酷柏 (COO) 2003 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to your fourth quarter and fiscal year earnings conference call. My name is Jen and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will, however, be facilitating a question-and-answer session towards the end of the conversation. If at any time during the call you recall assistance, simply key star followed by zero and an operator will be hapy to assist you. As a reminder, this conference is being recorded for replay purposes. And now I would like to turn the conversation over to the host for today's call ,Mr. Norris Battin, please proceed, sir.

Thank you, very much, Jen, and good afternoon. Welcome to everybody. Before we begin I would like you to introduce you to Bob Weiss, who is our Executive Vice President and Chief Financial Officer, and Tom Bender, our Chief Executive Officer, who will be reviewing the quarter with you this afternoon and then taking your questions. Before we get started, I would like to tell that you this conference call contains forward-looking projections of the company's results. Actual results could differ materially from these projections. Additional information concerning the factors that could cause material differences can be found in the company's periodic filings with the SEC, and these are publicly available and on request from the company's Investor Relations department. And with that, I will turn the call over to Tom Bender for some opening remarks. Tom?

Thank you, Norris. I want to thank everyone for dialing in today, and joining us with what I hope you will all agree, a very outstanding quarter for us, probably one of the better quarters we have ever had, And it really caps off an outstanding year for Cooper. It is probably just not the year I should talk about, but as we stated in the press release, it's really been a string of quite a few good years. In fact, our five-year compound growth in revenue is 31%, operating income, 42%,, earnings per share, 36%, and cash flow per share of 30%. So you're looking at -- I should say 27%. So you're looking at five years of pretty darn good performance. The quarter is just a mirror of the kind of -- the kind of results I think all of you would expect from us. What I'm going to do today briefly is to go over the state of the contact lens market, the state of the union, quite frankly, for our vision business, and then take you through the results of CooperVision as we compare ourselves to what's going on to the -- in the overall market.

For the second year now running, the contact lens market, on a global basis, is extremely healthy. I don't believe there is another segment in all of eye care that is growing anywhere near what contact lenses are. And the data is very easy for all of to you get if you want to to. But remember there are five companies that represent about 99% of the 3.4 billion dollar soft contact lens market. There is only about $50 million that are not represented by these five companies. All companies are public companies. We all publish our results on a quarterly basis, so it is pretty simple to get an idea of what is going on in the market, and, quite frankly, who the winners and losers are. Very briefly, I will tell you that, from a global standpoint, the market for the quarter was up about 14%, if you take a look at all five companies and what they reported. And in constant currency, it is about 8% . And, by the way, it is just about what the year-to -date numbers are, about 14% and 8%, and if I look at the market over the next two or three years, we certainly don't see this thing slowing down. We expect that, in a constant currency basis, that this market should grow between 8-10% over the next couple of years, and even accelerate, as I've said in the past, as we get to the -- the end of this decade. The drivers are in place, the demographics are all favorable for our market. Remember, we're a youth market.

Secondly, the prevalence of myopia in plenty of studies, clinical studies, have been published, certainly indicate the amount of myopia around the world is increasing decade to decade, and that's our business. Those are the folks that wear soft contact lenses. And then, lastly, I think as every company has reported, and it is certainly very obvious in the data we get from -- not just from a global standpoint, but certainly here in the U.S., that specialtyand value-added lenses are growing at the expense of the old commodity products of the past. The Accu-Vues are changing, and the Biomedics products - I guess I have the name right - of Ocular Science, but the two-week type of products are certainly being cannibalized by the value -added spheres. So you have a lot of drivers that are in place, and that's why we're very optimistic about the overall market. If I look at the U.S. business, which I think is another place for me to go, and I think we -- I think all of you know we have better and clearer data when I take a look at the U.S. market than we do on a global market, even though we o get very good data, like I said, from those who are reporting their sales. But if I look at the U.S. market, it is up 9% for the quarter. And it would have been up 11% if I take out the conventional products, those are the old vial products. So if I look at the overall market without the conventional products, it really was up 11% in the quarter. Year to date, the market is up about 8%. It is probably distorted a little bit. That number is distorted a little bit because Bausch & Lomb's Pure Vision was taken off the market in the latter half of last year, so- I should say the last half of last year, so we think the -- without Pure Vision in the mix, that the overall market in the U.S. is really up even better than the number I just gave. I think it is up more closely to about 8%.

I think the important thing is to take a look at how Cooper is performing in this market. We certainly are the driver. If you like to take a look at the world market, as I said, it was up 8% in constant currency through -- through nine months. Cooper's business is up 16%. We're growing twice the market, and in the U.S., where the U.S. market is up, reported about 7% year to date, Cooper's business is up 20%. Interestingly, there isn't one other company that is even growing at 7%. The next fastest growing company in the U.S. after nine months is Johnson & Johnson, which is up 5%. So we certainly have had one heck of a good year. Our market share, by the way, in -- on a worldwide basism has moved to 10%, and that's from a base of about 5% three years ago. This year in the U.S., our market share is closer to 13%. That compares to about 8% three years ago. In fact, we are up -- year to date, we are up 2% from last year. Our market share in the U.S. was 11% last year. We're up 13% this year. If I look at the -- what's driving the market in the U.S., and let me go back to the U.S., the market, as I said, is up 9% in the quarter, up about 7% year to date. If I look at what is driving the market, it shouldn't be a surprise to any of you who have followed Cooper or really have followed the industry, we think of the disposable Torics as the real driver. But really, the driver for the last two years, and again I will give you some numbers, this year again is the monthly spheres, and the products that are included in the monthly spheres are value-added spheres. They are products like Ciba's Night and Day, Cooper's Proclear sphere, which is basically directed to patients who have dry eyes, and Frequency Aspheric, which is another Cooper product. Those three products are generating most of the growth.

Year to date, the contact lens market in the U.S. is up $57 million. $39 million of that $57 million is monthly spheres. That's where the growth is coming from. That segment is up 28%, and as I pointed out, it is at the expense of the two-week commodity disposable spheres, primarily from Johnson & Johnson and Ocular Science. The second biggest fastest growing segment and the other driver continues to be disposable Torics, and that is an extension of about the last four years. Now, that's $22 million, it is up $22 million, incrementally this year, it's up 33%,. And the last one is disposable bifocals, which finally are starting to move. It is the largest underserved segment in the contact lens market. It is still small. It is still, on a global basis, only $100 million business. But because of Bausch & Lomb and Cooper, who now have very good ,well-performing disposable bifocals, that segment is up 27% year to date and 8 million new dollars. So that's where most of the growth is coming from. Interestingly, I've heard some other comments about disposabless -- daily disposables or single-use products in the U.S., that market didn't even grow with the market in the quarter. It was only up 7%, and the market is up 9%. We don't see much growth in the daily disposable products.

I think the last segment I will talk about, which is an interesting one, is the disposable color products are actually down 6% year to date in the U.S. market. Our business is up, but the overall market is down 6%. We think a lot of that has to do with the economy. Many of the patients who use disposable color products, it's their second lens, it is not their primary lens. There isn't a lot of annuity in this business like there is with some of the other products in the market, even though we do think the disposable color market will come back later on this year. Now, as far as Cooper is concerned, let's talk about the Toric market for a minute. The toric market was up -- all torics I'm talking about -- was up 9% in the quarter, and 9% year to date. Cooper's toric business was up 21% in the quarter, it's up 22% year to date. And overall, our market share has grown in Torics from up to -- to 34% from 30%, or 31% -- I'm sorry, 32% the year before. We're actually up two share points in the -- in the toric market. In disposable and plan replacement - and those are monthly disposable products - the market in the U.S. was up 14% in the quarter, 15% year to date. Our business was up 21% in the quarter for disposable torics-- I'm sorry, 28% in the quarter, 32% -- 30% year to date, and our market share now in the disposable toric market is 36% from 32% the year before.

I think the important message here is that torics has always been viewed as a strong business for Cooper. It still is a strong business. On a global basis, this company will do somewhere in the neighborhood of $135 million toric business on a global basis for this calendar year, and about $85 million in the U.S. We continue to grow market share in the toric market, even with the new competition that's been in our market, and even though we're not the number one player in the disposable toric market, that really is Bausch & Lomb's Soft Lens 66 Toric. Please remember, we have five products to compete in that segment and those five products are growing at a faster rate than the Bausch & Lomb product. I think from that, I will move to some of the important messages from -- that you should take away from Cooper Surgical. I think Cooper Surgical's business has strengthened this quarter over last quarter, without a doubt. Organic growth is, as I pointed out, not a large number, but it is about 2 to 3%. I think Bob can address that later on. But it's business going forward, we think is going to get stronger from an organic standpoint, certainly in the mid-single digits. I think the important thing, too, to take away is the type of acquisitions we're making at Cooper Surgical to expand the type of product lines and opportunities to the gynecologist. A good example is the latest SuRX acquisition, which is a surgical opportunity for gynecologists to treat mild to moderate incontinence. So we're trying to move our product lines in to offer growth opportunities, income growth opportunities to gynecology, and at the same time build the business.

I think next I will go to operating margins. I think it is important to see that our objective was to approach 25% operating margins at Cooper Surgical this year, which, you can see, we did it in a quarter. Operating margins at Cooper Surgical have continuing -- have been continuing to get better as we leverage these acquisitions very efficiently within the business. Our operating margins in 2000 were about 13% and in 2001, they were 17%, last year, 20%, this year 23% and, of course, the last quarter was 25%. And our objective going forward is to have operating margins plus the 25% for the full year. If we take another look at the-- what I want to talk about isthe guidance we've given you. You can see that we're looking for revenue in the 105 to 108 for the next quarter, and earnings per share between 52 and 54%. We're looking for a CooperVision's sales to be between $83 million and $85 million, and we're looking for Cooper Surgical's revenue to be between $22 million and $23 million dollars. As far as next year is concerned, we have raised our revenue numbers a tad. We went to 465 to 477 from the old guidance, which was 460 and 470. And we have raised the entry level of our -- or the lower end of our guidance on earnings from 246 to 248, using a 20% effective tax rate. Or 23%. What did I say, 28? I meant 23. At any rate, I think with that, I will turn it over to Bob to go over some of the financial excellent results we've had this quarter and for the year.

Thank you, Tom. I will just kind of briefly come back to -- I'll start on the press release, how I will make three points on that and move into the operating segments. First of all, to duplicate what Tom said, we had an outstanding quarter. Certainly we think top line growth at 19% in an economy is that is not inflationary, is outstanding results, and earnings per share up 23% above the prior year's fourth quarter to 64 cents. For the fiscal year we ended up with a 31% increase in revenue, and earnings per share up 36% above the prior year, to $2.13. And one of the outstanding stories, I think, of the year and of the quarter, was operating cash flow at $29 million for the quarter, bringing the cumulative amount for the year to $77 million. Looking at operating results by segment, first of all, CooperVision, which had revenue for the fourth quarter of $91 million, saw its revenue growth at 21%, for the quarter, and in constant currency, 15%. That growth has continued to be sponsored by rapid growth of specialty contact lenses, which again are our Toric Multifocal lenses, color lenses as well as lenses that address dry-eye conditions. So specialty lenses were up 28% for the quarter, and now account for 62% of our overall revenue at CooperVision. Within specialties is Torics, which were -- which of course are for astigmatism. They were up 29% for the quarter, and now account for 41% of our total CooperVision revenue. Within spheres, disposable spheres was up 37%, which includes our Aspheric lenses for low levels of astigmatism and low light conditions, and it also includes Proclear for dry eyes, which was up 48% above the prior year's fourth quarter.

Geographically, our revenue in the United States was account -- accounted for 51% of CooperVision revenue and was up a solid 22%, and the rest of the world was up 20% and 7% in constant currency. Europe, which accounts for 33% of CooperVision, was up 12%, and the Asia Pacific Rim was up twofold above the prior year and now accounts for 5% of our worldwide revenue. Looking at Cooper Surgical , which had revenue of $22 million for the quarter, it was up 12% mainly due to acquisitions, however, I would point out about 4-5% of that growth was organic growth for the quarter. Cooper overall had revenue of $113 million, up 19%, and 18% of that is organic growth. For the fiscal year, CooperVision had $330 million in revenue, up 35% , and on a pro forma basis, increased 23% above the prior year, pro forma of course being to adjust for a full year as if we owned BioCompatible the full fiscal year. Overall, CooperVision on a pro forma constant currency basis, was up 16% above the prior year's fourth quarter, once again driven by specialty contact lenses, which was up 29% on a pro forma basis. Torics was up 21%, and disposable spheres was up 37%, all on a pro forma basis.

The United States market was up 20% or more than two times the market growth of the U.S. And the rest of the world was up 25% and 12% in constant currency. Europe was up 20%, 7% in constant currency, and Asia-Pacific was up 89%, and added up to $17 million or 5% of our overall revenue. Japan included in that number was $5 million. Cooper Surgical had revenue of $82 million for the fiscal year, up 15%, and about 2% of that was constant currency -- I'm sorry, was organic growth, and the balance was a result of acquisitions. Overall revenue was $412 million, up 31%. 18% growth, organically, year over year. And in constant currency, 13%. Once again, followed in the context of low inflationary mode that we're in.

Looking at operating income, CooperVision had $26.4 million of operating income, an increase of 32%. And its operating income now accounts for 29% of revenue as an operating margin, which is an improvement of 2% above the prior year. SG&A was 38% and declined 3 percentage points as a percent of revenue from the prior year. That reflects the outstanding success we have had in integrating the Bio Compatible transaction into CooperVision on a global basis. Our gross margin for CooperVision for the quarter was 68% overall. And in that, it had a hurdle of the fact that more than 60% of our product comes in from the U.K., where the pound has increased 8% during the year. Also impacting gross margins that had to be hurdled was a mix towards substantial growth of our distributor networkmwhich also includes a lot of our product that's sold into Asia and into Japan, Which has a lower gross margin, but it is gross margin is the same as our operating profit. So 68% is a very commendable gross margin, given those two key factors. Cooper Surgical had operating income of $5.5 million, up 39% above the prior year's fourth quarter, and had an operating margin of 25%, 5 percentage points better than the prior year.

CooperVision -- Cooper Surgical had a 58% gross margin, which reflected a favorable product mix, including less equipment and more disposables. SG&A held at 30% of revenue, and stayed in check in spite of the fact that we made several acquisitions during the year. Corporate G&A was $3 million for the quarter, up 73% above the prior year's fourth quarter, and that was.primarily a result of continued expense -- expenditures in the area of our global tax arrangement, as well as cost, incremental costs, of Sarbanes-Oxley, that were in the process of rolling out. As far as overall, Cooper, for the quarter, was $28.9 million in operating income, up 30%. And that's 26% of revenue, which is three percentage points better than the prior year. That's sponsored both by strong results of CooperVision and Cooper Surgical, more than hurdling the incremental costs of the -- that were spent at corporate in the tax arena and Sarbanes-Oxley.

For the fiscal year, CooperVision, its operating income was $88.8 million dollars, up 47% and it achieved an operating margin of 27% of revenue, 2% better than the prior year, same reason again outstanding integration of bio compatibles into the overall CooperVision network worldwide, gross margins for the year were 67% the same as the prior year and once again, that had a hurdle, 8% increase in the pound and it had to hurdle the mix of more sales to distributors. Relative to Cooper Surgical it had $18.2 million of operating income, up 29% and it achieved an operating margin of 22%, compared to 20% in the prior year. Most of that favorable increase is a result of improving gross margins from 51% in the prior year to a 64% this year. Gross margins at surgical which imports a fair amount of money -- of its product from Europe and Canada, were impacted negatively about 1 percentage point, by the weakening dollar. And as a result of that, it really was closer to 55% were it not for that, those factors. As far as operating margin trends go, in the year 2000, we had 14% operating margins at Cooper Surgical which improved to 17% in '01, to 20% in '02 and now to 22% in '03. So we think that the business model at Cooper Surgical is well documented and well supported. The average return on investment we've been getting is 25%, and obviously when we're sitting on a bunch of cash, which I will get into, earning more like 1% those investment returns look better and better to us. Overall for the year, corporate G&A was $11.8 million, An increase of $4.3 million above the prior year, and most of that are the -- or the majority of that was the result of the global tax arrangement. Certain projects we put in place, targets to assure that our effective tax rate by the year 2007 is down at the 20% or less level and then of course the negative impact of Sarbanes-Oxley.

Overall operating margin was up 42%. And our operating ratio was 23% of revenue, 2 percentage points above the prior year which reflects the top -- the strong top line growth. Bio Compatible and integration as well as for surgical success in integrating acquisitions. Looking below ,the line interest expense for the fourth quarter was down 18% from the prior year, in spite of higher debt. Several reasons. One was the fact that we paid off expensive notes of 8% notes and replaced them with 2 and 5/8 cost of money, two was a better leverage ratio than we had in the prior year, and of course, there were external factors that came into play by way of reduced -- or reductions in rates. Our provision for income taxes, our effective tax rate for the fourth quarter was 24%. And also for the fiscal year, compared to 24 -- 21% in the fourth quarter of 2002, when we adjusted our overall effective tax rate for the fiscal year 2002, down to 25%, so it was 25% for the full year, 21% in the quarter, which then had about a two cent pickup as a result of that in the quarter.

Looking at earnings per share, we 64 cents in the fourth quarter, up 23%: For the year, $2.13 up 36%. Our cash flow per share was 94 cents, for the quarter, up 27%. And $3.19 for the year, up 30%. I would like to reiterate a point Tom made about our track record and consistency of performance for the five years. We are very proud of our compounded annual growth rate of revenue of 23%, operating income of 26%, earnings per share of 36% and cash flow per share of 27%. And I might point out that each of those ratios actual -- actually was surpassed this year on a a comparative basis. As far as looking at cash flow and the balance sheet, our operating cash flow for the quarter as I pointed out was 29 million dollars, which brings our fiscal year operating cash flow to $77 million. One contributor was favorable day sales outstanding which was 67 days as of the end of the quarter, compared to 71 days in the prior year. Our systems are now working that we've put in place, two years ago, we went through a very difficult time with some of the rollout of the systems, it is obvious there are now in control of thing, and our day sales outstanding are now showing improving results. Last year we were also in the middle of the integration of some of our nonU.S. locations that were struggling with their day sales outstanding as they did the integration, and that's now come into line. We continue to target for day sales outstanding in the upper 60s to low 70s.

From a months on hand perspective of inventories, it was seven months on hand at year-end this year compared to last year, the same, seven months on hand, we continue to strive to keep our inventory at high levels, given our complexity of a high number of stock keeping units, SKUs, particularly because of the large Toric franchise that we have as well as the fact that we continue to gain market share at 1 1/2 to two times the market growth. Calm that with expanding geographic location, it is just an absolutely requirement. We are very intent on continuing to have some of the best service to our customers that there is available anywhere in the world in our -- in our company. From a capacity perspective, our free cash flow was $43 million dollars for the year, which hurdled 34 million in cap ex. Our debt as a percentage of total debt to equity dropped from 34% as of the end of last year to 31% -- I might point out that all happened in the fourth quarter, as we continue to generate strong cash flow, that more than hurdled the continuation of acquisitions, and hurdled the $10 million we spent on the -- the socialy clip, hevlon transaction that we -- we mentioned in October. From a capacity point of view, borrowing, we have $47 million in cash, and 150 million line of credit, so we have about 200 million dollars of capacity available for acquisitions.

In the third quarter of this year, we completed a debenture offering for $115 million which fixed our interest rate at 2 and 5/8 on that 115 million. That leaves only $70 million of our debt floating which is not that much higher than our existing cash on hand. So we really are not exposed currently to interest rate variation. And given that we're currently earning about 1% on our cash and cash equivalents, we will continue to pursue acquisitions within surgical that we seek to have a minimum of a 20% return on investment over a five-year period on. I think I've covered a lot of -- a lot of places. I will conclude and turn it back over to Mr. Bender to take questions and we will give you answers.

I -- there are a few things I failed to talk about, there may be a question that might come up and we can get into that data, I just don't want to do -- on everyone and give sow much data, there is so much -- so many good messages to send, especially in the contact lens side of it. Because there -- our contact lens is so doggone strong when you look at the whole global market but with that operator I would like to turn it over to some questions, questions at this time, please.

Ladies and gentlemen, at this time, if you wish to ask a question or make a comment, please key star followed by one on your telephone. If your question has been answered, or your simply wish to withdraw your question, simply key star followed by two. Once again, star one for questions. Please hold for your first question.

Charlie, Olsziewski, please.

Hey, Tom, hey Bob, hey Norris. I guess Bob, if could go through all the numbers on the income statement again? No, just kidding. Tom, I wanted to ask a couple of questions. First, were you talking about the toric market, and being in the disposable toric side and of course you have a much broader offering in toric than they do and I think people get confused so far as to how you guys can be doing well in this segment. Aside from breadth that you have relative to Bausch & Lomb what other things are you doing differently than them in the toric market?

You know, Charlie, I think it is -- they make a very good product. Let's make everybody clear about the -- the two companies that are gaining share in the toric market, at the expense of just about everybody else, with possible exceptions of ocular, I don't think they are losing any share, but it is ourself and Bausch & Lomb, to give you a better view of that, there is data that we all purchased from -- from a company that measures office visits, and new patient visits, too. And all of you by the way if you have about -- I don't know what it cost, but I think it is between 45 and 50,000 can buy that data and it can tell you a heck of a lot who the winners and lose ares are in the U.S. sort 6 like old IMS data for pharmaceuticals but in any event, if you look at the share of all of our toric new fits, we've gone from last year in the third quarter from 28% up to 34% this quarter. We ended the year last year with 30% of all the office visits for torics. And remember, we get more revenue per fit than most companies because we provide the -- we provide torics for anybody that has astigmatism, where many company does not. So the 34% that we have year to date for 2003 probably represented a heck of a lot more in revenue, and that's why if you look at the other data that we all get, that you cannot buy, but that we all get in the industry, you take a look at our -- our share of torics and it's higher than the -- than the total office visits. If I look at the -- the disposable and plan replacement segment, we're up 35% market share in the third quarter. From a year-end 32% last year. And nobody else is really gaining any share at all with the possible exception -- a little bit of ocular science, and they're really a small player in this market.

I think the reason to specifically answer your question is, Charley; that we provide a product like General Motors provides products in the automobile industry. We have a -- we profile -- we help practitioners profile patient needs and we provide in the same space where a Bausch & Lomb will have a software 66 toric or a vista con would have an Accu-Vue toric, or an ocular would have their toric and I forget its name, or Ciba would have focus toric, we will provide five products. As an example, we are the only company that provides a monthly disposable product for people that have -- who get made to order torics. They have an extremely high amount of astigmatism. We provide Proclear toric, which is a product specifically designed for people that have no -- drier than normal eyes. We have a two-week toric. We have a monthly toric. We have a quarterly toric. So we try to do -- what we try to do is to assist the practitioner in developing products that meet specific patient needs, rather than having one product for just everyone.

It is a marketing strategy. We have used that very successfully, I must tell you, right now in the -- in the sphere market. The sphere market has gone through a tremendous transition. Certainly in the U.S., and I think in Europe, also. Away from commodity disposable spheres to products that offer value to -- specific values to the patient. We aren't the only company doing this. Ciba is doing the same thing. And because of that, both of us had the ability in the nonspecialty market, as I would call it or certainly the spherical market to be able to capture market share away from other companies who provide more of a commodity product in that space. So to get back to torics, that's one reason why we have been able to grow, certainly twice -- in most cases, twice as fast as the overall market, where I would tell you, I would bet most those on the outside looking in, a couple years ago, would have thought that we would have had some real pressure on our earnability to even hold share in this market, and lo and behold, we have continued to gain share share for the last two years. I don't want to sound Cavalier about it, but the facts are the facts did. I answer that all right?

Yes, did you. Tom. Let me ask you another question, staying with CooperVision, regarding the margins. It is clear that you have digested and assimilated bio compatibles much more quickly than your initial guidance at the time of the acquisition, back in the March time frame of '02. Are the margins where -- the best they can get in that business? Have they gotten there sooner? Or have you found more synergys that you anticipated? Can the margins in the vision business in fact be higher than they are six or nine or 12 months from now?

Well, let me -- let me try to answer it two or three different ways that won't skirt exactly where we're at, because quite frankly you're right, we're well ahead of the guidance we gave to the street, and how we would integrate that -- that business. That integration is Bob has said is basically done. This is a $100 million business for us, folks, and the first full year of this business, and quite frankly, the run rate is higher than that. It is more like, if I think I'm right, Bob, about $110 million right now. If you take a look at the gross margins of Cooper's business, it is even better I guess to look at the operating margin, prebio compatible now, and lo and behold you're going to find that the operating margins are about the same, so it is a pretty strong indicator.

Correct.

Not only integrated that thing, but we've done it in a very efficient way. To answer your question,, no, I still think we have some leveraging opportunities, we're not completely finished with everything, in manufacturing, that's number one, and number two, the Bio Compatible -- or shy say the pro clear product line for bio compatibles is growing much more rapidly than we thought.

That actually dove tails into my next question but I will let you finish, I'm sorry.

I would tell you, I think that those two factors, and remember, we paid $100 million -- 100 million buck force this business, makes that a big winner for us, and I don't think I have anything else to say. Bob, do you have anything else to say about it.

No, I think it is -- I think it is appropriate to say that we're not as far as we need to get yet on manufacturing. A lot of opportunities and of course we are hurdling the pound, which is kind of masking some of what we've been doing, but underlying that, is a real benefit. So we're thrilled about it. I would also say -- Tom, sorry about the 110 million number but one other thing I thought was kind of interesting, when we talk about the shift, when we bought the product line, it was about 60% a nonpromoted line. About a 40% the Pro Clear product line. And today, we're now running at a run rate, where the sales of Proclear approximate the sales of total -- of bio compatibles at the time we bought it.

That's right. It has really gone from 65, 35, to 65, 35 the other way. One more thing, Charley, that I can -- I should probably write myself more notes, but we really didn't talk too much about new products on this conference call. I don't recall if we completely outlayed that, laid that out in the press release, but be aware, a part of that acquisition was our ability to leverage the technology we bought. You're going to see a continuing of this very weak -- we call it the third generation product line, to bring new products to the market.

Proclear multifocal, it was launched this past quarter, I should say the fourth quarter of -- well, this past quarter, in France, and we -- and it's doing extremely successful. Now, that product has a better story on it that we can tell, versus the frequency multifocal disposable multifocal that we're currently marketing now, which is up about 300% and next to soft lens 66 multifocal, two products are gaining share from everyone. But Proclear is a better -- will be a better product we believe. And remember, the -- one of the advantages of this material is what it does to people with dry eyes, and we're talking about an older population who wears, you know, bifocal, or multifocal lenses, so we believe we have a product that might perform even better, we believe it will perform better than the frequency multifocal. We are also going to be launching this year a Proclear toric XR. Much like frequency toric XR which now is the only really monthly disposable toric for people who have an extremely large amount of astigmatism. It's a product where you usually -- you used to make just made to order lenses. Well, we're going to be launching that product this year. And then on top of that, as you all know, we are still trying to develop an extended wear product. A long-term extended wear product with the Proclear material.

So there's a lot of good things that came out of that acquisition. It's not just in dollars and cents right now. It is the technology itself, and the potential developing more -- very good -- good new products for it, that I think I -- I gave you a long-winded answer but I really wanted to get a lot of Pro Clear stuff out if I could. About Bio Compatible.

Let me say two more quick things. Back on the taxes, 20% kind of objective by 2007, you're at 23% targeted for '04. Are you ahead of where you expected to be with your global tax management strategy or about on track?

I think that's one of the other beauties about compatibles, it had a hugely smaller effective tax rate than our existing CooperVision vision. When we put the two together, since one is doing so well, it is making my life easy.

Okay. And then getting back to manufacturing and Bio Compatibles and CVI and margin, you said there is more work to do on the manufacturing side. Is it more consolidation of manufacturing or improve can processes and automation?

it is probably both. But relative to the integration of bio compatibles, it is the wrapup tail end. We just are all about out of the largest facility that we bought with bio compatibles, which is outside of London, and we'll be totally out here, of, I guess around the end of March of this year, or next year, so we're not too far away from 100% completion on that side. But there is a lag, of course. Due immediately see the benefit in the P&L. It goes with inventory turns.

Sure.

We're working on it.

Well, thanks for answering my questions and congratulations, guys did you a great job.

Chris Cooley, Chris?

You can hear me okay?

Yes, I can.

Just two quick questions. You guys have done a great job detailing everything else. One on the surgical side, as you add products for indications such as say incontinence and the like, do you need to add additional reps or bulk up your marketing expenditures in that area, basically changing the call pattern or maybe altering a call pattern somewhat. If you can maybe give some color there as to what kind of operating expenses we might need to assume in that area going forward. And then secondly, you briefly touched ton in your press release, but Asia or specifically Japan, could you kind of talk to us a little bit about how you see the ramp-up of the roto two-week tore Nick that marketplace.

Let me get to the Vision One Figure, because I can really get -- I would like to get into the surgical thing. A little more extensively so you understand what our strategy; our clear strategy. Our -- as you know, or I think all of you know, about 50% of our business is in North America. In the U.S., about 57% of our business in S-in North America. The European business represents about 36% of our business. And the Far East now represents-- or, I should say Pacific Rim, which is mostly Japan, almost, you know, it is Japan and Australia, represents about 5% of our business. As Bob alluded to, we -- we exceeded the guidance that I gave for Japan. I think I said about four to five million. We actually did 5.6 million in sales in Japan in the. In the year we're looking for something around 10 to 12 million. Next year, I don't even know if I put it in the press release, but I think I gave guidance about $10 million, somewhere in that neighborhood. They have launched the disposable sphere this year, and are doing very well with it. And they will be launching the disposable toric, the two week toric, it is a two-week market in Japan, it is not a monthly market, where in Europe it is a monthly market and not a two-week market, they will be launching that product in January, of there year. So I have no immediate feedback yet. We're in the process this quarter of sending, you know, -- of sending product to them, and so they can get distribution. The distribution channels taken care of. We think they are going to do very well, thanks to what B & L has done. They have been extremely successful in launching their two-week toric. We think it is a huge market opportunity.

I've spoken to the CEO of B & L, I think he really is -- agrees with me that the potential in Japan could be larger than the toric market here is in the U.S. for soft lenses. The soft lens market for torics here is about 400 million and about 95% of that 400 million in the U.S. is disposables. You know, monthlys and two weeks. So the market is just beginning to develop in Japan. They've used hard lenses for a long time, in masking a low amount of astigmatism, and by B & L I think getting out and sending the message out of the better opportunity and the better alternative for the Japanese market, and remember, the Japanese -- or I should say the -- all the orientals have a higher degree -- or I should say a higher percentage of astigmatism. A higher ratio of astigmatism for myopia and for those who have myopia than those in the U.S. So we think it is a big opportunity. It is certainly a $300 -400 million market. It is much less than the $100 million now. I think it is closer to $50 million or $60 million all up. So we think roto is going to be successful. They now have a product. We believe the opportunity for us is more of expanding the market than it is going after B & L , to be quite frank. We think we're both going to be successful in that market. Now, as far as the surgical opportunity, the answer is no. If you recall, what your question was, we're not going to have to add more people.

Remember, we bought a little product line called lieumar which is a lieumar system, it is an incontinence screening, diagnostic business. LuMax. What did I say Lumar? LuMax, from Medpass, anyway, and that was a business that we have more than doubled in the two years we've had it. Those practitioners, those gynecologists who are screening for incontinence in their practice, we believe are good candidates to utilize the sure X technology. The therapy, I should say. Because it is for moderate to mild type of incontinence. Many gynecologists do not need a lot of training to do this. And therefore, we think that we can leverage what we have done with -- with our lieuMax product line, with the sure X at this point. We are looking at other opportunities, to be Frank with you, in incontinence because we believe that gynecologists for many reasons will be doing more incontinence-type therapy in their practices than they have in the past. Did that help?

Yeah. And also if I could just one quick kind of follow-up. I have a discrepancy in my notes here. What did you say organic growth was in the quarter at CSI?

CSI, organic growth was almost 5%.

And I said about 3%. And Bob has the right answer, Chris.

I will go with Bob then, thank you. Good quarter.

Okay. Ted? Ted hueber?

Yeah, you can hear me, Tom?

Yeah, I got you.

Great, thanks. The European market, you said you grew 7% constant currency, it looks like that's the one market where you're not taking share, at least this quarter. Can you comment on the competitive environment over there, what's going on that is prohibiting you from taking share where you can't elsewhere? And then as you look into '04, do you expect we will continue to see a pattern where it is really the U.S. business that is the primary engine for growth or do you expect better results out of Europe?

Well, let me tell you first of all that we didn't give you -- it is sort of a Paul Harvey thing, we didn't give you the whole story, we do have data for the first six months in Europe, even though the market was up, I want to say about 15 or 16% in constant currency, the market was only up 2% so we're actually growing faster than the market. And if I look at it from a geographic standpoint, Ted, North America, for the first nine month, anyway, is unabout 8%, Europe for first six months is up 2%, and I will only rely on some data I got from another competitor who has more data, but certainly the Pacific rim market appears to be growing double digits. I don't think there is any question that on a global basis, the overall market in constant currency is growing about 8% so that was a little bit misleading when we said 7%. We should have given you the data, I think you know what the data is, that we all get in this industry, for the first six months, we get the data for Europe only every six months, we don't get did every quarter. So it is interesting for the last two year, Europe is where the vast -- I should say the fastest-growing part of the world has been for the contact lens market. And it is this quarter for -- I'm sorry, for this year, for at least for the first six months, for some reason, it is only up 2%.

So we're not too disappointed, and 7% constant currency and 20% real growth, we certainly don't see anybody in Europe growing any faster than we are. And if they have it, we haven't seen it in their numbers that they all seem to put out. So I would tell you that -- that the U.S. market, I think is going to continue to grow. I think that was your next question. It is going to continue to grow in the 9 to 10% range an we're going to continue to grow, we believe, at least 1 1/2 to two times faster than the market. After all, this year, we're growing more than that. We're growing about 3 to 4 times. But you know, this company -- our sales of soft contact lens product in the U.S. this year will approach about 175 million. That's a calendar year. The -- the only change in Ciba have higher sales than that. Ocular and B & L, and I'm talking about B & L without their RGP business, both those companies are in a 130 to 135 range. So we're -- we're doing darn well here, and feel pretty good about it. Did I answer every one of your questions or did I miss one?

No, you did. Just a quick follow-up. Do you have a sense from talking to your field people why the European market has decelerated and what signals do you have that whether or not it might accelerate in the period ahead?

I'm going to be honest with you and tell you no. The -- I don't know if there was a little bit of sales that went in one year, and not the next, in other words pull in, pull out kind of thing. Remember, the data we get, Ted, is data that isn't going -- it is suck in, not suck out data. In other words, it is data from manufacturers to practitioners. And I don't know if there is some of that going on. I don't know if it is the economy. We know that the economic conditions in Europe are certainly not as well -- as good as they are here. And I don't know if there is some of that going on. I hate to try to find an excuse. I'm not too concerned now, because our surgical business seems to have picked up of late anyway. So.

Okay. I appreciate that. That's it for me on the questions. Thank you, guys.

Okay. Joanne?

Hey guy, how are you doing?

Doing fine.

Good. A lot of the focus so far has been on potential acquisitions in the women's health business. How should we think about acquisitions in the CBI business for you? Do you have have enough juice with the BEI care acquisition to continue for a couple more years maybe?

Oh, gosh, I don't think all of our growth had an awful lot to do, with just bio compat ins, the rest of our -- I will give you an example, Joanne, you might be surprised. Let me grab something here which I thought was pretty interesting, if I can find it while I'm talking to you. Which I can't find right now. Doggone it. IHere it is. In the I thought this was interesting. In the fourth quarter, if you look at our sales growth, in just soft contact lens, not the miscellaneous stuff, just soft contact lenses, the bio compatible business actually grew 20% on a global basis, and the CooperVision soft contact lens revenue actually grew 30%. So I -- we're getting pretty well -- pretty good growth across all of our product lines. I haven't gone through all of that, you know, color and multifocal, but my gosh, just about everything we touch right now is doing very well. As far as acquisition candidates, on the opthalmology side or eye side, I don't think there are any big ones out there. We certainly believe there is a couple small targets we have right now but to be Frank with you, you look at the cash this company generates, I mean we haven't talk today much about cash, I haven't gotten one question on, it but my gosh, our cash, the amount of cash we are drive can and the amount of cash we think we are going to be driving from operations next year, we think there is still a lot of nice neat little tune, good opportunity, in women's health care, whether it is a in incontinence nence or infer tilt, we have segments of women's health care that we can build upon. These guys can do a great job, I'm talking about the management of Cooper Surgical in integrating these businesses very efficiently and very quickly into this business. And you're going to see us probably make similar some similar type of acquisitions like sure RX that might have some more risk to it. We see that as somewhat dilutive. It will be two or three cents dilutive probably next year. I mean we can -- we can hurdle that. We didn't change our guidance. Yet, it could be a huge home run for us. We think that business has the opportunity to be very big. We could be wrong. But we think it will be big. And we have a couple more that we're focused on now, too that might be very nice opportunities for us. They may have some sizzle, some real sizzle. Not that our business today doesn't have sizzle. One of the things I would hope everybody is focusing upon here is the vitality and the -- and the growth of the soft contact lens market. And the barriers of entry for other company, and the fact that we have done very, very well in bringing significant new products to this market. That has allowed us to become -- to move from a 35 million dollar soft lens business, back in '94, to a $350 million business this calendar year. I think that is part of it. And then the other part of it is our -- I think efficient utilization of cash in building a heck of a darn strong women's health care business. Did I get to some of it?

Thank you very much. You got to a lot of it.

Okay. That's it, folks. I think what we're going to do now is we've talked a lot already, I want to again thank everybody for joining us, we will have another -- first quarter will be out, I want to say the first week in March. I believe it is the 2nd of March. If I'm not mistaken. Am I right about that, guys? I think it is the 2nd of March. Did I get that right?

I think it is the 2nd of March. Everybody is guessing right now.

I believe you're correct. I think I'm correct, too. And in any event, if there is anybody else who has any question, you know that we're here, we will answer any questions you have, that we didn't get to on this conference call, and again, we want to thank everyone for joining us. Thank you very much. We're looking for an outstanding 2004. We don't like to fail around here. Bye-bye.

Ladies and gentlemen, that this does conclude your conference call. Thank you for your participation and have a great day.