Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
COO > SEC Filings for COO > Form 10-K on 16-Dec-2011All Recent SEC Filings

Show all filings for COOPER COMPANIES INC

Form 10-K for COOPER COMPANIES INC


16-Dec-2011

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Note numbers refer to the "Notes to Consolidated Financial Statements" in Item 8. Financial Statements and Supplementary Data.

RESULTS OF OPERATIONS

We discuss below the results of our operations for fiscal 2011 compared with fiscal 2010 and the results of our operations for fiscal 2010 compared with fiscal 2009. Certain prior period amounts have been reclassified to conform to the current period's presentation. We discuss our cash flows and current financial condition under "Capital Resources and Liquidity."

Outlook

Overall, we remain optimistic about the long-term prospects for the worldwide contact lens and women's healthcare markets. However, events affecting the economy as a whole, including the uncertainty and instability of global markets driven by employment, housing and credit concerns, the European debt crisis and the recent downgrade of long-term U.S. sovereign debt continue to represent a risk to our forecasted performance for fiscal year 2012 and beyond.

We compete in the worldwide contact lens market with our 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 there will be lower contact lens wearer dropout rates as technology improves and enhances the wearing experience through a combination of improved designs and materials and the growth of preferred modalities such as single-use and monthly wearing options. CooperVision is focused on greater worldwide market penetration as we roll out new products and continue to expand our presence in existing and emerging markets.

Sales of contact lenses utilizing silicone hydrogel materials, a major product material in the industry, have grown significantly. In the past three years, CooperVision launched monthly silicone hydrogel spherical, toric and multifocal lens products under our Biofinity® brand and two-week silicone hydrogel spherical and toric lens products under our Avaira brand. In fiscal 2011, we launched our Biofinity spherical silicone hydrogel lens in Japan and our Biofinity multifocal lens globally. While we believe that we have high quality silicone hydrogel contact lens products, our future growth may be limited by our late entry into the silicone hydrogel segment of the market. For example, competitive silicone hydrogel single-use and multifocal lens products are gaining market share and represent a risk to our business. We have not yet marketed a silicone hydrogel single-use product. Our ability to compete successfully with a full range of silicone hydrogel products is an important factor to achieving our projected future levels of sales growth and profitability.

In August 2011, CooperVision initiated a recall on limited lots of Avaira Toric contact lenses. In November 2011, this recall was expanded to cover limited lots of Avaira Sphere contact lenses. The recall was initiated because of the level of a residue (silicone oil) on certain lenses. The residue may cause hazy vision, severe eye pain or an eye injury. The manufacturing issue has been identified and process changes have been implemented. These process changes are subject to review by the United States Food and Drug Administration. Avaira Toric and Avaira Sphere lenses that are subject to the


Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and

Results of Operations - (Continued)

recall represent less than 2% of the Company's fiscal 2011 net sales. Avaira Sphere lenses remain on the market, while Avaira Toric lenses are awaiting FDA authorization to return to the market. This recall is limited solely to specific lots of Avaira Toric and Avaira Sphere contact lenses and no other CooperVision products are involved in this recall.

We are also in the process of developing a number of new contact lens products to enhance CooperVision's 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 multifocal and single-use silicone hydrogel lenses.

The medical device segment of the women's healthcare market is highly fragmented. CooperSurgical has steadily grown its market presence and distribution system by developing products and acquiring products and companies that complement its business model. In fiscal 2011, CooperSurgical acquired Apple Medical, gaining its products including the OB/Mobius® Elastic Retractor used in cesarean sections, the Fischer Cone Biopsy Excisor™ used for cervical biopsies and the Apple-Hunt Secondary Trocar ™ used in laparoscopic surgical procedures. CooperSurgical also acquired Summit Doppler Systems, Inc., gaining its hand-held obstetrical and vascular ultrasound doppler systems used for peripheral vascular testing and fetal monitoring applications. We intend to continue to invest in CooperSurgical's business through acquisitions of companies and product lines.

In the fiscal first quarter of 2011, we refinanced our syndicated Senior Unsecured Revolving Line of Credit due to mature on January 31, 2012, with a new Credit Agreement that provides for a multicurrency revolving credit facility in an aggregate principal amount of $750.0 million and an amortizing term loan facility in an aggregate principal amount of $250.0 million, each of which, mature on January 12, 2016. On February 15, 2011, we redeemed all $339.0 million aggregate principal amount outstanding of our Senior Notes, in accordance with the terms of the Indenture, from borrowings under the new Credit Agreement, including $250.0 million from the term loan facility. At October 31, 2011, we had $650.7 million available under the Credit Agreement. We believe that our cash and cash equivalents, cash flow from operating activities and borrowing capacity under existing credit facilities will fund operations both in the next 12 months and in the longer term as well as current and long-term cash requirements for capital expenditures, acquisitions and cash dividends.

2011 Compared with 2010

Highlights: 2011 vs. 2010

• Net sales up 15% to $1.3 billion from $1.2 billion in fiscal year 2010.

• Gross margin 60% of net sales up from 58%.

• Operating income up 20% to $227.6 million from $189.9 million.

• Interest expense down 53% to $17.3 million from $36.7 million.

• Diluted earnings per share up 49% to $3.63 from $2.43.

• Operating cash flow $336.3 million up 26% from $267.7 million.


Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and

Results of Operations - (Continued)

Pre-tax results include in the current year a reserve of $20.4 million related to the limited recall of Avaira contact lenses, costs of $16.5 million related to the redemption of our Senior Notes, a $10.0 million charge related to the settlement of all claims in a patent infringement lawsuit and restructuring costs of $1.9 million related to the CooperVision manufacturing restructuring plan that was completed in fiscal 2011. In the prior year, pre-tax results included settlement charges of $27.8 million related to the securities class action litigation and the derivative litigation and $16.1 million related to the CooperVision manufacturing restructuring plan.

Selected Statistical Information - Percentage of Net Sales and Growth



Years Ended October 31,             2011            % Change           2010            % Change           2009
Net sales                               100 %              15 %            100 %               7 %            100 %
Cost of sales                            40 %               9 %             42 %               -               45 %

Gross profit                             60 %              19 %             58 %              13 %             55 %
Selling, general and
administrative expense                   38 %              18 %             37 %              11 %             36 %
Research and development
expense                                   3 %              24 %              3 %               6 %              3 %
Amortization of intangibles               2 %              14 %              2 %               1 %              2 %

Operating income                         17 %              20 %             16 %              27 %             14 %

Net Sales

Cooper's two business units, CooperVision and CooperSurgical, generate all of its sales.

• CooperVision produces a broad range of monthly, two-week and single-use contact lenses, featuring advanced materials and optics. CooperVision brings a commitment to solving the toughest vision challenges such as astigmatism, presbyopia and ocular dryness; with a broad collection of spherical, toric and multifocal contact lenses.

• CooperSurgical develops, manufactures and markets medical devices and procedure solutions to improve healthcare delivery to women regardless of the clinical setting.

Net Sales Growth by Business Unit



Our consolidated net sales grew by $172.3 million in fiscal 2011 and $78.1
million in 2010:



    ($ in millions)    2011 vs. 2010       % Change        2010 vs. 2009       % Change
    CooperVision      $         150.6             16 %    $          61.0              7 %
    CooperSurgical               21.7             12 %               17.1             10 %

                      $         172.3             15 %    $          78.1              7 %


Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and

Results of Operations - (Continued)

CooperVision Net Sales

The contact lens market has two major product categories:

• Spherical lenses including lenses that correct near- and farsightedness uncomplicated by more complex visual defects.

• Toric and multifocal lenses including lenses that, in addition to correcting near- and farsightedness, address more complex visual defects such as astigmatism and presbyopia by adding optical properties of cylinder and axis, which correct for irregularities in the shape of the cornea.

In order to achieve comfortable and healthy contact lens wear, products are sold with recommended replacement schedules, often defined as modalities, with the primary modalities being single-use, two-week and monthly. CooperVision offers spherical, aspherical, toric, multifocal and toric multifocal lens products in most modalities.

The contact lens market consists primarily of 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. Significantly, the market for spherical lenses is growing with value-added spherical lenses to alleviate dry eye symptoms as well as lenses with aspherical optical properties or higher oxygen permeable lenses such as silicone hydrogels.

CooperVision's Proclear ® brand aspheric, toric and multifocal contact lenses, manufactured using proprietary phosphorylcholine (PC) Technology, help enhance tissue/device compatibility and offer improved lens comfort.

CooperVision's Biofinity brand silicone hydrogel spherical, toric and multifocal contact lenses and Avaira brand spherical and toric products are manufactured using proprietary Aquaform technology to increase oxygen transmissibility for longer wear. We believe that it is important to develop a full range of multifocal and single-use silicone hydrogel products due to increased pressure from silicone hydrogel products offered by our major competitors.

Net sales growth includes increases in single-use spheres up 18% and total spheres up 12%. Total toric lenses grew 16%, including 26% growth of single-use toric lenses, and multifocal lenses grew 4%. Silicone hydrogel products grew 49% worldwide. Proclear products increased 10% driven by growth of single-use lenses. Older conventional lens products and cosmetic lenses declined 13% and 17%, respectively.

CooperVision competes in the worldwide soft contact lens market and services three primary regions: the Americas, EMEA (Europe, Middle East and Africa) and Asia Pacific.


Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and

Results of Operations - (Continued)

CooperVision Net Sales by Region



                   ($ in millions)     2011         2010       Growth
                   Americas          $   469.7     $ 432.8           9 %
                   EMEA                  398.5       351.8          13 %
                   Asia Pacific          252.9       185.9          36 %

                                     $ 1,121.1     $ 970.5          16 %

CooperVision's worldwide net sales grew 16% in the period-to-period comparison. Americas net sales grew 9%, primarily due to market gains of CooperVision's silicone hydrogel contact lenses and single-use lenses. In our fiscal first quarter of 2010, we recorded $10.1 million of reductions to Americas net sales due to out-of-period adjustments to increase accruals for rebates that were under-accrued in fiscal 2009. EMEA net sales grew 13% driven by increases in sales of silicone hydrogel lenses and single-use lenses. Net sales to the Asia Pacific region grew 36%, primarily due to sales growth of single-use spherical and toric products and silicone hydrogel lenses; these results include sales of $31.3 million related to product lines acquired on December 1, 2010 from Asahikasei Aime Co., Ltd.

CooperVision's net sales growth is driven primarily by increases in the volume of lenses sold and introduction of new products, primarily silicone hydrogel lenses, along with acquisitions and the favorable effect of foreign currency exchange rate fluctuations. While unit growth and product mix have influenced CooperVision's sales growth, average realized prices by product have not materially influenced sales growth.

CooperSurgical Net Sales

CooperSurgical's fiscal 2011 net sales increased 12% from fiscal 2010 to $209.7 million with net sales growth excluding acquisitions of 8%. Sales of products used in surgical procedures grew 23% and represented 37% of CooperSurgical's fiscal 2011 net sales compared to 33% in the prior fiscal year. CooperSurgical sales are primarily comprised of women's healthcare products used by gynecologists and obstetricians in both office and surgical procedures. The balance consists of sales of medical devices outside of women's healthcare which CooperSurgical does not actively market. Unit growth and product mix along with increased average realized prices on disposable products influenced organic sales growth.

2010 Compared with 2009

Highlights: 2010 vs. 2009

• Net sales up 7% to $1.2 billion from $1.08 billion in fiscal year 2009.

• Gross margin 58% of net sales up from 55%.

• Operating income up 27% to $189.9 million from $149.9 million.

• Interest expense down 17% to $36.7 million from $44.1 million.


Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and

Results of Operations - (Continued)

• Diluted earnings per share up 10% to $2.43 from $2.21.

• Operating cash flow $267.7 million up 20% from $223.1 million.

Selected Statistical Information - Percentage of Net Sales and Growth



Years Ended October 31,              2010            % Change           2009            % Change            2008
Net sales                                100 %               7 %            100 %               3 %             100 %
Cost of sales                             42 %               -               45 %              11 %              42 %

Gross profit                              58 %              13 %             55 %              (2 %)             58 %
Selling, general and
administrative expense                    37 %              11 %             36 %              (9 %)             41 %
Research and development
expense                                    3 %               6 %              3 %              (6 %)              3 %
Amortization of intangibles                2 %               1 %              2 %               6 %               2 %

Operating income                          16 %              27 %             14 %              18 %              12 %

Net Sales Growth by Business Unit



Our consolidated net sales grew by $78.1 million in fiscal 2010 and $33.1
million in 2009:



     ($ in millions)    2010 vs. 2009       % Change        2009 vs. 2008      % Change
     CooperVision      $          61.0              7 %    $          30.5             3 %
     CooperSurgical               17.1             10 %                2.6             2 %

                       $          78.1              7 %    $          33.1             3 %

CooperVision Net Sales

Net sales growth includes increases in single-use spheres up 12% and total spheres up 9%. Total toric lenses grew 13%, including 24% growth of single-use toric lenses, and multifocal lenses grew 1%. Silicone hydrogel spherical and toric lenses grew 108% worldwide. Proclear products increased 9% driven by growth of single-use lenses. Older conventional lens products and cosmetic lenses declined 14% and 12%, respectively.

CooperVision Net Sales by Region



                    ($ in millions)    2010        2009       Growth
                    Americas          $ 432.8     $ 392.8          10 %
                    EMEA                351.8       345.1           2 %
                    Asia Pacific        185.9       171.6           8 %

                                      $ 970.5     $ 909.5           7 %

CooperVision's worldwide net sales grew 7% in the period-to-period comparison. Americas net sales grew 10%, primarily due to market gains of CooperVision's silicone hydrogel spherical and toric


Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and

Results of Operations - (Continued)

lenses and single-use lenses. In our fiscal first quarter of 2010, we recorded $10.1 million of reductions to Americas net sales due to out-of-period adjustments to increase accruals for rebates that were under-accrued in fiscal 2009. EMEA net sales grew 2% in the period driven by increases in sales of silicone hydrogel lenses and single-use lenses. Net sales to the Asia Pacific region grew 8%, primarily due to sales growth of single-use spherical and toric products and silicone hydrogel lenses.

CooperVision's net sales growth is driven primarily through increases in the volume of lenses sold and introduction of new products, primarily silicone hydrogel lenses. While unit growth and product mix have influenced CooperVision's sales growth, average realized prices by product have not materially influenced sales growth.

CooperSurgical Net Sales

CooperSurgical's fiscal 2010 net sales increased 10% from fiscal 2009 to $188.0 million with net sales growth excluding acquisitions of 6%. Sales of products used in surgical procedures grew 18% and represented 33% of CooperSurgical's fiscal 2010 net sales compared to 31% in fiscal 2009. CooperSurgical sales are primarily comprised of women's healthcare products used by gynecologists and obstetricians in both office and surgical procedures. The balance consists of sales of medical devices outside of women's healthcare which CooperSurgical does not actively market. Unit growth and product mix along with increased average realized prices on disposable products influenced organic sales growth.

2011 Compared to 2010 and 2010 Compared to 2009



Cost of Sales/Gross Profit



           Gross Profit Percentage of Net Sales   2011       2010       2009
           CooperVision                              60 %       57 %       54 %
           CooperSurgical                            65 %       64 %       60 %
           Consolidated                              60 %       58 %       55 %

The increases in CooperVision's gross margin are largely attributable to improvements in manufacturing efficiencies and product mix, primarily the shift to higher margin silicone hydrogel products. CooperVision's gross margin in the current year was negatively impacted by the $20.2 million reserve for inventory and return provisions related to the recall of certain lots of Avaira contact lenses discussed above. Gross margin also reflects efficiencies associated with the 2009 CooperVision Manufacturing restructuring plan. Costs associated with the plan, recorded as cost of sales, were $1.9 million for fiscal 2011, $16.0 million for fiscal 2010 and $5.0 million for fiscal 2009. As discussed below, these costs are primarily severance charges and accelerated depreciation, and we do not expect to incur similar costs related to this manufacturing restructuring plan in future periods. Gross margin for fiscal 2010 reflects the increase in accruals for rebates discussed above. Gross margin in fiscal 2009 included costs associated with fixed asset write offs; such costs were not significant in fiscal 2011 or 2010.

The increase in CooperSurgical's gross margin for fiscal 2011 is largely attributable to manufacturing efficiency improvements and product mix including higher margins on products used in surgical


Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and

Results of Operations - (Continued)

procedures that represented 37% of net sales in fiscal 2011 compared to 33% in fiscal 2010 and 31% in fiscal 2009. CooperSurgical's gross margin in fiscal 2010 includes the recognition of a one-time $1.5 million favorable settlement resolving a vendor dispute.

Selling, General and Administrative Expense (SGA)



                                      % Net                    % Net                    % Net
       ($ in millions)    2011        Sales        2010        Sales        2009        Sales
       CooperVision      $ 410.2          37 %    $ 343.0          35 %    $ 309.9          34 %
       CooperSurgical       70.6          34 %       61.6          33 %       53.7          31 %
       Headquarters         32.3           -         28.5           -         28.0           -

                         $ 513.1          38 %    $ 433.1          37 %    $ 391.6          36 %

Consolidated SGA increased 18% in fiscal 2011 and 11% in fiscal 2010.

The 20% increase in CooperVision's SGA in fiscal 2011 in absolute dollars as well as the increase as a percentage of net sales are primarily due to our increased investment in sales and marketing to reach new customers and to promote our silicone hydrogel products as well as the patent infringement settlement discussed below.

The 15% increase in CooperSurgical's SGA in fiscal 2011 in absolute dollars as well as the increase as a percentage of sales are primarily due to increased selling and marketing costs to support higher sales and anticipated further growth along with legal expenses related to business acquisitions during the period.

Corporate headquarters' SGA increased 14% in fiscal 2011 primarily due to increased legal costs and share-based compensation expense partially offset by reduced consulting fees.

Research and Development Expense



                                      % Net                   % Net                   % Net
        ($ in millions)    2011       Sales        2010       Sales        2009       Sales
        CooperVision      $ 37.0           3 %    $ 29.9           3 %    $ 28.9           3 %
        CooperSurgical       6.6           3 %       5.4           3 %       4.4           3 %

                          $ 43.6           3 %    $ 35.3           3 %    $ 33.3           3 %

CooperVision research and development expense increased 24% in fiscal 2011 as compared to fiscal 2010 primarily due to investments in new technologies, clinical trials and increased headcount. CooperVision's research and development activities include programs to develop disposable silicone hydrogel products and product lines utilizing PC Technology. In fiscal 2009, CooperVision recorded a $3.0 million in-process research and development charge related to the acquisition of certain distribution rights.


Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and

Results of Operations - (Continued)

CooperSurgical research and development expense increased 23% in fiscal 2011 as compared to fiscal 2010, primarily due to investments in the design of the next generation product line of uterine manipulators. Other research and development activities include the upgrade and expansion of CooperSurgical's portfolio of assisted reproductive technology products as well as products within the general obstetrics and gynecology offerings.

Restructuring Costs

2009 CooperVision Manufacturing Restructuring Plan

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 CooperVision's manufacturing efficiencies and reduce its manufacturing expenses through a reduction in workforce of approximately 480 employees.

. . .

  Add COO to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for COO - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.