Question-and-Answer Session
Operator
(Operator Instructions) The first question comes from Jeff Zekauskas – J.P. Morgan.
Ben Richardson for Jeff Zekauskas – J.P. Morgan
I just wanted to discuss business conditions in Europe for a moment. We noticed you had about 5% sales growth. We considered that you probably had a currency benefit, possibly 10% in the quarter and I just wondered if you might speak to price and volume trends in Europe as you see them.
Jay Rembolt
The currency benefit was relatively small in the quarter. If we look at the end of the year in Europe we had really a number of markets that had phenomenal growth through the first three quarters and in some ways it was really just phasing as some of those markets adjusted to the higher level of volumes they had seen. So we don’t see what may be a lower level of fourth quarter revenues in Europe as being indicative of what the future is going to bring.
Garry Ridge
In fact, the guidance that we have given for the first quarter would anticipate that you would see a reasonable growth in Europe in the first quarter.
Ben Richardson for Jeff Zekauskas – J.P. Morgan
I guess speaking to those factors impacting gross margin. Firstly, the product conversion costs and sourcing changes, can you go into a bit of detail concerning those factors?
Jay Rembolt
We have had a number of new introductions and conversions of old products which as you move into the new from the old depending on if you have a soft cut up or a hard cut up you have some additional packaging component material that is left over. So some of those conversion costs were associated with that as we had a number of new products that were being introduced and changes. Some of the costs were associated with changes in our manufacturing partnership and those were costs associated with inefficiencies associated with new runs on new lines and kind of getting a new production facility up to speed. So a number of those costs are not expected to repeat as we go forward.
Garry Ridge
We also had increased freight costs as part of our cost of goods as we were shipping product from a new manufacturer to other warehouses and those costs should also normalize as we go forward. So again those are a number of activities that cause that.
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