Note numbers refer to "Notes to Consolidated Condensed Financial Statements" in Item 1. Financial Statements.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. These include statements relating to plans, prospects, goals, strategies, future actions, events or performance and other statements which are other than statements of historical fact. In addition, all statements regarding anticipated growth in our revenue, anticipated market conditions, planned product launches, CooperVision's manufacturing restructuring and expected results of operations and integration of any acquisition are forward-looking. To identify these statements look for words like "believes," "expects," "may," "will," "should," "could," "seeks," "intends," "plans," "estimates" or "anticipates" and similar words or phrases. Forward-looking statements necessarily depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Among the factors that could cause our actual results and future actions to differ materially from those described in forward-looking statements are:

• Adverse changes in global or regional general business, political and economic conditions due to the current global economic downturn, including the impact of continuing uncertainty and instability of U.S. and international credit markets that may adversely affect the Company's or its customers' ability to meet future liquidity needs.

• Limitations on sales following new product introductions due to poor market acceptance.

• The Company's failure to realize anticipated savings, or its incurrence of unexpected costs, from CooperVision's manufacturing restructuring.

• Compliance costs and potential liability in connection with U.S. and foreign healthcare regulations, including product recalls, and potential losses resulting from sales of counterfeit and other infringing products.

• The success of research and development activities and other start-up projects.

• New competitors, product innovations or technologies.

• A major disruption in the operations of our manufacturing, research and development or distribution facilities, due to technological problems, natural disasters, CooperVision's manufacturing restructuring plan or other causes.

• Disruptions in supplies of raw materials, particularly components used to manufacture our silicone hydrogel lenses.

• Legal costs, insurance expenses, settlement costs and the risk of an adverse decision or settlement related to claims involving product liability or patent protection (including risks with respect to the ultimate validity and enforceability of the Company's patent applications and patents and the possible infringement of the intellectual property of others).

Item 2. Management's Discussion and Analysis of Financial Condition

• The impact of acquisitions or divestitures on revenues, earnings and margins.

• Interest rate and foreign currency exchange rate fluctuations.

• Changes in U.S. and foreign government regulation of the retail optical industry and of the healthcare industry generally.

• The requirement to provide for a significant liability or to write off, or accelerate depreciation on, a significant asset, including goodwill.

• Dilution to earnings per share from acquisitions or issuing stock.

• Changes in tax laws or their interpretation and changes in effective tax rates, including changes that result from shifts in the Company's geographic profit mix.

• Changes in the Company's expected utilization of recognized net operating loss carryforwards.

• Changes in accounting principles or estimates.

• Delays related to implementation or disruptions of information technology systems covering the Company's businesses, or other events which could result in management having to report a material weakness in the effectiveness of the Company's internal control over financial reporting in its Quarterly Report on Form 10-Q and Annual Report on Form 10-K filings.

• Environmental risks, including significant environmental cleanup costs.

• Other events described in our Securities and Exchange Commission filings, including the "Business" and "Risk Factors" sections in the Annual Report on Form 10-K for the fiscal year ended October 31, 2008, as such Risk Factors may be updated in quarterly filings.

We caution investors that forward-looking statements reflect our analysis only on their stated date. We disclaim any intent to update them except as required by law.

Item 2. Management's Discussion and Analysis of Financial Condition

In this section we discuss the results of our operations for the fiscal third quarter of 2009 and compare them with the same period of fiscal 2008. We discuss our cash flows and current financial condition under "Capital Resources and Liquidity."

Third Quarter Highlights

• Net sales of $285.2 million, up 2%, 4% in constant currency.

• Gross margin 51% of revenue down from 56%.

• Operating income up 9% to $33.9 million.

• Diluted earnings per share of 48 cents, up from 39 cents per share.

• Operating cash flow $75.9 million, up 72%.

Nine-Month Highlights

• Net sales of $797.0 million, up 2%, 4% in constant currency.

• Gross margin 55% of revenue down from 57%.

• Operating income up 36% to $107.9 million.

• Diluted earnings per share of $1.55, up from 79 cents per share.

• Operating cash flow $144.7 million, up 161%.

Outlook

We believe that CVI will continue to compete successfully in the worldwide contact lens market with its disposable spherical, toric and multifocal contact lenses offered in a variety of materials including using phosphorylcholine (PC) Technology™ and silicone hydrogel Aquaform® technology. We believe that market demographics are favorable with the reported incidence of myopia continuing to increase worldwide and with the teenage population in the United States, the age when most contact lens wear begins, projected to grow over the next two decades. CVI expects greater market penetration in Europe and Asia as we roll out new products and expand our presence in those regions.

Sales of contact lenses utilizing silicone hydrogel materials, a major product material in the industry, have grown significantly. The Company launched Biofinity® sphere in 2007 and Avaira® sphere in 2008, both silicone hydrogel contact lens products. While customer reaction for these products has been favorable, our future growth may be limited by our late entry into the silicone hydrogel market. In addition to spheres, competitive silicone hydrogel toric products are making substantial gains in market share and represent a risk to our toric business. We launched a monthly silicone hydrogel toric lens, under the Biofinity label, in the first calendar quarter of 2009 and plan to launch a two-week silicone hydrogel toric, under the Avaira label, in fiscal year 2010 that will allow us to compete in this market shift to silicone hydrogel torics. Our ability to succeed with silicone hydrogel products is an important factor to achieving our projected future levels of sales growth and profitability.

Item 2. Management's Discussion and Analysis of Financial Condition

We launched Proclear® 1 Day in Japan in the first calendar quarter of 2009. We are also in the process of developing a number of new contact lens products to enhance CVI's broad and competitive worldwide product lines. New products planned for introduction over the next two years include additional lenses utilizing silicone hydrogel and PC Technology materials and new lens designs, including toric and multifocal lenses.

As to the Company overall, we remain optimistic about the long-term prospects for the worldwide contact lens and women's healthcare markets. Recent events affecting the economy as a whole, including the uncertainty and instability of the United States and international credit markets and ongoing recessionary pressures in the United States and globally, continue to represent a risk to our forecasted performance for fiscal year 2009 and beyond.

Regarding capital resources, we believe that cash and cash equivalents on hand of $3.8 million plus cash from operating activities and existing credit facilities will fund future operations, capital expenditures, cash dividends and small acquisitions.

Selected Statistical Information - Percentage of Sales and Growth



                                                    Percent of Sales                 Percent of Sales
                                                   Three Months Ended               Nine Months Ended
                                                        July 31,                         July 31,
                                                                     %                                %
                                               2009      2008      Change       2009      2008      Change
Net sales                                       100 %     100 %         2 %      100 %     100 %         2 %
Cost of sales                                    49 %      44 %        12 %       45 %      43 %         8 %

Gross profit                                     51 %      56 %        (6 )%      55 %      57 %        (2 )%
Selling, general and administrative expense      35 %      40 %       (10 )%      36 %      42 %       (12 )%
Research and development expense                  3 %       3 %       (14 )%       3 %       3 %        (5 )%
Amortization of intangibles                       1 %       2 %         1 %        2 %       2 %        (1 )%

Operating income                                 12 %      11 %         9 %       14 %      10 %        36 %

Item 2. Management's Discussion and Analysis of Financial Condition

Net Sales

Cooper's two business units, CVI and CSI generate all of its sales.

• CVI develops, manufactures and markets a broad range of soft contact lenses for the worldwide vision care market.

• CSI develops, manufactures and markets medical devices, diagnostic products and surgical instruments and accessories used primarily by gynecologists and obstetricians.

Our consolidated net sales grew $6.7 million or 2% and $16.5 million or 2% in the three and nine months ended July 31, 2009:

                         Three Months Ended              Nine Months Ended
                              July 31,                        July 31,
                                           %                               %
                      2009      2008     Change       2009      2008     Change
                                          ($ in millions)
               CVI   $ 240.9   $ 235.8        2 %    $ 669.9   $ 656.9        2 %
               CSI      44.3      42.7        4 %      127.1     123.6        3 %

                     $ 285.2   $ 278.5        2 %    $ 797.0   $ 780.5        2 %

CVI Net Sales

Practitioner and patient preferences in the worldwide contact lens market continue to change. The major shifts are from:

• Commodity spherical lenses to value-added spherical lenses such as continuous wear lenses and lenses to alleviate dry eye symptoms as well as lenses with aspherical optical properties or higher oxygen permeable lenses such as silicone hydrogels.

• Commodity lenses to toric and multifocal.

• Conventional lenses replaced annually to disposable and frequently replaced lenses. Disposable lenses are designed for either daily, two-week or monthly replacement; frequently replaced lenses are designed for replacement after one to three months.

Item 2. Management's Discussion and Analysis of Financial Condition

CVI's product lines of toric and multifocal lenses, PC Technology brand spherical lenses, silicone hydrogel spherical lenses and single-use spherical lenses position us to take advantage of these trends. CVI's silicone hydrogel spherical lens products, Biofinity and Avaira, are marketed in the United States, Europe and Asia Pacific, excluding Japan. However, it is important that CVI develop a full range of toric and multifocal silicone hydrogel products due to increased pressure from the launch of silicone hydrogel toric products by its major competitors. CVI launched Biofinity toric, a silicone hydrogel toric lens in the first calendar quarter of 2009. CVI also plans to launch a second silicone hydrogel toric lens, Avaira toric, in fiscal year 2010.

Contact lens revenue includes sales of conventional, disposable, long-term extended wear lenses and single-use lenses, some of which are aspherically designed, and toric, multifocal and cosmetic lenses.

• Proclear aspheric, toric and multifocal lenses, manufactured using proprietary phosphorylcholine (PC) Technology, help enhance tissue/device compatibility and offer improved lens comfort.

• Aspheric lenses correct for near- and farsightedness and have additional optical properties that help improve visual acuity in low light conditions and can correct low levels of astigmatism and low levels of presbyopia, an age-related vision defect.

• Toric lenses correct astigmatism by adding the additional optical properties of cylinder and axis, which correct for irregularities in the shape of the cornea.

• Multifocal lens designs correct presbyopia.

• Cosmetic lenses are opaque and color enhancing lenses that alter the natural appearance of the eye.

CVI Net Sales by Market



                             Three Months Ended               Nine Months Ended
                                  July 31,                         July 31,
                                               %                                %
                          2009      2008     Change        2009      2008     Change
                                               ($ in millions)
          Americas       $ 105.7   $ 106.2       -        $ 289.6   $ 288.1        1 %
          Europe            90.7      91.1       (1 )%      254.4     256.0       (1 )%
          Asia Pacific      44.5      38.5       16 %       125.9     112.8       12 %

                         $ 240.9   $ 235.8        2 %     $ 669.9   $ 656.9        2 %

Item 2. Management's Discussion and Analysis of Financial Condition

CVI's worldwide net sales grew 2% in the three- and nine-month periods, with 3% and 4% growth in constant currency, respectively. Americas net sales were flat in the three-month period and grew 1%, 2% in constant currency, in the nine-month period, primarily due to market gains of CVI's silicone hydrogel lenses, Biofinity and Avaira, PC Technology lenses and single-use lenses. Europe net sales declined 1% in the three- and nine-month periods, but grew 7% and 6% in constant currency, respectively, driven by increases in sales of Biofinity, Avaira and Proclear 1 Day lenses. Net sales to the Asia Pacific region grew 16% and 12% in the three- and nine-month periods, 5% and 6% in constant currency, primarily due to significant sales growth of single-use and other disposable sphere products, disposable toric products and Biofinity lenses.

Net sales growth in the quarter includes increases in single-use spheres up 8%, at $50.1 million, all disposable spheres up 3% and total spheres up 2%. Silicone hydrogel spheres had sales of $28.2 million primarily in Europe and the United States. Our newly introduced silicone hydrogel toric lenses had sales of $3.6 million, and single-use torics grew 68% to $3.9 million but total toric sales declined 10% due primarily to a continuing trend in the market toward silicone hydrogel toric lenses. Disposable multifocal sales grew 8% to $16.3 million. Older conventional lens products declined 22%, and cosmetic lenses declined 12%. Proclear products continued global market share gains as Proclear toric sales increased 1% to $20.7 million, Proclear 1 Day spheres increased 36% to $13.3 million and Proclear multifocal lenses, including Biomedics XC, increased 13% to $14.0 million.

CVI's net sales growth is driven primarily through increases in the volume of lenses sold as the market continues to move toward more frequent replacement. While unit growth and product mix have influenced CVI's net sales growth, average realized prices by product have not materially influenced net sales growth.

CSI Net Sales

CSI's net sales increased 4% and 3% in the three- and nine-month periods to $44.3 million and $127.1 million, respectively. Sales of products marketed directly to hospitals grew 10% and now represent 33% of CSI's net sales. Women's healthcare products used primarily by obstetricians and gynecologists generate 96% of CSI's net sales. The balance are sales of medical devices outside of women's healthcare, which CSI does not actively market. While unit growth and product mix have influenced net sales growth, average realized prices by product have not materially influenced net sales growth.

Item 2. Management's Discussion and Analysis of Financial Condition

Cost of Sales/Gross Profit

Gross profit as a percentage of net sales (margin) was:



                                   Margin                      Margin
                             Three Months Ended          Nine Months Ended
                                  July 31,                    July 31,
                            2009            2008         2009           2008
            CVI                 49 %            55 %         54 %         57 %
            CSI                 62 %            59 %         62 %         59 %
            Consolidated        51 %            56 %         55 %         57 %

CVI's margin was 49% and 54% for the three- and nine-month periods of fiscal 2009 compared with 55% and 57% for the same periods last year. The decline is largely attributed to costs associated with inventory and equipment write offs and idle equipment. Also, CVI initiated a restructuring plan to relocate contact lens manufacturing primarily from Norfolk, Virginia, to existing manufacturing operations in Juana Diaz, Puerto Rico, and Hamble, UK. In the fiscal third quarter of 2009, costs associated with this manufacturing restructuring plan that totaled $4.1 million, primarily severance charges, were recorded as cost of sales and impacted gross margins. As discussed below, we expect to incur similar restructuring costs through the fiscal first quarter of 2011.

CSI's margin was 62% for the three- and nine-month periods of fiscal 2009 compared with 59% for the same periods last year. The increase is a result of manufacturing efficiencies and a changing product mix including higher margin products marketed directly to hospitals that represent 33% of net sales in the current period compared to 31% in the same period of 2008.

Selling, General and Administrative Expense (SGA)



                         Three Months Ended July 31,                             Nine Months Ended July 31,
                         % Net                % Net        %                    % Net                % Net        %
                2009     Sales       2008     Sales      Change        2009     Sales       2008     Sales      Change
                                                           ($ in millions)
CVI            $  79.2      33 %    $  89.2      38 %       (11 )%    $ 228.1      34 %    $ 262.9      40 %       (13 )%
CSI               14.1      32 %       14.8      35 %        (4 )%       40.5      32 %       43.3      35 %        (6 )%
Headquarters       6.7      -           6.6      -            1 %        20.1      -          21.8      -           (8 )%

               $ 100.0      35 %    $ 110.6      40 %       (10 )%    $ 288.7      36 %    $ 328.0      42 %       (12 )%

In the fiscal third quarter of 2009, consolidated SGA decreased by 10% and as a percentage of net sales, decreased to 35% from 40% in the third quarter of 2008 and decreased to 36% from 42% for the nine-month period.

Item 2. Management's Discussion and Analysis of Financial Condition

CVI's SGA decreased 11% in the fiscal third quarter, primarily due to increased efficiencies as a result of the rationalization of distribution centers completed in fiscal 2008 and decreased marketing expenses from the prior year that included several new product launches. SGA costs also decreased as a result of the Critical Activity restructuring plan, discussed below, initiated in the fiscal first quarter of 2009. SGA as a percentage of net sales decreased to 33% in the period from 38% in 2008.

CSI's SGA decreased 4% at 32% of net sales and 6% at 32% of net sales in the three- and nine-month periods of fiscal 2009, respectively, from 35% of net sales in the same periods last year. Marketing, distribution and other general and administration costs decreased primarily due to improved efficiencies from a recent acquisition and decreased legal and stock-based compensation expenses.

Corporate headquarters' expenses increased 1% to $6.7 million and decreased 8% to $20.1 million in the three- and nine-month period of fiscal 2009. The decrease year to date is primarily due to the $1.9 million reduction of accrued legal costs related to our acquisition of Ocular Sciences, Inc. based on a settlement agreement reached in our fiscal second quarter of 2009.

Research and Development Expense

CVI's research and development expenditures were 3% of net sales in the three-month period, down 21% from the same period last year. In the fiscal second quarter of 2009, CVI recorded a $3.0 million in-process research and development charge related to the acquisition of certain distribution rights. During the nine-month period ended July 31, 2009, excluding the charge, CVI's research and development expenditures were 3% of net sales at $18.6 million, down 18% over the same period of fiscal 2008. CVI's research and development activities include programs to develop disposable silicone hydrogel products and product lines utilizing PC Technology.

CSI's research and development expenditures were 3% of net sales for the three- and nine-month periods, at $1.5 million and $3.4 million, respectively, compared to 3% of net sales in both periods of fiscal 2008. CSI's research and development activities include the upgrade and redesign of many CSI incontinence, assisted reproductive technology and uterine manipulation products, and other gynecological and obstetrical product development activities.

Item 2. Management's Discussion and Analysis of Financial Condition

Restructuring Costs

2009 CooperVision Manufacturing Restructuring

In the fiscal third quarter of 2009, CooperVision initiated a restructuring plan to relocate contact lens manufacturing from Norfolk, Virginia, and transfer part of its contact lens manufacturing from Adelaide, Australia, to existing manufacturing operations in Juana Diaz, Puerto Rico, and Hamble, UK (2009 CooperVision manufacturing restructuring plan). This plan is intended to better utilize CVI's manufacturing efficiencies and reduce its manufacturing expenses through a reduction in workforce of approximately 570 employees. The closure of the Norfolk plant that manufactures about 7% of CooperVision's annual lens production is primarily the result of increased manufacturing efficiencies gained over the last year. No additional hires are anticipated in Puerto Rico or the UK as part of this plan.

The Company expects to complete restructuring activities in Adelaide, Australia, in our fiscal first quarter of 2010 and in Norfolk, Virginia, in our fiscal first quarter of 2011.

We estimate that the total restructuring costs under this plan will be approximately $25 million, with about $17 million associated with assets, including accelerated depreciation and facility lease and contract termination costs, and about $8 million associated with employee benefit costs, including anticipated severance payments, termination benefit costs, retention bonus payouts and other similar costs. These costs will be reported as cost of sales or restructuring costs in our Consolidated Statements of Income. In the three- and nine-month periods ended July 31, 2009, we reported $4.1 million in cost of sales and as of July 31, 2009, the total accrued restructuring liability, recorded in other current liabilities, was $4.1 million.

Critical Activity Restructuring

In the fiscal first quarter of 2009, CooperVision began a global restructuring plan to focus the organization on our most critical activities, refine our work processes and align costs with prevailing market conditions (Critical Activity restructuring plan). This restructuring plan involves the assessment of all . . .