Cooper Companies, Inc. — Q2 2012 Form 10-Q
Business context and period: Unaudited results for the three and six months ended April 30, 2012, compared with the corresponding 2011 periods. Cooper operates CooperVision, a contact lens business, and CooperSurgical, a women’s healthcare medical-device business. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Net sales | $344.6 | $325.3 | $670.6 | $618.5 |
| Gross profit / margin | $220.7 / 64% | $201.8 / 62% | $431.1 / 64% | $378.4 / 61% |
| Operating income / margin | $65.4 / 19% | $60.3 / 19% | $127.2 / 19% | $109.0 / 18% |
| Net income | $54.9 | $35.4 | $109.5 | $74.6 |
| Diluted EPS | $1.12 | $0.73 | $2.24 | $1.56 |
| Operating cash flow | $80.6 | $64.9 | $122.2 | $137.8 |
- Q2 sales increased 6%; six-month sales increased 8%. CooperVision sales rose 5% and 7%, respectively; CooperSurgical sales rose 13% and 14%.
- Growth drivers included silicone hydrogel lenses, multifocal and single-use products, and CooperSurgical surgical-procedure products. Q2 silicone hydrogel sales grew 29%; multifocal lenses grew 23%.
- Q2 net income and diluted EPS increased substantially year over year. The comparison benefited from the absence of the prior-year $16.5 million debt-extinguishment loss. Lower interest expense also supported results.
- Gross margin improved, which management attributed primarily to manufacturing efficiencies and favorable product mix. Higher SG&A and R&D spending partially offset gross-profit growth.
- The six-month effective tax rate was 9.8%, versus 7.6% in the prior-year period; management attributed the relatively low rate primarily to earnings in foreign jurisdictions with lower tax rates.
Financial position and liquidity
- At April 30, 2012, cash was $7.7, total debt $319.3, and stockholders’ equity $2,038.0. Debt was down from $380.4 at October 31, 2011. Working capital was $348.2, versus $273.1; current assets were $576.3 and current liabilities $228.1.
- Six-month operating cash flow was $122.2, down from $137.8, primarily reflecting working-capital movements. Inventory increased $32.5 to $286.1; management linked the increase to production for new launches and the Avaira Toric relaunch.
- Six-month capital expenditures were $43.1, compared with $52.0 in 2011. The company repurchased 663,000 shares for $46.1 at an average $69.60 per share; $103.9 remained authorized under the $150 million program.
- At April 30, the company reported $696.8 of availability under its then-existing credit agreement and compliance with covenants: interest coverage of 30.86x against a 3.00x minimum and leverage of 0.80x against a 3.75x maximum.
Outlook, risks and notable developments
- Management expressed optimism about long-term prospects but said economic uncertainty, European-market instability and currency volatility posed risks to fiscal 2012 and later performance. No quantified earnings or revenue guidance is provided in the filing text.
- Avaira Toric and Avaira Sphere recalls remain relevant risks. The FDA cleared Avaira Toric for return to market on April 15, 2012, and the company relaunched it in May. Recalled lots represented less than 2% of fiscal 2011 sales. Management also identified the lack of a silicone hydrogel single-use product as a competitive risk.
- On May 31, 2012, after quarter-end, Cooper amended its credit agreement: revolving commitments rose to $1.0 billion, the $234.4 million term-loan balance was repaid using the facility, and maturity was extended to May 31, 2017. The company expected a $1.4 million charge for debt issuance costs in Q3.
- On June 4, 2012, Cooper announced a voluntary tender offer for Origio a/s at NOK 28 per share. The offer was pending at filing; management anticipated a Q3 close if successful and expected to use offshore cash and credit facilities.
- Securities class-action claims concern alleged misrepresentations about the recalled lenses; defendants moved to dismiss, and the company said it could not assess the likelihood or estimate any potential loss. A related shareholder derivative action also remained pending.
- Other disclosed risks include foreign-exchange and interest-rate movements, supply and manufacturing disruptions, regulatory approvals and reimbursement, product acceptance, competition, litigation, and goodwill impairment. Management reported no material change in risk factors from its prior annual report.
Important facts for investors to verify
- Whether the Avaira Toric relaunch and recall-related litigation affect sales, costs, or customer confidence.
- Whether inventory growth converts into sales and cash generation; six-month operating cash flow declined despite higher earnings.
- Progress and final terms of the Origio tender offer, including its financing and expected contribution.
- Post-amendment borrowing, interest costs, available capacity, and covenant compliance.
- How sales growth, increased operating investment, currency movements, and the low effective tax rate affect future margins and earnings; the filing gives no quantified guidance.