up entry that was made that impacted the top line $10 million, so were not for that $10 million, the two would be closely aligned.

So is the 8% in the press release, is that internal growth or something excluding the $10 million, excluding currency, I guess I'm trying to figure out the number in the press release, like what are those?

The CLI data specifically at the request of all of our competitors does not include rebates and discounts, so that is a gross world and so that's consistent with the way that market is reported. Relative to the GAAP world where discounts freight reimbursement and all these other variables come into play, you have the 2% reported. There is about a 6% impact of the entry relative to the item that Gene discussed.

Your next question comes from the line of Michael Weinstein with JPMorgan. Please proceed.

Oh, great, hi guys. It's Kim here for Mike.

Hi, Kim.

Just a couple of follow-ups I guess on the first set of questions. So there's a pure currency impact on Cooper Vision in the quarter was what? I can't imagine it was negative 6% so I'm thinking that that's constant currencies excluding the $10 million rebate catch up; correct?

Correct.

So I guess I'm trying to understand purely what was the impact of currency on the reported Cooper Vision numbers.

Well, let's come back. You have 8% constant currency and then you have a 6% impact of the discount discussion netting to 2% GAAP.

Okay, so 6% was from as you said the discount, the rebates, et cetera, and did that delta increase this quarter versus prior quarters?

That is a cumulative catch up so it was zero. In other words that delta wasn't there in the past. It reflects the $10 million that Gene talked about which reflects, is reflective of the prior period.

Your next question comes from the line of Amit Bhalla with Citi. Please proceed.

Hi. Two questions, I guess first can you talk us through the gross margin you're expecting through the rest of the year and through 2011 and secondly, on the Luxotica deal, can you give us a little bit more color on the size? Any sort of impact you can help us with? I know you said in prepared comments but is there anything you can expand on? Thanks.

I'll let Gene cover the gross margin trend.

The gross margin that we had guided to last quarter was in the range of 58 to 60% and we're still comfortable with that range for 2010 and we expect it to be in the low 60s creeping up in 2011.

As far as the Lux, I think I indicated we're not going to give color on to it and get into the specifics of our expectation. Obviously a lot of that will be in the hands of Lux to begin with. I would say we are substantially underindexed when it comes to chains and particularly Lux, so the movement obviously is a very positive event given the magnitude of them as a retailer between LensCrafters and even Sears, Sun Glass Hut and Pearle, we obviously are very pleased with the direction. I would say that we're going to win some, we're going to lose some, so this still fits in terms of the impact within our guidance expectation, so we're not expecting to guide up over that event.

You guys have generally been growing a little bit lower than the market growth in the Americas so is this deal by itself do you think gets you back up to market growth in the Americas or do you still need the new products to get up there at mid single digits for market growth in the Americas?

Well, quite frankly, were it not for the accounting entry, if you look at the last page, we grew 11% in the market in the Americas and 10% in the US. That 10% reflects the success of Biofinity and Avaira alliance in the US market so we're now in a mode where we're playing as equals with pretty good product family to deal with. You are correct that prior to the launch of Biofinity Toric, we were still in a mode of playing catch up and Biofinity Toric did create a halo effect on Biofinity Sphere and we are clearly optimistic that when we launch the Avaira Toric we'll have a halo effect on Avaira keeping in mind that Avaira plays in the two week market which is still more than 60% of the US market. It's true that there are a number of competitors that are trying to migrate away from the two week space but one of them is not this.

Your next question comes from the line of Jeff Johnson with Robert W. Baird. Please proceed.

Hi, guys, good evening. Can you hear me okay?

Yes.

Hi, Jeff.

Hi. Good evening. So a couple questions here. Going back to the first question in the Q & A just on the adjustment there, the $10.1 million, Gene, can you just give us more detail maybe on kind of the background of that? You were accruing for these discounts in rebate over a period of a few quarters in 2009 and just underestimated the size of them or what kind of caused that to happen?

I guess just try to keep it simple and we had been accruing for rebates and discounts and allowances for several years and what happened in the back end and part of 2009 is just the claim percentage ramped up a lot more than anybody Evan dissipated. We discovered that, we went back and rebuilt our model We discovered that, we went back and rebuilt our model and discovered that we were short this $10 million so we made a cumulative adjustment to catch up and prospectively changed our modeling to make it more robust so that each quarter will be hopefully accruing what it should accrue.

And that makes sense to me in this economy if conforms all of a sudden you pay attention to the rebate forms, they send them in or obviously 1-800-Contacts you know longer have to send a rebate form in, you can just get that rebate automatically. I guess my question is has the rebates that you have to offer to the consumer or eye doctors, have those rebate numbers gone up in the last quarter relative to the last few quarters or was this just something where the consumer started actually sending the stuff in given the economy where in the past say who lost it or something like that.

I would say it's the latter.

Can you remind me which that was Gene, I'm sorry. I got lost in my own question.

We didn't change the programs materially but what happened is the claim volume went up significantly and again, we just, it was underestimated. No one anticipated the change that significantly.

Your next question comes from the line of Joanne Wuensch with BMO Capital Markets.

I just have a quick one on the pricing environment and any trends you're seeing there that you might be willing to comment on?

Yes, so there is I think the pricing environment I'd call it able and aggregate. There are some areas where competitors are tactically taking prices down such as the case on their moist one day product where they're trying to really move the market and grow the market in one day which we certainly support, but having said that, their intent down the road on coming out with a more premium price true eye product, even with the price changes on Acuvue moist, it's still higher priced than our one day product, so we'll see where that goes. CIBA is doing the following: They're reducing their prices on their, let's say they're increasing their legacy products like O2 optics and those that they are trying to push the wearer base out which is the normal way to manage the death of a product line and they are basically also trying to promote the one day modality heavily. Keep in mind that the one day modality brings with it about three times more revenue, two to three times more revenue and it is clear there is some momentum building in the US, so I think the pricing changes that are being affected are mainly tactical ones to get to a certain point whatever you're trying to promote.

Okay, thanks.

Your next question comes from the line of Peter Bye with Jefferies. Please proceed.

Thanks guys. Just I guess a little bit of a theme on the results, currency, and rebates, I guess the bottom line, you're guiding 4-6% on Cooper Vision for Fiscal 2010, is that correct?

That's correct.

Is that now a GAAP number for the guidance just as we're trying to look at it? Is that an internal revenue guidance number or just trying to back in. I guess last quarter or our last year Q1, I think you had an $8.5 million or something sort of FX positive as currency against you. What was it on this quarter, was it negative on it and I'm just trying to see what's your guidance relative to what you report versus all of the CLI data and everything else going, can you maybe help clarify on what the 4-6% means?

Yes, the 4 to 6% is GAAP related but our expectation of foreign exchange and its impact on the full fiscal year is modest, 1 to 2% at the most, so we're not, given the volatility of things like the Euro on a daily basis, we're not going to, we pick up a percent or lose a percent, but we're not expecting any major swing factor in that GAAP guidance.

Okay, just one quick follow-up and one more if you please. So if we're seeing a performance, an internal performance number according to what you just stated here today in fiscal Q1 of 8%, if you do comparable performance, should we assume that if you keep doing what you did in Q1 that we could see say you're guiding to it a number higher than that over the next three quarters or are there other things that would impact that? I mean, you had internal growth of eight so if things don't change, could we assume if we're just going to go off Q1 that things could be eight and say you're guiding to it?

Our best estimate remains the 4-6. We are pleased with the 8% but keep in mind in the 4-6, we have to cover the 10 million that Gene talked about so that's built into the full year number. Granted, its impact is 6% on the quarter so divide by 4, it's 1.5% impact on the year is probably better said.

Right, right, and then the last one is just maybe people have been focused on Luxotica for the past month and a half or so. Can you maybe just talk a little bit broadly about your private label program? I know you mentioned to it but you go back to the Ocular days with a big number and what you think you could get to over the next three, four years of future contracts not disclose specific ones over the next three or four years of what your road map is to get back, is it to get back to a level of four years ago in terms of revenue? Can it be there if the market changed? Just maybe talk about it in broader terms?

Yes, it clearly Cooper Vision had one strategy which was a little private label but a lot of branded product. We are clearly pushing Avaira and Biofinity as a branded product. Having said that, the sweet spot of private label is the retail side and it's really the two week space in the US, and that's better fit for Avaira, so having a complete product range of if you will a sphere, a toric and ultimately the multi-focal in the two week space is important to fill out a private label strategy. We are indifferent. If someone has a household name they want to put on a product be it an Avaira or a modified product, we are very open to that in terms of being customer friendly, so will we ever get to the Ocular model? The Ocular model was extremely oriented to the sweet spot of the US market which was the two week commodity spherical market. When we bought it, we became, if you will, half and half, a specialty contact lens Company, Cooper Vision with torics and multi-focals and still a commodity piece that was the Ocular line of products that was Biomedics with every other name that went along with Biomedics so directionally, we'll increase the market share that we have using private label but it's not going to take over our model.

Your next question comes from the line of Larry Biegelsen with Wells Fargo. Please proceed.

Thanks for taking my call. Can you hear me okay?

Yes. How you doing?

Good. First, Cooper Surgical was very strong this quarter. Was there anything one-time in nature?

There was not.

And second, CapEx in the quarter of $13 million, is that a run rate going forward or was it lower than you expect, I know the guidance is less than a $100 million.

I'd say it's timing that we still are anticipating something under $100 million. There are a number of pieces of equipment that will come in over the next nine months that will clearly move us above $13 million in some of those quarters. I don't know Gene if you want to add any color to that?

No, I think it's just the timing at this point. We fully expect to be below the $100 million for the fiscal year.

But I wouldn't take the 13 as a new run rate times four. That might be a little too aggressive.

Your next question comes from the line of Larry Keusch.

Thanks, good evening guys. Just a couple quick questions. I'll just rattle them off. On at accruals within the CVI bucket, did that $10 million show up in any one lens category more so than the other particularly perhaps in non-single use spheres is question one. And then also if you think about kind of where currency is sitting now and you add that 2 million impact in that other income line, how should we think about that on a go forward basis for the remainder of the year, and then I just want to make sure that I clarify and heard this correctly that the $10 million on the accruals for the rebate, there was a hit to net income and that was not completely offset another way, I just want to make sure I understood that as well, thanks.

First of all on the allocation of the $10 million to any given product line, the answer is no. It's US based if you will but spread across all of the product lines and we don't have the visibility. There are multiple products and multiple, I'm sorry, multiple programs if you will that come into play there. As far as the below the line FX, that is kind of one that we attempt to minimize our exposure around the world but even within a month, you can have activity since we have some big numbers that float around of intercompany payables and receivables, you could end up with a swing factor of plus or minus a couple million dollars, so while we lost this quarter, it could come back just as quick or it could be another negative. Very tough to predict that one other than our attempt to minimize it. The third thing on what was the third thing?

Just if there was in fact a net income impact for the accrual adjustment.

Oh, yes. I think Gene highlighted around $6 million as a item that was not covered by other offsets.

So in other words if that accrual wasn't there, your net income would have been 6 million higher; is that right?

Correct.

Would have been a very good quarter.

Yes, okay, great. Thanks very much.

Your next question comes from the line of Steve Willoughby. One second, sir. You may proceed.

Thank you. Just one quick follow-up just so I can clear everything up here. The 8% growth that's in the press release, that is an internal growth that includes normal discounts and rebates and freight charges?

The 8% growth, hopefully it's clear in our lead in there is the same way it's reported to CLI which is before discounts rebate currency hedges and freight reimbursement.

So would that be the same as how you reported it say in the fourth quarter of 2009 when you reported internal growth?

When we report constant currency growth, we are reporting, well, a lot of it is when it's comparable to CLI data when we talk about market share and market direction, that is all a gross computation. Historically, the two move in tandem. rebates have stayed as a percentage of revenue ballpark up until this last event that just occurred that caught up with us, so by and large, the two moved generally in tandem other than this quarter when they did not.

Okay, thanks very much.

There are no more questions in queue at this time.

I want to thank everyone for joining us today. Hopefully as you reflect on the press release and our commentary today you will appreciate why we're very optimistic of the performance we had. We'll look forward to updating you in early June on our continued progress on a number of things including the rollout of some new products as well as the Norfolk shut down, so look forward to talking to you in the near future. With that, Operator, I think we are done.

Thank you. Ladies and Gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.