Cooper Companies, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended October 31, 2013. This is an annual report, not a standalone fourth-quarter filing. The company operates CooperVision, which sells contact lenses, and CooperSurgical, which supplies women’s healthcare products.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $1.588 billion (+10%) | $1.445 billion |
| Gross profit / gross margin | $1.027 billion / 65% | $924.0 million / 64% |
| Operating income / margin | $305.9 million / 19% | $283.4 million / 20% |
| Net income attributable to Cooper stockholders | $296.2 million | $248.3 million |
| Diluted EPS | $5.96 (+18%) | $5.05 |
| Operating cash flow | $415.9 million (+32%) | $315.1 million |
| Capital expenditures | $178.1 million | $99.8 million |
| Cash and cash equivalents | $77.4 million | $12.8 million |
| Total debt | $344.7 million | $373.7 million |
| Working capital | $426.0 million | $395.3 million |
CooperVision sales were $1.268 billion, up 7%; CooperSurgical sales were $319.4 million, up 25%, or 3% excluding acquisitions. Cash flow less capital expenditures was approximately $237.8 million. The company reported $999.8 million available under its revolving credit facility and said existing cash, operating cash flow and borrowing capacity should fund operations and planned needs.
Changes versus the prior year
- Silicone hydrogel lenses grew 26% and represented 43% of CooperVision sales, compared with 36% in FY2012. Multifocal lens sales grew 29%; toric sales grew 9%.
- CooperSurgical growth reflected the Origio IVF acquisition, completed in July 2012; fertility products reached 33% of its sales versus 16% in FY2012.
- Gross margin improved, supported by manufacturing efficiencies, mix and lower silicone hydrogel royalties. Operating margin declined to 19% from 20%, principally because of the Aime divestiture loss.
- Operating cash flow increased, while capital spending rose substantially, primarily for manufacturing capacity. Total debt decreased by $29.0 million.
Outlook, commentary, risks and unusual items
- Management remained optimistic about long-term market prospects but cited continued economic and currency uncertainty and lower-than-historical expectations for market growth in FY2014. No specific revenue or earnings guidance was provided in the filing text.
- CooperVision planned further investment in single-use lens capacity. Management cautioned that ramping up MyDay production could pressure future gross margins; competition in silicone hydrogel single-use lenses was identified as a risk.
- The October 31, 2013 sale of Aime, a Japanese rigid gas-permeable lens business, generated a $21.1 million pretax loss. Management expected the divestiture to be neutral to EPS after closing.
- FY2013 included $14.1 million of insurance proceeds for a prior UK facility business-interruption claim. The effective tax rate was unusually low at 4.9%, reflecting foreign earnings mix and discrete items, including the Aime loss, a UK tax-rate reduction and reinstatement of the federal R&D credit.
- A $300 million senior unsecured term loan was entered into in September 2013, maturing in 2018. The company reported compliance with debt covenants. Key risks include competition, acquisition integration, regulatory approvals and compliance, product recalls/liability, dependence on sole-source silicone hydrogel materials, foreign exchange and interest rates, and debt obligations.
- The securities class action relating to the 2011 Avaira recall was dismissed with final judgment for defendants; no appeal was filed. A related derivative action was dismissed.
Fourth-quarter reference
FY2013 fourth-quarter net sales were $411.9 million, net income attributable to Cooper stockholders was $57.4 million, and diluted EPS was $1.15. Quarterly results included the $21.1 million Aime divestiture loss.
Important facts for investors to verify
- Whether FY2014 sales growth and MyDay capacity expansion materialize, and how production ramp-up affects margins.
- Organic CooperSurgical performance apart from Origio, including fertility-product margins and the medical-device excise tax impact.
- The sustainability of the 4.9% effective tax rate and the status of $26.4 million in gross unrecognized tax benefits.
- Execution of planned capital spending, cash generation, and any further share repurchases; the board increased remaining repurchase authorization to $261.5 million after year-end.
- Exposure to sole-source silicone hydrogel inputs, foreign-currency movements, and the term loan’s refinancing or repayment needs at maturity.