The Cooper Companies, Inc.
COOPER COMPANIES INC (Form: 10-Q, Received: 09/05/2014 16:04:22)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
FORM 10-Q
_____________________________________________________________
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For Quarterly Period Ended July 31, 2014
o
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   ý     No   o
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   ý     No   o
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
ý
 
Accelerated filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes   o     No   ý
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
 
48,282,203 Shares
Class
 
Outstanding at July 31, 2014




 
 
 

INDEX
 
 
 
Page No.
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
Consolidated Statements of Income - Three and Nine Months Ended July 31, 2014 and 2013
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months Ended July 31, 2014 and 2013
 
 
 
 
Consolidated Condensed Balance Sheets - July 31, 2014 and October 31, 2013
 
 
 
 
Consolidated Condensed Statements of Cash Flows - Nine Months Ended July 31, 2014 and 2013
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 

2



 
 
 

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Periods Ended July 31,
(In thousands, except for earnings per share)
(Unaudited)
 
Three Months
 
Nine Months
   
2014
 
2013
 
2014
 
2013
Net sales
$
432,482

 
$
411,993

 
$
1,249,779

 
$
1,175,873

Cost of sales
151,892

 
143,719

 
437,761

 
412,923

Gross profit
280,590

 
268,274

 
812,018

 
762,950

Selling, general and administrative expense
161,203

 
152,141

 
475,095

 
453,487

Research and development expense
16,070

 
14,865

 
48,077

 
43,008

Amortization of intangibles
6,752

 
7,660

 
21,735

 
22,553

Operating income
96,565

 
93,608

 
267,111

 
243,902

Interest expense
1,499

 
2,258

 
4,713

 
7,268

Gain on insurance proceeds

 

 

 
14,084

Other expense (income), net
683

 
86

 
739

 
(461
)
Income before income taxes
94,383

 
91,264

 
261,659

 
251,179

Provision for income taxes
5,711

 
2,072

 
21,087

 
11,585

Net income
$
88,672

 
$
89,192

 
$
240,572

 
$
239,594

Less: income attributable to noncontrolling interests
605

 
241

 
1,502

 
840

Net income attributable to Cooper stockholders
$
88,067

 
$
88,951

 
$
239,070

 
$
238,754

Earnings per share attributable to Cooper stockholders - basic
$
1.83

 
$
1.82

 
$
4.98

 
$
4.91

Earnings per share attributable to Cooper stockholders - diluted
$
1.80

 
$
1.79

 
$
4.89

 
$
4.81

Number of shares used to compute earnings per share:

 

 
 
 
 
Basic
48,042

 
48,791

 
47,990

 
48,588

Diluted
48,922

 
49,754

 
48,901

 
49,623

See accompanying notes.

3



 
 
 

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)
Periods Ended July 31,
(In thousands)
(Unaudited)
 
Three Months
 
Nine Months
  
2014
 
2013
 
2014
 
2013
Net income
$
88,672

 
$
89,192

 
$
240,572

 
$
239,594

Other comprehensive income (loss):

 

 

 

Foreign currency translation adjustment
(8,989
)
 
(12,697
)
 
14,168

 
(26,108
)
Change in value of derivative instruments, net of tax provision of $144 and $541 for the three and nine months ended July 31, 2014, respectively, and $260 and $647 for the corresponding periods of fiscal 2013, respectively
225

 
406

 
846

 
1,013

Change in minimum pension liability, net of tax
7

 
7

 
22

 
22

Unrealized (loss) gain on marketable securities, net of tax provision of $0 for the three and nine months ended July 31, 2014, and $(3) and $22 for the corresponding periods of fiscal 2013, respectively

 
(5
)
 

 
41

Reclassification of realized gain on marketable securities to net income, net of tax provision of $0 for the three and nine months ended July 31, 2014 and $(51) for both the corresponding periods of fiscal 2013, respectively

 
(95
)
 

 
(95
)
Other comprehensive (loss) income
(8,757
)
 
(12,384
)
 
15,036

 
(25,127
)
Comprehensive income
79,915

 
76,808

 
255,608

 
214,467

Comprehensive (income) loss attributable to noncontrolling interests
(471
)
 
114

 
(1,118
)
 
740

Comprehensive income attributable to Cooper stockholders
$
79,444

 
$
76,922

 
$
254,490

 
$
215,207

See accompanying notes.

4



 
 
 

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands, unaudited)
 
July 31, 2014
 
October 31, 2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
173,786

 
$
77,393

Trade accounts receivable, net of allowance for doubtful accounts of $5,259 at July 31, 2014 and $5,261 at October 31, 2013
261,964

 
229,537

Inventories
353,384

 
338,917

Deferred tax assets
39,445

 
41,179

Prepaid expense and other current assets
67,234

 
60,215

Total current assets
895,813

 
747,241

Property, plant and equipment, at cost
1,420,878

 
1,240,576

Less: accumulated depreciation and amortization
577,465

 
500,709

 
843,413

 
739,867

Goodwill
1,390,911

 
1,387,611

Other intangibles, net
176,292

 
198,769

Deferred tax assets
18,633

 
16,279

Other assets
42,312

 
47,494

 
$
3,367,374

 
$
3,137,261

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt
$
46,492

 
$
42,987

Accounts payable
87,209

 
108,172

Employee compensation and benefits
59,517

 
63,414

Other current liabilities
104,469

 
106,680

Total current liabilities
297,687

 
321,253

Long-term debt
301,449

 
301,670

Deferred tax liabilities
26,152

 
24,883

Accrued pension liability and other
65,809

 
65,961

Total liabilities
691,097

 
713,767

Commitments and contingencies

 

Stockholders’ equity:

 

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

 

Common stock, 10 cents par value, shares authorized: 120,000; issued 50,964 at July 31, 2014 and 50,335 at October 31, 2013
5,097

 
5,034

Additional paid-in capital
1,375,314

 
1,329,329

Accumulated other comprehensive loss
(726
)
 
(15,762
)
Retained earnings
1,548,037

 
1,311,851

Treasury stock at cost: 2,682 shares at July 31, 2014 and 2,340 shares at October 31, 2013
(270,649
)
 
(225,917
)
Total Cooper stockholders' equity
2,657,073

 
2,404,535

Noncontrolling interests
19,204

 
18,959

Stockholders’ equity
2,676,277

 
2,423,494

 
$
3,367,374

 
$
3,137,261

See accompanying notes.

5



 
 
 

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows
Nine Months Ended July 31,
(In thousands)
(Unaudited)
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
240,572

 
$
239,594

Depreciation and amortization
95,647

 
93,586

Decrease in operating capital
(60,938
)
 
(80,902
)
Other non-cash items
27,486

 
13,306

Net cash provided by operating activities
302,767

 
265,584

Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(177,936
)
 
(106,062
)
Acquisitions of businesses, net of cash acquired, and other
754

 
(8,997
)
Insurance proceeds received
1,359

 
1,254

Net cash used in investing activities
(175,823
)
 
(113,805
)
Cash flows from financing activities:
 
 
 
Proceeds from long-term debt
1,362,900

 
975,000

Repayments of long-term debt
(1,363,061
)
 
(1,108,034
)
Net (repayments of) proceeds from short-term debt
(3,735
)
 
8,380

Repurchase of common stock
(50,000
)
 
(44,363
)
Proceeds related to share-based compensation awards
6,880

 
19,094

Excess tax benefit from share-based compensation awards
15,000

 
15,700

Purchase of Origio shares from noncontrolling interests

 
(2,641
)
Dividends on common stock
(1,436
)
 
(1,449
)
Distributions to noncontrolling interests
(1,678
)
 
(1,007
)
Payment of contingent consideration
(3,820
)
 
(3,600
)
Proceeds from construction allowance
8,865

 
4,781

Net cash used in financing activities
(30,085
)
 
(138,139
)
Effect of exchange rate changes on cash and cash equivalents
(466
)
 
(998
)
Net increase in cash and cash equivalents
96,393

 
12,642

Cash and cash equivalents - beginning of period
77,393

 
12,840

Cash and cash equivalents - end of period
$
173,786

 
$
25,482

See accompanying notes.

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Table of Contents
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 device company publicly traded on the NYSE Euronext (NYSE: COO). Cooper is dedicated to being A Quality of Life Company TM with a focus on delivering shareholder value. Cooper operates through our business units, CooperVision and CooperSurgical.
CooperVision develops, manufactures and markets a broad range of soft contact lenses for the worldwide vision correction market.
CooperSurgical develops, manufactures and markets medical devices and procedure solutions to improve healthcare delivery to women.
The unaudited consolidated condensed financial statements presented in this report contain all adjustments necessary to present fairly Cooper’s consolidated condensed financial position at July 31, 2014 and October 31, 2013 , the consolidated results of its operations for the three and nine months ended July 31, 2014 and 2013 and its consolidated condensed cash flows for the nine months ended July 31, 2014 and 2013 . Most of these adjustments are normal and recurring. However, certain adjustments associated with acquisitions and insurance proceeds 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, 2013 . Please refer to this when reviewing this Quarterly Report on Form 10-Q.
On October 28, 2011, a manufacturing building in the United Kingdom (UK) experienced an incident in which a pipe broke in our fire suppression system, causing water and fire retardant foam damage to the facility. While this incident did not substantially impact our existing customers, the repairs to the facility and resultant decrease in manufacturing capacity impacted the timing of marketing initiatives to generate additional sales. In January 2013, we resolved our business interruption claim with our insurer for a total of $19.1 million. We received payments of $5.0 million in our fiscal fourth quarter of 2012. In our fiscal first quarter of 2013, we recorded the remaining $14.1 million in our Consolidated Statement of Income of which we received payment of $2.9 million during the fiscal first quarter 2013 and the remaining $11.2 million in the fiscal second quarter 2013.
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
Net realizable value of inventory
Valuation of goodwill
Business combinations
Income taxes
Share-based compensation


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Table of Contents
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

During the fiscal first nine months of 2014 , 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, 2013 , for a more complete discussion of our estimates and critical accounting policies.
Accounting Pronouncements Issued Not Yet Adopted

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. When a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available, or the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The Company does not anticipate the adoption of these amendments, which are effective for the Company for the fiscal year beginning on November 1, 2014, will have a material impact on our consolidated results of operations, financial condition or cash flows.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 sets forth a new revenue recognition model that requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. The amendments in the ASU can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. The Company is currently evaluating the impact of ASU 2014-09, which is effective for the Company in our fiscal year beginning on November 1, 2017.


Note 2. Inventories
(In thousands)
July 31, 2014
 
October 31, 2013
Raw materials
$
80,111

 
$
79,331

Work-in-process
13,908

 
10,515

Finished goods
259,365

 
249,071

 
$
353,384

 
$
338,917

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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Table of Contents
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

Note 3. Intangible Assets

Goodwill
(In thousands)
CooperVision
 
CooperSurgical
 
Total
Balance as of October 31, 2012
$
1,044,054

 
$
326,193

 
$
1,370,247

Net additions during the year ended October 31, 2013
3,363

 
11,017

 
14,380

Translation
1,061

 
1,923

 
2,984

Balance as of October 31, 2013
1,048,478

 
339,133

 
1,387,611

Net reductions during the nine-month period ended July 31, 2014

 
(590
)
 
(590
)
Translation
5,070

 
(1,180
)
 
3,890

Balance as of July 31, 2014
$
1,053,548

 
$
337,363

 
$
1,390,911


We performed our annual impairment assessment in our fiscal third quarter of 2014, and our analysis indicated that we had no impairment of goodwill. We performed our annual impairment assessment in our fiscal third quarter of 2013, and our analysis indicated that we had no impairment of goodwill. We evaluate goodwill for impairment annually during the fiscal third quarter and when an event occurs or circumstances change such that it is reasonably possible that impairment may exist. We account for goodwill and evaluate our goodwill balances and test them for impairment in accordance with related accounting standards.

In fiscal 2014 and 2013, we performed a qualitative assessment to test each reporting unit's goodwill for impairment. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance and other relevant events and factors affecting each reporting unit. Based on our qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not to be less than its carrying amount, the two step impairment test will be performed. Initially, we compare the book value of net assets to the fair value of each reporting unit that has goodwill assigned to it. If the fair value is determined to be less than the book value, a second step is performed to compute the amount of the impairment. A reporting unit is the level of reporting at which goodwill is tested for impairment. Our reporting units are the same as our business segments - CooperVision and CooperSurgical - reflecting the way that we manage our business.

Goodwill impairment analysis and measurement is a process that requires significant judgment. If our common stock price trades below book value per share, there are changes in market conditions or a future downturn in our business, or a future annual goodwill impairment test indicates an impairment of our goodwill, the Company may have to recognize a non-cash impairment of its goodwill that could be material and could adversely affect our results of operations in the period recognized and also adversely affect our total assets, stockholders' equity and financial condition.


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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

Other Intangible Assets
 
As of July 31, 2014
 
As of October 31, 2013
(In thousands)
Gross Carrying
Amount
 
Accumulated
Amortization
& Translation
 
Gross Carrying
Amount
 
Accumulated
Amortization
& Translation
Trademarks
$
12,251

 
$
2,672

 
$
12,481

 
$
2,337

Technology
128,309

 
87,755

 
133,842

 
84,371

Shelf space and market share
199,457

 
87,488

 
199,379

 
75,700

License and distribution rights and other
24,394

 
10,204

 
24,947

 
9,472

 
364,411

 
$
188,119

 
370,649

 
$
171,880

Less accumulated amortization and translation
188,119

 
 
 
171,880

 
 
Other intangible assets, net
$
176,292

 
 
 
$
198,769

 
 
We estimate that amortization expense for our other intangible assets at July 31, 2014, will be $28.5 million in fiscal 2014, $22.0 million in fiscal 2015, $20.4 million in fiscal 2016, $19.6 million in fiscal 2017 and $17.7 million in fiscal 2018.

Note 4. Debt
(In thousands)
July 31, 2014
 
October 31, 2013
Short-term:
 
 
 
Overdraft and other credit facilities
$
46,492

 
$
42,987

 
 
 
 
Long-term:
 
 
 
Credit agreement
$

 
$

Term Loan
300,000

 
300,000

Other
1,449

 
1,670

 
$
301,449

 
$
301,670

Credit Agreement
On May 31, 2012, Cooper entered into an amendment to our Credit Agreement, dated as of January 12, 2011 , by and among the Company, CooperVision International Holding Company, LP, the lenders party thereto and KeyBank National Association, as administrative agent. The Credit Agreement, as amended, provides for a multicurrency revolving credit facility in an aggregate commitment amount of $1.0 billion and the aggregate commitment amount under the revolving facility may be increased, upon written request by Cooper, by $500.0 million . The amended Credit Agreement has a termination date of May 31, 2017 .
The commitment fee rate ranges between 0.100% and 0.275% of the unused portion of the revolving facility based on a pricing grid tied to our Total Leverage Ratio (as defined below and in the Credit Agreement). The applicable margin rates on loans outstanding under the Credit Agreement will bear interest based, at our option, on either the base rate or the adjusted Eurodollar rate (currently referred to as LIBOR) or adjusted foreign currency rate (each as defined in the amended Credit Agreement), plus an applicable margin of between 0.00% and 0.75% in respect of base rate loans and between 1.00% and 1.75% in respect of adjusted Eurodollar rate or adjusted foreign currency rate loans, in each case in accordance with a pricing grid tied to our Total Leverage Ratio, as defined in the Credit Agreement. In addition to the annual commitment fee, we are also required to pay certain letter of credit and related fronting fees and other administrative fees pursuant to the terms of the Credit Agreement.

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

The Credit Agreement is not secured by any of the Company's, or any of its subsidiaries’, assets. All obligations under the Credit Agreement will be guaranteed by each of our existing and future direct and indirect material domestic subsidiaries.
Pursuant to the terms of the Credit Agreement and the term loans discussed below, we are 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 July 31, 2014 , we were in compliance with the Interest Coverage Ratio at 78.88 to 1.00 and the Total Leverage Ratio at 0.67 to 1.00.
At July 31, 2014 , we had $999.8 million available under the Credit Agreement.
Term Loan

On September 12, 2013 , the Company entered into a five -year, $300.0 million , senior unsecured term loan agreement by and among the Company; the lenders party thereto and KeyBank National Association, as administrative agent. This syndicated credit facility will mature on September 12, 2018 , and will be subject to amortization of principal of 5% per annum payable quarterly beginning October 31, 2016 , with the balance payable at maturity.

Amounts outstanding under this term loan agreement will 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) 0.5% in excess of the federal funds effective rate and (c) 1% in excess of the adjusted Eurodollar rate (currently referred to as LIBOR) for a one-month interest period on such day, or the adjusted Eurodollar rate, plus, in each case, an applicable margin of, initially, 0% , in respect of base rate loans and 0.75% , in respect of adjusted Eurodollar rate loans. The applicable margins will be determined quarterly by reference to a grid based upon the Company's ratio of funded debt to consolidated proforma EBITDA, or Total Leverage Ratio as defined in the term loan agreement, and consistent with the revolving Credit Agreement discussed above.

This term loan agreement contains customary restrictive covenants, as well as financial covenants that require the Company to maintain a certain Total Leverage Ratio and Interest Coverage Ratio, as defined in the agreement, consistent with the revolving Credit Agreement discussed above. The agreement also contains customary events of default, the occurrence of which would permit the Administrative Agent to declare the principal, accrued interest and other obligations of the Company under the agreement to be immediately due and payable.

At July 31, 2014 , we had $300.0 million outstanding under the Term Loan.

$700.0 million Term Loan on August 4, 2014

On August 4, 2014 , after the end of our fiscal third quarter of 2014, we entered into a three -year, $700.0 million , senior unsecured term loan agreement by and among the Company, the lenders party thereto and KeyBank National Association as administrative agent. This syndicated credit facility will mature and the balance is payable on August 4, 2017 . There is no amortization of principal and we may prepay loan balances from time to time, in whole or in part, without premium or penalty.

Amounts outstanding under this term loan agreement will 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)  0.5% in excess of the federal funds effective rate and (c)  1% in excess of the adjusted Eurodollar rate (currently referred to as LIBOR) for a one-month interest period on such day, or the adjusted Eurodollar rate, plus, in each case, an applicable margin. The applicable

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Table of Contents
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

margins will be determined quarterly by reference to a grid based upon the Company’s ratio of funded debt to consolidated pro forma EBITDA, as defined in the term loan agreement and consistent with the revolving Credit Agreement.

This term loan agreement contains customary restrictive covenants, as well as financial covenants that require the Company to maintain a certain Total Leverage Ratio and Interest Coverage Ratio, each as defined in the agreement, and consistent with the revolving Credit Agreement. This term loan agreement also contains customary events of default, the occurrence of which would permit the Administrative Agent to declare the principal, accrued interest and other obligations of the Company under the agreement to be immediately due and payable.

This term loan was not outstanding at July 31, 2014 . In August 2014, we utilized this facility to fund the acquisition of Sauflon Pharmaceuticals Limited, as well as to provide working capital and for general corporate purposes.

Note 5. Income Taxes
Our effective tax rate (ETR) (provision for income taxes divided by pretax income) for the fiscal first nine months of 2014 was 8.1% . Our year-to-date results reflect the projected fiscal year ETR, plus any discrete items. The ETR used to record the provision for income taxes for the fiscal first nine months of 2013 was 4.6% . The ETR is below the United States statutory rate as a majority of our taxable income is earned in foreign jurisdictions with lower tax rates.
We recognize 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. At November 1, 2013, Cooper had unrecognized tax benefits, that if recognized, $28.8 million would impact our ETR. For the nine -month period ended July 31, 2014 , there were no material changes to the total amount of unrecognized tax benefits.
Interest and penalties of $2.6 million have been reflected as a component of the total liability at November 1, 2013. 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, 2013, is $3.6 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 relates primarily to transfer pricing matters.
At July 31, 2014 , the tax years for which Cooper remains subject to United States Federal income tax assessment upon examination are 2010 through 2013. Cooper remains subject to income tax examinations in other significant tax jurisdictions including the United Kingdom, Japan, France and Australia for the tax years 2010 through 2013.

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

Note 6. Earnings Per Share
Periods Ended July 31,
Three Months
 
Nine Months
(In thousands, except per share amounts)
2014
 
2013
 
2014
 
2013
Net income attributable to Cooper stockholders
$
88,067

 
$
88,951

 
$
239,070

 
$
238,754

Basic:

 

 

 

Weighted average common shares
48,042

 
48,791

 
47,990

 
48,588

Basic earnings per common share attributable to Cooper stockholders
$
1.83

 
$
1.82

 
$
4.98

 
$
4.91

Diluted:

 

 
 
 
 
Weighted average common shares
48,042

 
48,791

 
47,990

 
48,588

Effect of potential dilutive common shares
880

 
963

 
911

 
1,035

Diluted weighted average common shares
48,922

 
49,754

 
48,901

 
49,623

Diluted earnings per common share attributable to Cooper stockholders
$
1.80

 
$
1.79

 
$
4.89

 
$
4.81

The following table sets forth stock options to purchase Cooper’s common stock and restricted stock units that were not included in the diluted earnings per share calculation because their effect would have been antidilutive for the periods presented:
Periods Ended July 31,
Three Months
 
Nine Months
(In thousands, except exercise prices)
2014
 
2013
 
2014
 
2013
Numbers of stock option shares excluded
138

 

 
138

 

Range of exercise prices
$
119.89

 
$

 
$
119.89

 
$

Numbers of restricted stock units excluded

 

 
1

 


Note 7. Share-Based Compensation Plans
Cooper 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, 2013 . The compensation expense and related income tax benefit recognized in our consolidated financial statements for share-based awards were as follows:
Periods Ended July 31,
Three Months
 
Nine Months
(In millions)
2014
 
2013
 
2014
 
2013
Selling, general and administrative expense
$
6.4

 
$
5.5

 
$
26.2

 
$
19.6

Cost of sales
0.5

 
0.5

 
1.8

 
1.5

Research and development expense
0.5

 
0.3

 
1.5

 
0.9

Capitalized in inventory
0.5

 
0.5

 
1.8

 
1.5

Total share-based compensation expense
$
7.9

 
$
6.8

 
$
31.3

 
$
23.5

Related income tax benefit
$
2.3

 
$
1.9

 
$
9.6

 
$
6.9



13

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

Note 8. Stockholders’ Equity
Analysis of Changes in Accumulated Other Comprehensive Income (Loss):
(In thousands)
Foreign Currency Translation Adjustment
 
Unrealized Gain on Marketable Securities
 
Change in Value of 
Derivative Instruments
 
Minimum Pension Liability
 
Total
Balance at October 31, 2013
$
(4,592
)
 
$

 
$
(1,033
)
 
$
(10,137
)
 
$
(15,762
)
Gross change in value for the period
14,168

 

 
(58
)
 
22

 
14,132

Reclassification adjustments for loss realized in net income

 

 
1,445

 

 
1,445

Tax effect for the period

 

 
(541
)
 

 
(541
)
Balance at July 31, 2014
$
9,576

 
$

 
$
(187
)
 
$
(10,115
)
 
$
(726
)
 
 
 
 
 
 
 
 
 
 
Balance at October 31, 2012
$
(7,199
)
 
$
50

 
$
(2,374
)
 
$
(21,738
)
 
$
(31,261
)
Gross change in value for the period
(26,108
)
 
121

 
(187
)
 
22

 
(26,152
)
Reclassification adjustments for (gain) loss realized in net income

 
(146
)
 
1,847

 

 
1,701

Tax effect for the period

 
(29
)
 
(647
)
 

 
(676
)
Balance at July 31, 2013
$
(33,307
)
 
$
(4
)
 
$
(1,361
)
 
$
(21,716
)
 
$
(56,388
)
Share Repurchases
In December 2011, our Board of Directors authorized the 2012 Share Repurchase Program and subsequently amended the total repurchase authorization to $500.0 million of the Company’s common stock. This program has no expiration date and may be discontinued at any time. Purchases under the 2012 Share Repurchase Program are subject to a review of the circumstances in place at the time and may be made from time to time as permitted by securities laws and other legal requirements. The Company did not repurchase shares during the three-month periods ended July 31, 2014, July 31, 2013, April 30, 2014 and April 30, 2013. For the three months ended January 31, 2014, the Company repurchased 396 thousand shares of the Company’s common stock for $50.0 million at an average purchase price of $126.21 per share. During the three months ended January 31, 2013 , the Company repurchased 460 thousand shares for $44.4 million , at an average purchase price of $96.34 per share. At July 31, 2014, approximately $211.5 million remains authorized for repurchase under the program.
Dividends
We paid a semiannual dividend of approximately $1.4 million or 3 cents per share on February 7, 2014, to stockholders of record on January 24, 2014 . We paid another semiannual dividend of approximately $1.5 million or 3 cents per share on August 6, 2014, to stockholders of record on July 24, 2014 .

Note 9. Fair Value Measurements
At July 31, 2014 and October 31, 2013 , 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 approximate fair value due to the short-term nature of such instruments and the ability to obtain financing on similar terms.
Assets and liabilities are measured and reported at fair value per related accounting standards that define 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. The fair value hierarchy 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

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

measurement. Assets and liabilities carried at fair value are 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 Cooper’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments. Both the counterparty and Cooper 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. We have 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 Eurodollar 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 and credit risk at commonly quoted intervals. Mid-market pricing is used as a practical expedient for fair value measurements.
We may use foreign exchange forward contracts to minimize, to the extent reasonable and practical, our exposure to the impact of foreign currency fluctuations. We have 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 our financial assets and liabilities that were measured at fair value on a recurring basis using Level 2 inputs during the fiscal first nine months of 2014 , within the fair value hierarchy at July 31, 2014 , and fiscal year 2013 , within the fair value hierarchy at October 31, 2013 :
(In millions)
July 31, 2014
 
October 31, 2013
Assets:
 
 
 
Foreign exchange contracts
$
0.4

 
$
0.3

Liabilities:

 

Interest rate swaps
$
0.3

 
$
1.7

Foreign exchange contracts

 
0.6

 
$
0.3

 
$
2.3

We recorded contingent consideration representing the estimated fair value of the additional variable cash consideration payable related to an acquisition in our fiscal first quarter of 2013. We recorded the fair value of the acquisition-related contingent consideration as liabilities on the acquisition date using the discounted cash flow approach. Cooper uses unobservable Level 3 inputs including a forecast of new customer accounts and discount rates to fair value the liabilities. Significant changes in these unobservable inputs in isolation may result in a significantly lower or higher fair value measurement. At July 31, 2014 , the fair value of the contingent consideration payable totaled $2.1 million.


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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

Note 10. 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 the estimated prior service cost of benefit improvements. 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.
Cooper’s results of operations for the three and nine months ended July 31, 2014 and 2013 reflect the following components of net periodic pension costs:
Periods Ended July 31,
Three Months
 
Nine Months
(In thousands)
2014
 
2013
 
2014
 
2013
Service cost
$
1,768

 
$
1,845

 
$
5,305

 
$
5,537

Interest cost
988

 
822

 
2,963

 
2,465

Expected returns on assets
(1,237
)
 
(1,028
)
 
(3,712
)
 
(2,950
)
Amortization of prior service cost
6

 
6

 
18

 
18

Recognized net actuarial loss
154

 
547

 
462

 
1,640

Net periodic pension cost
$
1,679

 
$
2,192

 
$
5,036

 
$
6,710

Cooper contributed $1.4 million and $5.8 million to the pension plan for the three and nine months ended July 31, 2014, respectively, and expects to contribute an additional $3.0 million in fiscal 2014. We contributed $1.1 million and $4.5 million to the pension plan for the three and nine months ended July 31, 2013. The expected rate of return on plan assets for determining net periodic pension cost is 8% .
 

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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

Note 11. 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:
Periods Ended July 31,
Three Months
 
Nine Months
(In thousands)
2014
 
2013
 
2014
 
2013
CooperVision net sales by category:
 
 
 
 
 
 
 
Toric lens
$
112,330

 
$
101,494

 
$
318,290

 
$
289,856

Multifocal lens
38,393

 
33,085

 
107,627

 
89,890

Single-use sphere lens
73,834

 
70,709

 
214,310

 
199,918

Non single-use sphere and other
125,343

 
125,232

 
367,058

 
361,583

Total CooperVision net sales
349,900

 
330,520

 
1,007,285

 
941,247

CooperSurgical net sales
82,582

 
81,473

 
242,494

 
234,626

Total net sales
$
432,482

 
$
411,993

 
$
1,249,779

 
$
1,175,873

Operating income (loss):
 
 
 
 
 
 
 
CooperVision
$
88,386

 
$
87,978

 
$
255,150

 
$
234,346

CooperSurgical
18,419

 
16,429

 
50,673

 
42,910

Corporate
(10,240
)
 
(10,799
)
 
(38,712
)
 
(33,354
)
Total operating income
96,565

 
93,608

 
267,111

 
243,902

Interest expense
1,499

 
2,258

 
4,713

 
7,268

Gain on insurance proceeds

 

 

 
14,084

Other expense (income), net
683

 
86

 
739

 
(461
)
Income before income taxes
$
94,383

 
$
91,264

 
$
261,659

 
$
251,179

(In thousands)
July 31, 2014
 
October 31, 2013
Identifiable assets:
 
 
 
CooperVision
$
2,528,420

 
$
2,376,022

CooperSurgical
613,730

 
632,844

Corporate
225,224

 
128,395

Total
$
3,367,374

 
$
3,137,261


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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

Geographic information:
Periods Ended July 31,
Three Months
 
Nine Months
(In thousands)
2014
 
2013
 
2014
 
2013
Net sales to external customers by country of domicile:
 
 
 
 
 
 
 
United States
$
196,032

 
$
192,034

 
$
573,282

 
$
548,106

Europe
145,543

 
126,215

 
406,007

 
347,676

Rest of world
90,907

 
93,744

 
270,490

 
280,091

Total
$
432,482

 
$
411,993

 
$
1,249,779

 
$
1,175,873

(In thousands)
July 31, 2014
 
October 31, 2013
Long-lived assets by country of domicile:
 
 
 
United States
$
473,694

 
$
427,560

Europe
333,306

 
297,157

Rest of world
36,413

 
15,150

Total
$
843,413

 
$
739,867

 

18

Table of Contents
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

Note 12. Subsequent Events

On August 6, 2014 , we completed the acquisition of Sauflon Pharmaceuticals Limited (Sauflon), a privately-held European manufacturer and distributor of soft contact lenses and aftercare solutions. The acquisition of Sauflon expands our contact lens product portfolio particularly with their clariti® 1day brand of single-use sphere, toric and multifocal silicone hydrogel lenses. Clariti lenses received United States FDA clearance in August 2013. Sauflon is headquartered in the UK and has a global presence, with manufacturing facilities in the UK and Hungary.
We paid approximately $1.2 billion consisting of approximately $1,075.0 million in cash, including a net debt adjustment amount; approximately $58.0 million in the form of loan notes; and we also assumed third-party debt of Sauflon of approximately $79.0 million that we repaid concurrent with the acquisition. We financed the acquisition with available offshore cash and credit facilities along with funds from the new $700.0 million term loan facility described in Note 4 and below. We are in the process of determining the purchase price allocation for this acquisition.
This acquisition is consistent with our strategy to expand CooperVision’s presence in underpenetrated areas particularly the single-use silicone hydrogel lens market. We expect the acquisition to accelerate the growth of our single-use franchise by enabling a multi-tier, single-use strategy with a full suite of hydrogel and silicone hydrogel product offerings in the major product categories of sphere, toric and multifocal lenses. We also expect this acquisition to provide for an enhanced relationship with key European retailers and opportunities for operational synergies.
On August 4, 2014 , we entered into a three -year, $700.0 million senior unsecured term loan agreement by and among the Company, the lenders party thereto and KeyBank National Association as administrative agent. This syndicated credit facility will mature and the balance is payable on August 4, 2017 . There is no amortization of principal and we may prepay loan balances from time to time, in whole or in part, without premium or penalty.
We utilized this facility to fund the acquisition of Sauflon Pharmaceuticals Limited, as well as to provide working capital and for general corporate purposes.
Amounts outstanding under this term loan agreement will 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)  0.5% in excess of the federal funds effective rate and (c)  1% in excess of the adjusted Eurodollar rate (currently referred to as LIBOR) for a one-month interest period on such day, or the adjusted Eurodollar rate, plus, in each case, an applicable margin. The applicable margins will be determined quarterly by reference to a grid based upon the Company’s ratio of funded debt to consolidated pro forma EBITDA, as defined in the term loan agreement and consistent with our existing revolving Credit Agreement.
This term loan agreement contains customary restrictive covenants, as well as financial covenants that require the Company to maintain a certain Total Leverage Ratio and Interest Coverage Ratio, each as defined in the agreement, and consistent with our existing revolving Credit Agreement. This term loan agreement also contains customary events of default, the occurrence of which would permit the Administrative Agent to declare the principal, accrued interest and other obligations of the Company under the agreement to be immediately due and payable.


19

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, including all statements regarding the acquisition of Sauflon including Sauflon's financial position, market position, product development and business strategy, expected cost synergies, expected timing and benefits of the transaction, as well as estimates of our and Sauflon's future expenses, sales and earnings per share are forward-looking. In addition, all statements regarding anticipated growth in our revenue, anticipated effects of any product recalls, 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 certain European Union countries that could adversely affect our global markets.
Foreign currency exchange rate and interest rate fluctuations including the risk of fluctuations in the value of the yen, pound and euro that would decrease our revenues and earnings.
Acquisition-related adverse effects including the failure to successfully obtain the anticipated revenues, margins and earnings benefits of acquisition, including the Sauflon acquisition; integration delays or costs and the requirement to record significant adjustments to the preliminary fair value of assets acquired and liabilities assumed within the measurement period, required regulatory approvals for an acquisition not being obtained or being delayed or subject to conditions that are not anticipated, adverse impacts of contingent liabilities or indemnification obligations, increased leverage and lack of access to available financing (including financing for the acquisition or refinancing of debt owed by us on a timely basis and on reasonable terms).
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.
Limitations on sales following product introductions due to poor market acceptance.
New competitors, product innovations or technologies.
Reduced sales, loss of customers and costs and expenses related to recalls.
New U.S. and foreign government laws and regulations, and changes in existing laws, regulations and enforcement guidance, which affect the medical device industry and the healthcare industry generally.
Failure 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.
Compliance costs and potential liability in connection with U.S. and foreign healthcare regulations, including product recalls, warning letters and potential losses resulting from sales of counterfeit and other infringing products.

20

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




Legal costs, insurance expenses, settlement costs and the risk of an adverse decision or settlement related to product liability, patent protection or other litigation.
Changes in tax laws or their interpretation and changes in statutory tax rates.
The requirement to provide for a significant liability or to write off, or accelerate depreciation on, a significant asset, including goodwill.
The success of our research and development activities and other start-up projects.
Dilution to earnings per share from the Sauflon acquisition or other acquisitions or issuing stock.
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 our Annual Report on Form 10-K for the fiscal year ended October 31, 2013, 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.



21

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




Results of Operations
In this section, we discuss the results of our operations for the fiscal third quarter of 2014 ended July 31, 2014 , and the nine months then ended and compare them with the same periods of fiscal 2013. We discuss our cash flows and current financial condition under “Capital Resources and Liquidity.” Within the tables presented, percentages are calculated based on the underlying whole-dollar amounts and, therefore, may not recalculate from the rounded numbers used for disclosure purposes.
Third Quarter Highlights
Net sales of $432.5 million, up 5% from $412.0 million
Gross profit $280.6 million, up 5% from $268.3 million
Operating income $96.6 million, up 3% from $93.6 million
Diluted earnings per share of $1.80, up from $1.79 per share
Cash provided by operations $107.9 million, up from $103.1 million
Results in our fiscal third quarter include costs related to acquisitions of $4.5 million and severance costs of $0.6 million
Nine-Month Highlights
Net sales of $1,249.8 million, up 6% from $1,175.9 million
Gross profit of $812.0 million, up 6% from $763.0 million
Operating income $267.1 million, up 10% from $243.9 million
Diluted earnings per share of $4.89, up from $4.81 per share
Cash provided by operations $302.8 million, up from $265.6 million
Results include costs related to acquisitions of $5.5 million and severance costs of $0.6 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 United States debt and uncertainty surrounding employment, credit concerns and the Affordable Care Act, including the trend of consolidation within the healthcare industry, together with foreign currency volatility, particularly the yen, euro and the pound, impact our current performance and continue to represent a risk to our performance for fiscal year 2014 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 silicone hydrogel Aquaform ® technology and phosphorylcholine (PC) Technology™. We believe that there will be lower contact lens wearer dropout rates as technology improves and enhances the wearing experience through a combination of improved designs and materials and the growth of preferred modalities such as single-use and monthly wearing options. CooperVision is focused on greater worldwide market penetration as we introduce new products and continue to expand our presence in existing and emerging markets, including through acquisitions.
Sales of contact lenses utilizing silicone hydrogel materials, a major product material in the industry, have grown significantly. Our ability to compete successfully with a full range of silicone hydrogel products is an important factor to achieving our desired future levels of sales growth and profitability. CooperVision markets monthly and two-week silicone hydrogel spherical and toric lens products under our Biofinity ® and Avaira ® brands, a multifocal lens under Biofinity and a single-use spherical lens under MyDay ® .

22

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




We believe that the global market for single-use contact lenses is expanding and will continue to grow and competitive silicone hydrogel single-use lens products are gaining market share and represent a risk to our business. In fiscal 2013, we launched MyDay, our single-use spherical silicone hydrogel lens, in Europe, and in fiscal 2012 we launched Proclear ®  1 Day multifocal. We forecast increasing demand for our existing and future single-use products. To meet this anticipated demand, in fiscal 2014 we plan to continue the implementation of capital projects to invest in increased single-use manufacturing capacity. Consistent with this strategy, on August 6, 2014, we completed the acquisition of Sauflon Pharmaceuticals Limited, a manufacturer of single-use spherical, toric and multifocal silicone hydrogel lenses, discussed below.
Similarly, consistent with CooperVision's strategy to focus on our core soft contact lens business, on October 31, 2013, we completed a transaction to sell Aime, our rigid gas permeable contact lens and solutions business in Japan. The business was originally obtained as part of the December 1, 2010, acquisition which included obtaining the rights to market Biofinity in Japan. Aime revenue had declined in recent periods, and the products had lower than average company margins. Results from operations of Aime are included in our Consolidated Statements of Income for fiscal 2013 and the divestiture was neutral to earnings per share in the fiscal third quarter and nine-months ended July 31, 2014.
Our CooperSurgical business competes in the highly fragmented medical device segment of the women's healthcare market. CooperSurgical has steadily grown its market presence and distribution system by developing products and acquiring companies and products that complement its business model. We intend to continue to invest in CooperSurgical's business through acquisitions of companies and product lines. CooperSurgical product sales are categorized based on the point of healthcare delivery including products used in medical office and surgical procedures by obstetricians and gynecologists (ob/gyns) representing 66% of CooperSurgical's net sales in the fiscal third quarter of 2014. CooperSurgical's remaining sales represent products used in fertility clinics that represented 34% of CooperSurgical's net sales in the fiscal third quarter of 2014.
As part of the Affordable Care Act, a 2.3% excise tax on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, became effective January 1, 2013. CooperVision's products are not subject to this tax because contact lenses are excluded from the tax. However, United States sales of CooperSurgical's products are subject to this tax, which is recorded in selling, general and administrative expense on the Statement of Income.
At July 31, 2014, we had $173.8 million in cash, primarily outside the United States, and $999.8 million available under our existing revolving Credit Agreement. On August 4, 2014, after the end of our fiscal third quarter of 2014, we entered into a new three-year $700.0 million senior unsecured term loan agreement, and on August 6, 2014, we completed the acquisition of Sauflon for $1.2 billion, discussed below. We used the new term loan to fund the acquisition of Sauflon, as well as to provide working capital and for general corporate purposes. Looking forward, our cash and availability under existing credit facilities will be reduced due to the use of cash outside the United States and existing credit facilities to fund the acquisition of Sauflon. We believe that our cash and cash equivalents, cash flow from operating activities and borrowing capacity under existing credit facilities, including the August 4, 2014, $700.0 million term loan, will fund operations both in the next 12 months and in the longer term as well as current and long-term cash requirements for capital expenditures, acquisitions, share repurchases and cash dividends. However, depending on the size or timing of these business activities, we may seek to raise additional debt financing.
Recent Acquisition
On August 6, 2014 and subsequent to the end of our fiscal third quarter, we completed the acquisition of Sauflon Pharmaceuticals Limited (Sauflon), a privately-held European manufacturer and distributor of soft contact lenses and aftercare solutions. The acquisition of Sauflon expands our contact lens product portfolio particularly with Sauflon's clariti® 1day brand of single-use sphere, toric and multifocal silicone hydrogel lenses. Clariti lenses received United States FDA clearance in August 2013. Sauflon is headquartered in the UK and has a global presence, with manufacturing facilities in the United Kingdom (UK) and Hungary.
We paid approximately $1.2 billion for Sauflon, consisting of approximately $1,075.0 million in cash, including a net debt adjustment amount; approximately $58.0 million in the form of loan notes; and we also assumed third-party debt of Sauflon of approximately $79.0 million that we repaid concurrent with the acquisition. We financed the acquisition

23

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




with available offshore cash and credit facilities along with funds from the new $700.0 million term loan facility described in Note 4 of the notes to consolidated condensed financial statements. We are in the process of determining the purchase price allocation for this acquisition.
This acquisition is consistent with our strategy to expand CooperVision’s presence in underpenetrated areas particularly the single-use silicone hydrogel lens market. We expect the acquisition to accelerate the growth of our single-use franchise by enabling a multi-tier, single-use strategy with a full suite of hydrogel and silicone hydrogel product offerings in the major product categories of sphere, toric and multifocal lenses. We also expect this acquisition to provide for an enhanced relationship with key European retailers and opportunities for operational synergies.


24

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




Selected Statistical Information – Percentage of Sales and Growth
 
 
Three Months
 
Nine Months
 
 
Percentage of Sales
 
2014 vs 2013 % Change
 
Percentage of Sales
 
2014 vs 2013 % Change
Periods Ended July 31,
 
2014
 
2013
 
 
2014
 
2013
 
Net sales
 
100
%
 
100
%
 
5
 %
 
100
%
 
100
%
 
6
 %
Cost of sales
 
35
%
 
35
%
 
6
 %
 
35
%
 
35
%
 
6
 %
Gross profit
 
65
%
 
65
%
 
5
 %
 
65
%
 
65
%
 
6
 %
Selling, general and administrative expense
 
37
%
 
37
%
 
6
 %
 
38
%
 
39
%
 
5
 %
Research and development expense
 
4
%
 
3
%
 
8
 %
 
4
%
 
4
%
 
12
 %
Amortization of intangibles
 
2
%
 
2
%
 
(12
)%
 
2
%
 
2
%
 
(4
)%
Operating income
 
22
%
 
23
%
 
3
 %
 
21
%
 
20
%
 
10
 %
Net Sales
Cooper’s two business units, CooperVision and CooperSurgical, generate all of its sales.
CooperVision develops, manufactures and markets a broad range of soft contact lenses for the worldwide vision correction market.
CooperSurgical develops, manufactures and markets medical devices and procedure solutions to improve healthcare delivery to women.
Our consolidated net sales grew by $20.5 million or 5% and $73.9 million or 6% in the three and nine months ended July 31, 2014 , respectively:
Periods Ended July 31,
 
Three Months
 
Nine Months
($ in millions)
2014
 
2013
 
% Change
 
2014
 
2013
 
% Change
CooperVision
 
$
349.9

 
$
330.5

 
6
%
 
$
1,007.3

 
$
941.2

 
7
%
CooperSurgical
 
82.6

 
81.5

 
1
%
 
242.5

 
234.7

 
3
%
 
 
$
432.5

 
$
412.0

 
5
%
 
$
1,249.8

 
$
1,175.9

 
6
%
CooperVision 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, often defined as modalities, with the primary modalities being single-use, two-week and monthly. CooperVision offers spherical, aspherical, toric, multifocal and toric multifocal lens products in most modalities.
The contact lens market consists primarily of disposable and frequently replaced lenses. Disposable lenses are designed for either daily, two-week or monthly replacement; and frequently replaced lenses are designed for replacement after one to three months. The market for spherical, toric and multifocal lenses is growing with value-added lenses to alleviate dry eye symptoms as well as higher oxygen permeable lenses such as silicone hydrogels.


25

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




CooperVision’s Proclear brand aspheric, toric and multifocal contact lenses, manufactured using PC Technology, help enhance tissue/device compatibility and offer improved lens comfort.

CooperVision’s silicone hydrogel Biofinity brand spherical, toric and multifocal contact lenses, Avaira brand spherical and toric lenses and MyDay, our spherical single-use lens, are manufactured using proprietary Aquaform technology to increase oxygen transmissibility for longer wear. We believe the clariti single-use silicon-hydrogel lens products acquired with Sauflon are important to address increased pressure from multifocal and single-use silicone hydrogel products offered by our major competitors.

CooperVision net sales growth for the three-month period included increases in total sphere lenses up 4%, representing 55% of net sales, compared to 56% in the prior year period, and total toric lenses up 11%, representing 32% of net sales up from 31% in the prior year period. Total multifocal lenses grew 16%, representing 11% of net sales up from 10% in the prior year period on increased sales of Biofinity monthly and Proclear single-use multifocal products. Silicone hydrogel products, including MyDay, our single-use silicone hydrogel lens, grew 21%, representing 50% of net sales up from 43% in the prior year period. Proclear products grew 3%, representing 25% of net sales, compared to 26% in the prior year period. Older conventional lens products declined 14% and represented 2% of net sales, down from 3% in the prior year period.

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

CooperVision Net Sales by Geography
Periods Ended July 31,
 
Three Months
 
Nine Months
($ in millions)
 
2014
 
2013
 
% Change
 
2014
 
2013
 
% Change
Americas
 
$
149.5

 
$
143.0

 
5
 %
 
$
432.3

 
$
404.5

 
7
 %
EMEA
 
133.9

 
118.4

 
13
 %
 
370.9

 
325.1

 
14
 %
Asia Pacific
 
66.5

 
69.1

 
(4
)%
 
204.1

 
211.6

 
(4
)%
 
 
$
349.9

 
$
330.5

 
6
 %
 
$
1,007.3

 
$
941.2

 
7
 %
The growth in Americas net sales was primarily due to market gains of CooperVision’s silicone hydrogel contact lenses, single-use sphere and multifocal products. The growth in EMEA net sales was primarily due to market gains of silicone hydrogel lenses, including MyDay, along with single-use sphere and multifocal products. EMEA net sales were favorably impacted due to weakening of the United States dollar compared to the euro. The decline in Asia Pacific net sales in the three- and nine-month periods reflect the negative impact of the weakening of the Japanese yen compared to the United States dollar. Excluding the impact of currency, sales in the Asia Pacific region for the nine-month period grew on market gains of silicone hydrogel lenses and single-use toric and multifocal products.
CooperVision’s net sales growth was driven primarily by increases in the volume of lenses sold and introduction of new products, primarily silicone hydrogel lenses. While unit growth and product mix have influenced CooperVision’s sales growth, average realized prices by product have not materially influenced sales growth.

26

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




CooperSurgical Net Sales
CooperSurgical participates in the market for women's healthcare with its diversified product lines used in fertility procedures and by gynecologists and obstetricians in surgical procedures and in the medical office. With the July 2012 acquisition of Origio a/s, a global in-vitro fertilization (IVF) medical device company, CooperSurgical develops, manufactures and distributes highly specialized products that target IVF treatment with a goal to make fertility treatment safer, more efficient and convenient.
Three Months Ended July 31,
($ in millions)
 
2014
 
% Net
Sales
 
2013
 
% Net
Sales
 
%
Change
Office and surgical procedures
 
$
54.5

 
66
%
 
$
54.0

 
66
%
 
1
%
Fertility
 
28.1

 
34
%
 
27.5

 
34
%
 
3
%
 
 
$
82.6

 
100
%
 
$
81.5

 
100
%
 
1
%
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended July 31,
($ in millions)
 
2014
 
% Net
Sales
 
2013
 
% Net
Sales
 
%
Change
Office and surgical procedures
 
$
156.9

 
65
%
 
$
157.6

 
67
%
 
%
Fertility
 
85.6

 
35
%
 
77.0

 
33
%
 
11
%
 
 
$
242.5

 
100
%
 
$
234.6

 
100
%
 
3
%

CooperSurgical’s net sales of fertility products increased primarily due to market gains of disposable products partially offset by slower growth in sales of medical equipment. The 1% growth and flat change in net sales in the three- and nine-month periods, respectively, as compared to the prior year periods of medical office and surgical procedures was primarily due to growth in sales of disposable products offset by continued declines in sales of medical equipment. CooperSurgical’s sales primarily comprise women’s healthcare products with the balance consisting of sales of medical devices outside of women’s healthcare which CooperSurgical does not actively market. Unit growth and product mix, primarily sales of fertility products, along with average realized prices on disposable products influenced sales growth.

Cost of Sales/Gross Profit
Gross Profit Percentage of Net Sales
 
Three Months
 
Nine Months
Periods Ended July 31,
2014
 
2013
 
2014
 
2013
CooperVision
 
65
%
 
65
%
 
65
%
 
65
%
CooperSurgical
 
65
%
 
64
%
 
64
%
 
64
%
Consolidated
 
65
%
 
65
%
 
65
%
 
65
%
CooperVision's gross margin remained flat in both the three- and nine-month periods as compared to the prior year periods primarily due to the favorable impact of the growth in sales of our higher margin Biofinity products, offset by start-up costs of MyDay, our single-use spherical silicone hydrogel lens launched in fiscal 2013. As we expect in a start-up phase, the gross margin on this new product is currently below our average and includes the impact of building new manufacturing capacity. We expect the gross margin on MyDay to improve to the high single-digit range as we exit the fiscal year.
The increase in CooperSurgical’s gross margin in the three-month period as compared to the prior year period is primarily due to product mix, including increased sales of higher margin disposable products and by decreased sales of lower margin medical equipment within fertility products. Sales of lower gross margin fertility products now represent 34% and 35% of net sales in the three- and nine-month periods, as compared to 34% and 33% in the prior year periods, respectively.

27

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




Selling, General and Administrative Expense (SGA)
Three Months Ended July 31,
($ in millions)
 
2014
 
% Net
Sales
 
2013
 
% Net
Sales
 
%
Change
CooperVision
 
$
122.3

 
35
%
 
$
112.0

 
34
%
 
9
 %
CooperSurgical
 
28.7

 
35
%
 
29.3

 
36
%
 
(2
)%
Corporate
 
10.2

 

 
10.8

 

 
(5
)%
 
 
$
161.2

 
37
%
 
$
152.1

 
37
%
 
6
 %
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended July 31,
($ in millions)
 
2014
 
% Net
Sales
 
2013
 
% Net
Sales
 
%
Change
CooperVision
 
$
350.8

 
35
%
 
$
331.7

 
35
%
 
6
 %
CooperSurgical
 
85.6

 
35
%
 
88.5

 
38
%
 
(3
)%
Corporate
 
38.7

 

 
33.3

 

 
16
 %
 
 
$
475.1

 
38
%
 
$
453.5

 
39
%
 
5
 %
The increase in CooperVision's SGA in absolute dollars in the fiscal 2014 periods and as a percentage of net sales in the three-month period as compared to the same periods in fiscal 2013 is primarily due to costs related to the acquisition of Sauflon, and investment in sales and marketing, including increased headcount, to reach new customers and support geographic expansion. Our marketing programs during this period included the promotion of our silicone hydrogel products, including MyDay, our single-use spherical silicone hydrogel lens.
The decrease in CooperSurgical's SGA both in absolute dollars and as a percentage of net sales is primarily due to costs included in the prior year periods for acquisition and integration activities related to Origio. CooperSurgical continues to invest in sales activities to promote our products, with emphasis on products used in surgical procedures, and to reach new customers. The medical device excise tax that became effective on January 1, 2013, on sales of CooperSurgical's products in the United States was $0.7 million and $2.1 million in the three- and nine-month periods, respectively, as compared to $0.7 million and $1.6 million, respectively, in the prior year periods.
The increase in Corporate's SGA in the nine-month period in absolute dollars is primarily due to share-based compensation costs.
Research and Development Expense
Three Months Ended July 31,
($ in millions)
 
2014
 
% Net
Sales
 
2013
 
% Net
Sales
 
%
Change
CooperVision
 
$
12.5

 
4
%
 
$
11.9

 
4
%
 
5
%
CooperSurgical
 
3.6

 
4
%
 
3.0

 
4
%
 
22
%
 
 
$
16.1

 
4
%
 
$
14.9

 
3
%
 
8
%
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended July 31,
($ in millions)
 
2014
 
% Net
Sales
 
2013
 
% Net
Sales
 
%
Change
CooperVision
 
$
37.9

 
4
%
 
$
33.8

 
4
%
 
12
%
CooperSurgical
 
10.2

 
4
%
 
9.2

 
4
%
 
11
%
 
 
$
48.1

 
4
%
 
$
43.0

 
4
%
 
12
%
The increase in CooperVision's research and development expense in absolute dollars in the fiscal 2014 periods as compared to the fiscal 2013 periods was primarily due to investments in new technologies, clinical trials and increased headcount. CooperVision’s research and development activities are primarily focused on the development of new contact lens designs.

28

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




CooperSurgical's research and development expense increased in absolute dollars in both of the fiscal 2014 as compared to the fiscal 2013 periods for costs to shift toward investment in projects to develop new products along with the upgrade of existing products. CooperSurgical's research and development activities include in-vitro fertilization product development and the design and upgrade of surgical procedure devices.
Amortization Expense
Consolidated amortization expense decreased 12% to $6.8 million in the three-month period and 4% to $21.7 million in the nine-month period as compared to the prior year periods due to certain intangible assets having become fully amortized.
Operating Income
Three Months Ended July 31,
($ in millions)
 
2014
 
% Net
Sales
 
2013
 
% Net
Sales
 
%
Change
CooperVision
 
$
88.4

 
25
%
 
$
88.0

 
27
%
 
1
 %
CooperSurgical
 
18.4

 
22
%
 
16.4

 
20
%
 
12
 %
Corporate
 
(10.2
)
 

 
(10.8
)
 

 
5
 %
 
 
$
96.6

 
22
%
 
$
93.6

 
23
%
 
3
 %
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended July 31,
($ in millions)
 
2014
 
% Net
Sales
 
2013
 
% Net
Sales
 
%
Change
CooperVision
 
$
255.2

 
25
%
 
$
234.3

 
25
%
 
9
 %
CooperSurgical
 
50.6

 
21
%
 
42.9

 
18
%
 
18
 %
Corporate
 
(38.7
)
 

 
(33.3
)
 

 
(16
)%
 
 
$
267.1

 
21
%
 
$
243.9

 
20
%
 
10
 %
The increase in consolidated operating income in the fiscal 2014 periods in absolute dollars and as a percentage of net sales in the nine-month period was primarily due to the increases in gross profit of 5% and 6% in the three- and nine-month periods, respectively, partially offset by the increase in operating expenses of 5% in both periods. The decrease in operating income in the fiscal third quarter of 2014 as a percentage of net sales was primarily due to costs related to the acquisition of Sauflon.
Interest Expense
Interest expense in the fiscal third quarter of 2014 was $1.5 million, representing a 34% decrease from the prior year period. Interest expense for the first nine months of fiscal 2014 was $4.7 million, representing a decrease of 35% from the first nine months of fiscal 2013. These decreases reflect lower average debt balances and lower average interest rates in the current year periods. We expect interest expense to increase in the near term to reflect the increased borrowings used to facilitate the acquisition of Sauflon on August 6, 2014.
Insurance Proceeds
On October 28, 2011, a manufacturing building in the UK experienced an incident in which a pipe broke in our fire suppression system, causing water and fire retardant foam damage to the facility. While this incident did not substantially impact our existing customers, the repairs to the facility and resultant decrease in manufacturing capacity impacted the timing of marketing initiatives to generate additional sales. In January 2013, we resolved our business interruption claim with our insurer for a total of $19.1 million. We received a payment of $5.0 million in our fiscal fourth quarter of 2012. In our fiscal first quarter of 2013, we recorded the remaining $14.1 million in our Consolidated Statement of Income of which we received payment of $2.9 million during the fiscal first quarter and payment of the remaining $11.2 million in the fiscal second quarter.

29

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations




Share Repurchase
In December 2011, our Board of Directors authorized a share repurchase program and subsequently amended the total repurchase authorization to $500.0 million. We did not repurchase any shares during the fiscal third quarters of 2014 and 2013. During the fiscal first quarter of 2014, we repurchased 396 thousand shares of our common stock for $50.0 million at an average purchase price of $126.21 per share. During the fiscal first quarter of 2013, we repurchased 460 thousand shares of our common stock for $44.4 million at an average purchase price of $96.34. At July 31, 2014, we had remaining authorization to repurchase about $211.5 million of our common stock. See Note 8 for additional information.
Other Income (Loss), Net
Periods Ended July 31,
($ in millions)
 
Three Months
 
Nine Months
 
2014
 
2013
 
2014
 
2013
Foreign exchange loss
 
$
(1.1
)
 
$
(0.2
)
 
$
(2.0
)
 
$
(0.4
)
Other, net
 
0.4

 
0.1

 
1.3

 
0.9

 
 
$
(0.7
)
 
$
(0.1
)
 
$
(0.7
)
 
$
0.5

Provision for Income Taxes
We recorded income tax expense of $21.1 million in the fiscal first nine months of 2014 compared to $11.6 million in the prior year period. Our effective tax rate (ETR) (provision for income taxes divided by pretax income) for the fiscal first nine months of 2014 was 8.1%. Our year-to-date results reflect the projected fiscal year ETR, plus any discrete items. The ETR used to record the provision for income taxes for the fiscal first nine months of 2013 was 4.6%.

The ETR is below the United States statutory rate as a majority of our taxable income is earned in foreign jurisdictions with lower tax rates reflecting the shift in the geographic mix of taxable income during recent periods as taxable income earned in foreign jurisdictions increased as compared to taxable income earned in the United States. As a result, the ratio of domestic taxable income to worldwide taxable income, primarily within CooperVision but augmented by CooperSurgical's July 2012 acquisition of Origio, has decreased over recent fiscal periods. A reduction in the ratio of domestic taxable income to worldwide taxable income effectively lowers the overall tax rate due to the fact that the tax rates in the majority of foreign jurisdictions where the Company operates are significantly lower than the statutory rate in the United States.

The impact on our provision for income taxes of income earned in foreign jurisdictions being taxed at rates different than the United States Federal statutory rate was a benefit of approximately $74.6 million and a foreign effective tax rate of approximately 2.8% in our fiscal first nine months of 2014 compared to $73.0 million and a foreign effective tax rate of approximately 1.1% in our fiscal first nine months of 2013. See Note 5 for additional information.
Share-Based Compensation Plans
Cooper has several share-based compensation plans that are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2013. The compensation expense and related income tax benefit recognized in our consolidated financial statements for share-based awards were as follows:
Periods Ended July 31,
 
Three Months