酷柏 (COO) 2009 Q4 法說會逐字稿

Welcome to the Cooper Company fourth quarter 2009 earnings conference call. I will be your operator for today. During the presentation, all participants will be in a listen-only mode. After the speakers remarks, we will have a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded. I would like to hand the call over to our host for today, Ms. Kim Duncan. Please proceed.

Good afternoon and welcome to the The Cooper Companies fourth quarter and full-year 2009 earnings conference call. I'm Kim Duncan Director of Investor Relations. Joining me today on today's call are Bob Weiss, President and Chief Executive Officer, Jean Midlock, Senior Vice President and Chief Financial Officer, and Al White Vice-President and Investor Relations and Treasurer.

Before we get started I would like to remind you this conference call contains 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 manufacturing restructuring plans. 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 of the Company to differ materially from those described in forward-looking statements are set forth under the caption forward-looking statements in today's earnings release and are described in our SEC filings including the business section of Cooper's annual report on 10-K. These are publicly available and on request from the Company's Investor Relations department.

Now, before I turn the call over to Bob Weiss, let me comment on the agenda for the call. Bob will began by providing some highlights on the quarter and fiscal year, and then get into some specific details including new products, the market, our strategy and guidance. Following Bob's remarks, Gene Midlock will comment on the fourth quarter and full year financial results and provide additional guidance. We will then open the call for questions. We'll keep the formal presentation to 30 minutes followed by 30 minutes of Q&A, so the call will last a total of one hour.

We request anyone asking questions please limit yourself to one question, so we may get to as many callers as possible. Should you have any additional questions following, please the call 925-460-3663, and we'll get back to you as soon as possible. As a reminder, this call is being recorded and a copy of the press release is available on our website at coopercorp.com under Investor Relations. With that, I'll turn the call over to Bob for his opening remarks.

Thank you, Kim, and good afternoon, good evening, everyone. Q4 highlights, obviously we finished fiscal year 2009 very solid. We had a solid quarter and a solid fiscal year. For the quarter, we generated $58.5 million of free cash flow. We delivered or delevered to 34% debt to total capitalization. We delivered $283 million of revenue up 6%, 4% in constant currency. Our earnings per share was $0.66 GAAP and $0.67 non-GAAP. This brought our fiscal year 2009 results to a record $1.080 billion in revenue up 3%, 4% in constant currency, with gap earnings per share to $2.21 and non-GAAP which excludes the plant shutdown projects to $2.29. And yes this was done with accruing bonuses in the fourth quarter of approximately $0.08 per share. In the middle of delivering these solid earnings we generated $129 million of free cash flow allowing us to deleverage our balance sheet from debt to cap that began the year at 39% and finished below 34%.

The end result is this was a great year at Cooper in what was not the best economy. The key take-aways for the year, yes, we had a solid quarter and a solid fiscal year. We delivered on our objective to gain share in the $6 billion soft contact lens industry. And we delivered on our objective to transition to a cash generator from a cash consumer. We delivered our objective to execute new product rollouts. Likewise, we delivered on our objective to set the stage for sustained growth going forward. And also to demonstrate that Cooper Surgical is a franchise worth investing in.

Our new products are driving our growth, our emerging silicon hydrogel portfolio is delivering. For the quarter, we had $40 million of silicon hydrogel gel revenue up 117% versus the prior year and this brings its run rate to $160 million. For the fiscal year our silicon hydrogel gel sales exceeded $112 million more than 2X the prior year. While our silicon hydrogel gel was doing well our ProClear family of products put up some solid numbers at $70 million in the quarter up 14%, and $258 million for the fiscal year up 15% in constant currency. Geographically, our plan to grow more rapid until Asia PAC is on track for the quarter and constant currency Asia Pac was up 4% compared to an industry that was down 1%. Europe was up 9%. America's up 3% and worldwide we were up 5% in constant currency.

The market continues to improve, that is recession resistant. At the beginning of the year, we predicted 0% to 4% constant currency growth. Calendar year third quarter was up 4% bringing the nine months year-to-date to 3%. Highlights reflected are one day worldwide was up 1% constant currency, multi-focals were up 20%, Toric's up 6. silicon hydrogel gels up 21%, regionally the Americas were up 6%, Europe 9%, and as I mentioned Asia Pac was down 1%. CooperVision is gaining share growing 1.5 times the market. We grew 4.6% for the first nine months compared to 3.1% for the market.

Little bit about CapEx and that cash -- free cash flow. Lot of of attention was placed on our capitalization at the beginning of the fiscal year following the financial crisis events of September 2008. Given our leverage at the time, we responded to the new world. The result was, we delivered $129 million of free cash flow versus $50 million that was our initial estimate. We deleveraged from 39% debt to total capitalization to under 34%. Today due largely to a tremendous improvement in efficiency, we are running our plants at a low 60% capacity utilization.

We were manufacturing selling more lenses with 15% less manufacturing head count at the end of the fiscal year. Following the Norfork shutdown completion, we will have cut our manufacturing head count close to 30% and still be manufacturing more lenses. The efficiency has translated to a huge improvement in free cash flow. CapEx has gone down due to efficiency. Head count down has gone down due to efficiency. This will translate to improving gross margins, operating margins, and earnings per share as we complete the shutdown in 2010. We anticipate our CapEx requirements will stay below $100 million for the next three to five years. We therefore believe we're still on track to deliver our strategic goal of $1.3 billion in operating cash flow and $800 million of free cash flow over a 5-year planning period ending 2013.

CooperSurgical, our women's health care franchise, while our women's health care, particularly office visits is not as recession resistant as contact lenses. We delivered solid results by continuing to take share. There is no doubt that women delay some of their tests and procedures during tough times. And by some accounts visits were down as much as double-digit this year with OB-GYN. Cooper finished 2009 delivering 2% growth, a 60% gross margin and a 23% operating margin. With solid results, low capital requirements, low day sales outstanding, given its principally a US business, and a low months on hand due to the fact that many products are shipped off of a backlog, Cooper Surgical as a result delivers a lot of cash.

Our strategy of following the OB-GYN out of the office into the IVF centers, the outpatient centers and hospital settings has been a resounding success. In fiscal year 2009, our sales grew 10% in the hospital products and now account for over one-third of our women's health care franchise.

Little bit about strategy and guidance. We now have given our 2010 guidance. Our guidance expects the market for soft contact lens to exhibit modest growth in 2010. We expect to continue to gain share by deleveraging our branded product families of silicon hydrogel and ProClear materials. We will continue to expand our Biofinity brand by launching a Biofinity multi-focal in the 2010. This will give this great or best in class monthly modality silicon hydrogel the halo effect we're seeing from the launch of Biofinity Toric in 2009. We saw its sales succeed its initial estimates of $8 million by more than 50%. In 2010, we will also expand a bit Biovera brand, our two-week modality silicon hydrogel product by adding the Toric. The two-week space is primarily a US and to lesser extent a Japanese phenomenon and one, not exhibiting growth in the United States. It remains however the biggest category in the US accounting for more than 60% of the market. We expect adding a Toric followed by a multi-focal will have a halo effect on this brand.

For the ProClear family which now accounts for 29% of our overall provision revenue, we will continue to emphasize its use as a best in class non-silicon hydrogel product which is rapidly taking share in the non-silicon hydrogel part of the market which today still accounts for more than 65% of the $6 billion soft contact lens market world-wide. Our strategy is to leverage the branded family of products and related private labels to target each modality one day, two-week and monthly, and each wear category sphere, Toric, and multi-focal, within each geographic territory, Asia Pac, Europe and Americas, and have a best in class non-silicon hydrogel that targets the 65% but declining non-silicon hydrogel market. That is Pro-clear. With the strength of our Biofinity and ProClear brands, we expect to gain share in 2010. We expect the global soft contact lens market to grow 3% to 5% in constant currency and for CooperVision to grow 4% to 6% in constant currency. Given this, we targeting revenue at Cooper Companies at $1.1 billion to $1.160 billion or 2% to 7% with currency having an impact of about 2% plus or minus.

Our earnings per share guidance calls for improving gross margin, percentage as well as investing in sales in the R&D. We expect a range of non-GAAP earnings of $2.45 to $2.55.

Our guidance for free cash flow is $120 million to $140 million which reflects about $10 million of cash to be used in 2010 for the Norfork shutdown which will reduce head count by another 570 people.

Our strategic initiatives I've mentioned are strategy to round out branded portfolio Biofinity, Avaira and ProClear. We will stay focussed on lowering our cost of goods sold and improving gross margins to our targeted 60% objective through such steps as better leveraging of our increasing efficient plants in the UK and Puerto Rico. Today, we are still only in the low 60s in terms of capacity utilization. I expect we will achieve the low 70s by the early part of 2011. With the mid-80s being optimal efficiency. Revenue growth, improving gross margin percentage, lower CapEx requirements will lead to sustained free cash flow. As I've mentioned, in 2010, we will continue to deleverage and deleverage our capital structure. We will also redeploy some free cash flow to expand women's health care franchise where in many product categories we are a solid number one globally. Having a unique US business model, makes us a low-risk strategy. Having a recession means many properties are available that otherwise might be too pricey in a robust economy.

In summary, before I turn it to Gene, we delivered solid Q4 and fiscal 2009. Solid revenue growth, improving gross profits, gross margin percentages, a solid bottom line, and superb free cash flow. Our silicon hydrogel family of products are performing above expectations and beat our guidance of $100 million in 2009 by more than 12%. Biofinity Toric was targeted at $8 million. It exceeded its objective by more than 50%. We made good progress in gross profits in the fourth quarter, and importantly the Norfork integration is on track for completion in 2010. This will allow us to step up plant utilization to the upper 60s thereby reducing head count, improving free cash flow and improving our gross profits towards our 60% targeted level, as we enter 2011. The market for silicon soft contact lenses repeated history as it demonstrated yet again it is recession-resistant.

With the expanding portfolio of our core branded product families, we are optimistic we will continue to gain market share in this great market place called soft contact lenses, a $6 billion market place. Our women's health care franchise is unique. We will direct some of our 2010 free cash flow and leverage its uniqueness by closing two to three acquisitions in a market place where once pricey deals are now reasonably valued. With that I'll turn it over to Gene.

Thank you, Bob. Good afternoon, everyone. Thank you for joining our Q4 earnings call. I'd like to start with a few aspects of the balance sheet as I have been doing for the last several quarters. As Bob indicated, in Q4, we generated $78.5 million of operating cash flow and had capital expenditures of $20 million, which resulted in $58.5 million in free cash flow. This was an increase from last quarter's 56 million, and (inaudible) interest payment (inaudible) of roughly $12 million. For the fiscal year, we generated approximately $129.2 million of free cash flow of which approximately $123 million was used to reduce total debt to $781.5 million. As an interesting note, our free cash flow per share, for the year was $2.84 and we're quite pleased with that. Total credit availability is approximately $290.4 million and the $650 million revolver is now around $425 million.

We decreased the ratio funded debt to EBITDA from 3.16 in Q3 and 2.93 in Q4. This will result in an additional interest savings of 25 basis points for the next quarter. So the revolver will now be at LIBOR plus 100 for the first quarter of this fiscal year.

We're pleased that our cash management strategies that we've employed are definitely working and I would like to reiterate they are not going to negatively impact the future. We have ample manufacturing capacity and the majority of our product lines and sufficient distribution capacity for the next several years.

Inventories decreased by $22.6 million or 8% from last year, with months on hand at 6.3% compared to 8.1% last year, an excellent job by our supply team. Accounts receivables were also closely monitored with DSOs at 55 days down from 59 days last year.

I'd like to now turn to the statement of income. Bob, I think, summarized our results for revenue quite adequately. So I'll start with gross margin. GAAP consolidated gross margin was 56% versus 61% in Q4 of last year. For the full year, gross margin was 55% compared to 58% last year. On a non-GAAP basis excluding the impact of a CooperVision manufacturing restructuring plan, the full year gross margin was 56% compared to 61% in 2008. CooperVision reported gross margin of 56% versus 61% in Q4 of last year. For the full year it had a gross margin of 54% versus 58% in 2008. On a non-GAAP basis gross margin was 56% versus 61% last year, in Q4, and 55% versus 61% for the full year.

As was the case in prior quarters, in Q4 the continued rationalization of manufacturing operations resulted in several non-cash period charges which negatively impacted CooperVision's gross margin. This was charges for manufacturing restructuring plan, inventory and equipment write-offs, idle equipment, and of course currency also had a negative impact on gross margin. CooperSurgical had a gross margin of 57% in Q4. For the full year its gross margin was 60% compared to 59% last year.

Turning to SG&A expenses, in Q4 SG&A expense increased by 2% from the prior year to $102.9 million, but decreased as a percentage of sales to 36% from 38%. For the full year, SG&A decreased by 9% to $391.6 million and decreased to 36% of revenue from 41% last year. In Q4, R&D decreased 10% from last year to $8.3 million, but remained at 3% of revenue. For the full fiscal year, R&D decreased $33.3 million or 6% but remained at 3% of revenue. This decrease was a result of delaying some clinical trials as well as a change in the allocation of overhead to cost of goods sold as opposed to R&D.

Bob mentioned our continued restructuring activity. And as we mentioned last quarter, CooperVision initiated restructuring plan in August of 2009 to realize additional manufacturing efficiencies. Under the plan, we will relocate our soft lens manufacturing operations in Norfolk, Virginia, and Adelaide Australia to existing operations to Puerto Rico and the UK. The total cost of the plan is estimated at $25 million with $10 million to be cash related, primarily in fiscal 2010. We recognized $5.1 million of these expenses in fiscal 2009 with the balance to be recognized in fiscal 2010.

And Bob also mentioned, we did accrue management bonus in Q4. The compensation and audit committees of the Board met and concluded that the manufacturing restructuring plan adopted by CooperVision was in the best long term interest of the Company and its share holders. As such these charges were excluded from the GAAP financial results for the determination of bonuses and the non-GAAP metrics were used. As a result, we accrued $0.08 per share for management bonuses in Q4. For 2010, we plan to revert to the more standard method of bonus accrual which was used in prior periods.

As a result of the various items mentioned above, our operating margin in Q4 on a GAAP to non-GAAP consolidated basis was 15% of revenue, down from 18% in Q4 of last year. For the full year, GAAP operating margin was 14%, up from 12% last year. On a non-GAAP basis the operating margin was also 14%, down from 16% in 2008. Should be noted that the only non-GAAP adjustments are in cost of good sold. So the difference is not the result of any operating expense charges. Interest expense decreased by $1.6 million in Q4 from last year to $10.8 million. And this reflects the reduction in interest rates attributable to the maintenance of a strong funded debt to EBITDA ratio and reduced borrowings. For the full year, interest expense was $44.1 million, down from $50.8 million in fiscal 2008.

Turning to the tax rate, the effective GAAP tax rate for the quarter was 6% versus 11.4% last year. And non-GAAP rate was 6.9% versus 11.4% in 2008. The GAAP tax rate for the full year was 12.4% compared to 14.1% in 2008 and non-GAAP was 13.3% versus 11.3% in 2008. And as an aside, the effective tax rate in the quarter was higher than we anticipated when we provided information in our Q3 call. And that was attributable mainly to two items: One of which was the occurrence of less of the restructuring costs in fourth quarter than we had anticipated in Q3. As well as there was a change in the income tax regulations which required us to allocate a bigger percentage of cost out of the United States to lower tax rate jurisdictions. That had the effect of increasing our tax rate as I mentioned.

Depreciation and amortization was 19.2 million in Q4 -- I'm sorry, depreciation was $19.2 million in Q4, including $1.3 million of accelerated depreciation. Amortization was $5.4 million which included $1.3 million write-off of CooperSurgical license. The total was $24.6 million in the quarter. For full year deep appreciation was $74.7 million and amortization was $17.9 million for a total of $92.6 million including $8.2 million of accelerated depreciation.

Bob indicated our earnings per share for the quarter on a GAAP basis were $0.66 and on a non-GAAP basis $0.67. Full year GAAP DPS was $2.21 and non-GAAP was $2.29. Bob provided guidance for next year in connection with revenues. I would like to give you a few other metrics that you can use in your models. We're estimating a gross margin of percentage of 58% to 60% consolidated. Operating expenses should be in the range of 42% to 44% of revenue. Operating margins should be 15% to 16% and the effective tax rates should be in the range of 14% to 16%. So, with that, I'll turn the program back over to Kim for the Q&A portion.

(Operator Instructions) Our first question comes from the line of Mike Weinstein. Please proceed.

Thank you for taking the questions. I really appreciate it. A couple clarifications, just real quick. The tax rate you're assuming into the guidance for 2010, if you can clarify that. And then you had impressive free cash flow in the last 6 month. Why are we not assuming a continuation through 2010? Thanks.

Well, the range of tax and all that, Gene correct me if I miss it, 14% to 16% in 2010. A is it 15% to 17% on non-GAAP basis or something like that?

Probably 16% to 18% non-GAAP.

Relative to cash flow, and cash flow, of course, we had $129 million of free cash flow this year. We're targeting a range of $120 million to $140 million next year. You may recall we initially were targeting close to $150 million. We took $10 million off, which is what it's going to cost us to complete the shutdowns throughout 2010. And the other thing that happened is we were forecasting in around $100 million of free cash flow. As of September we came in at $129 million of free cash flow for this year. Assume part of that was the impressive reduction of inventory. You only get to take the cash out once.

So we're assuming we're getting some in 2010, but we also got some of what we planned on 2010. We brought forward to 2009. So that's one of the reasons free cash flow was as good as it was in fiscal year 2009. So hopefully that answers that question. Next question.

Our next question comes from the line of Jeff Johnson. Please proceed.

Good afternoon. I was wondering, Gene, if you would review the bonus accrual absolute dollars in the quarter. And maybe go through gross margins for me. Just some of the asset write-downs and the amounts just as I like to kind of sequentially build my model here over the next couple of quarters?

The total dollars accrued in Q4 after-tax is $3.7 million roughly. Which converts to $0.08. As far as the charges, you want a summary of this year's gross margin, Jeff, or-- ?

Yes, let's assume the charges are, we're talking about 2009.

Okay. So in the quarter CooperVision had roughly 1.3% of the margin for inventory write-offs roughly, .9%on asset write offs, idle plant of.7%, accelerated depreciation .2% and manufacturing restructuring roughly of .5%. And CooperSurgical had roughly a 3% write-off of margin for inventory. A product recall of 1.4% and accelerated depreciation of .8%.

Let me take the next question.

Our next question comes from the line of Larry Biegelsen. Please proceed.

Hi, good evening. Thanks for taking the call . On the asset write-downs, could you in the fourth quarter, I'm sorry, were those -- those were not dollar amount s right? And could you give us the dollar amounts and what you expect going forward so we can build our model that way,

Asset write-offs roughly $2.3 million for CooperVision, and that's it. There was none at CooperSurgical.

As far as going forward?

Going forward, I would expect it would decrease fairly significantly from this year. We did some very extensive wall-to-wall asset inventory analysis, identified that equipment that's going to be obsoleted, by new technology, and so forth. So it should drop off fairly significantly next quarter.

Yes, we're looking for a range next year of 58% to 60%. And obviously one of the key drivers is we will still have some idle equipment next year because we're under utilizing the plants as we continue to manage down inventory. We'll have less headwind from currency. And then you're correct that we had some activity over the last two quarters, the third quarter and fourth quarter, relative to some equipment write-offs and to a lesser extent inventory write-offs. So that all translates to improving trends next year and we'll move into the 58% to 60% range overall. Next question.

Our next question comes from the line of Steve Willoughby. Please proceed.

Hi, thanks for taking the call. Just wondering if you could give us an update on two things. One, when you expect to restart the Avaira production lines, and then I'm sorry if I missed it, but when you expect to launch the Biofinity, Multi-focal and the Toric? Thanks so much.

Okay. The activity of the Avaira production line at this juncture we are expecting some time the second line -- I should say the first high-volume piece of equipment will be put into production some time later in 2010. We're having very good success with ramping up our what we called Fast-track, which is proving to be a very supportive and robust production effort. So that is actually has helped us delay any need for reactivating the high volume line in the year. As far as Biofinity Multi-focal, we plan on launching both Biofinity Multi-focal and Avaira and Toric in the first half of calendar year of 2010. There has been no change in that target event if you will, by mid-year. Next question.

Our next question comes from the line of Larry Keusch. Please proceed.

Hi. Good afternoon. Just two things to touch on. The restructuring charges that you took in the quarter associated with Norfolk, I think you were anticipating that would be $7.5 million and you guys did under $1 million. If you could just speak to the timing of that restructuring effort. And then the second part of the question is, as you think about gross margin on a go-forward basis, and you talked about the period costs, should we assume that the second half will really see the step-up of that 58% range to 60% range that you're looking for or is it more of a steady increase through the year? Thank you.

Ok, Larry, I'll take the restructuring cost at Norfolk as far as the timing, it purely is timing. We're not, per se, behind schedule in any of the transfers to either Puerto Rico or to the UK. So that's -- and then I guess there's the third piece which is some of our warehouse effort going to Rochester, which is a much smaller part. So, we're really talking more about the timing of the accounting for that activity. There has been no change in estimate. The aggregate amount over the two-year period is still $25 million all up. So, yes, it was a close call on when did that $7.5 million hit, but it's still going to show up both by way of idle equipment. Most of it was shortening the life -- not idle, but shortening the life of the utilization of the equipment. And the second piece was actual termination payments at the end of when we're done with the needs for certain groups.

As far as gross margin trends, I would assume, yes, we will pick up and be improving our gross margins throughout the year, so that we would expect to finish and have a stronger gross margin towards the latter part than in the earlier part of the year, as we improve efficiency and continue to reduce our head count. Next question.

Our next question comes from the line of Chris Cooley. Please proceed.

Thank you. (Inaudible).

Hi, Chris.

Bob or Gene when you (inaudible)--

Chris, can you speak up, your kind of muffled.

Can you hear me now, Bob?

Go ahead.

When you think about your free cash target next year, goals of $120 million to $140 million, would you characterize for us whether the balance sheet is assumed to be a source of cash or a use of cash or neutral, and maybe some color around that? And then if I quickly for clarification, the guidance for fiscal 2010, it assumes only the charge, and this is what I'm trying to get at, only the restructuring charge of the manufacturing program, no other incremental charges in that number from the adjusted EPS number of $245 million plus.

Yes, Chris, the only assumption in 2010 is the announced shutdown. No other activity is included in our guidance, I believe it was $0.28 in guidance. As far as what are the drivers that will assist $120 million to $140 million of free cash flow next year, we're assuming we'll probably get another upwards, and I'll get Gene correct me if I'm wrong, in the $15 million to $20 million range of cash of the balance sheet and inventory in particular. We already have a good ratio of day sales outstanding, so it's not that. Our implicit assumption is that we will stay below $100 million in capital expenditures next year and beyond. Next question.

Our next question comes from the line of Peter Bye, please proceed.

Hi, Peter.

Good evening, this is actually Josh Jennings in for Peter.

Hi, Josh.

Thanks for taking the questions. Just a quick one on Europe and you saw solid growth there and if you can give us some color what you're seeing there in the region. And also if you have any insight into some of the latest efforts by Ciba for injunction hearings in Europe and whether there has been any impact on distribution channels due to litigation, if at all?

Yes, you're absolutely right. Europe has proved to be to be a pleasant surprise this year, just like Asia PAC has been a disappointment I think from a global perspective. But what's driving Europe is very much Eastern Europe, which is taken off in several countries to and including Poland. And we don't see that slowing up. It has been pretty sustaining. And we're happy with the progress we've made individually in that market place.

As far as activity in Europe, you may recall that J & J actually won and beat Ciba in the UK. So it's the one wrinkle throughout Europe where the shoe is on the other foot. And that's actually one of the wrinkles in terms of any potential for global settlement. As far as the activity in the rest of Europe, France and Belgium, where injunctions are in place, I'm not aware of any major developments the last three months. And in Germany, where we expected there was a possibility that J & J might do well, it's going slower than we anticipated. So at this juncture there's been no major development in Germany, or likewise. As far as the implications of the injunctions on Cooper and the field, we did have some noticeable impact initially in Belgium when the injunctions took place. There has been no noticeable impact in France because there was a substantial pipeline fill in anticipation of the injunction by (inaudible) and there was also in the case of France other avenues for certain large chains to access inventory that have not been shut down at this juncture. Next question.

Our next question comes from the line of Amit Bhalla. Please proceed.

Hi. Good afternoon, can you quantify what type of benefit you'll see in the gross margin from the Norfolk head count reductions versus the base business performance and when those benefits might hit? And then secondly, can you give us a sense of what the CapEx requirements are for the Biofinity Multi-focal, and Avaira,Toric margins. Thanks.

The improvement that will show up in 2011, because you have an inventory. First, we'll move into inventory before it gets to the P&L, will be ball parked around $15 million, which will be about 1.5% in total. And that will phase in -- start phasing in -- you'll start seeing some of the benefit in late 2010, and it will accelerate throughout the first quarter of 2011. Capital requirements for Biofinity Multi-focal, we have on order more lines of the Biofinity equipment, and there are 12-month lead times. So we're expecting that we will probably order another couple of lines throughout this year, bringing our total line count -- you may recall we started off with 10 lines that can do any of the spheres, Torics or the multi-focals.

We then eliminated 2 of the 10 lines bringing it to eight. We then bought one more, bringing it back up to nine. And we have on our -- already on order one more, that will bring it to 10 in 2010. As far as Avaira Toric is concerned, that is not an expensive capital project in that we are converting existing Toric manufacturing equipment in Puerto Rico onto that platform. So it is more conversion than it is buying strictly new equipment. I'm simplifying that a little bit, but by and large it is not capital cash intense. Next question?

There are no further questions at this time.

Then if there are not, I want to thank everyone for participating in today's call and with that, we'll be communicating to you our next conference date. I don't know if we have that yet. We will certainly be communicating that out in the future, though. Thank you, again. Good night.

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