The Cooper Companies, Inc.
COOPER COMPANIES INC (Form: 10-Q, Received: 03/04/2011 16:10:46)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For Quarterly Period Ended January 31, 2011

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission File Number 1-8597

 

 

The Cooper Companies, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   94-2657368

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

6140 Stoneridge Mall Road, Suite 590, Pleasanton, CA 94588

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (925) 460-3600

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one).

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes   ¨     No   x

Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock, $.10 par value

 

46,234,498 Shares

Class   Outstanding at February 28, 2011

 

 

 


Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

INDEX

 

     Page No.
PART I.   

FINANCIAL INFORMATION

  
    Item 1.   

Financial Statements

  
  

Consolidated Statements of Income - Three Months Ended January 31, 2011 and 2010

     3
  

Consolidated Condensed Balance Sheets - January 31, 2011 and October 31, 2010

     4
  

Consolidated Condensed Statements of Cash Flows - Three Months Ended January 31, 2011 and 2010

     5
  

Consolidated Statements of Comprehensive Income - Three Months Ended January 31, 2011 and 2010

     6
  

Notes to Consolidated Condensed Financial Statements

     7
    Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   34
    Item 3.   

Quantitative and Qualitative Disclosure About Market Risk

   47
    Item 4.   

Controls and Procedures

   47
PART II.   

OTHER INFORMATION

  
    Item 1.   

Legal Proceedings

   49
    Item 1A.   

Risk Factors

   49
    Item 6.   

Exhibits

   50

     Signature

   51

     Index of Exhibits

   52

 

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

 

Consolidated Statements of Income

Three Months Ended January 31,

(In thousands, except for earnings per share)

(Unaudited)

   2011      2010  

Net sales

   $ 293,229       $ 260,258   

Cost of sales

     116,623         110,495   
                 

Gross profit

     176,606         149,763   

Selling, general and administrative expense

     113,453         100,578   

Research and development expense

     9,727         7,626   

Restructuring costs

     0         363   

Gain on settlement of preexisting relationship

     6,080         0   

Amortization of intangibles

     4,713         4,217   
                 

Operating income

     54,793         36,979   

Interest expense

     6,951         10,225   

Other expense, net

     734         2,328   
                 

Income before income taxes

     47,108         24,426   

Provision for income taxes

     1,813         4,003   
                 

Net income

   $ 45,295       $ 20,423   
                 

Basic earnings per share

   $ 0.99       $ 0.45   
                 

Diluted earnings per share

   $ 0.96       $ 0.44   
                 

Number of shares used to compute earnings per share:

     

Basic

     45,986         45,293   
                 

Diluted

     47,391         46,123   
                 

See accompanying notes.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

 

Consolidated Condensed Balance Sheet

(In thousands)

(Unaudited)

   January 31,
2011
    October 31,
2010
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 3,320      $ 3,573   

Trade accounts receivable, net of allowance for doubtful accounts of $4,082 at January 31, 2011 and $4,238 at October 31, 2010

     189,462        197,490   

Inventories

     239,996        227,902   

Deferred tax assets

     27,002        28,828   

Prepaid expense and other current assets

     43,563        33,547   
                

Total current assets

     503,343        491,340   
                

Property, plant and equipment, at cost

     916,240        919,268   

Less: accumulated depreciation and amortization

     320,415        325,381   
                
     595,825        593,887   
                

Goodwill

     1,268,734        1,261,976   

Other intangibles, net

     130,380        114,177   

Deferred tax assets

     25,489        23,072   

Other assets

     48,167        40,566   
                
   $ 2,571,938      $ 2,525,018   
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Short-term debt

   $ 15,486      $ 19,159   

Accounts payable

     48,341        51,792   

Employee compensation and benefits

     32,643        44,821   

Accrued income taxes

     3,068        4,494   

Other current liabilities

     86,536        79,254   
                

Total current liabilities

     186,074        199,520   
                

Long-term debt

     586,724        591,977   

Deferred tax liabilities

     20,202        20,202   

Accrued pension liability and other

     56,639        46,543   
                

Total liabilities

     849,639        858,242   
                

Commitments and contingencies (see Note 13)

    

Stockholders’ equity:

    

Preferred stock, 10 cents par value, shares authorized: 1,000; zero shares issued or outstanding

     0        0   

Common stock, 10 cents par value, shares authorized: 70,000; issued 46,473 at January 31, 2011 and 46,140 at October 31, 2010

     4,648        4,614   

Additional paid-in capital

     1,094,552        1,083,779   

Accumulated other comprehensive loss

     (17,011     (17,334

Retained earnings

     644,432        600,522   

Treasury stock at cost: 282 shares at January 31, 2011 and 313 shares at October 31, 2010

     (4,322     (4,805
                

Stockholders’ equity

     1,722,299        1,666,776   
                
   $ 2,571,938      $ 2,525,018   
                

See accompanying notes.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

 

Consolidated Condensed Statements of Cash Flows

Three Months Ended January 31,

(In thousands)

(Unaudited)

   2011     2010  

Cash flows from operating activities:

    

Net income

   $ 45,295      $ 20,423   

Depreciation and amortization

     22,894        22,905   

Gain on settlement of preexisting relationship

     (6,080     0   

Increase in operating capital

     714        645   

Other non-cash items

     10,108        12,169   
                

Net cash provided by operating activities

     72,931        56,142   
                

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (28,785     (12,911

Acquisitions of businesses, net of cash acquired, and other

     (32,449     (8,507
                

Net cash used in investing activities

     (61,234     (21,418
                

Cash flows from financing activities:

    

Net (repayments) proceeds of short-term debt

     (3,673     8,068   

Repayments of long-term debt

     (514,200     (158,910

Proceeds from long-term debt

     508,947        112,686   

Debt acquisition costs

     (9,207     0   

Excess tax benefit from share-based compensation arrangements

     0        407   

Issuance of common stock for employee stock plans

     6,188        919   
                

Net cash used in financing activities

     (11,945     (36,830

Effect of exchange rate changes on cash and cash equivalents

     (5     (4
                

Net decrease in cash and cash equivalents

     (253     (2,110

Cash and cash equivalents - beginning of period

     3,573        3,932   
                

Cash and cash equivalents - end of period

   $ 3,320      $ 1,822   
                

See accompanying notes.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

 

Consolidated Statements of Comprehensive Income

Three Months Ended January 31,

(In thousands)

(Unaudited)

   2011      2010  

Net income

   $ 45,295       $ 20,423   

Other comprehensive income (loss):

     

Foreign currency translation adjustment

     175         (17,050

Change in value of derivative instruments, net of tax

     142         5,931   

Additional minimum pension liability, net of tax

     6         0   
                 

Other comprehensive income (loss)

     323         (11,119
                 

Comprehensive income

   $ 45,618       $ 9,304   
                 

See accompanying notes.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)

Note 1. General

The Cooper Companies, Inc. (Cooper, we or the Company) is a global medical products company that serves the specialty healthcare market through its two business units:

 

 

CooperVision (CVI) develops, manufactures and markets a broad range of contact lenses for the worldwide vision correction market. Dedicated to enhancing the contact lens experience for practitioners and patients, CooperVision specializes in lenses for astigmatism, presbyopia and ocular dryness.

 

 

CooperSurgical (CSI) develops, manufactures and markets medical devices, diagnostic products and surgical instruments and accessories used primarily by gynecologists and obstetricians.

The unaudited consolidated condensed financial statements presented in this report contain all adjustments necessary to present fairly Cooper’s consolidated condensed financial position at January 31, 2011 and October 31, 2010, the consolidated results of its operations for the three months ended January 31, 2011 and 2010 and its consolidated condensed cash flows for the three months ended January 31, 2011 and 2010. Most of these adjustments are normal and recurring. However, certain adjustments associated with acquisitions and the related financial arrangements are of a nonrecurring nature. Readers should not assume that the results reported here either indicate or guarantee future performance.

During interim periods, we follow the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2010. Please refer to this when reviewing this Quarterly Report on Form 10-Q.

Management estimates and judgments are an integral part of financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). We believe that the critical accounting policies listed below address the more significant estimates required of management when preparing our consolidated financial statements in accordance with GAAP. We consider an accounting estimate critical if changes in the estimate may have a material impact on our financial condition or results of operations. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustment to these balances in future periods. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are:

 

 

Revenue recognition

 

 

Allowance for doubtful accounts

 

 

Net realizable value of inventory

 

 

Valuation of goodwill

 

 

Business combinations

 

 

Income taxes

 

 

Share-based compensation

During the fiscal first three months of 2011, there were no significant changes in our estimates and critical accounting policies. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2010, for a more complete discussion of our estimates and critical accounting policies.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

New Accounting Pronouncements

On November 1, 2010, the Company adopted portions of the Accounting Standards Update (ASU) 2010-6, which amends Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements . This ASU added new requirements for disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements and (4) the transfers between Levels 1, 2 and 3 fair value measurements. The requirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis will be effective for the Company for the fiscal year beginning on November 1, 2011. The partial adoption of this guidance did not have a material impact on our consolidated condensed financial statements.

In December 2010, the Financial Accounting Standards Board (FASB) issued ASU 2010-29, which amends ASC 805, Business Combinations: Disclosure of Supplementary Pro Forma Information for Business Combinations . The amendments in this ASU affect any public entity as defined by ASC 805 that enters into business combinations that are material on an individual or aggregate basis. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not anticipate the adoption of ASU 2010-29, which is effective for the Company for the fiscal year beginning on November 1, 2011, will have a material impact on our consolidated financial statements.

In December 2010, the FASB issued ASU No. 2010-28, which amends ASC 350, Intangibles - Goodwill and Other: When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts . The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company does not anticipate the adoption of ASU 2010-28, which is effective for the Company on November 1, 2011, will have a material impact on our consolidated financial statements. Early adoption is not permitted.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Note 2. Acquisition and Restructuring Costs

Aime Acquisition

On December 1, 2010, CVI purchased certain assets of Asahikasei Aime Co., Ltd. (Aime) from Asahi Kasei Pharma Corporation, and the results of operations are included in our consolidated results of operations from that date. In the transaction, CVI, through its subsidiaries, acquired Aime’s contact lens and lens solution business, including employees; rights to sell our Biofinity ® brand of contact lenses in Japan, lenses that currently have regulatory approval for sale, which rights had been retained by Aime; intellectual property related to the materials used in our silicone hydrogel products; and the rights to manufacturing supply agreements for the supply of silicone hydrogel materials used in CVI’s Biofinity ® and Avaira ® product lines.

We paid approximately $31.4 million in cash and recognized $12.3 million at fair value of contractual obligations for Aime. We ascribed $0.7 million to goodwill, $22.6 million to net working capital and other assets and $20.4 million to intangibles assets. The intangible assets include $7.8 million for market share with an estimated useful life of 3 years; $3.6 million for technology with an estimated useful life of 7 years; $8.6 million for license agreements with an estimated useful life of 15 years; and $0.4 million for customer relationships and trade names with weighted average estimated useful lives of 1 year.

Fair value for the purposes of purchase price allocation was primarily determined using discounted cash flow models. The discounted cash flow models were based on estimates of future operating trends of the acquired business and rights to sell products as well as judgments on the discount rates used and other variables. We determined net sales forecasts based on a number of factors including our best estimate of near-term net sales expectations and long-term projections, which include review of internal and independent market analysis. The discount rate used was representative of the weighted average cost of capital.

Prior to the acquisition, Aime had retained the right to sell our Biofinity brand of contact lenses in certain defined markets, and CVI was obligated to sell Biofinity to Aime. In accordance with the accounting guidance relating to the accounting for a preexisting relationship between the parties to a business combination, we recorded a gain of $6.1 million on the settlement of this supply agreement in our Consolidated Statement of Income for the fiscal first quarter of 2011. The gain increases the purchase consideration for this acquisition and the related goodwill.

2009 CooperVision Manufacturing Restructuring Plan

In the fiscal third quarter of 2009, CooperVision initiated a restructuring plan to relocate contact lens manufacturing from Norfolk, Virginia, and transfer part of its contact lens manufacturing from Adelaide, Australia, to existing manufacturing operations in Juana Diaz, Puerto Rico, and Hamble, UK (2009 CooperVision Manufacturing restructuring plan). This plan is intended to better utilize CVI’s manufacturing efficiencies and reduce its manufacturing expenses through a reduction in workforce of approximately 480 employees.

CVI completed restructuring activities in Adelaide in our fiscal third quarter of 2010 and in Norfolk in our fiscal first quarter of 2011.

The total restructuring costs under this plan were approximately $23.1 million, with $15.4 million associated with assets, including accelerated depreciation and facility lease and contract termination costs, and $7.7 million associated with employee benefit costs, including severance payments,

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

termination benefit costs, retention bonus payouts and other similar costs. These costs were reported as cost of sales or restructuring costs in our Consolidated Statements of Income.

In the fiscal first quarter of 2011, $1.9 million, including $0.8 million of employee benefit costs and $1.1 million of costs associates with assets, primarily non-cash, are reported in cost of sales. In the year ended October 31, 2010, $16.1 million, including $3.3 million of employee benefits costs and $12.8 million of costs associated with assets, primarily non-cash, were reported as $16.0 million in cost of sales and $0.1 million in restructuring costs. In the year ended October 31, 2009, $5.1 million including $3.6 million of employee benefit costs and $1.5 million of non-cash costs associated with assets were reported as $5.0 million in cost of sales and $0.1 million in restructuring costs.

 

(In millions)

   Balance at
Beginning of Period
     Additions
Charged to
Costs of Sales
and
Restructuring
Costs
     Payments
and
Adjustments
     Balance at
End of Period
 

Year Ended October 31, 2009

           

Other current liabilities

   $ 0       $ 3.6       $ 0.6       $ 3.0   

Accelerated depreciation and other

     0         1.5         1.2         0.3   
                                   
   $ 0       $ 5.1       $ 1.8       $ 3.3   
                                   

Year Ended October 31, 2010

           

Other current liabilities

   $ 3.0       $ 4.4       $ 4.9       $ 2.5   

Accelerated depreciation and other

     0.3         11.7         10.2         1.8   
                                   
   $ 3.3       $ 16.1       $ 15.1       $ 4.3   
                                   

Fiscal Quarter Ended January 31, 2011

           

Other current liabilities

   $ 2.5       $ 0.9       $ 3.2       $ 0.2   

Accelerated depreciation and other

     1.8         1.0         1.5         1.3   
                                   
   $ 4.3       $ 1.9       $ 4.7       $ 1.5   
                                   

The Company may, from time to time, decide to pursue additional restructuring activities that involve charges in future periods.

Note 3. Inventories

 

(In thousands)

   January 31,
2011
     October 31,
2010
 

Raw materials

   $ 51,226       $ 47,411   

Work-in-process

     10,534         8,937   

Finished goods

     178,236         171,554   
                 
   $ 239,996       $ 227,902   
                 

Inventories are stated at the lower of cost or market. Cost is computed using standard cost that approximates actual cost, on a first-in, first-out basis.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Note 4. Intangible Assets

Goodwill

 

(In thousands)

   CVI     CSI     Total  

Balance as of October 31, 2009

   $ 1,049,270      $ 207,759      $ 1,257,029   

Net additions during the year ended October 31, 2010

     0        10,102        10,102   

Translation

     (4,998     (157     (5,155
                        

Balance as of October 31, 2010

     1,044,272        217,704        1,261,976   

Net additions during the three-month period ended January 31, 2011

     6,835        105        6,940   

Translation

     (171     (11     (182
                        

Balance as of January 31, 2011

   $ 1,050,936      $ 217,798      $ 1,268,734   
                        

The Company performed its annual impairment test during the fiscal third quarter of 2010, and our analysis indicated that we had no impairment of goodwill. As described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2010, we will continue to monitor conditions and changes that could indicate that our recorded goodwill may be impaired.

Other Intangible Assets

 

     As of January 31, 2011      As of October 31, 2010  

(In thousands)

   Gross Carrying
Amount
     Accumulated
Amortization
& Translation
     Gross Carrying
Amount
     Accumulated
Amortization
& Translation
 

Trademarks

   $ 3,115       $ 1,226       $ 3,022       $ 1,195   

Technology

     109,298         55,363         105,527         52,954   

Shelf space and market share

     96,883         39,934         88,803         37,953   

License and distribution rights and other

     24,576         6,969         15,701         6,774   
                                   
     233,872       $ 103,492         213,053       $ 98,876   
                       

Less accumulated amortization and translation

     103,492            98,876      
                       

Other intangible assets, net

   $ 130,380          $ 114,177      
                       

We estimate that amortization expense will average $19.7 million per year in the three-year period ending October 31, 2013 and average $13.2 million in the two succeeding years ending October 31, 2015.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Note 5. Debt

 

(In thousands)

   January 31,
2011
     October 31,
2010
 

Short-term:

     

Overdraft and other credit facilities

   $ 15,486       $ 19,159   

Current portion of long-term debt

     0         0   
                 
     $15,486         $19,159   
                 

Long-term:

     

Lines of credit

   $ 247,500       $ 252,750   

Senior notes

     339,000         339,000   

Other

     224         227   
                 
   $ 586,724       $ 591,977   
                 

Credit Agreement: On January 12, 2011, Cooper refinanced its existing $650.0 million syndicated Senior Unsecured Revolving Line of Credit (Revolver) with a new Credit Agreement that provides for a multicurrency revolving credit facility in an aggregate principal amount of $750.0 million and a delayed draw term loan facility in an aggregate principal amount of $250.0 million, each of which, unless terminated earlier, mature on January 12, 2016. In addition, the Company has the ability from time to time to increase the size of the revolving credit facility by up to an additional $250.0 million. KeyBank led the refinancing with certain banks that participated in the Revolver retaining or increasing their participation in the Credit Agreement.

Amounts outstanding under the new Credit Agreement bear interest, at the Company’s option, at either the base rate, which is a rate per annum equal to the greatest of (a) KeyBank’s prime rate, (b) one-half of one percent in excess of the federal funds effective rate and (c) one percent in excess of the adjusted LIBOR rate for a one-month interest period on such day, or the LIBOR or adjusted foreign currency rate, plus, in each case, an applicable margin of, initially 100 basis points, in respect of base rate loans and 200 basis points, in respect of LIBOR or adjusted foreign currency rate loans. Following a specified period after the closing date, the applicable margins will be determined quarterly based upon the Company’s ratio of funded debt to consolidated proforma EBITDA, as defined in the Credit Agreement.

The Company pays an annual commitment fee that ranges from 0.15% to 0.50% of the unused portion of the revolving credit facility depending on our ratio of funded debt to consolidated proforma EBITDA, as defined in the Credit Agreement. In addition to the annual commitment fee described above, the Company is also required to pay certain letter of credit and related fronting fees and other administrative fees pursuant to the terms of the Credit Agreement.

The Company’s new credit facility is not secured by any of its or any of its subsidiaries’ assets. All obligations under the new credit facility will be guaranteed by each of the Company’s existing and future direct and indirect material domestic subsidiaries.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

The term loan facility will amortize in equal quarterly installments as follows, with the remainder due on the term loan maturity date: 5% of the aggregate principal amount of the term loan for the first three years following the closing date and 10% of the aggregate principal amount of the term loan for the fourth and fifth years following the closing date.

Pursuant to the terms of the Credit Agreement, the Company is also required to maintain specified financial ratios:

 

 

The ratio of Consolidated Proforma EBITDA to Consolidated Interest Expense (as defined, Interest Coverage Ratio) be at least 3.00 to 1.00 at all times.

 

 

The ratio of Consolidated Funded Indebtedness to Consolidated Proforma EBITDA (as defined, Total Leverage Ratio) be no higher than 3.75 to 1.00.

At January 31, 2011, the Company’s Interest Coverage Ratio was 9.75 to 1.00 and the Total Leverage Ratio was 1.85 to 1.00.

The Company wrote off about $0.3 million of debt issuance costs in interest expense as a result of extinguishing the Revolver. The remaining $0.5 million of existing debt issuance costs and the $9.4 million of costs incurred to refinance the Credit Agreement are carried in other assets and amortized to interest expense over the life of the Credit Agreement.

At January 31, 2011, we had $752.4 million available under the Credit Agreement, including the delayed draw term loan; however, as discussed below, on January 12, 2011, we provided formal notice to redeem all outstanding Senior Notes.

Senior Notes: On January 31, 2007, the Company issued $350.0 million aggregate principal amount of 7.125% Senior Notes (the Notes) due February 15, 2015, of which $339.0 were outstanding at the end of our fiscal first quarter of 2011. The Notes were offered in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The Notes paid interest semi-annually on February 15 and August 15 of each year, beginning August 15, 2007.

On January 12, 2011, we provided formal notice, and on February 15, 2011, we redeemed all $339.0 million aggregate principal amount outstanding of the Notes in accordance with the terms of the Indenture among the Company, the guarantors party thereto and HSBC Bank USA, National Association, as trustee, pursuant to which the Notes were issued. In accordance with the Indenture, the redemption price for the Notes is 103.563% of their principal amount plus accrued and unpaid interest to February 15, 2011, the redemption date.

In our fiscal second quarter of 2011, we will record a loss on the repurchase that includes the write off of about $4.4 million of unamortized costs and the redemption premium of $12.1 million related to the Notes in other income on our Consolidated Statement of Income. The Company paid the aggregate purchase price from borrowings under the new Credit Agreement, including $250.0 million from the delayed draw term loan facility.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Note 6. Income Taxes

Cooper’s effective tax rate (ETR) (provision for income taxes divided by pretax income) for the fiscal first quarter of 2011 was 3.9%. Our year-to-date results include the projected fiscal year ETR, plus any discrete items. The ETR used to record the provision for income taxes for the fiscal first quarter of 2010 was 16.4%. The decrease in the fiscal 2011 ETR reflects the shift in the geographic mix of income.

The Company adopted the provisions of ASC 740-10-25-5 through 25-17, Basic Recognition Threshold , formerly FIN 48, on November 1, 2007. Under this guidance, the Company recognizes the benefit from a tax position only if it is more likely than not that the position would be sustained upon audit based solely on the technical merits of the tax position. As of November 1, 2010, the Company had total gross unrecognized tax benefits of $19.7 million. If recognized, $18.8 million of unrecognized tax benefits would impact the Company’s ETR. For the three-month period ended January 31, 2011, there were no material changes to the total amount of unrecognized tax benefits.

Interest and penalties of $1.1 million have been reflected as a component of the total liability as of November 1, 2010. It is the Company’s policy to recognize the items of interest and penalties directly related to income taxes as additional income tax expense.

Included in the balance of unrecognized tax benefits at November 1, 2010, is $3.4 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months. This amount represents a decrease in unrecognized tax benefits related to expiring statutes in various jurisdictions worldwide and is comprised of transfer pricing and other items.

As of January 31, 2011, the tax years for which the Company remains subject to United States Federal income tax assessment upon examination are 2005 through 2010. The Company remains subject to income tax examinations in other major tax jurisdictions including the United Kingdom, France and Australia for the tax years 2006 through 2010.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Note 7. Earnings Per Share

 

Three Months Ended January 31,    2011      2010  

(In thousands, except per share amounts)

     

Net income

   $ 45,295       $ 20,423   
                 

Basic :

     

Weighted average common shares

     45,986         45,293   
                 

Basic earnings per common share

   $ 0.99       $ 0.45   
                 

Diluted :

     

Weighted average common shares

     45,986         45,293   

Effect of dilutive stock options

     1,405         830   
                 

Diluted weighted average common shares

     47,391         46,123   
                 

Diluted earnings per common share

   $ 0.96       $ 0.44   
                 

The following table sets forth stock options to purchase Cooper’s common stock that were not included in the diluted net income per share calculation because their effect would have been antidilutive for the periods presented:

 

Three Months Ended January 31,    2011      2010  

(In thousands, except exercise prices)

     

Numbers of stock option shares excluded

     2,257         3,957   
                 

Range of exercise prices

   $ 55.33-$80.51       $ 35.69-$80.51   
                 

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Note 8. Share-Based Compensation Plans

The Company has several share-based compensation plans that are described in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2010. The compensation expense and related income tax benefit recognized in the Company’s consolidated financial statements for share-based awards were as follows:

 

Three Months Ended January 31,

(In millions)

   2011      2010  

Selling, general and administrative expense

   $ 4.7       $ 2.5   

Cost of sales

     0.3         0.2   

Research and development expense

     0.1         0.1   

Capitalized in inventory

     0.3         0.2   
                 

Total compensation expense

   $ 5.4       $ 3.0   
                 

Related income tax benefit

   $ 1.7       $ 1.0   
                 

Note 9. Cash Dividends

We paid a semiannual dividend of approximately $1.4 million or 3 cents per share on February 7, 2011, to stockholders of record on January 19, 2011.

Note 10. Derivative Instruments

We operate multiple foreign subsidiaries that manufacture and/or sell our products worldwide. As a result, our earnings, cash flow and financial position are exposed to foreign currency risk from foreign currency denominated receivables and payables, sales transactions, capital expenditures and net investment in certain foreign operations. Our policy is to minimize, to the extent reasonable and practical, transaction, remeasurement and specified economic exposures with derivatives instruments such as foreign exchange forward contracts and cross currency swaps. The gains and losses on these derivatives are intended to at least partially offset the transaction gains and losses recognized in earnings. We do not enter into derivatives for speculative purposes. Under ASC 815, Derivatives and Hedging , all derivatives are recorded on the balance sheet at fair value. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting.

Through the normal course of its business activities, the Company recognizes that it is exposed to foreign exchange risks. Our primary objective is to protect the United States dollar value of future cash flows and minimize the volatility of reported earnings while strictly adhering to accounting principles generally accepted in the United States. To meet this objective, business exposures to foreign exchange risks must be identified, measured and minimized using the most effective and efficient methods to eliminate, reduce or transfer such exposures.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Exposures are reduced whenever possible by taking advantage of offsetting payable and receivable balances and netting net sales against expenses, also referred to as natural hedges. We may employ the use of foreign currency derivative instruments to manage a portion of the remaining foreign exchange risk. While we designate our exposures under ASC 815 on a gross basis, foreign currency derivatives may be used to protect against an exposure value resulting from forecasted non-functional currency denominated net sales and expenses. Our risk management objectives and the strategies for achieving those objectives depend on the type of exposure being hedged.

The Company is also exposed to risks associated with changes in interest rates, as the interest rate on our Credit Agreement varies. To mitigate this risk, we may hedge portions of our variable rate debt by swapping those portions to fixed rates.

We only enter into derivative financial instruments with institutions with which we have an International Swap Dealers Association (ISDA) agreement in place. Our derivative financial instruments do not contain credit risk related contingent features such as call features or requirements for posting collateral. Although the Company and its counterparties have some right of set-off, all foreign exchange derivatives are displayed gross in the fair value tabular disclosure and accounted for as such in our Consolidated Condensed Balance Sheet. We adjust our foreign exchange forward contracts and cross currency swaps for credit risk on a per derivative basis. However, when applicable, we record interest rate derivatives as net on our Consolidated Condensed Balance Sheet, in accordance with ASC 815-10, but gross in the fair value tabular disclosure. When we net or set-off our interest rate derivative obligations, only the net asset or liability position will be credit affected. For the fiscal first quarter ended January 31, 2011, and for the fiscal year ending October 31, 2010, all of our interest rate derivatives were in a liability position and, therefore, were not set-off in the Consolidated Condensed Balance Sheet. Since ISDA agreements are signed between the Company and each respective financial institution, netting is permitted on a per institution basis only. On an ongoing basis, the Company monitors counterparty credit ratings. We consider our credit nonperformance risk to be minimal because we award and disperse derivatives business between multiple commercial institutions that have at least an investment grade credit rating.

Cash Flow Hedging

The Company is exposed to the effects of foreign exchange movements. From time to time, we may choose to manage enterprise risk by locking in all or a portion of the anticipated cash flows that are linked to accounting exposures such as nonfunctional currency intercompany payables/receivables, through derivative instruments. To execute this strategy, we may hedge the specific identified foreign exchange risk exposure, thereby locking in the rate at which these forecasted transactions will be recorded and ultimately reduce earnings volatility related to the enterprise risk.

Cash flow hedge accounting allows for the gains or losses on the change in fair value of the derivatives related to forecasted transactions to be recorded in Other Comprehensive Income (Loss) (OCI) until the underlying forecasted transaction occurs. However, this accounting treatment is limited to hedging specific transactions that can be clearly defined and specifically create risk to functional currency cash flow.

All sales and expenses with unrelated third parties not denominated in USD subject the Company to economic risk. We typically designate and document qualifying foreign exchange forward contracts related to certain forecasted intercompany sales and purchases associated with third party transactions, as cash flow hedges.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

To manage foreign currency exposure related to forecasted foreign currency denominated sales and purchases of product, the Company may enter into foreign currency forward contracts. Typical currencies traded are those which represent the largest risk for the Company, including but not limited to the British pound sterling, euro and Japanese yen. As of January 31, 2011, there were no cash flow hedges outstanding.

The effective portion of the cash flow hedge contracts’ gains or losses resulting from changes in fair value of these hedges is initially reported as a component of accumulated OCI in stockholders’ equity until the underlying hedged item is reflected in our Consolidated Statements of Income, at which time the effective amount in OCI is reclassified to either net sales or cost of sales in our Consolidated Statements of Income. We expect to reclassify a gain of approximately $1.5 million over the next twelve months.

We calculate hedge effectiveness prospectively and retrospectively, excluding time value, on a monthly basis using regression as well as other timing and probability criteria required by ASC 815. We record any ineffectiveness and any excluded components of the hedge immediately to other income or expense in our Consolidated Statement of Income. In the event the underlying forecasted transaction does not occur within the designated hedge period, or it becomes probable that the forecasted transaction will not occur, the related gains and losses on the cash flow hedges are immediately reclassified from OCI to other income or expense in our Consolidated Statement of Income. In fiscal 2011, no ineffectiveness was recorded.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Balance Sheet Hedges

We may manage the foreign currency risk associated with nonfunctional currency assets and liabilities using foreign exchange forward contracts with maturities of less than 24 months and cross currency swaps with maturities up to 36 months. As of January 31, 2011, all outstanding balance sheet hedging derivatives had maturities of less than 12 months. The change in fair value of these derivatives is recognized in other income or expense.

Monthly adjustments to the cash flow hedging program explained above require nondesignated hedges to be placed when cash flow hedges are utilized faster or earlier than planned. This occurs regularly, and hedge amounts tend to be less than $5.0 million dollars per affected relationship.

Other common exposures hedged are intercompany payables and receivables between entities. Such obligations are generally short-term in nature, often outstanding for less than 90 days. These types of exposures are hedged monthly and are typically less than $10.0 million per hedge.

These derivative instruments do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the non-functional currency assets and liabilities being hedged.

Interest Rate Swaps

The Company may enter into floating-to-fixed interest rate swaps to fix the floating rate debt under our Credit Agreement. These interest rate swaps hedge variable interest payments by exchanging variable rate interest risk for a fixed interest rate. On May 3, 2007, the Company entered into four floating-to-fixed interest rate swaps. These interest rate swaps with notional values totaling $250.0 million, served to fix the floating rate debt for terms between 30 and 48 months with fixed rates between 4.94% to 4.96%.

As of January 31, 2011, the outstanding swap notional value totaled $50.0 million with maturity less than 4 months and fixed rate of 4.94%. We qualified and designated these swaps under ASC 815 as cash flow hedges and recorded the offset of the cumulative fair market value (net of tax effect) to accumulated OCI in our Consolidated Condensed Balance Sheet.

Effectiveness testing of the hedge relationship and measurement to quantify ineffectiveness is performed at a minimum each fiscal quarter using the hypothetical derivative method. The outstanding swap has been and is expected to remain highly effective for the life of the swap. Effective amounts are reclassified to interest expense as the related hedged expense is incurred. The fair value of the outstanding swap is recorded in our Consolidated Condensed Balance Sheet and presented in the tables below. Excluded from this table are liabilities of $0.5 million and $1.3 million that were recorded and attributable to accrued interest as of January 31, 2011 and October 31, 2010, respectively. We expect to reclassify $0.6 million from OCI to interest expense in our Consolidated Statements of Income over the next 4 months.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Fair Value Hedging

From time to time, we designate and document foreign exchange forward contracts related to firm commitments for third party royalty payments as fair value hedges. In accordance with policy, these derivatives are employed to eliminate, reduce or transfer selected foreign currency risks that meet the ASC 815 definition of a firm commitment. Fair value hedges are evaluated for effectiveness at a minimum each fiscal quarter and any ineffectiveness is recorded in other income and expense in our Consolidated Statements of Income. The critical terms of the forward contract and the firm commitments are matched at inception and subsequent prospective forward contract effectiveness is measured by comparing the cumulative change in the fair value of the forward contract to the cumulative change in value of the specified firm commitment, including time value. The derivative fair values are recorded in our Consolidated Condensed Balance Sheet and recognized currently in earnings; this is offset by the effective gains and losses on the change in value of the firm commitment which is recorded in accrued liabilities in our Consolidated Condensed Balance Sheet. In fiscal 2011 and 2010, the Company did not designate any derivatives as fair value hedges. We had no outstanding fair value hedges subsequent to February 29, 2008.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

The fair value of derivative instruments in our Consolidated Condensed Balance Sheet as of January 31, 2011 and October 31, 2010 was as follows:

 

    

Derivative Assets

    

Derivative Liabilities

 
      

Balance Sheet Location

   Fair Value
1/31/2011
     Fair Value
10/31/2010
    

Balance Sheet Location

   Fair Value
1/31/2011
     Fair Value
10/31/2010
 
     (In millions)  

Derivatives designated as hedging instruments under ASC 815

                 

Interest rate contracts

  

Prepaid expense and other current assets

   $ 0       $ 0      

Other current liabilities

   $ 0.6       $ 1.3   

Interest rate contracts

  

Other assets

     0         0      

Accrued pension liability and other

     0         0   

Foreign exchange contracts

  

Prepaid expense and other current assets

     0         0      

Other current liabilities

     0         0   

Foreign exchange contracts

  

Other assets

     0         0      

Accrued pension liability and other

     0         0   
                                         

Total derivatives designated as hedging instruments under ASC 815

      $ 0       $ 0          $ 0.6       $ 1.3   
                                         

Derivatives not designated as hedging instruments under ASC 815

                 

Interest rate contracts

   Prepaid expense and other current assets    $ 0       $ 0       Other current liabilities    $ 0       $ 0   

Interest rate contracts

   Other assets      0         0       Accrued pension liability and other      0         0   

Foreign exchange contracts

   Prepaid expense and other current assets      0.1         1.2       Other current liabilities      0.9         1.4   

Foreign exchange contracts

   Other assets      0         0       Accrued pension liability and other      0         0   
                                         

Total derivatives not designated as hedging instruments under ASC 815

      $ 0.1       $ 1.2          $ 0.9       $ 1.4   
                                         

Total derivatives

      $ 0.1       $ 1.2          $ 1.5       $ 2.7   
                                         

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

The Effect of Derivative Instruments on the Consolidated Statements of Income

For the Three Months Ended January 31, 2011 and 2010

(In millions)

 

Derivatives in

ASC 815

Cash Flow

Hedging
Relationships

   Amount of
Gain or (Loss)
Recognized in
OCI on Derivative
(Effective Portion)
   

Location of

Gain or (Loss)

Reclassified from
Accumulated OCI
into Income
(Effective Portion)

   Amount of
Gain or (Loss)
Reclassified
from
Accumulated OCI
into Income
(Effective Portion)
   

Location of
Gain or (Loss)
Recognized in
Income on
Derivative
Ineffectiveness

   Amount of
Gain or (Loss)
Recognized

in Income
Due to
Ineffectiveness
    

Location of
Gain or (Loss)
Recognized in
Income and
Excluded from
Effectiveness
Testing

   Amount of
Gain or (Loss)
Recognized in
Income and
Excluded from
Effectiveness Testing
 
     2011      2010          2011     2010          2011      2010           2011      2010  

Interest rate contracts

   $ 0       $ (0.7  

Interest expense

   $ (0.7   $ (3.4  

Other income/ (expense)

   $ 0       $ 0      

Other income/ (expense)

   $ 0       $ 0   

Foreign exchange contracts

     0         1.8     

Net sales

     0        (2.3  

Other income/ (expense)

     0         0      

Other income/ (expense)

     0         0   

Foreign exchange contracts

     0         0     

Cost of sales

     0.2        (0.1  

Other income/ (expense)

     0         0      

Other income/ (expense)

     0         0   
                                                                             

Total

   $ 0       $ 1.1         $ (0.5   $ (5.8      $ 0       $ 0          $ 0       $ 0   
                                                                             

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Derivatives Not Designated as Hedging Instruments Under
ASC 815

  

Location of Gain or (Loss) Recognized in Income on
Derivative

   Amount of Gain
or (Loss)
Recognized in
Income on
Derivative
 

Three Months Ended January 31,

(In millions)

        2011     2010  

Interest rate contracts

  

Interest expense

   $ 0      $ 0   

Foreign exchange contracts

  

Other income (expense), net

     (1.1     (1.5
                   

Total

      $ (1.1)      $ (1.5
                   

Note 11. Fair Value Measurements

As of January 31, 2011 and October 31, 2010, the carrying value of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, lines of credit, accounts payable and other current liabilities approximates fair value due to the short-term nature of such instruments and the ability to obtain financing on similar terms.

ASC 820, Fair Value Measurements and Disclosures (ASC 820), applies to all assets and liabilities that are being measured and reported at fair value and defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. An asset’s or liability’s level is based on the lowest level of input that is significant to the fair value measurement. ASC 820 requires that assets and liabilities carried at fair value be valued and disclosed in one of the following three levels of the valuation hierarchy:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.

The Company has derivative assets and liabilities that include interest rate swaps, cross currency swaps and foreign currency forward contracts. The impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments. Both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.

We may use interest rate swaps to maintain our desired mix of fixed-rate and variable-rate debt. The swaps exchange fixed and variable rate payments without exchanging the notional principal amount of the debt. The Company has elected to use the income approach to value the derivatives using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact. Level 2 inputs are limited to quoted prices for similar assets or liabilities in active markets, specifically euro dollar futures contracts up to three years, and inputs other than quoted prices that are observable for the asset or liability - specifically LIBOR cash and swap rates, credit risk at commonly quoted intervals. Mid-market pricing is used as a practical expedient for fair value measurements.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

We may use foreign exchange forward contracts to minimize, to the extent reasonable and practical, our exposure to the impact of foreign currency fluctuations. The Company has elected to use the income approach to value the derivatives, using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated but not compelled to transact. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability - specifically LIBOR cash rates, credit risk at commonly quoted intervals, foreign exchange spot rates and forward points. Mid-market pricing is used as a practical expedient for fair value measurements.

The following table sets forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis using Level 2 inputs during the fiscal first three months of 2011, within the fair value hierarchy at January 31, 2011, and fiscal year 2010, within the fair value hierarchy at October 31, 2010:

 

(In millions)

   January 31,
2011
     October 31,
2010
 

Assets:

     

Foreign exchange contracts

   $ 0.1       $ 1.2   
                 

Liabilities:

     

Interest rate swaps

   $ 0.6       $ 1.3   

Foreign exchange contracts

     0.9         1.4   
                 
   $ 1.5       $ 2.7   
                 

Note 12. Employee Benefits

Cooper’s Retirement Income Plan (Plan), a defined benefit plan, covers substantially all full-time United States employees. Cooper’s contributions are designed to fund normal cost on a current basis and to fund over 30 years the estimated prior service cost of benefit improvements (5 years for annual gains and losses). The unit credit actuarial cost method is used to determine the annual cost. Cooper pays the entire cost of the Plan and funds such costs as they accrue. Virtually all of the assets of the Plan are comprised of equities and participation in equity and fixed income funds.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Cooper’s results of operations for the three months ended January 31, 2011 and 2010 reflect the following components of net periodic pension costs:

 

Three Months Ended January 31,

(In thousands)

   2011     2010  

Service cost

   $ 1,187      $ 992   

Interest cost

     744        668   

Expected return on assets

     (736     (611

Amortization of prior service cost

     6        6   

Amortization of transition obligation

     5        5   

Recognized net actuarial loss

     188        199   

Curtailment loss

     0        44   
                

Net periodic pension cost

   $ 1,394      $ 1,303   
                

The Company contributed to the pension plan $0.8 million in the fiscal first quarter of 2011 and expects to contribute an additional $5.2 million in fiscal 2011. The Company contributed to the pension plan $0.7 million in the fiscal first quarter of 2010. The expected rate of return on plan assets for determining net periodic pension cost is 9.0%.

Note 13. Contingencies

The Company is subject to various lawsuits and claims relating to issues such as contract disputes, product liability, patents and trademarks, employee and other matters arising from the ordinary course of our business. Although the results of claims, suits and proceedings cannot be predicted with certainty, it is the opinion of management that the ultimate disposition of these matters will not have a material adverse effect, individually or in the aggregate, on our consolidated condensed financial statements taken as a whole.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Note 14. Financial Information for Guarantor and Non-Guarantor Subsidiaries

On January 31, 2007, the Company issued $350.0 million aggregate principal amount of 7.125% Senior Notes due 2015 (the Notes), of which $339.0 million were outstanding at January 31, 2011. As discussed above in Note 5, on February 15, 2011, subsequent to the end of our fiscal first quarter of 2011, we redeemed all $339.0 million aggregate principal amount outstanding of the Notes. The Notes were guaranteed by certain of our direct and indirect subsidiaries. The Notes represented our general unsecured obligations; senior in right of payment to all of our existing and any future subordinated indebtedness; pari passu in right of payment with all of our existing and any future unsecured indebtedness that is not by its terms expressly subordinated to the Notes; effectively junior in right of payment to our existing and future secured indebtedness to the extent of the value of the collateral securing that indebtedness; unconditionally guaranteed by all of our existing and future domestic subsidiaries, other than any excluded domestic subsidiaries; and structurally subordinated to indebtedness of our subsidiaries that are not subsidiary guarantors.

Presented below are the Consolidating Condensed Statements of Operations for the three months ended January 31, 2011 and 2010, the Consolidating Condensed Balance Sheets as of January 31, 2011 and October 31, 2010 and the Consolidating Condensed Statements of Cash Flows for the three months ended January 31, 2011 and 2010 for The Cooper Companies, Inc. (Parent Company), the guarantor subsidiaries (Guarantor Subsidiaries) and the subsidiaries that are not guarantors (Non-Guarantor Subsidiaries).

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Consolidating Condensed Statements of Operations

 

     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Entries
    Consolidated
Total
 
                 (In thousands)              

Three Months Ended January 31, 2011

          

Net sales

   $ 0      $ 135,268      $ 304,807      $ (146,846   $ 293,229   

Cost of sales

     0        67,897        119,384        (70,658     116,623   
                                        

Gross profit

     0        67,371        185,423        (76,188     176,606   
                                        

Operating expenses

     8,358        51,258        62,197        0        121,813   
                                        

Operating income (loss)

     (8,358     16,113        123,226        (76,188     54,793   

Interest expense

     6,807        0        144        0        6,951   

Other income (expense), net

     3,906        (533     (4,107     0        (734
                                        

Income (loss) before income taxes

     (11,259     15,580        118,975        (76,188     47,108   

Provision for (benefit from) income taxes

     (6,790     8,458        145        0        1,813   
                                        

Net income (loss)

   $ (4,469   $ 7,122      $ 118,830      $ (76,188   $ 45,295   
                                        
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Entries
    Consolidated
Total
 
                 (In thousands)              

Three Months Ended January 31, 2010

          

Net sales

   $ 0      $ 120,168      $ 196,086      $ (55,996   $ 260,258   

Cost of sales

     0        57,939        107,153        (54,597     110,495   
                                        

Gross profit

     0        62,229        88,933        (1,399     149,763   
                                        

Operating expenses

     5,509        46,277        60,998        0        112,784   
                                        

Operating income (loss)

     (5,509     15,952        27,935        (1,399     36,979   

Interest expense

     9,958        0        267        0        10,225   

Other income (expense), net

     2,533        1,292        (6,135     (18     (2,328
                                        

Income (loss) before income taxes

     (12,934     17,244        21,533        (1,417     24,426   

Provision for (benefit from) income taxes

     (6,237     8,497        1,743        0        4,003   
                                        

Net income (loss)

   $ (6,697   $ 8,747      $ 19,790      $ (1,417   $ 20,423   
                                        

 

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Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Consolidating Condensed Balance Sheets

 

     Parent
Company
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Consolidating
Entries
    Consolidated
Total
 
                  (In thousands)               

January 31, 2011

            

ASSETS

            

Current assets:

            

Cash and cash equivalents

   $ 1       $ (2,031   $ 5,350       $ 0      $ 3,320   

Trade receivables, net

     0         63,916        125,546         0        189,462   

Inventories, net

     0         171,191        188,495         (119,690     239,996   

Deferred tax assets

     1,387         21,371        4,244         0        27,002   

Other current assets

     3,007         6,420        34,136         0        43,563   
                                          

Total current assets

     4,395         260,867        357,771         (119,690     503,343   
                                          

Property, plant and equipment, net

     1,234         71,991        522,600         0        595,825   

Goodwill

     116         679,233        589,385         0        1,268,734   

Other intangibles, net

     0         66,527        63,853         0        130,380   

Deferred tax assets

     37,792         (15,610     3,307         0        25,489   

Other assets

     1,687,839         22,228        14,768         (1,676,668     48,167   
                                          
   $ 1,731,376       $ 1,085,236      $ 1,551,684       $ (1,796,358   $ 2,571,938   
                                          

LIABILITIES AND STOCKHOLDERS’ EQUITY

            

Current liabilities:

            

Short-term debt

   $ 765       $ 1,169      $ 13,552       $ 0      $ 15,486   

Other current liabilities

     17,410         41,039        112,139         0        170,588   
                                          

Total current liabilities

     18,175         42,208        125,691         0        186,074   
                                          

Long-term debt

     586,500         (100     324         0        586,724   

Deferred tax liabilities

     0         0        20,202         0        20,202   

Intercompany and other liabilities

     205,953         (211,417     62,103         0        56,639   
                                          

Total liabilities

     810,628         (169,309     208,320         0        849,639   

Stockholders’ equity

     920,748         1,254,545        1,343,364         (1,796,358     1,722,299   
                                          
   $ 1,731,376       $ 1,085,236      $ 1,551,684       $ (1,796,358   $ 2,571,938   
                                          

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Consolidating Condensed Balance Sheets

 

     Parent
Company
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Consolidating
Entries
    Consolidated
Total
 
                  (In thousands)               

October 31, 2010

            

ASSETS

            

Current assets:

            

Cash and cash equivalents

   $ 1,129       $ (2,349   $ 4,793       $ 0      $ 3,573   

Trade receivables, net

     0         73,442        124,048         0        197,490   

Inventories

     0         97,258        171,473         (40,829     227,902   

Deferred tax assets

     2,657         22,060        4,111         0        28,828   

Other current assets

     881         7,592        25,074         0        33,547   
                                          

Total current assets

     4,667         198,003        329,499         (40,829     491,340   
                                          

Property, plant and equipment, net

     1,175         77,155        515,557         0        593,887   

Goodwill

     116         679,127        582,733         0        1,261,976   

Other intangibles, net

     0         69,548        44,629         0        114,177   

Deferred tax assets

     69,805         (49,648     2,915         0        23,072   

Other assets

     1,680,450         22,837        13,947         (1,676,668     40,566   
                                          
   $ 1,756,213       $ 997,022      $ 1,489,280       $ (1,717,497   $ 2,525,018   
                                          

LIABILITIES AND STOCKHOLDERS’ EQUITY

            

Current liabilities:

            

Short-term debt

   $ 0       $ 1,208      $ 17,951       $ 0      $ 19,159   

Other current liabilities

     15,321         53,299        111,741         0        180,361   
                                          

Total current liabilities

     15,321         54,507        129,692         0        199,520   
                                          

Long-term debt

     591,750         (100     327         0        591,977   

Deferred tax liabilities

     0         0        20,202         0        20,202   

Intercompany and other liabilities

     234,503         (304,809     116,849         0        46,543   
                                          

Total liabilities

     841,574         (250,402     267,070         0        858,242   

Stockholders’ equity

     914,639         1,247,424        1,222,210         (1,717,497     1,666,776   
                                          
   $ 1,756,213       $ 997,022      $ 1,489,280       $ (1,717,497   $ 2,525,018   
                                          

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Consolidating Condensed Statements of Cash Flows

 

     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Entries
    Consolidated
Total
 
     (In thousands)  

Three Months Ended January 31, 2011

          

Cash flows from operating activities:

          

Net cash provided by (used in) operating activities

   $ 32,963      $ (88,451   $ 128,419      $ 0      $ 72,931   
                                        

Cash flows from investing activities:

          

Purchase of property, plant and equipment

     (110     (2,462     (26,213     0        (28,785

Acquisitions of businesses, net of cash acquired and other

     0        (150     (32,299     0        (32,449

Intercompany (investments in subsidiaries)

     (26,477     0        0        26,477        0   
                                        

Net cash (used in) provided by investing activities

     (26,587     (2,612     (58,512     26,477        (61,234
                                        

Cash flows from financing activities:

          

Net proceeds (repayments) of short-term debt

     765        (39     (4,399     0        (3,673

Intercompany proceeds (repayments)

     0        91,420        (64,943     (26,477     0   

Net proceeds (repayments) of long-term debt

     (5,250     0        (3     0        (5,253

Debt acquisition costs

  

 

(9,207

 

 

0

  

 

 

0

  

 

 

0

  

 

 

(9,207

Dividends on common stock

     0     

 

0

  

 

 

0

  

 

 

0

  

    0   

Excess tax benefit from share-based compensation arrangements

     0        0        0        0        0   

Proceeds from exercise of stock options

     6,188        0        0        0        6,188   
                                        

Net cash (used in) provided by financing activities

     (7,504     91,381        (69,345     (26,477     (11,945
                                        

Effect of exchange rate changes on cash and cash equivalents

     0        0        (5     0        (5
                                        

Net (decrease) increase in cash and cash equivalents

     (1,128     318        557        0        (253

Cash and cash equivalents at the beginning of the period

     1,129        (2,349     4,793        0        3,573   
                                        

Cash and cash equivalents at the end of the period

   $ 1      $ (2,031   $ 5,350      $ 0      $ 3,320   
                                        

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Consolidating Condensed Statements of Cash Flows

 

     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Entries
    Consolidated
Total
 
                 (In thousands)              

Three Months Ended January 31, 2010

          

Cash flows from operating activities:

          

Net cash provided by (used in) operating activities

   $ (6,138   $ 16,642      $ 45,638      $ 0      $ 56,142   
                                        

Cash flows from investing activities:

          

Purchase of property, plant and equipment

     (14     (876     (12,021     0        (12,911

Acquisitions of businesses, net of cash acquired and other

     0        (8,400     (107     0        (8,507

Intercompany (investments in subsidiaries)

     48,270        0        0        (48,270     0   
                                        

Net cash (used in) provided by investing activities

     48,256        (9,276     (12,128     (48,270     (21,418
                                        

Cash flows from financing activities:

          

Net proceeds (repayments) of short-term debt

     278        940        6,850        0        8,068   

Intercompany proceeds (repayments)

     0        (7,406     (40,864     48,270        0   

Net proceeds (repayments) of long-term debt

     (46,224     0        0        0        (46,224

Dividends on common stock

     0        0        0        0        0   

Excess tax benefit from share-based compensation arrangements

     407        0        0        0        407   

Proceeds from exercise of stock options

     919        0        0        0        919   
                                        

Net cash (used in) provided by financing activities

     (44,620     (6,466     (34,014     48,270        (36,830
                                        

Effect of exchange rate changes on cash and cash equivalents

     0        0        (4     0        (4
                                        

Net (decrease) increase in cash and cash equivalents

     (2,502     900        (508     0        (2,110

Cash and cash equivalents at the beginning of the period

     2,574        (1,688     3,046        0        3,932   
                                        

Cash and cash equivalents at the end of the period

   $ 72      $ (788   $ 2,538      $ 0      $ 1,822   
                                        

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Continued

(Unaudited)

 

Note 15. Business Segment Information

Cooper uses operating income, as presented in our financial reports, as the primary measure of segment profitability. We do not allocate costs from corporate functions to segment operating income. Items below operating income are not considered when measuring the profitability of a segment. We use the same accounting policies to generate segment results as we do for our consolidated results.

Identifiable assets are those used in continuing operations except cash and cash equivalents, which we include as corporate assets. Long-lived assets are property, plant and equipment.

Segment information:

 

Three Months Ended January 31,

(In thousands)

   2011     2010  

CooperVision net sales by category:

    

Toric lens

   $ 75,788      $ 63,533   

Multifocal lens

     16,630        16,681   

Single-use sphere lens

     52,948        46,943   

Non single-use sphere and other eye care products and other

     98,263        88,783   
                

Total CooperVision net sales

     243,629        215,940   

CooperSurgical net sales

     49,600        44,318   
                

Total net sales

   $ 293,229      $ 260,258   
                

Operating income (loss):

    

CVI

   $ 50,883      $ 32,433   

CSI

     12,268        10,055   

Headquarters

     (8,358     (5,509
                

Total operating income

     54,793        36,979   

Interest expense

     6,951        10,225   

Other expense, net

     734        2,328   
                

Income before income taxes

   $ 47,108      $ 24,426   
                

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements, Concluded

(Unaudited)

 

(In thousands)

   January 31,
2011
     October 31,
2010
 

Identifiable assets:

     

CVI

   $ 2,182,833       $ 2,141,685   

CSI

     325,318         328,931   

Headquarters

     63,787         54,402   
                 

Total

   $ 2,571,938       $ 2,525,018   
                 

Geographic information:

 

Three Months Ended January 31,

(In thousands)

   2011      2010  

Net sales to external customers by country of domicile:

     

United States

   $ 133,736       $ 118,356   

Europe

     88,904         83,517   

Rest of world

     70,589         58,385   
                 

Total

   $ 293,229       $ 260,258   
                 

(In thousands)

   January 31,
2011
     October 31,
2010
 

Long-lived assets by country of domicile:

     

United States

   $ 358,036       $ 357,200   

Europe

     228,542         227,780   

Rest of world

     9,247         8,907   
                 

Total

   $ 595,825       $ 593,887   
                 

 

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Table of Contents

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Note numbers refer to “Notes to Consolidated Condensed Financial Statements” in Item 1. Financial Statements.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These include statements relating to plans, prospects, goals, strategies, future actions, events or performance and other statements which are other than statements of historical fact. In addition, all statements regarding anticipated growth in our net sales, anticipated market conditions, planned product launches and expected results of operations and integration of any acquisition are forward-looking. To identify these statements look for words like “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates” or “anticipates” and similar words or phrases. Forward-looking statements necessarily depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Among the factors that could cause our actual results and future actions to differ materially from those described in forward-looking statements are:

 

 

Adverse changes in global or regional general business, political and economic conditions due to the current global economic downturn, including the impact of continuing uncertainty and instability of U.S. and international credit markets that may adversely affect the Company’s or its customers’ ability to meet future liquidity needs.

 

 

Limitations on sales following new product introductions due to poor market acceptance.

 

 

New competitors or product innovations or technologies from competitors.

 

 

A major disruption in the operations of our manufacturing, research and development or distribution facilities, due to technological problems, natural disasters or other causes.

 

 

Disruptions in supplies of raw materials, particularly components used to manufacture our silicone hydrogel lenses and other hydrogel lenses.

 

 

Legal costs, insurance expenses, settlement costs and the risk of an adverse decision or settlement related to claims involving litigation, product liability or patent protection.

 

 

The impact of acquisitions or divestitures on revenues, earnings or margins.

 

 

Interest rate and foreign currency exchange rate fluctuations.

 

 

The requirement to provide for a significant liability or to write off, or accelerate depreciation on, a significant asset, including impaired goodwill as a result of declines in the price of the Company’s common stock or other events.

 

 

Changes in U.S. and foreign government regulation of the retail optical industry and of the healthcare industry generally.

 

 

Failures to receive, or delays in receiving, U.S. or foreign regulatory approvals for products.

 

 

Failure to obtain adequate coverage and reimbursement from third party payors for our products.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

 

Compliance costs and potential liability in connection with U.S. and foreign healthcare regulations, including product recalls, and potential losses resulting from sales of counterfeit and other infringing products.

 

 

The success of the Company’s research and development activities and other start-up projects.

 

 

Dilution to earnings per share from acquisitions or issuing stock.

 

 

Changes in tax laws or their interpretation and changes in effective tax rates.

 

 

Changes in accounting principles or estimates.

 

 

Environmental risks.

 

 

Other events described in our Securities and Exchange Commission filings, including the “Business” and “Risk Factors” sections in this Annual Report on Form 10-K for the fiscal year ended October 31, 2010, as such Risk Factors may be updated in quarterly filings.

We caution investors that forward-looking statements reflect our analysis only on their stated date. We disclaim any intent to update them except as required by law.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

Results of Operations

In this section, we discuss the results of our operations for the fiscal first quarter of 2011 and compare them with the same period of fiscal 2010. We discuss our cash flows and current financial condition under “Capital Resources and Liquidity.”

First Quarter Highlights

 

 

Net sales of $293.2 million, up 13%.

 

 

Gross profit $176.6 million, up 18%.

 

 

Operating income $54.8 million, up 48%.

 

 

Diluted earnings per share of 96 cents, up from 44 cents per share.

 

 

Cash provided by operations $72.9 million, up 30% from $56.1 million.

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 employment, housing and credit concerns continue to represent a risk to our forecasted performance for the remainder of fiscal year 2011 and beyond.

We compete in the worldwide contact lens market with our spherical, toric and multifocal contact lenses offered in a variety of materials including using phosphorylcholine (PC) Technology™ and silicone hydrogel Aquaform ® technology. We believe that there will be lower contact lens wearer dropout rates as technology improves thereby enhancing the wearing experience through a combination of improved designs and materials. CooperVision is focused on greater worldwide market penetration as we roll out new products and continue to expand our presence in existing and emerging markets as well as the growth of preferred modalities such as single-use and monthly wearing options.

Sales of contact lenses utilizing silicone hydrogel materials, a major product material in the industry, have grown significantly. In the past three years, CooperVision launched monthly silicone hydrogel sphere, toric and multifocal lens products under our Biofinity ® brand and two-week silicone hydrogel sphere and toric lens products under our Avaira ® brand. While we believe that we have high quality silicone hydrogel contact lens products, our future growth may be limited by our late entry into the silicone hydrogel segment of the market. For example, competitive silicone hydrogel single-use and multifocal lens products are making substantial gains in market share and represent a risk to our business. We have limited manufacturing capacity for our silicone hydrogel multifocal product and have not yet marketed a silicone hydrogel single-use product. 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.

We are also in the process of developing a number of new contact lens products to enhance CooperVision’s worldwide product lines. New products planned for introduction over the next two years include additional lenses utilizing silicone hydrogel and PC Technology™ materials and new lens designs, including multifocal and single-use silicone hydrogel lenses.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

The medical device segment of the women’s healthcare market is highly fragmented. CooperSurgical competes based on brand awareness and market-focused product offerings, with a strategy that includes identifying and acquiring selected companies and product lines that improve its existing market position or serve new clinical areas. During fiscal 2010, CooperSurgical purchased the Her Option ® endometrial ablation product line from American Medical Systems Holdings, Inc., and a smoke evacuation system for use during laparoscopic procedures performed in an operating room environment. We intend to continue to invest in CooperSurgical’s business through acquisitions of companies and product lines.

In connection with the normal management of our financial liabilities, we refinanced our syndicated Senior Unsecured Revolving Line of Credit due to mature on January 31, 2012, with a new Credit Agreement that provides for a multicurrency revolving credit facility in an aggregate principal amount of $750.0 million and a delayed draw term loan facility in an aggregate principal amount of $250.0 million, each of which, mature on January 12, 2016. On February 15, 2011, subsequent to the end of our fiscal first quarter, we redeemed all $339.0 million aggregate principal amount outstanding of our Senior Notes, in accordance with the terms of the Indenture, from borrowings under the new Credit Agreement, including $250.0 million from the delayed draw term loan facility. We believe that our cash and cash equivalents, cash flow from operating activities and the new and existing credit facilities will fund future operations, capital expenditures, cash dividends, settlement obligations and acquisitions.

Selected Statistical Information – Percentage of Sales and Growth

 

Percentage of Sales

Three Months Ended January 31,

       2011             2010         %
    Change    
 

Net sales

     100     100     13

Cost of sales

     40     42     6

Gross profit

     60     58     18

Selling, general and administrative expense

     39     39     13

Research and development expense

     3     3     28

Gain on settlement of preexisting relationship

     2     —          —     

Amortization of intangibles

     1     2     12

Operating income

     19     14     48

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

Net Sales

Cooper’s two business units, CVI and CSI, generate all of its sales.

 

 

CooperVision (CVI) develops, manufactures and markets a broad range of contact lenses for the worldwide vision correction market. Dedicated to enhancing the contact lens experience for practitioners and patients, CooperVision specializes in lenses for astigmatism, presbyopia and ocular dryness.

 

 

CooperSurgical (CSI) develops, manufactures and markets medical devices, diagnostic products and surgical instruments and accessories used primarily by gynecologists and obstetricians.

Our consolidated net sales grew by $32.9 million or 13% in the three months ended January 31, 2011.

 

Three Months Ended January 31,
($ in millions)

   2011      2010      % Change  

CVI

   $ 243.6       $ 215.9         13

CSI

     49.6         44.4         12
                    
   $ 293.2       $ 260.3         13
                    

CVI 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, otherwise defined as modalities, with the primary modalities being single-use, two-week and monthly. CVI offers spherical, aspherical, toric, multifocal and toric multifocal lens products in all primary modalities.

The market for conventional lenses that are replaced annually has shifted to 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 commodity spherical lenses has shifted to value-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.

CVI’s Proclear ® brand aspheric, toric and multifocal contact lenses, manufactured using proprietary phosphorylcholine (PC) Technology, help enhance tissue/device compatibility and offer improved lens comfort.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

CVI markets silicone hydrogel spherical, toric and multifocal lens products under our Biofinity and Avaira brands that 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.

Net sales growth includes increases in single-use spheres up 13% and total spheres up 6%. Total toric lenses grew 19%, including 28% growth of single-use toric lenses, and multifocal lenses were flat compared to the prior year period. Silicone hydrogel products grew 53%, and Proclear products increased 7%. Older conventional lens products and cosmetic lenses declined 15% and 3%, respectively.

CVI competes in the worldwide soft contact lens market and services three primary regions: the Americas, EMEA (Europe, Middle East and Africa) and Asia Pacific.

CVI Net Sales by Region

 

Three Months Ended January 31,
($ in millions)

   2011      2010      % Change  

Americas

   $ 96.2       $ 86.0         12

EMEA

     90.7         84.7         7

Asia Pacific

     56.7         45.2         25
                    
   $ 243.6       $ 215.9         13
                    

CVI’s worldwide net sales grew 13% in the period-to-period comparison. Americas net sales grew 12%, primarily due to market gains of CVI’s silicone hydrogel spherical and toric lenses, up 49% in the period, and single-use lenses, up 14%. In our fiscal first quarter of 2010, we recorded $10.1 million of reductions to Americas net sales due to out-of-period adjustments to increase accruals for rebates that were under-accrued in fiscal 2009. EMEA net sales grew 7% in the period driven by increases in sales of silicone hydrogel lenses, up 58% and Proclear 1 Day lenses, up 13%. Net sales to the Asia Pacific region grew 25%, primarily due to sales growth of single-use spherical and toric products, up 18% and silicone hydrogel lenses, up 61%; and include $5.4 million of sales related to product lines acquired on December 1, 2010.

CVI’s net sales growth is driven primarily through increases in the volume of lenses sold and introduction of new products, primarily silicone hydrogel lenses. While unit growth and product mix have influenced CVI’s sales growth, average realized prices by product have not materially influenced sales growth.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

CSI Net Sales

CSI’s net sales increased 12% in the period-to-period comparison to $49.6 million with net sales growth excluding acquisitions of 7%. Sales of products used in surgical procedures grew 23% and now represent 37% of CSI’s sales compared to 34% in the prior year period. Women’s healthcare products used primarily by obstetricians and gynecologists generate 97% of CSI’s sales. The balance consists of sales of medical devices outside of women’s healthcare which CSI does not actively market. Unit growth and product mix along with increased average realized prices on disposable products have influenced organic sales growth.

Cost of Sales/Gross Profit

 

Gross Profit Percentage of Net Sales
Three Months Ended January 31,

   2011     2010  

CVI

     59     57

CSI

     64     61

Consolidated

     60     58

The increase in CVI’s gross margin is largely attributable to improvements in manufacturing efficiencies and product mix, primarily the shift to higher margin silicone hydrogel products. The gross margin includes costs associated with the 2009 CooperVision Manufacturing restructuring plan, recorded as cost of sales, of $1.9 million in the current year period compared to $2.2 million in the prior year period. As discussed below, these costs are primarily severance charges and accelerated depreciation, and we do not expect to incur similar costs related to this manufacturing restructuring plan in future periods. Gross margin for the fiscal 2010 period reflects the increase in accruals for rebates discussed above.

The increase in CSI’s gross margin for the fiscal first quarter of 2011 is largely attributable to manufacturing efficiency improvements and product mix including higher margins on products used in surgical procedures, which now represent 37% of net sales in the current period compared to 34% in fiscal 2010 period.

Selling, General and Administrative (SGA) Expense

 

Three Months Ended January 31,
($ in millions)

   2011      % Net
Sales
    2010      % Net
Sales
    % Change  

CVI

   $ 88.6         36   $ 80.2         37     10

CSI

     16.5         33     14.9         34     11

Headquarters

     8.4         N/A        5.5         N/A        52
                        
   $ 113.5         39   $ 100.6         39     13
                        

The increase in CVI’s SGA in the fiscal 2011 period is primarily due to our increased investment in sales and marketing to reach new customers and to promote our silicone hydrogel products as well as investments in infrastructure such as information technology.

The increase in CSI’s SGA in the fiscal 2011 period is primarily due to increased selling and marketing costs to support higher sales and anticipated further growth.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

Corporate headquarters’ SGA increased in the fiscal 2011 period primarily due to accrued bonuses in the current year period that were not in the prior year period and increased legal costs partially offset by reduced consulting and audit costs.

Research and Development Expense

 

Three Months Ended January 31,
($ in millions)

   2011      % Net
Sales
    2010      % Net
Sales
    %
Change
 

CVI

   $ 8.2         3   $ 6.6         3     25

CSI

     1.5         3     1.0         2     46
                                    
   $ 9.7         3   $ 7.6         3     28
                        

CVI research and development expense increased in the fiscal 2011 period primarily due to investments in new technologies, clinical trials and increased headcount. CVI’s research and development activities include programs to develop disposable silicone hydrogel products and product lines utilizing PC Technology.

CSI research and development expense increased in the current period, primarily due to investments in the design of the next generation product line of uterine manipulators. Other research and development activities include the upgrade and expansion of CSI’s portfolio of assisted reproductive technology products as well as many products within the general obstetrics and gynecology offerings.

Restructuring Costs

The Company entered into the 2009 CooperVision Manufacturing restructuring plan in the fiscal third quarter of 2009, which primarily includes employee benefit costs and non-cash costs associated with assets, with total expense reported of $1.9 million in the fiscal first quarter of 2011, compared to $2.3 million in the same period of fiscal 2010. The Company incurred about $23.1 million in total restructuring costs under this plan, and we do not expect to incur similar costs related to this manufacturing restructuring plan in future periods. Restructuring activities were completed in Adelaide, Australia, in our fiscal third quarter of 2010 and in Norfolk, Virginia, in our fiscal first quarter of 2011. The Company may, from time to time, decide to pursue additional restructuring activities that involve charges in future periods.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

Gain on Settlement of Preexisting Relationship

On December 1, 2010, CVI purchased certain assets of Asahikasei Aime Co., Ltd. (Aime) from Asahi Kasei Pharma Corporation, and the results of operations are included in our consolidated results of operations from that date. Prior to the acquisition, Aime had retained the right to sell our Biofinity brand of contact lenses in certain defined markets. In accordance with the accounting guidance relating to the accounting for a preexisting relationship between the parties to a business combination, we recorded a gain of $6.1 million on the settlement of this supply agreement in our Consolidated Statement of Income for the fiscal first quarter of 2011. The gain increases the purchase consideration for this acquisition and the related goodwill.

Operating Income

 

Three Months Ended January 31,
($ in millions)

   2011     % Net
Sales
    2010     % Net
Sales
    %
Change
 

CVI

   $ 50.9        21   $ 32.4        15     57

CSI

     12.3        25     10.1        23     22

Headquarters

     (8.4     N/A        (5.5     N/A        (52 %) 
                      
   $ 54.8        19   $ 37.0        14     48
                      

The increases in operating income in the fiscal 2011 period both in absolute dollars and as a percentage of net sales were primarily due to the increase in gross margin dollars of 18% for the period and the gain on settlement, partially offset by increases in operating expenses of 8%.

Interest Expense

Interest expense in the fiscal first quarter decreased 32% to $7.0 million as compared to the prior year period. The decrease primarily reflects a reduction in our long-term borrowings used for capital expenditures.

Other Expense, Net

 

Three Months Ended January 31,
(In millions)

   2011      2010  

Foreign exchange loss

   $ 0.7       $ 2.3   

Other, net

     —           —     
                 
   $ 0.7       $ 2.3   
                 

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

Provision for Income Taxes

We recorded income tax expense of $1.8 million in the fiscal first quarter of 2011 compared to $4.0 million in the prior year period. Cooper’s effective tax rate (ETR) (provision for income taxes divided by pretax income) for the fiscal first quarter of 2011 was 3.9%. Our year-to-date results include the projected fiscal year ETR, plus any discrete items. The ETR used to record the provision for income taxes for the fiscal first quarter of 2010 was 16.4%. The decrease in the fiscal 2011 ETR reflects the shift in the geographic mix of income during the period. The ETR is below the United States statutory rate as a majority of our income is earned in foreign jurisdictions with lower tax rates.

Share-Based Compensation Plans

The Company has several share-based compensation plans that are described in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2010. The compensation expense and related income tax benefit recognized in the Company’s consolidated financial statements for share-based awards were as follows:

 

Three Months Ended January 31,
(In millions)

   2011      2010  

Selling, general and administrative expense

   $ 4.7       $ 2.5   

Cost of sales

     0.3         0.2   

Research and development expense

     0.1         0.1   

Capitalized in inventory

     0.3         0.2   
                 

Total compensation expense

   $ 5.4       $ 3.0   
                 

Related income tax benefit

   $ 1.7       $ 1.0   
                 

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

Capital Resources and Liquidity

First Quarter Highlights

 

 

Operating cash flow $72.9 million vs. $56.1 million in the fiscal first quarter of 2010.

 

 

Expenditures for purchases of property, plant and equipment $28.8 million vs. $12.9 million in last year’s first quarter.

 

 

Total debt decreased to $602.2 million from $611.1 million at October 31, 2010.

Comparative Statistics

 

($ in millions)

   January 31, 2011     October 31, 2010  

Cash and cash equivalents

   $ 3.3      $ 3.6   

Total assets

   $ 2,571.9      $ 2,525.0   

Working capital

   $ 317.3      $ 291.8   

Total debt

   $ 602.2      $ 611.1   

Stockholders’ equity

   $ 1,722.3      $ 1,666.8   

Ratio of debt to equity

     0.35:1        0.37:1   

Debt as a percentage of total capitalization

     26     27

Operating cash flow - twelve months ended

   $ 284.5      $ 267.7   

Working Capital

The increase in working capital in the fiscal first quarter of 2011 was primarily due to increases in inventories and other current assets and decreases in short-term debt, accounts payable and other accrued liabilities, partially offset by a decrease in trade accounts receivable.

Operating Cash Flow

Cash flow provided by operating activities totaled $72.9 million in the fiscal first quarter of 2011 and $284.5 million over the twelve-month period ended January 31, 2011. Operating cash flow increased compared to the fiscal first quarter of 2010, primarily due to the increase in net income and the decrease in accounts receivable partially offset by the increase in inventory.

At the end of the fiscal first quarter of 2011, Cooper’s inventory months on hand (MOH) decreased to 6.2 from 6.8 at January 31, 2010. Our days sales outstanding (DSO) were 61 days, the same as last year’s first quarter. Based on our experience and knowledge of our customers and our analysis of inventoried products and product levels, we believe that our accounts receivable and inventories are recoverable.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Continued

 

Investing Cash Flow

Cash used in investing activities of $61.2 million in the fiscal first quarter of 2011 was for capital expenditures of $28.8 million, primarily to improve manufacturing efficiency, and payments of $32.4 million related to acquisitions.

Financing Cash Flow

Cash used in financing activities of $11.9 million in the fiscal first quarter of 2011 was driven by net repayments of debt of $8.9 million and acquisition costs related to the Credit Agreement of $9.2 million, partially offset by proceeds of $6.2 million from the exercise of share-based compensation awards.

Estimates and Critical Accounting Policies

Management estimates and judgments are an integral part of financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). We believe that the critical accounting policies listed below address the more significant estimates required of management when preparing our consolidated financial statements in accordance with GAAP. We consider an accounting estimate critical if changes in the estimate may have a material impact on our financial condition or results of operations. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustment to these balances in future periods. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are:

 

 

Revenue recognition

 

 

Allowance for doubtful accounts

 

 

Net realizable value of inventory

 

 

Valuation of goodwill

 

 

Business combinations

 

 

Income taxes

 

 

Share-based compensation

During the fiscal first quarter of 2011, there were no significant changes in our estimates and critical accounting policies. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2010, for a more complete discussion of our estimates and critical accounting policies.

The Company performed its annual impairment test for valuation of goodwill during the fiscal third quarter of 2010, and our analysis indicated that we had no impairment of goodwill. As described in Note 4. Intangible Assets in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2010, we will continue to monitor conditions and changes that could indicate that our recorded goodwill may be impaired.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Concluded

 

New Accounting Pronouncements

On November 1, 2010, the Company adopted portions of the Accounting Standards Update (ASU) 2010-6, which amends Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements . This ASU added new requirements for disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements and (4) the transfers between Levels 1, 2 and 3 fair value measurements. The requirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis will be effective for the Company for the fiscal year beginning on November 1, 2011. The partial adoption of this guidance did not have a material impact on our consolidated condensed financial statements.

In December 2010, the Financial Accounting Standards Board (FASB) issued ASU 2010-29, which amends ASC 805, Business Combinations: Disclosure of Supplementary Pro Forma Information for Business Combinations . The amendments in this ASU affect any public entity as defined by ASC 805 that enters into business combinations that are material on an individual or aggregate basis. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not anticipate the adoption of ASU 2010-29, which is effective for the Company for the fiscal year beginning on November 1, 2011, will have a material impact on our consolidated financial statements.

In December 2010, the FASB issued ASU No. 2010-28, which amends ASC 350, Intangibles - Goodwill and Other: When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts . The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company does not anticipate the adoption of ASU 2010-28, which is effective for the Company on November 1, 2011, will have a material impact on our consolidated financial statements. Early adoption is not permitted.

Trademarks

Aquaform ® , Avaira ® , Biofinity ® , Her Option ® and Proclear ® are registered trademarks of The Cooper Companies, Inc., its affiliates and/or subsidiaries. PC Technology™ is a trademark of The Cooper Companies, Inc., its affiliates and/or subsidiaries.

 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Most of our operations outside the United States have their local currency as their functional currency. We are exposed to risks caused by changes in foreign exchange, principally our British pound sterling, euro, Japanese yen, Swedish krona and Canadian dollar-denominated debt and receivables, and from operations in foreign currencies. We have taken steps to minimize our balance sheet exposure. Although we may enter into foreign exchange agreements with financial institutions to reduce our exposure to fluctuations in foreign currency values relative to our debt or receivables obligations, these hedging transactions do not eliminate that risk entirely. We are also exposed to risks associated with changes in interest rates, as the interest rate on our Credit Agreement may vary with the London Interbank Offered Rate (LIBOR). We have decreased this interest rate risk by hedging a significant portion of variable rate debt effectively converting it to fixed rate debt for varying periods through May 2011. For additional detail, see Item 1A. Risk Factors and Note 1 and Note 7 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2010.

In connection with the normal management of our financial liabilities, we refinanced our syndicated Senior Unsecured Revolving Line of Credit due to mature on January 31, 2012, with a new Credit Agreement that provides for a multicurrency revolving credit facility in an aggregate principal amount of $750.0 million and a delayed draw term loan facility in an aggregate principal amount of $250.0 million, each of which, mature on January 12, 2016. On February 15, 2011, subsequent to the end of our fiscal first quarter, we redeemed all $339.0 million aggregate principal amount outstanding of our Senior Notes, in accordance with the terms of the Indenture, from borrowings under the new Credit Agreement, including $250.0 million from the delayed draw term loan facility.

Item 4. Controls and Procedures

The Company has established and currently maintains disclosure controls and procedures designed to ensure that material information required to be disclosed in its reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and that any material information relating to the Company is recorded, processed, summarized and reported to its principal officers to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

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In conjunction with the close of each fiscal quarter, the Company conducts a review and evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. The Company’s Chief Executive Officer and Chief Financial Officer, based upon their evaluation as of January 31, 2011, the end of the fiscal quarter covered in this report, concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

As of January 31, 2011, there has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There have been no material changes in the Company’s risk factors from those disclosed in our Annual Report on Form 10-K for fiscal year ended October 31, 2010.

 

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Item 6. Exhibits

 

Exhibit
Number

  

Description

3.2    Amended and Restated By-Laws, The Cooper Companies, Inc., dated December 14, 2010, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 15, 2010
10.1    The Cooper Companies, Inc. 2011 Incentive Payment Plan, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 15, 2010
10.2    Credit Agreement, dated as of January 12, 2011, among The Cooper Companies, Inc., CooperVision International Holding Company LP, the lenders from time to time party thereto, KeyBank National Association, as a bookrunner, a lead arranger, and sole administrative agent, swing line lender and LC issuer, J.P. Morgan Securities LLC, as a lead arranger, bookrunner and syndication agent, Citigroup Global Markets Inc., as a lead arranger, bookrunner and syndication agent, Bank of America, N.A., as a lead arranger and documentation agent, and Wells Fargo Bank, National Association, as lead arranger and documentation agent
11*    Calculation of Earnings Per Share
31.1    Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2    Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1    Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350
32.2    Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350
101.INS    XBRL Instance Document
101.SCH    BRL Taxonomy Extension Schema
101.CAL    XBRL Taxonomy Extension Calculation Linkbase
101.LAB    XBRL Taxonomy Extension Label Linkbase
101.PRE    XBRL Taxonomy Extension Presentation Linkbase

 

* The information called for in this Exhibit is provided in Note 7. Earnings Per Share to the Consolidated Condensed Financial Statements in this report.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

The Cooper Companies, Inc.
(Registrant)

Date: March 4, 2011

 

/s/ Rodney E. Folden
Rodney E. Folden
Vice President and Corporate Controller
(Principal Accounting Officer)

 

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Index of Exhibits

 

Exhibit No.

         

Page No.

3.2    Amended and Restated By-Laws, The Cooper Companies, Inc., dated December 14, 2010, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 15, 2010   
10.1    The Cooper Companies, Inc. 2011 Incentive Payment Plan, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 15, 2010   
10.2    Credit Agreement, dated as of January 12, 2011, among The Cooper Companies, Inc., CooperVision International Holding Company LP, the lenders from time to time party thereto, KeyBank National Association, as a bookrunner, a lead arranger, and sole administrative agent, swing line lender and LC issuer, J.P. Morgan Securities LLC, as a lead arranger, bookrunner and syndication agent, Citigroup Global Markets Inc., as a lead arranger, bookrunner and syndication agent, Bank of America, N.A., as a lead arranger and documentation agent, and Wells Fargo Bank, National Association, as lead arranger and documentation agent   
11*    Calculation of Earnings Per Share   
31.1    Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934   
31.2    Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934   
32.1    Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350   
32.2    Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350   
101.INS    XBRL Instance Document   
101.SCH    BRL Taxonomy Extension Schema   
101.CAL    XBRL Taxonomy Extension Calculation Linkbase   
101.LAB    XBRL Taxonomy Extension Label Linkbase   
101.PRE    XBRL Taxonomy Extension Presentation Linkbase   

 

* The information called for in this Exhibit is provided in Note 7. Earnings Per Share to the Consolidated Condensed Financial Statements in this report.

 

52

Exhibit 10.2

REVOLVING LOAN CUSIP NUMBER: 21664UAB2

TERM LOAN CUSIP NUMBER: 21664UAC0

 

 

 

CREDIT AGREEMENT

dated as of

January 12, 2011

Among

THE COOPER COMPANIES, INC.,

COOPERVISION INTERNATIONAL HOLDING COMPANY, LP

as Borrowers,

THE LENDERS NAMED HEREIN,

as Lenders,

KEYBANK NATIONAL ASSOCIATION,

J.P. MORGAN SECURITIES LLC,

CITICORP NORTH AMERICA, INC.,

BANK OF AMERICA, N.A.,

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Co- Lead Arrangers,

KEYBANK NATIONAL ASSOCIATION,

J.P. MORGAN SECURITIES LLC,

CITICORP NORTH AMERICA, INC.,

as Co-Bookrunners,

J.P. MORGAN SECURITIES LLC,

CITICORP NORTH AMERICA, INC.,

as Co-Syndication Agents,

BANK OF AMERICA, N.A.,

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Co-Documentation Agents,

and

KEYBANK NATIONAL ASSOCIATION,

as the Administrative Agent,

the Swing Line Lender and LC Issuer,

$750,000,000 Revolving Facility

$250,000,000 Term Facility

 

 

 


ARTICLE I.

   DEFINITIONS AND TERMS      1   

Section 1.01

  

Certain Defined Terms

     1   

Section 1.02

  

Computation of Time Periods

     30   

Section 1.03

  

Accounting Terms

     31   

Section 1.04

  

Terms Generally

     31   

Section 1.05

  

Currency Equivalents

     31   

ARTICLE II.

   THE TERMS OF THE CREDIT FACILITY      32   

Section 2.01

  

Establishment of the Credit Facility

     32   

Section 2.02

  

Revolving Facility

     32   

Section 2.03

  

Term Loan

     33   

Section 2.04

  

Swing Line Facility

     34   

Section 2.05

  

Letters of Credit

     35   

Section 2.06

  

Notice of Borrowing

     40   

Section 2.07

  

Funding Obligations; Disbursement of Funds.

     40   

Section 2.08

  

Evidence of Obligations

     42   

Section 2.09

  

Interest; Default Rate

     43   

Section 2.10

  

Conversion and Continuation of Loans

     44   

Section 2.11

  

Fees

     44   

Section 2.12

  

Termination and Reduction of Revolving Commitments

     45   

Section 2.13

  

Payments and Prepayments of Loans

     46   

Section 2.14

  

Method and Place of Payment

     49   

Section 2.15

  

Defaulting Lenders

     50   

ARTICLE III.

   INCREASED COSTS, ILLEGALITY AND TAXES      53   

Section 3.01

  

Increased Costs, Illegality, etc

     53   

Section 3.02

  

Breakage Compensation

     55   

Section 3.03

  

Net Payments

     55   

Section 3.04

  

Increased Costs to LC Issuers

     57   

Section 3.05

  

Change of Lending Office; Replacement of Lenders

     58   

ARTICLE IV.

   CONDITIONS PRECEDENT      59   

Section 4.01

  

Conditions Precedent at Closing Date

     59   

Section 4.02

  

Conditions Precedent to All Credit Events

     61   

ARTICLE V.

   REPRESENTATIONS AND WARRANTIES      61   

Section 5.01

  

Corporate Status

     61   

Section 5.02

  

Corporate Power and Authority

     62   

Section 5.03

  

No Violation

     62   

Section 5.04

  

Governmental Approvals

     62   

Section 5.05

  

Litigation

     62   

Section 5.06

  

Use of Proceeds; Margin Regulations

     62   

Section 5.07

  

Financial Statements

     63   

Section 5.08

  

Solvency

     63   

Section 5.09

  

No Material Adverse Change

     64   

Section 5.10

  

Tax Returns and Payments

     64   

Section 5.11

  

Title to Properties, etc

     64   

Section 5.12

  

Lawful Operations, etc

     64   

Section 5.13

  

Environmental Matters

     64   

Section 5.14

  

Compliance with ERISA

     65   

 

i


Section 5.15

  

Intellectual Property, etc

     65   

Section 5.16

  

Investment Company Act, etc

     65   

Section 5.17

  

Insurance

     65   

Section 5.18

  

True and Complete Disclosure

     65   

Section 5.19

  

Defaults

     66   

Section 5.20

  

Anti-Terrorism Law Compliance

     66   

ARTICLE VI.

   AFFIRMATIVE COVENANTS      66   

Section 6.01

  

Reporting Requirements

     66   

Section 6.02

  

Books, Records and Inspections

     69   

Section 6.03

  

Insurance

     69   

Section 6.04

  

Payment of Taxes and Claims

     70   

Section 6.05

  

Corporate Franchises

     70   

Section 6.06

  

Good Repair

     70   

Section 6.07

  

Compliance with Statutes, etc

     70   

Section 6.08

  

Compliance with Environmental Laws

     70   

Section 6.09

  

Certain Domestic Subsidiaries to Join in Subsidiary Guaranty

     71   

Section 6.10

  

Senior Indebtedness

     71   

ARTICLE VII.

   NEGATIVE COVENANTS      71   

Section 7.01

  

Changes in Business

     71   

Section 7.02

  

Consolidation, Merger, Acquisitions, Asset Sales, etc

     72   

Section 7.03

  

Liens

     72   

Section 7.04

  

Indebtedness

     74   

Section 7.05

  

Investments and Guaranty Obligations

     74   

Section 7.06

  

Restricted Payments

     75   

Section 7.07

  

Financial Covenants

     76   

Section 7.08

  

Limitation on Certain Restrictive Agreements

     77   

Section 7.09

  

Transactions with Affiliates

     77   

Section 7.10

  

Plan Terminations, Minimum Funding, etc

     77   

Section 7.11

  

Anti-Terrorism Laws

     78   

Section 7.12

  

Modifications to Certain Agreements

     78   

ARTICLE VIII.

   EVENTS OF DEFAULT      78   

Section 8.01

  

Events of Default

     78   

Section 8.02

  

Remedies

     80   

Section 8.03

  

Application of Certain Payments and Proceeds

     80   

ARTICLE IX.

   THE ADMINISTRATIVE AGENT AND OTHER AGENTS      81   

Section 9.01

  

Appointment

     81   

Section 9.02

  

Delegation of Duties

     81   

Section 9.03

  

Exculpatory Provisions

     81   

Section 9.04

  

Reliance by Administrative Agent

     82   

Section 9.05

  

Notice of Default

     82   

Section 9.06

  

Non-Reliance

     82   

Section 9.07

  

No Reliance on Administrative Agent’s Customer Identification Program

     83   

Section 9.08

  

USA Patriot Act

     83   

Section 9.09

  

Indemnification

     83   

Section 9.10

  

The Administrative Agent in its Individual Capacity

     84   

Section 9.11

  

Successor Administrative Agent

     84   

 

ii


Section 9.12

  

Other Agents

     84   

ARTICLE X.

  

GUARANTY

     85   

Section 10.01

  

Guaranty by the Company

     85   

Section 10.02

  

Additional Undertaking

     85   

Section 10.03

  

Guaranty Unconditional

     85   

Section 10.04

  

Waivers

     86   

Section 10.05

  

Company Obligations to Remain in Effect; Restoration

     86   

Section 10.06

  

Waiver of Acceptance, etc

     87   

Section 10.07

  

Subrogation

     87   

Section 10.08

  

Effect of Stay

     87   

ARTICLE XI.

  

MISCELLANEOUS

     87   

Section 11.01

  

Payment of Expenses, etc

     87   

Section 11.02

  

Indemnification

     87   

Section 11.03

  

Right of Setoff

     88   

Section 11.04

  

Equalization

     88   

Section 11.05

  

Notices

     89   

Section 11.06

  

Successors and Assigns

     90   

Section 11.07

  

No Waiver; Remedies Cumulative

     93   

Section 11.08

  

Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial

     93   

Section 11.09

  

Counterparts

     94   

Section 11.10

  

Integration

     94   

Section 11.11