This excerpt taken from the EYE 8-K filed Apr 27, 2006.
Rationalization & Repositioning
AMO announced in late 2005 a plan to accelerate the scope and timing of a broad rationalization and repositioning strategy. Under this plan, AMO adopted a more aggressive timeline for discontinuing a variety of non-strategic cataract and eye care products, while eliminating or redeploying the resources that supported these products. Concurrently, AMO began increasing its investment in higher-growth, higher-margin product lines. Key aspects of the accelerated rationalization and repositioning strategy include:
AMO ceased production in 2005 of a variety of older-generation cataract and eye care products and implemented sales incentive programs to migrate customers to its core products. As a result, the company estimated that it lost approximately $8 million in sales during the first quarter of 2006. The company expects to lose an additional $25 million to $30 million in sales related to discontinued products during the balance of 2006. The company expects these lost sales to be offset by growth of its new and technologically advanced products.
AMO made organization changes, including implementation of initiatives designed to, among other things, enhance its global manufacturing capacity, refine R&D skills and priorities and better allocate sales and marketing resources. As a result, AMO incurred pre-tax charges of $42.3 million in the fourth quarter of 2005 and $32.4 million in write-offs and charges in the first quarter of 2006. These write-offs and charges are not included in the companys adjusted earnings per share guidance.
Following an analysis of its IOL manufacturing capabilities, the company has decided to consolidate certain operations. In addition, the company has decided to further expand the scope of its eye care rationalization initiatives in order to maximize manufacturing capacity and seize growth opportunities. Together, these actions are expected to result in charges of approximately $20 million to $25 million in the remainder of 2006. These charges are not included in the companys adjusted earnings per share guidance.