酷柏 (COO) 2007 Q2 法說會逐字稿

Norris Battin, Vice President of Investor Relations and Communications.

Thanks very much, Rob. Good afternoon, everybody. Welcome to the second quarter call. We've got Tom Bender, our CEO, Bob Weiss, our COO, and Steve Neil, our Chief Financial Officer with me today.

And 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 or guidance, and 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 cause our actual results and future actions of the company to differ materially from those described in forward-looking statements are set forth under the caption, "Forward-looking Statements" in our current earnings release, and are described in our Securities and Exchange Commission's filings, including the business and risk sections in Cooper's 2006 annual report on Form 10-K. These are available publicly and on request from the company's investor relations department.

For those of you who would like to call in after the call, please note this number, 2-1-2-9-0-6-4-6-7-7. Once again, 2-1-2-9-0-6-4-6-7-7.

And with that introduction, I'll let Tom begin the call.

Thank you, Norris. And thank you for inviting us today at this conference call.

We're going to follow the same type of format I've done in the past. We'll do -- we'll review the quarter, and the expected performance in the future for the company. Bob and Steve will take care of most of that. And after that, we'll entertain Q and A.

Before that, though, I'd like to cover three subjects before I turn it over to Bob. And that is some discussion on the market today, the current events in the last week or so, and what it means to both the market, from at least my viewpoint, and what it means to Cooper.

Secondly, I want to review, in a very short period of time, Cooper's performance -- I should say CooperVision's performance to the marketplace in the first calendar quarter, and what we expect for the rest of the year.

And thirdly, as I always do, an update on the silicone market, and what has taken place from a global standpoint.

Much of this, as you know, is probably included, or some of this will be included, in the press release. But, let me, first of all, begin by talking about the market.

In the past, I've talked about the fact that the market has been somewhat soft in 2006 and, for the first quarter of this year, it was soft again. It was only up 3%.

We have related that the -- I think industry people have always felt -- or I say my peers in the industry have felt that the reason for the softness in '06, and probably the first quarter of '07, primarily was due to some inventory adjustments taking place because of the amount of new products that were introduced in the marketplace in 2008 by Johnson & Johnson, B&L and Ciba.

Because in that year, we had constant currency growth of 12%, when we had in the past -- in the previous three years, we had growth of 8%. So, we had an accelerated growth that year. And we felt that the basic reason the market has slowed down had a lot to do with this inventory adjustment.

So, I'm not sure today. We've had four events in the last 18 months that have affected lens care products, that certainly are not a positive to the industry.

Two of them less serious; two of them more serious. Two had to do with contamination issues, one by Ciba and one by AMO. The last two, of course, have been ones that have been fairly serious.

And I wanted to tell you, I think in the past we didn't feel -- or I certainly didn't feel that the problem with the fungal issue with the B&L solution had much to do with any of the softness. Now, I'm not so darn sure.

Certainly, since we've gotten this latest one with the AK issue, it's just another negative that the industry has to deal with. And we will deal with it because I'm not sure that it has a lot to do with one issue. I personally think it has to do with a lot of different issues.

Everything from poor compliance -- and that's one thing that we can't point fingers at doctors or even lens solution manufacturers, that this market has always been known to have very poor compliance, certainly when it comes to lens care. And I don't think anything's changed.

The one thing we do know, though, is that the problems have arisen, or most of the problems that we've seen have only arisen in the last couple of years. And you want to know why, especially from the standpoint that these solutions have been on the market, these no-rub solutions have been on the market certainly a lot longer than two years. They've been on the market for at least five years, if not longer.

And of course, before that time, with the -- other hydrogels were on the market, we didn't see any of these problems. So, you have to wonder out loud if it's an effect of the fact that people should be taking care of more religiously -- the new silicone hydrogel products are not -- we don't know.

It could be they're pointing fingers at the water. They're pointing fingers all over the place at this point. But, I think we're going to know more in the next few months, and what it really means, and what it really -- what kind of results are going to take place as it relates to the solution manufacturers.

As far as Cooper is concerned, I think it's both a negative and a positive. Any time there's a negative in the industry, I don't like to see it. It's something that we all have to deal with. It causes a normal kind of fear. Probably, the media will make more of it than it really is. And it's never a positive for us.

On the other hand, I do believe it's an opportunity to convince more practitioners to look at daily disposables as the best alternative, or a better alternative, for many of their patients. And I say many of their patients. It may not be the best alternative for all patients.

And I would tell you that we have instructed our sales force to be more consultants to their practitioners, to help them try to identify, from the patient selection standpoint, the better patients that might be the best candidates for a daily disposable.

It could be -- the benefits to the patient, a benefit to the practitioner, I think we've talked about in the past. And I think now, with this new issue, there is another leverage point to attract practitioners to look more at daily disposables for many of their patients.

So, I do think it's an opportunity for us, from that standpoint. But, it's one that I don't think we want to, I think, dwell upon. I don't think it's good to dwell upon it, and it's better to try to look for the more positives out of all of this.

Secondly, I'm going to be -- talk a little bit about our performance in the quarter. First quarter, as I pointed out, the market grew 3%. We grew 4%. And it's interesting to look at where our strength and weaknesses are.

If we look at the U.S. business, U.S. business looked a little bit better in this past quarter than the previous quarter. For the first calendar quarter, we actually grew 1% with a market that grew 3% in the U.S. And that's a calendar quarter. And of course, as you know, we report on a fiscal quarter.

If you look at the rest of the world, though, CooperVision's business grew 11%, where the market grew 3%. So, we're doing very well in the rest of the world.

We still have a weakness here in North America, but we are getting stronger. And the reason we are getting so much stronger has more to do with the single use results of our business that we began promoting in January of this year.

I will point out that, in the rest of the year, I expect our North American business to continue to get even stronger because, as you know, we'll be launching Biofinity, our silicone hydrogel sphere product, in the U.S. at the end of this month. In fact, in three weeks.

If I had looked at another way of -- looking at the toric market, we continue to lose market share. In the toric market, the market grew 9% in the first quarter on a global basis. We grew 3%.

But, in the U.S., if you look a little deeper at this, in the U.S., we actually declined 5% with our toric business, and the market was flat in the U.S. So, we actually lost share in the U.S.

We still, by the way, have 38% market share in the U.S. We still have a pretty good GAAP between number one and number two. Number two, now, is Johnson & Johnson in the U.S. in torics.

If I look at the rest of the world, though, with torics, our actual toric business grew 21% in the quarter. And the rest of the world grew -- I mean, the market grew 17%. So, we actually, in the rest of the world, grew faster than the toric market did.

And another way to look at daily disposables, too. The daily disposable market, I think I have told everybody before, is where the action is. If we look at the overall growth of that market, the market grew, as I pointed out, 3% in the first quarter, but the daily disposable business, of course, grew 13%.

It's interesting to look at it by geographic areas. In the Americas, which only represents 10%, daily disposables only represent 10% of the market in the first quarter. And by the way, that compares to 8% in the first quarter of 2006.

The single use market grew 28% versus 3% growth of the overall market. So, you can see daily disposables are doing very well in the Americas.

In Europe, the daily disposable business represents about 40% of the market. The market for daily disposables were up 8%. And of course, the European market was up 1% in the first quarter. The overall soft lens market was up 1%.

In the Asia-Pac market, which is 55% driven by daily disposables, the daily disposables were up 9%. And the overall market in the Asia-Pace was up 6%.

If you look at our business in daily disposables, in the U.S., our business was up 317%. And of course, that's on a very small base. The fact is we are absolutely becoming a factor in the daily disposable market in the U.S. And the market in the U.S. for daily disposables in the first quarter grew 28%. So, we certainly outstripped it in the U.S.

In the rest of the world, our business grew 23% for daily disposables, and the market grew 11%. So, overall, if I look at our performance in daily disposables on a global basis, CooperVision grew its business 30% in the first quarter, and the market was up 13%.

Let me know switch to silicone, and give you a quick update on the silicone market. Growth worldwide of silicones now represent 25% of the world market versus 23% in the fourth quarter.

It's primarily a North America business. 78% now of all silicone hydrogel business is in North America. 18% is in Europe. And by the way, that compares to 19% in the fourth quarter. So, we actually went down (inaudible).

Silicone hydrogels now represent 47% of the office visits versus 43% in the fourth quarter. So, it's up 4%.

Almost all of that, entire all of that, was in torics and multifocal visits because, if we look at the sphere silicone market in new fits, for the last four quarters, it's essentially been flat. It's been flat at a little bit over 50%. But, most of the growth for the silicone office visits have come from toric and multifocals.

In the toric market, there's no doubt that the lack of a silicone hydrogel product has hurt us and, I think, will continue to hurt us for a while. On the other hand, we are doing pretty darn well with our toric business outside the U.S.

I think with that, I'll turn it over to Bob and [inaudible].

Thank you, Tom. And good afternoon and evening to everyone.

First of all, I'll start with some of the highlights. For the quarter, we had revenue of $225.5 million, up 7%. And 3% in constant currency with CooperVision revenue at $188.2 million, up 4% worldwide in flat and constant currency. And CooperSurgical at $37.4 million, up 26%. And importantly, 9% organic growth, almost double digit.

Earnings per share was a $0.01 loss, including $0.49 of callout items. Major events in the quarter included acquisitions of Wallach and the tax determination of a total of $3.5 million payment plus interest compared to a $57 million payment with penalties plus interest.

Overall, the $57 million claim, you may recall, came with the Ocular transaction. I'll let Steve elaborate as he sees fit on that, and add some color to it.

CVI results, overall, our soft lens sales outpaced the market in the first calendar quarter of '07. And constant currency of the market was up 3%, while CooperVision was up 4%.

The market reflects a strong prior year push of new silicone hydrogels in the United States, and 1-Days in the Asia-Pacific theatre. In other words, tough comps, and for some of the reasons Tom enumerated.

CVI drivers during the quarter included -- yes, our second fiscal quarter -- included 1-Day up 31% worldwide, Proclear monthly torics up 18%, Proclear multifocal monthly up 40%, and the overall Proclear family up 29% worldwide.

The Proclear family was $45 million, or 24% of our overall CooperVision revenue. That puts it at an annualized run rate of $180 million as a family of products.

Geographically, our drivers for soft lens revenue, Europe was up 15% or 5% in constant currency, and Asia-Pacific, importantly, was up 22% or 20% in constant currency.

Like the first quarter growth was achieved without any meaningful silicone hydrogel contribution, which really starts to roll out at the end of this month of June at the AAO in Boston, which is the American Academy of Optometry.

Our growth highlights the success of our Proclear family of products, building momentum with our 1-Day or single use strategy, where we now have the capacity and successes with gaining share in the Asia-Pacific region, as we expand into markets such as Singapore, Malaysia, Taiwan, Hong Kong and China, where the theatre about 60% single use lenses.

Looking at new products, this year we've rolled out three new products and, last year, a total of nine. Three new products this year are the Biometics EP, which is emerging presbyopes, a multifocal for emerging presbyopes. Proclear 1-Day, which is a high end, single use 1-Day, Proclear Toric Multifocal, filling a need for the astigmatic patient.

Overall, last year, with six launches, we had -- you may recall a limited launch of Biofinity in Europe, the Biometics XC, Proclear Toric second base curve, a 1-Day strip blister, single use toric in Japan, and a [xeric] two-week in Japan.

These products, together with a momentum of our 1-Day strategy, have allowed us to gain share in spite of the fact that we've had a very limited launch of silicone hydrogel lenses. Collectively, the nine new products represent three 1-Days, three torics and four products leveraging our Proclear material, and have accounted for 18% of our overall revenue in the quarter.

By this, I particularly mean post-2005 introductions. Our objective, I might point out, is to have 75% of our overall product portfolio refresh post-2005 with new products by the year 2011. So, over the next five years.

Our silicone hydrogel, with two new lines recently coming on board for production, we continue to target 10 lines available for production of silicone hydrogel by the end of the year. It is anticipated that our R&D team of engineers will use one of these lines to continue process improvement activities throughout the remaining part of this year.

Our overall intermediate goal remains -- and by that I mean over the next two to three years -- to achieve 70% utilization and 50% yields.

While our ability to increase capacity and reduce production costs for silicone hydrogel products depends on our continuing to improve the manufacturing platform, we remain optimistic that Biofinity, our silicone hydrogel, will begin to more significantly contribute to revenues as we roll it out over the balance of this year, and at the AAO later this month.

Let's talk briefly about the integration efforts. During the second quarter, we continued progress on our three-year integration plan for combining Ocular Sciences, which we purchased in January of '05, with CooperVision.

While remaining extra cautious, we continue to make good progress in completing the integration of our two U.S. distribution centers. We expect to see the full benefits of this integration in the fourth quarter of '07, as the activity will be under one room.

We continue to anticipate savings in the $6 million annualized range, as more than 20% of the daily shipments are to the same accounts on a given day. And we removed the redundancy of two infrastructures, including facility costs, which is duplicative.

Progress continues in Europe, where we are transitioning from 18 to 4 locations, the majority of which activity should be done by the end of the 2007 year. Emphasis is being placed on not repeating the same mistake we made a year ago in September of '06, when we attempted to go live too quickly.

Overall, we remain -- I guess one other point of the quarter. During the quarter, we took additional steps to flatten our organization by eliminating the operating headquarters at CooperVision and consolidating CooperVision and the parent company headquarters' location functions.

This made sense since CooperVision is 85% of Cooper, while CooperSurgical operates in a very decentralized basis at its campus in Trumbull, Connecticut.

Overall, we remain on track to deliver $50 million in annualized synergies by the end of the year, plus the added benefits of lower effective tax rates, saving another $10 million. This ladder is a result of manufacturing a much higher percentage of product portfolio offshore in the U.K. and in Puerto Rico versus the U.S.

Some comments on CooperSurgical. CooperSurgical delivered $37.4 million in Q2 '07 revenue, up 26% versus the prior year. Importantly, the organic growth rate at 9% was near double digit. Performing well versus the prior year includes our hospital surgical product line, including laparoscopic equipment, sterilization, meaning the Filshie clip, as well as in [continence] products.

This part of CooperSurgical, which we began expanding in November of 2005, one and a half years ago, is now achieving annualized sales in excess of $40 million, a range accounting for about 25% of our overall CooperSurgical run rate.

We are in the middle of integrating the two acquisitions completed earlier this year. And the integration is going smoothly. CooperSurgical acquired and integrated almost 30 business since the early '90's.

Our most recent was the Wallach Surgical Devices, a manufacturer of gynecology devices, used primarily in practitioner offices, with annualized revenues of around $10 million. It was completed in February of '07.

Earlier in the year, we also acquired Lone Star, a $9 million product line, including the Lone Star retractor system, which places a retractor ring around the surgical incision site.

Both acquisitions are accretive within the first 12 months of operation. And we expect to exceed a 30% return on investment over the first five-year period post-acquisition.

A bit about callouts and specifically identified items. As part of the three-year Ocular integration plan, which is on target to be completed by the end of the year of 2007, Cooper has been extremely busy restructuring its operating business, as well as starting up new locations and rolling out new manufacturing platforms.

As a result, we continue to have significant callout or specifically identified costs. Q2 '07 was no different. During the quarter, we incurred $0.49 per diluted share, or $29 million of costs relating to acquisitions, restructuring, manufacturing, start-up, a breach into equipment write-offs, as well as IP litigation.

Also included was $3.9 million, or $0.07 of share based compensation. A source of cash, not of cash outflow.

Several points on these callouts. We continue to estimate a range of $0.30 to $0.35 of share based compensation for the fiscal year. During the quarter, we wrote off a total of $6.2 million or $0.13 of assets. We are mothballing as we convert to the highly automated Gen-2 platform, expected to save us $15 million annualized.

The largest portion of the cost rolled out relate to operating restructuring and silicone hydrogel new platform startup costs. As we complete the majority of these activities by the end of the year, we expect to substantially reduce these costs going forward post-2007.

The last point I want to comment in on is 2007 guidance. Our 2007 guidance remains unchanged from what we gave you in March. That is revenue at CooperVision in the range of $780 to $810 million, an increase of 6% to 10%. CooperSurgical revenue of $147 to $157 million, or an increase of 18% to 26%. And overall, Cooper revenue of $927 to $967 million, or a range of 8% to 13%.

Earnings per share, fully diluted, excluding callouts, remains in the range of $2.09 to $3.05. Stock option expense expected in the range of $0.30 to $0.35. And overall GAAP earnings per share in the range of $1.55 to $1.90.

And with that, I'll turn it over to Steve.

Thanks, Bob. And good evening, good afternoon, everyone.

Looking at gross margin, at the corporate level, second quarter gross margins, as reported, was 56% and, excluding $14.6 million of the identified items and costs to good sold that Bob mentioned, the gross margin was 63%, which is the same as in the second quarter last year on a comparable basis.

Production restructuring expenses and inefficiencies relate to the implementation of our Ocular integration plan, and our inefficiencies are expected to decline in the second half of fiscal '07 as production startup inefficiencies begin to subside with a ramp up in production volumes, and as products move to efficient production lines, flows through costs to good sold. Builds the inventory first, of course.

Peeling that back a little bit, looking at the vision group, excluding the identified items, the gross margin in the quarter was 63%, which compares to 64% in the second quarter of last year. And that's primarily due to product mix changes that we see continuing in the quarter.

Products made with our Proclear material increased in constant currency from 20% of sales in the second quarter of last year to 24% of our soft lens sales this year. And single use lenses, as we've talked about already, increased to 13% of soft lens sales this year, from 11% in the second quarter of last year.

Looking at CSI, again, a very good quarter from the surgical group. We reflected a gross profit margin of 59.4%, and that was an increase of 50 basis points from 58.9% in the second quarter of last year. And that reflects, as Bob noted, a slightly favorable product mix in the current quarter due to increased sales of surgical products.

Turning to SG&A, SG&A was 45% of sales in the second quarter, as recorded, and that compares to 42% in the second quarter of last year. Excluding the items considered unrelated to core operating performance, as we have identified, the SG&A was 40% of sales this year. And that compares to 39% last year, and reflects increased spending in advance of our new product launches.

With new product launches, we roll out fitting sets and trial lenses, as well as incur advertising to professional practitioners in advance of significant revenue recognition. And as a result, selling cost as a percentage of sales increased in periods in which a significant new product launch is going on. And that's where we're experiencing right now.

Turning to R&D, R&D expenses for the quarter were $7.8 million, or 3% of sales, excluding $178,000 of stock based compensation. This compares to $5.2 million, or 2% of sales, last year on a comparable basis. This increase in R&D reflects continuing product development activities associated with both vision, as well as surgical products.

That all sums down to an operating margin for the company, as reported, of 5%. And when we reflect the significant items noted above, they have an impact of about 12% on the operating margin.

This adjusted margin of 17% compares to 21% in the second quarter of last year on a comparable basis. And the margin decline between periods reflects our investments in marketing in advance of the new product launches, as well as our R&D spending.

Looking at the vision group, our operating margin, as reported, was 6%. And when we reflect the identified items, it was 20%. And that, on a comparable basis, is to 24% last year. And again, as noted, the current year reflects R&D investments and spending in advance of our product launches.

CSI, our surgical group, has an operating margin of 17%. And when you exclude the specific items, it's 20%. And that's comparable with the margin last year. Again, CSI performing very, very well.

Turning to interest and other expense, our interest expense was 5% of sales in the quarter. And that compares to 4% last year, and that reflects the impact on borrowings for capital expenditures, as well as our CSI acquisitions in the first half of the year.

With regards to other income and expense, this quarter, in this fiscal year, reflect $9,000 of other income versus $1.1 million of other expense in the second quarter of last year. And this is primarily due to the favorable impact from our foreign currency derivative activity in the current period.

We work to manage our currency exposure to budget rates. And we're very successful this year, as the dollar has weakened.

Turning to income taxes, the projecting effective tax rate for the year, as reported, is 24.8%, and that's 16.3% excluding specific items that effects the tax rate for the year.

In 2007, we expect a significant portion of integration expenses to impact tax beneficial jurisdictions. And thus, we have computed what we believe to be a more meaningful rate, excluding these items.

The effective tax rate is expected to continue to be in the 13% to 16% range going forward.

That sums down to a net loss for the quarter of $527,000, or $0.01 per share, which, as Bob noted, includes the write-off of assets associated with the Ocular integration of $6.2 million or $0.13. And specific items for the quarter amounted to $23 million, including the write-off of assets, or $0.49 per share, for an adjusted EPS of $0.48.

Talking a little bit about stock compensation expense, we recognized about $4 million in stock compensation expense in the quarter, or $0.07 a share. This compares to $7.2 million, or $0.12, in the first quarter of last year -- or first quarter. So, sequentially, $0.12, then decreasing down to $0.07.

As you recall, as computed under FASB 123(R), all of our directors' stock compensation is recorded in the first quarter, which results in charges in the first quarter -- or really, in the first half of the year being higher than in the second half.

Our guidance for the full year continues to be the $0.30 to $0.35 impact of stock compensation expense. Thus, we expect to incur $0.11 to $0.16 in the second half of the year.

Turning to the balance sheet briefly, in the second quarter, our day sales outstanding and receivables was 62 days, compared to 64 last year. Again, we continue to expect DSOs averaging for the year in the mid-60s.

Our inventory months on hand declined to 7.9 months versus 8.3 last quarter, and even 8 last year. We continue to build inventory to support our new product launches and our distribution center consolidations.

And the inventory will remain at this level throughout the year as we continue to launch the new products and do the DC consolidations. And then, we expect significant reductions down to more traditional levels or historical levels as we go into '08 and '09.

Our EBITDA generated in the quarter before the specified items was $55.5 million, approximating the $57 million in the second quarter of last year. Capital expenditures were $40 million in the quarter, primarily related to expanded capacity for silicone hydrogel and single use lenses, as well as our cost reduction initiatives.

As noted last quarter, the capital expenditure amount reflects actual cash payments, excluding commitments and accounts payable as not yet been paid. Classifying capital expenditures on a cash basis on the cash flow statement has the impact of reducing capital expenditures in fiscal '06 by $10 million, and increasing capital expenditures in fiscal '07 by $10 million, reflecting the reclassification between accounts payable and capital expenditures. This is a little accounting lesson here.

As a result, we anticipate reporting capital expenditures of $160 million this year, and that's up from our previously estimated $150 million.

Our net debt increased $23.7 million in the quarter. Predominately, funding the acquisition of Wallach for CooperSurgical and capital expenditures.

And then, my last comment has to do with the final notice of determination on our tax effort for '99 through 2001 Ocular Sciences tax returns. We agreed to a settlement of $3.5 million versus the $57 million of tax and penalties originally assessed.

And this settlement will have -- the implications of this settlement will have no impact on our ongoing Cooper effective tax rate.

So, with that, I'll turn the call over to Q and A.

Rob, I think we're ready for questions.

Thank you, sir. (OPERATOR INSTRUCTIONS.)

Mike Weinstein.

Oh, hi there, guys. It's Kim for Mike.

Hi, Kim.

Maybe we can talk a little bit about the daily market, and sort of your capacity. It sounds like, Tom, your view of what's going on in the market has probably changed a little based on recent events. I'm wondering if your outlook for your capacity and your CapEx spending has shifted more toward dailies, and how we should think about that.

I'll--.

--I'll--.

--Let Bob talk, but I think we're in pretty good shape.

Yes, I think, capacity wise, we've had -- completed all of the conversion, if you may recall, from the card blister to the strip blister. So, we have 10 operating lines.

And we are certainly impressed by the growth of the segment over the last six months, and are proactively making sure we don't fall behind. So, we are ordering equipment, and we are actually converting some lines onto the Gen-2 platform -- I should say some 1-Day onto a Gen-2 platform that we have available -- that will allow us to increase that 10 lines, if you will, internally up to about 12 lines internally.

And that -- you may recall, 10 lines equals about 500 million lenses. So, 12 lines would add another $100 million -- 100 million lenses. I wish it was $100 million -- 100 million lenses.

Let me speak, though, of something maybe a little bit more serious, and that -- Kim, in your voice, anyway. And that is what is going on in this marketplace, and what has changed in just the last couple of weeks, anyway, and what it really means because I don't think we really do know what it means.

And I personally think it means there's an opportunity for the daily disposable market, not just in the U.S., but in the rest of the world to grow faster because of these perceived problems with lens care products that are probably not valid.

I don't think there's a damn thing wrong with these lens care products. Personally, I think it has a lot to do with the caring regimen that these new lenses probably deserve to have and probably aren't getting. I don't know if that's true. It's all pure speculation at this time.

But, there is something strange going on here. And I think it just means that practitioners who want to keep patients out of harm's way, some harm's way, anyway, may put more patients on daily disposables.

And I think, as a company, we're sort of on a slippery slope here. We have two strategies moving at the same time, and we want to make sure that they're consistent. And we don't confuse -- we don't want to confuse practitioners on what our message is.

And I think what we try to do here is to position daily disposables where they really, probably belong, and that is to assist the doctor and patient selection, to find these patients who are really not very good compliers, that may get themselves in trouble.

And these are the ones that ought to be on daily disposables because they can afford them now, where they couldn't afford them maybe a few years ago. And both Ciba and Cooper have price points that would make those products permissible for most patients.

On the other hand, reusable lenses have their place here, too. And a good product like Biofinity has a place in this marketplace. And it's not to say that it's just a daily disposable market for our (inaudible) patients because I think the reusable business is also here, and those products belong to a patient who can care for them properly.

But, I think that's where we're at right now. And maybe that's what you meant by your comment about things have changed here in the last couple of weeks.

If I can also make a comment -- this is Steve, Kim -- just for clarification, our daily offering is both a hydrogel, as well as a Proclear material offering.

And by the end of the summer, half of our daily lines will have the capability of doing Proclear. The other half will be focused on just hydrogel. And the Proclear lines can do both hydrogel or Proclear.

So, we're really focused on both the end of the day dryness market, but also the daily modality. So, we think we'll have something a little bit unique as we roll this out and take advantage of those people who aren't as good in compliance.

Okay, great. Yes, that's actually really helpful.

And then, I guess one other thing. Your sort of framed your Biofinity sales expectations for fiscal '07 -- understanding you're just going to be very early in the launch -- at about $5 to $7 million. Would you be willing to talk about sort of a fiscal year end to October timeframe, annualize run rate capability for Biofinity? I think you had put some numbers around that in the past, and I just wanted to see if--.

--Yes--.

--You had any update there.

Well, Kim, just other than to say that we're on track to deliver the lines, as I think we've indicated in the release, as well as in the past, that it's going to be a function on how quickly we come up the curve in terms of utilization.

And I don't think we're going to go into that discussion, other than to say we, obviously, have made enough progress to feel we can have a normalized -- and by normalized, I mean a routine U.S. launch that we would expect -- that will allow for that revenue.

And obviously, that's coming off of several less lines than we'll have by the end of the year. So, we'll not only be able to support that launch, but we will continue to beef it up.

As I've said in the past, the newer lines will have a lot more production capability than, certainly, the first several lines that we put in place. So, that will be more robust.

I don't want to end up, if you will, forecasting next year's revenue number in terms of outlook. But, suffice it to say that 10 lines are going to complete a lot more products than, on average, 6 in the past, if you will, prior to the second quarter.

Okay, thanks.

Mark Mullikin.

Good afternoon.

Hey, Mark.

I just wanted to delve into the cost structure a little bit more, and some of the adjustments for production startup costs. Can you help us to understand how you determine and what's included in the startup costs for Biofinity specifically? Does it include all of the Biofinity manufacturing costs, or just a portion of it?

Mark, I'll take that one. This is Steve Neil.

What we've attempted to do is we've attempted to identify the inefficiencies associated with converting to a new product platform. Said differently, those things, then, when we're running at a more efficient expected level, that we wouldn't be incurring next year.

So, what we've done is we've gone in, and we've taken a look at the activities and the costs that are incurred in there, and identified those that are clearly associated with startup.

So, as we go out -- and maybe this will be more helpful for you -- as we go out of the year, we're running more efficiencies on the product lines. We don't expect any startup costs to be incurred in 2008.

We will be running at slightly less than ideal margins, but rapidly -- volume rapidly takes over, as far as output because a lot of these costs are fixed costs. And then, the tweaking, so to speak, on the engineering side goes away.

So, the goal was to identify those costs that are clearly inefficiencies when you're running at the run rate that will go out of the year. Not as a targeted gross margin, by any means, but certainly taking most of the inefficiencies out.

So, we've attempted to go conservative because the last thing we want to do is have an adjusted margin here that we're not going to realize. But, it's specific to each line, and the type of cost that it's incurred. Hopefully, that helps.

Yes, that does, actually. So, is the delta, then, between 50% yield and 70% utilization, or some lower number?

No, it's a lower number.

Okay.

We're targeting 50%, 70% as a normal target going a couple of years out. And remember, we will have 10 lines starting up over a period of roughly -- I think it's 12 or 13 months. So, each one of them will be at a different level. So, no, it's not at the targeted 50%, 70% by any means.

Okay. So, as we think about the Biofinity roll out, and that product becoming a bigger mix of your revenue, how should we think about gross margin evolving if Biofinity is cannibalizing an existing revenue base, like Proclear? Is it dilutive to gross margin going into '08?

Hmm.

Or would we expect gross margin improvement going into fiscal '08?

A normalized gross margin for Biofinity is not -- and it's -- well, before we get to the 70%, 50%, it's not going to negatively impact our gross margins.

In other words, it's closer to a specialty lens, upper 60's, if you will, than anything like a 1-Day, which would pull gross margin down, but not necessarily impact negatively the operating margins.

So, no, silicone hydrogels are not going to negatively impact gross margin on a normalized run rate basis.

Okay, thank you.

And by the way, let me make one other comment, an important comment. We don't expect too much of a cannibalization of Proclear with this product. I don't believe that's where this product's going to go.

If there is going to be cannibalization of our own product line, it's going to be the Biomedics, the older hydrogels. I think that's where it's going to take place.

And I do expect our gross margins for this product, going into next year, to have better gross margins than our current gross margins for our sphere products.

And that's a good point that Tom is making, that what we're talking about really going after is not the specialty lens business. We're talking about going after the so-called sweet spot of the market, the big part of the market, which is closer to commodity with the two-week spherical market, which was not the highest -- if you were going to split out our product line, that would be the lower part of the product line, gross margin, aside from 1-Day, which is really more profitability per patient. But, then, the next thing in line is the two-week commodity, if you will, spherical lens.

Okay, thank you.

Larry Keusch.

A couple of questions. First, Tom or Bob, would you be willing to talk a little bit about sort of the launch expectations for Biofinity? Sort of how are you thinking about getting fit sets out there.

I see in the press release here you're focusing on the independent practitioners. But, if you could just walk us through a little bit about the strategy.

Yes, I will. I'll start, and let Bob tie in.

I think we said before we're going to roll out the product traditionally like we do just about all of our products. In other words, we don't throw out fitting sets to just doctors without them asking for it.

We've never done that. J&J has done that. Let them do it. We've never done it with any of our products, Larry. We've never done it with our torics. We've never done it with Proclear. We're not going to do it with this product.

We're going to set these products into offices where practitioners have made a commitment they want the product. And therefore, it's going to be rolled out -- you can expect something in the neighborhood of about 7,500 fitting sets that will be distributed to primarily independent optometry between the end of June and the end of December, for the calendar year. I think I'm consistent with what we have said. That's number one.

Number two, as I pointed out, I think we're going to -- I used the words slippery slope because we've got two strategies moving here at the same time. We firmly believe that, for most patients, that are aspherical patients, the best product for them is a daily disposable. I'm not backing off of that. I don't care what material a reusable product is made. I really, firmly believe that.

On the other hand, it's not made for everybody. There is certainly room for an outstanding performing silicone hydrogel product, like Biofinity, as a strategic positioning point for aspherical patients, as well as a daily disposable product.

So, we're going to be helping practitioners in patient selection for both these products. And that's not an easy strategy to execute, and I think you probably see that, too. But, we're going to do our darndest to do that.

So, that gives you some flavor of positioning on what we're going to do. We have, certainly, a lot of clinical data that supports the fact, when it comes to a silicone hydrogel product, this product is a superior product. We're certainly going to be using that.

So, that's what the plan is now. Now, be aware that we are also in the process of developing a two-week silicone hydrogel product. And that product, I believe, will be -- it's a two-week product -- will be more geared for and positioned better as a product for the chain market.

So, with that, I'll give it to Bob. I think I've covered that pretty well.

Yes. And that product line will be coming out later in 2008.

But, in the interim, the doctors that we will be addressing will certainly have their portfolio to pick from, from the 1-Day, which is -- if you really believe your patient is going to have some difficulty with compliance, go for the 1-Day. If you think they're a very compliant patient that can follow instructions then, by all means, you can go for silicone hydrogel. Or if you think they're a problem, you need a problem solver, you can go to the Proclear family.

So, we're not going to tell the doctor how to profile their patient. But, we're certainly going to tell them they should be profiling their patient in terms of what their needs are. And it's not one-size-fits-all.

And obviously, there's a lot of press on the whole issue of AK and fungal infections. So, we don't have to teach them that, per se.

Okay, got it. Two other ones for you, maybe for Steve. Just so -- I know that you obviously don't give quarterly guidance, but just to help us think for the second half of the year--.

--Okay--.

--To make your guidance, you need to obviously drive your profitability up from where it is. Is it primarily the top line coming in? Or do we really start to see some leverage on the expense side? So, if you could help me understand that, that would be great.

And then, lastly--.

--Yes--.

--Just any update on what's happening on the CEO side with the external portion of the search.

All right. I'll jump on the first part of the question on guidance.

And in terms of what's going to drive the back half of the year, first of all, you have increasing revenue expectations at the bottom end of -- guidance would be, at a minimum, of $37 million incremental revenue back half of the year.

And think of that from the perspective -- we put the infrastructure in place. And so, we would be leveraging that infrastructure. We put a lot of upfront costs, in terms of sales and marketing, in R&D. So, that's a pretty profitable incremental profit generator.

The second thing has to do with the fact that we've put in place a number of integration efforts, including the three distribution centers we talk about, one of which will come on live and be completed by the end of -- let's say over the next month and a half, which would lead to fourth quarter, a significant improvement in improved distribution costs. For example, the U.S. distribution center is targeted to save $6 million a year on a run rate basis.

In addition, we're doing, and made a lot of progress, on the two European ones. One in the U.K., and one in Belgium, in Liege. So, you'll start seeing the benefits of that.

We've converted high volume products onto Gen-2. As they bleed through inventory, you'll start seeing the benefits, back half of this year.

And then, the recent restructuring, merging two headquarters under one in Pleasanton, California -- will also show some SG&A benefits going forward. So, there'll be noticeable improvement on operating costs, noticeable improvement on gross margin pushing one way.

Not to say that expansion of 1-Day won't push the other way. But, overall, operating income should improve with that mix, even, and then, top line growth.

As far as successor planning, I'll defer that one to Tom, if you have any--.

--I don't think we have anything to report at this time, Larry. The search goes on. There is a continued search.

Okay, great. Thanks very much, guys.

Joanne Wuensch.

Thanks. Could you please give us an update on where you are for toric dailies? And then, I noticed in the press release you seemed to be moving forward with toric silicone hydrogel. And I'd love a little bit more information on the timing of that, and how you plan on positioning that product.

As far as toric dailies, I don't think we should overly push expectation on how big a product that can become. Certainly, one of the limitations of toric daily is--.

(--Inaudible--.)

--Just the number of SKUs. You can't get your cost down by -- once you try to get into thousands of SKUs, the cost profile won't allow for it effectively.

As far as silicone hydrogel torics, you're quite correct. We will be launching one targeted towards the end of 2008. And quite frankly, we're looking at two different platforms on that. And let's call it a foot race, which of the two it will be, between a two-week and the Biofinity variety.

But, some of that's going to be played out by way of capacity flexibility we have in the two technologies.

I would say, Joanne, within the next 90 days, we'll decide whether it will be Biofinity 120. It will be a 128, or it will be the 100. We'll be making that determination.

As far as the toric daily market is concerned, as well as the multifocal daily market, the opportunity that has presented itself because of the lens care issue probably won't have a lot of impact, I don't believe, in the specialty markets, because I just don't see the dailies becoming a big part of either one of those markets because of the lack of parameters.

We just can't get our costs low enough, and I say we. I don't think as an industry we can, because the daily torics aren't doing very well in Japan by anybody. They're doing okay, but they're not tearing it up like I thought they would, and I think maybe from -- like maybe Ciba thought they would, too.

But, on the other hand, I just don't see our ability to bring our cost structure down low enough where it can ever be a real competitor to the reusable torics, or the reusable multifocals. I just don't see it happening.

As a follow-up question, you've said in the past that dailies have a lower gross margin and a higher operating margin, if I understand that correctly. What happens in the SG&A portion of it that makes that balance work?

Emphasis on one thing is it's not a higher operating margin. It's an operating margin as high as other lenses. It's more operating profit per patient. So, when you look at it--.

--That's right, gross profit per patient--.

--On a per patient basis, we make, as does the doctor, quite frankly, make more profit on that patient if we're selling them 730 lenses a year.

What causes the operating cost to be a lot less, quite frankly, is that it's not shipping-intense. You're shipping 90 lenses in a pack compared to a six-pack. And the cost of shipping is no larger because we ship air at the end of the day.

And quite frankly, the amount of "Try it, you'll like it," that goes on, if it's a silicon hydrogel or if it is a specialty lens where it gets a lot trickier, the percentage of trial and error that goes on is much, much higher in the specialty area than it is in the 1-Day commodity side.

The marketing cost for your fitting sets and your trial lenses for a daily is a lot less versus any reusable sphere or any Toric lens. So, your overall marketing costs are a lot lower. And that's really another benefit.

Okay, that makes a lot of sense. Thank you for that explanation.

David Maris.

Good afternoon. A couple questions.

Tom, during this past quarter, there was also some new news on industry consolidation, or potential industry consolidation, with AMO saying they might take a look at, or they're going to take a look at Bausch & Lomb.

If you could just spend a minute and hypothesize on the industry structure and the changes you think will happen in the next few years. In the next two year's time, do you think that Alcon, AMO or Essilor will own a contact lens company?

And then, does Cooper benefit from a more diversified revenue base? Or how are you thinking about the benefits or drawbacks of being more diversified?

Well, I'm not going to make any speculation on the front part of that, David. You know, I wouldn't say. You would have to ask Alcon and those companies what they want to do in the industry.

And I think as far as consolidation is concerned, there's always a possibility of consolidation within the industry. It's not the easiest thing to do when you have only four players, but there's probably room for more consolidation.

As far as the latter question, as far as the diversification is concerned, I think our diversification would be more focused on building in women's healthcare than it would be in expanding beyond contact lenses in the ophthalmology section -- segment, I should say.

Okay, fair enough. Thank you.

Okay.

[Jared Holtz].

Thanks, guys.

Was wondering, I know you guys run your business completely separate from what we think over here. But, if your EPS for this quarter had equaled what the Street had thought you would do, would you have increased guidance today?

No.

Probably not.

No.

I mean, you can't tell. I mean, it really depends on our perspective of looking forward. We have not put out quarterly guidance. And the reason we haven't put out quarterly guidance, especially in periods of integration and significant product launches, we haven't been too good in foreseeing the future because there's too many variables out there.

So, Jared, we certainly want to manage expectations. We certainly intend on putting guidance that we believe is appropriate in the marketplace. So, I would say in front of a launch and the rollout--.

--Yes--.

--Of a launch and the pull-through of the product, it would be difficult for us to change. I think you're within the range of variability, whether you recorded what we did this time or if we hit whatever the Street said we would hit.

And we did front-loaded -- we put front-loaded expenses in here, too. And that's--.

--Right. I think the way I would respond to your question is that our internal view, if you will, is -- and we've said it in a soft way, that we're going to have up-front costs ahead of the launch, and that the launches are going to be back-ended, meaning we're going to see revenue more in the back part of this year than the front because of the timing of the silicon hydrogel launch.

That's not to say we wouldn't incur costs. And particularly as we, if you will, staff up our marketing programs, if you look sequentially, you'll see a fair amount of increase in our overall SG&A during the quarter, and you'll also see a significant increase sequentially in R&D over the quarter. A lot of that R&D has to do with, what I'll call it, the tail-ended D, the development work, that those guys that are working on line five doing R&D are doing to develop and improve the robustness of the product.

So, that's kind of up-front costs that we'll start seeing the benefit of as we get the rewards of the work that the R&D guys are doing, for example, on improving output of silicon hydrogel production.

So, our model -- it doesn't change our way of thinking--.

--Right--.

--That perhaps less of that up-front cost was anticipated, if you will. Or said another way is, this year, we have a fairly big hockey stick because of the way products roll out.

Okay, great. And other than Biofinity, are there any major products that we should be looking for that are implied in these imminent product launches?

No. The big event is Biofinity the back part of this year--.

--Yes, I--.

--Together with the push on the 1-Day Proclear product line.

Yes. I would say this year, two things, two events. Number one, the growth of our 1-Day business, not only here but worldwide. And how much of that is going to be accelerated by the lens care issues, we'll have to wait and see. I suspect it will.

Um-hmm.

And secondly will be the Biofinity launch in the U.S. for this year.

Next year, it will be the launch of our two-week silicon product, and we expect that to be a major event. And we'll keep our shareholders up to speed on where we are in that as we go along.

Okay, great. And then, just lastly on your cash position here, you finished the quarter with about $12 million in cash. I don't have a cash list statement in front of me here for this quarter, but are you concerned about that at all? Just your position on your cash balance would be great. Thanks.

Yes. It's too high because, when you're a net borrower, it should be zero. But, no, I'm not concerned at all, Jared. Somewhere around 10 to 12 is about as ideal when you have 30 some-odd subsidiaries operating around the world. So, it's not really the cash balance. I think it's really our ability to take advantage of things in the marketplace.

And, you know, we did increase from $750 million to $1 billion in borrowing capacity back in the first quarter. So, no. Overall, our liquidity position and where we are on cash is totally acceptable and where we think it should be.

And keep in mind that a lot of -- we had to build a whole new platform. We talk about the 10 lines that we're going to have ready for production by the end of this year. A lot of that money is out the door. The equipment is physically sitting in the plant. So, it was a huge cash commitment on that front. There was a huge cash commitment on integrating our distribution centers and building up buffer stock on inventory. And cash invested in inventory, that's being rolled out globally.

So, some of that we're going to start seeing the freedom of, plus the integration savings that I talked about that we expect in the back half of this year, on the integration savings of distribution, Gen-2 conversion, and the overall restructuring that we've gone through.

Okay, great. Thanks a lot.

Chris Cooley.

Thanks for taking the questions. Two questions, if I may.

Sure.

I'd just be curious, Tom, your view of the potential, both domestic and just all in global market growth for calendar '07. I know in our macro models we're looking for closer to 8% reported. But, just curious what your views are there, and if those have changed possibly over the last few weeks.

And then, as a second question, maybe just following up your response there previously to Jared's question, would you care to quantify or just give us a rough range of what the up-front costs that were in the fiscal Q2 were, if you kind of wanted to try and think about a normalized run rate might have been there in the 2Q relative to those up-front costs?

I can't hear him. Chris, I got your first question. I didn't get the second one. Let me answer the--.

--You were breaking up on the second one (inaudible).

Yes. Let me answer the first one, then you can try me again on the second one, because you were breaking up on the second one.

The first one, I got to tell you, ask me at about another couple months and I'll give you a better answer, I guess.

Okay.

But, we've always felt that we would get 7 to 8% growth. I think Ron Zarella told me that B&L expected that, and I think J&J has said that.

But, conditions have changed. I don't know what the impact of this latest thing is going to be. It's just another darned thing we have to deal with in the marketplace, and I don't want to be cavalier about it. And I think maybe I have been somewhat cavalier about it in the past when I said, well, and I'm only going by what others have told me, too. They didn't think that the fungal outbreak had much to do with any softness in the market.

And I always said, no, I don't think that that was an issue, that it really was more of this -- inventory adjustments that were going on, that the myopia is still growing, that the basic drivers in the market, in other words, haven't really changed much.

But, this is going on. Does this mean -- is this -- look it, I can make a scenario that this creates an opportunity for refractive surgery, for God's sake. I can make a case that this is a scenario that could create some people in not wearing their lenses for a while because they're scared of this. I can make a scenario that a lot of people may go to daily disposables. I don't know the answers for any of this. I do know that I don't like to see any of this.

I don't think it was fair -- well, yes, I'll say it -- I don't think it was fair the way maybe the solution companies are being treated over all this because I don't think it's (inaudible). I really think it's a caring issue that's going on. I think there's a lot of moving parts here, and it's the fact we have these new lenses.

Do they need to be treated differently? I don't even know if that's the answer. But, there's some issues that are going on here that create a negative environment for contact lenses, and I don't like to see that. I don't think any of us like to see that.

And I just hope that it isn't going to create some unrealistic negative response to wearing contact lenses because they are safe to wear. And these solutions that are made are good solutions. And if people did really truly care for their lenses, I don't think you'd have any of these problems. But, that's just my "I think." But, that's my take to all of this.

Now, as far as your second question--

--I think I know what it is.

Did you get it? Okay.

I think, Chris, that you're asking how much investment we spent in the second quarter front-ending some of the market rollouts and some of the programs we're following, if I'm not--.

--Correct--.

--If that's your question.

Yes.

And I guess I would put the number in the range of -- I'll use earnings per share -- $0.16, which you would -- and the methodology would be to look at your sequential SG&A, sequential R&D build, as well as interest expense.

And the reason I include interest expense -- and then I'll come back on the other two -- is we, of course, invested in two women's healthcare businesses, and we're early on, particularly in the area of Wallach, for example, on integration efforts. And that would also apply to Lone Star.

So, we've put the cash out. Your first six-month payback is not the hurdle rate that you normally expect of in excess of 30%. But, as I indicated, it will be accretive by the end of 12 months in both cases.

We also had an up-front fee cash out the door for all the CapEx that we spent on silicon hydrogel production platforms. And that's plural, not only Biofinity, but also the other one that we call -- let's call it the DK100, a different -- the two-week silicon hydrogel. And that was a substantial amount, as you can see from CapEx.

As far as R&D, that was up more than $1.1 million above the first quarter. And as I indicated, we had to up-front that to get the benefits of improved production output on silicon hydrogel.

And then, lastly, on the area of detailing and selling and marketing-related costs, if I split the pot of $0.16, about $0.04 is on the interest line, about $0.03 is on the R&D line, and another $0.09 is in the area of marketing, which includes trial sets on the 1-Day side as we roll out, for example, Proclear and preparatory for some of the Biofinity.

So, all up, $0.16. Now, does that all go away? No, it doesn't. It steps up to a new level in some areas, for example in the marketing area and R&D. I'm not suggesting that we're going to back down the R&D efforts as we go forward with the 100, but it's at a new level, if you will, of a run rate.

Thanks, Bob. If I might, just one last quick follow-on.

Tom, could you maybe just give us your view on the domestic toric market? I mean, clearly, that's one of the lowest (inaudible) model that I've seen in several years. What are your thoughts there just in terms of growth within the toric? Are we hitting the ceiling as a percentage of total fits now in the U.S., or is it -- help us just kind of get a better understand of what you think is taking place.

Well, this is another one that, interestingly enough, I talked to another industry -- well, I'll tell you, I talked to Ron Zarella about it. Found out, as a toric company, too, what he thought was going on in the first quarter because it sort of shocked me. I think it shocked them, too, to see that the market was absolutely flat in the first quarter for silicon hydrogels.

I would tell you, I think there's a couple things that, right now -- to be honest, I don't know if we played this thing out completely in the U.S. or not. I don't think we have.

I think the pricing -- the market expanded fairly rapidly in the past because of pricing, because of the silicon hydrogel torics that were introduced in the conversion from conventional -- not conventional, but the older materials to silicon hydrogel torics increased the value of the market, not necessarily bringing in many new patients.

So, I think that that has slowed down. It looks like it's slowed down, even though I must tell you -- which is confusing. If you look at HPR data, HPR data indicates that the office visits for silicon hydrogel toric visits are up substantially in the first quarter. But, be aware, HPR sometimes is a lag when they report on a quarter-to-quarter basis. So, when you get first quarter, sometimes, because of the way doctors are filling out the forms, it's really what happened in the fourth quarter by the time you get them.

Now, when you look at the data that we get from the industry, that data is accurate. It's right on the quarter. So, that could be part of it.

Now, I don't want to confuse you with this and be acting like I'm tap-dancing around it. But, on all honesty, I don't know what's going on because it was, all of a sudden, it just came to a screeching halt. And I just can't believe that the astigmatic market is all dried up here. It just doesn't make any sense.

We do know that the market for torics outside the U.S. is growing now more rapidly than it is in the U.S. Certainly, for Cooper, too, but also for the marketplace.

And it has been soft -- disposable soft lens torics have been here and have been promoted here longer than they have in Europe. I won't say Asia-Pacific because the Asia-Pac market, the penetration of torics is fairly low. It's less than 10% where, in the U.S., it's over 20%. But, in Europe, it's getting close to where it is in the United States.

Okay, super. Thank you so much. See you in the morning.

Um-hmm.

Jeff Johnson.

Yes, good evening.

Hi, Jeff.

Can you hear me okay?

Yes.

Okay, just a couple questions here, a couple housekeeping more than anything. Can you remind me how we get from the flat CVI growth that you're reporting in the press release to the 4% constant currency soft worldwide contact lens growth you're putting up? I forget what would make that bridge so big from flat to 4% this quarter.

It's Bob. Primarily -- well, going the other way, yes, it's mainly the European, the pound and the Euro, particularly.

Yes.

No. I'm sorry, Bob, not on that. I think in the press release you say CVI this quarter was flat on a constant currency basis.

Right.

Right.

Yet, in your chart, you're showing CVI percentage change with 4% constant currency.

Well, one is--.

--Oh--.

--That's the difference between--.

--One was (inaudible)--.

--A calendar year presentation, which is consistent with CLI data--.

--Okay, got it--.

--And a fiscal quarter.

Yes, Jeff.

In the past, we haven't had the ability to do that. We always sort of used to compare our current quarter with the market quarter, and it was always a one-month lag.

Yes.

But, we have now -- we can go back and restructure our business by product line, by country, anything we want by calendar quarter to make it consistent with the market data so you get an absolute accurate view of how Cooper -- and we can, too -- on how we're performing to the market.

Okay, great.

That help?

Now, that -- yes.

Okay.

I didn't realize there was now the shift from fiscal to calendar just in the charts anyway, so thanks.

And also, just as a housekeeping question, I guess, Steve, for you, just want to make sure on the guidance here, that is the 290 to 305 for the full year.

The back half of fiscal '06, what is our EPS in Q3 and Q4 that we should be building off? There's so many non-recurrings. I want to make sure that I'm building correctly. Is it $0.79 and $0.73 in the Q3 and Q4 '06?

Jeff, I'm going to have to get back to you on that. I don't have that specific data--.

--Okay--.

--Right at my fingertips.

Fair enough. But, it's safe to assume you're now looking for EPS growth in the back half of the year of 25% to 30% year-over-year versus the -- maybe down 10% or 15% in the first half of the year?

Yes.

Yes.

I think that's accurate.

I think that's right.

Yes. I just want to make sure the numbers are working that way.

Yes. No, that's exactly right. It's the hockey stick--.

--Right--.

--As Bob indicated. A lot of things coming together in the third and especially the fourth quarter.

Yes. I think if your model adds up in the prior year to around $2.73, I think is the operative comparable.

Yes, okay. Thanks, Bob. I've got it $2.76, so I'm sure there's just some rounding errors there.

And last question, I guess this pertains to the hockey stick, and Chris was asking this question. Just to go a little bit deeper on it. Then, would be as we then get into the silicon hydrogel toric in the latter stages of '08, as we get into the two-week disposable silicon hydrogel maybe sometime in '08, do these front-end loads recur again, and so we just kind of go through the same thing in '08 until we finally get into '09 and all these products are out there? Or how should we think about the gating of those expense versus revenue issues relative to how it's played out here on the Biofinity sphere?

Well, I would say that front-ending one thing on us, from a startup cost point of view, the next one out is on the Gen-2 platform. It's not on an all-new invented platform. So, from a startup cost point of view, that part should be easier. From a marketing perspective, the market is well established in the two-week modality out there.

So, I do think there will be -- it will be a normalized rollout, as far as number of fitting sets that are going out there, but I don't think there will be an extraordinary amount of up-fronting that.

For example, some of our up-fronting, as I indicated, is R&D. It's really R&D development making the production side more robust. And then, on the marketing side, a lot of that was just educational in terms of not only silicon hydrogel, but also the 1-Day push.

Great. Thanks, Bob, for the clarity there. I appreciate it.

I guess we're going to have to make this our last question from (Dana Walker). We've been on an hour and a half, and that's well past our usual time.

Dana?

Thank you.

We can walk our way -- or perhaps -- I guess I'd like you to help us walk our way on the revenue front. You talked about the expense profile, how Q of the second half versus the first half would favor nice flow-through. Can you walk us through the revenue increments, where you would need to be $200-plus million from CVI per quarter, whereas in Q2 you were at 188?

Okay.

Well, I think--.

(--Inaudible.)

Yes, without giving you -- we gave you the U.S. momentum number for silicon hydrogel of the $5 million to $7 million.

U.S. That's--.

--Which is U.S. only.

That's U.S. only.

All right? And keep in mind that you, then, would have a substantial continuation of the rollout in the rest of the world, or most notably Europe. So, that's factor number one, in terms of we're talking about how do you get another $37 million of revenue out of Cooper, of which 36 comes from CooperVision.

Factor two is the fact that we're really just rolling out the Proclear 1-Day with adequate capacity. And so, your growth is going to come from 1-Day. Your growth is going to come from the continuation of the overall Proclear product line. And your growth is going to come from the Biofinity, which is, year-to-date, I think only $2 million in aggregate over six months.

And the second half, Dana, as you know, the third and the fourth quarters seasonally for us are stronger quarters than the first two quarters. So, there's the natural seasonality lift, along with the new product launches. So, you get the natural lift, and then you top that off with the specific impacts primarily of the single use, Proclear Single Use and the Biofinity.

On another topic, you have formalized your Biofinity pricing. How does that compare to earlier thinking?

The same.

The same. It was always to be marketed between PureVision and Oasis, and that's right where it's slotted right now.

Final question relates to your now-expected capital expenditures in '07 and your best view of '08 and '09.

'08 and '09 (inaudible).

As far as '08 and '09, you may recall we've talked about stepping down capital about 30% off of where we've been running, so in the neighborhood of $110 million range.

And the only caveat we've put on that is -- pretty much, is we've spent a lot of money on the silicon hydrogel platform, to the extent that the 1-Day market really takes off, and we have to stay somewhat on top of that. Internally, I've indicated that we can get another 20% expansion out of converting lines on existing Gen-2 line capacity we have in-house. So, that takes us from 10 to 12.

But, quite frankly, if 1-Day really takes off, the one upside potential in terms of more capital would be that we really have to stay ahead of that curve. And by that, I mean about 12 months in front of that curve. And so, that would be the one thing that could push above the $110 million range in terms of a run rate in '08 and '09.

And remember, Dana, you put in a Gen-2 line for single use, and your payback is like a year and a half. So, it's pretty rapid turnaround. It's technology we understand, etc. And in a sense that's good news because it's driving the market.

But, we've got to make a decision as we look out in our demand forecast, because there is a year lead-time between first order of the piece and producing (inventoriable) units coming off the line.

Gentlemen, thank you.

All right, Dana.

Thanks very much, everyone. You know you can always reach us in California if you have other questions. Good night, and we'll see you next quarter. Thanks very much.

Good night.

Thank you, sir. Thank you, again, ladies and gentlemen. This brings your conference call to a close. Please feel free to disconnect your lines now at any time.