COO

Business Context and Reporting Period

Company: The Cooper Companies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 30, 2010
Business Overview: The Company operates through two primary segments: CooperVision (CVI), which develops and markets contact lenses, and CooperSurgical (CSI), which manufactures medical devices and surgical instruments for gynecologists and obstetricians.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 11% in the quarter and 7% for the six-month period compared to the prior year, driven by growth in both CooperVision (11% quarterly) and CooperSurgical (10% quarterly).
• Profitability Decline: Despite revenue growth, Net Income dropped significantly (82% decline in the quarter, 49% for six months). This was primarily due to a $27.0 million litigation settlement charge recorded in the second quarter of 2010.
• Operating Income: Operating income decreased 5% in the quarter to $39.0 million but increased 3% for the six-month period to $76.0 million.
• Expense Increases: Selling, general, and administrative (SGA) expenses rose 19% in the quarter, largely due to increased marketing for silicone hydrogel products and legal costs. Restructuring costs were minimal ($47k) in the quarter compared to the prior year.
• Cash Flow: Operating cash flow improved significantly, increasing 86% for the six-month period to $127.8 million, aided by inventory reduction and timing of payments.

Guidance, Outlook, and Risks

• Outlook: Management remains optimistic about long-term prospects in contact lens and women's healthcare markets. However, they cite risks from global economic uncertainty, credit market instability, and European debt issues.
• Strategic Focus: CooperVision is focusing on market penetration in Europe and Asia with silicone hydrogel products (Biofinity and Avaira). CooperSurgical continues to pursue acquisitions to expand its product lines, recently acquiring the HerOption endometrial ablation product line.
• Restructuring: The Company is executing a manufacturing restructuring plan for CooperVision, relocating operations from Norfolk, VA, and Adelaide, Australia, to Puerto Rico and the UK. Total estimated costs are approximately $24 million, with completion expected by Q1 2011.
• Legal Contingencies: The Company reached an agreement in principle to settle a consolidated securities class action lawsuit for $27.0 million. The settlement is subject to court approval. The Company expects to exhaust insurance coverage for the defense.
• Risk Factors: Key risks include competition in the silicone hydrogel market, regulatory approvals, foreign currency fluctuations, and the potential for additional legal costs if the settlement is not approved.

Investor Verification Checklist

• Settlement Approval: Verify the status of the $27.0 million securities class action settlement and the likelihood of court approval.
• Insurance Coverage: Confirm the extent of insurance coverage available to offset the litigation settlement and defense costs.
• Restructuring Execution: Monitor the progress and cost realization of the CooperVision manufacturing restructuring plan to ensure projected savings are achieved.
• Silicone Hydrogel Competition: Assess the competitive landscape for silicone hydrogel lenses, as CooperVision is a late entrant in this high-growth segment.
• Debt Levels: Review the Company's debt-to-equity ratio (0.46:1) and liquidity position given the $27 million settlement liability and ongoing capital expenditures.