COO

Business Context and Reporting Period

Company: The Cooper Companies, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: October 31, 2009
Business Overview: Cooper operates two primary business units: CooperVision, Inc. (CVI), a leading manufacturer of soft contact lenses (spherical, toric, and multifocal), and CooperSurgical, Inc. (CSI), a developer of medical devices for women's healthcare (obstetrics and gynecology). The company operates globally with significant manufacturing and distribution facilities in the Americas, Europe, and Asia Pacific.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Consolidated net sales increased 3% to $1.08 billion. CVI sales grew 3% driven by silicone hydrogel and single-use lenses, while CSI sales grew 2% due to hospital product sales.
• Profitability: Despite a decline in gross margin (55% vs. 58% in 2008) attributed to inventory write-offs and restructuring costs, operating income rose 18% to $149.9 million. Net income increased 54% to $100.5 million.
• Cost Management: Selling, General, and Administrative (SG&A) expenses decreased 9% to $391.6 million due to recessionary cost controls and distribution rationalization.
• Debt Reduction: Total debt decreased by $123.3 million to $781.5 million, primarily through repayments of long-term and short-term debt.
• Cash Flow: Operating cash flow more than doubled to $223.1 million, driven by higher net income and improved working capital management (inventory months on hand decreased to 6.3).

Guidance, Outlook, and Risks

Outlook: Management remains optimistic about long-term prospects but notes that global economic conditions, credit market instability, and recessionary pressures pose risks to fiscal 2010 performance. The company expects to fund operations and acquisitions through existing cash, operating cash flow, and credit facilities.

Strategic Initiatives:

• CVI: Continued focus on silicone hydrogel products (Biofinity, Avaira) and single-use lenses. A manufacturing restructuring plan is underway to shift production from Norfolk, VA, and Adelaide, Australia, to Puerto Rico and the UK, with estimated total costs of $24 million.
• CSI: Continued investment in acquisitions and organic growth in the women's healthcare segment, particularly products marketed directly to hospitals.

Key Risks and Contingencies:

• Legal Proceedings: The company is defending a consolidated securities class action lawsuit (trial scheduled for March 2010) and derivative litigation. While damages are not estimable, legal costs could be material.
• Supply Chain: Reliance on a sole supplier (Asahi) for the primary material used in silicone hydrogel lenses.
• Regulatory: Extensive FDA and foreign regulatory oversight; delays in approvals or adverse decisions could impact new product launches.
• Goodwill Impairment: While no impairment was recorded in 2009, future declines in stock price or market conditions could trigger material non-cash impairment charges.

Investor Verification Checklist

• Restructuring Costs: Verify the execution and cost containment of the $24 million CVI manufacturing restructuring plan.
• Legal Exposure: Monitor the outcome of the securities class action lawsuit scheduled for trial in March 2010.
• Product Mix Shift: Assess the success of silicone hydrogel product launches (Biofinity toric, Avaira toric) in offsetting declines in traditional toric lens sales.
• Debt Covenants: Confirm continued compliance with financial covenants (Interest Coverage Ratio and Total Leverage Ratio) under the $650 million revolving credit facility.
• Inventory Levels: Track inventory months on hand to ensure it remains near the targeted 6-7 months to avoid future write-offs.