酷柏 (COO) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for joining us today. And welcome to your first quarter, the Cooper Companies' earnings conference call. My name is Bill, and I will be your conference coordinator for today. At this time, all participants are in a listen-only mode. However, Wwe will be facilitating a question and answer session towards the end of today's conference. If at any time during our conference today you require assistance, please key star followed by zero, and an operator will be happy to assist you. As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today's presentation, Mr. Norris Battin, Vice President of Investor Relations and Communications. Please proceed, sir.

Thanks a lot, Bill. Good afternoon, and welcome to everyone. Before we begin, I'd like to introduce you to Tom Bender, our Chairman and Chief Executive Officer, Bob Weiss, who is our Executive Vice President and Chief Operating Officer, and Steve Neil, who is our Chief Financial Officer. They will be reviewing the quarter with you this afternoon and taking your questions. I would also like to remind you that 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 available publicly and on request from the Investor Relation's department. And with that, I'll turn the call over to Tom for some opening remarks. Tom?

Thank you, Norris, and welcome, everyonebody. And thank you for joining us this afternoon. I'm going to follow a little bit of a different format than we have done in the past. As you recall, usually I would give you an overview of -- of our performance and talk about the specific operations, and then I would turn it over to Bob to give you the financial highlights for the quarter. Today, what I'm going to do is try to keep my comments as short as possible and try to just trigger in and certainly focus in on those issues that I think are important that happened in this quarter, and give you a little bit of flavor of what we are looking for in the future.

And then I'm going to turn it over to Bob, who will get into some of the specifics, I want to say, for the two operations; and then Steven Neil, who is our new Chief Financial Officer, -- of course, he came to us by way of Ocular Science -- we're very, very lucky to have him on the team -- and Steve will focus in on a lot of the financial issues that Bob used to focus in on. I used "focus" a lot, didn't I? Anyway, let's give you, first of all, an update on the integration. Hopefully, you can see in our results for the quarter the integration is going on very, very well. We think in the fact that we're ahead of the game at this point to give you a flavor for that.

We have announced that we would will be closing and consolidating the Huntington Beach operations for our made-to-order contact lens business here in California into Rochester by the first of July. The West Coast customer service group here in Huntington Beach will be -- those jobs will be replaced in Albuquerque, which was the customer service headquarters for Ocular Science. t That will now become our West Coast customer service group. The inside sales group here at -- in California -- those jobs have been eliminated, and the inside sales function now is in Arizona ,and that was part of Ocular Science. The Albuquerque manufacturing made-to-order contact lens manufacturing will be -- we'll begin to eliminate that plant by the middle of this year. Hopefully, we'll have it completely transferred to Rochester by the -- within 12 months of the beginning of that closeure. And the employees, I must tell you, are aware of it.

I'm happy to say here on the West Coast, certainly in Orange County, the employees have been affected at almost all -- in fact, I think every one of them have found employment here. If you're not aware of it, Orange County has the lowest unemployment in the United States, 2.7 percent. So there are a lot of opportunities for our good, loyal employees that were here. We have assisted in helping them find new employment; and in many cases, -- in fact, in most cases that I'm aware of, -- the compensation that they're receiving on their new assignments are better than they had here. So, that gives you a flavor of that.

In Europe, the integration did is is going very well.

We were somewhat delayed in the UK and France for 30 days for regulatory reasons for -- to complete that integration and to get the -- from the sales side, anyway -- to get that completed as of the 1st of February, which was, I guess, about a month ago now. It is in process, so we feel very good about the integration and feel very optimistic going forward. Speaking a little bit about performance, and I'll really turn most of that over to Bob, but pointing out that we came within the high-end of our guidance when you add back in the first week of January that, of course, that -- that Ocular -- Ocular sales the first week in January that we didn't have. And, of course, guidance we've given assumed the full month of July, so we came in at 100 -- I think it's 151.2 million. That was about 3.3 million that you added to the reported revenue of 147.9, and that's how you get the 151.2.

The guidance we gave, you [INAUDIBLE] by the way, for all of you I'll give you is 148-153. As far as earnings are concerned, the guidance we gave was $0.52 to $0.55; and of course, we reported $0.58. One more thing I'll point out that I think is important to focus on for a minute is, as we report revenue going forward, we're going to -- in the second, third, and fourth quarter, anyway, of this year -- we're going to be reporting to you both the reported revenue growth, as well as pro forma. It was a very -- almost impossible task to do it this quarter, even though we do have some data that Bob will talk about, because of the complexity of trying to get the data for the first week of January to make it a really apples-to-apples kind of comparison. We can do that on the top line, but we certainly can't go any deeper than that, and it does make it fairly -- fairly difficult.

From a guidance standpoint, we certainly are reconfirming our prior guidance we gave; and as I pointed out, in the future, we will talk a little bit more about pro forma, as well as reported sales. From a market data standpoint, I always try to get everyone up to speed on the latest data as it relates to the contact lens market. As you know, we have posted market data tables on our website. I want to point out that we'll be updating those within the next couple of weeks, because now we have more firm data in -- both Johnson & Johnson and B&L reported in the last week of January, which now allows us to go back in and update those tables for you. On top of that, we now have better data from the CLI. We have a worldwide report that we get from the three areas of the world -- the Americas, Europe, which includes -- I think they included more data -- Africa and the MidEast and their European data and then Asia-Pacific.

So we really have more firm data than we've ever had in our history.

On top of that, I will point out that the fourth quarter data that we all purchase in this industry -- and you can, too, from health products research, which focuses on total office visits and new patient visits -- that Cooper strength is very, very strong in the latest data. We have -- in new patient office visits, our share is up to 27 percent now, and that compares to 36 percent to J&J, and the number three player, of course, received a 21 percent. They continue to decline.

So, overall, if you look at the data, we continue to gain share in both the Toric and Multi-focal segments of the market, as well as the overall market. Going to CVI for just a minute --Cooper Vision -- and some of the highlights that probably we'll restate, versus what was on the press release. But pointing out again that our business was up 39 percent in the quarter, but if you look at our disposable business, which now represents 86 percent of all of our business, was up 51 percent. Proclear, -- I think it's important to point out Proclear, -- becoming very, very important to this company. Over 20 percent of our overall revenue now in the Proclear products was is up 43 percent in the world in this quarter. Of course, that's all CooperVision. Aand in the Americas, it's -- as a society, (indiscernible) was up 45 percent. So we're stronger here in the U.S. and Canada than we are in the rest of the world.

And, of course, I think all of you know Proclear competes head-to-head with the latest hype on the silicone hydrogel [PHONETIC] products. So we're not only holding our own, but we think we're doing very, very well against the silicon hydrogel products that are being marketed for daily wear. Our Toric business remains very strong. We have continued to believe we're growing much faster in the market. Toric's were up 28 percent for the quarter; but more importantly, Disposables, which represents about 80 percent of our Toric business, was up 44 percent. This, I don't need to tell you, is a very large basis or critical mass we're dealing with here. We believe we have pretty close to 45 percent of the world market for Toric's today, and I would tell you the latest data that tracks new patient office visits in the U.S.. We had 49 percent of all new patient visits in the fourth quarter for our Torics -- Oour torics being both Ocular's and Cooper's combined, of course.

Our Sphere business for the quarter was up 50 percent. And I need to point out again, our disposable spheres, which would be daily disposables, two-week product, as well as monthly disposables, represents 90 percent of our Sphere business; and looking at the disposable part of our Sphere business, it was up 55 percent. Moving to CooperSurgical very quickly, CooperSurgical sales were up 17 percent; but more importantly, hopefully can see that our strategy of investing in selling that we took on about 9 months ago -- three quarters ago -- is starting to pay off. Organic growth at CooperSurgical was10 percent. And I will tell you it's basically across all of our lines -- and I'm talking about the Disposables, -- you know, the less exciting part of CooperSurgical product lines, which, are Disposables and Reusables. Because we have sales people and more sales people in the field, we're starting to get much better results from those product lines than we have had in the past. I think Bob can even talk about it more than that.

But you should know it's across every one of our product lines, and we feel very good going forward that the objective attaining a high single digit to 10 or 11 percent organic growth for CooperSurgical looks very good for us for the rest of the year.

I think with that, Bob, I've talked enough. I'll turn it over to you, please.

Thank you, Tom. What I'm going to do is I'm going to spend some time on operational things, as well as the P&L, and then I'll turn it over to Steve Neil, who will elaborate on cash flow and highlights of the balance sheet. And by then, we'll be ready to turn it back over to Tom to answer your questions. The highlight, of course, was revenue was up 35 percent above the prior year, with sales of 147.9 million. And as we -- Tom pointed out -- we did not include the entire month of January. Had we included the entire month of January for Ocular, which closed on January 6, we would have 151.2 million in our guidance. We assume that the cut over was December 31.

As far as our earnings per share, earnings per share was $0.48 under GAAP; but excluding non-recurring items, $0.58. which compares to $0.52 in the procedure year, which, of course, is a restated number for the change in accounting on convertible debentures, which we elaborated on at year end, that that had resulted in restating some of our historic numbers, and that did occur in the fourth quarter. As far as what is comprised in the non-recurring items, there are really three components. There is a -- to that impact on cost-of-goods, and then there is -- actually there are four components -- and two, that impact, one hits operating costs and one hits below the line, other expenses.

There was a 2 million,, 138,000 charge cost of goods for stepping up inventory for the profit in the manufacturing -- the manufacturing profit of the inventory of Ocular that we purchased. This is required by GAAP accounting and in aggregate. The step up is $15 million that will be amortized over a seven-year -- seven-month period as of time into the timing to the P&L. Secondly, there were restructuring costs, which is basically costs that are at the CooperVision side of the equation, meaning as opposed to terminating an employee in Ocular, any termination of an employee in Cooper or any relocation is a charge to the P&L. They aggregated 972,000. 249,000 of that is in cost of goods and another 723,000 is called out in -- within operating expenses.

Thirdly, we wrote off our old bank debt issuance cost in aggregate, 1 million, 6021,602,000. All of that, $4, million, 7712,000 dollars of what we're calling non-recurring costs. And when I speak to various numbers excluding it, that's what I'm talking about. Looking at revenue, we had revenue at CooperVision of 121.4 million on an actual basis, compared to 87 million the prior year, an increase of 39 percent. And that's an increase of 34 percent in costs and currency. The growth was driven by specialty lenses, which accounted for a 29 percent increase above the prior year. 58 percent of our revenue in the first quarter was specialty lenses. Within the specialty's [INAUDIBLE] to multifocal, which was up 141 percent, our Torics were up 28 percent above the prior year, and accounted for 37 percent of our worldwide products.

Proclear was up 43 percent above prior year. Of course, that is purely organic, since that's our product line. Disposable Spheres, as Tom pointed out, also had substantial growth of 55 percent above the prior year. And Dailies, which is the product we picked up from Ocular, had $6 million of revenue in the first three and a half weeks of our ownership of that product line. Proclear for dry-eyed symptoms is up 43 percent and accounts for 20 percent of the worldwide revenue, and Disposables and Aggregate accounts for 86 percent of our worldwide revenue, and we're up 51 percent above the prior year. From a geographic point of view, the Americas were up 25 percent, and in costs and currency, 24 percent, and accounted for 50 percent of our worldwide revenue, with Proclear up 46 percent in the Americas, and our Toric up 21 percent.

In Europe, our revenue was up 41 percent, and in costs and currency, 31 percent growth. They accounted for 40 percent of our worldwide revenue, and there our Torics franchise was up 51 percent and Proclear was up 40 percent. In the Asia Pacific Rim, it was up 170 percent and now accounts for 10 percent of our worldwide revenue. From the point of view of CooperVision, U.S., it was up 23 percent and accounted for 43 percent of our worldwide revenue, with Proclear up 45 percent and our Toric franchise up 18 percent; and, of course, the ongoing success of our Multifocal product line, which was up 34 percent in the U.S..

CooperSurgical had revenue of 26.5 million, up 17 percent , and organic growth was 10 percent. As we have talked to you in the past, we restructured our sales force over the last six months, and it's starting to pay legally some dividends and the growth is showing up across the board -- not only in our free primary product lines that we're looking to for organic -- solid organic growth, which is in the area of incontinence and in the area of infertility and sterilization -- those few those three areas we expect to get some mileage out of as we invest in the operating expenses in the sales force. Overall, Cooper had revenue of 147.9 million, up 35 percent. That's 31 percent in costs and currency, and Tom mentioned that I would touch base on pro forma. And when I'm talking pro forma, what I'm articulating is that we have carved out the sub period, which is the period between January 1 and January 6, and are only reporting in the prior year a period that is similar to our actual results.

In other words, we also excluded a comparable prior period. Therefore, in the prior period, the revenue excludes November and December, as well as the first four or five days of January of '04. On that basis, our CooperVision growth was 13 percent worldwide and the multi -- the drivers in that business on a pro forma basis are the Multifocal lenses are up 78 percent above the prior year, One-day lenses are up 54 percent, Proclear is up 43 percent, specialty lenses are up 20 percent, and our Toric franchise is up 18 percent. So all solid numbers on a pro forma basis, and we look for trends along those lines to continue.

As far as operating costs and operating income, CooperVision had 30.9 million in operating income, excluding non-recurring items. That's up 37 percent. And important to note is our gross margin at CooperVision came in at 66 percent, excluding the non-recurring items. Keep in mind that from a GAAP point of view that $15 million inventory step-up will take its toll on our reported gross margins, which impacted the quarter about 2 percent -- 2 percentage points. Overall, the integration process --Tom, hit upon a number of the locations that we've taken steps -- Huntington Beach, Albuquerque, some relocation of our inside sales groups. The U.S. sales force has been fully integrated, and had its national sales meeting in early February, so we're really going see the benefits from that point forward. In January, each sales guy, -- Ocular and Cooper, -- was pretty much calling on their accounts the way they did in the past and recording sales and soliciting orders as they did in the past. Only going forward into the second quarter do we see the benefits of that.

Countries like Canada and Australia were literally integrated from a sales force and a G&A perspective within the first week. So we're starting to see early benefits of that, but it would be an overstatement to say we're seeing much benefits from the integration in January, obviously, with only 3 1/2 weeks into it. Although I would say that the gross margin was pleasantly surprised, and we think the results of Ocular manufacturing using the GENen 2 [PHONETIC] manufacturing process that they have is showing its benefits. It's something we expected, but it's good to see that as it continues to deliver.

As far as operating margins including non-recurring items, Vision had a 25 percent of revenue this year compared to 26 percent a year ago.

Keep in mind, we're merging two companies, one with Vision having about 27 percent of operating margins, with Ocular then that’s coming out of the high teens and moving rapidly up from there. In the past, they had a lot of -- they had their fair amount of startup costs in the area of the manufacturing GenEN 2 process. As far as Surgical, it had operating income of $3.7 million, down 31 percent, and operating margins of 14 percent compared to 24 percent in the prior year. Its' gross margins are actually up -- or its gross margin percent -- was up to 55 percent compared to 54 percent in the prior year; but there was a substantial increase in operating costs, which is the a result of our planned stimulation of organic growth using a 175 person direct and indirect sales force that we now have in place. Overall operating profits were 30.8 million, excluding non-recurring items, an increase of 24 percent in operating margins -- they were 21 percent this year compared to 23 percent in the prior year.

Once again, as -- there is nothing that has occurred us this far that leaves us feeling at all uneasy about the guidance we have given going forward. Looking at below the line-items, interest expense was $3.7 million, up 149 percent from the prior year and that, of course, reflects the draw-down in incremental 600 million of debt that we took on this year at the beginning of January. Other income loss reflects the 1.6 million write-off of the bank debt. Our effective tax rate was 21 percent compared to 23 percent in the prior year first quarter, and that represents a continued improvement from where we were five years ago when we were at 30 percent. Our outlook is to continue continues to be -- to see that 21 percent come down to the 20 percent level post-2005.

Earnings per share at $0.58, excluding non-recurring items, brings our 12-month trailing earnings per share to $2.65, and cash flow per share was $0.90, bringing our 12-month trailing cash flow to $3.64. Keep in mind that we continue to not be a U.S. cash payer -- tax payer -- and this is our mechanism of giving you a gauge on the fact that we have a better playing field than most of our competitors, which are writing bills to the -- for taxes. We expect that going forward through 2007, our cash outflow tax rate will average less than 5 percent. We continue to expect that, and I might note that we have -- if you focused in on the the nuances in our press release, indicated that we do not plan on paying when any taxes through 2007, as we will still have our net operating loss carryovers through that period of time.

As I mentioned, guidance -- we have not really altered our guidance going forward, but as a result of the improved results in the first quarter, our overall annual earnings per share for 2005 is $3.08 to $3.18, and revenue is forecasted at 867 million to 879 million for 2005. On that note, I think I will turn it over to Steve, who will talk about the balance sheet and cash flow.

Thanks, Bob. Very glad to be here today. Let me first look at the balance sheet. DSO's for the quarter improved to 65 days versus 69 days in the first quarter last year. We expect DSO's to be in the high 60s, low 70s going forward, which, is pretty -- pretty standard for the overall business. Month on hand for inventory declined in the quarter to 6.8 months, and that was a decline from 7.5, and we expect to going forward to be somewhere around 7.0. So, again, good trends on the working capital.

Our debt-to-total capital stood at 38 percent at the end of the quarter; and as a reminder for everyone, we were at 39 percent when we acquired Biocompatibles back in February of 2002, and that 39 percent went down to 23 percent by October of '04, and we would expect similar deleveraging as we generate free cash flow going forward. Our borrowing level at January 31st was 745 million, and we have slightly more than 80 percent of our debt fixed in is at a fixed rate. So our exposure to interest rate changes is relatively small. Now, looking at capital expenditures, we incurred about $12 million in the first quarter, and we expect to spend somewhere in the range of $120 to $130 million for the full fiscal year. Let me give you a little bit of color on our anticipated Cap Ex spending.

We expect about 70 percent of the spending to be capacity related, roughly 20 percent of the spending focused on converting keeper Cooper manufacturing processes to the GENen 2 processes of Ocular, and roughly 10 percent of the spending will be in the IT area as we work on systems integration and new installations throughout the world. Even with that anticipated capital spending, we expect to generate free cash flow in the range of $25 to $35 million for this year; and as we look out into the near future, we expect to generate around $400 million in free cash flow over the next four years, and that will result in the significant deleveraging that I mentioned similar to what we experienced following the Biocompatibles acquisition.

So, certainly a keen focus for us is cash flow, but as well as spending to support the business. And as Bob mentioned, which is significant, our free cash flow is benefited by the fact that we don't expect to pay much in the way of income taxes through 2007 as a result of utilizing our net operating loss carry forwards. That's a quick snapshot at the balance sheet. I'll just say that my focus has always been to focus on the generation of cash flow, because that gives you the opportunity to do a lot of things going forward, and that certainly will continue to be our focus here. And with that, I'm going to turn the call back over to Tom.

Bill, I think we're ready for some questions, please.

Great, thanks very much, sir. (OPERATOR INSTRUCTIONS).

Okay, Bill, we'll ask Dan Purue [PHONETIC] first. Dan, are you there?

Quick --

Hi, Dan.

How are you doing? Just a couple of quick items. First of all, if you sort of had to talk about what you expected to see in the integration versus what you haven't expected, what have been the positive surprises and some of the negative surprises, and talk a little bit about that? And also, if you can talk as well about some of the new products, including your brands plans for silicon hydrogel lenses, how does that fit into your our marketing strategy? When she should we start thinking about that when we look at the company, and how important do you think it is to broaden out the product line?

Well, that's a lot. Let me start off with the surprises. Can't think of any negatives. I'll let Bob think maybe think of some negatives, but I think from a positive, Dan, -- [SPEAKERS OVERLAPPING] Yes, I think if anything, things are going along a lot better than we thought. I think the one surprise, or two surprises to say, is the potential application of GENen 2 to CooperVision's Disposables Sphere's business. In any product line where you have a lot of critical mass like we do with the CooperVision product lines -- like Proclear as an example, -- there is definitely an application. We think it could be as much as knocking off $0.14 a lens off of those products. I don't think we really appreciated that opportunity -- or I should say advantage -- even during the due diligence. But

That as we work through this, we see a big upside probably getting that in 2006 more than it would be 2005, because I think as Steve played pointed out, we're now making investments, capital investments, to transition that manufacturing into GENen 2 for those Cooper Vision product lines.

I think, secondly, the speed in which we have been able to transition our made-to-order plants -- in Spain, as an example. France is not online yet, but certainly the two in the U.S.-- that is the one in California and the one in Albuquerque -- went a little bit quicker than we originally thought. The integration of the sales teams in Australia, Canada was quicker than we thought. The U.S. went beautifully well.; Nno glitches. So I don't know what I've missed here, but those are the more important ones.

I think the other one I guess I failed talk about is the potential with the developing a fourth generation material that we think will have not just features but real benefits over the current premium material products, whether it's our own Proclear material or the silicon materials that are currently being marketed or commercialized. So that project is well-underway, and it could be, -- and I'm not saying it will be, -- but it could be that instead of entering the two-week silicon market, as I think we have given everybody guidance on in the end of 2006, it may not be a silicon product. It may be this new material product, and we'll keep you abreast and give you a heads up during these conference calls as we go forward.

As far as the silicon question is, I'm very happy that you asked that. I was hoping somebody would, anyway. I think there's a misunderstanding about the benefit -- not the feature, but the benefit -- that of silicon has on materials.

We believe it has a fit, and I don't want to be misquoted this time. So I'm going to stay say it very clearly: With continuous wear, we think it is a niche product, and it has a benefit. But let's not forget the facts, and we're going to stick with the facts. The facts are that continuous wear in the United States and in the world is declining as a percent of new office visits or new patients. For the first time that I can remember, in the United States, the office visits or new patient visits for silicon -- for 30-day wear lenses or for continuous wear -- as we call it, continuous wear -- is actually -- is under 10 percent. In other words, more than 90 percent of all office visits and patients -- new patients -- are being placed on lenses for daily wear. DkK -- --High DKk [PHONETIC] has no real benefit to these patients.

I don't think it's understood. In fact, I'm looking at a document that our sales people used today, it measures -- it's called the Holden/-Mertzck Criteria for Safe Wearing of Daily Wear lenses. Daily wear, the way they are characterized, it's with no edema, and you must have a lens that would have a DKk-- we've all heard the term DKk -- of at least 24. Interestingly, Proclear is almost double that., Iin fact, more than double that. Proclear as a daily-wear lens has a DKk of 52. All other lenses, with the one example -- I should say the one competitor advantage, which is a silicon hydrogel daily wear lens, is the only one that has a higher DKk for safe wear. But on the other hand, all the other lenses that are marketed except one that I'm looking at right now, has at least the significant amount of DKk for safe daily wearing of lenses. I don't want to confuse you, but that's -- those are the facts.

Secondly, we know what's happened with Acuvue Advantage. This is a daily wear lens, not a continuous wear lens. It has a higher DKk than Proclear, and I think it's over 60. But I -- we have looked at it for five quarters, using the data we've just talked about, the data that any of you can buy if you want it. And we have looked at it over the last five quarters that that product has been on the market and, interestingly enough, this decline has not gained any share in the daily spherical market, the daily wear spherical market. What they have done -- and they have done a very nice job of it -- is moving up value of their own wearers. That is, for every market share gain they've made with Acuvue Advantage, they've lost with Acuvue 2 or Acuvue.

So it's good strategy for J&J. Is it a real competitor to Proclear? -- dDoes it really -- does it have an advantage over Proclear -- the Proclear material as a daily wear lens? And I'm going to tell you no. I'm not so sure it has any advantage over some of the older materials -- [INAUDIBLE] on the market. I can't see it, because DKk, from a standpoint of DKk, it's the safety wearing of lenses, which means no edema, it doesn't have any advantage for daily wear. It has an advantage only with continuous wear. So to really answer your question, we're going to continue with our development and marketing of our continuous wear, silicon hydrogel lens because we do believe higher DKDk is the right place to go for those patients that doctors want to place on continuous wear. But for daily wear, I'm sorry. I don't -- I see the advantage here as one for the companies and for practitioners, quite frankly, to trade up in value to patients, but I'm not so sure from a wearing standpoint it offers any advantages.

And, by the way, this data that we have, we're sending around, where we compare silicon hydrogel daily wears with Proclear definitely has no advantage over late in the day or end-of-the-day comfort for wearing of lenses. I don't know. I've jumped around a little bit here, but maybe you've gotten them.

I go itget it;. I just wanted to really summarize, we should be thinking of this as grounding out the product offering, not as a gaping hole in the product offering.

That's right. It is a niche. The continuous wear market is not going to go away, but it certainly isn't a growth market. Night & Day, as an example, from -- looking at it from a new patient vision standpoint has been losing share -- it's not been gaining share of the overall market. I don't mean from any other product, but from the overall market, because that category of lenses has not been going. so growing. itIt reminds us of the cosmetic lens market, which isn't growing either. On the other hand, I got to tell you that we want to compete in that market. We want to compete against Night & Day or we want to compete against Pure Vision, which, is being marketed in Europe for continuous wear. So there is a market segment. It's a specialty segment of the market. It fits our overall strategy, and we're going after it. On the other hand, we believe Proclear -- and you can see the results we've had for this quarter for gosh sakes. We're doing very well against the daily wear silicone products. Is that good enough, Dan?

Yes, that's great. And just -- I have really one final comment.

Yes.

Your new product, which I know you don't want to go into detail, but the new polymer that you're potentially working on, did that come from the Ocular side or the Cooper side?

It's a combination because if you recall, Ocular Science had the silicone hydrogel material from ASAHI [PHONETIC],, I believe.,, a And of course, we had the Proclear material and the R&D group at Ocular Science is -- the old Ocular science but the CooperVision Ocular Science R&D team today is in the process of developing that into a new material.

As always, it leaves no ambiguity. Thanks a lot, Tom. [ Laughter ]

Joanne, are you there? Joanne?

Hi, there is -- this is Eric for Joanne. How are you guys doing?

Good, how are you?

Good, good. Question on the gross margin. Looked good on the quarter at 64 percent. From a trendwise going forward, is that something we should expect to take pick up as the GENen 2 comes in over the next couple of quarters? Or is there still some integration stuff that will hold this -- hold efficiencies back on that?

You know, Eric, I would always have a comment, but Bob wants to take it. [ Laughter ]

I just want to make sure that I caution you that the first quarter gross margin is influenced mainly by Cooper's preacquisition margin, with the exception of the last three 1/2 weeks. So you can't just take that -- and I would love to have that as the run-rate going forward the next quarter, but I think you got to blend it and weight it over the entire period.

Okay. That's fair enough. Also, Bob, did you say that the organic growth for CVI was 13 percent for the quarter?

Yes, I did.

Okay. Curious there on that organic growth, can you guys talk a little of -- I know last quarter, there was seasonality due to, you know, due to bad weather and how integration impacted the organic growth in the quarter, and is that rate normal, specifically?

I guess I would categorize it as we did our best to keep everyone focused while we were waiting for the Federal Trade Commission to complete their task. But I think it would be a little naive to say there wasn't a few people out there left less than and totally focused. So there is some -- I'm sure there is some waiting, but I think we're reasonably pleased with where we ended up under those conditions.

Okay. That makes sense. That's it for me.

Thank you, Jeff. Jeff -- I'm sorry; hey, Jeff, are you there? Jeff Johnson?

I am, Tom. How are you this evening?

Almost sent -- I almost sent you on your way without a question.

I figured you'd get to me here. Hey, a couple of questions for you, if I could. Just following up from the Analyst Day, the sales force reduction, you talked about 68 people in the U.S. and Australia, and that is complete. So that 68-person reduction or salesperson reduction is complete at this point?

I -- I -- fFrom a sales point, let's see, it's -- overall in the U.S., there was a reduction of 30.

Okay.

We went from 145 to 150. We're speaking just sales right now, isn't that, right?

Yes, sir.

Yes. In Canada, it was 14 and in Australia, I think it was 10. So add those up. I don't know what it is in France, and you have -- I don't have those at the tip of my tongue, but --.-- .

Yes, that's 54. 54 of 68, I think that if you took the rest of the world on locations, you would find that gap.

Hey, I'll show you another way to look at it, too, Jeff. If you carve out manufacturing and R&D from Ocular, there was 717 people, I believe, that they had if you -- if we end 2004. Of that, 250 of that head count by the end of 2005 will go Aaway.

Okay.

About a third, okay? And then -- but you're right, a lot of that has taken place already, but as we go through the year, there will be more eliminations, job elimination,s over a period of time in other functional areas.

Okay, and just following up from what Bob said there, I think I caught his number from Bob there of 54. So 54 of that 68 has been reduced worldwide at this point?

No, 54 of the 68 was the three countries that Tom defined.

Okay. I'm sorry. I got you, Bob.

The rest are probably in Europe, Jeff, is what I said.

So -- so on a [INAUDIBLE] from a sales force standpoint, we'll probably still see some reduction here going forward the rest of the year?

A few, but not very much. Most of the rest of the reduction, Jeff, is going to come from other functional areas -- like finance as an example, just G&A kind of jobs.

Got it. Okay. Aand Tom, I promise you I'm not trying to push your buttons here on the silicone hydrogel side.

Go ahead.

Just want to -- there would be nothing here that would preclude a doc to taking your 30-day continuous wear silicon hydrogel lens, which comes in maybe at the end of this year, and fitting it on a daily wear bases, right? If I'm a doc that just really wants a DKk in the 100 range, and I'm a Cooper doc, I could use your lens for that, even on a daily wear basis.

Yes, but I would say you would already be doing that. I mean, because the other continuous lenses out there are darn good lenses.

Sure.

There is nothing wrong with Night & Day and Pure Vision, and you know, if -- I think it's an issue around the world. And you're an OD, for God's sake. I think you know that, that there is less and less movement towards continuous wear. There is an issue of risk.

Yes, no, I absolutely agree with you there. I mean, my question, I guess, is if I'm a loyal Cooper doc and I just want to fit the Cooper silicone hydrogel on a daily wear basis, nothing precludes me from doing that?

No, that's right. But I don't think you would do it. Because it's, you know, obviously more expensive.

Yes. Fair enough.

It comes -- everything comes down to -- you know, it's the old Paul Harvey statement of let's tell the whole story. I don't think the whole story has been told here very well.

Yes.

And there is no real advantage for DKk for a daily wear lens, unless you want to move the patient into something that's more expensive, that really doesn't have a benefit -- it only would have a benefit if the patient was non-compliant, and I won't argue that point there. There are some patients -- and we know that, Jeff. You know, when you practice optometry, you know that there are patients that don't follow the rules and there are patients that are going want to sleep with lenses occasionally, and that would be an advantage. But the issue is, is it worth the 25 percent premium to the patient and I'm afraid not. So, that's my point on it. I -- you know, I get a little emotional on it, because I think it's a hype. It's just hype all over again, and it makes a lot of sense for continuous wear, high DKk. I'm sorry. Makes no sense. If that's the only benefit you've got, it makes no sense to move a patient into silicone hydrogel just to move into them into silicone hydrogel. Would you argue that point?

I hear you 100 percent Tom, and there's not a chance I'm going to argue with you at this point. [ Laughter ] A couple of other just very quick follow-ups, if I could. Are you rationalizing any Ocular or Cooper lines, given the overlap or anything?

Rationalizing from the standpoint of deleting the line?

Exactly.

No.

Okay.

No, we're holding them all. What we are doing, though, is moving -- making decisions on what product lines we're going promote versus those that we will, you know, continue to have for replacement lenses for patients who are still wanting -- or doctors who still want to fit those lenses. But as an example, in the two-week sphere, we're using the Ocular product. We're not using the Cooper product. In the two-week Toric, we're using the Ocular Toric. In the monthly Toreic, of course, it's Proclear. So it gives you a flavor of where we're at. The Multifocals are certainly Proclear Multifocal.

Frequency 55 Toreic?

Frequency 55 Toreic is still a promoted product for a monthly product, too, because it has an expanded line of parameters.

Yes, okay. Fair enough.

Okay.

Sorry here -- one or two other -- actually, I guess either Steve or Bob, for you. Pretax number, I know, was 4.7 million on the restructuring and all the one-timers combined. On those three -- . H how did they work on an after tax just a step up kind of from the $0.48 to $0.58?

There is not much of a change in the effective tax rate. In other words, it's pretty much pre imposed pro rata.

Okay. Okay, it is. So they're all are -- they all get a tax shield there or a tax benefit on the write-off there on that?

Yes.

Okay. Great. All right, that is all I've got, guys. Thank you very much.

Thanks a lot, Jeff. Jessica? Jessica Winn?

Yes,, a couple of questions. First, just to be clear, you provided the revenue guidance on January 6THth when the deal closed. I just want to make sure, are there other reasons why it fell slightly short?

We felt -- yes, the issue was, well, we provided the guidance after the close, so we felt -- let's kind of back up to December. In December, we gave you guidance, and we didn't change that guidance when we closed on January 6th. [INAUDIBLE] Predicated on the assumption that the delta of those few days would be immaterial so that we wouldn't have to jump through hoops to try to figure out how to bifurcate the rows. Unfortunately, our auditors took a different view relative to the materialilty or immateriality of that, and so we did in fact have to jump through the hoops.

We didn't reach that resolution until, you know -- really, into February, after we had a -- rather a lengthy debate off and on about did we or didn't we not have to double close the book, so to speak.

Yes, in other words, we thought we were going to be able to use the [INAUDIBLE], because there was three billing days.

Okay.

But that was $3.2 million that we thought was in only the -- a case file immateriality, only to find out it wasn't going to be in that one.

]: Okay. And then in costs and currency, I believe the Cooper revenue growth was around 9 percent for organics?

Pro forma organic costs and currency, yes.

Okay, what allowed growth to accelerate? I think you guys had a 12 percent target for the year?

Let's see. Acceleration, -- I think that someone hit it on the -- the nail on the head a little while ago. Was there any disruption or lack of focus in the first quarter, would be the number one reason I would give that to you. Now had a sales force [INAUDIBLE] who their accounts are, what territories they're calling on, and which products their promoting, which was not really the case as we went throughout the quarter.

Well, and there's another big reason. We have a larger sales force, for God's sake, guys. We've gone from 51 sales people up to 72 in the field sales people, and we got to have a dedicated key account sales force, so I think it's -- that's the other side of it, Jessica. And we rewrote that -- you know, the leveraging of those sales -- putting those sales forces together like that, and targeting -- you know, basically calling the same customers. With more people, -- with more sales people, you're going to get better results. We'd better -- , we'd better, or we've got a problem.

All right. And just is, I'll add one more thing -- this is Steve Neil -- some of our products are at capacity, and so we're adding capacity daily to [INAUDIBLE] are one. And so that will significantly fuel the growth, especially in Europe and Japan.

And I'll add one more, which is that you'll recall, one of things that was our intent was to go direct in certain locations. For example, Ocular doesn't go direct in Portugal and Spain. We also direct in Germany and in Japan. None of that would have been affected by the end of January, so we -- that'll be a future benefit that we -- we will see some pick up as we go direct.

And the last -- -- [LAUGHTER]. Jessica's has just asked these questions -- we all have answers to this one. But remember that we have now a new partner in Japan that begins this quarter, the second quarter, and that's Medicon, in the daily disposable market. And I don't need to tell you that with the daily disposable market, which is about 1.1 billion, half of that's in Japan.

And so there are a number of reasons why we feel very optimistic that we will accelerate sales for the rest of the year. And then, by gosh, let's not forget we have new products too. So I think there's a lot of reasons for it, but the basic reason is one that -- that Hubert [PHONETIC] has been saying over again, and he's -- he was right about that one. There is no doubt that we're going to have some disruption with both these sales force during this period of time, because of the delay of the close that we're doing.

Okay. Thank you.

Thank you. Peter Bie [PHONETIC]. Peter, are you there?

Yes, thanks, guys. Some of the -- on the last part, on the international front, going from distributor to direct, can you give me more clarity on when that actually timing sort of occurs with the odds of disruptions of stocking/destocking [INAUDIBLE] at the distributors -- what product they move on to with their relationships?

I would say some of that will happen sooner, -- three to six months, -- while other things will take a while -- and in some cases, it -- it -- let's take the Japan, where it will be not taking the [INAUDIBLE] strategy that we've talked about. We will be taking a lot of our new products, obviously, through the Ocular legal entity, where they have the infrastructure. And in other cases, we have to sit down with the [INAUDIBLE] distributors and work out a [INAUDIBLE, AUDIO CUTTING OUT]. And so in some cases, it will take a little longer. But I don't think there's one answer where it all is kind of thrown around at one.

And Peter, this is Steve Neil again. It's -- while this is a lot more in numbers and countries than we've done in the past, we've done this in the past. The most recent example for Ocular would be Korea. We started the Korea in the second half of last year, and we just had to go through a distributor, and today we do both. And so, we're experienced in doing this. It's just -- it depends on the relationship and depends on the country on how quickly and how we go about doing it.

So do you know how many -- is it fair to assume all will be done in a year, or is that their drift(inaudible)?

Well, I would say that the implementing the plan will be definitely be done during the year. Does that mean in countries where we're going direct, will we not have a relationship with a distributor? No, it really depends on each one of the countries. So yes, certainly the execution of our selling strategy will be done in a year.

All right. And most of the questions were asked, but how was to non-core? You know, a year ago, you'd brought out the core and talked about it being accretive maybe this year after 12 months. Can you talk about that at all? Any progress? And then two, CooperSurgical, you mentioned 10 percent organic growth. I'm not sure -- I guess -- what [INAUDIBLE] at that number, given the [INAUDIBLE] add-in, and you know, is all incremental this past quarter until we get to that ten percent organic?

Okay, I'll let -- Bob take -- [INAUDIBLE, AUDIO CUTTING OUT].

Right now, it is -- we're receiving the process on a relative basis. We're also -- this is first generation, and as soon we focus in on second generation resell, we'll have a lot more opportunities for how to use that concept.

But that's a year -- that's a year and a half away, and to be -- and it's not going to be accretive this year.

Okay.

It -- I think the loss [INAUDIBLE] in that business is about a million dollars this year; -- I think that's where we're budgeted. So your loss is going to be about a million this year. I'd see if in 2006 -- we certainly would hope so -- we'd be off to part two of the development, and commercially marketing that product. The -- nNow the other question --

-- is on the organic growth.

Yes.

The organic growth of [INAUDIBLE] is let in on its core business strategy, which is products that we market as opposed to OEM. So I think one of the factors you have -- that we haven't shed any color on -- is the component, which is the OEM business, as opposed to the business that we actually sell.

Okay, well, is the OEM business continuing to go away then?

[SPEAKERS OVERLAPPING] It's not a strategic -- and it will be going away.

It is going away. So I look at growth going away -- okay.

And the non -- and the non -- the other piece is the non-gynecology part of that business, that's just --

Yes --

-- cardiology and opthalmology business.

Okay. Thanks, guys.

Okay. Chris, are you there? Chris Cooley?

I am, Tom. Can you hear me now?

Yes, I do.

I apologize. I'm kind of traveling today. This may have already been asked. I just have two quick questions. One, did you update us already in regards to how you're progressing in Japan with Jim and the guys at AVO? And secondly, have you given any thoughts -- any kind of competitive -- strategic moves that you've implement during this period when J&J migrates from the Acuvue Toric to the Acuvue Advanced Toric, and has a limited [INAUDIBLE] on that trailer -- on the results? It would seem like that would be a good opportunity to pick up a little bit of share there in that two-week cyclical Toric market.

Let me take the last one first, because I think you're aware of it -- I think all of the analysts are aware of it anyway, but - in the last couple of quarters anyway, Acuvue -- the Acuvue Toric is --

Pretty flat?

Yes. It's down. It's down for us, and it's -- in fact, all of the specialty product lines of this decline are declining -- Bausch & Lomb as well as our [INAUDIBLE] has a serious impact on the bifocal business -- the disposable bifocal business -- but I'd say two years ago, I think something new, because 70 percent of all offices for the disposal bifocal was [INAUDIBLE]. Today, it's down to 25 percent. And the two companies -- the primary company that's picked up the slack, of course, is B&L, and number two is us. We're the two fastest growing companies in that segment. In color, they've had literally no impact on [INAUDIBLE] strong position in the cosmetic market. And by the way, as an aside, a good bridge for me to talk about -- I won't talk about it much -- the cosmetic market declined 3 percent last year, and I think it's the third year in a row of decline. You should know in our first quarter, our disposable color business -- which isn't a big part of our business, but still is a growth business, was up 6 percent.

And then on top of that, their Toric market -- they've declined in the U.S from like 15 something -- they've been 15 percent of all new patient officers, and they're down to about 11 percent. They're starting to look like [INAUDIBLE] in that marketplace, where it is Cooper, and B&L is picking up the slack. As a nutshell, I'm not too concerned about Acuvue Advantage, for the reason you just pointed out. There are other reasons that I won't get into on silicons; but of course, one of the negatives of silicones are that they can deposit badly if you wear those lenses for a long period of time, because they are stiff on top of that. And on top of that, the Acuvue Toric, if I understand, is really like their Acuvue -- I mean the Acuvue Advantage Torec -- I get confused on these terms now -- and the old Acuvue Torec -- neither one of them have been made [INAUDIBLE].

And it looks -- in my view -- [INAUDIBLE] in the marketplace. So we're not too concerned about that product. Oh, in Japan. Oh, yes. Japan, we haven't talked about, other what we said about MediCon. We see our business -- that strategy -- expanding because of not only the that we have the infrastructure for [INAUDIBLE] in place and the fact that Rohto seems to be doing a little better with their toric business, and now we have MediCon, a new partner for a us, and we're attempting, to answer your question, to get advance medical opticals in that space a little more, a little quicker out -- I really don't want to talk too much more about it than that.

But it would be to our advantage to get them in the market a little quicker than our original plan, which as you recall, we gave them a material that we decided not to market, and gave them that product -- that -- [INAUDIBLE] that material for them to market. They are marketing it in Europe, but they have to go inside and think, you know, because [INAUDIBLE] in Japan. So we're trying to get them in the market quicker than the original plan.

Okay, is there a -- I know you did this in the past, but I don't know if you're going to do this going forward -- but did you take the bracket, kind of, revenue expectation, say "x" the Ocular core business in Japan from these other sources? Or have you just aggregated, say, ABO, MediCon, and Rohto going forward? In the past, I remember you had - in the earlier days, we had some revenue guidance. So is there anything we should hope for going forward through this --

A good comment, and something I think we will do the next conference call. The guidance we've given you for Japan this year does not include any of that.

Okay.

What we're supposed to get ouf Rohto, and we were expecting to get from the old Ocular infrastructure, so it doesn't include anything we get from MediCon or anything we get from [INAUDIBLE] for any other partner that we may partner up with in Japan.

So that's all I've got. Thanks, guys.

Thank you. Steve Alloy, you still there? Sorry it's taking so long to get to you,.

That's all right. Thank you. Just in terms of the earnings this quarter, you know, excluding the acquisition related charges, it was above your guidance despite the fact that you lost that week of revenue -- or those three days of revenue. You know, what surprised you in terms of the expense side then, that you came in with stronger earnings?

One of the things is a stronger gross margin, and I would say that we are optimistic that some of that will carry forward, meaning we will continue to have some upside on that, but iwe're not prepared to stick our necks so far out that we're going to change guidance. So that clearly is one. Two is, the -- there actually was a penny dilution in the first -- not surprisingly -- but the first few days of the month, given their revenue base and given the fact that it's a free synergistic period, meaning there is still a corporate G&A at Ocular, there is a lot of activities that popped in one.

As a result of that, we actually picked up a penny by excluding the short period as it -- thought out of the shoe pretty strong in taking some of the cost cutting steps. Tom mentioned how quick Canada and Australia went. That was -- which was in plan. So we're just getting kind of incurred in some cases.

Okay. And then, you know, Tom, you were clear cut in terms of your feelings about silicon hydrogel daily wear lens. What is not clear to me is I know there was a silicon hydrogel daily wear lens in the pipeline at Ocular, which from my understanding is slated for release probably in the second half of this year. Is that still expected, or?

No. I think you have that a little mixed up. The -- what they had planned -- and we still have planned, Steve, is to launch a continuous wear. And when we say continuous wear, remember we're talking about thirty-day wear lens in Europe. The -- we'll do that in the end, I believe, Steve, [SPEAKERS OVERLAPPING] of this year. And then in the first of next year, or sometime in 2006, we'll launch that same lens in the U.S.

Now the two-week lens is the one that I was speaking of earlier when I said that the plan right now is to launch that product in the U.S. the end of calendar 2006 ; but -- but -- we could have a different -- a different kind of a product, and that product can launch here A lot depends upon the progress of our -- of our research program of developing a combination silicon -- a Proclear product line. If that comes to fruition and it moves ahead, that's the product you're going to see. So did that help a little?

Yes, it does. So there was never any plan to bring a two-week silicon hydrogel in '05? That was --

No, there wasn't. They're not that far along.

That was my own misunderstanding. Okay. And then finally, with, you know -- you kind of gave us some tantalizing tidbits in terms of Gen 2 and rolling some of the Cooper lenses onto that platform, and Cap Ex spending. Will this be gradual, and can you give us a sense as to, you know, how large a chunk of your contact lens business may end up on the Gen 2 platform?

I think I'm going to let Bob go to that, but let me get the latter part of that. Most of the Gen 2 application to CooperVision -- basically all of it -- will be focused on any product that we have a lot of critical mass, and we have a minimum number of SKUs. So that would be products like Frequency 55 Aspheric, which is in the U.K., or Proclear Sphere, which is in Virginia, would be the products that would be impacted by it. The torics, as an example, and the Multifocals will not. It doesn't have a clear, cost-cutting application. But it certainly does on the sphere side, and I think I gave you some indication it's very sizeable -- it's up to 14 -- about $0.14 a lens is what the current manufacturing group feels that it will have an impact on.

That application won't get -- we are beginning now to order the -- the manufacturing for those lenses -- I should say the lines for those lenses now. So even if it -- you know, it takes about between 12 and 18 months, I think, Steve for delivery of those lines, and you need another, about, four months, anyway, to do a pilot on them and to get all -- get everything out of the way. So you're really talking, Steve, about not having much impact -- that not having much impact on gross margin until the 2006 is about where I'm at on that. On the other hand, it's an upside, I believe, to the kind of guidance I've given you n the past, what we think our gross margins would be over the next three years. But the -- that -- that little piece will impact us, I think, at the end of 2006. I think the fact that we're consolidating the made to order lens businesses as quick as we are should have a positive impact on the guidance I've given you for 2006.

Yes, and the only color I would add to that is, in terms of product, we're talking probably close to 130 million units of the current product we make, which is both Proclear material, upwards to 60 percent of the volume, and our [INAUDIBLE] material, to 70 percent of the volume. So pretty big unit numbers. And as Tom indicated, about $0.14 expected savings. So that all adds up to in the neighborhood of 18-plus million of savings.

It will -- it will take us probably 12 months to get the line in place, and you have -- as Tom indicated -- that the testing of the line, and let's keep in mind, has to go through inventory. But I think expecting anything to really -- probably before the end of '06 -- is way overstating your expectations.

And just so I'm clear, the 130 million units you mentioned, is that after you're pro rating it -- is that the Proclear and the [INAUDIBLE] silicon, or is that --

That's then end result, meaning that -- that's 60 percent of Proclear and 70 percent of [INAUDIBLE] silicon.

Okay. Thank you.

Thanks, Steve. Bill?

Yes, sir?

I think we are finished for the day. Okay?

Okay, great.

Okay.

Of course, if someone has a question that we haven't answered --

Give us a call. -- by all means, please call us. Yes.

Thanks very much, gentlemen. And thank you, ladies and gentlemen, for participating in today's conference call. You may now disconnect. Have a good day.