酷柏 (COO) 2002 Q2 法說會逐字稿

Please stand by for the commencement of The Cooper Companies 2nd quarter, 2002 earnings conference call. Please stand by, we're about to begin. Thank you for standing by and good afternoon, everyone. And welcome to The Cooper Companies 2nd quarter earnings result announcement conference. Today's conference is being recorded. At this time, for opening remarks and introductions, I'd like to turn the conference over to Mr. Baton, please go ahead, sir.

Thank you very much. Good afternoon and welcome to everybody much before we begin, I'd like to introduce you to Thomas Bender, our chief executive officer and to Bob Weiss, our executive vice president and chief financial officer who will be talking to you today and taking your questions. And just before we get started, I'd like to remind you that this conference call contains forward-looking projections of the company's results.

Actual results could materially differ from these projections. Additional information concerning the factors that could cause material differences could be found in the company's periodical filing with the SCC. These are available publicly and on request from the investor relations department. With that, I will turn the call over toTom Bender for some opening remarks.

Thank you, Norris and thanks for joining us today. We think we had a pretty darn good quarter. We certainly have made a lot of headway with the bio compatible transition.

In fact, we feel pretty optimistic about the rest of the year as it relates to compatibles. We believe most of it has been done and the results that we have all expected -- the positive results that we have all expected from the bio compatible acquisition will certainly start to show up in the 3rd quarter. We got an inkling of that in April and more importantly, our may, which was an extremely, extremely strong month with Coopervision and also Coopersurgical. The process that will follow today is that I will give you a complete overview of revenue, gross margins and earnings per share for the quarter.

I will talk about the next quarter. I will give guidance for the next quarter, I will give guidance for the rest of the year and what we expect in the year 2003. And I think I'm going open this kimomo enough so you will see exactly and have an appreciation of where these results will be coming from.

When I am finished, I am going to turn it over to Bob and let Bob get into some of the financial issues and the excellent results I think we've made this quarter as we've promised all of you, especially as it relates to DSO-- DSOs I should say, and our cash position in this company.

I will begin by talking about sales. I'm going to call it a mixed bag in sales, to be very candid and open with you. I think for the quarter we did $72 million, I think it is about $2 million short of what I really felt that we could have done, but I think you're going to understand exactly what I mean by -- when I try not to sound too defensive, but to talk about what the real world is all about as it related to the bio compatible acquisition as well as an issue in Latin America that was a one-time event. But in any event, with Biocompatibles, we had a 26% increase overall for Coopervision, with the acquisition, Coopervision sales were up 27%, I should say The Cooper Companies was up 26%. Coopervision was up 27. Coopersurgical was up 20%. If I take a harder look at the Coopervision results for the quarter, with the Biocompatible business, are Softland's revenues were up 33% in the quarter and now are up 26% for the first six months of the year.

Without Biocompatibles, our overall soft lens revenue group 4% in the quarter and 10% for the first half of the year. The results were somewhat tainted, I will say, in the 1st quarter, -- I'm sorry, in the 2nd quarter, by the in fact we know that we lost some sales in the March/April time frame, really, the February/March time frame, from the disruption that was caused by the acquisition itself. And that is how our sales force reacted to the uncertainty of future employment, the fact we took our people out of the -- out of the -- out of the field for more than a week. We definitely lost some sales.

Now, I think the bright side of all of this is the fact that our April/May time frame, those two months we've had the best, certainly no better two months in the history of Coopervision in the U.S. That is, our sales came back very strong in April, but more importantly, even better in the month of May that we just completed. So, we feel pretty confident about the guidance I'm going to be giving you for Coopervision and Coopersurgical for the next quarter.

On top of that, you should know that in the Brazilian/Argentine markets we had just a horrible quarter. We basically got no sales in Brazil. Our Brazilian distributor, who's given us about run rate of about $500,000 a month had a frame business, decided that they wanted to get out of the contact lens business for a lot of financial reasons that related to the currency fluctuations in Brazil. Put most of their focus on building their frame business and then went into negotiations with us to buy the Brazilian contact lens business, which we didn't finalize in the end of April. That all meant that they literally worked off the inventory that we already sold them. We had no sales into Brazil and beginning in the month of May, we're now registering sales out of the subsidiary now that we own. So those sales have already begun to come back.

In Argentina, we had a similar situation, not -- that was related to the fluctuation of the currency. That business is back on track again, it's about $100,000 in the month -- I'm sorry, $100,000 a quarter business. So, we lost about a hatch a million bucks business, one-time in the 2nd quarter. On top of that, it was a pretty difficult quarter, I think for us to take a look at -- from a comparison standpoint because of the fact we sold two -- $2.3 million of -- of product into Roto Pharmaceuticals in the 2nd quarter last year. That was there initial inventory for launching their quarterly product.

So, from a year to year comparison it was pretty darn difficult for Coopervision Friday a Coopersurgical standpoint, sales were excellent. We did about $16 million in sales, but more importantly for the quarter, we took in orders more than $17.5 million. That's why you saw, I think in the press release and what I'm going to go over with you in a minute, our expectations of sales in the neighborhood of $40 million for the next six months and certainly similar between 19 and $20 million in the 3rd quarter.

As an aside, in the month of May, we had a very similar situation with Coopersurgical, we took in orders that were substantially higher than those that were shipped. This, by the way, the reason I bring that up, in the past, if I go to the past quarters, the last two or three years, I certainly can't find any quarter, Coopersurgical, where our orders were so far ahead of the product that we shipped.

Now, let me get into some guidance on -- on Coopervision and -- and Coopersurgical and The Cooper Companies, quite frankly, as we talked about the next quarter, we're expecting revenue in the neighborhood of the mid-80s. I think I'm talking about 85 to $86 million, we're looking at Coopervision revenue without Bio compatible somewhere in the neighborhood of 47 to $49 million and for revenue of about $19 million from -- from Bio compatibles.

So, all up we're looking at about 66 to $67 million for our Coopervision business in the 3rd quarter. Coopersurgical, we're looking at around $19 million it could be a tad higher, but you add all that up, it is about $85 million of sales that we expect in the 3rd quarter. From a standpoint of gross margin -- I'm sorry, cooper -- sorry, looking at the full year, we still feel very confident in numbers between 310 and 315 that, would breakdown to about $240 million of sales for our fiscal year for coopervision and about $70 million, a little north of $70 million north of sales from coopersurgical.

If I look at the following year, 2003, our expectations are sales of about $300 million from Coopervision and would be about $240 million -- I'm sorry, $220 million for Coopervision without Bio-compatibles, we're expecting about $80 million in sales from Bio-compatible piece next year. You add up the 220 and you have a $300 million business. We're expecting revenue between 95 and $100 million from Coopersurgical. Moving very quickly to gross margins, our gross margins for the quarter were 61%. We won't duplicate that again. That, obviously, had an impact of the Bio-compatible acquisition, which had lower 50s kind of gross margins, but you should know in the month of April and May, we're looking at gross margins in Biocompatibles in the higher 50s.

So, we're expecting that the -- the -- the improvement of gross margins at Biocompatibles with the fact that our Coopervision business, without Biocompatibles, will have probably about a 1% better gross margin due to better mix, geographic mix, by the way, not product mix. And you add those two together and we expect about gross margins of 55% from Coopersurgical. You add those three up and you're looking at gross margins pretty close to 63%. It could be even a tad higher than the 63%.

When I get into earnings, we're looking at earnings and expectations for the 3rd quarter between 81 and 84 cents. We're still looking at earnings, in fact, I know we took our earnings projections up -- from 307 to 312 now for the full year and that was the impact of a better tax rate this quarter, which Bob will get into. And if I look at the year 2003, we're looking at gross -- I'm sorry, earnings per share between $ 3.90 and $4, somewhere in that neighborhood. I'm trying to remember exactly what we said, but I think it was --.

$3.95 to $4.05

I should leave you do that anyway Bob. $3.95 right to $4.05. I'll quote everyone with a tax rate of about 26% next year, we're certainly looking at earnings somewhere in the neighborhood of $4 next year.

Now, let me quickly get into some of the specifics with Coopervision, and I will get Coopersurgical, also. I wanted to talk a little bit about the toric market and what has happened, what has changed and how we performed and what we see going forward for our toric business. The total toric market is made up of three pieces and I've divided up now the two-week product market, for toric, which is what we call the disposable market. It now represents about a third of the world market. It is about a -- a little bit over $100 million in sides, it is dominated by one company called -- that we all know! Soft lens 66 toric, which is -- which has about a $50 million piece of that business.

Our sales, you should know, it's become very robot in the two-week market. It is the driving force of our ability to -- if not capture market share, certainly we are holding onto market share and we have about 1/3 of the markets here in the U.S. And a third of the markets worldwide. Our two-week product, which is on core here, Coopervision on core in the United States and Excel around the world, represents almost a $20 million business for us this year, in the year 2002. In fact, our current run rate is about $1.2 million a month for -- on a world wide basis and over $500,000 here in the U.S. So, it's become a very significant part of the mix of the products that we contribute to the overall toric market. I would tell you that our -- our growth is about four times that of the market we gained in the U.S., as an example in the 1st quarter, almost four share points in the two-week market. And the rest of the -- what I would call the replacement market, that is the non-disposable market, that those products are used on a monthly or quarterly basis, are fairly flat. It still represents about 50% of the market.

So, between the disposable piece, which is about a third of the market, it is really closer to 35% of the world market and growing over 30%, you still have the biggest piece being the planned replacement segment, which is quarterly and monthly products that have about 60% of the world market, but it's fairly flat, growing at about 3 to 4%. And we, by the way, are growing about 3 to 4% in that market, too. By the way, the participants in that segment, by and large are two can't. That's Cooper and Siba Vision. That represents about 85% of all sales in the segment.

The third segment is the conventional portion of the toric market and these are products you use on an annual basis that represents about 15% of the world market and it is declining between 15 and 20% and there we own about a third of that, by the way, a third of that 15%. And we are declining about like the market is.

So, if you add all this up, this allows to us say, you know that, we are, in fact, certainly not losing share in the toric market. In the U.S., the overall toric market, using this CLI data, was up a little over 5%. We were up about 6%. On a global basis, we're growing our toric business about 10%, all of our toric business about 10%. And we believe on a global basis that's about what the global market is drawing.

Now, for some of you who have interjected some thoughts about what is the impact of Biocompatibles, I will tell you exactly what it is. In the U.S., without Biocompatibles, we have a short 32% of the overall toric market. When I add Biocompatibles, I add about a little over 1%, so, that gets me about 33%. When I look at the global market, the global market, we have about 30. Cooper has about 30% of the toric market. When I add the Biocompatible piece, that's about 3% that, gets me to 33% of the market. If you want to know exactly what our sales are, I will open that kimono, too. Our U.S. Coopervision toric business this year is about $75 million on a run rate of six months. Our international toric business for Coopervision is about $15 million and our Biocompatible business, in the U.S. And international; about $20 million. You add all that up and you have pretty darn close to about $110 million of Cooper's business is toric business and that represents about a third, as I said, of the worldwide market.

I wanted to get that out because I think there was some misinformation out on a couple of reports I saw on our ability not only to participate in this market, but to protect our market share. I want you to know exactly where our growth is coming from in the toric market. It is coming from the two-week market. That's where the growth is. And we're growing much faster than the market. We're protecting our market share in a planned replacement segment, which is the monthly and the quarterly and even though that segment, I don't believe is going to grow much any more, it may even decline. We're certainly not going to give up share in that segment. And the same thing can be said of the very small segment and that is the conventional segment. I think I've talked enough about toric, maybe somebody might want to ask me questions about it .

Let me move on now to our other product lines, color -- I think I have given you some guidance that has taken down our guidance, quite frankly, from $20 million to $17 million and what we think we're going do in the market. Don't get me wrong, it's not all negative, that is a very positive figure from last year. But I think our expectations have been somewhat muted by the whole fact that the color market on a global basis isn't as nearly fast as we thought it might. On top of that, though, to offset that, the successes of our multi-focal and our pro-clear product lines, two new segments of the market that we're now -- now in, I should say specialty segments that we're now in, will more than make up any of the loss of expectations we had in the color market.

As far as Cooper -- no, I know, the last thing I want to talk about,Japan and give you an update on Japan. We have just met with our Japanese partners, the expectations still are that they will receive two-week approval for their toric and sear product lines, which are our product lines, sometime late this summer. That's their expectation. In the numbers, the guidance numbers I've given you, I have really nothing built in for any kind of an inventory sales into roto this year, but there is the outside chance that in the 4th quarter that we can make some sizeable sales into roto with our two-week products. Their expectation is if they get approval in the August/September time frame, they want to launch in Japan sometime in the 1st quarter of next year, which would be, I think their expectation is January.

Now, moving very quickly into Coopersurgical, I think that there is a number of -- I think events to point out and successes. I already talked about revenue. There is no doubt that it's had a very, very strong last three or four months, not that they weren't strong before that, but much stronger. That's why we've taken up our expectation for sales to close to $40 million for the next six months.

On top of that, more importantly, their operating margins have improved dramatically. They're up to 26%, we expect going forward that we're going to be in the mid 20s in operating margins for Coopersurgical as they go forward. And they had an outstanding American College of -- American College of Obstetricians and Gynecology meeting, they took in orders, about half a million dollars, by far, by the way, the best academy they've ever had. I think with that I will turn it over to Bob and let Bob get into some of the very good results we've had as it relates to some of the concerns that I think all of you had as it related to our businesses, as it relates to DSOs and cash.

Thank you, Tom. And good afternoon, ladies and gentlemen. As Tom indicated, we had an outstanding quarter with revenues$76 million, up 26%. One of the high spots of the quarter. And one that we spent a fair amount of time talking about the last two conference calls, has been our receivables and I'm happy to say that our days sales outstanding have been reduced by 15% from 86 days down to 76 days. And I will talk briefly about how it translates into operating cash flow.

Before I do, and turning to the business segments, from overview, Coopervision had revenue -- it was up 27% above the prior year. With the inclusion of two months of Biocompatibles. Soft lens revenues were up 36%, these are revenues excluding royalties and freight. Overall, our soft lens business is up 4% and 10% worldwide, adjusted for cost and currency and the in fact we had $2.3 million roto shipment in the prior year, a stocking order.

Our specialty lenses continue to drive the growth of the business. They were up 23% worldwide and as Tom indicated, we have had growth in torics, which is our largest portion of specialty lenses, it was up 10% worldwide with 33% market share and within there, the encore toric, xl toric, the disposable, was up twofold from the prior year. U.S. Sales were up 15%. Non-U.S. Sales were up 64%. And overall, Europe continues its stellar performance. It was up more than double the prior year. Coopersurgical which had revenue of $15.8 million, up 20%, had organic growth of 10%, again this quarter. That makes it six quarters in a row for double-digit organic growth. And overall revenue at $72 million was up 26% and likewise had approximately 10% organic growth when adjusted for cost and currency and the roto shipment. As far as operating performance, operating income at Coopervision was a ratio of 22% compared to 29% in the prior year. The entire reduction in operating margin is a result of the Biocompatibles transaction, which -- which led to a gross margin decline from what would have been 67% down to 63% for vision.

Overall as -- as, you know, understand we had the transaction or the acquisition closed on February 28th, so it only includes two months and as you might imagine, the first two months were very disruptive for the entire organization. We are proceeding on track we expect to have operating margins for Biocompatibles at 10% this year, improving to 22% next year and then in the following year we expect to get back up to the vision level of 30% overall performance as we complete the integration of all phases, including realignment of plants and manufacturing.

Coopersurgical's operating performance had an operating income of $4.1 million, an increase of 78% above the prior year. And it achieved 20% operating margins compared to 17% in the prior year. We believe this proves our -- our model that validates the economies of scale. Our operating margins at surgical have progressively gone from 14% in the year 2000 to 17% last year to 22% in the 1st quarter and now to 26% in the 2nd quarter of this fiscal year. Overall, gross margins were 55% this year as well as prior year, so, the entire benefit year-over-year and the 2nd quarter was operating expenses, which were reduced from 38% in the prior year down to 29%.

Overall, Cooper had a operating profit of $14.7 million, an increase of 8% and our operating margins were down 4% from the prior year, from 24% down to 20%. Once again that was entirely due to the Biocompatible integration where we're getting no operating profits in the first two months. And as a result, if we were to back that out, Cooper would have had a 25% operating margin, slightly better than the prior year.

As far as Biocompatibles, we're on track with -- we've completed most of our sales and marketing integration and now through the end of the first three months, we've now completed most of our distribution customer services and once again that, was in four primary countries where the integration was occurring, in Italy, Spain, the U.K. And the United States. Where a substantial portion of that business is located.

Looking to below the line or actually before I go there, intangibles this year we don't have the amortization of goodwill, which resulted in a reduction of 911,000 in amortization of intangibles, that accounts for about 5 cents and on the year to date basis, it accounts for around 9 cents overall. Interest expense was $1.4 million, up 60%, which is not that bad considering we've added about $100 million of debt for two months or what should have been around $833,000 interest expense, partially offset by the benefits of favorable rate reductions as well as favorable cash flow from operations. So, net -- net -- we continue to manage down our debt and interest expense. Our income tax expense was 25% for the quarter and 27% for the year to date. That reflects the benefits of shifting profits outside the United States into our -- our international theater, which is growing much faster, it also reflects the benefits of the Biocompatible transaction, which shifts the -- the vision business more to a global business, a better 50/50 balance. And that translates to a better tax profile, too. We've indicated we've reset our objective for our tax plan to reduce it to the low 20s over the next six years and this reflects the in fact we're moving rapidly towards that objective. Outlook for next year, as we expect to reduce our this-year tax rate from 27% down to about 26% next year.

Overall earnings we are share was 64 cents, an increase of 10% above the prior year and that brought our trailing 12-month earning per share to $2.68. Cash flow per share was $1.05, and that brought our trailing 12-month cash flow to $4.36. As far as reconstructing the bottom line for the quarter on earnings per share, if we take the 64 cents and take 2 cents out of it for taxes, which is a function of a catch-up for -- for bringing it year to date into line, and then adjust for 11 cents, which is ball park, the impact of the Biocompatible transaction on us and during the quarter, we would have around 73 cents on a what, if if basis or a proforma basis.

Looking at the balance sheet, we continue to have a strong balance sheet in spite of adding $100 million of debt to it in the quarter. Debt to cap is 37% and keep in mind the last time we increased our debt to cap up to that level it took us two years to reduce it back down to around 20% with strong operating cash flow. As far as -- during the quarter we completed a refinancing of our -- our credit agreement, which expanded it from $75 million up to $225 million that we had around $60 million of ongoing capacity. And on that credit agreement, we have a very favorable rate, which are live or plus 200 basis points on our revolver, which is about $150 million and live or plus 225 basis points on our term loan, which is for $75 million, the revolver being for three years and the term loan being for five years. Overall blended rate on all our debt is around 5%. We expect that we should be able to hold that short of any real radical things going on in the marketplace. We can manage that down further as we improve our balance sheet and deleverage the company with operating cash flow.

As far as day sales outstanding, I mentioned they declined from 86 days at the end of the last quarter to 73 days. That translated to having our -- a record-setting operating cash flow quarter of $20.5 million, bringing our year to date operating cash flow to $24,700,000 or about $25 million, that approximates the cash flow we had for the entire year last year. So, we're very happy that we got to the point where we -- we would prove that the information system once fixed would allow to us get the cash back that was tied up in the receivables.

Inventory stayed at the high levels of around 7.7 months on hand and once again, our intent is to keep it there. We have 500,000 SKUs, or stock-keeping units in the contact lens business it makes it is a much more complex business than any other competitor. That's one of our varies of entry. It is our intent to keep service levels high as a result of that. We continue to have around $45 million deferred tax assets and once again, these are a result of our $100 million of net operating loss, carry-forwards, which means we're not a taxpayer for the next three years.

Lastly, by way of outlook, our leading to outlook, we're proud of the consistency of our track record which has led to, over the last five years, compounded growth rates or revenues of 28%, operating income of 31%, earnings per share of 34%. Cash flow per share of 30%. And year to date, we're off to a good start. Revenue is up 21%, operating income is up 19%, earnings per share, plus 24%. And cash flow per share, 12%.

Our outlook is for 380 to $400 million in revenue next year, with earnings per share of $3.95 to $4.05 and we believe that our optimism is well-founded because of the new that we're rolling out, such as the success of the multi-focal and the pro-cleara lens we now have. Favorable demographics we have in contact lenses with the baby boomers as well as -- I'm sorry, in women's healthcare with the baby boomers and in contact lenses with the baby boomlet, as well as positive geographic expansion intoJapan, where we're excited to hopefully be entering that by the end of this year. Then the ongoing ability to continue to acquire companies within women's healthcare that will move us to the $100 million objective for next year. On that, I turn it back over to Tom for questions and answers.

Yes, operator, we're ready for questions now

Operator: Thank you, sir. Our question and answer session will be conducted electronically today. If you do have a question, you may press the star key followed by the digit 1 on your touch-tone phone. Again, that is star 1 to ask a question. We'll take as many questions as time permits and in the order that you signal us.

Sheryl Zimmer, Sheryl?

I just had a couple of quick questions, first I just want to go over that guidance for the third fiscal quarter to be sure I had it right. So, C.B.I. ex-biocompatibles $47 to $49 million and Biocompatibles, $19 million.

Yes, 19, a little north of 19.

That seemed low for core CVI, it looks like a growth rate in the mid-singles and a huge number for Biocompatibles. Can you talk about that for a a little bit?

Yes, a 47 million off of a 42.3, which would be soft lens revenue, would give us about a low teen. We're looking at low teen growth for our soft lens revenue for the 3rd quarter, Sheryl. And if it's up to $48 million, it might be 48, but we're definitely thinking that we can get, you know, just based upon April and May, we're pretty sure we're there.

Okay.

Trying to remember what you had--

Well, let's see, so last year for CBI you recorded 45, about $46 million. Is that correct?

Yes. And there was about a $2 million non -- it had to do with royalties, it had nothing to do with soft lens. Soft lens revenue that we don't have anymore. That's part of it. I don't know, Bob, with the rest of it.

Okay, so $2 million -- $2 million still only gets us to about a 7% growth rate. So, is there anything else in there that's an anomaly in the 3rd fiscal?

63 divided by 42.3, that gives me 13% growth. Yeah, if , I get -- if I take 2 -- was it $2.3 million -- anyway, we did 42.3 in soft lens revenue in the 3rd quarter. The rest of it it to do with non-soft lens revenue to get me to 45, Bob, that's the only way I can get there.

Okay, I will talk to you about that offline. Also, the Biocompatibles, what -- it just seems like a big step up versus the current quarter.

Well, we don't want to talk too much on the current quarter, remember.

I know that, but even annualized.

We had a pretty good May, Sheryl. I got to tell you that I think with the Coopervision sales forces around the world focused on a new specialty product line, I meant to tell you we're doing very well. We're also doing very well with the pro-clear toric product line. That's really a complementary product line to our current line of disposable and planned replacement torics. That's why I tried to take you through all the different segments of the toric market.

Okay.

We feel very confident about that. I -- you know, I don't think it's appropriate for me to tell you exactly what we did in May, but I will say that its a run rate, it will be higher than 19. But we're not going to do that. Okay?

All right. That helps. And then just final quick questions, just -- would you be willing to tell us what the color business did in the quarter and just--

Yes, I can, it's about a million two, all up.

Okay.

$1.2 million a month, I'm sorry, the last month. So, it's running about 1.2 million for the last two months. I shouldn't say 1.2 million for the quarter, 1.2 million for the month. That's all torics. There is always a pickup, by the way. Not in torics, in color, when you get into the summer months and get close to Halloween. So, we will get a pickup on the crazy lens product line as well as the cosmetic product lines traditionally when you look at -- you know, the old CLI data it always picks up in the calendar and I will say calendar 2nd and 3rd quarter. So, we expect our color to do better. I don't want to give you the impression it's not doing as well. I'm just saying, I would've expected it to do a little bit better than it's doing.

Okay great, and my final question on the topic is J&J making any inroads? It sounds like from your comments on the market, they're not really expanding the market but--

I will speak to J&J on both fronts of the on the toric front, absolutely not. Absolutely not. HPR data -- you know, one thing about it, when we talk about data, with this company, anyway, I will tell tell you what the source data is. CLI data, HPR data. I'm certainly getting sick and tired of reading some of these reports with the same [baloney] about what one guy sees in talking to 17 doctors or something.

So, our data, I will try always identify the source data so that we know we're not just sitting and making up the numbers. If you look at HPR data, very definitely the J&J toric is having little impact on what I think our two biggest competitors, and that is still Bausch & Lomb soft lens 66 toric, which is doing very well, as well as the ocular product. The ocular product is very new into the marketplace, but they make a good product. They don't have a lot of perimeters now, but it's a product we will pay a lot of attention to. As far as colors is concerned, absolutely not. The standard still is the Wesley Jensen or the Ciba color blends product line. They have wonderful cosmetics and it is a slow-growth market.

As I pointed out to everyone before, certainly with I talked to individual investors, anybody's that's new, including us, getting into new market segments, specialty segments like torics, color, it takes quite a while. You must have patience if you're going to gain market share. There's not a lot of trading around in the markets. They're very brand loyal and doctors will not move people off a product unless there is an absolute reason to do it you have to be patient and gain new [inaudible] and to gain new patients. And what I think is going on with our color line, Sheryl. I think it's -- we just have to be a little bit patient because it is a good product line, we -- we're doing very well, we're doing, we think, very well, but I like it, I always like thing things to do a little better than they are.

Okay, thank you very much.

Mike. Mike, are you there?

I'm here. Yeah, I got a couple of questions. First, regarding CSI.

Go ahead.

The $19 million sequentially it looks like that includes about a little over $3 million from Norland and the [Acrad]acquisition; that correct?

I don't think would be quite that much. [Acrad] is about a million--about 5 million [INaudible] It is 13. Yeah, 13. That's right. In a quarter about $3 million.

On okay, basically on a sequential basis, the CSI revenue will be flat?

On a sequential basis--

Right.

I think a little bit flat. I'm not plugging in anything for all the orders they've got. So you're absolutely right in just looking at actual sales. I think you're right.

Okay. The CVI in the next quarter, or actually the CVI in this quarter, how much actual revenue from Biocompatibles is there?

A little bit north of $10 million.

Okay. And next quarter it will be 19 .

On the month before, you're going to sell a [inaudible] us, you're probably going to get a lot of your business out of the way, right?

The explanation you gave me before is it was your 4th quarter and the $19 million they did--

No, February is not the 1st quarter. We took over the business March 1st.

Okay, so in the February quarter, then, you're saying.

Yeah.

They had a big month.

Yes, they did. They did in January and February.

Okay. And now just getting back, your business was bad, you said in February and March; that correct?

I wouldn't say it was bad, Mike, because, you know, we didn't give guidance for the 2nd quarter, if you recall, for revenues. Some of the analysts were out with about 74, 75. We came in, we believe, about a couple million light overall on CVI and I think that -- I think it's been proven with the strong sales results we had in April, more importantly also in May, but I think it had to do with the disruption of our own sales force as we were negotiating in closing the purchase of Biocompatibles, plus the -- plus I didn't want to dwell too much on it, but half a million dollars of business ask a lot of business we didn't get from the Americas and Brazil and Argentina in the 2nd quarter. This is a one-time deal.

So, Tom sale 2/3 of his stock in early-April is just coincidence, it's nothing to do with the business wasn't great.

Well, I sold a lot of my sales, 10% to cover taxes, if that's what you want to know.

Okay.

Is that okay?

But the reporting service think takes was bigger than 10%.

They're wrong. I will tell you exactly what my god damn stock is, I'm $250,000 in the money now, July I get another $50,000. I saw the same one from a shorter that was out there with the 202, one my own analysts, I think, I don't know where he got the 202 number from, but it's not accurate.

So, the 58,000 shares --.

By the way, I will make another statement. As I have said before on previous conference calls, I will, as a 63-year-old, as a 63-year-old doing my own financial planning, I will be selling between 10 and 15% of my holdings as long as I'm with -- I will not be -- as you will notice, I always sell at the same period of time, I don't -- I don't sell at the peak or buy at the bottom. I try to keep it, mike, as patterned and as consistent as possible but I will always be selling between 25, I would say, and 30,000 shares. You're going count on it.

Okay. So the reporting service that said 58, 7,00 the, that's not correct then?

What did they say?

57,800.

Not this year.

You might want to check into that.

No, I sold $35,000.

Okay. Tom as far as the tax rate, which was somewhat surprised to the analysts, I believe since they're looking for 29% in the quarter, and it seems to be, you know, the reason for any kind of "upside," what do you guys actually doing there and--

Well, I think you will understand that when we came out and talked about Biocompatibles extensively in the past several months, we've indicated we've reset our tax objective from what would have been the upper 20s on to the low 20s. And the result of that was the fact that we were shifting our mix from the United States to offshore. We said we would achieve the low 20s over the next six years, so, beyond that we have not told any -- any analysts what rate -- tax rate to pick for themselves since we've done the Biocompatible transaction. And secondly, you'll also note that our international business, particularly Europe, has done outstanding well and we're not disappointed by that factor. So, the in fact our tax rate is coming down is not something I'm embarrassed about and never will be, no matter what anyone asks me to be.

Okay. And the other variants from the models was the interest expense it was a million dollars lower than what people where were expecting. What's some guidance for that going forward?

A million dollars lower than people were expecting?

The models I'm looking at, yeah, 100,000 today a million.

That's a big number. You could have a model that assumed three full months of interest rates. Let's assume -- let me come back and answer your question. What should the run rate be? Our run rate is around 5% effective interest and all up it should be around $8 million a year. So, that's more -- $8 million a year or $2 million a quarter on an ongoing basis.

2 Million. Okay. That's a little higher than I think the guys were carrying. Okay, and some of your competitors have noted that you guys been pretty aggressive with the discounting and extended terms. Did you have any comments on that regard?

I don't know. Boy. I don't know where that has come from. We have literally raised prices. There is another competitor who is doing a lot of that but that is antidotal, if anything. I certainly don't -- we don't have anything anymore to comment on, but I -- I have no idea where that's coming from. I noticed it with one -- one report, everybody I guess has a right to say anything they want, I guess that's a good excuse for not making the results from another company. But that's certainly not true.

Okay.

And further more, if we can do that and generate $20 million on operating cash flow in the quarter, the proof of putting up at the end of the day is what do you generate in cash?

I understand can you just quickly give me the cap-x for the quarter and how many you spent on the acquisitions?

The cap -- well, of course we spent $100 million on the acquisition and anticipate substantial amount of integration costs and expect that to be north of $10 million. On the Norland transaction we indicated $3 1/2 million transaction costs and then the [Acrad] deal was $12 million all up. Our run rate on cap-x is a little north of about $5 million a quarter as we integrate the Biocompatibles transaction will be some incremental cap-x tied in with that . Not a substantial amount but we will just as we'r doing in other areas be integrating and realligning some plants as a result of that.

Okay.

And--In comparing to anyone that might be in the daily disposible market where thy're spending $40 or $50 million a year, are new-- let's say tagreted cap-x run rate [unfold] would be in the low 20s.

Okay. and if I -- I look at the inventory verses the proformas in the AK, it was up about $5 million from the end of January. Is the inventory just going to be this high? The 240 bay range or can we expect some measure of relief there at some point of time?

That sounds a little high relative to the total amount inventories is up relkative to the proformas. Keep in mind we also other acquistions adding to the inventory.

Okay. Can you just give me a flavor for how much that might have been.

The best way I look at it---is our months on hand stayed around the same thing. They were about 7 ---7.4 the beginning of the period and the end of the period. So we haven't really changed our [INAUDIBLE] from a business point of view. 7.4.

Okay I'll let somebody else take you. Thanks alot.

Charlie?

Yes, Thomas I'm here.

Okay.

Two questions. One, in the kind of --- revenue numbers that you put forth first-- say the rest of '02 and '03. What kind of growth scenario do-- are you anticipating for the domestic and international --kind of backing out, looking at an organic basis. And two, assuming that the time lines for --for roto are correct , in other words , they would get in August or September approval and launch in January. What would be a reasonable type of incremental contribution to expect from that business?

Let me do the last one first. I would say something in neighborhood of $3 to $4 million should --should suffice for their needs to launch a product . I don't think you would get all of that in our forth quarter. You would get some of ot into our fiscal first quarter, but they would certainly have to have the product in hand before the middle of December it would seem to me to make the-- to make that launch.

Thats for the launch, but what could an annual contribution be?

Well, you know I have talked about --hoping to get double digit kind of sales from them-- in the first fiscal year. I think I want to wait and see exactly what kind of [INAUDIBLE] added guidance they're going to give to us.

Okay.

I think I've stated that in the past. I would like it to be --you know-- we would like --we would hope that in the first 12 months of interducing a product, that we would get something north of $10 million of sales.

As far as answering your first question, I think I answered that with Sheryl. We're looking for low teen growth for our worldwide Coopervision business without Biocompatibles. With Biocompatibles next quarter, of course we're going to looking at 50% growth. From a standpoint of U.S. we're looking at high single digit growth. Certainly have had that the last couple of months. So we think that's sustainable. On the other hand, we don't see any major changes that the CLI data is somewhat--I won't call it --difficult to read-- maybe that's the best way to put it. It's difficult to read this time because it has alot of sales ----stocking sales in for the TV or the consumer campaigns of Ciba Vision's night and day product and the load in for J&J color product. If you back all that out, I still think its more positive than it was last year but I still think we're looking at 1% or 2% type of overall growth in the U.S. We have alot more critical mass now in this country and therefore I think that until I see some good signs that the contact lens market in the U.S. is really starting to make a major up turn, which we still believe is going to happen the latter this year. At least some of us in the industry feel that way. I dont think we'er going to get double digit growth here in the U.S. We can grow seven or 8 % this year and still be in the whole share point in the marketplace.

So, in Europe we had 29% growth this last quarter, this is almost 30% growth, but certainly now thats 6 quarters in a row where we had about 30% growth. So most of that growth you're seeing is coming from international per Coopervision, without Biocompatible and the U.S. piece is looking at about the high single digits. I'm looking at 8---7to 8% growth.

Thanks Tom.

Uh-Hum Anybody else?

That's it.

That's it. Okay I what to thank everybody for joining us today. Were --were looking forward to presenting our third quarter results, which would be in the first week in September. I'm trying to recall what day it is, but we'll put something out on it , but I think its --like the Wednesday following Labor day and it would be September the 4th. So we'll see you then and thank you for dialing in.

That does conclude this afternoons teleconference. We thank you all for your participation.