Cooper Companies, Inc 10-Q for FY2022 Q3
Cooper Companies, Inc. (COO)
10-Q
2022-09-01
For: 2022-07-31
View Original
Added on
April 09, 2026
About this 10-Q
Cooper Companies, Inc filed this 10-Q on September 1, 2022, covering the quarter ended July 31, 2022 (FY2022 Q3).
Headline figures
Quarter ended July 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $843.4M
- up 10.5% from $763.4M a year earlier
- Net income
- $98.4M
- down 84.0% from net income of $615.8M a year earlier
- Diluted EPS
- $1.98
- down 84.0% from $12.37 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
FORM 10-Q
_____________________________________________________________
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended July 31, 2022
| 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
_____________________________________________________________
(Exact name of registrant as specified in its charter)
_____________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (925 ) 460-3600
_____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒
On August 26, 2022, 49,345,985 shares of Common Stock, $0.10 par value, were outstanding.
INDEX
| Page No. | ||||||||
| PART I. | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
2
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income
Periods Ended July 31,
(In millions, except for earnings per share)
(Unaudited)
| Three Months | Nine Months | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expense | |||||||||||||||||||||||
| Research and development expense | |||||||||||||||||||||||
| Amortization of intangibles | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other expense (income), net | ( | ( | |||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes (Note 6) | ( | ( | |||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share (Note 7): | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Number of shares used to compute earnings per share: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Other comprehensive income, net of tax: | |||||||||||||||||||||||
| Cash flow hedges | $ | ( | $ | ( | $ | $ | |||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
3
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In millions, unaudited)
| July 31, 2022 | October 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Trade accounts receivable, net of allowance for credit losses of $ | |||||||||||
| Inventories (Note 3) | |||||||||||
| Prepaid expense and other current assets | |||||||||||
| Assets held-for-sale | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, at cost | |||||||||||
| Less: accumulated depreciation and amortization | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill (Note 4) | |||||||||||
| Other intangibles, net (Note 4) | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt (Note 5) | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Employee compensation and benefits | |||||||||||
| Operating lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Liabilities held-for-sale | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt (Note 5) | |||||||||||
| Deferred tax liabilities | |||||||||||
| Long-term tax payable | |||||||||||
| Operating lease liabilities | |||||||||||
| Accrued pension liability and other | |||||||||||
| Total liabilities | $ | $ | |||||||||
| Contingencies (Note 12) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
Treasury stock at cost: | ( | ( | |||||||||
| Total Cooper stockholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Stockholders’ equity (Note 9) | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
4
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Stockholders' Equity
(In millions, unaudited)
| Common Shares | Treasury Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Noncontrolling Interests | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at November 1, 2020 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, net | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plan | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($ | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock repurchase | ( | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 31, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, net | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plan | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, net | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plan | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($ | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 31, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
5
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Stockholders' Equity
(In millions, unaudited)
| Common Shares | Treasury Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Noncontrolling Interests | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at November 1, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, net | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plan | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($ | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock repurchase | ( | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, net | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plan | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, net | — | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plan | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($ | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
6
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Nine Months Ended July 31,
(In millions, unaudited)
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Depreciation and amortization | |||||||||||
| Settlement of contingent consideration (Note 2) | ( | ||||||||||
| Change in fair value of contingent consideration (Note 2) | ( | ||||||||||
| Net changes in operating capital | ( | ( | |||||||||
| Deferred income taxes | ( | ||||||||||
| Other non-cash items | ( | ||||||||||
| Net cash provided by operating activities | $ | $ | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Acquisitions of businesses and assets, net of cash acquired, and other | ( | ( | |||||||||
| Proceeds from sale of interest in a subsidiary (Note 2) | |||||||||||
| Net cash used in investing activities | $ | ( | $ | ( | |||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from long-term debt | |||||||||||
| Repayments of long-term debt | ( | ( | |||||||||
| Net proceeds from short-term debt | |||||||||||
| Net (payments) proceeds related to share-based compensation awards | ( | ||||||||||
| Dividends on common stock | ( | ( | |||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Issuance of common stock for employee stock purchase plan | |||||||||||
| Debt issuance costs | ( | ||||||||||
| Settlement of contingent consideration (Note 2) | ( | ||||||||||
| Net cash provided by (used in) financing activities | $ | $ | ( | ||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents, restricted cash, and cash held for sale | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents, restricted cash, and cash held for sale at end of period | $ | $ | |||||||||
| Reconciliation of cash flow information: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other current assets | |||||||||||
| Cash held for sale | |||||||||||
| Total cash, cash equivalents, restricted cash, and cash held for sale at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
7
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1. General
The accompanying Consolidated Condensed Financial Statements of the Cooper Companies, Inc. and its subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and with the requirements of Regulation S-X, Rule 10-01 for financial statements required to be filed as a part of this Quarterly Report on Form 10-Q. Unless the context requires otherwise, terms "the Company", "we", "us", and "our" are used to refer collectively to the Cooper Companies, Inc. and its subsidiaries.
The accompanying Consolidated Condensed Financial Statements and related notes are unaudited and should be read in conjunction with the audited Consolidated Financial Statements of the Cooper Companies, Inc. and its subsidiaries (the Company) and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2021. The Consolidated Condensed Financial Statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the interim periods presented. Readers should not assume that the results reported here either indicate or guarantee future performance.
Accounting Policies
There have been no material changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.
Estimates
The World Health Organization categorized the Coronavirus disease 2019 (COVID-19) as a pandemic. The COVID-19 pandemic has caused a severe global health crisis, along with economic and societal disruptions and uncertainties, which have negatively impacted business and healthcare activity globally. As a result of healthcare systems responding to the demands of managing the pandemic, governments around the world imposing measures designed to reduce the transmission of the COVID-19 virus, and individuals responding to the concerns of contracting the COVID-19 virus, many optical practitioners & retailers, hospitals, medical offices and fertility clinics closed their facilities, restricted access, or delayed or canceled patient visits, exams and elective medical procedures, and many customers that have reopened are experiencing reduced patient visits. These factors have had, and in the future may continue to have, an adverse effect on our sales, operating results and cash flows.
The preparation of Consolidated Condensed Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions reasonably available to the Company and the uncertain future impacts of the COVID-19 pandemic and related economic disruptions. The extent to which the COVID-19 pandemic and related economic disruptions impact our business and financial results will depend on future developments including, but not limited to, the continued spread, duration and severity of the COVID-19 pandemic; the occurrence, spread, duration and severity of any subsequent wave or waves of outbreaks, including the emergence and spread of variants of the COVID-19 virus; the actions taken by the U.S. and foreign governments to contain the COVID-19 pandemic, address its impact or respond to the reduction in global and local economic activity; the occurrence, duration and severity of a global, regional or national recession, depression or other sustained adverse market event; the impact of the developments described above on our customers and suppliers; and how quickly and to what extent normal economic and operating conditions can resume. The accounting matters assessed included, but were not limited to:
•allowance for doubtful accounts and credit losses
•the carrying value of inventory
•the carrying value of goodwill and other long-lived assets
There was not a material impact to the above estimates in the Company’s Consolidated Condensed Financial Statements for the three and nine months ended July 31, 2022. The Company continually monitors and evaluates the estimates used as additional information becomes available. Adjustments will be made to these provisions periodically to reflect new facts and circumstances that may indicate that historical experience may not be indicative of current and/or future results. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material
8
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Exit costs
During the second quarter of fiscal 2022, the Company initiated a plan to exit its contact lens care business, a non-core business unit of the CooperVision segment. We expect the exit activity to be substantially completed in the first half of fiscal 2023. Exit charges recognized in the three and nine months ended July 31, 2022, were $3.3 million and $24.0 million, of which $19.1 million is recognized in cost of sales and $4.9 million is recognized in selling, general, and administrative expense in the Consolidated Statements of Income. Exit costs primarily related to inventory write-down, asset impairments and employee-related costs. Total exit costs are expected to be in a range of $30.0 million to $40.0 million.
Accounting Pronouncements Recently Adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions to the general principles in Topic 740 and enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company adopted this guidance on November 1, 2021, and it did not have an impact on the Consolidated Condensed Financial Statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This update amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity and improves and amends the related EPS guidance for both Subtopics. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company early adopted this guidance on November 1, 2021, and it did not have an impact on the Consolidated Condensed Financial Statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022, and should be applied prospectively to business combinations occurring on or after the effective date of the standard. Early adoption is permitted, including adoption in an interim period. The Company early adopted this guidance on November 1, 2021, and has applied the guidance to the business combinations entered into during fiscal 2022. Refer to Note 2. Acquisitions and Joint Venture for further information.
Accounting Pronouncements Issued Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequent amendment to the initial guidance: ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, “Topic 848”). Topic 848 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance generally can be applied from March 12, 2020 through December 31, 2022. The Company is currently assessing the impacts of the practical expedients provided in Topic 848 and which, if any, the Company will adopt.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This standard is effective for fiscal years beginning after December 15, 2021, and should be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2021-10 on the Consolidated Condensed Financial Statements.
9
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 2. Acquisitions and Joint Venture
The following is a summary of the allocation of the total purchase consideration for business and asset acquisitions that the Company completed during the nine months ended July 31, 2022, and fiscal 2021:
| (In millions) | July 31, 2022 | October 31, 2021 | |||||||||
| Technology | $ | $ | |||||||||
| In-Process Research & Development (IPR&D) | |||||||||||
| Customer relationships | |||||||||||
| Trademarks | |||||||||||
| Other | |||||||||||
| Total identifiable intangible assets | $ | $ | |||||||||
| Goodwill | |||||||||||
| Net tangible liabilities | ( | ( | |||||||||
| Fair value of contingent consideration | ( | ( | |||||||||
| Total closing purchase price | $ | $ | |||||||||
All acquisitions were funded by cash generated from operations or facility borrowings.
For business acquisitions, the Company recorded tangible and intangible assets acquired and liabilities assumed at their fair values as of the applicable date of acquisition. For asset acquisitions, the Company recorded tangible and intangible assets acquired and liabilities assumed at their estimated and relative fair values as of the applicable date of acquisition.
The Company believes these acquisitions strengthen CooperSurgical's and CooperVision's businesses through the addition of new distributors or complementary products and services.
Fiscal Year 2022
On May 31, 2022, CooperVision completed the acquisition of a privately-held Denmark-based contact lens distributor focusing on orthokeratology and scleral contact lenses. This acquisition expands CooperVision’s ortho-k eye care portfolio in the Nordic market.
On April 6, 2022, CooperSurgical completed the acquisition of a private cryopreservation services company that specializes in cryogenic services. The purchase price allocation is preliminary, and the Company is in the process of finalizing information primarily related to the valuation of intangible assets and property, plant and equipment and the corresponding impact on goodwill.
Refer to "Fiscal Year 2021" below for details on formation of a joint venture with Essilor International and related activities that occurred in fiscal year 2022 following the acquisition of SightGlass Vision, Inc. (SGV) in fiscal year 2021.
On April 6, 2022, CooperSurgical entered into an asset purchase agreement to acquire Cook Medical's Reproductive Health business, a manufacturer of minimally invasive medical devices focused on the fertility, obstetrics and gynecology markets. The aggregate consideration is $875.0 million in cash, with $675.0 million payable at the closing and the remaining $200.0 million payable in $50.0
Generate Life Sciences®
On December 17, 2021, CooperSurgical completed the acquisition of 100 % of the equity interests in Generate Life Sciences (Generate), a privately held leading provider of donor egg and sperm for fertility treatments, fertility cryopreservation services and newborn stem cell storage (cord blood & cord tissue), and paid an aggregate purchase consideration of approximately $1.663 billion, reflecting working capital, and other adjustments. The cash consideration was funded through a combination of $1.5 billion in proceeds from the issuance of a senior unsecured term loan and available cash on hand.
10
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The Company has accounted for the acquisition of Generate as a business combination, in accordance with ASC Topic 805, Business Combinations. The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the acquisition date:
(In millions) | |||||
| Current assets: | |||||
Cash and cash equivalents | $ | ||||
Trade accounts receivable, net | |||||
Inventories | |||||
Prepaid expense and other current assets | |||||
| Total current assets | |||||
Property, plant and equipment | |||||
Operating lease right-of-use assets | |||||
| Goodwill | |||||
Customer relationships | |||||
Trademarks | |||||
| Deferred tax assets | |||||
Other assets | |||||
Total assets acquired | $ | ||||
| Current liabilities: | |||||
Accounts payable | $ | ||||
Employee compensation and benefits | |||||
Operating lease liabilities | |||||
| Deferred revenue | |||||
Other current liabilities | |||||
| Total current liabilities | |||||
Deferred tax liabilities | |||||
Operating lease liabilities | |||||
Deferred revenue | |||||
Other liabilities | |||||
Total liabilities assumed | $ | ||||
Total purchase price | $ | ||||
The purchase accounting is incomplete and subject to change during the measurement period, which may result in material changes to the purchase price allocation. The Company is in the process of finalizing information primarily related to the valuation of intangible assets and property, plant and equipment, the measurement of deferred revenue, the associated deferred tax adjustments and the corresponding impact on goodwill. The Company recorded measurement period adjustments of $33.8 million and $96.1 million to goodwill in the three and nine months ended July 31, 2022.
Deferred revenue was recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers, as a result of the adoption of ASU 2021-08. See Note 1. General for additional information.
The Company currently estimates that customer relationships will be amortized over 13 years and trademarks will be amortized over 14 years. Goodwill is primarily attributable to assembled workforce and expected synergies to be achieved. The goodwill recognized is not deductible for tax purposes.
The transaction costs associated with the acquisition consisted primarily of legal, regulatory and financial advisory fees, which were expensed as incurred as selling, general and administrative expense.
11
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Generate's revenue and net income for the period from the acquisition date to July 31, 2022, were $177.3 million and $20.9 million, respectively. The following unaudited pro forma information summarizes the combined results of operations of the Company and Generate as if the acquisition had been completed at the beginning of the Company’s fiscal 2021:
| Three months ended July 31, | Nine months ended July 31, | |||||||||||||||||||||||||
(In millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
Net income | $ | $ | $ | $ | ||||||||||||||||||||||
The unaudited pro forma information for the first nine months of fiscal 2022 and 2021 was calculated after applying the Company's accounting policies and the impact of acquisition date fair value adjustments. The adjustments primarily include increased amortization for the fair value of acquired intangible assets, increased depreciation for the fair value of acquired property, plant, and equipment, increased revenue as a result of the ASU 2021-08 deferred revenue adjustments, decreased interest expense as a result of the reversal of Generate's historical interest expense partially offset by additional interest expense on the debt obtained to finance the transaction.
The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred at the beginning of fiscal 2021, or of future results of the consolidated entities.
Fiscal Year 2021
On May 3, 2021, CooperSurgical completed the acquisition of a privately-held medical device company that develops single-use illuminating medical devices.
On April 26, 2021, CooperVision completed the acquisition of a privately-held UK contact lens manufacturer focusing on specialty contact lenses. This acquisition expands CooperVision’s specialty eye care portfolio and accelerates its development of myopia management solutions in the UK.
On March 1, 2021, CooperSurgical completed the acquisition of a privately-held medical device company that designed and developed an innovative obstetric product for use in urgent obstetrics to reduce risks associated with childbirth.
On February 1, 2021, CooperSurgical acquired all of the remaining equity interests of a privately-held medical device company that developed the Mara® Water Vapor Ablation System, which is used for endometrial ablation. The Company accounted for this acquisition as an asset acquisition, whereby the Company allocated the total cost of the acquisition to the net assets acquired on the basis of their estimated relative fair values on the acquisition date with no goodwill recognized. The primary asset acquired in this asset acquisition is Technology.
On January 19, 2021, CooperVision acquired all of the remaining equity interests of SGV, a privately-held medical device company that developed spectacle lenses for myopia management. The transaction included potential payments of future consideration that were contingent upon the achievement of the regulatory approval milestone (the regulatory approval payment) and the acquired business reaching certain revenue thresholds over a specified period (the revenue payments). The undiscounted range of the contingent consideration was zero to $139.1 million payable to the other former equity interest owners.
The fair value of the regulatory approval payment was determined using an option pricing framework based on the expected payment under the contractual terms and the estimates of the probability of achieving the regulatory approval. The fair value of the revenue payments was determined using a Monte Carlo simulation based on the revenue projections and the expected payment for each simulation.
In March 2022, the entities amended the terms of the contingent consideration, which resulted in CooperVision paying $42.9 million to the former equity interest owners in exchange for the elimination of the revenue payments. CooperVision recognized a net gain of $12.2 million during the nine months ended July 31, 2022 and no gain or loss during the three months ended July 31, 2022. As of July 31, 2022, the remaining contingent liability related to regulatory approval payment was $31.8 million.
Further, CooperVision and Essilor International SAS (Essilor) executed the Contribution Agreement and Stock Purchase Agreement (the “Agreements”) in March. Essilor paid CooperVision $52.1 million in exchange for 50 % interest in SGV and their proportionate share of the revenue payments. As part of the Agreements, each party contributed their interest in SGV
12
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
and $10 90.0 million which resulted in a $56.9 million gain in Other (income) expense on deconsolidation of SGV.
The fair value of the joint venture was determined using the income valuation approach. Under the income approach, we used a discounted cash flow model (“DCF”) in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate expected rate of return. The discount rate used for cash flows reflects capital market conditions and the specific risks associated with the business. This valuation approaches is considered a Level 3 fair value measurement. Fair value determination requires complex assumptions and judgment by management in projecting future operating results, selecting guideline companies for comparisons, determining appropriate market value multiples, selecting the discount rate to measure the risks inherent in the future cash flows. Any material changes in key assumptions, including failure to meet business plans, deterioration in the financial market, an increase in interest rate or an increase in the cost of equity financing by market participants within the industry or other unanticipated events and circumstances, may affect such estimates.
On December 31, 2020, CooperSurgical completed the acquisition of a privately-held in vitro fertilization (IVF) cryo-storage software solutions company.
The pro forma results of operations of these acquisitions have not been presented because the effect of the business combinations described above was not material to the consolidated results of operations.
Contingent Consideration
Certain of the Company’s business combinations involve potential payments of future consideration that are contingent upon the achievement of regulatory milestones and/or the acquired business reaching certain revenue thresholds. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized in selling, general and administrative expense in the Consolidated Statements of Income and Comprehensive Income.
The following table provides a reconciliation of the beginning and ending balances of contingent consideration:
| Periods Ended July 31, | Three Months | Nine Months | |||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Purchase price contingent consideration | |||||||||||||||||||||||
| Payments | ( | ||||||||||||||||||||||
| Change in fair value | ( | ( | |||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | |||||||||||||||||||
Note 3. Inventories
| (In millions) | July 31, 2022 | October 31, 2021 | |||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
Inventories are stated at the lower of cost and net realizable value. Cost is computed using standard cost that approximates actual cost, on a first-in, first-out basis.
13
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 4. Intangible Assets
Goodwill
| (In millions) | CooperVision | CooperSurgical | Total | ||||||||||||||
| Balance at October 31, 2021 | $ | $ | $ | ||||||||||||||
| Current period additions | |||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ( | ||||||||||||||
| Balance at July 31, 2022 | $ | $ | $ | ||||||||||||||
The Company evaluates goodwill for impairment annually during the third quarter of the fiscal year and when an event occurs or circumstances change such that it is reasonably possible that impairment may exist. The Company accounts for goodwill, evaluates and tests goodwill balances for impairment in accordance with related accounting standards.
Qualitative factors considered in the assessment include industry and market considerations, overall financial performance and other relevant events and factors affecting each reporting unit. Based on the Company's qualitative assessment, if the Company determines that the fair value of a reporting unit is more likely than not to be less than its carrying amount, the fair value of the reporting unit will be compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value of the reporting unit. A reporting unit is the level of reporting at which goodwill is tested for impairment. The Company has three reporting units: CooperVision, and within the CooperSurgical segment, Office/Surgical and Fertility, reflecting the current way the Company manages its business.
Goodwill impairment analysis and measurement is a process that requires significant judgment. If the Company's common stock price trades below book value per share, there are changes in market conditions or a future downturn in its business, or a future goodwill impairment test indicates an impairment of our goodwill, the Company may have to recognize a non-cash impairment of goodwill that could be material and could adversely affect the Company's results of operations in the period recognized and also adversely affect its total assets and stockholders' equity.
The Company considered the impact on its near and long-term forecasts from the general deterioration of economic and market conditions as a result of higher inflation, regional and global conflict, supply chain disruption, and the ongoing disruptions of COVID-19 pandemic. Based on our assessment, we determined that it was not more likely than not that the fair value of reporting units or relevant asset groups was below carrying amounts. Therefore, there was no impairment to goodwill at July 31, 2022.
Other Intangible Assets
| July 31, 2022 | October 31, 2021 | ||||||||||||||||||||||||||||
| (In millions) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | Weighted Average Amortization Period (in years) | ||||||||||||||||||||||||
| Intangible assets with definite lives: | |||||||||||||||||||||||||||||
| Customer relationships | $ | $ | $ | $ | |||||||||||||||||||||||||
| Composite intangible asset | |||||||||||||||||||||||||||||
| Technology | |||||||||||||||||||||||||||||
| Trademarks | |||||||||||||||||||||||||||||
| License and distribution rights and other | |||||||||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||||||||
| Less: accumulated amortization and translation | |||||||||||||||||||||||||||||
| Intangible assets with definite lives, net | |||||||||||||||||||||||||||||
Intangible assets with indefinite lives, net (1) | |||||||||||||||||||||||||||||
| Total other intangibles, net | $ | $ | |||||||||||||||||||||||||||
(1) Intangible assets with indefinite lives include technology and trademarks.
Balances include foreign currency translation adjustments.
14
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Intangible assets with definite lives are amortized over the estimated useful life of the assets. As of July 31, 2022, the estimate of future amortization expenses for intangible assets with definite lives is as follows:
| Fiscal Years: | (In millions) | ||||
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total remaining amortization for intangible assets with definite lives | $ | ||||
The Company assesses definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying amount of a definite-lived intangible asset (asset group) may not be recoverable. When events or changes in circumstances indicate that the carrying amount of a definite-lived intangible asset may not be recoverable, in accordance with related accounting standards, the Company evaluates whether the definite-lived intangible asset is impaired by comparing its carrying value to its undiscounted future cash flows.
The Company assesses indefinite-lived intangible assets annually in the third quarter of the fiscal year, or whenever events or circumstances indicate that the carrying amount of an indefinite-lived intangible asset (asset group) may not be recoverable. The Company evaluates whether the indefinite-lived intangible asset is impaired by comparing its carrying value to its fair value.
The Company determined that there was no
15
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 5. Debt
| (In millions) | July 31, 2022 | October 31, 2021 | |||||||||
| Overdraft and other credit facilities | $ | $ | |||||||||
| Term loan | |||||||||||
| Less: unamortized debt issuance cost | ( | ||||||||||
| Short-term debt | $ | $ | |||||||||
| Revolving credit | |||||||||||
| Term loans | |||||||||||
| Other | |||||||||||
| Less: unamortized debt issuance cost | ( | ( | |||||||||
| Long-term debt | $ | $ | |||||||||
| Total debt | $ | $ | |||||||||
Term Loan Agreement on December 17, 2021
On December 17, 2021, the Company entered into a Term Loan Agreement (the 2021 Credit Agreement) by and among the Company, the lenders from time to time party thereto, and PNC Bank, National Association, as administrative agent. The 2021 Credit Agreement provides for a term loan facility (the 2021 Term Loan Facility) in an aggregate principal amount of $1.5 billion, which, unless terminated earlier, matures on December 17, 2026. In addition, the Company has the ability from time to time to request an increase to the commitments under the 2021 Term Loan Facility or to establish a new term loan facility under the 2021 Credit Agreement in an aggregate principal amount not to exceed $1.125 billion, upon prior written notice to the administrative agent and subject to the discretionary participation of the lenders funding such term loans and certain limitations set forth in the 2021 Credit Agreement.
Amounts outstanding under the 2021 Term Loan Facility will bear interest, at the Company’s option, at either (i) the alternate base rate, which is a rate per annum equal to the greatest of (a) the administrative agent’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 London interbank offered (“LIBO”) rate for a one-month interest period on such day, or (ii) the adjusted LIBO rate, plus, in each case, an applicable rate of, initially, zero basis points, in respect of base rate loans, and 75 basis points, in respect of adjusted LIBO rate loans. Following a specified period after the closing date, the applicable rates will be determined quarterly by reference to a grid based upon the Company’s ratio of consolidated net indebtedness to consolidated EBITDA, each as defined in the 2021 Credit Agreement.
The 2021 Term Loan Facility is not subject to amortization and is not subject to mandatory prepayments prior to maturity. The Company may prepay loan balances from time to time, in whole or in part, without premium or penalty (other than any related breakage costs).
On December 17, 2021, the Company borrowed $1.5 billion under the 2021 Term Loan Facility and used the proceeds to fund the acquisition of Generate. Refer to Note. 2 Acquisitions and Joint Venture for more details.
The interest rate on the 2021 Term Loan Facility was 2.96 % at July 31, 2022.
The 2021 Credit 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 2021 Credit Agreement, consistent with the 2020 Credit Agreement discussed below.
Term Loan Agreement on November 2, 2021
On November 2, 2021, the Company entered into a 364 -day, $840.0 million, term loan agreement by and among the Company, the lenders party thereto and The Bank of Nova Scotia, as administrative agent (the 2021 364 -Day Term Loan Agreement), which matures on November 1, 2022. The Company used part of the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility and for general corporate purposes.
16
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
We repaid $380.0 million during the three months ended July 31, 2022. Amounts outstanding under the 2021 364 -Day Term Loan Agreement will bear interest, at the Company’s option, at either the alternate base rate, or the adjusted LIBO rate (each as defined in the 2021 364 -Day Term Loan Agreement), plus, in the case of adjusted LIBO rate loans, an applicable rate of 60 basis points.
The 2021 364 -Day 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 2021 364 -Day Term Loan Agreement, consistent with the 2020 Credit Agreement discussed below.
Revolving Credit and Term Loan Agreement on April 1, 2020
On April 1, 2020, the Company entered into a Revolving Credit and Term Loan Agreement (the 2020 Credit Agreement), among the Company, CooperVision International Holding Company, LP, CooperSurgical Netherlands B.V., CooperVision Holding Kft, the lenders from time to time party thereto, and KeyBank National Association, as administrative agent. The 2020 Credit Agreement provides for (a) a multicurrency revolving credit facility (the 2020 Revolving Credit Facility) in an aggregate principal amount of $1.29 billion and (b) a term loan facility (the 2020 Term Loan Facility) in an aggregate principal amount of $850.0 million, each of which, unless terminated earlier, mature on April 1, 2025. In addition, the Company has the ability from time to time to request an increase to the size of the revolving credit facility or establish one or more new term loans under the term loan facility in an aggregate amount up to $1.605 billion, subject to the discretionary participation of the lenders.
Amounts outstanding under the 2020 Credit Agreement will bear interest, at the Company’s option, at either the base rate, or the adjusted LIBO rate or adjusted foreign currency rate, plus, in each case, an applicable rate of between 0.00 % and 0.50 % in respect of base rate loans, and between 0.75 % and 1.50 % in respect of adjusted LIBO rate or adjusted foreign currency rate loans, in each case in accordance with a pricing grid tied to the Total Leverage Ratio, as defined in the 2020 Credit Agreement. During the term of the 2020 Revolving Credit Facility, the Borrowers may borrow, repay and re-borrow amounts available under the Revolving Credit Facility, subject to voluntary reduction of the revolving commitment.
The Company pays an annual commitment fee that ranges from 0.10 % to 0.20 % of the unused portion of the 2020 Revolving Credit Facility based upon the Company’s Total Leverage Ratio, as defined in the 2020 Credit Agreement. In addition to the annual commitment fee, 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 2020 Credit Agreement.
On April 1, 2020, the Company borrowed $850.0 million under the 2020 Term Loan Facility and $445.0 million under the 2020 Revolving Credit Facility and used the proceeds to repay the outstanding amounts under the previous credit agreement and an outstanding term loan, and for general corporate purposes.
On October 30, 2020, the Company entered into Amendment No. 1 to the 2020 Credit Agreement (the First Amendment to the 2020 Credit Agreement). The First Amendment to the 2020 Credit Agreement modifies the 2020 Credit Agreement by, among other things, adding CooperVision International Limited as a revolving borrower and releasing certain borrowers in the 2020 Credit Agreement.
On December 17, 2021, the Company entered into Amendment No.2 to the 2020 Credit Agreement (the Second Amendment to the 2020 Credit Agreement). The Second Amendment to the 2020 Credit Agreement modified the 2020 Credit Agreement by, among other things, adding CooperSurgical Holdings Limited as a revolving borrower, releasing CooperVision Holding Kft as a borrower, and updating the benchmark replacement language in the 2020 Credit Agreement.
The interest rate on the 2020 Term Loan Facility was 2.96 % at July 31, 2022.
The 2020 Credit 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 2020 Credit Agreement:
•Interest Coverage Ratio, as defined, to be at least 3.00 to 1.00 at all times.
•Total Leverage Ratio, as defined, to be no higher than 3.75 to 1.00.
At July 31, 2022, the Company was in compliance with the Interest Coverage Ratio at 27.33 to 1.00 and the Total Leverage Ratio at 2.44 to 1.00. The Company, after considering the potential impacts of the COVID-19 pandemic, expects to remain in compliance with its financial maintenance covenant and meet its debt service obligations for at least the twelve months following the date of issuance of these financial statements.
Refer to our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, for more details.
17
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The following is a summary of the maximum commitments and the net amounts available to us under credit facilities discussed above as of July 31, 2022:
| (In millions) | Limit | Outstanding Borrowings | Outstanding Letters of Credit | Total Amount Available | Maturity Date | |||||||||||||||||||||||||||
| Revolving Credit: | ||||||||||||||||||||||||||||||||
| 2020 Revolving Credit | $ | $ | $ | April 1, 2025 | ||||||||||||||||||||||||||||
| Term loan: | ||||||||||||||||||||||||||||||||
2021 | n/a | — | November 1, 2022 | |||||||||||||||||||||||||||||
| 2020 Term Loan | n/a | — | April 1, 2025 | |||||||||||||||||||||||||||||
| 2021 Term Loan | n/a | — | December 17, 2026 | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Note 6. Income Taxes
The effective tax rates for the three months ended July 31, 2022 and July 31, 2021, were 16.1 % and (554.9 )%, respectively. The increase was primarily due to a $534.9 million tax benefit in fiscal 2021 related to the remeasurement of deferred tax assets caused by the UK enactment of a 25% corporate tax rate to be effective in fiscal 2023.
The effective tax rates for the nine months ended July 31, 2022 and July 31, 2021, were 20.5 % and (666.3 )%, respectively. The increase was primarily due to an intra-group transfer of intellectual property, as discussed below, and a $534.9 million tax benefit in fiscal 2021 related to the remeasurement of the related deferred tax assets caused by the UK enactment of a 25% corporate tax rate during the nine months ended July 31, 2021.
In November 2020, the Company completed an intra-group transfer of certain intellectual property and related assets of CooperVision to a UK subsidiary as part of a group restructuring to establish headquarters operations in the UK. Determining fair value involved significant judgment related to future revenue growth, operating margins and discount rates. The transfer resulted in a step-up of the UK tax-deductible basis in the intellectual property and goodwill, creating a temporary difference between the book basis and the tax basis of these assets. As a result, the Company recognized a deferred tax asset of $1,987.9 million, with a corresponding income tax benefit, during the three months ended January 31, 2021.
Note 7. Earnings Per Share
| Periods Ended July 31, | Three Months | Nine Months | |||||||||||||||||||||
| (In millions, except per share amounts) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Weighted average common shares | |||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted: | |||||||||||||||||||||||
| Weighted average common shares | |||||||||||||||||||||||
| Effect of dilutive stock plans | |||||||||||||||||||||||
| Diluted weighted average common shares | |||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
18
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The following table sets forth stock options to purchase our common stock 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) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Stock option shares excluded | |||||||||||||||||||||||
| Range of exercise prices | $ | $ | $ | $ | |||||||||||||||||||
| Restricted stock units excluded | |||||||||||||||||||||||
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, 2021. The compensation expense and related income tax benefit recognized in our Consolidated Statements of Income and Comprehensive Income for share-based awards were as follows:
| Periods Ended July 31, | Three Months | Nine Months | |||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Selling, general and administrative expense | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Research and development expense | |||||||||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
| Related income tax benefit | $ | $ | $ | $ | |||||||||||||||||||
Note 9. Stockholders’ Equity
Analysis of Changes in Accumulated Other Comprehensive Income:
| (In millions) | Foreign Currency Translation Adjustment | Minimum Pension Liability | Derivative Instruments | Total | |||||||||||||||||||
| Balance at October 31, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Gross change in value | |||||||||||||||||||||||
| Tax effect | ( | ( | ( | ( | |||||||||||||||||||
| Balance at October 31, 2021 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| Gross change in value | ( | ( | |||||||||||||||||||||
| Tax effect | ( | ( | |||||||||||||||||||||
| Balance at July 31, 2022 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
Share Repurchases
In December 2011, the Company's Board of Directors authorized the 2012 Share Repurchase Program and through subsequent amendments, the most recent in March 2017, the total repurchase authorization was increased from $500.0 million to $1.0 billion 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.
During the three months ended July 31, 2022, there were no share repurchases under the program. During the nine months ended July 31, 2022, the Company repurchased 191.2 thousand shares of its common stock for $78.5 million, at an average purchase price of $410.41 per share. At July 31, 2022, $256.4 million remained authorized for repurchase under the 2012 Share Repurchase Program.
19
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
During the three months ended July 31, 2021, there were no shares repurchases under the program. During the nine months ended July 31, 2021, the Company repurchased 69.6 thousand shares of its common stock for $24.8 million, at an average purchase price of $356.61 per share.
Dividends
The Company paid a semiannual dividend of approximately $1.5 million or 3 cents per share, on February 9, 2022, to stockholders of record on January 21, 2022; and approximately $1.5 million or 3 cents per share on August 11, 2022, to stockholders of record on July 27, 2022. The Company paid a semiannual dividend of approximately $1.5 million or 3 cents per share, on February 9, 2021, to stockholders of record on January 22, 2021; and approximately $1.5 million or 3 cents per share, on August 11, 2021, to stockholders of record on July 27, 2021.
Note 10. Fair Value Measurements
Accounting standards 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 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.
At July 31, 2022, and October 31, 2021, the carrying value of cash and cash equivalents, accounts receivable, prepaid expense 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.
The carrying value of the Company's revolving credit facility and term loans approximates fair value based on current market rates (Level 2). On April 6, 2020, the Company entered into six interest rate swap contracts which are used to hedge its exposure to changes in cash flows associated with its variable rate debt and are designated as derivatives in a cash flow hedge. The payment streams are based on a total notional amount of $1.5 billion at the inception of the contracts. The interest rate swap contracts had maturities of seven years or less. As of July 31, 2022, three of the six interest rate swap contracts have matured and the outstanding contracts have a total notional amount of $1.0 billion.
The gain or loss on the derivatives is recorded as a component of accumulated other comprehensive income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.
The fair value of the interest rate swap contracts is measured on a recurring basis by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates (forward curves) derived from observable market interest rate curves. The interest rate swap contracts were categorized as Level 2 in the fair value hierarchy, as the inputs to the derivative pricing model are generally observable and do not contain a high level of subjectivity. Refer to Note 14. Financial Derivatives and Hedging for further information.
The Company did not have any cross currency swaps or foreign currency forward contracts as of July 31, 2022, and October 31, 2021.
The fair value of the Company's contingent consideration for which a liability is recorded and the initial measurement of the joint venture interest, are a Level 3 measurement, and the change in fair value is recognized in selling, general and administrative expense in the Consolidated Statements of Income and Comprehensive Income. Refer to Note 2. Acquisitions and Joint Venture for further information.
Nonrecurring fair value measurements
20
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 11. Employee Benefits
The Company's Retirement Income Plan (the Plan), a defined benefit plan, covers substantially all full-time United States employees. The Company'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. The Company 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.
The Company's results of operations for the three and nine months ended July 31, 2022, and 2021, reflect the following components of net periodic defined benefit costs:
| Periods Ended July 31, | Three Months | Nine Months | |||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Recognized net actuarial gain | |||||||||||||||||||||||
| Net periodic defined benefit plan cost | $ | $ | $ | $ | |||||||||||||||||||
The Company has not determined how much it expects to contribute to the Plan and did no t contribute to the Plan in the first nine months of fiscal 2022. The Company did no t contribute to the Plan in the first nine months of fiscal 2021. The expected rate of return on Plan assets for determining net periodic benefit plan cost is 8 %.
Note 12. Contingencies
Note 13. Business Segment Information
The Company discloses information about its operating segments, which were established based on the way that management organizes segments within the Company for making operating decisions and assessing financial performance. The Company's two operating segments are described below.
•CooperVision. Competes in the worldwide contact lens market by developing, manufacturing and marketing a broad range of products for contact lens wearers, featuring advanced materials and optics. CooperVision designs its products to solve vision challenges such as astigmatism, presbyopia, myopia, ocular dryness and eye fatigues, with a broad collection of spherical, toric and multifocal contact lenses.
•CooperSurgical. Competes in the general health care market with a focus on advancing the health of women, babies and families through a diversified portfolio of products and services focusing on women's health and fertility.
The Company has 50 % ownership in the new joint venture and accounts for this investment under the equity method of accounting. This joint venture is not considered material to the overall results of the Company and is grouped under CooperVision segment.
The Company uses operating income, as presented in our financial reports, as the primary measure of segment profitability. The Company does not allocate costs from corporate functions to segment operating income. Items below operating income are not considered when measuring the profitability of a segment. The Company uses the same accounting policies to generate segment results as the Company does for consolidated results.
Total identifiable assets are those used in continuing operations except cash and cash equivalents, which the Company includes as corporate assets.
21
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Segment information:
| Periods Ended July 31, | Three Months | Nine Months | |||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| CooperVision net sales by category: | |||||||||||||||||||||||
| Toric lens | $ | $ | $ | $ | |||||||||||||||||||
| Multifocal lens | |||||||||||||||||||||||
| Single-use sphere lens | |||||||||||||||||||||||
| Non single-use sphere, other | |||||||||||||||||||||||
| Total CooperVision net sales | $ | $ | $ | $ | |||||||||||||||||||
| CooperSurgical net sales by category: | |||||||||||||||||||||||
| Office and surgical products | $ | $ | $ | $ | |||||||||||||||||||
| Fertility | |||||||||||||||||||||||
| CooperSurgical net sales | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
| Operating income (loss): | |||||||||||||||||||||||
| CooperVision | $ | $ | $ | $ | |||||||||||||||||||
| CooperSurgical | |||||||||||||||||||||||
| Corporate | ( | ( | ( | ( | |||||||||||||||||||
| Total operating income | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other (income) expense, net | ( | ( | |||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
| (In millions) | July 31, 2022 | October 31, 2021 | |||||||||
| Total identifiable assets: | |||||||||||
| CooperVision | $ | $ | |||||||||
| CooperSurgical | |||||||||||
| Corporate | |||||||||||
| Total | $ | $ | |||||||||
Geographic information:
| Periods Ended July 31, | Three Months | Nine Months | |||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net sales to unaffiliated customers by country of domicile: | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Europe | |||||||||||||||||||||||
| Rest of world | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| (In millions) | July 31, 2022 | October 31, 2021 | |||||||||
| Net property, plant and equipment by country of domicile: | |||||||||||
| United States | $ | $ | |||||||||
| Europe | |||||||||||
| Rest of world | |||||||||||
| Total | $ | $ | |||||||||
22
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 14. Financial Derivatives and Hedging
As part of the Company’s overall risk management practices the Company enters into financial derivatives, interest rate swaps designated as cash flow hedges, to hedge the Company's exposure to changes in cash flows associated with its variable rate debt.
The Company records all derivatives on its Consolidated Condensed Balance Sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. All of the Company's derivatives have satisfied the criteria necessary to apply hedge accounting.
The gain or loss on derivative instruments designated and qualifying for cash flow hedge accounting is deferred in other comprehensive income. The changes in fair value for all trades that are not designated for hedge accounting are recognized in current period earnings. Deferred gains or losses from designated cash flow hedges are reclassified into earnings in the period that the hedged interest expense affects earnings. The effectiveness of cash flow hedges is assessed at inception and quarterly thereafter. The Company does not offset fair value amounts recognized for derivative instruments in its Consolidated Condensed Balance Sheets for presentation purposes.
Credit risk related to derivative transactions reflects the risk that a party to the transaction could fail to meet its obligation under the derivative contracts. Therefore, the Company’s exposure to the counterparty’s credit risk is generally limited to the amounts, if any, by which the counterparty’s obligations to the Company exceed the Company’s obligations to the counterparty. The Company’s policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings to help mitigate counterparty credit risk.
As of July 31, 2022, and October 31, 2021, the Company had the following outstanding derivatives designated as hedging instruments:
| (In millions, except for number of instruments) | Number of Instruments | Notional Value | |||||||||
| Interest Rate Swap Contracts | $ | ||||||||||
These contracts have remaining maturities of five years or less.
The pre-tax impact of gain on derivatives recognized in other comprehensive income was $72.9 million ($55.2 million, net of tax) as of July 31, 2022. The pre-tax impact of loss on derivatives recognized in other comprehensive income was $2.9 million ($2.2 million, net of tax) as of July 31, 2021.
The following table summarizes the fair values of derivative instruments as of the periods indicated and the line items in the accompanying Consolidated Condensed Balance Sheets where the instruments are recorded:
| Derivative Assets | ||||||||||||||||||||||||||||||||||||||
| (In millions) | July 31, 2022 | October 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Derivatives designated as cash flow hedges | Balance sheet location | |||||||||||||||||||||||||||||||||||||
| Interest rate swap contracts | Other non-current assets | $ | $ | |||||||||||||||||||||||||||||||||||
The following table summarizes the amounts recognized with respect to our derivative instruments within the accompanying Consolidated Statements of Income and Comprehensive Income:
| Periods Ended July 31, | Three Months | Nine Months | |||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
| Derivatives designated as cash flow hedges | Location of (Gain)/Loss Recognized on Derivatives | ||||||||||||||||||||||||||||
| Interest rate swap contracts | Interest (income) expense | $ | ( | $ | $ | $ | |||||||||||||||||||||||
The Company expects that $(22.3 ) million recorded as a component of accumulated other comprehensive income (loss) will be realized in the Consolidated Statements of Income and Comprehensive Income over the next twelve months and the amount will vary depending on prevailing interest rates.
23
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The following table details the changes in accumulated other comprehensive income:
| (In millions) | Amount | |||||||
| Beginning balance gain as of October 31, 2021 | $ | |||||||
Amount recognized in other comprehensive income on interest rate swap contracts, gross ($ | ||||||||
Amount reclassified from other comprehensive income into earnings, gross ($ | ||||||||
| Ending balance gain as of Jul 31, 2022 | $ | |||||||
24
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. Unaudited Financial Statements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and 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 expected impact of the ongoing Coronavirus disease 2019 (COVID-19) pandemic on our business; and statements regarding acquisitions including the acquired companies' financial position, market position, product development and business strategy, expected cost synergies, expected timing and benefits of the transaction, difficulties in integrating entities or operations, as well as estimates of our and the acquired entities' future expenses, sales and earnings per share are forward-looking. In addition, all statements regarding anticipated growth in our net sales, 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,” “outlook,” “probable,” “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:
•The effects of the ongoing COVID-19 pandemic and related economic disruptions and new governmental regulations on our business, results of operations, cash flow and financial condition, including but not limited to the potential impact on our sales, operations and supply chain.
•Adverse changes in the global or regional general business, political and economic conditions, including the impact of continuing uncertainty and instability of certain countries, that could adversely affect our global markets, and the potential adverse economic impact and related uncertainty caused by these items, including but not limited to, the ongoing COVID-19 pandemic, inflation and escalating global trade barriers.
•The impact of Russia's invasion of Ukraine and the global response to this invasion on the global economy, European economy, financial markets, energy markets, currency rates and our ability to supply product to, or through, affected countries.
•Changes in tax laws or their interpretation, changes in statutory tax rates, and adverse outcomes in tax disputes including but not limited to, the United States (U.S.), the United Kingdom (UK) and other countries may affect our taxation of earnings recognized in foreign jurisdictions, result in unexpected tax liabilities, and/or negatively impact our effective tax rate.
•Foreign currency exchange rate and interest rate fluctuations including the risk of fluctuations in the value of foreign currencies or interest rates that would decrease our net sales and earnings.
•Our existing and future variable rate indebtedness and associated interest expense is impacted by rate increases, which could adversely affect our financial health or limit our ability to borrow additional funds.
•Acquisition-related adverse effects including the failure to successfully achieve the anticipated net sales, margins and earnings benefits of acquisitions, 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 changes to accounting controls and reporting procedures, 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).
•Compliance costs and potential liability in connection with U.S. and foreign laws and health care regulations pertaining to privacy and security of personal information, such as HIPAA and the California Consumer Privacy
25
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Act (CCPA) in the U.S. and the General Data Protection Regulation requirements in Europe, including but not limited to those resulting from data security breaches.
•A major disruption in the operations of our manufacturing, accounting and financial reporting, research and development, distribution facilities or raw material supply chain due to the ongoing COVID-19 pandemic, integration of acquisitions, man-made or natural disasters, cybersecurity incidents or other causes.
•A major disruption in the operations of our manufacturing, accounting and financial reporting, research and development or distribution facilities due to technological problems, including any related to our information systems maintenance, enhancements or new system deployments, integrations or upgrades.
•Market consolidation of large customers globally through mergers or acquisitions resulting in a larger proportion or concentration of our business being derived from fewer customers.
•Disruptions in supplies of raw materials, particularly components used to manufacture our silicone hydrogel lenses.
•New U.S. and foreign government laws and regulations, and changes in existing laws, regulations and enforcement guidance, which affect areas of our operations including, but not limited to, those affecting the health care industry, including the contact lens industry specifically and the medical device or pharmaceutical industries generally, including but not limited to the EU Medical Devices Regulation, and the EU In Vitro Diagnostic Medical Devices Regulation.
•Legal costs, insurance expenses, settlement costs and the risk of an adverse decision, prohibitive injunction or settlement related to product liability, patent infringement or other litigation.
•Limitations on sales following product introductions due to poor market acceptance.
•New competitors, product innovations or technologies, including but not limited to, technological advances by competitors, new products and patents attained by competitors, and competitors' expansion through acquisitions.
•Reduced sales, loss of customers and costs and expenses related to product recalls and warning letters.
•Failure to receive, or delays in receiving, regulatory approvals or certifications for products.
•Failure of our customers and end users to obtain adequate coverage and reimbursement from third-party payors for our products and services.
•The requirement to provide for a significant liability or to write off, or accelerate depreciation on, a significant asset, including goodwill, other intangible assets and idle manufacturing facilities and equipment.
•The success of our research and development activities and other start-up projects.
•Dilution to earnings per share from acquisitions or issuing stock.
•Impact and costs incurred from changes in accounting standards and policies.
•Risks related to environmental, social and corporate governance (ESG) issues, including those related to climate change and sustainability.
•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, 2021, as such Risk Factors may be updated in quarterly filings including updates made in this filing.
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.
26
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 third quarter of fiscal 2022 ended July 31, 2022, and compare them with the same period of fiscal 2021. 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 exactly from the rounded numbers used for disclosure purposes.
COVID-19 Considerations
The World Health Organization categorized COVID-19 as a pandemic. The COVID-19 pandemic has caused a severe global health crisis, along with economic and societal disruptions and uncertainties, which have negatively impacted business and healthcare activity globally. As a result of healthcare systems responding to the demands of managing the pandemic, governments around the world imposing measures designed to reduce the transmission of the COVID-19 virus, and individuals responding to the concerns of contracting the COVID-19 virus, many optical practitioners and retailers, hospitals, medical offices and fertility clinics closed their facilities, restricted access, or delayed or canceled patient visits, exams and elective medical procedures, and many customers that have reopened are experiencing reduced patient visits. These factors have had, and in the future may continue to have, an adverse effect on our sales, operating results and cash flows.
We have taken an active role in addressing the ongoing pandemic’s impact on our employees, suppliers, distribution channels, operations and customers, including taking precautionary measures, such as implementing contingency plans, and making operational adjustments as necessary. We have taken measures to help ensure the safety of our personnel in all our facilities, and we have endeavored and continue to follow recommended actions of government and health authorities to protect our employees worldwide.
As of the date of this filing, we have not experienced any significant disruption at our manufacturing facilities. We have had no significant disruption in our access to necessary raw materials and other supplies or with our distribution network; however, we have experienced higher unabsorbed fixed overhead costs, labor inefficiencies, delays in receiving certain raw materials, higher cost of production and higher freight charges as a result of the COVID-19 pandemic. Our manufacturing and distribution operations have responded to the impacts related to the COVID-19 pandemic, and we have been able to continue to supply our products and services around the world with limited interruption. In the future, we may decide or need to implement additional precautionary measures or operational adjustments as we deem prudent to meet consumer demand or to help further ensure employee safety. We believe that the actions we are taking have enabled us to keep our employees safe and our supply chain intact and will help us emerge from this global pandemic operationally sound and well positioned for long-term growth.
The extent to which the global COVID-19 pandemic and related economic disruptions impact our business, results of operations, cash flow and financial condition will depend on future developments. At this time, future developments are highly uncertain, difficult to predict and largely outside of our control. These include, but are not limited to, the spread, duration and severity of the pandemic outbreak and any subsequent waves of additional outbreaks, including the emergence and spread of variants of the COVID-19 virus, actions taken by governments to contain the pandemic, address its impact or respond to the reduction in global and local economic activity, and how quickly and to what extent normal economic and operating conditions can resume. We will continue to closely monitor the developments relating to the COVID-19 pandemic and the responses from governments and private sector participants and their respective impact on our Company and on our customers, suppliers, vendors and business partners.
For more information on the risks associated with the COVID-19 pandemic, refer to Part II, Item 1A "Risk Factors" herein.
27
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Third Quarter Highlights
•Gross profit of $552.1 million, up 7% from $516.1 million in the prior year period
•Operating income of $140.6 million, up 40% from $100.6 million in the prior year period
•Diluted earnings per share of $1.98, down 84% from $12.37 per share in the prior year period
•Cash provided by operations of $263.9 million, compared to $223.8 million in the prior year period
Nine Months Highlights
•Gross profit $1,603.0 million, up 10% from $1,453.9 million in the prior year period
•Operating income $404.1 million, up 7% from $377.3 million in the prior year period
•Diluted earnings per share of $6.44, down 89% from $57.01 per share in the prior year period
•Cash provided by operations $561.7 million, compared to $564.1 million in the prior year period.
Outlook
Overall, we remain optimistic about the long-term prospects for the worldwide contact lens and general health care markets. However, the impact, risks and uncertainty relating to the global COVID-19 pandemic and related economic disruptions, as further described in the “COVID-19 Considerations” section above and in the “Risk Factors” section in Part II, Item 1A of this filing, have adversely affected our sales, cash flow and current performance and are likely to further adversely affect our future sales, cash flow and performance. Additionally, other events affecting the economy as a whole, including but not limited to the uncertainty and instability of global markets driven by Russia's invasion of Ukraine, foreign currency volatility, inflation, changes in tax laws, debt concerns, the uncertainty following the UK's withdrawal from the EU, changes to existing and new regulations, global trade barriers including additional tariffs and the trend of consolidations within the health care industry could impact our current performance and continue to represent a risk to our future performance.
CooperVision - We compete in the worldwide contact lens market with our spherical, toric, multifocal, toric multifocal contact lenses offered in a variety of materials including using silicone hydrogel Aquaform® technology and 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 also competes in the myopia management and specialty eye care contact lens markets with myopia management contact lenses using its ActivControl® technology and with products such as orthokeratology (ortho-k) and scleral lenses. In November 2019, CooperVision received United States Food and Drug Administration (FDA) approval for its MiSight® 1 day lens, which is the first and only FDA-approved product indicated to slow the progression of myopia in children with treatment initiated between the ages of 8-12 and became
28
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
available in the United States during fiscal 2020. In August 2021, CooperVision received Chinese National Medical Products Administration (NMPA) approval for its MiSight 1 day lens for use in China. CooperVision is focused on greater worldwide market penetration using recently introduced products, and we continue to expand our presence in existing and emerging markets, including through acquisitions.
CooperVision acquired the following entity during the nine months ended July 31, 2022:
• A privately-held Denmark-based ortho-k contact lens distributor on May 31, 2022
CooperVision acquired the following entities during the nine months ended July 31, 2021:
• A privately-held U.K. contact lens manufacturer on April 26, 2021
• A privately-held medical device company on January 19, 2021
During the second quarter of fiscal 2022, the Company initiated a plan to exit its contact lens care business, a non-core business unit of the CooperVision segment, which manufactures and supplies contact lens solutions. We expect the exit activity to be substantially completed in the first half of fiscal 2023. Exit charges recognized in the three and nine months ended July 31, 2022, were $3.3 million and $24.0 million, of which $19.1 million is recognized in cost of sales and $4.9 million is recognized in selling, general, and administrative expense in the Consolidated Statements of Income. Exit costs primarily related to inventory write-down, asset impairments and employee-related costs. Total exit costs are expected to be in a range of $30.0 million to $40.0 million.
In March 2022, the CooperVision and Essilor International SAS (Essilor) executed the Contribution Agreement and Stock Purchase Agreement (the “Agreements”) whereby Essilor paid CooperVision $52.1 million in exchange for 50% interest in SightGlass Vision, Inc. (SGV) and their proportionate share of the revenue payments. As part of the Agreements, each party contributed their interest in SGV and $10 million in cash to form a new joint venture. CooperVision then remeasured the fair value of its retained equity investment in the joint venture which resulted in a $56.9 million gain in Other (income) expense.
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 manufactures and markets a wide variety of silicone hydrogel contact lenses. Our single-use silicone hydrogel product franchises, clariti® and MyDay®, remain a focus as we expect increasing demand for these products as well as future single-use products as the global contact lens market continues to shift to this modality. Outside of single-use, the Biofinity® and Avaira Vitality® product families comprise our focus in the FRP, or frequent replacement product, market which encompasses the 2-week and monthly modalities. Included in this segment are unique products such as Biofinity Energys®, which helps individuals with digital eye fatigue.
CooperSurgical - Our CooperSurgical business competes in the general health care market with a commitment to advancing the health of women, babies and families through its diversified portfolio of products and services focusing on women's health and fertility. CooperSurgical has established its market presence and distribution system by developing products and acquiring companies, products and services that complement its business model.
CooperSurgical acquired the following entities during the nine months ended July 31, 2022:
• A private cryopreservation services company on April 6, 2022
• Generate Life Sciences (Generate), a privately-held leading provider of donor egg and sperm for fertility treatments, fertility cryopreservation services and newborn stem cell storage (cord blood & cord tissue), on December 17, 2021
CooperSurgical acquired the following entities during the nine months ended July 31, 2021:
•A privately-held medical device company that develops single-use illuminating medical devices on May 3, 2021
•A privately-held medical device company on March 1, 2021
• A privately-held medical device company on February 1, 2021
• A privately-held in vitro fertilization (IVF) cryo-storage software solutions company on December 31, 2020
29
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
On April 6, 2022, CooperSurgical entered into an asset purchase agreement to acquire Cook Medical's Reproductive Health business, a manufacturer of minimally invasive medical devices focused on the fertility, obstetrics and gynecology markets. The aggregate consideration is $875.0 million in cash, with $675.0 million payable at the closing and the remaining $200.0 million payable in $50.0 million installments following each of the first, second, third and fourth anniversaries of the closing. The transaction is subject to customary closing conditions, including receipt of required regulatory approvals, and compliance with local consultation requirements.
Transition from LIBOR
The UK's Financial Conduct Authority, which regulates the London Interbank Offered Rate (LIBOR), announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021. In March 2021, the FCA confirmed its intention to stop requiring banks to submit rates required to calculate LIBOR after 2021. However, for U.S. dollar-denominated (USD) LIBOR, only one-week and two-month USD LIBOR will cease to be published after 2021, and all remaining USD LIBOR tenors will continue being published until June 2023. Further, in March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. We have material contracts that are indexed to LIBOR and are continuing to monitor this activity and evaluate the related risk. We are continuing to evaluate the scope of impacted contracts and the potential impact. We are also monitoring the developments regarding alternative rates and may amend certain contracts to accommodate those rates if the contract does not already specify a replacement rate. While the notional value of agreements potentially indexed to LIBOR is material, we do not expect a material impact on our financial statements related to this transition.
Net Sales Growth by Business Unit
| Periods Ended July 31, | Three Months | Nine Months | |||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | Increase | 2022 vs 2021 % Change | 2022 | 2021 | Increase | 2022 vs 2021 % Change | |||||||||||||||||||||||||||||||||
| CooperVision | $ | 566.3 | $ | 557.5 | $ | 8.8 | 2 | % | $ | 1,681.5 | $ | 1,587.1 | $ | 94.4 | 6 | % | |||||||||||||||||||||||||
| CooperSurgical | 277.1 | 205.9 | 71.2 | 35 | % | 778.8 | 576.3 | 202.5 | 35 | % | |||||||||||||||||||||||||||||||
| Net sales | $ | 843.4 | $ | 763.4 | $ | 80.0 | 10 | % | $ | 2,460.3 | $ | 2,163.4 | $ | 296.9 | 14 | % | |||||||||||||||||||||||||
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; and
•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.
30
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
CooperVision Net Sales by Category
Toric – Toric lenses include Biofinity toric, MyDay toric, clariti 1 day toric, Biomedics toric, Proclear toric and Avaira Vitality toric
Multifocal – Multifocal lenses include Biofinity multifocal, Biofinity toric multifocal, clariti 1 day multifocal, MyDay multifocal and Proclear 1 day multifocal
Single-use spheres – Our single-use lens portfolio includes clariti 1 day, MyDay, MiSight, Proclear 1 day and Biomedics 1 day
Non single-use sphere, other – Our FRP (frequent replacement product) lens portfolio and other include Biofinity, Biofinity Energys, Avaira Vitality, Biomedics, Proclear, clariti, ortho-k, scleral and custom lens, contact lens care and other
| Three Months Ended July 31, | 2022 vs 2021 % Change | ||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | |||||||||||||||||||||
| Toric | $ | 185.9 | $ | 181.0 | 3 | % | |||||||||||||||||
| Multifocal | 67.6 | 61.6 | 10 | % | |||||||||||||||||||
| Single-use spheres | 163.8 | 159.3 | 3 | % | |||||||||||||||||||
| Non single-use sphere, other | 149.0 | 155.6 | (4) | % | |||||||||||||||||||
| $ | 566.3 | $ | 557.5 | 2 | % | ||||||||||||||||||
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
| Nine Months Ended July 31, | 2022 vs 2021 % Change | ||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | |||||||||||||||||||||
| Toric | $ | 553.7 | $ | 516.1 | 7 | % | |||||||||||||||||
| Multifocal | 199.8 | 177.3 | 13 | % | |||||||||||||||||||
| Single-use spheres | 491.9 | 449.8 | 9 | % | |||||||||||||||||||
| Non single-use sphere, other | 436.1 | 443.9 | (2) | % | |||||||||||||||||||
| $ | 1,681.5 | $ | 1,587.1 | 6 | % | ||||||||||||||||||
In the three and nine months ended July 31, 2022, the growth experienced across all categories (except for "Other" as mentioned below) were partially offset by unfavorable foreign exchange rate fluctuations, which approximated $48.4 million and $91.1 million in the same periods. Sales growth was primarily driven by an increase in the volume of lenses sold across our core portfolio due to a recovery in demand from the impact of the COVID-19 pandemic.
•Toric and multifocal lenses grew primarily through the success of MyDay and Biofinity.
•Single-use sphere lenses grew primarily through MyDay, clariti and MiSight lenses.
•Non single-use sphere lenses grew primarily through Biofinity and ortho-k.
•"Other" products decreased primarily due to exit of the contact lens care business. Contact lens care represented approximately 2% and 1% of net sales in the three and nine months ended July 31, 2022, and 2% of net sales in both the three and nine months ended July 31, 2021.
•Total silicone hydrogel products increased by 5% and 9% in the three and nine months ended July 31, 2022, representing 78% of net sales, compared to 76% in the three and nine months ended July 31, 2021.
We could see downward pressure and volatility in certain markets related to net sales if the COVID-19 pandemic continues, as optical retailers and healthcare centers continue to restrict access, and social distancing measures continue.
CooperVision Net Sales by Geography
CooperVision competes in the worldwide soft contact lens market and services in three primary regions: the Americas, EMEA (Europe, Middle East and Africa) and Asia Pacific.
| Periods Ended July 31, | Three Months | Nine Months | ||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | 2022 vs 2021 % Change | 2022 | 2021 | 2022 vs 2021 % Change | ||||||||||||||||||||||||||||||||
| Americas | $ | 220.1 | $ | 206.3 | 7 | % | $ | 659.1 | $ | 614.2 | 7 | % | ||||||||||||||||||||||||||
| EMEA | 220.2 | 222.6 | (1) | % | 639.5 | 605.6 | 6 | % | ||||||||||||||||||||||||||||||
| Asia Pacific | 126.0 | 128.6 | (2) | % | 382.9 | 367.3 | 4 | % | ||||||||||||||||||||||||||||||
| $ | 566.3 | $ | 557.5 | 2 | % | $ | 1,681.5 | $ | 1,587.1 | 6 | % | |||||||||||||||||||||||||||
CooperVision's growth in net sales was primarily attributable to market gains of silicone hydrogel contact lenses. Refer to CooperVision Net Sales by Category above for further discussion.
CooperSurgical Net Sales by Category
CooperSurgical supplies the family health care market with a diversified portfolio of products and services. Our office and surgical offerings include products that facilitate surgical and non-surgical procedures that are commonly performed primarily by obstetricians and gynecologists in hospitals, surgical centers, fertility clinics and medical offices. Fertility offerings include highly specialized products and services that target the IVF process, including diagnostics testing with a goal to make fertility treatment safer, more efficient and convenient.
The chart below shows the percentage of net sales of office and surgical products and fertility.
32
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Office/Surgical – Our significant office and surgical products and services include PARAGARD, Uterine Manipulators, Retractors, Closure products, Point-of-Care products, LEEP products, Endosee, Illuminate, Fetal Pillow and recently acquired stem cell services of Generate
Fertility – Our significant fertility products and services include fertility consumables, fertility equipment, Embryo Options, preimplantation genetic testing and recently acquired fertility services of Generate
| Three Months Ended July 31, | 2022 vs 2021 % Change | ||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | |||||||||||||||||||||
| Office and surgical products | $ | 165.4 | $ | 122.5 | 35 | % | |||||||||||||||||
| Fertility | 111.7 | 83.4 | 34 | % | |||||||||||||||||||
| $ | 277.1 | $ | 205.9 | 35 | % | ||||||||||||||||||
| Nine Months Ended July 31, | 2022 vs 2021 % Change | ||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | |||||||||||||||||||||
| Office and surgical products | $ | 455.9 | $ | 338.6 | 35 | % | |||||||||||||||||
| Fertility | 322.9 | 237.7 | 36 | % | |||||||||||||||||||
| $ | 778.8 | $ | 576.3 | 35 | % | ||||||||||||||||||
33
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
In the three and nine months ended July 31, 2022, the net sales increase in both categories was mainly due to the Generate acquisition. The increase was slightly offset by unfavorable foreign exchange rate fluctuations, which approximated $9.1 million and $22.1 million in the same periods.
We could see downward pressure and volatility in certain markets related to net sales if the COVID-19 pandemic continues, as hospitals and healthcare centers continue to restrict access, and social distancing measures continue.
Gross Margin
Consolidated gross margins were 65% in both the three and nine months ended July 31, 2022, down from 68% and 67% in the prior year periods, primarily driven by unfavorable currency and contact lens care exit costs.
Selling, General and Administrative Expense (SGA)
| Three Months Ended July 31, | 2022 vs 2021 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | % Net Sales | 2021 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 212.2 | 37 | % | $ | 258.2 | 46 | % | (18) | % | ||||||||||||||||||||||
| CooperSurgical | 116.2 | 42 | % | 80.7 | 39 | % | 44 | % | ||||||||||||||||||||||||
| Corporate | 14.3 | — | 13.6 | — | 6 | % | ||||||||||||||||||||||||||
| $ | 342.7 | 41 | % | $ | 352.5 | 46 | % | (3) | % | |||||||||||||||||||||||
| Nine Months Ended July 31, | 2022 vs 2021 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | % Net Sales | 2021 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 611.8 | 36 | % | $ | 631.8 | 40 | % | (3) | % | ||||||||||||||||||||||
| CooperSurgical | 332.3 | 43 | % | 231.0 | 40 | % | 44 | % | ||||||||||||||||||||||||
| Corporate | 40.1 | — | 36.8 | — | 9 | % | ||||||||||||||||||||||||||
| $ | 984.2 | 40 | % | $ | 899.6 | 42 | % | 9 | % | |||||||||||||||||||||||
CooperVision's SGA decreased in the three and nine months ended July 31, 2022, compared to fiscal 2021 primarily due to the $56.8 million increase in fair value of the contingent consideration in the three months ended July 31, 2021. The decrease in the nine months ended July 31, 2022, was partially offset by increases in SGA to support sales growth.
CooperSurgical's SGA increased in the three and nine months ended July 31, 2022, compared to fiscal 2021 primarily due to the addition of Generate's SGA and acquisition and integration expenses.
Research and Development Expense (R&D)
| Three Months Ended July 31, | 2022 vs 2021 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | % Net Sales | 2021 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 16.0 | 3 | % | $ | 17.0 | 3 | % | (6) | % | ||||||||||||||||||||||
| CooperSurgical | 12.7 | 5 | % | 7.8 | 4 | % | 66 | % | ||||||||||||||||||||||||
| $ | 28.7 | 3 | % | $ | 24.8 | 3 | % | 16 | % | |||||||||||||||||||||||
| Nine Months Ended July 31, | 2022 vs 2021 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2022 | % Net Sales | 2021 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 46.5 | 3 | % | $ | 44.9 | 3 | % | 4 | % | ||||||||||||||||||||||
| CooperSurgical | 34.7 | 4 | % | 22.1 | 4 | % | 57 | % | ||||||||||||||||||||||||
| $ | 81.2 | 3 | % | $ | 67.0 | 3 | % | 21 | % | |||||||||||||||||||||||
In the three and nine months ended July 31, 2022:
•CooperVision's R&D expense decreased in the three months ended July 31, 2022, compared to fiscal 2021 primarily due to timing of R&D projects. CooperVision's R&D expense increased in nine months ended July 31, 2022, compared to fiscal 2021, mainly due to myopia management programs. As a percentage of sales,
34
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
CooperVision's R&D expense remained relatively flat. CooperVision's R&D activities are primarily focused on the development of contact lenses, manufacturing technology and process enhancements.
•CooperSurgical's R&D expense increased in the three and nine months ended July 31, 2022, compared to fiscal 2021, mainly due to the addition of Generate's R&D expense. As a percentage of sales, CooperSurgical's R&D expense remained relatively flat. CooperSurgical's R&D activities are focused on developing and refining diagnostic and therapeutic products including medical interventions, surgical devices and fertility solutions.
Amortization Expense
| Three Months Ended July 31, | 2022 vs 2021 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2022 | % Net Sales | 2021 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 8.0 | 1 | % | $ | 9.4 | 2 | % | (15) | % | |||||||||||||||||||
| CooperSurgical | 32.1 | 12 | % | 28.8 | 14 | % | 11 | % | |||||||||||||||||||||
| $ | 40.1 | 5 | % | $ | 38.2 | 5 | % | 5 | % | ||||||||||||||||||||
| Nine Months Ended July 31, | 2022 vs 2021 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2022 | % Net Sales | 2021 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 24.2 | 1 | % | $ | 27.3 | 2 | % | (11) | % | |||||||||||||||||||
| CooperSurgical | 109.3 | 14 | % | 82.7 | 14 | % | 32 | % | |||||||||||||||||||||
| $ | 133.5 | 5 | % | $ | 110.0 | 5 | % | 21 | % | ||||||||||||||||||||
CooperVision's amortization expense decreased in absolute dollars in the three and nine months ended July 31, 2022, compared to fiscal 2021, primarily due to the deconsolidation of SGV. As a percentage of sales, CooperVision's amortization expense decreased, primarily due to an increase in net sales.
CooperSurgical's amortization expense increased in the three and nine months ended July 31, 2022, compared to fiscal 2021, primarily due to the amortization of intangible assets newly acquired through acquisitions. As a percentage of sales, CooperSurgical's amortization expense remained relatively flat, primarily due to an increase in net sales.
Operating Income
| Three Months Ended July 31, | 2022 vs 2021 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2022 | % Net Sales | 2021 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 124.5 | 22 | % | $ | 88.0 | 16 | % | 42 | % | |||||||||||||||||||
| CooperSurgical | 30.4 | 11 | % | 26.2 | 13 | % | 16 | % | |||||||||||||||||||||
| Corporate | (14.3) | — | (13.6) | — | 6 | % | |||||||||||||||||||||||
| $ | 140.6 | 17 | % | $ | 100.6 | 13 | % | 40 | % | ||||||||||||||||||||
| Nine Months Ended July 31, | 2022 vs 2021 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2022 | % Net Sales | 2021 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 387.3 | 23 | % | $ | 347.2 | 22 | % | 12 | % | |||||||||||||||||||
| CooperSurgical | 56.9 | 7 | % | 66.9 | 12 | % | (15) | % | |||||||||||||||||||||
| Corporate | (40.1) | — | (36.8) | — | 9 | % | |||||||||||||||||||||||
| $ | 404.1 | 16 | % | $ | 377.3 | 17 | % | 7 | % | ||||||||||||||||||||
CooperVision's operating income increased in the three and nine months ended July 31, 2022, compared to the prior year periods primarily due to an increase in net sales partially offset by net changes in operating expenses.
CooperSurgical's operating income increased in the three months ended July 31, 2022, compared to the prior year period, primarily due to an increase in net sales. CooperSurgical's operating income decreased as a percentage of net sales and in absolute dollars in the nine months ended July 31, 2022, compared to the prior year period, primarily due to an increase in SGA and amortization expenses, partially offset by an increase in net sales.
35
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Corporate operating loss increased in the three and nine months ended July 31, 2022, compared to the prior year periods, primarily due to higher share-based compensation expense.
On a consolidated basis, operating income increased primarily due an increase in consolidated net sales.
Interest Expense
| Three Months Ended July 31, | 2022 vs 2021 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2022 | % Net Sales | 2021 | % Net Sales | |||||||||||||||||||||||||
| Interest expense | $ | 17.1 | 2 | % | $ | 5.6 | 1 | % | 204 | % | |||||||||||||||||||
| Nine Months Ended July 31, | 2022 vs 2021 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2022 | % Net Sales | 2021 | % Net Sales | |||||||||||||||||||||||||
| Interest expense | $ | 34.5 | 1 | % | $ | 18.1 | 1 | % | 90 | % | |||||||||||||||||||
Interest expense increased in absolute dollars during the three and nine months ended July 31, 2022, primarily due to higher average debt balances and interest rates compared to the prior year periods.
Other Expense (Income), Net
| Periods Ended July 31, | Three Months | Nine Months | ||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Investment loss (gain) | $ | 0.7 | $ | (0.1) | $ | (47.7) | (11.6) | |||||||||||||||||||
| Foreign exchange loss | 4.2 | 2.1 | 14.5 | $ | 3.3 | |||||||||||||||||||||
| Other expense (income), net | 1.3 | (1.0) | (0.1) | (2.4) | ||||||||||||||||||||||
| $ | 6.2 | $ | 1.0 | $ | (33.3) | $ | (10.7) | |||||||||||||||||||
Investment gain primarily consists of a gain on remeasurement of the fair value of retained equity investment in SGV as a result of deconsolidation.
Foreign exchange loss is primarily associated with the strengthening of the US dollar against foreign currencies and the effect on intercompany receivables during the three and nine months.
Other expense (income), net increased in the three and nine months ended July 31, 2022, primarily due to loss on minority investments, partially offset by defined benefit plan related income.
Other expense (income), net increased in the three and nine months ended July 31, 2022, primarily due to loss on minority investments, partially offset by defined benefit plan related income.
Provision for Income Taxes
The effective tax rates for the three months ended July 31, 2022, and July 31, 2021, were 16.1% and (554.9)%, respectively. The increase was primarily due to a $534.9 million tax benefit in fiscal 2021 related to the remeasurement of deferred tax assets caused by the UK enactment of a 25% corporate tax rate to be effective in fiscal 2023.
The effective tax rates for the nine months ended July 31, 2022, and July 31, 2021, were 20.5% and (666.3)%, respectively. The increase was primarily due to an intra-group transfer of intellectual property, as discussed below, and a $534.9 million tax benefit in fiscal 2021 related to the remeasurement of the related deferred tax assets caused by the UK enactment of a 25% corporate tax rate during the nine months ended July 31, 2021.
In November 2020, we completed an intra-group transfer of certain intellectual property and related assets of CooperVision to a UK subsidiary as part of a group restructuring to establish headquarters operations in the UK. Determining fair value involved significant judgment related to future revenue growth, operating margins and discount rates. The transfer resulted in a step-up of the UK tax-deductible basis in the intellectual property and goodwill, creating a temporary difference between the book basis and the tax basis of these assets. As a result, we recognized a deferred tax asset of $1,987.9 million, with a corresponding income tax benefit, during the three months ended January 31, 2021.
36
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Share-Based Compensation Plans
We have several share-based compensation plans that are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. The compensation expense and related income tax benefit recognized in our Consolidated Statements of Income and Comprehensive Income for share-based awards were as follows:
| Periods Ended July 31, | Three Months | Nine Months | ||||||||||||||||||||||||
| ($ in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Selling, general and administrative expense | $ | 11.8 | $ | 10.6 | $ | 34.6 | $ | 28.4 | ||||||||||||||||||
| Cost of sales | 1.1 | 0.9 | 3.4 | 2.9 | ||||||||||||||||||||||
| Research and development expense | 0.8 | 0.6 | 2.3 | 1.8 | ||||||||||||||||||||||
| Total share-based compensation expense | $ | 13.7 | $ | 12.1 | $ | 40.3 | $ | 33.1 | ||||||||||||||||||
| Related income tax benefit | $ | 1.3 | $ | 1.2 | $ | 4.0 | $ | 3.6 | ||||||||||||||||||
Capital Resources and Liquidity
Third Quarter Highlights
•Operating cash flow of $263.9 million compared to $223.8 million in the prior year period
•Expenditures for purchases of property, plant and equipment of $46.6 million compared to $43.6 million in the prior year period
•Cash payments for acquisitions and others of $0.6 million compared to $64.0 million in the prior year period
Nine-Month Highlights
•Operating cash flow of $561.7 million compared to $564.1 million in the prior year period
•Expenditures for purchases of property, plant and equipment of $147.1 million compared to $149.4 million in the prior year period
•Cash proceeds from sale of interest in a subsidiary of $52.1 million. Refer to Note 2. Acquisitions and Joint Venture for additional information
•Cash payments for acquisitions and others of $1,636.5 million compared to $234.9 million in the prior year period
Comparative Statistics
| ($ in millions) | July 31, 2022 | October 31, 2021 | ||||||||||||
| Cash and cash equivalents | $ | 246.3 | $ | 95.9 | ||||||||||
| Total assets | $ | 11,552.1 | $ | 9,606.2 | ||||||||||
| Working capital | $ | 222.0 | $ | 733.2 | ||||||||||
| Total debt | $ | 2,881.5 | $ | 1,479.0 | ||||||||||
| Stockholders' equity | $ | 7,083.1 | $ | 6,942.0 | ||||||||||
| Ratio of debt to equity | 0.40:1 | 0.21:1 | ||||||||||||
| Debt as a percentage of total capitalization | 28 | % | 18 | % | ||||||||||
37
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Working Capital
The decrease in working capital at July 31, 2022, from the end of fiscal 2021 was primarily due to:
•increase in short-term debt of $451.7 million, primarily due to the movements in 2021 364-Day Term Loan Agreement entered into on November 2, 2021;
•increase in other current liabilities of $135.5 million, primarily due to the Generate acquisition. Refer to Note 2. Acquisitions and Joint Venture for further information;
•decrease in assets held-for-sale of $89.2 million due to deconsolidation of SGV and forming of a new joint venture. Refer to Note 2. Acquisitions and Joint Venture for further information; and
•increase in accounts payable of $65.8 million due to timing of payments; partially offset by:
•increase in cash and cash equivalents of $150.4 million;
•increase in inventories of $36.0 million primarily due to the increase in production and the build up of inventory for future product launches. At July 31, 2022, our inventory months on hand was 6.4 compared to 6.8 at October 31, 2021; and
•increase in trade accounts receivable of $28.3 million primarily due to higher sales. Our days sales outstanding (DSO) was 59 days at July 31, 2022, compared to 64 days at October 31, 2021. The decrease in DSO from October 31, 2021 to July 31, 2022 was primarily due to timing of collections.
Operating Cash Flow
Cash provided by operating activities decreased by $2.4 million from $564.1 million in the first nine months of fiscal 2021 to $561.7 million in the first nine months of fiscal 2022. This decrease in cash flow provided by operating activities primarily consists of:
•decrease in net income of $2,514.2 million from a net income of $2,834.4 million in the first nine months of fiscal 2021 to $320.2 million in the first nine months of fiscal 2022;
•decrease of $67.5 million in net changes in the fair value of contingent consideration. Refer to Note 2. Acquisitions and Joint Venture for further information; and
•decrease from $40.7 million settlement of contingent consideration. Refer to Note 2. Acquisitions and Joint Venture for further information;
•decrease from other non-cash items of $22.6 million, from $12.1 million cash inflow during the first nine months of fiscal 2021 to $10.5 million cash outflow during the first nine months of fiscal 2022; partially offset by:
•increase of $2,544.5 million in the net changes in deferred income taxes. Refer to Note 6. Income Taxes for further information;
•increase of $72.9 million in net cash flow from changes in operating capital, from $81.6 million outflow in the first nine months of fiscal 2021 to $8.7 million outflow in the first nine months of fiscal 2022; and
•increase of $25.2 million in net changes in depreciation and amortization, from $231.9 million during the first nine months of fiscal 2021 to $257.1 million during the first nine months of fiscal 2022.
The decrease in net income of $2,514.2 million was primarily due to:
•recognized income tax benefit of $1,987.9 million in the prior year period. Refer to Note 6. Income Taxes for further information; and
•$534.9 million tax benefit in fiscal 2021 related to the remeasurement of deferred tax assets. Refer to Note 6. Income Taxes for further information; partially offset by:
38
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
•increase of $26.8 million in operating income from $377.3 million in the first nine months of fiscal 2021 to $404.1 million in the first nine months of fiscal 2022.
The $72.9 million increase in cash flow from net changes in operating capital compared to the prior year period is primarily due to:
•$9.7 million cash inflow, as compared to $76.9 million cash outflow, from net changes in trade and other receivables primarily due to timing of collections and higher sales;
•$59.1 million cash inflow, as compared to $10.2 million cash outflow, from net changes in accounts payable primarily due to timing of payments; and
•$7.5 million cash inflow, as compared to $20.3 million cash outflow, from the net changes in prepaid and other assets due to timing of payments; partially offset by:
•$45.7 million lower cash inflow from net changes in accrued liabilities and other primarily due to impact from SGV deconsolidation and timing of payments;
•$26.8 million cash outflow, as compared to $1.1 million cash inflow related to net translation gain (loss);
•$20.5 million higher cash outflow from net changes in inventories; and
•$20.2 million higher cash outflow from net changes in operating lease liability and ROU assets, net.
The $22.6 million decrease in non-cash items compared to the prior year period is primarily due to:
•$56.9 million non-cash adjustments related to gain on remeasurement of the fair value of the retained equity investment in SGV as a result of deconsolidation in fiscal 2022; and
•$29.5 million higher cash outflow from net changes in long-term liabilities; partially offset by:
•$6.7 million cash inflow, as compared to $9.3 million cash outflow, from minority interest in net income;
•$14.6 million increase primarily due to add-back related to costs from exiting the contact lens care business. Refer to Note 1. General for further information;$12.0 million increase from the effect of exchange rate change on cash,
•$6.2 million cash inflow, as compared to $2.6 million cash outflow, from provision of doubtful accounts; and
•$6.3 million increase in share-based compensation expense.
Investing Cash Flow
Cash used in investing activities increased by $1,347.2 million to $1,731.5 million in the first nine months of fiscal 2022 from $384.3 million in the first nine months of fiscal 2021 due to:
•$1,401.6 million increase in payments made for acquisitions in the first nine months of fiscal 2022 compared to the prior year period, largely due to the Generate acquisition; partially offset by;
•$52.1 million decrease due to cash inflows from sale of SGV in fiscal 2022. Refer to Note 2. Acquisitions and Joint Venture for further information.
Financing Cash Flow
Cash flows from financing activities increased by $1,515.4 million to $1,327.8 million cash inflow in the first nine months of fiscal 2022 compared to $187.6 million outflow in the first nine months of fiscal 2021, primarily due to:
•$688.0 million increase in proceeds from long-term debt, primarily due to funds received from the 2021 Term Loan;
•$469.8 million increase due to less repayments of long-term debt in fiscal 2022 compared to fiscal 2021; and
39
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
•$429.7 million increase in net proceeds from short-term debt, primarily due to net activities related to the 2021 364-Day Term Loan; partially offset by:
•$53.7 million decrease due to higher repurchase of common stock in fiscal 2022 compared to fiscal 2021.
On November 2, 2021, the Company entered into a 364-day, $840.0 million, term loan agreement by and among the Company, the lenders party thereto and The Bank of Nova Scotia, as administrative agent (the 2021 364-Day Term Loan Agreement), which matures on November 1, 2022. The Company used part of the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility and for general corporate purposes.
On December 17, 2021, the Company entered into a Term Loan Agreement (the 2021 Credit Agreement) by and among the Company, the lenders from time to time party thereto, and PNC Bank, National Association, as administrative agent. The 2021 Credit Agreement provides for a term loan facility (the 2021 Term Loan Facility) in an aggregate principal amount of $1.5 billion, which, unless terminated earlier, matures on December 17, 2026. In addition, the Company has the ability from time to time to request an increase to the commitments under the 2021 Term Loan Facility or to establish a new term loan facility under the 2021 Credit Agreement in an aggregate principal amount not to exceed $1.125 billion, upon prior written notice to the administrative agent and subject to the discretionary participation of the lenders funding such term loans and certain limitations set forth in the 2021 Credit Agreement.
The following is a summary of the maximum commitments and the net amounts available to us under different credit facilities as of July 31, 2022:
| (In millions) | Facility Limit | Outstanding Borrowings | Outstanding Letters of Credit | Total Amount Available | Maturity Date | |||||||||||||||||||||||||||
| Revolving Credit: | ||||||||||||||||||||||||||||||||
| 2020 Revolving Credit | $ | 1,290.0 | — | $ | 1.3 | $ | 1,288.7 | April 1, 2025 | ||||||||||||||||||||||||
| Term loan: | ||||||||||||||||||||||||||||||||
| 2021 364-Day Term Loan | 840.0 | 460.0 | n/a | — | November 1, 2022 | |||||||||||||||||||||||||||
| 2020 Term Loan | 850.0 | 850.0 | n/a | — | April 1, 2025 | |||||||||||||||||||||||||||
| 2021 Term Loan | 1,500.0 | 1,500.0 | n/a | — | December 17, 2026 | |||||||||||||||||||||||||||
| Total | $ | 4,480.0 | $ | 2,810.0 | $ | 1.3 | $ | 1,288.7 | ||||||||||||||||||||||||
The 2020 Credit Agreement contains customary restrictive covenants, as well as financial covenants that require us to maintain a certain Total Leverage Ratio and Interest Coverage Ratio. As defined in the 2020 Credit Agreement, we are required to maintain an Interest Coverage Ratio of at least 3.00 to 1.00, and a Total Leverage Ratio of no higher than 3.75 to 1.00. At July 31, 2022, we were in compliance with the Interest Coverage Ratio at 27.33 to 1.00 and the Total Leverage Ratio at 2.44 to 1.00. The Company, after considering the potential impacts of the COVID-19 pandemic, expects to remain in compliance with its financial maintenance covenant and meet its debt service obligations for at least the twelve months following the date of issuance of these financial statements.
See Note 5. Debt of the Consolidated Condensed Financial Statements for additional information.
Considering recent market conditions and the ongoing COVID-19 pandemic crisis, we have re-evaluated our operating cash flows and cash requirements and continue to believe that current cash, cash equivalents, future cash flow from operating activities and cash available under our 2020 Credit Agreement will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the Consolidated Condensed Financial Statements included in this quarterly report. To the extent additional funds are necessary to meet our liquidity needs such as that for acquisitions, share repurchases, cash dividends or other activities as we execute our business strategy, we anticipate that additional funds will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all.
Share Repurchase
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
In December 2011, our Board of Directors authorized the 2012 Share Repurchase Program and through subsequent amendments, the most recent in March 2017, the total repurchase authorization was increased from $500.0 million to $1.0 billion 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.
At July 31, 2022, $256.4 million remained authorized for repurchase under the 2012 Share Repurchase Program.
The Company's share repurchases during the nine months ended July 31, 2022, and 2021, were as follows:
| Nine Months | |||||||||||
| Periods Ended July 31, | 2022 | 2021 | |||||||||
| Number of shares | 191,165 | 69,622 | |||||||||
| Average repurchase price per share | $ | 410.41 | $ | 356.61 | |||||||
| Total costs of shares repurchased (in millions) | $ | 78.5 | $ | 24.8 | |||||||
Dividends
We paid a semiannual dividend of approximately $1.5 million or 3 cents per share, on February 9, 2022, to stockholders of record on January 21, 2022. We paid another semiannual dividend of approximately $1.5 million or 3 cents per share on August 11, 2022, to stockholders of record on July 27, 2022.
Estimates and Critical Accounting Policies
Information regarding estimates and critical accounting policies is included in Management's Discussion and Analysis on Form 10-K for the fiscal year ended October 31, 2021. There have been no material changes in our policies from those previously discussed in our Form 10-K for the fiscal year ended October 31, 2021.
Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 1. General of the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
Trademarks
ActivControl®, Aquaform®, Avaira Vitality®, Biofinity®, Biofinity Energys®, MyDay® and MiSight® 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. The clariti® mark is a registered trademark of The Cooper Companies, Inc., its affiliates and/or subsidiaries worldwide except in the United States where the use of clariti® is licensed. INSORB®, PARAGARD®, Mara® and Fetal Pillow® and Generate Life Sciences® are registered trademarks of CooperSurgical, Inc, its affiliates and/or subsidiaries.
41
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 and Danish krone denominated debt and receivables denominated in currencies other than the United States dollar, and from operations in other foreign currencies. 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 rates on our revolving lines of credit and term loans may vary with the federal funds rate and LIBOR. We may decrease this interest rate risk by hedging a portion of variable rate debt effectively converting it to fixed rate debt for varying periods.
On April 6, 2020, we entered into six interest rate swap contracts to hedge the Company's exposure to changes in cash flows associated with its variable rate debt. The interest rate swap contracts became effective on April 6, 2020, and had maturities of seven years or less. As of July 31, 2022, the outstanding contracts have a total notional amount of $1.0 billion.
We did not have any cross currency swaps or foreign currency forward contracts as of July 31, 2022.
On April 1, 2020, we entered into a Revolving Credit and Term Loan Agreement (the 2020 Credit Agreement), among us, CooperVision International Holding Company, LP, CooperSurgical Netherlands B.V., CooperVision Holding Kft, the lenders from time to time party thereto, and KeyBank National Association, as administrative agent. The 2020 Credit Agreement provides for (a) a multicurrency revolving credit facility (the 2020 Revolving Credit Facility) in an aggregate principal amount of $1.29 billion and (b) a term loan facility (the 2020 Term Loan Facility) in an aggregate principal amount of $850.0 million, each of which, unless terminated earlier, mature on April 1, 2025. The 2020 Credit Agreement replaced our previous credit agreement and funds from the new term loan were used to repay the outstanding amounts under the previous credit agreement, to repay an outstanding term loan, and for general corporate purposes. At July 31, 2022, the Company had $1,288.7 million available under the 2020 Revolving Credit Facility and $850.0 million outstanding under the 2020 Term Loan Facility.
On November 2, 2021, the Company entered into a 364-day, $840.0 million, term loan agreement by and among the Company, the lenders party thereto and The Bank of Nova Scotia, as administrative agent (the 2021 364-Day Term Loan Agreement) which matures on November 1, 2022. The Company used part of the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility and for general corporate purposes. We repaid $380.0 million during the three months ended July 31, 2022. At July 31, 2022, the Company had $460.0 million outstanding under the 2021 364-Day Term Loan Agreement.
On December 17, 2021, the Company entered into a Term Loan Agreement (the 2021 Credit Agreement) by and among the Company, the lenders from time to time party thereto, and PNC Bank, National Association, as administrative agent. The 2021 Credit Agreement provides for a term loan facility (the 2021 Term Loan Facility) in an aggregate principal amount of $1.5 billion, which, unless terminated earlier, matures on December 17, 2026. In addition, the Company has the ability from time to time to request an increase to the commitments under the 2021 Term Loan Facility or to establish a new term loan facility under the 2021 Credit Agreement in an aggregate principal amount not to exceed $1.125 billion, upon prior written notice to the administrative agent and subject to the discretionary participation of the lenders funding such term loans and certain limitations set forth in the 2021 Credit Agreement. At July 31, 2022, the Company had $1.5 billion outstanding under the 2021 Term Loan Facility.
If interest rates were to have increased or decreased by 1% or 100 basis points, the quarterly interest expense would have increased or decreased by approximately $5.1 million based on average debt outstanding for the third quarter of fiscal 2022, after consideration of our interest rate swap contracts.
See Note 5. Debt of the Consolidated Condensed Financial Statements for additional information.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation (with the participation of our Chief Executive Officer (our Principal Executive Officer) and Chief Financial Officer (our Principal Financial Officer)), as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in
42
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act)) are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during our third quarter of fiscal 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that certain of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 related considerations and any impact on the design and operating effectiveness of our internal control over financial reporting.
43
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is included in Note 12. Contingencies of the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
Our business faces significant risks. These risks include those described below and may include additional risks and uncertainties not presently known to us or that we currently deem immaterial. Our business, financial condition and results of operations could be materially adversely affected by any of these risks, and the trading prices of our common stock could decline by virtue of these risks. These risks should be read in conjunction with the other information in this report.
Risk factors describing the major risks to our business can be found under Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, and in our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The share repurchase program was approved by the Company’s Board of Directors in December 2011 (the 2012 Share Repurchase Program). The program as amended in December 2012, December 2013 and March 2017 provides authorization to repurchase up to a total of $1.0 billion of the Company’s common stock. Purchases under the 2012 Share Repurchase Program may be made from time to time on the open market at prevailing market prices or in privately negotiated transactions and are subject to a review of the circumstances in place at the time and will be made from time to time as permitted by securities laws and other legal requirements. This program has no expiration date and may be discontinued at any time.
During the third quarter of fiscal 2022, there were no share repurchases under the program. During the nine months ended July 31, 2022, we repurchased 191.2 thousand shares of the Company’s common stock for $78.5 million, at an average purchase price of $410.41 per share. At July 31, 2022, $256.4 million remained authorized for repurchase under the 2012 Share Repurchase Program.
During the third quarter of fiscal 2021, there were no share repurchases under the program. During the nine months ended July 31, 2021, we repurchased 69.6 thousand shares of the Company's common stock for $24.8 million, at an average purchase price of $356.61 per share.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
44
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 6. Exhibits
Exhibit Number | Description | ||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101.1 | The following materials from the Company's Quarterly Report on Form 10-Q for the three and nine months period ended July 31, 2022 formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Income and Comprehensive Income, (ii) Consolidated Condensed Balance Sheets, (iii) Consolidated Condensed Statements of Stockholders' Equity, (iv) Consolidated Condensed Statements of Cash Flows and (v) related Notes to Consolidated Condensed Financial Statements. | ||||
| 104.1 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | ||||
45
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
SIGNATURES
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: September 1, 2022 | /s/ Brian G. Andrews | ||||
| Brian G. Andrews | |||||
| Executive Vice President, Chief Financial Officer & Treasurer (Principal Financial Officer) | |||||
Date: September 1, 2022 | /s/ Agostino Ricupati | ||||
| Agostino Ricupati | |||||
| Chief Accounting Officer & Senior Vice President, Finance & Tax (Principal Accounting Officer) | |||||
46
Exhibit 31.1
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Albert G. White III, certify that:
1.I have reviewed this quarterly report on Form 10-Q of The Cooper Companies, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 1, 2022 | ||||||||
| /s/ Albert G. White III | ||||||||
| Albert G. White III | ||||||||
| President and Chief Executive Officer | ||||||||
Exhibit 31.2
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Brian G. Andrews, certify that:
1.I have reviewed this quarterly report on Form 10-Q of The Cooper Companies, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 1, 2022 | ||||||||
| /s/ Brian G. Andrews | ||||||||
| Brian G. Andrews | ||||||||
| Executive Vice President, Chief Financial Officer and Treasurer | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Albert G. White III, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
•the Quarterly Report on Form 10-Q of The Cooper Companies, Inc. (the “Company”) for the quarterly period ended July 31, 2022, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
•the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: September 1, 2022 | /s/ Albert G. White III | ||||
| Albert G. White III | |||||
| President and Chief Executive Officer | |||||
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Brian G. Andrews, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
•the Quarterly Report on Form 10-Q of The Cooper Companies, Inc. (the “Company”) for the quarterly period ended July 31, 2022, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
•the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: September 1, 2022 | /s/ Brian G. Andrews | ||||
| Brian G. Andrews | |||||
| Executive Vice President, Chief Financial Officer and Treasurer | |||||