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 20-Dec-2013All Recent SEC Filings

Show all filings for COOPER COMPANIES INC

Form 10-K for COOPER COMPANIES INC


20-Dec-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Note numbers refer to "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 2013 compared with fiscal 2012 and the results of our operations for fiscal 2012 compared with fiscal 2011. 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 United States debt and uncertainty surrounding employment, housing and credit concerns together with the European debt crisis and related foreign currency volatility impact our current performance and continue to represent a risk to our performance for fiscal year 2014.
We compete in the worldwide contact lens market with our spherical, toric and multifocal contact lenses offered in a variety of materials including using silicone hydrogel Aquaform® technology and phosphorylcholine technology (PC 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 introduce new products and continue to expand our presence in existing and emerging markets, including through acquisitions.
Sales of contact lenses utilizing silicone hydrogel materials, a major product material in the industry, have grown significantly. 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. CooperVision markets monthly and two-week silicone hydrogel spherical and toric lens products under our Biofinity® and Avaira® brands and a multifocal lens under Biofinity.
We believe that the global market for single-use contact lenses is expanding and will continue to grow. In fiscal 2013, we launched MyDayTM, our single-use spherical silicone hydrogel lens, in Europe, and in fiscal 2012 we launched Proclear® 1 Day multifocal. We forecast increasing demand for our existing and future single-use products. To meet this anticipated demand, in fiscal 2014 we plan to continue the implementation of capital projects to invest in increased single-use manufacturing capacity. Competitive silicone hydrogel single-use lens products are gaining market share and represent a risk to our business.

On October 31, 2013, we completed a transaction to sell Aime, our rigid gas-permeable contact lens and solutions business in Japan, to Nippon Contact Lens Inc. In our fiscal fourth quarter of 2013, we recorded a pre-tax loss of approximately $21.1 million. The business was originally obtained as part of the December 1, 2010, acquisition which included obtaining the rights to market Biofinity in Japan. The divestiture is consistent with the strategy to focus on our core soft contact lens business. Additionally, Aime revenue has declined in recent periods, and the products have lower than average company margins. Results from operations of Aime are included in our Consolidated Statements of Income for fiscal 2013, 2012 and 2011. Post divestiture, we expect the transaction to be neutral to earnings per share.


THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations

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 companies and products that complement its business model. We intend to continue to invest in CooperSurgical's business through acquisitions of companies and product lines. CooperSurgical product sales are categorized based on the point of healthcare delivery including products used in medical office and surgical procedures by obstetricians and gynecologists (ob/gyns) representing 67% of CooperSurgical's net sales. CooperSurgical's remaining sales represent products used in fertility clinics that now represent 33% of CooperSurgical's net sales up from 16% in the prior year period due to the July 2012 acquisition of Origio, a global in-vitro fertilization medical device company.
As part of the new health care reform law, a 2.3% excise tax on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, became effective January 1, 2013. CooperVision's products are not subject to this new tax because contact lenses are excluded from the tax. However, United States sales of CooperSurgical's products are subject to this new tax which is primarily recorded in selling, general and administrative expense on the Statement of Income.

On September 12, 2013, we entered into a five-year, $300.0 million, senior unsecured term loan agreement (Term Loan) that will mature on September 12, 2018, and will be subject to amortization of principal of 5% per year payable quarterly beginning October 31, 2016, with the balance payable at maturity. We utilized the funds provided by this Term Loan to repay amounts outstanding on our revolving Credit Agreement, and at October 31, 2013, $300.0 million remained outstanding on the Term Loan.
At October 31, 2013, we had $999.8 million available under the revolving 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, share repurchases and cash dividends.

2013 Compared with 2012

Highlights: 2013 vs. 2012

• Net sales up 10% to $1.6 billion from $1.4 billion in fiscal year 2012.

• Gross margin 65% of net sales up from 64%.

• Operating income up 8% to $305.9 million from $283.4 million.

• Interest expense down 22% to $9.2 million from $11.8 million.

• Diluted earnings per share up 18% to $5.96 from $5.05.

• Operating cash flow $415.9 million up 32% from $315.1 million.

Fiscal 2013 pre-tax results include a $21.1 million loss on divestiture of Aime, $14.1 million of insurance proceeds related to a business interruption claim and $0.6 million of costs related to the acquisition of Origio. Fiscal 2012 pre-tax results include a $1.4 million loss related to the May 31, 2012, amendment to our revolving Credit Agreement, and costs related to the acquisition of Origio consisting of $4.9 million in direct acquisition costs and a $0.4 million net gain related to the repayment of debt acquired recorded in interest expense.


                  THE COOPER COMPANIES, INC. AND SUBSIDIARIES
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations




Selected Statistical Information - Percentage of Net Sales
                                                2013 vs. 2012                   2012 vs. 2011
Years Ended October 31,             2013          % Change           2012          % Change          2011
Net sales                             100 %         10 %               100 %             9  %          100 %
Cost of sales                          35 %          8 %                36 %            (1 )%           40 %
Gross profit                           65 %         11 %                64 %            15  %           60 %
Selling, general and
administrative expense                 38 %          8 %                39 %            10  %           38 %
Research and development expense        4 %         14 %                 4 %            19  %            3 %
Amortization of intangibles             2 %         26 %                 1 %            17  %            2 %
Loss on divestiture of Aime             2 %          -                   -               -               -
Operating income                       19 %          8 %                20 %            25  %           17 %

Net Sales
Our two business units, CooperVision and CooperSurgical, generate all of our sales.
• CooperVision develops, manufactures and markets a broad range of soft contact lenses for the worldwide vision correction market.

• CooperSurgical develops, manufactures and markets medical devices and procedure solutions to improve healthcare delivery to women.

Net Sales Growth by Business Unit

Our consolidated net sales grew by $142.6 million in fiscal 2013 and $114.3
million in 2012:
($ in millions)  2013 vs. 2012      % Change     2012 vs. 2011      % Change
CooperVision    $          79.1         7 %     $          68.1         6 %
CooperSurgical             63.5        25 %                46.2        22 %
                $         142.6        10 %     $         114.3         9 %

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-


THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations

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 PC Technology, help enhance tissue/device compatibility and offer improved lens comfort.

CooperVision's Biofinity brand silicone hydrogel spherical, toric and multifocal contact lenses, Avaira brand spherical and toric products and MyDay, our silicone hydrogel single-use 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.

CooperVision net sales growth included increases in total sphere lenses up 4%, representing 56% of net sales and total toric lenses up 9%, representing 31% of net sales. Total multifocal lenses grew 29% to 10% of net sales up from 8% in the prior year on increased sales of Biofinity monthly and Proclear single-use multifocal products. Silicone hydrogel products, including MyDay, our single-use silicone hydrogel lens, grew 26% worldwide, representing 43% of net sales up from 36% in the prior year. Proclear product sales grew 6% as compared to the prior year and represented 25% of net sales, the same as the prior year. Older conventional lens products, including cosmetic lenses, declined 12% and represented 3% of net sales, the same as the prior year.

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.
CooperVision Net Sales by Geography
($ in millions) 2013 2012 % Change Americas $ 546.2 $ 498.9 9 % EMEA 439.4 402.3 9 % Asia Pacific 282.7 288.0 (2 )% $ 1,268.3 $ 1,189.2 7 %

CooperVision's worldwide net sales grew 7% in the year-to-year comparison. Americas net sales grew 9%, primarily due to market gains of CooperVision's silicone hydrogel contact lenses along with single-use sphere and multifocal products. EMEA net sales increased 9% primarily driven by sales of silicone hydrogel lenses and single-use sphere and multifocal products. Net sales to the Asia Pacific region decreased 2% due to the negative impact of the weakening of the Japanese yen compared to the United States dollar. Excluding the impact of currency, sales in the Asia Pacific region grew on market gains of silicone hydrogel lenses and single-use products.
CooperVision's net sales growth was driven primarily by 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 2013 net sales increased 25% from fiscal 2012 to $319.4 million with net sales growth excluding acquisitions of 3%. Sales of products used in fertility clinics now represent 33% of net sales compared to 16% in the prior year due to the acquisition of Origio in July 2012. Sales of products used in medical office and surgical procedures by ob/gyns declined 1% as compared to the prior year and now


THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations

represent 67% of CooperSurgical's net sales compared to 84% in the prior year. CooperSurgical's sales primarily comprise women's healthcare products used in fertility procedures and by gynecologists and obstetricians in surgical procedures and in the medical office. The balance consists of sales of medical devices outside of women's healthcare which CooperSurgical does not actively market. Unit growth and product mix, primarily sales of fertility products, along with increased average realized prices on disposable products influenced organic sales growth.
Acquisition of Origio: On July 11, 2012, we completed a voluntary tender offer for the outstanding shares of Origio a/s at a purchase price of Norwegian krone (NOK) 28 per share in cash, or $147.4 million, and acquired about 97% of the outstanding shares. During our fiscal fourth quarter of 2012 and our fiscal first quarter of 2013, we completed a mandatory redemption to obtain the remaining shares in accordance with the Danish Companies Act. We, through our subsidiaries, financed the acquisition with available offshore cash and credit facilities. Origio is a global in-vitro fertilization (IVF) medical device company that develops, manufactures and distributes highly specialized products that target IVF treatment with a goal to make fertility treatment safer, more efficient and convenient. Based in Malov, Denmark, Origio had approximately 320 employees. We assumed about $45.4 million of Origio's debt that we repaid concurrent with the acquisition. Our allocation of the purchase price at fair value included amortizable intangible assets of $107.7 million and goodwill of $103.7 million. We incurred $4.9 million of acquisition costs which were primarily reported as selling, general and administrative expense in our Consolidated Statement of Income. See Note 2 for additional information.

2012 Compared with 2011

Highlights: 2012 vs. 2011

• Net sales up 9% to $1.4 billion from $1.3 billion in fiscal year 2011.

• Gross margin 64% of net sales up from 60%.

• Operating income up 25% to $283.4 million from $227.6 million.

• Interest expense down 32% to $11.8 million from $17.3 million.

• Diluted earnings per share up 39% to $5.05 from $3.63.

• Operating cash flow $315.1 million down 6% from $336.3 million.

Fiscal 2012 pre-tax results include a $1.4 million loss related to the May 31, 2012, amendment to our revolving Credit Agreement, and costs related to the acquisition of Origio consisting of $4.9 million in direct acquisition costs and a $0.4 million net gain related to the repayment of debt acquired recorded in interest expense. Fiscal 2011 pre-tax results included a charge 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.


                  THE COOPER COMPANIES, INC. AND SUBSIDIARIES
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations




Selected Statistical Information - Percentage of Net Sales
                                            2012 vs. 2011                   2011 vs. 2010
Years Ended October 31,         2012          % Change           2011         % Change          2010
Net sales                         100 %           9  %             100 %          15 %            100 %
Cost of sales                      36 %          (1 )%              40 %           9 %             42 %
Gross profit                       64 %          15  %              60 %          19 %             58 %
Selling, general and
administrative expense             39 %          10  %              38 %          18 %             37 %
Research and development
expense                             4 %          19  %               3 %          24 %              3 %
Amortization of intangibles         1 %          17  %               2 %          14 %              2 %
Operating income                   20 %          25  %              17 %          20 %             16 %

Net Sales Growth by Business Unit

Our consolidated net sales grew by $114.3 million in fiscal 2012 and $172.3
million in 2011:
($ in millions)  2012 vs. 2011      % Change     2011 vs. 2010      % Change
CooperVision    $          68.1         6 %     $         150.6        16 %
CooperSurgical             46.2        22 %                21.7        12 %
                $         114.3         9 %     $         172.3        15 %

CooperVision Net Sales

Net sales growth included increases in single-use spheres up 10%, representing 22% of net sales. Total toric lenses grew 5% and were 30% of net sales, and multifocal lenses grew 26% to 8% of net sales up from 7% in the prior year. Silicone hydrogel products grew 28% worldwide and represented 36% of net sales up from 30% in the prior year. Proclear product sales were flat as compared to the prior year and represented 25% of net sales down from 27% in the prior year. Older conventional lens products and cosmetic lenses declined 16% and 20%, respectively, and together represented 3% of net sales, down from 4% in the prior year.

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.


                  THE COOPER COMPANIES, INC. AND SUBSIDIARIES
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations




CooperVision Net Sales by Geography
($ in millions)    2012         2011       % Change
Americas        $   498.9    $   469.7         6 %
EMEA                402.3        398.5         1 %
Asia Pacific        288.0        252.9        14 %
                $ 1,189.2    $ 1,121.1         6 %

CooperVision's worldwide net sales grew 6% in the year-to-year comparison. Americas net sales grew 6%, primarily due to market gains of CooperVision's silicone hydrogel lenses and single-use lenses. EMEA net sales grew 1% primarily driven by sales growth of silicone hydrogel lenses, as sales in fiscal 2012 were negatively impacted due to the weakening euro and the British pound compared to the United States dollar. Net sales to the Asia Pacific region grew 14%, primarily due to sales growth in fiscal 2012 of single-use lenses and silicone hydrogel lenses. Asia Pacific net sales growth was positively impacted by the strengthening of the Japanese yen and Australian dollar compared to the United States dollar.
CooperVision's net sales growth was driven primarily by 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 2012 net sales increased 22% from fiscal 2011 to $255.9 million with net sales growth excluding acquisitions of 6%. Origio net sales of $25.1 million are included in fiscal 2012 beginning on July 1, 2012. Sales of products used in surgical procedures grew 19% and represented 36% of CooperSurgical's fiscal 2012 net sales, 40% excluding Origio's IVF business, compared to 37% in the prior year. Unit growth and product mix along with increased average realized prices on disposable products have influenced organic sales growth.


THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations

2013 Compared to 2012 and 2012 Compared to 2011
Cost of Sales/Gross Profit
Gross Profit Percentage of Net Sales 2013    2012    2011
CooperVision                          65 %    63 %    60 %
CooperSurgical                        64 %    66 %    65 %
Consolidated                          65 %    64 %    60 %

The increase in CooperVision's gross margin is largely attributable to the lower royalty payment on our silicone hydrogel products beginning on January 1, 2013, increased manufacturing efficiencies and product mix. Sales of higher margin Biofinity products increased as compared to the prior year. Sales of our lower margin Avaira family of products also grew in the fiscal 2013 as we completed the relaunch of these products that compete in the two-week modality market. Gross margin was unfavorably impacted by lower net sales on products sold in Japan due to the weakening of the Japanese yen as compared to the United States dollar in fiscal 2013. The sequential increases in gross margin over the fiscal years presented are largely attributable to improvements in manufacturing efficiencies and product mix, primarily the shift to higher margin Biofinity silicone hydrogel products. We expect our plans to ramp up production of MyDay, our single-use spherical silicone hydrogel lens, to provide headwinds to our gross margin over future fiscal periods.
The decrease in CooperSurgical's gross margin for fiscal 2013 as compared to fiscal 2012 is largely attributable to product mix and increased sales of lower margin fertility products due to the acquisition of Origio in July 2012. Sales of lower margin fertility products now represent 33% of net sales compared to 16% in fiscal 2012. The increase in CooperSurgical's gross margin for fiscal 2012 as compared to fiscal 2011 is largely attributable to manufacturing efficiency improvements and product mix. The changes in product mix included higher margins on products used in surgical procedures that grew 19% over the prior year and represented 36% of net sales in fiscal 2012, or 40% excluding Origio sales for the last four months of 2012, compared to 37% in fiscal 2011. The increase was partially offset by the inclusion of four months of sales of lower margin fertility products from the acquisition of Origio in July 2012. Selling, General and Administrative Expense (SGA)

                           % Net                            % Net                            % Net
($ in millions)   2013     Sales     % Change      2012     Sales     % Change      2011     Sales
CooperVision    $ 448.2      35 %        3 %     $ 433.5      36 %        6 %     $ 410.2      37 %
CooperSurgical    118.5      37 %       27 %        93.0      36 %       32 %        70.6      34 %
Corporate          44.0       -         15 %        38.4       -         19 %        32.3       -
                $ 610.7      38 %        8 %     $ 564.9      39 %       10 %     $ 513.1      38 %

Consolidated SGA decreased to 38% of net sales in fiscal 2013 from 39% of net sales in fiscal 2012 and was flat as compared to fiscal 2011.
The 3% increase in CooperVision's SGA in fiscal 2013 compared to fiscal 2012 in absolute dollars is primarily due to our investment in sales and marketing, including increased headcount, to reach new customers and support geographic expansion. Programs included the promotion of our silicone hydrogel products, including MyDay, our single-use spherical silicone hydrogel lens, and Proclear 1 Day multifocal in Japan. SGA as a percent of net sales decreased to 35% from 36% and 37% in fiscal 2012 and 2011, respectively, primarily due to reduced legal costs and the $10.0 million patent litigation settlement in fiscal 2011 discussed below.
The 27% increase in CooperSurgical's SGA in absolute dollars in fiscal 2013 as compared to fiscal 2012 and the increase as a percentage of net sales is primarily due to operating expenses related to Origio, including approximately $0.6 million of acquisition costs in fiscal 2013. In addition to the acquisition and integration


THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations

activities related to Origio, CooperSurgical continues to invest in sales activities to promote our products, with emphasis on products used in surgical procedures, and to reach new customers. On January 1, 2013, the new medical device excise tax became effective on sales of CooperSurgical's products in the United States and added $2.4 million to SGA expense in fiscal 2013. The 32% increase in CooperSurgical's SGA in absolute dollars in fiscal 2012 as compared to fiscal 2011 as well as the increase as a percentage of sales is primarily due to operating expenses related to Origio as well as approximately $4.6 million of acquisition costs expensed in fiscal 2012. Fiscal 2012 SGA was 34% as a percentage of net sales, the same as fiscal 2011, excluding Origio operating expenses and related acquisition costs. . . .

  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.