酷柏 (COO) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Cooper Companies third quarter 2007 results conference call. My name is Rob, and I'll be your operator today.

Throughout this conference, all lines will be on listen-only. (OPERATOR INSTRUCTIONS)

At this time, I'd like to turn the conference over to your host, Mr. Norris Battin, Vice President of Investor Relations and Communications.

Thanks very much, Rob.

Welcome to everybody to our third quarter call. With me today are Tom Bender, our Chairman and Chief Executive Officer, Bob Weiss, our Executive Vice President and Chief Operating Officer and soon to be Chief Executive 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 Statement" in today's earnings release and are described in our SEC 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, let me turn the call over to Tom for his opening remarks.

Thank you, Norris, and welcome, everyone.

I think we're going to follow the same exact format we've been doing for quite a few years. I'm going to give you an overview of the market or some of the highlights with what's happened in the last quarter.

I'll also then refer to some of the major highlights with the, our contact lens business for this quarter and for the year-to-date, we've certainly had a much stronger quarter and some comments maybe about the surgical, also. Then I'll turn it over to Bob. Bob then will turn it over to Steve and then I'll make some comments after that and we'll get on to the Q&A.

Let me begin by talking a little bit about the market. Close these doors. We got some dogs in the background, so sorry about that, nothing like a little surprise.

Anyway, let's talk a little bit about the market highlights. Obviously this was a stronger quarter in the second quarter on a global basis and as well as in the U.S. over the first quarter. Not too surprising since a couple of events are going on.

Number one, CIBA seems to have their act a little bit together on 02 Optix and beginning in the second quarter they started to at least start shipping some product and I think we can expect for the third and fourth quarter that they'll be back onstream with that product.

On top of that, of course, we have now been gearing up and expanding our Bioinfinity sales throughout not only in Europe, but we've also got a little bit of sales in the second quarter in the U.S., not a lot, but certainly in the rest of the year we expect to have much stronger sales with our silicon hydrogel.

And I think the third event that probably has some impact on the second quarter is this continued growth of the daily disposable market at the expense of the reusable [series] and I'll get to that in a minute. But the market was up 5.5% in the quarter, now we're up 4% year-to-date. We still expect by the end of the year the [marketing] costs in currency will be darn close to 8% in the 7 to 8% in constant currency for the reasons I just gave you.

I think the CIBA strength, hopefully, and I'm sure they're hoping, in their silicone hydrogel product are expected better results and continued stronger results in Bioinfinity as more and more of our manufacturing comes online and I think that the impact of the one-day market on the sphere category in increasing value.

Let's get to from a geographic standpoint what's happened in the U.S. We had very strong quarter, 8% growth in the quarter, for the year-to-date we're up 5%. Again, I think for some of the reasons I just gave you, the one-day impact certainly has had a major impact or some impact on the valuation in the U.S. market and I'll get to that, as I said, in a minute.

Be aware the U.S. market, we talked about it, I think it's important to remember because some of our analysts, I must tell you, I think forget that it's only 37% of the global market. We're going to be talking about global market here and you should remember that the rest of the world represents 63% of the world soft contact lens market.

In Europe, Europe remained pretty soft again this quarter. Basically down, really, 1% from a year ago and year-to-date it's flat. Of course, we're not flat, we're getting market share, but the market in Europe is pretty flat. By the way, Europe represents about 27% of the world market.

Asia, which represents about 34% of the world market, continues to grow well. Year-to-date it's up 9% but in the quarter it was up 13%.

Now let's go to products and, by the way, I think the way to look at products in the marketplace, the easiest way to look at it is put it in three buckets. You have reusables spheres which represents today about 42% of the global market. That's down from 45% for the first six months of last year.

In fact, the sphere category year-to-date to date is down. The reusable sphere category is down 1% on a six month to six month basis and that's primarily where the silicone hydrogels play.

The second biggest category, of course, is daily disposables which represents 32% of the global market. It's up year-to-date 12% as I said in a market that's up 4%. So it continues to gain share from the reusables sphere market. So it's gone from 30% share six months, you know, in the first six months of '06 to 32% after the first six months of this year.

And the third bucket, of course, is specialty lenses and that represents 26% of the global market and, of course, the categories that are in there are torics, multifocals and color and we all know what's going on in the color market. It continues to decline. I think it's down around 6%. So there's real growth in the specialty market and what's really pushing its growth is torics and now multifocals.

That category, by the way, was up just about with the market. It was up 5%. Cooper's, by the way, has grown 9%, our specialty business, which represents 43% of Cooper's business was up 9%. So we're growing faster than the specialty market. So when you look at it, I think this is the very easy, easy way to look at it.

As I pointed out, the daily disposable business continues to grow at the expense of reusables and it's interesting to look at the rest of the world outside the U.S. In other words, the 63% of the global market, 45% of the soft lens revenue outside the U.S. now is driven by daily disposables and that's up from 42% the first six months of last year.

In the U.S. where I think some folks that follow the industry don't understand, daily disposables are doing quite nicely. They're up to 10% of the market from 8% for the first six months of last year.

So even in this country the daily disposables are doing well and I think it's for a lot of the reasons we've talked about in the past for that reason. And I won't get any more into specialties I think at this point.

Let's talk about silicones a little bit, what's going on with the silicone market. I think it's in the press release, but it's 25% market share on the global basis. That's 24% versus last quarter and it was up 19% in the year for all silicone products.

In the Americas it's interesting to look at it and that represents about 73%, I think, of the global silicone hydrogel market. It grew 24% and then represents 45% of the overall market in the Americas. In the rest of the world the silicone hydrogels were only up 7.5% and only represents 12% of the overall 63% of the rest of the world market.

An interesting other point that I found very interesting is when we look at HPR data in the U.S., the number of new patient, or I should say, percent of new patient offices it's for silicone hydrogels actually went down from quarter-to-quarter, went down from 47% down to 46%, I believe.

With that, let me talk a little bit about our performance in the quarter. We believe we had strong revenue performance, certainly stronger than the market was expecting and it was across both businesses, both CooperVision as well as CooperSurgical.

And I would tell you we expect our fourth quarter performance to be better than the third quarter. And those of you who followed this company for the last 13, 14 years you know that historically our fourth fiscal quarter is always stronger than our third quarter.

And only one year, or one year that I can recall, it wasn't was last year and I think you all remember we had a bitch of a time getting product out of the U.S. distribution centers and that was the reason we didn't have higher sales in the fourth quarter and the third quarter.

So we expect to continue to have good sales and we're also expecting, and I think you can see now we're growing a little faster than the market. We said we would. We are and especially when you take a look at our business outside the U.S.

As I pointed out, the rest of the world represents 63% of the market. That business is up 3% year-to-date. Our business outside the U.S. is up 7%.

So we're certainly getting -- that's doing well for us and we expect the U.S. business, I'll get to in a minute, continues to strengthen from a quarter-to-quarter basis. Sequentially every quarter we're getting stronger in the U.S. and we expect to be much stronger in the fourth quarter going forward in next year because of the fact that we now have Bioinfinity.

The results, I would tell you also, looking beyond 2007 we expect to be strong in 2008, too. We continue to believe that we can grow faster than the market in 2008.

CooperSurgical again had a very strong quarter. Again, sequentially every quarter their business gets stronger. We got organic growth of 8%, so for the year we're about 9% for the first three quarters of our fiscal year, very strong organic growth.

Let me talk a little bit about highlights. Some notable highlights for CooperVision that I think everybody should take some notice about.

Number one, we're regaining strength in the reusables sphere category. I think that's very important. We actually had growth this quarter where we didn't have growth for the first two quarters and some of that obviously is impact of Bioinfinity.

Secondly, if you look at, again, the daily disposable market where we are growing faster, much faster than the overall market, it's very significant that we gain the number two position in the largest daily disposable market in the world which is Japan. We replaced CIBA as the number two player this past quarter, I should say it's for the full-year in Japan.

We've now rebounded in the U.S. versus the last couple quarters I pointed out and I think it's very important to point out, too, that when we look at HPR data we can see that now we're without a doubt the number two company in the U.S.

We replaced CIBA in the number two position. We've always been fairly close to CIBA in new patient office visits, always felt that CIBA was higher than we were in revenue, but the difference now, the delta between CIBA and Cooper in new patient offices is almost 4%, very, very large percentage point.

I would also point out to you that I think it's very important when we talk about virgin eyes, and those are patients who are new to contact lenses, we looked at J&J and Cooper together. The two companies together almost control two-thirds of these patient visits from patients who have never worn contact lenses.

On the global basis talking about our toric business, again we have rebounded very nicely this quarter. If I look at the toric business on a global basis in the quarter in the U.S., I should say for the overall market, the market was up 8% for the quarter.

Cooper's fiscal quarter was up 7% for the year, the market is up 8.5% and we are up 4%. So you can see that we have absolutely started to regain our strength.

If I look at the U.S., in the U.S. for the quarter, we were -- the market was up 6%. We were up 4% in our fiscal quarter and for the year the market for torics in the U.S. is up 3%. We're flat.

If I look at the rest of the world, you can see where our strength is. The market was up 10 and we were up 10%. So we grew right with the market outside the U.S.

In the U.S. where we were losing share at the silicone hydrogels and we were, we've certainly stopped that decline at this point. We are starting to turn it around and then, you know, we hope to have a silicone hydrogel product by the end of 2008 so it gives you some overview of the toric market. I know there's always questions about it.

In our overall specialty business when I look at all of our specialty business, which is 43% of Cooper's business and it's 25, 26% worldwide, again, we grew faster than the market. I think I pointed that out once before. The market was up 5, we were up 7%.

One more last point I want to make about the Proclear which I think is really important. When I talk about silicone hydrogel market, and everybody loves to talk about it because it's a U.S. business, silicone hydrogels were up 19% year-to-date and represents 25% of the global market.

Proclear, which is our premium material product, represents about 25% of our business. It's actually 24% of our business, but that business for us was up 27%.

So we're growing our specialty business pretty nicely for Cooper and now we're going to be able to participate even at a higher level, you know, with the silicone hydrogel market. So we're going to have both Proclear and the silicone product driving our growth into the future.

So with that, Mr. Weiss, I'll turn it over to you.

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

Highlights for the quarter, certainly, top line is a big part of the story. We had revenue for the quarter of $252 million, up 12% versus the prior year third quarter and that's an improvement of 9% in constant currency.

CooperVision with revenue of $212 million for the quarter was up 9%, 7% in constant currency, while CooperSurgical with revenue of $39.9 million for the quarter was up 26% and had 8% constant currency or organic growth.

Earnings per share GAAP number was $0.18 which included $0.58 of call-outs. The call-outs are representing costs for share-based compensation, acquisition and integration expenses, production startup costs and an intellectual property and securities litigation costs, all described in detail on the earnings release.

As far as earnings excluding the call-outs was $0.76 and if we adjust for equity compensation, $0.69. Major events for the quarter included doubling of our production of Bioinfinity as a run rate during the quarter.

Costs are now, as we exited the quarter, about one-eighth from where they were at the beginning of the year in terms of production costs. Silicone hydrogel rollout in the United States started the end of June, so we had one full month of revenue activity.

Bioinfinity worldwide doubled itself during the quarter to $2.8 million compared to the second fiscal quarter. U.S. distribution is now under one roof. We finally did what we said we'd do last September in terms of the U.S. integration and now have all products in the United States distributed from one location in Rochester

And lastly, we opened up an office in China as part of our continued expansion into the Asia Pacific theater.

As far as CooperVision results highlights, Tom touched on many, but overall our soft lens sales outpaced the market for the quarter. While the market rebounded to 5.5% compared to 2.9% in the second calendar quarter, we grew for the third fiscal quarter basically 7% in constant currency.

The market reflects strong one-day growth up 11% worldwide in the one-day disposable space. Silicone hydrogels were up 19.5% for the quarter.

While we were up only 4% in the calendar quarter, as I indicated, we were up 7% in constant currency for the fiscal quarter. That reflects some of the launches that we did primarily in the July time period with Bioinfinity in the U.S. as well as the ongoing push of the one-day.

As far as key products that supported that growth, single-use spherical lenses were up 34% for the quarter and now represent 15% of our revenue. The Proclear family of products was up 23% and represents 24% of our CooperVision revenue.

Bioinfinity, as I indicated, was $2.8 million, double the prior quarter. Our multifocal family of products was up 24% and represents 6% of our revenue while torics were up 7%, all of these in constant currency by the way, and now represent 35% of our global revenue of lenses.

Importantly, the U.S. was up 4% and the rest of the world was up 9% in constant currency. The rest of the world represents 53% of the market.

The Proclear family today is a $50 million product line for the quarter or annualized $200 million and represents 24% of CooperVision's revenue. Geographically the driver was Asian Pacific, up 33% accounting for 17% of our soft lens revenue.

Our (inaudible) highlights discussed for our Proclear family of products, the building of a one-day modality momentum, early stages of silicone hydrogel introductions albeit still somewhat modest given we've just introduced at the AOA at the end of June and in Boston, and solid progress in our Asian Pacific growth strategy including the expansion into China which is an $85 million market.

Thus far on 2007 we launched three new products, Biomedics emerging EP for emerging presbyopia, the Proclear one-day high-end single-use one-day, Proclear toric multifocal filling a need for astigmatic, and overall the combination of nine products have been introduced since the beginning of '06. Of those three are in the one-day stage. Three are torics and four of them are part of the Proclear family of products.

Overall including the conversion onto the one-day strip-blister to enhance wearer convenience, our new products now account for 20% of our revenue and our objective is to achieve 75% of our revenue as new products by the year 2011 when we're targeting to hit a number two position worldwide in the marketplace.

On our silicone hydrogel front we had a tremendous quarter in terms of progress, doubling our output over the past three months. We also made great strides in cutting our costs which are now one-eighth of where they were at the beginning of the year.

All in all we're very happy with the recent production successes. We're excited about the fact that our capacity as we enter the fourth quarter now can support a $10 million per quarter product line going forward.

As far as integration in the third quarter with another very important quarter for integration plan, very active. This is our integration plan which is a three-year plan for combining CooperVision and Ocular Sciences.

Major milestones included the completion at long last of the one U.S. distribution center in the United States in Rochester. This has been a challenging project, but I'm very happy to say we finally got it done.

Several U.K. satellite locations also were shut down. We successfully exited leases which have an aggregate about a $2 million annualized run rate and cash flow savings and restructuring our overlapping costs savings which reflect the fact that we're now in Delta Park in the U.K. has the distribution center and the U.S. having one location.

We successfully integrated and completed the shutdown of our French plant which we acquired with the Ocular acquisition, and during the quarter our Belgian distribution center in Liege took over additional mainland Europe shipping activities as we continue to improve the efficiency at which we service the European market.

These successes and the significant reduction in silicone hydrogel production startup costs that I just mentioned will see to it that we are substantially improving our outlook for 2008 and beyond. We expect more than a two-thirds reduction in our call-outs excluding equity-based compensation next year.

CooperSurgical results also reflected a solid quarter, delivered an outstanding revenue at $39.9 million, up 26% versus the prior year. Importantly organic growth was 8%.

Contributing to this solid performance is our hospital surgical product line including laparoscopic products which were up 2X above the prior year. Sterilization, which reflected the Filshie Clip, was up 9%, and our hospital business had annualized sales of $44 million and now account for 27% of our CooperSurgical revenue which is around $160 million in its current run rate.

The outstanding progress for this strategy which is less than two years old is reflected in the fact that the hospital surgical products were up 56% for the quarter and importantly were up 17% organically.

CooperSurgical had two acquisitions this year that reflect the fact that since the early '90s we've now had over 30 acquisitions of businesses and product lines. The most recent of the two this year was Wallach Surgical Devices, a manufacturer of gynecology devices used primarily in the practitioner office with annualized revenue around $10 million. It was completed in February of 2007.

In the first quarter we also acquired the Lone Star product line which is a $9 million product line which basically had the Lone Star retractor system which places a retraction ring around the surgical incision site for minimal invasive surgery. Both acquisitions are accretive within their first 12 months and in both cases we expect to deliver in excess of a 30% average return on investment over the first five-year period post acquisition.

As far as guidance is concerned for 2007, we increase the bottom end of our range for revenue to reflect a strong third quarter result on revenue. For EPS we have revisited our projection in the face of a new projected effective tax rate of 19.5% and a higher interest expense, as well as investment spending in the area of research and development and marketing program.

Revisions to call-out expenses reflect in-process R&D write-off from the acquisition allocations write-off, U.S. distribution center integration delay through July of '07 as well as heavier silicone hydrogel production startup costs as we continue to work through debugging the new methodology as a new manufacturing platform for Bioinfinity.

Our guidance was as revised is $790 million to 810 for Vision which would be (inaudible) 8 to 10% this year, CooperSurgical 150 to $157 million, growth of 20 to 26%, and overall Cooper $940 million to 946, ir a growth of 19 to 13%.

Earnings per share excluding call-outs, $2.60 to $2.90, and once again, $0.20 of that is, the reduction is the effective tax rate change. Share-based compensation is projected at $0.33 to $0.35 and overall GAAP is projected at $0.50 to $1.

As far as 2008 is concerned, we expect to grow our top line faster than the growth of the marketplace for soft contact lenses and we expect that earnings next year will outpace our revenue growth excluding call-outs, and we expect that, as I indicated, we'll have a substantial reduction of call-outs excluding share-based compensation as we wind down our three-year integration program for Ocular.

As far as post 2008 one would expect that there will be another substantial reduction and that 2009 will be essentially a clean year of call-outs.

Tax. Our effective tax rate jumped to 33% from a GAAP perspective, 19.5% excluding call-outs. This increase in our tax rate reflects the fact that we had significant write-offs this year and startup costs all in lower tax jurisdictions, and also reflect the fact that the strength of our growth this year on revenue is very much products that we make in the U.S. and sell in the U.S. which is unfavorable to our tax mix.

Looking forward to 2008, essentially all of our growth in 2008 will come from products that are made outside the United States in the U.K. and in Puerto Rico and as a result of that we are projecting coming back into line with a tax rate in around 13 to 16% going forward.

Capital expenditures. We spent $39 million during the quarter mainly on silicone hydrogel production and one-day capacity expansion. We remain on track for $160 million in Cap Ex this year.

As we look to 2008, we expect to gear our Cap Ex needs to remain a winner in the market share gains in this industry which means we continue to look to invest in the area of new silicone hydrogel products as well as the one-day modality and are also likely to expand and put a footprint in terms of production in the Asia Pacific market going forward as we continue to ramp up production.

With that, I'll turn it over to Steve who will cover in more detail some of the financials.

Thanks, Bob, appreciate it. Good evening, good afternoon, everyone.

I just wanted to give everybody a heads up for those that haven't found it on our Web site in the Investor Relation section we actually include vision market and product data. So if you didn't catch or don't catch all of the numbers, I think it's a good place to go to see trends and performance both internally in the market as well as regionally.

Looking at gross margin for the Company, our third quarter gross margin as reported was 58%, and when you exclude the $13.8 million of identified items in cost of goods sold that primarily relate to the production and startup costs and restructure expenses, our gross margin was 63% which is the same as the third quarter last year on a comparable basis.

Production restructuring expenses and inefficiencies, as Bob noted, relate to the implementation of our Ocular integration plan, and manufacturing and inefficiencies are expected to decline in the fourth quarter as production startup inefficiencies begin to subside with the ramp up and production volume.

In 2008, again as Bob noted, we expect production inefficiencies to decline significantly as the production volumes grow and as product moves to new efficient production lines that we've put up in the past two quarters. We do expect some new inefficiencies associated with the two-week silicone hydrogel line, but at a much lesser rate than what we experienced with Bioinfinity.

Looking specifically at the Vision group excluding identified items, the gross margin in the quarter was 64% which on a comparable basis is the same as the third quarter last year, and product mix changes in the quarter, again that were noted, Proclear material in constant currency increased from 20 to 24% of our total sales, and single-use lenses increased to 15% of our top line sales compared to 12% in the third quarter last year.

Looking at the Surgical group, gross margin 59% in the third quarter as comparable to the margin on third quarter last year and when you call out the inventory step up costs and stock option expense, it's actually 60% this quarter reflecting the production inefficiencies that we've generated through our efforts over the past several years.

Looking at SG&A, the selling, general and administrative expenses was 41% of sales in the third quarter, compares to 40% in the third quarter last year and when we exclude the specific items SG&A was 36% of sales compared to 37% last year. The current year reflects the impact of higher sales as the Company continues to increase marketing expenses in advance of new product launches.

With new product launches we rollout fitting sets and trial lenses as well as incur advertising to professional practitioners in advance of revenue recognition. As a result, the selling costs increase in periods in which significant new product launches are occurring.

Looking at R&D in a little bit more detail, R&D expenses in the quarter were $8.3 million, or 3% of sales once you exclude the stock-based comp and acquired in-process R&D, those amounted to $3.2 million in the quarter.

This $8.3 million compares to 5.7, also 3% of sales on a comparable basis last year. The increase in R&D spending reflects continuing product development activities associated with both business units.

That all sums down to an operating margin as reported of 9%, and including the specific items noted above which have an impact on the margin of 13% of sales. This adjusted margin of 22% is the same as in the third quarter last year on a comparable basis.

The Vision operating margin as reported was 13% and included specific items noted above which affected the margin by 12%. On a comparable basis the operating margin in third quarter last year was also 25%.

CSI operating margin as recorded was 8% and excluding the specific items, which is predominantly the acquired in-process R&D, was 19% and, again, that's comparable with the operating margin in the third quarter last year.

Interest expense in the quarter was 4% of sales which is the same as last year and that reflects borrowings to fund capital expenditures and the surgical business acquisitions.

Income taxes, Bob noted the reported rate for the year is 33% and when you exclude the identified item, it's 19.6% and we expect that the significant portion of the integration expenses are actually impacting tax beneficial jurisdictions this year, thus we've broken out the two rates. And we forecast for the full-year will be in the 18 to 20% range, but as Bob indicated, we should return to the 13 to 16% range next year as income by tax jurisdiction gets into what we would call a more normalized range.

That all sums down to net income for the quarter of $8.2 million, or $0.18 per diluted share. The specific items in the quarter amounted to $27.8 million net of tax, or $0.58 per diluted share.

Just a few more numbers here. Looking at the balance sheet in the third quarter our day sales outstanding, that's our collection of accounts receivable, were 59 days. That compares favorably to 61 days last year. Overall for the full-year we expect to be somewhere in the mid-60s.

And then for inventory our months of inventory on hand was 7.5 months. That compares to 7.9 last quarter and 7.7 in the third quarter last year.

We continue to build inventory to support our new product launches and distribution center consolidations, but we are turning that inventory faster as sales grow. We expect the inventory to maintain at the current levels because we are still funding new product launches and we have to build inventory to support the customer service requirement and we still have a bit of consolidation of the distribution center going on.

And lastly, our operating cash flow generated in the quarter was $47.4 million and this compares favorably to the $38.5 million in the third quarter last year.

I guess as you've had enough fill of numbers right now, so let me turn the call back to Tom for further comments.

Thank you, Steve. Yes, we've given them a lot of numbers today.

You know, the most important event in the quarter and the year happened not quite a month ago. I think all of you know that I've announced that I am stepping down as CEO and the board in their wisdom after a fairly extensive search agreed with me that my successor should be Bob Weiss.

So, Bob, as of November 1st, Bob and Steve will have the responsibility to take this company to the next level which will be a higher level than it is today. It's certainly not going to go down a level.

And number two, I think it's interesting to look back. Bob and I basically took over this thing, as I'll call it, in about 1993, it's about 14 years ago.

Cooper at that time had a wonderful market cap of about $35 million. We had sales of less than $40 million in our Surgical and Vision business and over the years with this wonderful management team and the support of the board of directors we have built this company to what it is today, almost $1billion.

I wish to God when I step down we were at $1 billion. We're not that far off and we'll be $1 billion next year for sure and we now have a market cap pretty close to $2.5 billion, treat our shareholders pretty damn nicely over these years, had a couple missteps along the way, really only one what I would call, or embarrassing one maybe, and that was over the last couple years.

I wish the integration went a little more smoothly than it did, but got that behind us and we're moving forward. And I know that all of you will be very supportive and I think you will be -- you'll share with the enthusiasm that I have that Bob and Steve will have a lot of fun and take this company to that level that we all expect, just like Bob and I, I know have a lot of fun. And I'm still going to be around to support both of them, but this show is in the hands of Mr. Weiss as of November 1st.

So with that, operator, I'd like to turn it over to some Q&A, please.

(OPERATOR INSTRUCTIONS)

[Jared Holtz] Jared are you there?

Yes, I'm here. Can you guys hear me?

Yes.

Okay. Great. Thank you. Just two questions very briefly.

One, I've spoken to a couple of optometrists and also distributors over the past few weeks and they're saying that, you know, they can buy the 50-box allotments of Bioinfinity, but they are not being shipped all those boxes all once. So I was just wondering how you guys are accounting for the Bioinfinity revenue thus far.

Are you booking it when the doctors are putting in the order for the, you know, 50-bank allotment or is it being treated as revenue at the time it's being shipped?

Jared, this is Steve Neil. All revenue is booked at the time that it's shipped.

Okay. Great.

And then just on the two-week and monthly business this quarter looks like it actually ticked up about $5 million sequentially. That's versus maybe four or five quarters of deceleration sequentially. Are there any, you know, significant one-time items in there? Is it 1-800-Contacts? Is it Proclear, anything we should know?

No, no. You know, it's very interesting if you look at our sphere business, our Proclear sphere business, well, let me take a step back. The sphere, silicone sphere market on a worldwide basis grew 14% year-to-date. It's interesting to see that our Proclear sphere business grew exactly 14.5%.

So to be frank with you, all of our -- it's not just single-use, but our Proclear single-use business is doing very well because now we have launched it in Europe as well as here in the United States as well as our overall sphere business has come back a little bit. We're still not where we would like to be, but we're sure in a heck of a lot stronger in our overall sphere business from where we were in the past two quarters and there's not anything in there that I would say was unusual, no big orders or anything like that.

Okay. Great.

And just lastly, then, you know, speaking about Proclear and Bioinfinity, you have all these very interesting products, just wanted to know the strategy going forward marketing them because, you know, you have a lot in your bag. There seems to be, or what could appear to be, some overlap in terms of the products you're offering Biomedics, Exceed, Proclear, Bioinfinity.

Now you have the Bioinfinity two-week. It seems to be creating a little bit of confusion. Just wanted to know how you're going to address that?

I'm not so sure I would agree with you it's confusion. It's like any other market. You always have one or two, three level of products depending upon patient need or, more importantly, maybe pricing.

If you look at the sphere market and I'll look at that, you have a silicone product, Bioinfinity, or our two-week silicone product that will be coming which will be a premium priced reusable sphere product.

Proclear will follow right below that. It has, certainly, a lower price point, but it has a very excellent performance record especially for end of the day comfort.

And thirdly, the hydrogels. The hydrogels aren't going away, but it is the lower priced product and with a heck of a lot of people, those products still work very, very well.

So it gives the doctor the opportunity to pick whatever they feel is necessary for their patient. I don't think you'll find any practice that I've ever seen where one doctor fits only one type of product. They fit all kinds of different products.

We try to teach our salespeople to profile different patients for different type of products. I think I've told you before we believe that the best product for a sphere patient, and a lot of doctors may not agree with us, but outside the U.S., but in they certainly do is a daily disposable product.

It offers the best safety factor. It's -- you get a new lens every day, so you get maximum comfort, maximum visual acuity. It's more convenient and, more importantly, now the price point now for a years supply of daily disposables are getting pretty close in line to the reusable premium products whether it's, it doesn't matter which silicone product it is.

So that somewhat gives you a feeling of where we are when we're dealing with the patient who needs a sphere product. Does that help a little bit?

That's great. Really appreciate it.

I'd just add one more thing to that which is if you look at the marketplace which is about $5 billion, 25% of that is silicone hydrogels and that's just the market that there are doctors primarily in North America that are convinced silicone hydrogel is where it's at. The products that we're introducing in silicone hydrogel are really targeting that market.

If you take the remaining 75% of the market, a lot of which is single-use, but a lot of it is other than single-use, Proclear is basically the top of the line of that market, and as Tom indicated, it's -- no doctor pretty much has it as one size fits all where they're only pushing one particular material or modality or anything. So Proclear has done very well while everyone else is looking elsewhere, it's capturing a lot of market share in that 75% of the market and it will continue as we expand into the one-day, the Proclear one-day.

Okay. Thank you. Tom, Bob, congratulations.

Thank you.

Thanks.

Mike Weinstein.

Hi, guys. It's Kim here for Mike.

Hi, Kim.

How you doing?

Pretty good.

Good. Good,

Just a couple questions actually on the P&L. I wanted to talk a little bit about gross margin and maybe specifically on Bioinfinity. You had some pretty positive comments on lowering costs there over the last quarter.

I'm wondering is Bioinfinity now at the corporate average? And I think we had talked about getting toward the corporate average the end of this year and then improving upon that probably with volume going into probably mid-'08.

The answer is we're still not at the corporate average in our, certainly, in our startup mode. As I indicated, our cost is one-eighth of where it was at beginning of the year and so it is rapidly coming down as volumes go up.

You basically don't need more -- on the same line you don't need more people. As we add new lines, we need a few more people, but that model will continue to improve substantially over the next 12 months. Going forward we would expect Bioinfinity will not be a detractor for our gross margin overall mix.

Okay. Okay. Great.

And then on the call-outs I think it's encouraging to hear you talk about meaningful reductions to the amount of call-outs for 2008 and I guess I'm just trying to get a sense of what's still in there, you know, what's going to be left to be called out in 2008 and for example, when we look at, you know, ramping up the two-week silicone hydrogel, are those costs going to be called out even though that's really not part of anything merger related?

Yes, the continuation of startup that will continue to drop off reflects the, if you will, we're still ramping up Europe in terms of consolidating distribution centers in and folding into Liege and wrapping up Delta Park. So we're not totally done. We're done in the U.S. now going forward, we're not done in Europe.

Silicone hydrogel, yes, Bioinfinity's still in a start up production cost mode, that will drop off. We also have the run rate of the IP litigation that will continue as long as it continues. And then to a lesser degree there will be startup costs associated with the 100, but understand that is more on a main line platform and more conventional to us than is Bioinfinity which is on an entirely new manufacturing platform.

So there are the components and therein is our comfort level that there will be a substantial drop off next year as we make a lot of progress on those fronts, distribution center consolidation as well as Bioinfinity.

And restructuring.

And restructuring, thank you. Yes, there's been a number of write-offs in the numbers this year, also.

Okay.

So that's helpful. And just to be clear on the two-week product, then, so you will go ahead and call it out. You're just saying that the costs are less so that it won't --

Correct.

Okay.

And then the last question and I'll drop here is you alluded to kind of Cap Ex in 2008 and I think people had, you know, planned on probably Cap Ex dropping down a bit, but it sounds like obviously there's still going to be some spend for new projects.

So should we think about Cap Ex coming down in '08? Are we looking at another $160 million?

You know, it's going to be a function of how aggressively we go after the one-day modality, number one.

Number two, and I don't want to overplay it, but just FYI on most of the product that we -- most of the Cap Ex we incur is in euros and the euro has certainly strengthened, so that's a component going forward.

And lastly, as I mentioned, we're going to be looking at establishing a footprint in Asia Pacific and then, of course, the decay, there was, the two-week sphere [mark] will be the fourth piece.

So if we -- as we look to 2008 are more aggressive at the top line, more aggressive, see more opportunities in the one-day market, we don't want to get behind the curve and have, telling you a year from now that we're capacity constrained. We want to be able to deliver and that does mean some up front commitment. So if what you're reading is a stronger commitment to Cap Ex next year, that's probably accurate.

Let me make a couple comments here. One of the things, and we don't want to be behind the eight ball ever again in the daily disposable market. I mean that's just a no-no and, you know, we talk an awful lot about silicone hydrogels.

I say this probably in every conference call, but the most important event going on in the soft contact lens market is the movement of modality. Modality to daily disposables and as a company we have to be there.

We have to have the capacity. We can't be behind the eight ball and we have a unique strategy in that market where we both have a premium product and a nonpremium product. We're the only company that has two different price points, different products for two different needs in that market.

We've got a huge opportunity in Japan with Proclear daily disposables. We're hoping to have that get through the regulatory process and be able to market and be able to market that product in Japan by the end of 2008. That's certainly what we're hoping to do and we've got to have the capacity there to do all this. Okay?

Okay. That's really helpful. Thanks and congratulations to you both.

Thank you.

Thanks.

Larry Biegelsen.

Hey, Larry.

Hi. Thanks for taking my question. Can you hear me okay?

Sure.

Just fine.

A few questions.

First, again on the manufacturing or production startup costs, how much can we expect in the fourth quarter? And you alluded to the one-time charges being down about two-thirds in 2008, if I heard correctly. Should we assume the production startup costs will also go -- that two-thirds will apply in '08, you know, to what we see for full-year '07?

And then I'm curious to why there's nothing in '09. Will you be developing, you know, new products beyond Bioinfinity and the two-week silicone hydrogel and the toric that will require, production startup costs or are you saying that you won't have any?

I think the answer to '09 is by then, yes, you're always going to have some new product launches and new product startups, not in the league of going into a brand-new material and we haven't had a new material --

Or a new platform either.

Yes, a new platform and a new material. Keep in mind we haven't had a new material in the industry prior to 2004 for the prior 20 or 30 years. It's not like every day the industry turns on a dime and shifts 25% of the market.

So were there special challenges getting into silicone hydrogel? Absolutely. Will we have new products in 2009? Absolutely, but will the new products be leveraging existing platforms? The answer is yes, we're not going to try to create yet another new platform like we did with Bioinfinity, like we did in really leveraging the gen 2 platform that we acquired across a broad breadth of other different products. So that's why we expect it to drop off.

Relative to the fourth quarter as far as overall call-outs, I think you can subtract the numbers and get a gauge on what the call-out amount is. I think if I'm not mistaken it's $0.40, something like that if you do the math at that one part of the range, and so there will be a fairly healthy amount of integration going on in the fourth quarter with the idea that by the end of October we will be pretty much done with Delta Park in the U.K.

That one will be behind us and then it's just continued phasing of the distribution centers throughout Europe converting into the Liege facility.

Startup mode, other than to say I gave some gauge of how rapidly the cost is coming down with Bioinfinity, you know, look for that to continue to ramp down, not at that rate of going one-eighth of where it was in November, but obviously, there's some component of the first X amount is easier than the second X amount, but we have a lot of progress still to make and we're pretty confident we're pointed in the right way.

Bob, I'm sorry, the production startup costs were about $10 million in this quarter, about $7 million last quarter by my math. The fourth quarter should we expect it to be higher in the fourth quarter of '07, the production startup costs, and then the two-thirds reduction in '08, does that apply to the production and startup costs?

Yes, it does apply to production and startup costs and the production and startup costs in the fourth quarter should be ramping down. I'll kind of look to see a little bit if you want, I can't add any other color on that.

It should be below the third quarter '07?

Yes. That would be our expectation because remember we're putting out more product off the same existing cost base.

Okay.

Bob, what changes, if any, could we expect from you as you take over for CEO? Any kind of strategic direction, any color you could give us, you know, about maybe how you think about CooperSurgical would be helpful. And then I just have one quick one after that.

Okay.

Well, Tom and I have, as Tom mentioned in his closing comments, have been working hand in hand since 1993. The strategy that we have has largely been co-authored, so don't look for a major reshifting in the strategy.

Having said that, I certainly am my own person and will do certain things differently, but from a strategic direction point of view I'm a firm believer we're in a great industry in contact lenses, very much in sync with being aggressive and gaining market share in soft contact lenses with Proclear family, our silicone hydrogel products and the one-day modality.

And look to me to be pretty aggressive in terms of gaining share in Asia Pacific, however, I can do that meaning there could be pockets of, there are some small company acquisitions that maybe would be on the horizon. We're going to certainly kick the tires, not to say we have anything right now on the shelf to pull off, but building market share is not only through internal organic if we can find the right small acquisition.

As far as women's healthcare, I've certainly been a supporter of our women's healthcare strategy since the early '90s and will continue to support that going forward.

So the only other thing I would say is I won't rush into a third leg of the stool, if you will, in terms of a brand-new segment without a lot of board involvement and board rethinking and it's not something that we be short-term I'm going to spend a lot of energy. I think there's plenty of opportunities in the two segments that we're in.

Thanks. And just a quick one.

How many fitting, Bioinfinity fitting sets have been distributed in the U.S.? Will you disclose that? Thanks.

Yes, we're at a run rate of about 1,000 a month with about half that in the month of June. So we're, as we are today we're close to 3,000.

3,000 at least.

Thanks and congratulations, Bob and Tom.

Thank you, Larry.

Andrew Swanson.

Thanks very much. Just a couple of quick questions.

Firstly, on the tax rate I was wondering if you could just, you know, sort of review what has changed in terms of your thinking on the tax rate and is that sort of the run rate that we need to think about for the business going forward?

No.

Okay.

Well, just to reiterate, the effective tax rate going up to 33% from a GAAP point of view to 19.5% from a call-out perspective. What's shifting us from around the 15% mark up to the 19.5 was the shift in product growth in the U.S. which was mainly product made in the U.S., growing in the U.S. and selling into the U.S. That causes us to generate a lot more profit in the U.S. and shifts our profit, our effective tax rate higher.

What caused us to go to 33% is the fact that most of our restructuring, most of our startup, is in lower tax jurisdictions offshore and as a result of that, we're getting a lot less benefit for those startup costs and write-offs.

As far as going forward, as they go away then our effective tax rate will rapidly drop back down from a, excluding the call-out perspective of 19.5%, all of our growth next year is going to be primarily one-day and silicone hydrogel as opposed to only sponsored by U.S. made Proclear material.

As a result of that, meaning some of the growth in the Proclear material will happen in the one-day modality that will be offshore sourced. That shifts our tax rate back to where it would be normalized in the 13 to 15% range.

And, Larry, (inaudible) just to provide a little bit of clarity. What we do to come up with effective tax rate as required by GAAP, I'm sorry, Andrew, as required by GAAP, is you have to project forward what the rate is and what our projections changed because during this year we actually anticipated moving some production to offshore facilities.

We chose instead to build up capacity of our Proclear single-use lens offshore. So you change where that product is sourced changes the taxability structure. So that's the primary impact.

Go into next year, again, as Bob said, most of the growth is coming from globally sourced products, so you go back to the normal mode. Hopefully that's not too much detail and gets you close to what your understanding should be.

No, that's perfect.

And then just back to the distribution of test kits, I was hoping you could just walk us through the timing of when a test kit arrives in a physician's office, you know, how long before that physician is likely to become an ordering, recurring customer who's making purchases of Bioinfinity lenses?

Well, from the day it arrives we expect that particular account wanted it and they start from the get go once they get their kit. So that order is literally the first day they're putting it on eyes and trying it and ordering it.

Okay. Perfect. Thanks very much.

Mark Mullikin.

Good afternoon. Can you hear me okay?

Yes.

I was wondering if you can provide a little bit more granularity as to the factors causing you to lower the EPS guidance both in terms of the adjusted number as well as the additional factors that are impacting the GAAP number? I know you said marketing and R&D costs, but can you just flush that out a little bit more?

Well, I'll start and then I'll let Steve jump in somewhat.

The effective tax rate implication is over $0.20, so if you were to take the 19.5% down to, I think we had, actually projected 13.5% for the year, you will -- that's like $0.22 if you were to do just that switch alone. So taxes is a big part of that reduction.

Next is interest rates as we all know that -- well there, are two things. One is we did spend more money in terms of use of cash on a number of things including startup costs this year than we had planned.

We also had an increase in interest rates that normalized throughout the year from a cost of money perspective. So those things have impacted the interest rate. Of course, the interest rate carries forward. The taxes, as I indicated, drop back to where they belong.

As far as other call-outs which included in-process R&D, that's a by-product of an allocation of purchase price. You buy a company. You go out and engage an appraisal company. They look at the different things you bought and then they decide interacting with you what is the appropriate amount to allocate to in-process R&D.

When we look at companies, we look at what we're buying certainly from a technology point of view and from a customer perspective and all that. Our emphasis is on how it fits with our corporation going forward.

Accounting looks backward. It's look at the company you bought. Did it have distribution? Did it have in-process R&D and it does whatever it does in a black box mode and we then just live with it.

That's not how we make our business decisions. It's how the accounting world works. As a result of that exercise, that's when you find out that appraisal companies will go in there and say okay, we're going to look at X, Y, Z R&D, allocate value based on a certain formula and then allocate value to that from that perspective.

Now I was a little simplistic in saying it only looks back because some of that exercise looks forward, also, but it looks forward on a standalone company basis and it certain looks backwards when it comes to customer accounts and, if you will, if we buy a company that has customers for all of the gynecologists in this country where we already have them as our customers, we're not buying a new customer list, we already got the list, so to us it has zero value. To accountants it has a lot of value because you look to the standalone entity.

Hopefully I didn't confuse that too much. Steve?

Yes. And the only other comment on when you look at the GAAP earnings that's really changed in our estimates, Mark, is really two primary things changed from what we would have estimated the beginning of the year.

That's the timing of our distribution consolidations, having experienced what we did in the fall last year, we weren't about to consolidate the distribution centers at the risk of hurting customer service, so we had duplicate distribution centers running for a lot longer during the year and our customer service was a lot higher during the year.

So customer first and you spend a little bit of overlapping dollars. That's what you spend to get that. That's out of the way now, certainly, in the United States but we spent more.

And then the second thing is, is we had to estimate the beginning of the year the ramp up that we would go through in silicone hydrogel and, frankly, it's a difficult product and process to jump onto. We feel much more comfortable now but that was an estimate that we had and then we just had to update that.

So, and again, that's going to start to trend down now as we're getting more product out of the existing line. So those were the two biggest items other than the acquisition related items that would have affected GAAP earnings.

Okay.

And then on silicone hydrogel, you mentioned in the press release that you're at $10 million of revenue per quarter in terms of the capacity for the product and you generated $2.8 million this quarter. So is that an indication of what you expect to generate next quarter on a go forward basis? Should it be at least $10 million?

Well, once again, some of what we were doing right now is upfronting, we're investing in those kits out there and there's a lag. So don't expect that just because we're there as of July 31st we immediately step up to $3.3 million run rate per month.

That will certainly pick up momentum so if we were to take October and quarterize that, if you will, or annualize it, you're correct, but you're not correct relative to building that model as more like a stepping -- going up a pair of steps, if you will.

More like two-thirds and three-quarters.

Okay. Very good. Thank you.

All right, Mike.

Larry Keusch.

Hi, Larry.

Hi. Good afternoon, guys. Just a couple of quick questions.

First, just, bob, on the comment on the call-outs, 2009, how should we think about the legal expenses that you've been calling out as well?

Well, that's a good question. We're not going to say when they'll stop, but I think suffice it to say that anything along those lines of litigation typically has a closure at some point in time and that one is probably harder to predict whether or not it will be done by the end of '08 or not, other than to say that things from a litigation perspective will ripen as things go forward with depositions, with steps that are taken in the court where we basically have brought litigation in Texas.

And then there's litigation going on in Delaware and they're on different cycles, but one can influence the other. So right now we're assuming that by the time we get to 2009 we're expecting that we'll know where things stand, if you will.

Okay. That's helpful. And just a couple of other quick ones.

You know, as you think about, you know, your doubling of your ability to supply the market in silicone hydrogels on that monthly basis that you talked about, how do we think about what happens with that, you know, in the next three to six months? Presumably it's going to continue to move up, but should we continue to expect that? You know, we see a doubling of this again in the next three to six months?

More.

I would say if you're looking at it over a three to six month horizon that is not an unreasonable expectation because there is still several more lines to be added relative to the number of lines that were in production as of July 31st so, but I would discourage you from automatically assuming that October will double July.

Right.

But will January be more than double July? I would say I certainly hope so.

Okay.

And do you guys want to get into a position now of sort of giving some flavor for where you think that can go for 2008? I mean you had been, you know, talking about, I think, the ability to support, you know, call it $150 million?

The production lines in total when they're all in place and all running at where we expect them to get are still in around that number.

Okay. And then the last two I'll just rattle them off and then you can just quickly answer them.

So Cap Ex spending which you again answered earlier, it sounds like, you know, you're backing away from the $110 million that you had thrown out there for '08. I guess, again, I know there are moving parts here, but do you still expect despite a greater commitment to see Cap Ex on an absolute basis down in 2008 or should we really be thinking about it more like flat?

And then the other question is can you just talk a little bit about what's going on with the Proclear dailies in that mix of sales associated with your daily disposables?

Well, although we may not be in one mind on that yet, we're early in the game of debating exactly where we're going to land, I'm a little reluctant to give you a commitment it's going to be down and that's going to be a function of what are the real opportunities.

If things keep growing at the speed we see, the single-use market in the U.S. which was up some 31% last quarter, and if we continue to make the progress that we have made in Asia Pacific and if, in fact, Proclear one-day is as good as we think it is, then it's going to be a nice problem to have and I'll be proud to tell you it exceeds the 160.

And I would call that a positive not a negative because, obviously, that would mean we're gaining market share at a faster pace. So that's the tradeoffs.

We could slow up -- we can go, you know, just a little bit above the market and certainly commit to less than 160 if we wanted. Is that the right decision? Don't think so, but that's my, I guess that's where I'm hedging on it.

Your second question on Proclear's dailies one more time?

Yes. What the relative --

Just wanted to get some sense of how that's rolling out.

Well, Proclear daily is off of a very small base capacity constraint as we convert over. The good news is the conversion over onto gen 2 is going very well and we're going to, we're certainly still capacity constrained but we're ahead of schedule in terms of the conversion process.

That's why we've launched, Larry, now in Europe our Proclear daily and that was not in the cards at the time. So we're a little ahead of where we thought we would be in the conversion and just to tell you it's doing real well without getting, I don't think I really want to get into the numbers. It's certainly over $1 million in the quarter just in the U.S.

So it's doing very well. I just don't want to from a competitive standpoint get too much into it, but it's doing extremely well.

Larry, and that's one I'll say the same thing I did about silicone hydrogels. Our throughput, our production more than doubled during the quarter.

Okay. Terrific. Thanks very much and look forward to seeing you guys in October.

Great.

Peter Bye.

Peter.

Hey, thanks, Tom, and sorry to see you go, Tom. I mean it's obviously been a tough couple years for you, but like you said, your track record's been pretty good over an extended period of time, so sorry to see you go.

We'll have dinner. We'll go and have dinner when I'm in the city.

All right. Sounds good.

Just a couple questions on the expectations and revenue mix next year. Proclear did decelerate in terms of the growth profile we've seen in the past several quarters, but you still continue to sort of say that Bioinfinity won't absorb Proclear but is this quarter atypical or typical as far as what you think on trend line there?

Let me just caution you. I think overall, and maybe this is a flip flop between constant currency and actual. Overall actual growth for the quarter was 29% year-to-date 30%. So I don't see the deceleration.

Not much deceleration.

So if you're comparing a constant currency to a actual, you're going to end up with that perception which is not accurate.

Let me just give you, to add color to that. In constant currency it's up 23% for the quarter and up 24% year-to-date. So it's about ballpark at the same rate.

And, Peter, if I go back to the first quarter, it grew 26%, then the next quarter it grew 24%, this quarter 23%. Those are still pretty good numbers like, again, if you want to be real apple-to-apple comparison, you look at the silicone business, which everybody wants to talk about, and take a look at it from a quarter-to-quarter basis and you'll see a faster deceleration than our own Proclear product line.

That's helpful. I guess I was comparing apples and oranges. Just one other one and I'm done.

Sort of good news, bad news on the silicone hydrogel flattening out, I guess, as you guys are getting into the market. Do you think your product expands it and you drive that number back up again or who are you going to take share from?

You know, let me answer that. I think, first of all, you've done your due diligence. I know a lot of the analysts have panels they have reported.

Bioinfinity is a wonderful product, so it's a very, very good product. I've not heard one practitioner, not one, who has said anything negative about it and we have many, many doctors who have said that they have even switched patients out of Oasis into Bioinfinity. I don't think that's a common practice but it's a wonderful product.

I think where most of its growth is going to come from, I think you and I have had this discussion once before, is from virgin eyes, you know, in other words, I don't think I'm going to see a lot of doctors switching patients just for the love of switching patients off of one product to another unless there's a real reason for it.

I would like to see some of our own hydrogel patients being switched in Bioinfinity, but, you know, let's be realistic about it. If they haven't been already switched, why are they going to switch now?

I mean if the patient's doing well on Biomedics or if (inaudible) their frequency or something and they haven't been switched to silicone already, I don't know whether we're going to get them to go to a higher priced Bioinfinity just for the love of Cooper because they love our company. I really believe most of the growth is going to come from rechecks from silicone products and I really believe you're going ask me what company it comes from. I think it's going to be CIBA.

I personally think they -- I'll just give you my opinion probably of all the products out there, they're the ones that seem to have more of a "maybe a comfort problem." So maybe from some of there, but I really think most of the growth is going to come from -- a lot of the growth is going to come from patients through the contact lenses.

I don't know. What do you think? I have a feeling you got to have an opinion.

Yes, I mean, I probably agree with that. I guess it's just where do you think that 46 number then goes next year and to reduce the call-outs by two-thirds what kind of run rate would you have to be to sort of say you're not in startup mode anymore?

Oh, oh, I see, for a new patient office visits?

Yes.

Oh, God, maybe 50%. It's really slowed down. You know, the growth in new patient office visits, if I look at the full-year where the growth has come from historics. In other words, you look at spheres and I don't -- I didn't look at this quarter, to be frank, I looked at the previous five quarters.

So we're laying pretty flat at about 55% of 52 to 54% of all new patient visits for spheres in the U.S. we're talking about in the U.S. was for a silicone hydrogel product. That might go up 1 or 2% maybe 3%. I don't know because it hasn't moved very much.

The toric pieces moved. Now for the last two quarters it's sort of flattened out, too. I think it's natural, you look at any market outside of contact lenses when you introduce a premium kind of a product it gets to a certain point and then it starts to level off. That's not so bad for Cooper.

Think about it segment a little bit, Peter, in your own mind about the market. Take a look at the nonsilicone market in the U.S. and tell me who the leader is. You know who the leader is. I don't have to tell you. We're the gosh darn leader and we're not going to give up that little segment either.

We're going to do everything we can to gain in the silicone market for those doctors who want silicone hydrogels and for those doctors who really believe in the benefit of Proclear and I think you and I have had that discussion over the last six or seven years on that.

Those doctors, not six or seven years, we haven't had Proclear that long, it's two or three years anyway that it's going to continue to do well because it's a cult group of doctors who believe in the Proclear material. I don't know. That's my view.

Peter, I'll just add a couple sentences to that.

Sure.

One is where it's not coming from is the one-day market. There's not a person I've heard yet tell me they would convert from a single-use modality keeping in mind that 45% of the world outside the United States say silicone hydrogel, overnight wear or anything like that.

So it's not coming from single-use. Where it will come, we obviously have a pretty robust market in term of number of new fits and I think Tom's right, virgin eyes is a big factor.

Two is, trading up isn't all so bad. And then I do think some of our competitors, the ones Tom mentioned, have set the stage to provide some opportunities.

But if we put the big picture out there, it's a market that's 1.250 million, even if all we do with this product, which I will say is best in class is 5%, that's $62 million off of last year's number, this year's number and probably around $75 million off next year's number if it's only 5% of the market. So the numbers get pretty big and it is a good product that we're going to market with.

I mean I guess the last one on the question was, and maybe we can follow-up after the call is, what kind of run rate do you need to be to get that two-thirds reduction in call-outs? So you're not in startup mode anymore, I guess.

Oh, I think that's just the number of lines we have in place that they all go into production and the progress -- we're still in the mode where one of those lines is an R&D line and will continue to be an R&D line and that represents, if you will, as of the end of July 20% of our capacity tied into an R&D line. So even if we did nothing else but gave that R&D line to manufacturing and said go produce, we would have a 20% improvement day one just for no other reason.

Having said that, our strategy that we embarked upon in, really, May, or I guess June is when we effected it to take the engineers off of assembling new lines and put them on improving the efficiency of those lines is paying off and, therefore, we're getting a lot more out of the existing lines even before we get into adding the next several lines. So I'm pretty bullish that all that will translate into same number of people making a lot more units and then that will lead to us bringing down those startup costs.

Okay. Great.

The last one is did the two-thirds reductions off, I guess you got about 90, depending what you want to do for Q4, about $90 million in call-outs including stock option expense. Is it off that number or is it off two-thirds of the startup costs because I assume litigation costs will actually increase once you go to trial.

Yes, I answered both as to excluding the call-outs for compensation, stock-based compensation, it's two-thirds of that pot and it's also more than two-thirds of the pot which is startup costs.

So you are correct. We're not assuming right now that there'll be a substantial reduction in the run rate of IP litigation.

Okay. Thanks.

Thank you, Peter.

Jeff Johnson, you're going to be our final interrogator this afternoon. We've been on for an hour and a half and that's our usual commitment of time. Those of you who remain in the queue we'll be happy to talk to you later. So, Jeff, go ahead, please.

All right. Well, I better make them good questions, then, I guess.

That's right, you better.

Let me just fire them off here quickly so we can end the call here, but if the costs, you guys are down one-eighth from where they were at the beginning of the year as you're saying on the Bioinfinity line, has that primarily been yield improvements? Has it been spreading them over as you've got more lines up? I mean, how do we think about that?

And I'll go back to my kind of quarterly question here, any insight at this point that you'll provide as to where yields are on those lines?

I'm not going to give you where yields are on the lines, but I would say that the cost coming down is all the above. A lot of startup costs are hiring the hundreds of people and training them to make the product and assume that when they're in the training mode you don't get a lot of salable product.

So that's one clear issue is as we go through the learning curve you don't have to retrain the people that now have been making it for 12 months.

Two is, a lot more lines to spread the same amount of fixed overhead that's existing for a lot of that, the rent, et cetera. And three is absolutely better yields as we improve the profits and make it more robust.

So yields are improving (inaudible) reduction in costs are the fact that costs are now one-eighth where they were the beginning of the year, is that fully yield driven?

Yes, really everything is contributing to improving the normal learning curve process of a brand-new manufacturing platform.

Okay. Great. And then I guess just last question here.

Then we're down to one quarter less than a year and your guidance understanding how you've changed it here and it's mainly tax rate driven and what have you, but at the same time the range has now increased to a $0.30 range even after we exclude all the call-outs where it's going into the fiscal third quarter it was just a $0.15 range in your guidance.

How come there's such a bigger range now than there was and is it fair to assume that what doesn't fall in, let's say, you hit the bottom end of that range in the fiscal Q4 just simply gets pushed to the fiscal Q1 of '08 or is it not just a timing related issue here in that big range on the guidance?

I think the variance is multifaceted. One is, certainly, we're in a mode where we're rapidly launching two new products, the Bioinfinity and the Proclear one-day and so you're trying to catch where am I going to be which creates kind of a sales range that, you know, best case would be a major contributor to better profit.

So part of it's sales driven. Part of it is, I think there will be -- there could be a shift in our effective tax rate caused by greater success of silicone hydrogel and Proclear one-day. So suddenly, if next year started August 1st, that would lead to a lower tax rate on a standalone fourth quarter basis which could enhance profitability by a better effective tax rate.

You'll notice our guidance for effective tax rate was 18 to 20, which is to say we're at 19.5 there, we said there might be more upside in terms of it going down than downside in terms of it going up. And having said that, that's one of the reasons you get the split of projections.

Okay. Great. That's really, and again, I guess one last quick one.

I think Bob, you gave this explanation but the $3 million IP R&D write-off on CSI this quarter, that was jut reallocation of IP R&D from prior deals or was there a deal we haven't talked about on the CSI side?

Let's put it this way. It was a deal that was done prior to the third quarter beginning.

Right. Right.

Prior to the beginning of third quarter.

Right. It's one of our prior deals.

A deal that we talk about that we're aware of as a market or.

I'm going to be vague on that.

Okay. I'll be vague in my response, then. I'm not quite sure why you're going to be vague other than, you know, I mean did it have an impact on your CSI top line? Will it have an impact on the going forward CSI top line?

Top line.

No, I'm going to be vague. You know, primarily because it may have been an immaterial deal that we just haven't talked about in the past and it's also one where we're really not prepared to spend a lot of air time on it and there's no --

From a near-term projections it's not going to affect any models, so it's not a major item like that, Jeff.

But, Jeff, your question is a very good question.

Okay. I'll leave it at that. Thanks, guys.

All right.

Take care.

I think that ends our Q&A session. Rob?

We will be back with everyone in December and I would assume Mr. Weiss, Mr. Neil will be leading it on. Thank you.

Thank you, everyone.

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.