ALC

Business Context and Reporting Period

Company: Alcon, Inc. (Swiss corporation, majority-owned subsidiary of Nestlé S.A.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three and nine months ended September 30, 2007
Filing Date: October 25, 2007
Business Overview: Global leader in ophthalmic products, operating through two segments: Alcon United States and Alcon International. Product categories include pharmaceuticals, surgical equipment/devices, and consumer eye care.

Key Financial Metrics

Note: Total Debt includes short-term borrowings ($799.5M) and long-term debt ($51.3M) as of Sept 30, 2007.

Material Changes vs. Prior Period

• Revenue Growth: Global sales increased 11.0% (Q3) and 12.5% (YTD). Constant currency growth was 7.9% (Q3) and 9.9% (YTD), driven by volume growth in pharmaceuticals, surgical products, and consumer eye care.
• Profitability Surge: Operating income increased 78.6% in Q3 and 19.2% YTD. This significant improvement is largely attributable to the absence of $144.8 million in impairment losses recorded in the prior year (Q3 2006) related to refractive assets.
• Impairment Charges: In the nine months ended Sept 30, 2007, the Company recognized $32.7 million in impairment losses (plant, equipment, intangibles, and refractive inventory), compared to $144.8 million in the prior year period.
• Shareholder Returns: The Company paid $612.8 million in dividends and repurchased $875.9 million of treasury shares during the first nine months of 2007.
• Segment Performance: International sales grew 16.4% (Q3) and 17.8% (YTD), outpacing U.S. growth of 5.8% (Q3) and 7.4% (YTD).

Guidance, Outlook, Risks, and Unusual Items

Outlook and Guidance

• Tax Rate: Management expects the global effective tax rate to be in the range of 13.5% to 14.5% in the next few years, reflecting anticipated Swiss tax benefits from relocating global administration operations to Switzerland (commencing Jan 1, 2008).
• R&D Spending: Research and development expenses are expected to increase in the fourth quarter of 2007 as additional project expenses are incurred.

Material Risks and Contingencies

• Patent Litigation: Active litigation against generic manufacturers (Teva, Apotex, Barr) regarding patents for Vigamox® and Patanol®. FDA approval for generics is delayed for 30 months pending litigation resolution, but success by generics would impact future sales.
• Product Safety Alert: In February 2007, Alcon issued a safety alert to discontinue CustomCornea® wavefront system myopia procedures using the LADAR6000® excimer laser due to reports of decreased visual acuity. The Company intends to remove these systems in the U.S. by December 2007, expecting a decline in related technology fees.
• Acquisition: Alcon is acquiring WaveLight AG (refractive laser systems). As of Sept 30, 2007, Alcon owned 76.9% of shares; the transaction is expected to close in Q4 2007 with an estimated price of ~$106 million for the 77.4% stake.
• Market Risks: Exposure to foreign currency fluctuations and interest rate changes on short-term floating-rate debt. A 10% decline in foreign exchange rates could decrease pre-tax earnings by approximately $14.8 million.

Investor Verification Checklist

• Impairment Impact: Verify the sustainability of operating margins given the one-time benefit from the absence of the $144.8M impairment charge in 2006 versus the $32.7M charge in 2007.
• Refractive Segment: Assess the long-term revenue impact of the LADAR6000® laser removal and the decline in refractive sales (down 30.3% in Q3).
• Generic Competition: Monitor the status of patent litigation against Teva (Vigamox) and Apotex/Barr (Patanol) for potential future revenue erosion.
• Cash Flow Usage: Review the significant cash outflow for share repurchases ($875.9M) and dividends ($612.8M) against operating cash flow generation ($814.7M).
• Acquisition Integration: Confirm the closing of the WaveLight AG acquisition and its impact on the refractive product portfolio.