酷柏 (COO) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for your patience and welcome to the third quarter 2005 the Cooper Companies Incorporated earnings conference call. I will be your conference coordinator for today. [OPERATOR INSTRUCTIONS] As a reminder today's conference is being recorded for replay purposes. I would now like to turn the conference call over to your host for today's presentation Mr. Norris Battin, Vice President of Investor Relations and Communications. Please proceed, sir.

Thank you. And good afternoon and welcome to everyone. Before we begin, I would like you 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. These gentlemen will be reviewing the quarter with you this afternoon and 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 the 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 Company's Investor Relations Department. With that, I will turn the call over to Tom for his opening remarks. Tom?

Thank you, Norris. And thank all of you for attending this afternoon and being us with. Before I turn this conference call over to both Bob and Steve, who will talk more specifically about the quarter, and more importantly about what we expect going forward. I would like to make a few comments on a couple on the quarter. Mostly on the - - what we expect the business to look like in the future and a little bit of contact lens market data that I like to share you with every quarter that we have thus far. Let me begin by talking about a few things that I think are very important. First of all, the integration and where we are with the integration of the Ocular Sciences acquisition. We think we are ahead of where we thought we would be. We had two very important events took place this quarter that will support that. I think you will see part of it, too with the overall operating expense line that is getting better by the quarter.

But first of all, we - - the operation in Huntington Beach, the manufacturing as well as the customer service piece for CooperVision now has been completely shut down. And has been consolidated into either Rochester, where the manufacturing now is located, that was located in Huntington Beach. And the customer service piece, which is now in Albuquerque where Ocular Sciences had their customer service. I also want to tell you that I think we've made it extremely easy for our customers, in fact making it very invisible for them to order lenses and also to get their billing. That is, when they order now, it is - - there has been no hiccup at all in the process. Our customers can order both ocular product lines as well as the CooperVision product lines pretty easily.

Secondly, the other event that we announced in the first of June is we have accelerated the consolidation of the U.S. distribution facility, or I should say the consolidation of distribution for CooperVision. And we will now have the operation in Rochester, New York. We will be shutting down the south San Francisco operation of Ocular Sciences by the end of the year.

And we will be fully operational between April and July of next year in Rochester where they're finishing up on a 260,000 square foot facility in Rochester that will handle all the shipping now out of one facility for our U.S. customers. That will have an impact of about $6 million annually of savings. And originally, we - - I think announced back in January, when we talked about the integration of the two businesses, that this process would take place the end of '06. So we are really accelerated that by at least six to nine months. So those two pieces took place and we feel real good about the process of the integration. I would tell you that by the end of this year, this fiscal year, we should have at least 75% to 80% of all the integration completed, with the exception of some of the manufacturing.

As far as gross margins are concerned, again, we're well ahead of where we thought we would be. I believe we gave guidance of around 63% or 63.5% gross margins for the year. I think you can see our gross margin now is around 65%. Most of that, and I think there is a number of reasons for it, the biggest reason though is the gen 2 efficiencies are much better than we originally thought.

When we bought the business, I want to say this year, last year is a good example, Ocular Sciences' gross margins were about 59%. And Cooper's was about 65% all up. So you can see now that the combination of the two businesses combined, we're right about where we were last year in overall gross margins. So it is a sign that the efficiencies of the gen 2 manufacturing is doing very well. And of course, the application of the gen 2 technology - - or I should say manufacturing platform have a positive effect on the old CooperVision - - or I should say the CooperVision spherical products in 2006. That certainly has not happened yet. It won't happen until 2006.

So we're looking at gross margins that we think can improve as we go into 2006 and 2007. I think the most important event that has taken place this quarter is one that I'm about to say; and that is that we believe that the inventory issue that we've been struggling with over the last couple of quarters, certainly in the second quarter of last year, and somewhat this year - - this quarter also, should be behind us. And there are a number of reasons, there are certainly indicators that would make us believe that the going forward, that the demand for our product will be reflected in actual revenue on our two week spherical products from the ocular side.

Number one, the sequential growth of the Biometics product line in the third quarter versus the second quarter was up 17%. That's a very strong indicator. Typically, you get sequential growth from quarter to quarter. Certainly, our second quarter to third quarter historically would grow 3% to 5%. So I think it is a strong indicator that we are getting out from underneath the inventory issue or the pipeline issue that we had to deal with over the last six months.

Secondly, if you looked at the Proclear results thus far - - I should say in this quarter for our Proclear spheres, not the Proclear franchise, because the Proclear franchise in the U.S. was up well, too. But the spheres were up 35% in the quarter. And now, are up 25% year to date. And of course that is the face of the silicone hydrogel products that are competing in the same market, that is the disposal sphere market in the U.S. So Proclear is a direct competitor to those products and is doing very well. By the way Proclear spheres now represents about 25% of our U.S. disposable sphere business.

Third, I think the third indicator that we believe makes us feel comfortable that this inventory issue is behind us is the late stage BR data. Which clearly indicates that from a market transition standpoint we have not had any erosion of our market share in the disposable sphere category. In fact if anything we've actually gained a little bit. Saying all of this, I think we now feel very comfortable in making the comment that we expect, in constant currency and organic growth, we're looking at double digit growth for CooperVision's business going forward. Certainly in '06 and '07 and we feel pretty comfortable about that, in '06, too.

If you look at the revenues of - - we believe the revenues going forward of our disposable spheres will now truly reflect the real demand that we see, certainly in the U.S. data that we purchased. And that is from Health Products Research. We think that the pipeline fill from the old Biometics products in 2004, we believe is basically all washed out. Secondly, I think the other reasons that we feel confident and optimistic about '06 and '07 is number one - - I mean number two, would be the new product flow that would begin earlier - - I should say later this year, starting in really in October. And I think all of this is going to have a serious impact on CooperVision's business in 2006 and 2007.

Third reason would be the capacity issue. Which really has put a lid on our ability to compete in the global market in the single use product - - with our single use product. We've always been able to sell product into Japan basically, a little bit into Europe. But we haven't been able to manufacture enough products to really achieve our objective. And that is to market our single use product around the world. We will have that result by the end of this year. And going into the first of next year we're going to be in a position to allow us to pursue the overall global market and not just Japan for our single use products.

Next, I will tell you that Japanese strategy will be enhanced in 2006. And what I mean by that is we will be able to launch new products to our partners in Japan beginning in 2006. As more products will be, we believe, will be approved through the Ministry of Health. We really believe that the business development of where we're at in Japan right now is good. We're doing very well. We will do with our single use product alone, almost $80 million this year in Japan. But going forward, we are going to be able to market not only our single use products through Cooper, but also through our partners. As well as our two-week product that we think we will be able to market, not only with Rohto, our partner, CooperVision's partner in Japan, but also through our own sales organization.

I think the last piece that makes us feel comfortable and confident about our CooperVision business achieving double digit growth is the fact that we're going to put in place in China and Singapore a direct selling structure. We've taken a look at that and we hope it is going - - we believe it will be able to develop along the same lines as our Korean operation did this year, which is doing extremely well.

Moving away from that, another way to look at our business, what I like to look at and talk about is our core products at CooperVision, which will define as our torics, our multifocals, our single use products and of course our ProClear sphere. We looked at those products, they represent over 60% of our global business and about 61% of our U.S. business. And they grew 22% in the quarter and up almost 20% year to date. So those products are doing extremely well. They're up in the U.S. by the way 15% for the quarter and 16% year to date.

Next, I would like to flow into the R&D pipeline. We sort of touched upon it but I would like to focus on what our real strategy is here in the products that we're developing at CooperVision. Number one, the products you will notice we're going to expand are our Proclear franchise by adding new products during the next two years. Second, focus is on our silicone hydrogel franchise that we are building. And we will be adding new products beginning this year - - at the end of this year in Europe. And moving all the way through 2008 into Japan. And lastly, the third focus is on our single use product line, and that is expanding it.

If you take another look at this, you will see that there are two changes from the last quarter. Number one, we have accelerated the introduction of the silicone hydrogel sphere in the U.S. from the end of calendar 2006 now to the middle of 2006. The second change you will see is we've added a new product. And that has a lot to do with our added capacity, with single use products. And that is now we're going to be introducing in the middle of 2006 a single use toric lens for the Japanese market. I think most of that more than half the world market for single use products is in Japan. It is a huge opportunity. And we believe with our leading position, global leading position in toric lenses around the world, this is a superb opportunity for us. And now, we have the capacity to be able to take advantage of that opportunity.

Taking a look very quickly at the market conditions, I will start off by just apologizing to you and telling you, and I think it was in the press release, because we've added a new company to the data source that we get every quarter. It has been - - the global data that we get from the CLI has been delayed. And we can't report on how the market is moving in the second quarter. We certainly have the first quarter, but we don't have the second quarter. But we do have data, good data for what is happening in the U.S. The overall market, and that is not only from the CLI but also from Health Products Research data. The market looks very, very good in the U.S. It is up 7% in the quarter. It's up 7% year to date. So the market looks good. Torics are up 10% for the quarter. Overall, year to date after two quarters, the market is up 8% for torics. Disposable products are up 10% for the quarter and 10% year to date. Multifocal products are up 18% for the quarter and 19% year to date. And the only category of contact lenses that is not doing well in the U.S. at least, and it is true globally, too, is the cosmetic segment, which is down 12% for the quarter and was down 5% year to date.

If you look at the market another way, and I think the way we all should be looking at this market is, the categories that make up the contact lens market. And it is pretty simple to look at. And these are the categories; spheres, single use products, multifocals, torics, cosmetic lenses. Those are the categories. The hype around silicone hydrogel is immaterial. It is not one of the categories. The silicone hydrogel products today that we hear a lot of hype about compete basically in one of those segments. And it's good for the contact lens market. It competes in the sphere category.

And the sphere category traditionally always was used as more of a commodity segment of the contact lens market. But what the silicone hydrogel products are doing is taking a commodity segment of this market and making it more of a value added market. In other words, adding value to the market, adding more revenue per patient. That's really what is going on. Another way to look at it, and I will quote from Health Products Research data, the number of patient visits, new patient -- total patient visits for silicone hydrogel products in the quarter was 28% of all spherical. These are sphere office visits, spheres represent about 60% of all office visits.

So totally, it represents about 17% of all office visits in a quarter. And that compares by the way to about 13% or 14% the quarter before. So that is a good sign. It means that we're building value in the market. And where we are competing right now of course with this, which is Proclear. Proclear for us competing in the same segment, in the spherical market. And it is doing very well. How can you argue with 35% growth? So, what we are attempting to do is the same thing, as these company - - other three competitors of ours are doing in the silicone market. And that is to try to upgrade a segment of the market. We have not lost any share to the silicone products in this process. So we are still holding on to the same share we've had a year ago.

I think the last comment I would like to make - - and I think I would like to talk about it switching matrix. I think it is a great thing to talk about very quickly. Health Products Research data provides a very good report. It shows basically, it is a matrix of switching that if you're losing patients to your product, where those patients are going. Whether they're going to your own product, another one of your brands, or to other competing brands. It also tells you who you're gaining from. And that is, if you're switching - - patients are switching to Cooper products, where they're coming from. So you can net/net that out at the end and tell if you're either gaining or losing customers or patients in the process on a quarterly basis. Each company can do that. It is a superb report that they put out. And it is one that we look at very closely, because it really does tell us exactly what is going on in the real world.

And I think lastly I want to make one comment about Cooper Surgical. So, I think it is an important comment to make. And that is again, the core products at Cooper Surgical represent a little over 60% of the women's health care business. They were up 10% for the quarter. And we think that we are leveraging very nicely the commitments we made in - - the financial commitment we made in building up the selling organization at Cooper Surgical. You are also seeing some results going forward that we believe will happen. And that is, that the operating margins at Cooper Surgical continue to improve. We're looking for 23% operating margins, from Cooper Surgical. And those 6 going to 25% in '07, as this investment we've made in the selling operation continues to drive our core business at Cooper Surgical. With, that I think I would like to turn it over to Bob and Steve.

Thank you, Tom. And good afternoon, everyone. The financial highlight certainly is our revenue of 222 million, was 72% above the prior year, 71% in cost of currency. On a pro forma basis our revenue was up 4%. Keeping in mind that in the prior year, we had a large product launch within the ocular piece that we're doing the pro forma on, which would be the Biometics spherics lens. And adjusted for that, it was more like 8% growth year over year.

CDI, our CooperVision was up 90% above the prior year. And on a pro forma basis, 4%. And once again, adjusted for the product launch in the prior year, at 8%. Sequential, importantly sequential growth, which CooperVision was 189 million in the second quarter, was up $6 million, an improvement of 3%. And then if we adjust for the impact of foreign exchange during the currency, which negatively impacted our trend by close to $5 million, we would have been up 6% on a sequential basis.

And I think that is one of the key reasons we feel so good that the pipeline that we've talked about the last two quarters is now at an end in terms of the reduction of the pipeline. Core promoted products importantly grew 20%. These are 60% of our product line and comprise the really specialty lenses excluding color and the one-day product line. And of course, within this specialty lens, is Proclear, which also targets dry eye.

Other financial highlights, our gross margin, as Tom pointed out, was extremely good, at 64.6%. Keep in mind when we bought Ocular, it had a gross margin of less than 60%. CooperVision had a gross margin around 67%. When we gave initial guidance we divided by 2 and we were at 63.5%. Us now being basically coming in at 66.1% for vision, which is 260 basis points improvement, is validating gen 2. And it has been a star performer in getting us to the bottom line results.

Even with less revenue than guidance, we were able to hit our earnings per share target, we're actually seated at $0.87, excluding accounting for acquisitions and restructuring. That also was able to hurdle a three-fold increase in our research and development. We are obviously very excited about the 10 products that we've listed and where that can take us in the future in terms of achieving double digit growth going forward.

We also had outstanding cash flow for the quarter at $39 million, bringing our year to date cash flow to 119 million. And on a -- basically on a year to date basis, our earnings per share has achieved $2.45, with trailing 12-month earnings per share of 3.24. The outstanding cash flow, we of course report cash flow per share, it was $1.25. Bringing our trailing 12-month to 4.35. And that really is one key way to look at the strength of our operation. Is not only what we do on the top line, and not only what we do on the bottom line, but how much cash we throw off. Because we are not a taxpayer and I know Steve will get into that in a little bit.

Looking forward to - - or looking at the revenue drivers within the quarter, as I mentioned CooperVision had 90% growth and 88% cost of currency. Specialty lenses were up 50% above the prior year and accounted for 49% of our revenue in the quarter. Torics were up 53% above the prior year and accounted for 33% of the CooperVision during the quarter. Daily disposables achieved 23 million in revenue and now account for 12% of our revenue line. And Proclear was up 42% worldwide and achieved $30 million in revenue for the quarter. In the United States, it grew 53%. And outside of the United States, 34% above the prior year. Pro forma soft lens, I mentioned, were 5% and 8% adjusted for the product launch in the prior year.

And within pro forma specialties, achieved 15% growth in the United States, 14%. And outside the United States, 17%. There clearly is a lot more room for growth in specialties outside the U.S. Specialties, as part of CooperVision, 49%. In the U.S., 61% is specialty. And outside the U.S., only 41%. Once again pointing out the fact that there is a lot more potential out there. Torics were up 12%. 7% in the U.S., 17% outside the U.S. The one-day product line on a pro forma basis achieved 36% growth. And it is mainly outside the U.S. right now because of capacity reasons. It achieved 39% outside of the U.S.

Multifocal lenses were up 40%. And achieved growth of 50% in the U.S., 33% outside the U.S. And our multifocal disposables, which is really the driving force of the multifocals was up 50% worldwide. Geographically the Americas were up 49% in terms of total revenue. I'm sorry. The Americas accounted for 49% and were up 71% in terms of total growth. And 1% pro forma. I talked extensively about some of the things going on in the U.S. And the European theater was up 36% - - or accounted for 36% of our revenue and was up 79%. And on a pre forma basis achieved 8% growth.

While Asia-Pacific accounted for 15% of our revenue and was - - increased five fold this year above the last year. And on a constant currency - - or rather on a pro forma basis was up 17%. CSI, Cooper Surgical, was up 3% in its core promoted product line, which accounts for around 60% of surgical is up 10%. And overall, Cooper achieved 72% growth above the prior year and 4% on a pro forma basis. As I pointed out 8% when adjusting for the prior year product launch.

In terms of the key take-aways on revenue, clearly CooperVision's core product line, core promoted product line which is towards multifocals, Proclear and the one-day product line are up 20% for the quarter, 22% year to date. And represents 60% of the CooperVision product line clearly carrying the growth of the Company. Our new two week sphere Proclear will be available next year to hit the sweet spot of the market, which is the - - really the two-week market. We're not a key player in right now in terms of having the Proclear material - - or the PC material in that, in that area.

And over the next two year, we will be launching three open soft gels that will address that part of the market. The most current one of which will be in the latter part of this quarter, that we will launch in Europe. Cooper Surgical once again, its product line, the core promoted product line was up 10% and accounted for 60% of surgical's revenue.

From an integration point of view, we are certainly happy with the progress we're making, targeting the $50 million in operating savings. Quite frankly, the operating savings still to come in the area of the distribution area, as well as conversion of manufacturing will still achieve another $30 million of expected savings over the next two years. We believe by the end of '07, we will have achieved or exceeded that a $50 million run rate in terms of operating savings. We've announced the complete closure of Huntington Beach, which has now been merged into our Rochester facility. As Tom pointed out, we announced the combination of our West Coast and East Coast distribution centers. And the conversion of our manufacturing onto gen 2 will happen over the '06/'07 time frame. Still targeting to improve costs or manufacturing by in aggregate around $26 million in the manufacturing arena.

Lastly, in terms of guidance, we really reconfirmed our outlook for the fourth quarter and for '06 and '07. Targeting revenue of 210 million to 213 million in the fourth quarter for vision. And total revenue of 238 to 242 million. And expecting to achieve $0.96 to $0.99 in the quarter. That would bring our total revenue guidance for '05 to 824 to 828 million and earnings per share of 3.38 to 3.41. Keep in mind, we started out with initial guidance this year of earnings per share of only 3.08 to 3.18. So we certainly have shown that we could deliver in terms of the integration and the bottom line. I think I've said enough numbers. I will turn it over to Steve who will go address some of the chief - - gross profit, operating and cash flow items also.

Thanks, Bob. Good afternoon, everyone. A few more numbers for you here. Focusing in on margin. Gross margin as reported, was 61.5%. And excluding nonrecurring items, principally which was acquired inventory step-up it was 65.1%, which compares to 64.4 in the third quarter last year. So good performance again emphasizing on the margin line. On a year to date basis, gross margin was 61.4%. That is 64.6%, if you exclude the nonrecurring items. And that 64.6 compares to 64.4 last year. Looking at margin for CVI, if you exclude the nonrecurring items, the gross margin was 66.1%. Compares to 66.7% last year and on a year to date basis, 65.9%.

And both Tom and Bob mentioned the significant performance from where OSI was before to get to the level of the combined entity is pretty significant. And also we should point out that specialty products declined from 63% to 49%, due to the addition of the ocular sphere products. So with less specialty significant performance certainly on the margin line. Looking at surgical. Gross margin in the quarter was 58.5%. And that is a significant improvement over the 55.4% in the third quarter last year. And on a year to date basis, surgical is at 56.4%. And that certainly reflects the benefits of the restructuring activities for the surgical segment.

Turning to OpEx. Operating expenses were 39% of sales in the third quarter. And if you include the nonrecurring items, they were 41% of sales and this compares to 40% last year. On a year to date basis, 42% of sales or 41% excluding the nonrecurring items and that compares with 41% last year. And the percentage decline in the quarter is significant despite our spending 5.3 million more on research and development activities. Certainly focused on the new product development and product enhancements that both Tom and Bob touched on.

We are realizing significant leverage on our larger - - or higher sales. And a higher percentage of spherical product does attach less operating expense to get the product to market. That sums down to operating margin. Despite the increase in R&D, and slightly lower gross margin year to year, we have an operating margin of 25.6% in the third quarter. And that is up from 24.5% last year. So certainly getting the leverage on the margin line. Looking at interest expense, interest expense increased 6.7 million, up to 8.2 million in the third quarter. It represents 3.7% of sales. And that increase of course is due to the debt incurred as a result of the Ocular acquisition.

Turning to income taxes, and for those CPA's on the line, this qualifies for continuing education credit. Accounting for income taxes sometimes is not totally intuitive, but we will try to give it a go here. Our effective tax rate excluding nonrecurring items is projected to be 16% for the year. You need to project for the full year. That's how you come up with the effective tax rate. That compares to 20%, was our estimate at the end of the second quarter. And that reflects a shift of business to jurisdictions with lower tax rates. And the expedited process of integrating Ocular into our global trading arrangement.

Also during the quarter, we had a favorable tax adjustment - - or tax adjustments, of 5.5 million. And those were related to the reversal of previously accrued amounts associated to the resolution of certain tax contingencies. You have to account for those separately in the quarter that you realize that. The effective tax rate including, nonrecurring items but excluding the tax adjustment is projected to be 18%. And this compares to 21%, our estimate at the end of the second quarter.

Now, on a year to date basis, our effective tax rate was 12.4%. And that reflects the impact of the tax adjustments that I noted. So hopefully that clarifies that. That all results in net income of 48.9 million, or $1.03 per diluted share. Excluding nonrecurring items and reflecting the lower effective tax rate and tax adjustments. Net income as reported was 37.4 million, or $0.79 per share. This compares to 24 million last year or $0.67 per share. Now, excluding the nonrecurring items, and excluding the tax adjustment that reported in the quarter, our EPS in the quarter was $0.87. On a year to date basis, excluding the nonrecurring and tax adjustment, our net income was 110 million, or $2.45 per share. And that compares to net income as reported of 85.4 million, or $1.92. And last year, that's 64.1 million or $1.80.

Turning to the balance sheet, continuing good improvement and performance on the balance sheet. Our DSO's were 65 days. This compares to 62 last year. We have a geographical mix between the years, with the Ocular business coming in. We do expect DSO's to be in the mid to upper 60's for the balance of the year. So well controlled. Our months on hand of inventory was seven. And that compares to 6.9 last year. And we expect to remain around this level for the current year.

Significant capital expenditures to deal with our capacity and new product in the quarter of 37 million. Bringing year to date to a total of 76 million. And we project for the year, capital spending to be between 105 and 115 million. Again largely for capacity and some cost reduction initiatives. Overall, our net debt has been reduced by approximately 11 million since the Ocular acquisition, reflecting our favorable working capital management and increased profits. Which were offset of course by the capital spending.

And last comment, on cash flow, is our cash flow from operations continues very strong. It was 39.1 million in the quarter. And through three quarters, cash flow from operations are 119.2 million. So good cash flow performance. We would expect that to continue. Enough numbers for you. I think I'm going to turn the call back over to Tom for Q&A.

Thank you very much. [OPERATOR INSTRUCTIONS]

Chris Cooley, are you there? Chris?

Mr. Cooley, if are you there, please key star one.

He is in the U.K. Or some place. He is overseas.

Steve Hamill. We will come back to Chris, Steve.

Mr. Hamill, your line is open.

Good afternoon. I guess to start with, can you help us with the schedule that you got in here where that you got in here where you reconciled the $0.79 to the $0.87? In particular I'm trying to understand the $0.18 tax adjustment that is in there?

Yes, there really are two components to it. There is a catch-up of the change in the effective tax rate going from 20% to 16% as a projected tax rate that will pick up around $0.06. And then there is a change to the amount of reserves required as a result of certain outcomes of taxes, which led to another $0.11, $0.12 pickup. That happened largely because of statutory issues. And that's what would dictate the timing if that. The former, which has to do with our projected tax rate, has come down considerably during the year. Part of that is a function of where we make our profit; more profit and less profit. And this year, of course, we talked extensively about the decline in - - the shrinkage of the pipeline, which really has been a U.S. problem. And that - - a result of that is less U.S. profits that have somewhat suppressed U.S. earnings, thereby reducing our projected tax rate.

The other piece would be the $0.79 reflects the nonrecurring items, the acquisition related and restructuring items. So that's the other big piece. That offsets obviously the benefit we're getting from taxes. And then there is $0.02 in there associated with the termination of the derivative that we basically had to convert back to a hedge that qualifies for hedge treatment. So if you look in the release, those are the three components that will get you from the $0.79, up to the $1.03, back down to the $0.87. Sorry for so many details but that is the accounting.

Okay. No, my confusion was mainly on the $0.18 related to the tax adjustment. So I guess the key point here is there is $0.12 of reserves that you've had - - you've reduced, and there is a benefit that is basically in that $1.03 because of that.

That is entirely correct. Right.

So then, given the fact that your tax rate is coming down now, to 16%, it looks to me like all your forward earnings guidance is unchanged. Should we assume that you're spending that perhaps on R&D, that some of that tax windfall that you're getting here?

I would say looking forward, that expect that our tax rate is going to be some place between 15% and 20%. We're not prepared to lock in on one number yet at this juncture. And you're quite right that as we look at how much money we're putting into the 10 projects that we're - - or products that we're trying to get out of the door over the next two years, that will be one of the variables of where we will have opportunity. We're not prepared to let's say improve the bottom line over effective tax rate at this juncture.

Okay. And then I think probably the main question I've got, just your revenue guidance for Q4 here, being unchanged. And obviously you guys have, gone through a couple of iterations of guidance for Q3 and then CVI still came in below that for Q3. What gives you the confidence to stick with your Q4 revenue guidance for CVI now?

Let me tackle two or three ways. Number one on Friday, I addressed some of that in the earlier discussion. But the one thing is we truly believe that the pipeline issue or I would say the inventory issue with the Biometics product line is history. Too many solid indicators of that. And one is sequential. Don't take that lightly. When you throw a product line, or your complete two-week product line, 17% sequentially from quarter to quarter, there is something going on. And we certainly have historical data on the sales of that product line over the last 18 months that would indicate that that's behind us.

Secondly, you should know that two months - - the last two months of the quarter were very strong. Strong enough to make us believe that U.S. issue is behind us. Because this has been a U.S. issue. Let's not make any light of this. This has been a disposable sphere issue in the U.S. You look at our toric performance, you look at multifocal performance, look at Proclear performance for God's sake, look at our single use performance, this is the future of this Company. That's where the products are going to come from. And they're performing very well.

But this has been a serious issue we have had to deal with over the last six to nine months. We do think it is behind us. And because of that, we feel pretty confident. Now going into 2006 and 2007, I gave you a number of good reasons why we believe we feel very confident of double digit constant currency, organic growth. New products, we have no new real series new products in '05. They are all going to be in '06. We are making the commitment to make those products happen.

Secondly, the Japanese strategy - - and Japan is doing very well this year, don't get me wrong. But Japan is going to do a heck of a lot better next year. With the addition of new products that are coming, not only from Rohto and from our own organization. But from Menicon and from Advanced Medical Optics, we feel pretty darn good about that. So that's just a few things.

And I got to finish it by talking about our inability this year to capture an opportunity in the single use market. My God, everything we make goes into Japan. We cannot compete in the U.S. We cannot compete at all in the U.S., basically. We compete just very lightly in Europe. That capacity issue is behind us beginning at the end of this year and into January. We're going to be in a better position to take advantage of all the opportunities we have in the single use market. So I answered the fourth quarter but I also gave you an answer for '06 and '07, too.

And I will add in a little bit, Steve. Currency is really hard to judge, and certainly with currency, we would have been at the lower end of our guidance last quarter. Where the dollar is today, we feel comfortable that that aligns with the estimates that we have for the fourth quarter in currency. Ad again, given the currency markets, it is so hard to predict, we don't want to go there. And so that is why we feel pretty comfortable with the rates that we have. And the currency is going to do what it is going to do.

I will throw one more thing out. Because we're in the fiscal quarter and not a calendar quarter, we sort of got dinged this quarter. We got dinged by one billing day. There are 63 billing days in the third quarter. Our third quarter, versus 64 year. But the upside is; in the fourth quarter, guess what? We have 65 billing days. We have two more billing days this fourth quarter than we do in the third quarter. So add all those things up and I can even talk a little bit about Cooper Surgical not getting the LuMax product line out. And their orders being extremely strong, last month, the month of, what is it, August. We feel pretty good about the guidance we gave. Does that help?

That does. Just to clarify one point then. The daily disposable, the new production lines that are coming up, those are on track for January to start shipping new lenses?

Yes, I wish I had Greg in here. I really believe a couple of them are coming online like in November at the end of this year. But the important thing is that we're going to have product to compete on a global basis during 2006. We won't have anything for our fiscal '05. But we certainly will for '06. And more importantly they allowed us to be able to present a new product into the Japanese market, which we think is going to be very important. We're the toric leader in the world for God sake. And that product is going to be a bit - - a good product. Plus the fact now we have the ability to launch the Proclear daily disposable or single use product in the middle of next year is the plan. Does that help?

Yes. Thank you I will jump back in the queue.

Thanks a lot. Chris Cooley are you there?

No.

Too late in the day. Ted, I got you early.

Hi, Tom. A couple of things here. On the toric side, the 12% growth that you put up for the whole business in the quarter in the old day, Ocular's - - or sorry Cooper's toric business grew in the 20's and 30's. And obviously you're growing on a much larger base at this point. Is a low teens number kind of the right way to think about your toric growth going forward? Or is there something anomalous about this quarter?

Absolutely. And let me tell you. Ted, in the past, here, I got to get this thing out of my mouth, the last couple of years, I've made a comment and I've certainly given guidance that we would grow with the market in the toric market and we haven't. We have been growing faster. I don't have the global CLI data, as I told you for the second quarter. I have it for the first quarter. Where we grew our global toric business 18% and the overall global market for all torics grew 12%. So we were still growing. So to be frank with you, to be honest with you, I really do expect us to grow with the market going forward.

We have 40 - - let's see in the U.S. we have like 46%, 47% of the U.S. market here. Globally, I think we have a little less than that. I think B&L is a better competitor than they are - - globally than they are in the U.S., not that they're a bad competitor here. So I think we have like 43% maybe on a global basis. So, I would expect us to grow with the market going forward. Hopefully, I'm wrong, that we can grow faster than that. But when have you this much share, I think our objective is - - realistic objective is to grow with the market. The one area where we could probably accelerate growth, and I think you know the answer to that. And that's in the Far East. We don't have much - - being a global leader in torics, we are very strong obviously here in the Americas and we are very, very strong in Europe. But we are not strong in the Pacific Rim. And we - - that's the upside to our market share on a global basis. But right now, I think the right way to look at it is a low to mid teen growth for torics, in '06 and '07, I will be a happy camper, believe me.

Now, just to follow up on that, obviously you're facing increasing silicon hydrogel competition in the torics and it looks like it will be two years before you will have a product on the market.

Right.

What are your business assumptions behind how that material plays out in the toric market over the next couple of years?

I think that is a great bridge. Because we're going to publish on our Website our projection of the market going from 2005 to 2008. And we're going to lay it out, Ted, with the five basic segment of the contact lens market. That is spheres, single use, torics, multifocals and cosmetic. And then we're also, underneath one of those, we will project what we believe the silicone piece of that is going to be. We believe it is going to be less of factor than the sphere market for a number of reasons. The primary drivers in the toric market, always has been, parameter range, and performance. The product has to perform on the eye.

We already have two products in the market. The one I think you're more closely tied to than the other one, you know a little bit about the B&L product, it has been out, I believe, since May of last year in Europe. We don't believe it is doing very much. I mean you can ask B&L. Maybe they will become transparent one of these days and tell you what in the heck they are doing with their silicone toric. But we have a very strong business and infrastructures all over Europe and we don't see it doing very much from a performance standpoint. And the folks at J&J as you know, introduced their product about six months ago here in the U.S. The HPR data, I will only tell you looked pretty good for them this quarter. All of their share gain though, did not come from us. It all came from the other company I just mentioned. Every bit of it.

They were very quick to point out the market share they gained with HPR in the first quarter and they haven't said a thing about the second quarter yes. And they have lost every bit of that share to J&J. But I wouldn't come to any conclusion, that means a heck of a lot. How's that? I don't think you look at one quarter and make any big assumption. You want to look at really, like we do, a moving three or four quarters and get an idea of what really is going on with the trends. So we don't - - our feedback in the field is that the Acuvue product is much like their other Acuvue product. It certainly doesn't have any impact on ours. I think in the silicone - - sorry, in the serum market, I think the silicone products are going to do well.

I think in the single use market, they're not a bit, not going to happen, folks. We've talked about that. If you want, cosmetic market, not going to be there. Multifocal, I don't think a major market, or a major issue either. Because again, we're talking about a material, we're not talking about a lens. And what this silicone material bring to the multifocal oratoric market? Not a thing unless they can hurdle one very important characteristic and that is performance. They've got to perform. Those lens designs have to perform. So we think it is going to have some impact in the toric market. You will see what our projection is. But nothing like the sphere market.

And let me make one more comment about silicone hydrogel. Silicone hydrogels are not going to take over the world. Just like a Huber material won't take over the world or a Bender material won't. There is always going to be a price point market in spheres. Believe me. There will be the $6 and $8 sphere, six pack of spheres that will lift. There will also be the private label products that will lift.

So the silicones like a lot of things, this reminds me a little bit of the Lasik market, where custom ablation was going to take over the world. And the same thing with Intralace is going to take over. You and I have had that discussion before, about microkeratomes and all of that. There is going to be a segment for all of this. But I think the silicones will have a bigger share of the sphere market and not very much of the rest of the market, unless they can hurdle some performance issues. And in a nutshell, that's my belief.

That's helpful. Just lastly you can give us a little color on your planned European launch of your silicone hydrogel product later this year? Any performance data you can give us? Anything on what the DK/T will be? And lastly, is this going to be an aggressive full launch with fits across Europe? Or is it kind of a measured thing that you will ease into?

Well some of that slipped out. I don't - - it came from a competitor, of all things. I don't know how they knew about all that. But yes, it is going to have a high decay. It is going to be very high decay product. So I saw that in somebody's notes but it is going to have a 200DK. It is going to be highest - - apparently it will be the highest DK product in the market. And I will say it very quickly, I'm not so sure it means a heck of a lot. But it is nice to have a lot of DK, I guess. It performs very well against night and day. We have had a clinical study comparing the two products. In patient performance, it did better. It did much better in night and day.

And they're going to be using that as promotion - - our sales people as a promotional tool on the product. The product will look much like - - from a labeling standpoint, it will look a lot like pure vision or night and day. It will be a monthly product. Of course, the European market is a monthly market. It is not a two-week market anyway. It will be marketed for either continuous wear, extended wear, or daily wear. You can wear it - - doctors can use it anyway they want. And its initial launch will be into large chains. I guess it is about all I can say about that. U.S., we expect that product, that same product will be our first product in the U.S., we're expecting that product to be launched in the middle of '06.

Tom, is it - -?

That price point probably in the U.S - - well, I shouldn't get into that. Maybe that is too early to get into that.

Is it fair to say that your product positioning and strategy here is somewhat parallel to Ciba? Where the first product you have will really be more focused as kind of an extended wear product? And with the silicone hydrogel PC product out in the first half of '07, that's the one that would really compete with say 02 Optics. Is that fair?

No, I don't think that is all entirely fair. I think you're on the right track, though. The product in the U.S. will look a lot like pure vision. What I mean by that, it will be a product that will have a price point much like pure vision. It will be a monthly product to compete against the two week products here.

But it will be a first generation product and not really designed for continuous wear. It is really designed for daily wear. The continuous wear market, as you know, in the U.S. is very, very small. It is only 1.5% I think of all wearers are continuous wear. And extended wear only adds another 6%. So, if you look at the extended wear, continuous wear all together, it is you still got 93% of the market, are still in daily wear.

So this daily wear product. And it will compete in the same category where Proclear is. And so we've got - - it is niching a market. It is a smart way to going after it. If a doctor likes silicone, first patients, have you a silicone. Proclear as you know - - I think you know, we have clinical studies, our guys use already, where we compare it against Acuvue advance and 02 Optics in two separate clinical studies. And it outperforms both of them from the standpoint of comfort and visual acuity. So we're still going to promote Proclear but I'm going to have a silicone product too for the guy who wants silicone. You have Pepsi and Coca-Cola and [expletive] I got them both. And that's the going to be attitude.

As far as the second generation - - the product you're talking about, the other one, is going to be designed as a two-week product and hopefully our objective is that will be a second generation silicone. We're hoping that product will perform better and I think that's what I mean. I think you're somewhat on it when you compare night and day and 02 Optics. Night and day was the first product out. But quite frankly, 02 Optics we think is a better product than night and day. Does that help a little bit?

Yes, that is very helpful. That's it for me. Thanks fellows.

Anything else, Ted?

No, that's it. I will let others.

Thanks a lot. Dan Maroo(ph)? Dan are you there? Dan?

As usual, you've answered most of my questions before I've gotten to ask them. But just kind of summing up your previous comments on silicone hydrogel and Proclear. Proclear seems to have emerged as your secret weapon in this whole fight. And there haven't been material share shifts as a result of competitor launches, and the silicone hydrogel. Are there - - and then looking at the two products together, as they sort of go down the path, it seems like - - what are sort of the different performance features contrasting Proclear to silicone hydrogel? It seems like there is more overlapping commonality between the two. Is that a fair way to look at it?

I think it is a fair way to look at it. After all, you have - - patients aren't all together always comfortable or happy with one product over another. That's why a doctor has a number of different products in their bag. It reminds me, one of the fellows that are on this conference call was telling me, he started with night and day and a silicone product. And he didn't like it. And he went to Proclear and he likes it. And I'm sure there are people like my daughter who started on Proclear and didn't like Proclear and she went back to hydrogels. So, I think have you products that you give a doctor, and they can fit every patient need that they have. In other words, they have to have some benefits for everyone. And that's the strategy in why we're bringing our silicone products to the market.

Proclear - - and you're absolutely right, Dan. The data is there. For anybody who wants it on the conference call, go buy it from Health Products Research, you will get the data. And the data clearly says and the beautiful research piece that they have - - or I should say report they have, which is a matrix where you can take any company. I will give you an example. You take Vistacon and you look at Vistacon like the last quarter and you look at the number of people who moved away from a Vistacon product and it will tell you where they went. And in the case of Vistacon, two-thirds of all the people that stopped wearing a Vistacon lens went to another Vistacon lens. Well, we all know what it is. It was probably the silicone hydrogel. So it was a great trade-up value for them. The other almost - - or rest of all the rest of them went to another silicone product from Ciba.

So we didn't gain much from Vistacon, to be frank you with. There wasn't very many people from VistaCon that ended up with Cooper. On the other hand when you went to Cooper, you looked at Cooper, you could look at the Cooper people who left Cooper went to. And it was interesting, 45% of all the people who were on a Cooper lens went to another Cooper lens. Probably was Proclear. We could get that data if we wanted to, by the way from - - they have that data, you can get that data. But you do end of that, you take a look at the number of people you lost. The number of patients that you lost, and you add in all the patients you gained from all the competitors to see if you netted out where you're at. And sure enough, you're right, when you look at that, you come to a very quick conclusion, the Proclear is doing pretty darn well in the face of the silicone products.

They all perform very, very well. And they feel - - in many cases, they perform better than the older hydrogel products when it comes to end of the day dryness. That's where the big issue is. The biggest problem with contact lens wearers, the biggest reason they drop out today, not 10 years ago, but today, is because of this end of the day dryness. They can't wear their lenses. These young people can't wear their lenses 14, 16 hours a day. They can only get up to a certain point and it starts to bother them. And in the old days, 10 years ago, the biggest reason people dropped out of the market was inconvenience. They didn't want to clean them and all that kind of stuff.

Well, you don't have to with the Alcon and the Bausch & Lomb, and the Advanced Medical Optics and the Ciba solutions today. Which are all in one solution. So you don't have to do that, but you still have this problem of the end of the day. Proclear is the only product that is labeled for end of the day dryness. It helps a doctor with a patient like that. It won't work on everybody but some people, it will. The same thing is true with silicones. Silicones may not have the labeling but there is a perception that the silicone hydrogel products also help people that have end of the day dryness.

So the advance of these two technologies, these two materials in this segment of the market, which is still 60% of all of our wearers, called spheres, is it adds the two basic advantages. Number one, you get more for a manufacturer, for a doctor, you get more revenue per patient. But for the patient, for the patient, they're going to wear their lenses more comfortably longer. Instead of dropping out of the market, they stay in the market longer. So there is real value with silicone hydrogels and there is real value with the PC technology. And we're going to play in both camps, not one.

So for the current market environment, though, Proclear has functioned as sort of a bridge to silicone hydrogel? Is that a reasonable way to think about it?

No, not really. I got to tell you the truth. I think we would be okay with PC, with Proclear. With our Proclear technology. But it would be beautiful to be able to add the advantages or the benefits of both silicone hydrogel, which brings more oxygen into the cornea, with the advantage of the PC technology, which really does alleviate people that have dry eyes. And you put the two of them together and I think have you a much better material and that that's where we're going.

And what sort of timing would you anticipate?

Well, that's the product we identify the first half of '07.

'07, yes.

Yes. And it would be a spherical product primarily. But Ted was on earlier and talked about other products. If we could make it with all the different parameters, and keep our costs under control, you could have that product in a toric design or a multifocal design. I think that is the issues.

I will jump back in the queue, but based on what you're saying it sounds like you could get additional trade-up value in a combined Proclear and hydrogel lens.

Yes, you can. You're reading it right. Thank you.

Thanks, Tom.

Jeff Johnson? Jeff, are you there?

I am, Tom. How are you guys doing this evening? A few questions if I could. First of all, I just want to clarify, it sounds to me that you guys are doing two things with the silicone hydrogel lens in the U.S. Maybe there has been a little confusion out there when you bring your first generation of the product - - first generation product to the U.S. market or not. So it sounds like you're confirming you're definitely planning on do. And not only that you're looking to move it up close to six months from what we had been thinking maybe to the middle of '06. Is that correct?

That is absolutely correct. We moved up the silicone and then we added the toric daily disposable for Japan.

And also just, we've seen recently a couple competitors out there with this coming with the oasis lens. And Ciba tried to do what they typically do in those cases. The injunction was not upheld there. Is that at all making you a little more confident in bringing this first generation lens out? Or do you still anticipate there could be some litigation issues?

Well, let me - - I don't want to be too cocky about this. We never felt that we were interfering with their patents in the first place. But it does make us feel more comfortable. Because our product is not a coated product, either. I guess Bob, can I say anything more?

I would say we never felt we would be intruding on their valid patent.

So we're not - - I will point out, in every place that I'm aware of, where Ciba has fought someone else and this is B&L, by the way, head-to-head, and a decision was made, they lost. I think they lost in Europe. And I think they lost in Australia. And maybe they didn't lose. Maybe that was the settlement. I don't know. But the point is, I think if you're on solid ground, in this case, we think we are, and I think J&J, I won't speak for them, they probably think they are, too. We will follow the proceeding there very closely. Now, whether we will get sued or not, I don't know. We like to think that we all don't like to walk around and sue each other for the fun of suing each other. So I will let it go at that.

Fair enough. And you alluded to the price point or you started to and stopped yourself obviously on the first generation silicone hydrogel. But the way Bausch seems to be doing it is a higher price - - maybe on an annualized basis, higher price for pure vision versus as an example advanced or 02 Optics. But then they are also rebating. Is that how you'd to do it to go out there and offer rebates during the first year, issuing at a higher price point? Or would you just come it at an annualized price point in line with - -?

We are going to be competitive, but understand the manufacturing process or the platform in making silicone hydrogel lenses are more expensive than other lenses. And that adds a lot of cost. From a - - what we will do with this lens, anyway, we will do with B&L has done. Which is by the way very closely what we've done with Proclear. And that is market the product as a monthly product. They have a fairly high price point on it. I don't think even with all the rebates they can get it to compete as a - - from a six pack standpoint, with Ciba or J&J. But that's not their objective. I think their - - to be - - to try to be balanced here, I think it is a fair way for them to do it. They believe their lens - - they probably believe - - I'm not going to put the words in the mouth of Ron Zarrella. But they probably have more data than we do anyway. And they know that the typical contact lens patient probably doesn't replace their lenses every two weeks. The data has been out there for a long time.

Typically they replace their lens every month anyway. So they're probably trying to market their lens as it relates to the real world. And the real world is people that are on two week lenses replace them every month, so they will sell it as a monthly lens. So they're trying to, I think, compete that way. I don't think the rebates they give will bring their costs down for a six pack lower than Ciba's or J&J's. And I think it is too early for me to assume how exactly we're going to do it, but we will be competitive in pricing. But we will be more competitive in pricing, quite frankly, Jeff, with our two week product. Hopefully the PC silicone material product that we will have, we hope to have in the first half of '07.

Great. All right. That's helpful. Tom, thanks. And Bob, you mentioned that the foreign currency impact on a quarter to quarter basis, sequential basis, I'm sorry, was about 5 million to CBI.

Yes.

On a year-over-year basis, currency impact was slightly positive?

Year-over-year - - the third quarter was slightly positive. We didn't call out the fact that on a year-over-year basis there is a reduction in revenue in our noncontact lens business, which is - - deals primarily with some solutions or contact lens care products that are dropping off.

Okay. I guess what I'm trying to get to, is the chart you guys have in your press release on the selected revenue data for major products in geographic categories those are reported numbers, is that right, that percentage change?

Yes.

And should we take it down a point or two for a constant currency type number?

Yes, if do you that, you take it down a point or two for that. And then in the prior year, the comp kind of pro forma basis includes the biometrics spheric lens. So when you adjust for that you're closer to 7% to 8% growth year over year.

And Steve as were you talking about the tax rate there, the 18 - - or I'm sorry, the $0.06 impact. And actually Bob I think you were the one that referred to that as the $0.06 on the catch up from 20% to 16%. Was that was that a year to date true-up impact was $0.06?

Per six months impact on the third quarter.

The impact on the third quarter. Okay. So - -

Of the first six months.

Of the first six months. Okay. That's $0.06. So in the quarter, the impact, if you guys had been guiding to a 16% tax rate last quarter for this quarter it would have been a $0.03 to $0.04 impact?

That's right.

And last question here. Tom, I think you talked about before that you may be leaving on the table, is the words you used, I think, in Japan, maybe $30 to $50 million in daily disposables? Is that the number?

I think worldwide, I said that if we had the capacity this year, we probably walked away from $30 million.

30 million okay. And with Menicon - -

I wish it was 50. But 30 sounds right.

Sorry, I didn't have it in front of me. I was going off memory. And Menicon, I know, just released a one day lens in Japan. Does that at all increase - -

It's ours.

Is it yours?

Yes, it is ours.

Okay. Okay. That's - - I just saw that come through and I didn't know if that was yours. Okay. That eliminates that question. Thanks, guys. I appreciate it.

Thanks, Jeff. Peter Bye.

Thanks, guys. Just a couple of quick questions on international business, which seems to be strong. Can you talk about why - - when the inflection point happens in Japan, you've talked about your four prong strategy. But what are talking about timing there? Are we waiting for capacity extension on dailies? And how much capacity are you putting on? What comes on line at year end. Can you quantify it?

Can we give you an idea, how we quantify that how many lines are coming on? Each line does about 50 million lenses, I will tell you that. And we will - -.

The answer is more complicated by the fact that there is some - - to some degree, a shift in mix, in the packaging. Which means we've got to take a - - kind of a step back before we take a step forward in some areas. But Tom is right. Each line that comes on will add about 50 million in capacity per line. We spent 37 million this last quarter. I don't know the exact amount that is the ordering of the lines and getting them in. But we will be adding at a minimum two lines by the end of the year in terms of capacity. Some of it is a balancing act, because we have obviously other products that are coming out, which includes the silicone hydrogel and that means line building. Hold on.

We are adding two lines, two lines by the end of this year, this calendar year. And we add three more lines during next year. So that's another 250 million of salable product that we will have.

Right.

So it is a rollout, Peter, but it is going to rollout in a way that we will be able to take care of the Japanese launch of the single use toric. As well as the U.S. and European launch of the Proclear daily disposable.

And then just - -?

And then quite frankly I will add one more thing. I've said it publicly before, anyway, from a competitive standpoint. But we're definitely believe there is a big opportunity with private label single use, too. Go ahead.

And just on benefits of - - your strategy in Japan. I mean you've talked about it being in '06. Just sort of why is it sort of - - that's the point that reaches the inflection point? What happens then? Or what are we waiting for?

Two things have to happen. And that is, the availability of product to give both to Rohto, AVO, and to Menicon. Now we've - - someone asked earlier, I forgot who was on the phone a minute ago. But Jeff, I guess asked about Menicon. But we have given Menicon the daily - - the single use product. We will be giving them a two week product in '06. And we are in the ability to do that. Part of it was capacity. But the biggest part of it was the Ministry of Health. Getting through the regulatory problems and we have gotten through that. So we are going to be in a position to start launching that - - I feel a lot more optimistic about today, I will be quite frank about it, than I did 30 days ago. So we feel - - am I right, we feel better about that? Greg walked into the room. I think we are much more comfortable about that. So I - - that's why I bring up the Japanese issue in the Far East as as well as China and Singapore.

And then where are you in Europe on going to distributor direct? Is that still an '06 event? Or is some of that already happening now?

Yes, Greg just walked in. Greg Fryling.

Basically, the biggest market opportunity we had to go direct was in Germany. Where Ocular was direct and we went through distributors. And we've completed that transaction over the last couple of months. So they are becoming much more familiar with the Proclear product line, the sales force in Germany. So we're just starting to see the pickup on that. In some of the other markets, with our wide range of products, we're letting the distributor sell some products in the market and we're going direct with others. Germany was the biggest opportunity we saw. And obviously, Japan is a big opportunity. But again, we're waiting for some additional regulatory approval in '06 to broadening our product line for our direct force in Japan. So those are the two biggest ones.

For what's left on on your guidance - - what are expectations for those products in Japan that you're waiting for regulatory approval? Conceivably what is at risk if the Ministry of Health and Welfare sits on their hands as they've often done in the past?

I don't know the answer to that.

I think there is a stepped answer. There is no one product that is a make or break. There will be a rollout of the one day, which is a capacity hurdle. Then you also have certain materials that will be made available to the organization we acquired from Ocular that - - there that already approved. It is just a matter of working through that with some of our different distributors there. Then you have another way, which we will call it technology such as Proclear technology, that is maybe more regulatory required, if you will. Meaning there are more steps to go through on that one. But that is not targeted to impact '06, for example.

I mean just ballpark, regulatory-wise, we have no more than a couple million, $2 or $3 million of revenue that we're hoping to get an approval on products towards the tail end of next year. So I don't think it is going to have a significant impact in '06. I think in future years, it gives us a lot of growth opportunities. And so we're counting on it probably more as a major driver in '07 than we are in '06.

And then could you just - - you said Germany was the largest, sort of the six that you had outlined previously, is that 20%, 30%? Give us a ballpark on that. And I guess that starts hitting probably really there quarter and then going through '06?

Yes, we will start seeing the benefit of it in quarter - - the fourth quarter. In regard to trying to quantify it, I really don't have the specifics to give you that at this point.

Okay. Thanks. I will jump back in queue.

Okay. Thank you. Joanne? Joanne, are you there?

How are you?

Sorry I made you wait so long.

That's okay. I've been patient. Good information. I'm going to turn to something no one has touch, it's CSI. Can you give us an idea where are you in terms of acquisitions for that division? And how you're thinking about that groat rate over the next couple of quarters?

We have - - we are working on four right now. I can say that? No, I can't say that. We're working on them.

This year is been, let's call it an integration realignment year. We will - - let's just put it this way. We haven't run out of ideas of things to acquire. But I don't think we should go much further than that right now.

I probably went too far, anyway, Joanne but I typically do. The other - - the good thing about really - - the good thing about Cooper Surgical is you're seeing the leveraging now, and the operating margins. These guys are very confident that the operating margins in that business will be back in the mid-20's after the commitment we made, the financial commitment we made to build up that sales force. We have over 100 sales people in the field now at Cooper Surgical. And we're getting those results from those promoted products, our core products and I think that is the important thing.

That's very helpful. Also, I don't mean to be dense but I'm confused on the foreign exchange impact to your top line and your CVI business. We've tossed around a couple of different numbers and year to date numbers.

About $5 million.

Refresh my mind.

I think it was Jeff that probably asked - - or maybe it was someone before him.

It was Jeff.

The sequential impact is 5 million. Meaning ahead we had the same rates that we did in the second quarter, if you look at things on a run rate basis, it would be 5 million higher. The year-over-year, there was a slight pickup of 1% to 2% on the product sales year-over-year. Which was obviously then negatively impact the year-over-year growth. And that's where we basically say if you take that, and you adjust for the product launch, the new product launch of the Biometics spheric in the prior year and their second quarter, then you would come up with a 7% to 8% organic currency growth rate range.

Okay. That's it. Thank you very much.

Thanks a lot, Joanne. David maris. David, are you there?

Yes, I'm here.

Sorry, David. Go ahead.

A couple of questions here.

Shoot.

First, you can give us a sense of CapEx for the year, free cash flow for '05? And given that you are building up the capacity now, for '06, rather than just - - maybe if you can give specific guidance, great. If not, should the trend be down or flat? And then secondly, one of your competitors during the quarter said they were delaying a launch because things were going so well with another product. Can you just touch on whether - - what are you seeing in the marketplace going on there?

I will answer the second one first. I love that one. It sure doesn't show up in the market research we buy. I don't know. I think there is other issues there. That's for them to decide. And I shouldn't comment any more than that. But - - and I know the one you're talking about. The other one, though, before Bob says something, I'm going to say something else too that I have said before. This business in '06 to '08, those three years, David, are going to generate about - - something north of 900 million in cash. And we're going to have, in that same period, about 300 million that we will be spending on CapEx. Bob and Steve can respond to that.

Which means they will give us in excess of about 600 million in cash from '06, '07, and '08, you add the three years together. Now, if I look at CapEx this year, I don't know if we're going to make that 100 million CapEx this year or not. But we're probably definitely going to spend over 100 million, maybe 100 to 110 million next year in CapEx. And the majority of that, about 80% of that will be for capacity. And transitioning to gen 2, for - - and building up our single use manufacturing lines.

Going beyond that, I would expect our CapEx to decline a little bit. Probably - - I will let these guys get very specific but I think in the 75 to 80 million a year. So that's why I say, I put the three years together, '06, '07, '08, probably we're going to spend something like 300 million of CapEx, most of that is obviously all CooperVision. There will be some IT expenses in there. But most of it will be for capacity an transitioning either into gen 2 or building up a new platform for our silicone hydrogel products. Now did I get most of that right, Bob?

I would - - I think in general, this year is going to range around 105 to 115 in terms of CapEx. We've had free cash flow year to date of 43 million. We spent 37 million this last year - - last quarter on CapEx. And we would expect to be slightly positive in terms of free cash flow in the fourth quarter, and so is CapEx expectations. Right now, we're in the mode of trying to build up on three fronts. Front number one is clearly the one day where we're capacity constrained. Front number two is the version. And front number three is silicone hydrogel. And that's building plant capacity. That will mean that next year, we will be higher than this year in the range of probably one - - maybe a little north of 125, approaching the 130 range. And then it will start dropping off after the end of '06. I think if you look at free cash flow over a three-year period, we will probably generate free cash flow in the neighborhood of north of 300 million. So that that will give you some idea of the amount of operating cash flow we expect over that time frame.

My last question is - - seeing as that you're not at all having a solutions business, and any plans on trying to partner with someone for a solutions business to rectify that if you do think that it does hold you back at all?

I will answer that. I think Alcon and Alergan proved that you can build a solution business without lenses. And there is probably good examples, if you build a pretty good lens business, a company called J&J and they didn't have a solution. So I think the answer to that is that at this point I don't believe we're weak because we don't have solution. Whether we will in the future partner up with someone to do co-promotion, which we have, by the way, with B&L, at one point. Small, we did a test with them, anyway. And we might do something but at this point, we have no plans.

All right. Thank you.

Is that okay? Okay, thanks, David. Bener(ph) , are you there? Bener?

Okay. Just a quick question. Again, on FX, And I know you mentioned that - - sequentially I guess the second quarter the difference off the change had an impact of a about 5 million on the top line. And as I look obviously at the guidance that you provided on June 7 and where are you today, that would explain part of the difference. The reason I ask the question, is I'm trying to get a sense for when you issue guidance now for the fourth quarter and next year are you looking at where the exchange rates are now? Or where they were in the prior quarter? Because I would have thought on June 7 you also would have accounted for some of the move between the end of - - I guess the second quarter and when you reported.

We clearly aren't getting into forecasting guidance guidance. And we also learned our lesson a little bit about not changing the guidance once a week for foreign exchange. Because we easily could have fallen into that trap and maybe we did. But the guidance we gave is really predicated on where we were kind of tracking year to date. And since then, there are two phenomenas that have occurred. Clearly, in the third quarter, the dollar was strong. Then came Katrina and the dollar isn't quite as strong. Where it goes from here, don't know. But as we sit here today, the guidance is probably much more representative if we use today's rate to what we used in that '05 number. Meaning using the year to date guidance.

So we should assume then that the guidance for the fourth quarter, for example, would be based on where the rates are at this current point in time?

It is closer to, yes, clearly closer to where we are today.

Okay. And then one additional question. I know you mentioned that - - and Tom gave some great examples as to why this inventory issue is most likely behind you at this point. And to me, that makes a lot of sense. I'm just trying to get a sense - - I know you mentioned in the prior quarter, you kind of quarter you kind of quantified what the impact might have been on the top line from the channel inventory issue? And was there some impact in this quarter?

Yes, I think some of that was what we still saw in our May - - I want to say first 45 days of the quarter, there was still some pipeline shrinkage going on. But I think that is all where we're tracking now behind us.

So it wouldn't have been as large as last quarter but there was some impact there?

No.

Okay. Thanks a lot, guys.

Okay. Thank you. We've been on for an hour and a half. I think it is - - if anyone else is still on, let's close this down now. And have them give us a call if they want to. We will be here to answer any questions they may have. But I think we are finished with the calls. We are all getting a little tired. It's got to be what, good God, it is what, 4, 5, 6:30 or something like that. Okay?

Okay, great, sir. Not a problem. Thank you, ladies and gentlemen for your participation in today's conference. This concludes your conference call. You may now disconnect. Have a good day.