酷柏 (COO) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2006 Cooper Companies third-quarter earning conference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Norris Battin, Vice President of Investor Relations and Communications. Please proceed, sir.

Thank you very much, welcome, everybody, to the call today. With me today are Tom Bender, our Chairman and Chief Executive Officer; Bob Weiss, our Executive Vice President and Chief Operating Officer; and Steve Neil, our Chief Financial Officer. But before we get started I'd like to remind you that this conference call will contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Including all revenue and earnings per share guidance and other statements regarding anticipated results of operations, market conditions, and planned product launches.

Forward-looking statements necessarily depend on assumptions, data, or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions as a company to differ materially from those described in forward-looking statements are set forth under the caption forward-looking statements in today's earnings release and are described in our Securities and Exchange Commission filings including the business and risk factor section in Cooper's annual report on Form 10-K. These are available publicly and on request from the Company's Investor Relations Department. And with that, I'd like to turn the call over to Tom for his opening remarks.

Thank you, Norris. And thank you for joining us this afternoon. Before I turn this over to Bob and Steve to give us the particulars for the third quarter, I'd like to go over some of the highlights and some of the important topics that all of you are waiting to hear from and certainly waiting to hear what I have to say about the progress we've made this quarter. First of all, let me talk about the manufacturing status of both our silicone and daily disposable conversion projects because both of those are extremely important to our business as we go forward into 2007 and certainly for the fourth quarter of 2006.

I think as you know we have launched Biofinity both in the US and Australia on a limited basis. We have two groups of practitioners that are using Biofinity, one for the clinical work needed for the approval of our extended wear claim for Biofinity, and the other group, of course, are for influencing practitioners here in this country as well as in Australia. On top of that, the conversion from -- to our new packaging for our single-use product is on schedule, and we still remain confident with the full launch, by the way of Biofinity as we have stated in the past by the end of this year.

I think revenue at CooperVision, I think I'd like to focus on a couple points. Number one is from a sequential standpoint, we have improved sales 7% this quarter from second quarter. In a market that grew 5%. So if you look at it from a global basis we actually grew faster than the market from a sequential standpoint. Secondly, I'd like to point one more thing out when it comes to currency. Currency helped the market. The overall market grew 4% in the second quarter, but it was helped by currency by 3% which, of course, ended up with a market that grew 7% in constant currency.

At Cooper it actually hurt us, and that's because we're not a calendar reporting company. Obviously we're a fiscal reporting company. What that really means is next quarter currency will be reversed. That is currency will be a help to Cooper as we report our earnings and probably -- and definitely for the market it probably will be a negative.

Lastly I wanted to point out some points about Proclear. Our Proclear product line especially in the US, but it is true globally, too. In the US now, Proclear represents over 20% of CooperVision's sales, and the sales across all product lines within the Proclear product category continued to perform very well. From a quarterly standpoint, Proclear was up 35% in the US, and it's up 43% year to date. The sphere of products grew 26% in the quarter and they were up 31% now year to date. Our toric Proclear product were up 42% in the quarter, and are up 36% year to date. And of course the multifocal Proclear product is doing extremely well. It was up 87% in the quarter, and it's up 171% year to date. So Proclear is a -- continues to be an important part of our business going forward as well as the expectation of our so-called product that we'll be launching, with the full launch in the US by the end of this year, the first of -- first of next year.

Let me talk a little bit about the toric update, about our toric business I should say. Again, if you look at our business now, our toric business has changed dramatically over the last two to three years. More -- in fact, more now than 50% of our toric business in this last quarter are sold outside the US. Basically if you look at it year to year basis, it's about a 50/50 split. And if I look at this -- at the toric market year to date, the overall market is up 11%, and Cooper is up 7% with our toric on a year-to-date basis. In the US, the toric market is up 17% year to date, and Cooper is up 1%, but in the rest of the world, the market is up 9%, and Cooper is up 14%. So you can see where we're losing share and where we're gaining share. In the second quarter, the toric market was up 9%, and Cooper was up 7%. In the US, the toric market was up 16%, and then Cooper lost 4%. We're down 4% in the second quarter. In the rest of the world, the toric market was up 3%, and Cooper grew its toric business 25% in the rest of the world.

Just another view on what our strengths and weaknesses are. There's absolutely no doubt that the US market and the toric market has been impacted by pricing, unfavorable pricing. That is because between J&J and Bausch and Lomb, there is an absolutely huge trade up in the value of the toric market. That is the price of a six pack of toric lenses from J&J are more than 20% higher for a silicone product and for B&L it's almost 50%. I think it's the difference between $20 and $41. It's a huge difference. So if you can move a patient out of a traditional hydrogel toric, a disposable product into a silicon product, there's a big uptick in pricing and certainly we see that in the US market.

From that let me go to some progress that we're very definitely making on the integration front -- in integration. And certainly that is targeted on the distribution part of what's going on with Cooper. The consolidation in the US has absolutely come together. That is, we're now in the process of shipping both the old ocular and Cooper product now out of Henrietta. We'll have that completed, everything will be complete by the end of September. But it's absolutely right on target. And if I look at the consolidation of distribution both in the UK facility as well as the continental European facility in Liege, in Belgium, we believe we're well ahead of schedule. So the distribution consolidation program is part of the integration program, it's well ahead and doing very well.

Let me spend a little bit of time like I always do on the market update, the overall market update. I gave you some view of it already, but as I pointed out, the market was up for the quarter 4%. 7% in constant currency. The Americas were up 9%. Europe was only up 1%. Asia Pacific was up 8%. Understand some of the ins and outs of the market and why product mix is so different for different parts of the world.

In the Americas, the growth is driven by silicone hydrogel lenses, there's absolutely no doubt about that. More than 40% now, or right at 40% -- actually 37% at the last quarter of all sales in the Americas are silicone hydrogel products. In Europe it's 18%. And in the Asia Pacific market, which is 33% of the world market, it's only about 2%. Now here's where the change is. If we take a look at now what then is driving the European Asian markets, then we take a look at this, the single-use market, that is the daily disposable business in Asia Pacific represents 60% of their overall business. In Europe, it's 40%. In the Americas, it's only 8%. Bottom line is if you're going to compete and compete effectively in the world today, in the market, you better have a good, single-use product or 60% of the world, and you better have a silicone product with 40% of the world.

One more thing that we have I believe this quarter that we have -- we've never had before, and that is a complete transparent picture of the Asia Pacific market. We've usually in the past really only had good Japanese data and just the overall Asian market and didn't have it really broken down very much. So I'd like to give that to you. It's good for you guys that like to model a little bit. 86% of the Asia Pacific market is represented by Japan, Korea, Taiwan, and China. Of that 76%, 75% of it, of course, is Japan. Japan's the big part of it. Korea and Taiwan are both equal. They're about 11%. China with a fairly small number, it's only about 2%.

The other part of the market is that there's very little silicone hydrogel product being sold there. You'll figure that out in a minute why. But most of that is in Korea. There's really nothing in Taiwan. Nothing in Japan, and extremely almost nonexistent in China. Single-use products, our daily disposable products represent 60% of the Japanese market. It represents 80% of the Taiwan market, 70% of the Korean market, and even 17% of the China market. So you can see single-use products in Asia-Pacific, they're extremely important.

Let me now talk a little about silicone. I always give you pretty good data, I think, on the -- probably most of it's represented in the press release, but I'll give you some silicone hydrogel data that I think you want to hear. The overall market now for silicone hydrogel represents about 22% of the market. And that's -- I'm talking about revenue right now. So 22% of the revenue of the overall global market is 22%. In the Americas, though, it's 37%. And I think I just gave you this 18% in Europe and 2% in Asia Pacific.

In the last four quarters in the US, I will give you that. If I go back to the third quarter of 2005, silicones represented 28% of the revenues in the Americas, represented 30% in the fourth quarter last year, 34% in the first quarter, and 37% in this quarter. To give you an idea how it's growing. If I look at it by product category, 55% now of all sphere sales in the US are silicone hydrogel products, and about 20% are toric products, and really it's sort of insignificant for multifocals. It's only J&J -- I'm sorry, only B&L that has a product out, and I think it's about 2%. So we've given you a lot of data. We've made a lot of progress in the third quarter. That specific product progress I think I'll turn it over to Bob and Steve, and they will get you up to date.

Thank you, Tom. And good afternoon, everyone -- or good evening, as the case may be. The highlights of the quarter clearly a revenue of $226 million was 1% above the prior year's third quarter with CooperVision with 194 million of revenue, down 1%. And CooperSurgical with $31.6 million, up 17%. Overall, earnings per share was $0.45, which included $0.34 of items that are called out, primarily restructuring of the business realignment as well as the exiting of our CooperVision Surgical business.

In terms of ballpark numbers, about $0.17 of the $0.34 is restructuring, startup, and realignment, which included silicone hydrogel startup. The conversion of our single-use lenses from card to blister, the consolidation of our distribution centers from 25 with the objective to get -- 21 with the objective to get down to 5 by the end of '05 -- I'm sorry, '07. As well as the shifting of our manufacturing for Proclear to the UK while we start it up and launch the XC product in the United States. So there was a lot of activity there, and that translated to about close to $9 million of startup and realignment costs. In addition, the exiting of our CooperVision Surgical business and phasing out of certain products was about $5 million or $0.10, and then other related items, we called out, legal and foreign exchange, were around $0.02. Stock option is about $0.05. That's your $0.34. Excluding that amount, that of course would add to $0.79 and with stock option expense, $0.74 in earnings.

That compares favorably to our second quarter as far as sequential progress is concerned, which -- wherein we reported $0.67 excluding all nonrecurring or call-out items, and $0.61 with stock option expense. Once again in Q2, '06. Sales sequentially improved $15 million and about 13 million of that came from CooperVision and 2 million from CooperSurgical. About 5 million of the Cooper Vision improvement was the progress we're making with the single-use strip blister that we now are in a -- a startup mode in terms of production and making good progress there, as well as about $5 million improvement of Proclear materials, PC material that we are, of course, emphasizing for the nonsilicone hydrogel portion of the market. Overall, our operating margins excluding the call-out items was 22% compared to 21% in the second quarter of -- in the prior year. So I think we are headed in the right direction.

As far as highlights at CooperVision, as I mentioned, Cooper recently had 194 million in revenue, down 1%. And 2% in constant currency. Core product line improved 4% above the prior year in constant currency. Single use which is 13% of our overall revenue was up 5%. Torics which account for 35% of our revenue was up 4%. Once again in constant currency. Multifocals which represent 5% of our overall Vision business were up 19%. And importantly, PC materials which now represent 20% of our total vision business were up 31%. We of course think that when you look down the road at the marketplace towards the end this decade where some analysts have predicted half the market could be in silicone hydrogel and the other half of the market would be in what's known as we're now called conventional hydrogels, that the PC material will play well in that part of the business which should be about a $3.5 billion market as we exit the decade.

As far as geographic profile is concerned, the Americas were down 6%. They account for 47% of our market. And of course that's where if we look at the Americas, 75% of the market for silicone hydrogels is resident in Canada and the United States. So it's pointing itself out heavily there. We, of course, have the Biofinity product that we recently launched in the United States, and we'll be introducing silicone hydrogel torics as well as next generation silicone hydrogel next year coupled with the continuation of the rollout of Biofinity. So that will be addressing the Americas. We clearly have held our own in Europe which accounts for 39% of our sales and was up 4% in constant currency. We gave up some ground in Asia Pacific which now accounts for 14% of our business and was down 4%. And there we're -- it's a function of timing of our one-day strip blister coupled with some of the new products that we have now gotten approval to sell in Japan, arriving really late in the cycle, and have not had a combination between silicone hydrogel lenses in the US and the Japanese new products have not had a substantive impact on our third-quarter results.

New product year to date. We have launched six new products, and anticipate launching six more by the end of the calendar year. And another four new products in 2007. We are -- from a capacity point of view, obviously we spent a lot of time in the second quarter talking about it's one thing to launch the product and certainly another thing to gear up on capacity. As I mentioned last time, our XC product which we launched in January, we tripled the capacity by the end of May of this year, and now we're in a mode of rolling that out around the world, with the exception in Japan where it requires separate regulatory approval. In the case of the strip blister we are still on target for completing the conversion from card blisters to strip blister for once again the single use or one-day lens, and anticipate being complete with that conversion by February of '07. In the case of silicone hydrogel lenses, we still anticipate having enough lines in production by the end of this fiscal year to be able to sell $40 million in volume and revenue dollars in volume next year. And we'll continue to expand that capacity throughout 2007.

CooperSurgical had revenue of 31.6 million for the quarter compared to 27 million of the prior year, up 17%. And importantly had 8% organic growth which compares to 4% organic growth in the second quarter. So we are clearly getting some momentum sponsored by some of the new product acquisitions we made. Inlet has had an outstanding quarter with 3.2 million in revenue and is now achieving a run rate of $13 million annualized. And we will be watching our Neosurge product line, which is a so called access system used in laparoscopic surgery. We will be launching a redesigned product in November of this year. So going forward, we're optimistic about those products and their contribution to our surgical business.

As we indicated in our press release we made a small application in August this year, called Select Medical, which has a product sector called Sperm Select Systems which is used in the gynecologist's office. It only has about 1 million in revenue, but that acquisition will be accretive and fits our surgical business in the office very nicely. Restructuring and synergy, we still are on target to achieve in excess of $50 million in synergy by the end of '07. Thus far, the restructuring that is occurring this year which includes the consolidation of distribution centers in the United States and Europe from 21 down to 5 by the end of '07 will result in 15 million of synergies, both the distribution centers as well as the reorganization that occurred in the United States that we announced in May and June. So that's 15 million in annualized savings on top of about 25 million from last year brings our run rate savings to 40 million by the end of this year, and we anticipate the next substantial improvement will be a result of the continuation of conversion of manufacturing converting to Proclear material as well as XC as well as frequency 55, CooperVision product lines onto Gen II. That will happen throughout latter part of '06 and throughout '07. We will not see those benefits which will exceed $10 million until it flushes through inventory. And of course we have about close to eight months' inventory on hand. There will be a lag and most of those benefits will show up in fiscal 2008.

CapEx we spent $43 million in the quarter. And we clearly are spending capital prudently, but we're doing it as fast as we can to address capacity issues. 70% of that money that we're spending which will be about 150 to 160 million in CapEx in this year. And a similar amount next year, maybe a little bit less. 70% of that is capacity expansion. 30% of that is conversion, leveraging Gen II as well as the distribution center consolidation and IT which is being rolled out around the world. So our capital remains a focal point this year and next year, and we're happy with the progress we're making with a lot of that -- those areas that are addressing capacity expansion.

Guidance, we pretty much stuck to our previous guidance with the exception, we took a lid off the top end both on the revenue side which we had guidance of 878 to $911 million. We've narrowed that range to 878 to $900 million. That would mean we're anticipating in the range of 235 million to 257 million in revenue in the fourth quarter. That would be a $9 million improvement at the bottom end of that range compared to the third quarter. And keep in mind we made -- we improved $15 million in the third quarter over the second quarter. So we think that that is a realistic range. Relative to earnings per share we are anticipating $2.85 to $3.10 excluding the call out items, identified items. And we did make a change to the GAAP number which reflects the restructuring events that took place in the third quarter and the divestiture of the CooperVision Surgical businesses. And as a result of that, that shows up in the GAAP number. We narrowed the stock option expense number slightly to $0.25 to $0.30 down to $0.25 to $0.28.

As far 2007 our guidance remained unchanged. Keep in mind we do not give guidance on a GAAP basis. We gave you revenue guidance of 948 million to 1 billion and earnings per share excluding the call-out items of $3.35 to $4. We did narrow the stock option expense number which is not in those guidance numbers from $0.35 to $0.40 down to $0.30 to $0.35. I think having said all that, I'll turn it over to Steve, who will talk a little bit more in depth on some of the numbers.

Thanks, Bob. Good afternoon and evening, everyone. Looking at gross margins, third-quarter gross margin as reported was 61%, and when you exclude the 5.3 million of identified items was 63%. As Bob mentioned, the identified items in the quarter were principally corneal health product phaseout costs and acquisition and restructuring expenses. This resulting margin of 63% is down from 66% in the third quarter last year on a comparable basis as product mix changed to a higher percentage of single-use lenses, which have a lower gross margin, and as production and efficiencies flowed through cost of goods sold. The production inefficiencies relate to the implementation of our ocular integration plan and will begin to experience manufacturing efficiencies in the second half of next year as product moves to the new production and efficiencies flowed through cost of goods sold. The production and efficiencies relate to the implementation of our ocular integration plan and will begin to experience manufacturing efficiencies in the second half of next year as product moves to the new production lines and flows through to cost of goods sold, as Bob noted.

Looking at margin for CBI, excluding the identified items, the gross margin in the quarter was 64% compared to 67% last year. And again the decline between years was due to product mix and then production inefficiencies associated with the integration. Specialty products increased on a constant currency perspective from 49% last year in the third quarter to 52%. However, the favorable product mix was more than offset by the increase in the single-use sales, as well as the production inefficiencies. When we say inefficiencies, it's basically a product continues to be manufactured across multiple manufacturing platforms and staffing is also being put in place in advance of new production capacity coming on line. So you end up having a higher unit cost than when you're on identified and specified product lines with the identified staffing.

Looking at CSI, CSI reported a gross margin of 59% which increased from 58% last year. And that shows -- continuing to show the benefits of CSI's integration activities that were done last year and frankly, higher margins from Inlet sales which we acquired in the first quarter.

Moving on to SG&A costs, selling general and administrative costs were 40% of sales in the third quarter, compares to 42% in the second quarter and 36% last year in the third quarter. Included in this year's expenses are expenses that are not comparable with last year. And as Bob mentioned they include stock option expense, corneal health product phaseout costs, distribution center consolidation costs, acquisition and restructuring costs, and litigation expenses associated with intellectual property and securities litigation. These extraordinary items are unusual items as we identified and call them out, totaled 6.7 million in the quarter and represent 3% of sales. On a comparable basis with last year our SG&A as a percentage of sales was up 1%, and that reflects spending to support the many new product launches, again as Bob mentioned.

R&D expenses were 3% of sales in the quarter, and that's the same as the third quarter last year. As we continue to support product development activities on a number of fronts. That all sums down to operating margins as reported of 14% and specified items as noted above had an impact on operating margins of 8% in the quarter. On a comparable basis, this adjusted operating margin of 22% compares to 26% last year. Looking at the business unit operating margins for CBI, CooperVision, operating margin reported was 17% which included the specific items noted which affected operating margin by 8% of sales. That's on a comparable basis. Operating margin was 25% compared to 29% last year. And again the items affecting margin in the current year are product mix, the manufacturing inefficiencies associated with the integration plan, and spending in advance of new product launches.

For CooperSurgical that business unit, our operating margin as reported was 18%. And when you look at it before stock option expense, it was 19%, which is comparable to the operating margin last year. And recall that stock option expense is only in this year's numbers, not in 2005.

Moving on to interest expense. Interest expense increased 400,000 in the third quarter from last year to 8.5 million, reflecting higher interest rates and higher borrowings used primarily to fund the CSI acquisitions, and those items more than offset the impact from our refinancing in the first quarter which lowered our overall interest rates. Income taxes for the quarter, the effective tax rate was 13.6%, reflecting the cumulative effect of increase in the projected tax rate from 11.4% in the first half of the year to the current forecasted rate the year of 13%, and for you tax gurus out there you know that the effective tax rate is based on forecasting the full-year rate. So you continue to update that as your forecast changes for the year, which was -- caused that increase. The 13% compares to an effective tax rate last year of 16%. On the third quarter last year, we actually recorded a 1.6% credit or tax benefit. And that was because of certain discreet items that flowed through the tax provision in the quarter. Again last year effective tax rate without the discreet items was 16%, that compares to 13% projected this year, reflecting increased business in lower tax jurisdictions.

Overall net income for the quarter was 21 million or $0.45 and that included 15.9 million or $0.34 per share net of tax of specified items. Again, these results were in line with our expectations for the quarter. And as Bob noted, we have adjusted the upper limits of our guidance for the full year to reflect current estimates of the integration expenses and expected proceeds on disclosing our corneal health product lines.

Turning for a moment to the balance sheet, certainly some strengthening in the balance sheet we saw during the quarter. Our day sales outstanding were 58, compared to 65 last year and 61 last quarter. Overall we expect the DSOs generally to be in the mid to upper 60s. But it definitely a good quarter on DSOs. Our inventory months on hand declined to 7.7 months from 8 last quarter. There were 7.1% in the third quarter last year. This year we've built inventory to support our new product launches and prepare for the distribution center consolidations. Inventory remains at expected levels, and we expect our months on hand will continue to be higher than normal as we work through the inventory build for new product launches and our distribution center consolidations. After 2007 we should see the months on hands decline.

As Bob noted, capital expenditures were 43 million in the quarter. We spent about 129 million through three quarters and continue to expect somewhere in the range of 150 to 160 for all of 2006. And when you look at our net debt levels, that's borrowings outstanding less cash, net debt increased 6 million in the quarter. Overall it's increased 72 million since the beginning of the year, and this is primarily to fund the CooperSurgical acquisitions of Inlet and NeoSurge as well as funding capital expenditures. In the quarter our cash flow from operations was $41 million and that compares to the 43 spent on capital expenditures. With that I'll turn it over to Q&A, enough numbers I think for this time. Back to you Tom.

Well, we're ready for questions, Mr. Battin, I'll let you run with this.

Thank you. We're ready for the Q&A session.

[OPERATOR INSTRUCTIONS]

On the first question from Milton Hsu. Hi, Milton.

Good afternoon, guys.

How are you?

Good. Tom, can you just talk about maybe just from the standpoint of Biofinity manufacturing yields in a number of lines and maybe if you could just give us a send of when you expect, you know, additional -- a sense of maybe when you expect, you know, additional lines up by what month through the rest of this year?

Let me turn that over to Bob. But I -- how do you want to handle that? We have--.

Let's put it this way. On lines we've talked about our objective to have nine lines by the end of -- the end of '07 in place. We are still on track to do that. We will have enough lines on track operating by the end of October to be able to sell 40 million. I don't know that from the point of view yields, they obviously start out at fairly low numbers. I'm not going to get into quoting back yields because everyone will be locking in on every number along the way.

So I think important -- our important message and we want to keep this at the 50,000-foot level is we are on track to deliver the revenue we want. Is there some conservatism in the $40 million number relative to what we make next year, we certainly expect to be able to make a lot more than just the ability to sell $40 million in revenue. I think aside from that, unless Tom really wants to drill down further on when lines are coming -- coming on -- I think you'll clear that.

Yes. I will say this, though, we have now two lines up, and I think as we've said in the past, just about every month beginning now to the end of the year we've got another line coming up. And we do have the machinery all in. It's not one of those issues at all. It's now an issue of ramping up. And the product I think you know is in the marketplace. There's two groups of practitioners that are working with it, and we've done the same thing in Australia. And the reason I bring up Australia, it's probably the only silicone market worth a [Expletive] in Asia Pacific. The rest of the silicone markets at this point are either here or in Europe. And again, when you look at the European market, you have to understand that it's still very highly weighted towards daily disposable.

The only other thing I'd like to add to that is, you may have -- if you read the fine print of the press release, you'll see that we're more bullish in the way we categorized our hurdles in terms of capacity. As we entered the third quarter, there were a number of challenges, and I won't get into all of them, that dealt more with the material itself, so the uniqueness of the silicone hydrogel material in terms of production. We have overcome a couple of what we'll call silicone hydrogel unique challenges and that is good news. What we're talking about now is more routine, more normal startup rollout challenges that it is the uniqueness of the material.

Okay. Great. And then just Tom, a quick question here. Do you think the first Biofinity product, the extended wear, is going to be enough to stabilize share, or will we start to see that after you've launched the toric, and then the two week? Thanks.

I think it will be enough to stabilize because it's one reason why I wanted to draw out the Proclear results. I think, first of all, the two things that -- maybe it's our fault, too, that we don't focus enough upon. And that is that the worldwide market for contact lens is not just in the US. This is 36% of the world market. Let's all of us understand that. And there are different drivers in different parts of the world.

On top of that, I think the fact that we have now not only a silicone hydrogel product in the US -- and I think by the way, Milton, there's a misunderstanding somewhat on the way this product is going to compete in the marketplace. Let's all of us understand that by far and away the most successful product in the market, in the product that's taking everybody's share is Oasis from J&J, a high-priced product, guys. Let's understand that. It's a high ARP. And our intention with Biofinity in the US is to price our product in that same category. Whether you call it a monthly or a two-week or a three-week or two day, whatever the heck you -- doesn't make a difference. A six pack of product at a certain price is a six pack of product at a certain price. And the Biofinity will be priced competitively with Oasis, and I think you guys, a lot of you guys have -- know about the quality of this product.

We're very bullish on this product and how it's going to compete from a standpoint of competing with any of the products in the marketplace today. So it's going to be priced competitively. And it's not a pricing market. If it's a pricing market, Oasis wouldn't be eating everybody's lunch. Their product is, quite frankly, priced 25, 30% higher than the other silicone products in the marketplace with the exception of PureVision. So its performance means so much in the contact lens market. It always has been. And as long as you don't have your product priced crazily priced, I don't think it means much. And we think with Biofinity that we have a product that performs pretty darn well. So I think we're going to be fine.

The combination of Biofinity and the fact that Proclear fits very nicely in this marketplace. Between the two of them we're going to solidify our market position in the US, and quit this sliding. But it's going to slide until that time comes along. And by the way at toric, you bring up a good point about the toric market. Interestingly that with HBR data, you can see that we're holding on to market share in offices. Somebody says well, what the heck does that mean? We see you guys losing, your sales down in the US, and yet you're holding share, how in the heck can that be? Well, think about it for a minute. You've got silicone hydrogel products in the toric market that in the case of D&L as an example, my God, they're priced to almost 75% higher for a six pack than soft lens 66 toric. So what a switch that would be. And the same thing with J&J, it's a real markup. You're going up 25%, going from an Accuvue toric to an Accuvue AAA. We do call that? Accuvue for astigmatism or whatever they call that thing. But the point is that there's a lot of trade up value in the market.

And with Cooper II we're somewhat hindered in the US market because we still have about 25% of our business unfortunately in the old conventional side of our business. And it's going away. So if you look at our disposable business in the U.S., we look pretty darn good, right about with the market. But if you put the conventional piece of it in, it brings our overall sales down and there's not much you can do about it. The old bio business and the old quarterly plan replacement business we have is going to go away, and so I don't know. I'll try to answer it in a lot of different ways. But I don't know -- did that confuse you?

No. That's good. Very thorough. Thank you.

Thank you. JoAnn? Are you there, Joanne?

I'm here. Can you hear me? In your guidance next year, how much revenue have you put in for silicone hydrogel sales?

About 40.

So you assume the full 40. Do you assume -- when I think about the progression throughout the year that most of it is in the second half of the year when you have the two-week lens?

Yes. It's like any other product when you launch it, Joanne. It starts to build up as you go out and that's what we view this -- we could be surprised. But right now I think from an expectation to be conservative, and I think this company is trying to be -- it's in the past -- I don't need to tell you. We're going to be conservative. We believe that the opportunities for a significant revenue growth in the silicone product is going to be in the second half of '07.

Have you experienced any impact on contact lens sales from the Fusarium outbreak in the beginning or the middle of this year?

I haven't seen any at all to be very frank with you. I do believe there might be some impact company to company, market -- you know, certain companies might. But certainly not Cooper. And I don't think it's an upside for us or a downside for us one way or the other.

Okay. Then finally, when we think about the toric landscape, many of us sat through Johnson & Johnson's analysts meeting yesterday where they were talking about progression with their toric lens and additional fit sizes and things of that nature. And Bausch is now at a more significant PureVision toric lens and I expect Ciba will be out there eventually. Is this going to heat up until you get your own toric, or do you think that you guys are at a stage where you can just hold share while the market--?

No. No, no, no. We will not hold share in the U.S. I think there is absolutely no doubt that we are going to continue to have toric erosion in the US, but as I'm trying to point out, I think we're making it up pretty [Expletive] nicely in the rest of the world. I will say this about J&J. J&J has done one heck of a job. They are the number-two company now. They have -- certainly in office visits. Let me just point that out. That's using HBR data. I'll let J&J try try to give you some revenue data. I don't know where they get their data from. Certainly if you look at office visits, J&J has moved up very nicely. And Ciba has all but disappeared off the landscape. It's unbelievable how fast they've gone away. And B&L has lost some market share, too. But it is the J&J market that's doing really well in the marketplace.

It's our view that it's not the PureVision product. The PureVision product if it's doing anything, it's taking some trade up from Soft Lens 66. Which is a good strategy, too. But I think in the big picture, J&J is making good moves or significant moves and become a bigger player in the overall toric market in the US. I will say that's not necessarily true on a global basis for them. But certainly in the US.

Some of the way they've made up that share is through aggressive direct to consumer campaigning and things of that nature. Do you foresee having to do something similar to that when you guys -- sometime next year?

Well, no, we're not going to do that. And I'm not sure that I agree -- you know, who am I to argue with them? But I can argue, as you know, with anybody. Because I will tell you, I think they've been successful because they have a darn good product. I don't care how much advertising you do, you drive people in the doctor's office, the doctor is going to use what's best. All of us have been in this business 10 years or more. You guys been around long enough. You know better than that.

It's -- direct to consumer advertising, good to drive practitioners -- I should say patients in the doctors' offices but the doctor is going to use the product that he feels or she feels is the best product for the patient. And quite honestly, let's call it the way it is. This new product from J&J is a heck of a lot better than the old product. And it performs well. And you know, they have expanded the parameters pretty well. It's a significant product in the marketplace, and the old product, the old Accuvue toric was not a very significant product in the marketplace. That I think is what's really going on. We like it. I like it when J&J does it because if I really had the best products in -- from a standpoint -- from the doctor's standpoint, the doctor is going to use my product. So I'll let them go out and spend all the money they want direct to consumer. We're still going to spend our money with the -- and our time I should say and our energy with the practitioners because they are the ones that will influence practitioners.

Thank you very much.

Yes. Thank you. Steve Hamill?

Good afternoon.

Hi, Steve.

I guess to start with, to talk about the numbers a little bit, in terms of some of these charges that you're adding back, the production startup, the litigation expenses, can you give us some sense as to how long you think these are going to continue on at pretty substantial levels.

Yes, I think that's -- that's a good question. The restructuring and realignment of that -- of the $0.34 that was half of it. Suffice it to say there is a lot of activity that will take place between now and when we complete the conversion onto Gen II. So I would anticipate relative to that 50% of the equation if you will, that that run rate will continue, maybe not at those levels, although I don't want to say it will go down, depends on the activity between now and the end of '07. Relative to $0.10 of the $0.34 which has to do with divestiture and winding down of the various CooperVision Surgical businesses, that for the most part will wind itself up, and there will not be large futuristic costs.

Relative to the legal and foreign exchange which was, of course, only $0.02 of the $0.34, there will be some run rate clearly as we continue with the litigation on a couple of fronts. So I don't want to predict -- those thing will go up and down depending on what stage in the litigation is transpiring. Stock option expense, of course, at $0.05 is here to stay unless some of the current new lobbyists in the technology industry win their way on what's wrong with stock option expensing. So hopefully in a nutshell, $0.17 out of $0.34 or half of it is probably going to be with us throughout most of 207.

Okay. So that includes the production startup that's going to remain an issue for a while?

Well, you're going to have one production startup which is silicone hydrogel. One will phase out. The card to strip blister will be pretty much done by the -- by February of '07, but suffice it to say every time we take a line down for card and switch it to strip blister, there is a startup process that we have to go through. Then the conversion of Proclear Frequency 55, and XC is -- not only entails conversion from one manufacturing technology to another, but also a change in venue or location will go from in the case of Proclear from the UK down to Puerto Rico and in the case of XC, a lot of that will go from the US to Puerto Rico. So you're changing the locations, you're changing platform. And I wouldn't -- I would assume that there will be costs involved of a large magnitude.

Let me bring up one more point, too. And that's this conversion costs that were very heavy this year in the US primarily because we had to run all those inefficient operations to get everything together. That basically is going away. We're going to have some in '07, Steve, with what we're doing in Europe, and it will be nothing like what the expenses we had this year in the US. And that should all -- we're going to have some of that in the fourth quarter because we're into, what, September now. By the end of September, that will all be gone. So we'll have a little bit in the fourth quarter in the US. But that will -- we won't have any of that next year, and you'll only have a little bit of that in Europe, which will be insignificant compared to what we had in the US.

Yes. I think that's a good point. There was about 2.4 million of the cost, the startup cost if you will in realignment of the distribution centers heavily weight to the US and to a lesser extent in the UK. And that just like the conversion of card to strip and the silicone hydrogel startup, a lot of that will start going away. But what you're not seeing right now is the Gen II conversion just because we don't have enough Gen II product line -- enough equipment if you will.

And so is it reasonable to think that if I look at this $0.34, all but the stock option portion of it will be gone by the time we get to end of '07, early '08?

I would say by the end of '07, most of it will be gone, yes. In other words--.

The litigation--.

On the realignment. Let's back up. We already said that this was a three-year project and would be completed about the end of '07 and we're pretty much on track for that.

Okay. And Bob, did you say that in terms of the benefit from the Gen II conversion that you were targeting a $10 million number, is that correct?

A little north of that, yes.

My expectation was more like 15.

Correct.

Your math is correct.

You're right.

Okay. Then I wanted to clarify in terms of the Proclear Spheres, up 18%. I'm -- just to be clear, that does not include Biomedics XC.

No, it does include it.

It does?

It does, yes.

In other words, that's a piece -- all PC material--.

Anything that's PC is now thrown into that bucket. Of course, which would be XC.

Okay.

And we're going to be expanding that as we move into single-use, et cetera, et cetera. Our whole focus is to take the conventional hydrogel market as it's now being called, and to leverage PC material throughout the entire breadth excluding perhaps color.

Yes. Because we're going to have a Proclear or what is called a TC daily disposable which you don't have right now. You're going to have a daily disposable, Steve, you'll have a sphere, you'll have a toric and you'll -- but not color. We're not going to do color.

In daily, two week, and monthly modalities?

Right.

One last question, I'll drop off. What -- can you give us an estimate of what the CooperVision Surgical revenue was?

Oh, it's not -- in the quarter?

Well, before you decided to wind it down. What kind of run rate was it at?

North of 1 million to 2 million. It wasn't a lot. Right. $2 million, there wasn't a lot.

Thanks.

David Maris?

A few questions. If you look at the fourth-quarter estimates that you can back into based on your full-year guidance, it appears you're giving a 25% range or so from the top to the bottom or low end of the guidance. Can you just talk about what goes into the variability of that swing, in other words what gets you to the higher end, what gets you to the lower end? Then I have a couple follow-ups.

Okay. Yes, the variability -- two-fold. Number one is if we look at the sequential growth where we increased revenue 15 million, that would probably kind of set the tone for expectation of what we should be able to do, but we obviously add a little on the conservative end for Murphy and/or foreign exchange which seems to -- if the past is any indicator can move up and down very rapidly as it did May of last year, as it did, January. So there's a little -- and for that you may recall a year ago we had Hurricane Katrina which blew apart a fair amount of revenue in October. So on the conservative end, it allows for as I'll call Murphy to come in.

At the optimistic end, would be a function of just how fast we can roll out products that we have more production capacity of right now such as XC around the world and -- and the strip blister which we're selling as fast as we can pretty much manufacturer. But there's also the -- what accounts you can open up with on let's say the retail end that could be large chains taking XC in the US that could have at times, $1 million-plus impact, as well as the regulatory side and things on the Japanese side.

Okay. Then my two follow-ups. Do you think that since you took down the top end of the '06 EPS guidance but didn't change the '07, I'm sure one of the things that investors are going to worry about or at least think about is that '07 might have a downward bias. Why is that not or -- not the case, and why didn't you change '07 guidance? And the other is will capital expenditures change dramatically from '06 to, say, '07, '08 on an annual basis?

The answer -- let's go to capital expenses first. Next year's CapEx run rate will be a little less than this year. In other words a little -- this year it will be around 160 million. It should be somewhat less but not a lot. '08, once we've -- keep in mind 30% of the capital spend is conversion, most of that will be done by the end of '07. We certainly hope it's done by the end of '07. And therefore, a good chunk of that 30% goes away on 150 million that you're talking about then moving into the $110 million range plus or minus. In terms of the guidance number which we took down from 2.85 to 3.20 down to 2.85 to 3.10, that's the top end that we modified, so I guess if you're saying, well, if you took the 3.20 down to 3.10, why don't you take the $4 down by some number, is there some risk certainly to the top end, I would just say that top end is the top end. It is a more optimistic case. It assumes more solid, double-digit top-line growth next year, which--.

Or I'll give you some other examples. What if litigation costs go away for some reason?

That's--.

He's looking at--.

In terms of the--.

Top line, sure top line. We're pretty conservative with the top line expectations, and you're right, if we do better in the top line, it's certainly going to show up in the earnings.

Absolutely.

Well, I share your hope that litigation expenses go down. So--.

Yes, sir.

Okay. Thanks. Thanks a lot. Thanks.

Thanks, David. Mike Weinstein?

Hi there, it's Kim for Mike. Can you hear me?

Hi, Kim.

Yes.

Just a couple of questions. I think mostly follow-ups on -- first on your capacity for silicone hydrogel. I think a follow-up to Jo anne's question. You're talking about 40 million capacity by the end of this year and that 40 million is roughly what's baked into your '07 guidance. Have talked about what you expect the exit capacity to be leaving '07?

We have not given -- I wouldn't say there are nine lines which is more than double, let's say at least double what we're ending this year at. So you can do the math there. The second piece is that the later line -- each line that we put in place and not necessarily going from five to six to seven, but there will be incremental volume improvement as we progress. So the 9 points will have -- by a multiple factor greater capacity than lines one, two, and three. Which is to say that it will obviously be much more than double at the end of the year.

Sure, okay. And have you said which -- how many of those lines are planned toric lines?

Yes. At this point, two of those lines are dedicated to torics.

Okay, great. Then just on pricing, you had made a comment about some negative pricing trends in the industry specific to silicone hydrogel. Had you seen any impact on your Proclear pricing?

Oh, no. No. Did I say negative? I meant positive.

No, you didn't say negative.

I didn't say negative--.

No, I may have misquoted you.

No. If anything the price of silicone hydrogels are going up not down. So because of J&J. And obviously because of market shifts. But oh, no, absolutely not. Proclear, we have not -- we have not done anything with the pricing of Proclear.

Okay. Thanks. Well, I'm glad I asked that one.

Yes. Because maybe I said it incorrectly. Yes, but I -- the point I was trying to make and here I'll say it again, make it very clear, is that when the silicone hydrogels -- example for J&J hit the market, their first product -- I think I'm accurate. I think they priced it like list price of like $18 or something like that for a six pack of that first product that they don't really promote anymore. And Oasis is -- I think the list price is like 20 or $21 a six pack, somewhere up in that neighborhood. And it is significantly higher than '02 Oasis -- '02 Optics. What is that darn thing from Ciba called? '02 Optics. I think it's priced about $16 or something like that, so it's a premium priced product. Quite frankly if you talk to practitioners or you do your due diligence on it, you find it's a darn well performing product. So you've got a product that performs real well, you don't have to worry about pricing. That was my point.

Okay. Great. One just last question and I'll drop. A follow-up to David's question with regard to guidance. Looking at the implied fourth-quarter guidance, you're talking on the high end, potential for revenue growth in the mid teens, you know, handily above what we would expect the market to grow. You talked about kind of XC success and getting into some new retail accounts but I think at this point in time you might have some decent visibility into kind of what you can really achieve, and wondering kind of what would be the biggest contributor to get you to that mid teens growth, and is that something we should think about as reasonable?

Well, I think the mid teens growth would be to take the upper end of the decent guidance which would be 222, which will get you to -- let's see, I guess probably north of 16%.

Right.

Mid teens. And what would it take to get there, and that -- it would take -- some of the things I mentioned which would be a weak dollar or some foreign currency, the rollout of new products including the speed at which XC which we have greater capacity now to address market needs gets to both non-U.S. locations such as our expansion into Asia Pacific, if you will, as well as retail on the US side and other new product lines.

Let's make it real simple, real simple. The difference between fourth quarter, third quarter. What's the big difference? Let's talk about a specific first, right. Here in Asia Pacific in Japan, we have a daily disposable toric. We had that in the third quarter, we have that in the fourth quarter. We also now have a two-week Spheric Biomedics Sphere that we didn't have, too.

Now, I don't want to put a lot on that because quite frankly it's just Japan as we all know, it's a semi used market and the two-week disposable business in Japan is pretty flat. But it's nice to have a product when you didn't have it before. If I look at Europe, what do I have in Europe that didn't have before? I'll tell you what I have. I have more blister single-use business, and I didn't have that before. That's why -- and Europe is doing, as you can see for Cooper, doing much better than the market. We are taking share. And one place in the world where we're taking share and there's no doubt about it is Europe. And we've got the momentum, and we've now got a better single-use product for the European market. In the US, we have a number of new products in the fourth quarter that we didn't have this in the third quarter. So I can point to that.

And the last one I'll point out and did it in the first of my presentation, and that is the currency health. We will have a currently health in our next fourth quarter, that we sure the [Expletive] didn't have in our quarter. And it hurt us and I couldn't understand it until I understood that we're a fiscal company and not a calendar company. If you look at that, I think that would add some optimism. But remember, that is the high end Bob is talking about. And -- and I think we have a range--.

Yes, we have a range. That in essence is from 6% to 16% above the prior year, and at the 6%, would only require sales growth of $9 million as contrasted to the 15 million we just had in the third quarter.

This all brings us another interesting point, and I'm glad you did bring it up, Kim. Because when you start looking at year-to-year comparisons and comparisons are important, too, we certainly have better quarters coming up to compare the results of our company, as Biofinity becomes more of a factor, our single-use business becomes more of a factor. Now you're talking about comparing it to a fairly weak fourth quarter we had last year because our October was ridiculous because of hurricanes, whatever the darn reason what. And the fact we had a pretty weak, pretty soft first quarter our first fiscal quarter last year, too. So -- okay?

Okay. Great. Thanks a lot.

Thank you. And Andrew Swanson?

Thank you very much. Just a couple of very procedural questions if I could. First, on the charges that I know have come up a number of times, can you just talk a little bit about your comfort level in terms of visibility on charges going forward? I know the GAAP guidance fell precipitously this quarter, and just wondering how -- how much clarity -- I know you walked through some of your expectations, but how comfortable are you that you can predict those charges given some of the uncertain nature that drives them? Then also just on a couple of numbers that we were hoping to get, and if you gave these I apologize. But a Biomedics sales number and then also a silicone hydrogel in Europe number. Thanks.

I'll take the first one. And procedurally your question is valid. What is our temporal level at projecting it, it's not that great. And that's why we don't project into 2007. In terms of projecting the quarter, which of course we kind of know what we're doing right now, what we're converting, there is at least some degree of visibility based on the run rate over the last two quarters and what's dropping off, and what's being added.

I think we feel when we revise the GAAP guidance for 2006, that those numbers are let's say framed within a realistic range. When it goes to 2007, we're basically saying we're going to wait that out. We will probably have a lot more -- we will add some color to that when we're on our December conference call. And one -- one pure logistic reason has to deal with the timing of when we do budgets and how we process budgets, where we will be asking all our operating units from the grounds up to talk and build those details as best we can. So we'll have some color on it in December that we don't have right now.

And is there any flexibility whatsoever in terms of what constitutes a restructuring charge or a startup cost? As opposed to what would be more traditionally expensed as a going forward charge?

Well, let's put it this way. There is -- there is evolving science on what is and what isn't. And we pretty much have taken the tactic of -- with our auditors if you really think it isn't, then it won't be. And we'll -- that's not to say we can't call it out. So we leave the data there for you to decide what you think of it. And if you think that it's pure operational -- and I've seen it to identify charges. I'll let Steve elaborate on this. But basically if it's going away, visibly going away when we're done with the conversion, then we call it out. If it's part of the inefficiency factor. So if we're making a XC lens in a pre-Gen II mode and it's in a plant that is more expensive than another plant, that is part of our operating structure that is holding down our gross margins excluding the call out items. But it is a cost going away such as we ordered a couple hundred people to do a startup of distribution centers and they will go away once we shut down all the other plants, then that additive cost of them being there and we're not even shipping product is a call-out item. Our auditors have said some of those are clearly restructuring, and for whatever reason -- I'm not sure every auditor and every CPA would interpret it exactly the same way. It's a form of art more than it is science.

Yes. And let me just say, Andrew, this is Steve Neil. We certainly work with our auditors on classification. It's -- there isn't a specific what I would call GAAP determination as to what's a restructuring cost or not. And that's why we go into inordinate amount of detail on those costs, as you can see at the back of the release. As far as the predictability, I just wanted to say one thing on that. We're very predictive of the activities that we're doing.

I think the key here is we want to put a consolidate distribution centers in a fashion that does it expeditiously, has minimal if any impact on customer service, et cetera. So we're willing to hire the 200 temporary workers to do the consolidation, et cetera. It's more our focus, yes, we certainly have cost targets, but our focus is more on the actual activities themselves. That's why, at least at this point in time it's easier for us in '07, I think before we go through specific budgeting and operating plans for next year to give the numbers without those costs. Hope that helps.

Fair enough. Thanks.

You ready for questions on products on the--?

I think so.

Andrew, did you have some other questions?

Just hoping you could give more specific figures, and I apologize if we've missed these, on Biomedics sales as well as silicone hydrogels in Europe.

Biomedics.

You mean the product line?

Biomedics XC or biomedics.

Pardon me, Biomedics XC.

About 3.5 million what was the other one?

Silicone in Europe.

350,000.

You talking about sales or the market side?

Sales.

Yes. That's right. Is that it, Andrew?

Thank you very much.

Larry Keusch.

Hi. Just two questions. And I think, Bob, you may have made this comment. But I want to just go back to it. This relates to the ramp up in the manufacturing of the silicone hydrogels. And I think you sort of made the comment quickly that you have now overcome some of the challenges unique to the silicone hydrogel manufacturing process and you kind of feel that those are behind you. And I guess what I'm getting to is if now it's just sort of traditional ramp up challenges and yield expansion, that should give you obviously a lot of confidence as you bring up these additional lines. Is that right?

That is correct, yes.

Okay. Perfect. And then secondly, now that you've had Biofinity out there and in the US and some of the influential docks, what feedback are you guys now receiving from them as it relates to lower modulus, and DK over T et cetera? etc.?

I would say -- my first answer, it's very early. But we are certainly not expecting any negative feedback. The product certainly has been in the hands of practitioners now for quite a while. And the same product that is here in the US. So as soon as we get more specific feedback, we'll certainly get it to you. And I think that as we roll out more fitting sets and you expand the number of practitioners that will be using this, I think you guys are going to be hearing a lot about it. So -- but I think it's a little early right now. I don't -- I don't have any specific feedback.

Okay.

But it hasn't been a month, you know. It's only been a few weeks. So I would only say that they have a lot of patients that they are putting on this product. These are very large practices, very influential practitioners, that was the strategy. And a whole lot -- and they're not doing clinical work. These are not the clinical guys. So we want them to fit it and give us feedback, what they see in the practice. And we think it's an excellent product.

Yes, I would just say that the feedback, the early feedback is consistent with Europe, and in Europe we've had very positive feedback on the product.

Okay. Then lastly, just so I understand this, what exactly is the process and timing for getting the two-week labeling, and I don't know if I missed it, but when do you think you actually get that?

The -- what do you mean by the two-week labeling?

For silicone hydrogel, I'm sorry.

Two-week labeling--.

No, moving away from the monthly.

Oh, the -- the--. What is the question again?

Whether do we get approval?

Yes, exactly.

There is no approval. It's approved. There's no regulatory issue here.

No, I thought you guys talked about being in clinical trials now.

Clinical to get extended wear labeling for biofinity.

Yes, that's what I'm talking about. I'm sorry.

Gosh, I think it's at least a year away. A year away.

Okay.

It is -- to get seven-day extended wear labeling, you do have to go back to the FDA. Now continuous wear, Larry, is a TMA. That's a long process. We are not going to, we are not getting 30-day labeling for our products.

Okay. Okay. Perfect. That's helpful. Thank you very much.

Chris Cooley?

Can you hear me okay, Norris?

Super.

Okay. Three quick ones if I may. First, just in regard to the market, J&J made comments yesterday regarding 8%-plus growths. Just wanted to gauge your views on that statistic and how much of that if you agree with it you think is actually unit volume versus mix or price? Secondly, wanted to touch base and see if you might give us some update in regards to the total number of Biofinity sets out in the states now and what your target is by fiscal year and calendar year end? And I think another question that I'm guessing Tom is going to want to dive into, could you maybe just contrast where you see us today, Tom, in terms of the US market, as we've seen the increase in ARP with the hydrogels. Does it make sense now from both the practitioner standpoint and from a patient standpoint to see an increase in the disposable wear here in the States if you had the right product? That's all I have, thank you.

A bunch of questions there.

Let me quantify the J&J question. Was this worldwide market growth, US market growth--?

The global growth of 8%-plus?

In the quarter, or year to date, or what?

I believe it was for the year if I'm not mistaken.

That's right on. They're using the sam data, obviously, Chris, that we have, al of us have the data. I think even though we don't talk about what the name of the sales force is or source of the data, it's the data that we all get.

Right. Understood.

It's industry data. For the quarter, in constant currency, it's up 7%. It was up 4% in growth. But for the year in constant currency, it is 8% growth. So they're right on.

So I guess what I'm getting at here, your expectations for global market haven't changed.

No. No. Because it's -- currency for 2002 in that interest -- [Audio Difficulties] Even though reported growth of 13, 14%, in constant currency 8%. This year it's helping us. It's helping growth. It will not -- I will point that out, it will not in the third quarter.

Understood.

Or the quarter coming up, it will not. Because we know what the currency is, and -- go ahead.

I think the next thing Tom was Biofinity fitting sets.

This versus year end.

Now versus year end.

Year end. Year end. Before we launch I guess you're talking about we would hope to have between 30 and 50 doctors working, using that lens before we do what I would call a full launch of the product, which we said would happen at the end of the year. So we're on track to get to that number. We're certainly not at 50 now. But we're getting more fitting sets into the marketplace. What was the next question?

Disposable? In the states. Here in the states versus, you know, the modalities.

I think that's an excellent question.

So do I.

I guess, timing is everything, as I've said before. If this company was in a position to have the capacity to have single-use product to sell here, we would -- we would certainly accelerate our business here because of the problem with the latest fungal infection because you could certainly make a case that the patients who are not the best suppliers should be probably on a daily disposable product. And of course in North America, it's only 8% of the market, which is very low compared to the rest of the world.

I would say that going forward, Chris, you're right on. I think you're going to see a higher penetration of single-use use of the product. I think there was a couple results of the CDC analysis done with Jama that we haven't talked about, and I won't make any more commentary but just point out the facts. The fact of the matter is 38% of those patients that they did analyze wore silicone hydrogel products. You can come to any conclusion you want about it. But we all know that less than 20% of the people, certainly even much less than that at the time, were wearing silicone hydrogels in the United States, but there were the highest percentage of people that had this -- this problem, this fungal infection, had silicone. I won't make any comment on that. But I will make a comment on the second finding.

The second finding is very interesting. 28% of these wearers wore lenses on extended wear basis. Now think about that for a minute. If it was moisture lock that created the problem, how in the effect could it have affected these 28% of the people? I mean, I have an answer for that. Extended wear is not good. It's not good for anyone. And the solutions had nothing to do with it. These people didn't use the solution for gosh sakes. And yet, they all had such a high percentage. And the reason that 28% is important is, remember, only about 10% of the people in this country wear lenses on an extended wear basis. So there was a very high percent of people that had this fungal infection or extended wear and they did not supposedly, I don't know why they would, weren't using any kind of a solution. They don't need solutions, right?

So what does that mean? I tell you what I think it means. It means in my mind that the FDA might take a hard look at that. Maybe they will, maybe they won't. But there's another indicator that extended wear is not where you want people to wear lenses. It's not good medicine. And that people should be wearing lenses and taking them off on a daily basis. And I think that makes another good case for -- from a safety standpoint. If you're really concerned about safety, single-use lenses, daily disposable lenses really is the most -- is the safest alternative you have. Is that what you're getting at?

No, actually I was asking about the economics of use from both the practitioner's standpoint and from the patient's standpoint as we've seen the ARP's go up with silicone hydrogels. Is it more advantageous now for the practitioner here in the States to write a script for a daily and for the user to say, hey, it's not such a premium price point, maybe I'll consider the daily use lens.

You mean single use?

Yes. Excuse me. I'm not -- I think that's a pretty weak one from the standpoint that even with silicone hydrogels, it's a fairly inexpensive -- it's a pretty expensive decision to make -- to choose a silicone hydrogel over a nonsilicone hydrogel. What I mean by that is let's assume that the typical patient spends 100, $120 a year for a nonsilicone daily, -- not daily but a two-week disposable which is used on a monthly basis. And the silicone product is going to cost, what, 20%, 25, 30% more than that. But if you have a real compliant patient that is using daily disposables, product you throw away, disposable every day you're probably -- the cheapest I can think of might be maybe 300 a year, maybe 350 or so. So it's still a more expensive alternative.

I mean, there is the offset of the solution, but it's not going to make much--.

The solution doesn't amount to that much.

Understood. Understood. And I'm sorry, could you just give me the total silicone hydrogel revenue number in the quarter, and I'll get back in queue.

Yes. Silicone hydrogel was -- you mean for the market?

For use worldwide in the third quarter.

350,000. I wish it was 350 million--.

I thought that was Europe. I'm sorry.

It is in Europe. We have nothing US that--.

Got it. Enough said. Thanks so much.

Yes. Thanks.

Okay. Suey Wong.

Just one very, very quick question here. With the change over for packaging for the dailies, did you guys change any pricing overseas?

For the most part, no. It's a replacement product with the focus being on -- about the same ARP.

Okay. That's it. Thank you.

Hello, gentlemen.

Congratulations.

Thank you very much. Let me stay with Biomedics XC for a minute. If I have my numbers correctly, in the first half of the year, you shipped $5 million worth of Biomedics XC. This quarter you shipped 3.5 million, about equivalent to what you shipped in the April quarter, are you still looking for something north or 20 million or north thereof for the full year?

For the calendar year, we're going to be between 15 million 20 million, but not -- I think for the fiscal year we're going to be closer to -- about 15 million. I guess around 15 million.

Okay. And what about, aside from Japan, obviously, is this products now rolling out basically in all major markets?

Aside from Japan, yes.

One more quick question on the -- actually, two more questions on--.

Let me back up for something here so everybody understands this. This is not going to be a big product in Europe. Because the European product is a monthly market, and they already have Proclear, so it -- there is a couple markets in Europe, two markets specifically that I can think of where we believe we're going to have some two-week or some Biomedics XC significant sales. So it won't be all throughout Europe, Charlie.

Okay. As far as just looking at the drilling down a little bit more into the disposable toric sales, if you look at on a composite basis, just want to make sure that these numbers are right where I backed into them properly. If you have 12% disposable toric revenue and 15% growth in Europe, or I guess rest of world let's call it, is the -- was the US disposable toric business up about 7, 8%; is that correct?

Hold on for a minute.

Something in that ballpark, I will think.

I'm looking quick, Charlie.

I think the answer is -- you're not too far off.

That's good enough. I don't need you to--.

No, no, no. We're right there. It was up -- you're right. It was up about 8%. 7.

Okay. And as far as obviously last quarter you got clipped by the transition from card blister to strip blister, and in Japan, there was no kind of orders really in the last two months of the quarter. And I think, Steve, correct me if I'm wrong, you guys were carrying like three months of inventory over there?

We were. Our projection was the retailers carry about three to six months, but say three. We only carry about a month over there.

Are you trying to get your retailers down more on the inventory side and have you had success in doing that so far?

My read of that, Charlie, is I don't think they've fully reordered the backup to the inventory. Frankly, our commitment to them is to match their order. So do I think that they're -- have we been experiencing loading the channel again? Absolutely not. We still don't have enough inventory to do that if we wanted to. But we don't see that happening. I think they're running leaner and, frankly, that's more of a pure fill to demand.

Okay. And as far as just looking at Proclear toric now, as far as parameters, and if you look at the extended range, the XR coming on later n the year, where is that going to put you parameterwise relative to either Accuvue Advance or PureVision Toric?

Oh, gosh--.

Off the charts.

10, 5 -- 5 times as many parameters, at least somewhere in that neighborhood. They're going to have -- trying to think off the top of my head real quick. I don't have the number in front of me. So just stick with me for a machine. I would expect that AAA as I call it, the J&J product--.

Not abdominal aortic aneurysm obviously so.

We'll have probably something in the neighborhood of 5,000 parameters, somewhere in that neighborhood because they have increased the number of parameters they have. But the Proclear toric, disposable toric will have in stock around 15,000. But with the ability with XR to do something in the neighborhood of a million different parameter choices. Because it will have a custom -- it will have a custom part that these other companies won't have.

Got it. Just last question on the legal front, is there anything that we should be looking for near term regarding the suits with Ciba, or is that really kind of going to drag into '07?

That is something--.

No comment.

We really wouldn't talk about.

Okay. That's it for me. Thanks, guys.

Thanks.

Thanks, Charlie. Larry Beagleson.

Hi.

Hey, Larry.

Thanks for taking the call. Given that you are targeting a 70% yield for the Biofinity line, how are you inspecting the lenses? Is it manually or automated and what is your long-term plan for inspection of the lenses and your target yields? Then I have a follow-up.

I'll start by saying I'm not sure where the 70% yield comes from. But I'm not going to get into what our current yield is and our forecasted yield. But other than to say 70 is kind of closer to where a lot of our existing molding products end up.

Yes. A little higher than 70. But you're right--.

Yes, depends on which ones.

And then he said on inspection. You know, to go into automated inspection really takes high volume. And initially the inspection is not going to be on a automated line like we would have our two week or our daily product. So at this point in time, it's all based on volumes.

Eventually we'll have enough lines up that we will be on automated volumes. And that's one of our targeted ways of lowering the overall cost.

We get our margins very good.

Right. Right.

Okay. And when specifically was each of the -- of the lines, number two through four, the Biofinity lines, installed? And when did validation and verification begin for each?

I'm not sure that we have validated all. There are four, let's say there are four lines physically there. In various stages that are somewhat reacting to both the quality approval process to make sure that QAQC is comfortable.

Two lens, two -- number two is to do some lenses now.

Correct.

Number three in October. And I think four in November. Maybe--.

Physically the equipment is there, which is an event that took place in the third quarter. The other thing as I indicated we've -- there were some challenges specific to silicone hydrogel that have met some of those challenges will require some minor modification of some of those lines. So we will be undergoing some minor modifications of some of those lines. And all of that is targeted, as Tom indicated, by the end of October. Three in place which would have enough capacity to yield up to $40 million in revenue, and then the -- in November, the fourth line will go operational.

If I'm understanding correctly, the lines three and four have not started the validation process yet?

No. They're -- they're in early stages of it, but that process does take a period of more than a month.

Okay. And if I can get one more in. Where do the toric line installations stand lines at five and six, I think you said they're set to start in November and December. Does that mean that they should be also in the validation and verification stage at this point?

We're going to go through, Larry, as these lines come up, you go through and you validate them on an iterative basis. So as they come up at the end of the year, beginning of next year, whether it's a toric or silicone hydrogel, remember it's the same platform, different tooling, but the same platform. So it just goes through that process, and we actually have the physical equipment for the initial six lines are actually on site. Now we're installing and building the four, so that's -- this is just an iterative process and you've got an engineering team that takes responsibility for various phases of each process. So it's very much a -- a under control, validated process that we're going through. And it's just as one comes on, the other comes on. And as Bob indicated, you may then take a step back because you've got some improved toolings or whatever as you went through this validation process that you put on the other line. So it's very much iterative as you bring on the lines, whether it's a goric line or sphere line.

The thing that complicates the toric side is, the exact definition as you go through that iterative process of what the toric model -- process of what the toric model and mapping looks like. And Bausch and Lomb could latest to it is not as simple as saying I know how to make a soft lens 66 and I'm going to do the exact same parameters and call it PureVision toric. It doesn't work that way. The len acts differently. As a result of that the toric side of the equation will be a more complex clinical trial if you will, meaning you make the lenses trial, make sure they still do what thought, look at exactly if you are going to replace a conventional hydrogel with a silicone hydrogel, you then have to map the conversion which will not be the same, exact same parameter.

Great. Thank you.

Ken Levine.

Hi, guys.

Hi, Ken.

Maybe I missed it, but do you break out the revenue growth in daily disposables in Japan for the quarter?

Daily disposables?

Other than to say sequentially our daily disposable is up about $5 million for the quarter.

27%.

The vast majority that happened in Japan.

Okay.

Up 27% for the second quarter.

And it's going to --

I think, Steve, you're pointing out that we didn't even have the blister for the double order. We only had it for two months.

Right.

And what about CBI as a whole in Japan? What of the revenue growth rate for there?

I don't have Japan.

There it is.

I don't have it in terms of currency. Sequentially it's up 6% in constant currency. And year-over-year, I'm not sure we gave that number. But it's still -- we're still comparing in the comps -- it was not a growth on a constant currently basis, yes. One of -- we have three products.

That's right.

We have two of the three product launches that we have had no impact or no substantive impact on revenue in the third quarter and the blisters, we're early in that conversion cycle. And as was commented in the last quarter, a lot of people stopped, I think, as Steve alluded to. A lot of people stopped ordering the card blister and said I'll wait until you can get me the strip blister. So we're in a mode where last year everyone's buying and this year only half the people are buying.

Great. That's all I got. Thank you very much.

Thanks.

Peter Bye, and ladies and gentlemen, this will be our last--.

Almost 4:00, yes.

Hi, this is Brian for Peter.

Okay.

I just had a quick question about your surgical business unit.

Okay, Peter.

Can you just talk a little about your effort there and how those are tracking relative to some of the expectations you previously outlined.

Yes. CooperSurgical is, we made two acquisitions that expanded our reach into the hospital section in November. We are clearly ecstatic about where we are with the Inlet one which is the closure system. Its run rate is currently over $13 million a year, now on an annualized basis. I think when we bought it it may have been 8 or 9.

And relative to the NeoSurge, which was the second of those product lines, we have redesigned it and will be launching in November, and are very excited about the prospects of that product based on work we've done in a number of institutions. The model there, you may recall, is a large market. I think it was 250 million range, don't hold me to those exact numbers. But it's a large market where we're coming in with the ability to substantially cut the hospital costs, which is an attention getter. That's the good news.

The bad news is when you're selling a fair amount of volume to a hospital, everyone will get involved from the purchasing agent to the operating room nurse to the influential doctors, and that process will be one that takes X amount of months if you will to go through in order to lock in a hospital. Once you do you have a fairly substantive product line with that hospital if you will. The economics are as good as we ever thought, that will cut out as much as 40, I think 50% of the cost of doing the procedures, which once again is the trocar and the canula, what you use to open the abdominal cavity during a laparoscopic procedure. Half of it is reusable, half of it is disposable. It has all of the right words if you will relative to cutting hospital costs in terms of disposing of the large volume of disposables with trocars today. So we're as excited as ever about that. We will continue to look within that part of the market at accretive deals. By accretive deals I mean those deals that are generally accretive by the end of 12 months. So it also opened up opportunities for us, and we're happy with where we are.

Okay, thanks.

That concludes the call, Tim. Thank you very much, everybody.

Yes. I want to thank everyone for joining us today. I'm sorry it went as long as it did. I guess we had an awful lot of things to cover. Progress is being made. We look forward to talking to all of you in the second week of December. And we'll be reporting our fourth quarter, end of the year. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.