Good morning ladies and gentlemen and welcome to The First Quarter 2009 The Cooper Companies Incorporated Earnings Conference Call. My name is Melanie and I will be your coordinator for today. (Operator Instructions) I would not like to turn the call over to Mr. Al White. Please proceed.

Thank you. Good afternoon everyone and welcome to Cooper Companies First Quarter 2009 Earnings Conference Call. I am Al White, vice president and treasurer of investor relations and joining me on today’s call are Bob Weiss, President and Chief Executive Officer and Gene Midlock, Chief Financial Officer. Before we get started I would like to remind you that this call will contain 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 planned product launches. 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 as a 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 available publicly and on request from the Company’s investor relations department. Now, before I turn the call over to Bob let me comment on the agenda for the call. 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 roughly one hour. We request that anyone asking questions please respect the time of other and keep your questions to a minimum so that we may get to as many of the callers as possible. Should anyone have additional questions, please call our Investor Relations line at 925-460-3663 and we will 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 web site at www.coopercos.com under Investor Relations. With that let me turn the call over to Bob for his opening remarks.

Al thank you, and good afternoon and evening to everyone. I think for starters I will just kind of say in spite of a global recession and a financial crisis, which continues at an unabated pace, this was a great quarter, certainly in my opinion. Some of the key messages I would like you to take away from this conference call today are the following: This was, of course, a solid quarter from the point of view of our bottom line with results showing $0.53 in earnings per share versus $0.15 in the prior year and $0.45 when we consider last years call outs. Our top line growth was 3% and 4% in constant currency was at the top end of our guidance range in spite of a weak November that we had talked about previously. Our new launches targeted for calendar quarter ended March 31, have already started, Proclear 1 day in Japan and Biofinity toric has been shipped in the US. Our cash flow is looking much better than we had anticipated. Our Q109 results hurdled a $3.6 million restructuring related cost for a reduction in force and when I say reduction in force I don’t mean sales force I mean basically our operating infrastructure. Like every other company in America and for that matter the world take the recession seriously; having said that the industry, consistent with the prior recession, remains recession resistant. Q408 saw contact lenses data showed a respectable 4% of growth worldwide. We had a solid quarter. We had $251 million in revenue plus 3% and 4% in constant currency. Cooper Vision had $211 million in revenue, 4%, and also 4% in constant currency. Cooper Surgical had $40 million in revenue, up 1%. Earnings per share of $0.53 compares to the $0.15 for the…

Thanks Bob, good evening everyone and thank you for joining our earnings call today. I think as Bob articulated pretty well, especially in his summary, we think we had a really excellent quarter for a number of reasons; especially in light of the state of the economy and the continuing turmoil in the credit markets. I would like to review some of the financial highlights of the quarter, but before I get into the details I would like for you to note that we are continuing to proactively manage our business in this environment. We have deferred or eliminated replacement hiring and postponed and most likely will ultimately eliminate any salary increases across the board this year. Expenses are being closely monitored and reduced where prudent. For example we have implemented several cost cutting initiatives to minimize the occurrence of expenses not related to serving our customers, and we will highlight these as we go through the details of the P&L. Capital expenditures have been reduced and in some limited cases deferred. Every project is now reviewed by a central committee of executives from operations and finance and is evaluated on a return on investment basis, depending on the nature of the item. For example if it is a reduction improvement proposal where you expect a two year payback, at this point in time or else it won’t hurdle the committees passage where in the past we might have settled for a four year payback. We initiated an across the board restructuring plan, which Bob mentioned, which eliminated a number of positions through out our global organization. In short, we are closely monitoring our cost structure while maintaining continued investments in our strategic priorities. Note that this is not just a short-term exercise, we are also considering the long term,…

Thank you, Gene, and thank you, Bob. We will go Q&A now and as I mentioned earlier, lets try to keep the questions to somewhat of a minimum and focus on your high points. Operator if you could introduce our first caller.

(Operator Instructions) Your first question comes from Steven Willoughby with Cleveland. Research

First kind of CapEx and kind of cash flow, CapEx of, I think the number was $34 million in the quarter. How much of the CapEx that you were expecting in the January/February time period came in during January rather than February out of how much you expect?

Of the $34 million, which represents a roll forward from year-end where we had in excess of close to $60 million of commitments that were coming in, as far as what we spent during the quarter, we were within reason on that number, if you will.

So I guess my question is should the second quarter CapEx be similar, more or less than what the first quarter was?

It should be less. In other words, it’s front ended drop off somewhat in the second quarter and then drop off considerably after the second quarter as all of this equipment has been paid for.

Okay and then regarding the court case and injunction going on in Europe between two of your competitors, will that have any impact on you guys, or what are your thoughts on that impact on the industry overall?

We’re like sitting on the sidelines, as well as Bausch & Lomb, watching two 500-pound gorillas go after each other. While one may view that benevolence as inconsequential it certainly is a by-product of the European patent office reaching a determination that favors CIBA in the battle. From our perspective the primary target of that litigation was Oasis, which has a higher DK than Acuvue Advance which is germane in Europe. I know there are some views out there that there will be a quick settlement or a piece meal settlement. I can say I will be unbelievably surprised if CIBA, after all of the money they have invested over as many years as they’ve invested it, would just kind of roll over and say okay we’ll settle an injunction in the Netherlands. There was some activity today that I kind of set a new milestone date for May for a revisiting of some of that litigation. Suffice it to say that means that between now and May it is unlikely that that will ripen, because J&J still wants to fight some more on that issue within Europe. Between now and May in the Netherlands there will be several other legal activities taking place in France and the UK and I think in Ireland. There is also activity, I think, coming up in Germany. So it is basically a global event. It is not likely, in my opinion that they will settle. Without a total settlement of not only Oasis but also Acuvue Advance which is more germane in the US than it is in Europe. The benefit to Cooper and the benefit to Bausch & Lomb, we both have a most favored nation status, so whatever is good enough for J&J if they were to settle would be good enough for us. That is not a negative. We can win some out of that, but we certainly can’t lose and more importantly I don’t see that happening short term and that disruption that’s going on obviously works to the benefit of CIBA, as well as Bausch & Lomb, as well as Cooper.

Okay and then just one real quick question on silicone hydrogels. There has been talk in the past about potential deals with Wal Mart and things like that. Can you just talk about where the private label sides of your silicone hydrogels are and if there is anything going forward that we should keep our eye on?

We are certainly in the mode of doing some selective private labels. Wal Mart is not one at this juncture, but that is certainly one that we’re open to. You know as long as we create a win, win strategy between the two companies and of course that would kind of sweep in 1-800 which has an alliance with Wal Mart, so if we were to reach an agreement on that I would be all for it. Having said that right now up there is the primary product that Wal Mart has and they do not have a private label with us at this junction.

Your next question comes from Jeff Johnson with Robert W. Baird.

Gene, could you run through the impact hedges have? You talked about the gross margin impact of mix and the write off on the accelerated depreciation, but it looks to me like there had to have been some settlement in both the revenue and the gross margin line or the impact of the gross margin as well there from hedges. Could you go through that?

On the revenue side, in Q1 roughly there was a decrease of $8.4 million and on the cost of goods side there was a favorable effect of $5.9 million roughly. We used to designate all of the hedges in cogs, as you know, and then better GAAP accounting treatment placed the hedge and reported the majority of the P&L following the end of the line transactions which we’re hedging. That’s why we decided to adopt the better method at this point.

When you say it was down in revenue $8.4 million, I am trying to understand. Without the hedges you would have reported revenue of like $243 is that how I read that?

Correct.

Bob, was there any load in of Dailies in Japan in the quarter ahead of the Proclear launch, or did that happen in Q2 or will there be any load in happen in Q2?

The Q2 transaction.

And how should we think about size of the load in versus trying to break out the continuing benefit of the Proclear launch?

I would say there is a pipeline tail for sure. I would put it in the range of $500,000, $1 million, not a huge sum.

Could you address the silicone hydrogel, first quarter now we’re seeing a sequential decline. Is that just market driven? Other factors there on why silicone hydrogel maybe not picking up to the extent we would have thought, in our model anyway. How should we think about the net other line going forward over the next few quarters? Then Bob if you could just provide any insight into what you saw from a market or company specific standpoint in February given the volatility we’ve seen over the last few quarters.

As far as the sequential, we have always had a sequential down in the first quarter. So while we’re mindful on a new product of sequential growth, there are two issues. One is the first quarter always compares poorly with the fourth quarter from the point of view of number of billing days. For example there are only 59 billing days in the US in the first quarter. Next quarter, for example, there will be 64 and then third quarter will have 65. So that plays heavily because of the year-end season if you will. The other thing to be mindful about, sequential and pipeline, one of the important parameters we look at once you launch a new product is, is it moving off the shelf on eye. On that, even though we are happy with the feedback we’re getting from both Avaira and Biofinity, we are also happy that it’s moving from shelves onto eyeballs. The best way to look at that is our market penetration for Avaira more than doubled during the quarter. So sequentially it moved from 0.7% of US markets to 1.5% of the US markets in terms of total fits and importantly it moved from 1% of the market to 2.3% of the market in terms of new fits. New fits being the real indicator of is Avaira getting on the eye and the answer is yes. Why doesn’t that translate into a lot of revenue going out the door? It is fairly typical when you have a large pipeline like we had with Wal Mart, close to $4 million, to have that sit there until the sales reps get in there and move the product onto the eyeball. In that sense we’re not ecstatic about the sequential or about where Avaira is right now. We are a little disappointed; having said that we will also leverage some of the disruption going on in the market place over the, question mark, over Oasis at least in some of Europe. As far as February is concerned, February is tracked, ballpark about the same as firs quarter so there are neither major pluses nor minuses steady state. I really don’t know what happened in the market, we only get CLI data and HPR data on a quarterly basis, as you know, so we won’t really see that March 31 in until the end of April.

Other income net of special charges Jeff, or just the run rate on other income?

Yes, just the other income. We hadn’t modeled the $8 million this quarter. Is there more of those kind of settlement to come on the FX side or anything else? I just want to make sure I’m modeling that correctly.

We’re not anticipating any at this point. They were kind of run off transactions. Obviously if our debt ventures traded low enough, again we would consider buying more back. At this point it will be hard to estimate. We should not have a currency pick up like that again. That was a result of an exercise we go through looking at short-term debt and capitalization of our nine US subsidiaries, so it is really more of a run off.

Bob, the $4 million pipeline fill on Avaira; can you just remind us when that occurred?

That actually occurred back in May or June.

Your next question comes from Larry Biegelsen with Wachovia.

I missed the dial in number for after the call. Could someone please repeat that?

925-460-3663.

My first question is on the contact lens market. Are you still assuming that the market is going to grow 0 to 4% in constant currency? What is your current FX assumption for Cooper and the market? I think it was -3% and -7% on the last call. Did any of your assumptions change regarding your constant currency growth rates? I think it was 0 % to 6% for Cooper Vision.

I will try to take a shot at that. The market is still anticipated to be in around that 0% to 4% in constant currency and in fourth quarter it came in at 3.9% actually. We came in at the top end of that range. I don’t have any indication to think that it’s going to go negative on us, so I think that range is still a reasonable range in constant currency. The hedging coverage, the impact of foreign exchange in the fourth quarter, into February it’s about 6%. Right now we are minimizing that a little better than I had anticipated. One of the confusing factors that you will have to keep in mind is that the guidance that I gave was on the predicated assumption we would not restate the prior year or reclassify prior year for comparable presentation. So there will be some impact on the prior year, meaning the $895 million just to keep everything confused, the way the accountants see it. The correct accounting is to take last year and reclassify it for comparability the current year. So that is going to impact us a lot on our year-over-year growth favorably in the equation. Suffice it to say, right now we are covering better than half of the foreign exchange risk that is out there. Right now it is running at 6%.

So the 0% to 6% for Cooper Vision that is that still what your guidance implies? I think you said 0% to 6% constant currency on the last call and you didn’t change your guidance, so I’m just trying to understand if it changed.

The answer is we gave you an absolute dollar amount and that dollar amount stays the same at $1 billion 30 to $1.1 billion. So to your question, the percent growth will go up, I want to say $15.8 million. The prior year’s total revenue of $895 million will be dropped ballpark $16 million which will then improve those growth rates. That is to allow basically GAAP comparability. Relative to constant currency it doesn’t matter, so when I quote constant currency growth I kind of ignore all that accounting stuff in this equation, but it will unfortunately serve to confuse because your historic models are now off by the reclass of hedges.

I would just add a quick thing, for comparability on our website we posted some supplemental revenue information under the IR section. You can go there and see the impact of the hedges on the trailing quarters.

Biofinity total silicone hydrogel sales for 2009, I think on the last call you said somewhere north of $100 million. Bob you didn’t touch upon that in an earlier question. Lastly, could you just break out Avaira and Biofinity sales?

As far as our expectation for silicone hydrogel in 2009, ballpark we are still looking at roughly that $100 million. We come in at $17 million will we escalate to that; I tend to think we will but I put a band around it $90 to $110. Partly because on the plus side I think we’ll be a little bit more robust on the toric because of the amount of muscle behind that product, but the package of silicone hydrogel should be reasonably respectful. The break out of Avaira is in around that $3 to $4 million range in the total number, so sequentially it’s kind of a yawn quarter over quarter and this gets back to the more important gauge from my perspective is it’s sitting there doing nothing or it’s getting on eyes. So, I am happy with the on eye piece, I am not happy with the sell through; having said that, I think we’re taking some steps to put a little bit more attention and muscle behind the Avaira side do the equation. We are not at all displeased with the product in the marketplace in terms of how it’s reacting to competitive products. We are not happy with the speed of revenue that we’re recording, but I think those things will come into play.

Your next question comes from Joanne Wuensch from BMO Capital Markets.

It looks like the CSI revenue is a little bit lighter than we had expected. In the last conference call you had talked about some economic impact on that. Is that continuing in the quarter or is that just something that happened in the last quarter and we’re A okay there?

That came in at 1% which is we had said potentially they would be break even year-over-year mainly because there is some slowing of office visits and I think that did have some impact on them. They are running lean and mean. I don’t see short term that reversing quickly. I think that part is while they’re maybe recession resistant they clearly get some impact from the recession in terms of visit to the doctor. Our hospital business, on the other hand, did very well it was up 19%. We are very pleased there, but in office is a little softer.

Okay so it is the office that’s softer but the hospital business is A okay.

Yes.

My second question has to do more with you talked about disposables being up significantly in the quarter and that impacting your gross margins. When you gave guidance for 2009, shall we be looking for flat gross margins versus the first quarter or upward or downward pressure from here?

As far as gross margin, of course we had two events hit cost of goods in the first quarter, the accelerated depreciation and the little bit of restructuring, about $700,000 of restructuring. So they took about a 3% impact on the gross margin. It is quite possible that we’ll accept from $56 I think up to $59. I think there is some risk and the range in our guidance allows for some decisions. When I talk about decisions, there are decisions that could negatively impact gross margin and that would be focusing in on cash flow, managing down inventory. It could mean we take some production lines down and idle them. If we idle them than accounting would continue the depreciation and take it straight to the P&L as an idle facility charge. That would weight on gross margins. Since we basically said cash is king that may be a trade off that we’re likely to make. If so, in our guidance the one thing that could move us off the top end, there is some built into it, but that might be a pressure point against the top end of the range.

You were talking about cash flow break even in the second quarter: is this linear? Is this each quarter we should be seeing cash flow get better?

Yes. We are still probably marginally even more bullish about our ability to deliver $50 million of free cash flow. Like I said, some of that could penalize the P&L, but cash is king.

Your next question comes from Christopher Cooley from FTN Equities.

Could you tell us how much was Biofinity toric in terms of launch in the quarter? And I would like to get more comfort as to why you think having a monthly disposable toric in Biofinity helps you stem the tide there. That was a little bit worse in what we were forecasting in terms of the toric in terms of the decline year-over-year in the 1Q.

Biofinity toric in the quarter was minimal. It did go out the door, but really relative to any impact on revenue was inconsequential. As far as why Biofinity, which is a monthly, as you know CIBA is trying to move the market towards that monthly and we still have J&J in the two week space with Oasis and Acuvue Advance for Astigmatism. Since Biofinity is the product that has really caught on nicely, it has been in the marketplace a little over a year longer than Avaira, it’s really a halo effect tying a Biofinity sphere together with a Biofinity toric and importantly having the breadth of the product line quicker, we’re going to put a lot of muscle and belief in that; having said that, we do know that man of the fitters who basically buy a two week prescribes it as a monthly. There is more than a 15% shift, or maybe said a different way, about 25% of those fitters that are buying the two week are not prescribing it as a two week, it is as a monthly. That is a US game and a US only game. In Europe that’s not the case and Biofinity is a global product. But, clearly we think there is some halo effect having a good solid Biofinity well accepted out there already on the spherical side that we’re going to piggy back on. With Avaira on the other hand, we will come out with Avaira toric. We have deemphasized trying to get it out the door this calendar year. Partly because we’re putting so much more energy behind Affinity Toric and the breadth of that launch and partly because of cash, because building a fitting set inventory is not a cheap thing to do from a cash flow one of use. So, trying to build Avaira on top of Biofinity about the same time would number one, be expensive and more importantly, until Avaira gets some momentum out there, we are better off waiting and not getting the toric of the franchise, if you will.

Could you give us some color around what your expectations are in terms of broad markets for daily disposables? Here in the states do you think they exit the US market flat as percent of sales a 12%, do they gain? I am just trying to get a better understanding of what you’re assuming the market does in relation to the growth that you’re expecting in your franchise.

I know there were a lot of conjectures that the single use market would slow up in the US and worldwide as a by-product of the recession. It certainly does not look like that has happened, at least through the end of December. Never say never, but it seems to have pretty good legs to it and it’s off of a small base. It’s moved from about 8% a couple years ago to 12% now and it had very nice attractive year-over-year growth to it. So, I remain quite bullish about that part of the space and we will see how far it can go. I think the other thing that could continue to cloud that, what is going to win and what is going to lose is who knows what J&J is going to do if they truly start losing enough parts of their franchise with Oasis around the world. They may say you know we’ve got a very nice single use franchise and let’s just reemphasize that more and deemphasize silicon hydrogel until all of the litigation has been settled to their satisfaction, if they ever get to that point. Depending on which way they blow the wind, if their blowing the wind toward single use, they can move the needle not only to the rest of the world, but also the United States.

In terms of how you hedge your production and particularly we have seen some pretty significant swings now on the dollar versus the pound. Have you done anything here either at the end of the quarter or at the start of this quarter to take advantage of that and if not is that something that you would contemplate going forward? I am looking at hedging on the production there and thinking in particular what are close.

Just to make sure I’m clear, are you asking hedging in terms of foreign exchange or are you talking some other type of hedging?

I am talking about affects, the dollar versus the pound.

Well for us there is a natural hedge component of it, meaning to the extent the dollar is strengthening universally against currencies obviously making half of your cost of goods having it in pounds, and it is partly a natural hedge. In this case there was a slight benefit, meaning the pound has done worse than the euro to a degree and that works somewhat to our advantage or it at least helps mitigate the dollar-to-dollar impact on the strengthening dollar, which we do not like from the point of view of our bottom line. I think I’ve mentioned in the past that every percent the dollar strengthens, if it were universal around the world, would cost us about a $0.03 per percent. So, we don’t like that part of the dollar strengthening. As far as hedging, typically we have hedged 12 months forward picking up a quarter at a time. Given the balance of rates we have actually gotten a little bit more aggressive at starting to lock in on a lot of 2010, which will make our budget life and our planning life easier as we move towards 2010. We are already well beyond 2009 in our thinking. You can’t practically go beyond that, so in fact it took a little pushing and pulling with the banks to go beyond a 12 month hedge cycle, but they will go there.

Therefore, you think that has helped having more risks? I’m just trying to think about getting to the affect on the comps line here. Can you give us some granularity on what you think you pick up from that or [interposing] what is the cost of the hedge? I mean I realize the translation is what you’re hedging, but can you give us some color on that?

I would say had we not hedged the last two years, flat out we would have done better. There was lost opportunity because we basically hedged at higher rates, not realizing how far the dollar would go. That can go both ways, so it could be that if the dollar were to weaken for whatever reason, I know it didn’t the last few days either, but if it went the other way then that’s where we win. What it does allow us to do is have a better visibility on planning for this year and next year as opposed to do we win or do we lose. We just don’t want to play the game. We would rather not go to Las Vegas if we don’t have to. Hedging allows you a better vehicle to predict and to budget going forward and that’s the only thing it does. Presumably 50% of the time you’re going to win, 50% of the time you’re going to lose and you really don’t care. You’re not trying to guess that to begin with.

Your next question comes from Michael Weinstein from JP Morgan.

It is Kim here for Mike, but I think Mike is going to join us after another call. I will start with a follow up to Larry’s earlier question on the revenue guidance. The guidance is unchanged in terms of dollars, but I think that the initial guidance had called for an annual FX headwind of about 300 basis points. It looks like that is going to perhaps be lower for the full year and I’m wondering if this signals a softening of the constant currency forecast. The question is what do you think your FX impact will be for the full year and are you still comfortable with zero to six constant currencies?

Maybe there is some confusion on how it ended up, but if you look at the amount of hedged coverage in the first quarter was 100%, not 50%. It was just the opposite; in other words in constant currency we grew 4%. In GAAP dollars we grew 4%. Those two numbers are the same and in the middle of those two numbers is 6% foreign exchange impact. So basically the hedging worked out to 6% differential for the quarter. That may be a little confusing, but if you take and accept the fact that the GAAP number is 4% and the constant currency is 4% and the only way you get there if you have a foreign exchange hit of 6% is by 100% coverage. Now part of that was induced by the reclassification of the prior year period which we didn’t anticipate back in December when I was talking about the initial guidance numbers were against the $895 million 2008 revenue, which is now going to go down by $16 million. The hedges go negative, if you will, on 2008 they go positive, meaning they add to revenue in 2009, they detract from revenue in 2008.

In general are you still comfortable with the 0% to 6% constant currency?

Yes.

On the operating lines, the SG&A came in fairly well below what we were looking for. I was wondering if you could highlight the key ways you were able to get that line down. Then one thing you mentioned was lowering your free lenses, so what is your comfort I supporting new product launches but at the same time lowering the free lens’s which has historically helped out with those launches.

One of the things that would influence operating expenses favorably would be FX. The dollar strengthened, all things being equal, would take all of the off shore operating costs. Let’s assume they’re north of 50% and reduce that, so that’s one favorable thing. The other favorable has to do with the fact that we have been basically cutting into unnecessary spending. For example in 2009 we froze salaries. Typically a lot of them go in place November 1 and some January 1, so you would have some pick up with that. We also have a bonus plan that basically says unless you are going to beat 236 and assume you are going to get beyond 236 you don’t need to accrue any, because it is only earned when you get to that mark. That would favorably impact it. We also have a hiring freeze that has been spread through out the organization, and then lastly we have the ongoing restructuring. The most recent one, we have not seen the benefit of that yet, but that will reduce our operating costs going forward. It was mainly non-sales force related operating costs. I guess that is about the only area that the sales force has been impacted and all other operating costs, like most other companies, we have put a pretty rigorous don’t travel unless it is absolutely necessary. For a sales guy of course we are going to say, go to the customer. But, when it comes to a lot of discretionary meetings more of those occur over the phone than occur face to face and we’re not alone in that.

Maybe just to reemphasize what I indicated on the free lenses, what I mean to say was we are just being more careful now to whom we are providing those lenses and making sure that the fitters that get them are actually the ones that are using them. There is not program to not distribute free lenses we are just being a little bit more careful on monitoring it a little more closely.

This is Mike let me just follow up to make sure I’m understanding the different pieces, because really the OpEx is really very different than what we are modeling. So what percentage of your SG&A is outside the US? How does that compare to your sales line?

Well it is probably a little over 50%. We obviously have a lot more, ballpark, 50% of our revenue offshore, but having said that we do have some corporate G&A and the R&D. Well R&D is not a balance; there is a fair amount of offshore, but corporate G&A weights away from revenue, if you will.

So you cut your SG&A 13% this quarter and R&D 11%. What is your guidance for the balance of the year on those lines?

We are still targeting for basically an operating margin around 16%. Assuming you have a gross margin in the neighborhood of 57 to 58 you would have an operating margin of around 16, so total operating costs a little over 40.

Okay so not as significant a decline as in, if my math is right, then is what you saw in the first quarter a fair assumption?

I would anticipate that going forward we are going to save $2 million a quarter on our restructuring, so as a percentage of sales it is clearly going to be better going forward than it was in the first quarter.

Where there any accounting changes for 2009 versus 2008 that we should be aware of?

No, other than what we just talked about on the reclassification of the hedges in the prior year.

Right and then you had a good discussion earlier just on the tax question, because obviously people are nervous about what the administration is going to do relative to companies that have lower tax rates. As I remember you guys have your intellectual property based out of Barbados, is that right?

Correct.

Have you looked at all at moving that? And, if you did have to move your IP out of Barbados, what impact would that have on your tax rate?

We wouldn’t ever have a reason that I can think of, to move it. If we did based on the way our international structure is there wouldn’t be a tax impact. What people on the hill are talking about is people trying to move IP offshore today outside of the US. In that case what would happen is they would value it using a discounted cash flow for 20 years or something and the tax base, which is typically zero because you expensed all of the R&D costs currently for tax purposes. So what would happen is you would have this enormous gain being recognized that you would have to pay current tax on or some type of a royalty float.

For back taxes?

No, it would be prospective.

You are saying you would have a prospective one-time gain, but what would that do to your future tax rate if you didn’t have the benefit of having your intellectual property based out of Barbados?

Zero to us, we already went through that a decade ago. We paid the tax on the transaction [interposing].

[Interposing] we hold certain US rights to Barbados, in other words Barbados had to pay for rights it didn’t pay for by developing and when that happened there had to be a fair market value estimate of what – you couldn’t just give it to them, you had to sell it to them. So when that occurred it was step up in basis.

So your tax strategy at the time was to sell your intellectual property to Barbados and at that point you had an adjustment on the fair value of all that IP and all of your R&D?

Well it would have triggered a US gain.

We pay taxes in the US on the transaction.

At that time but obviously that’s lower than what your rate has been since you did that?

That is right.

Understand, Mike, that a lot of that would have been masked by NOL, so it doesn’t mean pay tax for the check, it just means there was a P&L, a taxable income event.

Your next question comes from Jared Holt with Thomas Weisel Partners.

Bob can you talk about the gross margin, if you adjust for the foreign currency what you think the real run rate of your contact lens business is? Because, at the analyst meeting back in the fall you had talked about 60% ending the year and you kind of reiterated that last quarter. Is that still a number that’s feasible for the end of this year?

I would say that if you do three factors, if you take out the accelerated depreciation and we’re not saying that there are not going to be more events the remaining part of the year, I mentioned the idle equipment which will have a drag on gross margin short term until you turn it back on, if you will. The second event had to do with the restructuring, which was only $700,000 and the third event had to do with the hedges. The hedges, the way our current accounting is, given that the hedge is a reasonably large number, I think Gene mentioned the $8 or $9 million that had zero gross margins on it, so it does weight down. But, I think if you put all three together we’re probably a solid 59. I don’t think it would round up to 60. Sixty is, in a normalized manner where hedges go away, I think we’re still in that 59 to 61 range. Be mindful of the fact that we still have a big shift going on towards single use which plays negative to that, but having said that, products like getting back into the game with Biofinity toric, overall products that are in the monthly category have a better gross margin than those in the two-week category. So, the fact that Biofinity is doing well and Avaira is doing less well, if you will, is favorable to the gross margin on that front. Net, net, net there is a lot of things in the mix that could influence 2 or 3 points. There is a lot of cost reductions over the next five years. An enormous amount that we have in our pipeline that lead me to believe in spite of a gross margin shift on the 1 day that we may not be out of the realm of staying close to the 60% range going forward beyond an absorption period. I keep coming back to that because hopefully people do understand what I said, that to the extent I will really push hard on maximizing cash flow and I’m willing to shut down production lines and reduce inventory levels and not pay the labor costs to build out that inventory, that will favorably impact cash flow, but negatively impact the gross margin.

Are you talking about the low yield Biofinity lines that you would shut down? Can you be more specific on which production lines you would take out?

It could be any of the above. In other words, if I make plenty of Avaira, if I make plenty of Biofinity, if I make plenty of single use Proclear, it is pick and choose. I don’t mean to single any one. We have inventory levels that are still, even thought they came down a little during the quarter, they are still pushing eight months and if I said the ideal should be six to seven, six and a half months, then it’s a matter of how do you work them down? Do you let sales growth work them down or do you do something more draconian? To the extent I do something more draconian I will come down faster.

Okay. You look at your silicone hydrogel performance over the past year or so and I think everyone would agree it has been pretty disappointing. So, I am just curious why your expectations are pretty bullish for Biofinity toric when these products are normally harder or more difficult to get patients to switch out of

Well I think the prime example is when Air Optics for astigmatism came out there was a lot of movement within that space. When Oasis came out there was a lot of movement. Where as in the past the story was, and it was very accurate, that doctors’ were reluctant to switch patients that had astigmatism; that’s true in the 90’s it has been true in the early part of this decade, but it is no longer true. The fitting of contact lens that’ called a toric is very much no longer that specialty unique thing in the United States. It is more, I don’t want to call it a commodity, because there is an art to it, but a lot of people know how to do it and the matrix are a lot easier. So that being the case it is easier to have a shift if people like a product line and there are a lot of doctors that love Biofinity. They already know what that material is. They are hardly waiting for the toric piece of it because they fit a lot of torics’, so some of it is easy achievement. The harder part might be winning new customers, having a more complete product line. We won’t have the full complete product line until next fiscal year when we have a multifocal Biofinity, a toric Biofinity and a seer.

Lastly on cash flow, the -$9 million you did on free cash flow, was that within what you thought you would do? I know you didn’t give guidance for the first quarter, but was that [interposing].

It was a ballpark $20 million better.

The $8 million in the FX gain for the foreign currency transaction, is that a cash gain

Yes that would be a settlement of contracts against us, so that would be a cash gain. The offset would be in your cost of goods, so our manufacturing, but yes, that would be a cash gain.

Okay so excluding that it would be -$17 roughly.

You had a $5.8 million in your cost of good also; keep in mind that would have gone the other way.

Are you referring to the FX gain that we separately identified from the [interposing].

I am looking at the other line.

You mean other income?

Yes, that’s not cash.

Oh that’s not cash, yes. Okay thanks.

Your next question comes from Peter Bye with Jeffries.

Back on the operating expense line, traditionally you’re front end loaded on operating expenses. I understand maybe the reluctance to take it up given the historical track record and the economic environment. I know it comes down to a little bit of the percent of sale, but not nearly as dramatically as your historical numbers did. You were always very, very front end loaded as a percent of sales on OpEx. What goes on in the back half of this year on spending, or how is the gain in spending this year different than past years?

I think there are probably two things going opposite ways from the point of view of the restructuring endeavor, which is ballpark north of 150 people all up and most of those are in the operating expense lines. So the run rate savings on that going forward from early in the second fiscal quarter, we’re not 100% done, but it will start phasing over at least a couple of months. That is about $2 million run rate, once we get, let’s say the third quarter will have the full benefit of north of a $2 million operating expense savings. On the flip side, could be as you revenue goes up, so will fitting sets and things of that nature and sales commissions that track revenue. So, in absolute dollars there will be some upward pressure. As a percentage of revenue we should do reasonably well on that. The only other event that would obviously influence it is if we got to a comfort zone where we were accruing the bonus to bonus would suddenly enter the operating expense line item as operating cost. That is intended to self-fund, but that could play into the percentage of sales calculation.

What kind of numbers, Bob, again?

It’s a bonus that if earned fully would be about $0.15. To put it another way, to get to $237 we would need to earn $251 before we [interposing].

Right, right, I got it, that’s actually pretty helpful on that. Then just going back to the disruptions, obviously I don’t think your guidance includes continued disruptions from J&J or CIBA but maybe to counteract here, I mean Bausch fought CIBA forever. They took them to court, they actually got kicked out of the US, and CIBA still settled with them. Why wouldn’t CIBA be just as amenable to and wouldn’t the courts force them, since they’ve already offered two licenses aren’t they required to offer a license to J&J even if J&J goes to the mat on that front/ Second, just on that, I know it’s a small market and we had heard that CIBA sales guys were calling other distributors saying that the injunction was across Europe. Did you hear that as well? Did you get benefits outside of the Netherlands just because of the miscommunications from sales people from it, that it wasn’t just an injunction in the Netherlands?

There is no doubt Europe understands what is going on. We don’t need to do much. CIBA is obviously the aggressor here and their being pretty vocal and that’s fine with us. Why wouldn’t they reach a quick settlement? J&J has a billion dollars of silicone hydrogel to sell and Cooper and Bausch & Lomb have most favored nation. Would CIBA take that number and collect a royalty on it? Who knows? They fought so long and hard, they sunk in so much litigation costs. The thing that is going to complicate settlement quickly is, is it global, or is it only select countries? I seriously doubt that CIBA would do piece meal. Is it Oasis only, or is it Oasis and Acuvue Advance? In certain countries that arguably might only be Oasis, but even that is disputed. There are so many disputes that deal with major, major dollars and they have so much vested energy in it, I don’t see it going easily even if the courts say you sure you guys can’t get together and fix this. The battle is not just in one country called the Netherlands, it is all over, and it is an immensely complicated thing. For those of you that may have remembered VISX and the Summit in the Excimer business in the 90’s that battle was unbelievable for a good eight nine years and finally I the US there as a lot of push pull that it took to settle anything under 4 point.

I guess the US court case starts in March and usually US courts don’t give injunctions right away, they let it go. J&J is weakest in Europe, but of their silicone hydrogel sales what is your estimate of what J&J does in Europe for Oasis Acuvue? Mostly, like you said, it is mostly Oasis, but what is a decent number? Because we are getting a lot of core decisions over the next couple of months, so I was just wondering what maybe the opportunity was if you get further injunctions?

They’ve been going hot and heavy in Europe recently. I would say their total market share in Europe was probably around 20%, of that. The better half is probably single use, but it’s still a pretty big number. If you take all of Europe and give them 20% share, let’s say that’s $250 million range, at least that, and then you take half of that, at least $125 million or something like that. That is a real rough guess estimate, but they have arrived and they’ve been putting on a big push in Europe to, because that is CIBA’s playground, if you will, and they decided they had arrived on their doorstep.

Your final question comes from Amit Bhalla with Citigroup.

Hi, it’s Niquell for Amit. Where there any cosmetic sales in the quarter?

We, like CLI, have pretty much eliminate that line item. The CLI stopped reporting it and I think that was probably CIBA that decided that since cosmetic sales were going the way of the dinosaur that they would stop reporting the negative growth in that space. So, we finally gave up instead of trying to conjecture what it was. Our cosmetic sales have always been pretty inconsequential. If there were some they are dumped into the other line. Also, they are spherical anyway. Niquell – Citigroup: For the Japanese market, are you guys seeing consumers there behaving kind of in a similar pattern as here in the United States as far as destocking?

The Japanese market is kind of at the tail end catching up with the US a little and so it’s softening a little, but several months later than the US I would say. The rest of Asia is doing really well, but I think to answer your question, there is probably some effort to cut back from, I don’t know that they buy a year supply the way some of the programs here in the states are geared more towards two weeks and monthlies than the single use modality. Single use modality typically is weighted a lot less towards you buy a full year. So, to answer your question, and it is pure speculative, there is probably some little element of that, but not a big element. Niquell – Citigroup: So there is no negative impact to Proclear 1 day in Japan then?

No, I don’t think so. Niquell – Citigroup: Thank you.

Ladies and gentlemen that does conclude our Q&A session. I would like to turn the call back to management for any closing remarks.

On that note, I want to thank you again.

Ladies and gentlemen, thank you for your participation in today’s conference. That does conclude the presentation. Have a wonderful day.