The Cooper Companies, Inc. 10Q 2023 Q1 Quarterly report

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 January 31, 2023


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

For the transition period from to

Commission File Number 1-8597

_____________________________________________________________

The Cooper Companies, Inc.

(Exact name of registrant as specified in its charter)

_____________________________________________________________


Delaware			94-2657368
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

6101 Bollinger Canyon Road, Suite 500,

San Ramon, California 94583

(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

Common Stock, $.10 par value

COO

The New York Stock Exchange

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.

Large accelerated filer

☒

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 February 24, 2023, 49,455,664 shares of Common Stock, $0.10 par value, were outstanding.

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Income and Comprehensive Income

Three Months Ended January 31,

(In millions, except for earnings per share)

(Unaudited)



	2023		2022
Net sales	$	858.5	$	787.2
Cost of sales	300.0		268.8
Gross profit	558.5		518.4
Selling, general and administrative expense	330.9		319.1
Research and development expense	31.6		26.2
Amortization of intangibles	46.5		42.3


Operating income	149.5		130.8
Interest expense	26.1		6.6


Other expense, net	1.3		2.3
Income before income taxes	122.1		121.9
Provision for income taxes (Note 6)	37.5		26.6
Net income	$	84.6	$	95.3


Earnings per share (Note 7):
Basic	$	1.71	$	1.93
Diluted	$	1.70	$	1.91
Number of shares used to compute earnings per share:
Basic	49.4		49.4
Diluted	49.7		49.9
Other comprehensive income, net of tax:
Cash flow hedges	$	(21.0)	$	13.3
Foreign currency translation adjustment	84.0		(49.2)




Comprehensive income	$	147.6	$	59.4

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets

(In millions, unaudited)


	January 31, 2023		October 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	118.2	$	138.2
Trade accounts receivable, net of allowance for credit losses of $24.7 at January 31, 2023, and $20.7 at October 31, 2022	581.8		557.8
Inventories (Note 3)	659.1		628.7
Prepaid expense and other current assets	218.4		208.9

Total current assets	1,577.5		1,533.6
Property, plant and equipment, net	1,464.0		1,432.9
Goodwill	3,672.3		3,609.7
Other intangibles, net (Note 4)	1,863.4		1,885.1
Deferred tax assets	2,415.1		2,443.1
Other assets	568.8		587.9
Total assets	$	11,561.1	$	11,492.3
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt (Note 5)	$	68.1	$	412.6
Accounts payable	224.1		248.8
Employee compensation and benefits	167.2		152.1
Deferred revenue	106.4		93.6
Other current liabilities	350.0		373.1

Total current liabilities	915.8		1,280.2
Long-term debt (Note 5)	2,627.3		2,350.8
Deferred tax liabilities	144.3		149.9
Long-term tax payable	112.4		113.2
Deferred revenue	195.1		198.3
Accrued pension liability and other	230.5		225.2
Total liabilities	$	4,225.4	$	4,317.6
Contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $10 cents par value, 1.0 shares authorized, zero shares issued or outstanding	—		—
Common stock, $10 cents par value, 120.0 shares authorized, 53.9 issued and 49.4 outstanding at January 31, 2023, and 53.8 issued and 49.3 outstanding at October 31, 2022	5.4		5.4
Additional paid-in capital	1,779.2		1,765.5
Accumulated other comprehensive loss	(403.8)		(466.8)
Retained earnings	6,668.0		6,584.9
Treasury stock at cost: 4.5 shares at January 31, 2023, and 4.5 shares at October 31, 2022	(713.3)		(714.5)
Total Cooper stockholders’ equity	7,335.5		7,174.5
Noncontrolling interests	0.2		0.2
Stockholders’ equity (Note 9)	7,335.7		7,174.7
Total liabilities and stockholders’ equity	$	11,561.1	$	11,492.3

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

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	49.3	$	5.0	4.4	$	0.4	$	1,715.2	$	(341.3)	$	6,202.1	$	(639.6)	$	0.2	$	6,942.0
Net income	—	—		—	—		—		—		95.3		—		—		95.3
Other comprehensive income, net of tax	—	—		—	—		—		(35.9)		—		—		—		(35.9)
Issuance of common stock for stock plans, net and employee stock purchase plan	0.1	—		—	—		(8.8)		—		—		0.7		—		(8.1)
Dividends on common stock ($0.03 per share)	—	—		—	—		—		—		(1.5)		—		—		(1.5)
Share-based compensation expense	—	—		—	—		12.8		—		—		—		—		12.8
Stock repurchase	(0.2)	—		0.2	—		—		—		—		(78.5)		—		(78.5)
Balance at January 31, 2022	49.2	$	5.0	4.6	$	0.4	$	1,719.2	$	(377.2)	$	6,295.9	$	(717.4)	$	0.2	$	6,926.1




Balance at November 1, 2022	49.3	$	5.0	4.5	$	0.4	$	1,765.5	$	(466.8)	$	6,584.9	$	(714.5)	$	0.2	$	7,174.7
Net income	—	—		—	—		—		—		84.6		—		—		84.6
Other comprehensive income, net of tax	—	—		—	—		—		63.0		—		—		—		63.0
Issuance of common stock for stock plans, net and employee stock purchase plan	0.1	—		—	—		(2.5)		—		—		1.2		—		(1.3)
Dividends on common stock ($0.03 per share)	—	—		—	—		—		—		(1.5)		—		—		(1.5)
Share-based compensation expense	—	—		—	—		16.2		—		—		—		—		16.2
Balance at January 31, 2023	49.4	$	5.0	4.5	$	0.4	$	1,779.2	$	(403.8)	$	6,668.0	$	(713.3)	$	0.2	$	7,335.7

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows

Three Months Ended January 31,

(In millions, unaudited)


	2023		2022
Cash flows from operating activities:
Net income	$	84.6	$	95.3
Depreciation and amortization	89.7		82.0

Change in fair value of contingent consideration	(31.8)		—
Net changes in operating capital	(28.0)		6.2

Other non-cash items	52.1		(17.5)
Net cash provided by operating activities	166.6		166.0
Cash flows from investing activities:
Purchases of property, plant and equipment	(83.0)		(57.1)
Acquisitions of businesses and assets, net of cash acquired, and other	(30.3)		(1,612.2)

Net cash used in investing activities	(113.3)		(1,669.3)
Cash flows from financing activities:
Proceeds from long-term debt, net of issuance costs	702.0		1,499.5
Repayments of long-term debt	(426.3)		(548.6)
Net (repayments of) proceeds from short-term debt	(351.7)		830.4
Net payments related to share-based compensation awards	(3.4)		(10.8)

Repurchase of common stock	—		(78.5)
Issuance of common stock for employee stock purchase plan	1.8		1.6

Net cash (used in) provided by financing activities	(77.6)		1,693.6
Effect of exchange rate changes on cash, cash equivalents and restricted cash	4.2		(3.7)
Net (decrease) increase in cash, cash equivalents, restricted cash, and cash held for sale	(20.1)		186.6
Cash, cash equivalents, restricted cash, and cash held for sale at beginning of period	138.6		96.6
Cash, cash equivalents, restricted cash, and cash held for sale at end of period	$	118.5	$	283.2
Reconciliation of cash flow information:
Cash and cash equivalents	$	118.2	$	280.7
Restricted cash included in other current assets	0.3		2.2
Cash held for sale	—		0.3
Total cash, cash equivalents, restricted cash, and cash held for sale	$	118.5	$	283.2

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

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 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 Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2022. 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.

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, 2022.

Estimates

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. 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.

Accounting Pronouncements Recently Adopted

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 adopted this guidance prospectively on November 1, 2022, and it did not have a material impact on the Consolidated Condensed Financial Statements.

Accounting Pronouncements Issued But 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. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. Effective February 1, 2023, the Company transitioned its credit agreements from LIBOR to the Secured Overnight Financing Rate ("SOFR"). The Company plans to adopt the guidance prospectively in the second quarter of fiscal 2023 and does not expect it to have a material impact on the Company's financial position.

No other recently issued accounting pronouncements had or are expected to have a material impact on the Company's Consolidated Condensed Financial Statements.

Note 2. Acquisitions and Joint Venture

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.

On November 1, 2022, CooperVision completed the acquisition of a privately-held U.S.-based company that provides a broad portfolio of technologically advanced contact lens products, including scleral and hybrid lenses. The purchase price of the

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)

acquisition was $33.0 million. Based upon preliminary valuations, assets acquired primarily comprised of $12.6 million of customer relationship related intangibles, $7.6 million of technology, and $13.1 million of goodwill. The goodwill is not deductible for tax purposes. The purchase price allocation is preliminary, and the Company is in the process of finalizing information primarily related to the effect on taxes and the corresponding impact on goodwill.

Refer to "Joint Venture" 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 million installments following each of the first, second, third and fourth anniversaries of the closing. The transaction is subject to customary closing conditions, such as receipt of required regulatory approvals.

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.

The following table summarizes the fair values of assets acquired and liabilities assumed as of the acquisition date:


(In millions)
Current assets:
Cash and cash equivalents	58.6
Trade accounts receivable, net	18.1
Inventories	3.3
Prepaid expense and other current assets	33.1
Total current assets	113.1
Property, plant and equipment	42.6
Goodwill	1,173.9
Customer relationships	718.3
Trademarks	54.9

Other assets	21.5
Total assets acquired	$	2,124.3

Current liabilities:
Accounts payable	$	12.6
Employee compensation and benefits	12.3
Deferred revenue	71.4
Other current liabilities	11.6
Total current liabilities	107.9
Deferred tax liabilities	144.3
Lease liabilities	16.6
Deferred revenue	188.8
Other long-term liabilities	3.6
Total liabilities assumed	$	461.2

Total purchase price	$	1,663.1

Customer relationships will be amortized over 20 years and trademarks will be amortized over 15 years. Goodwill is primarily attributable to assembled workforce and expected synergies to be achieved. The goodwill is not deductible for tax purposes.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)

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.

Joint Venture

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.

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 fiscal 2022.

Further, CooperVision and Essilor International SAS (Essilor) executed the Contribution Agreement and Stock Purchase Agreement (the “Agreements”) in March 2022. 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 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 at $90.0 million which resulted in a $56.9 million gain in Other (income) expense on deconsolidation of SGV in fiscal 2022.

As of January 31, 2023, CooperVision determined that approval would not be achieved within the timeline set forth in the contractual terms of the regulatory approval payment and released the remaining $31.8 million contingent consideration liability.

Additional information regarding the joint venture is included in our notes to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.

Contingent Consideration

The following table provides a reconciliation of the beginning and ending balances of contingent consideration:


Period Ended January 31,	Three Months
(In millions)	2023		2022
Beginning balance	$	33.4	$	97.4
Purchase price contingent consideration	—		—
Payments	—		—
Change in fair value	(31.8)		3.5
Ending balance	$	1.6	$	100.9

Note 3. Inventories


(In millions)	January 31, 2023		October 31, 2022
Raw materials	$	191.6	$	173.7
Work-in-process	18.1		15.2
Finished goods	449.4		439.8
Total inventories	$	659.1	$	628.7

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)

Note 4. Intangible Assets

Intangible assets consisted of the following:


	January 31, 2023				October 31, 2022
(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	$	1,110.4	$	304.1	$	1,092.7	$	287.0	19
Composite intangible asset	1,061.9		371.7		1,061.9		354.0		15
Technology	512.9		327.3		504.1		317.5		12
Trademarks	210.9		66.3		209.6		62.4		15
License and distribution rights and other	50.7		24.8		50.7		23.8		10
	2,946.8		$	1,094.2	2,919.0		$	1,044.7	16
Less: accumulated amortization and translation	1,094.2				1,044.7
Intangible assets with definite lives, net	1,852.6				1,874.3
Intangible assets with indefinite lives, net (1)	10.8				10.8
Total other intangibles, net	$	1,863.4			$	1,885.1

(1) Intangible assets with indefinite lives include technology and trademarks.

Balances include foreign currency translation adjustments.

As of January 31, 2023, the estimate of future amortization expenses for intangible assets with definite lives is as follows:


Fiscal Years:	(In millions)
Remainder of 2023	$	139.2
2024	181.4
2025	171.5
2026	164.0
2027	149.0
Thereafter	1,047.5
Total remaining amortization for intangible assets with definite lives	$	1,852.6

There was no impairment of intangible assets recorded in the three months ended January 31, 2023.

Note 5. Financing Arrangements

The Company had outstanding debt as follows:

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)


(In millions)	January 31, 2023		October 31, 2022
Overdraft and other credit facilities	$	51.6	$	57.7
Term loans	—		338.0

Short-term debt, excluding financing leases	51.6		395.7
Financing lease liabilities	16.5		16.9
Short-term debt	$	68.1	$	412.6

Revolving credit	$	276.5	$	—
Term loans	2,350.0		2,350.0
Other	0.1		0.2
Less: unamortized debt issuance cost	(2.9)		(3.1)
Long-term debt, excluding financing leases	2,623.7		2,347.1
Financing lease liabilities	3.6		3.7
Long-term debt	$	2,627.3	$	2,350.8
Total debt	$	2,695.4	$	2,763.4

Additional information regarding our indebtedness is included in our notes to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, which was filed with the Securities and Exchange Commission on December 9, 2022. The carrying value of the Company's revolving credit facility and term loans approximates fair value based on current market rates (Level 2). As of January 31, 2023, the Company was in compliance with all debt covenants. On February 1, 2023, the Company amended its credit agreements to transition the interest rates applicable to the loans denominated in U.S. Dollars from LIBOR to SOFR, as defined in the credit agreements.

2021 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. The Company used the proceeds to fund the acquisition of Generate. Refer to Note 2. Acquisitions and Joint Venture for more details.

On January 31, 2023, the Company had $1.5 billion outstanding under the 2021 Term Loan Facility and the weighted average interest rate was 5.04%.

2021 364-Day Term Loan Agreement

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, which matured 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. The loan was fully repaid by the maturity date.

2020 Revolving Credit and Term Loan Agreement

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. The Company has an uncommitted option to increase the revolving credit facility or establish a new term loan in an aggregate amount up to $1.605 billion.

On January 31, 2023, the Company had $850.0 million outstanding under the 2020 Term Loan Facility and $276.5 million outstanding under the 2020 Revolving Credit Facility. The interest rate on the 2020 Term Loan Facility and the 2020 Revolving Credit Facility was 5.37% at January 31, 2023.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)

Note 6. Income Taxes

The effective tax rates for the three months ended January 31, 2023 and January 31, 2022 were 30.7% and 21.8%, respectively. The increase was primarily due to changes in the geographic composition of pre-tax earnings, an increase in the UK statutory tax rate from 19% to 25%, and capitalization of research and experimental expenditures for fiscal 2023 as required by the 2017 Tax Cuts and Jobs Act.

Note 7. Earnings Per Share


Period Ended January 31,	Three Months
(In millions, except per share amounts)	2023		2022
Net income	$	84.6	$	95.3
Basic:
Weighted average common shares	49.4		49.4
Basic earnings per share	$	1.71	$	1.93
Diluted:
Weighted average common shares	49.4		49.4
Effect of dilutive stock plans	0.3		0.5
Diluted weighted average common shares	49.7		49.9
Diluted earnings per share	$	1.70	$	1.91

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:


Period Ended January 31,	Three Months
(In thousands, except exercise prices)	2023	2022
Stock option shares excluded	514	224
Exercise prices	$300.12 - $406.17	$345.74 - $406.17
Restricted stock units excluded	213	—

Note 8. Share-Based Compensation

The Company has several stock plans that are described in the Company’s Annual Report on Form 10‑K for the fiscal year ended October 31, 2022. Compensation expense and the related income tax benefit recognized in our Consolidated Statements of Income and Comprehensive Income for share-based awards, including the Employee Stock Purchase Plan, were as follows:


Period Ended January 31,	Three Months
(In millions)	2023		2022
Selling, general and administrative expense	$	14.4	$	11.5
Cost of sales	1.1		1.3
Research and development expense	0.8		0.8
Total share-based compensation expense	$	16.3	$	13.6
Related income tax benefit	$	1.7	$	1.6

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)

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, 2021	$	(320.3)	$	(34.1)	$	13.1	$	(341.3)
Gross change in value	(49.2)		—		17.6		(31.6)
Tax effect	—		—		(4.3)		(4.3)
Balance at January 31, 2022	$	(369.5)	$	(34.1)	$	26.4	$	(377.2)


Balance at October 31, 2022	$	(555.0)	$	(6.2)	$	94.4	$	(466.8)
Gross change in value	84.0		—		(27.8)		56.2
Tax effect	—		—		6.8		6.8
Balance at January 31, 2023	$	(471.0)	$	(6.2)	$	73.4	$	(403.8)

Share Repurchases

In December 2011, the Company's Board of Directors authorized the 2012 Share Repurchase Program and through subsequent amendments, the most recent being in March 2017, the total repurchase authorization was increased from $500.0 million to $1.0 billion of the Company's common stock. As of January 31, 2023, $256.4 million remains authorized for repurchase under the 2012 Share Repurchase Program.

During the three months ended January 31, 2023, there was no share repurchase under the 2012 Share Repurchase Program. During the three months ended January 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.

Dividends

The Company paid a semiannual dividend of approximately $1.5 million or 3 cents per share, on February 10, 2023, to stockholders of record on January 23, 2023. 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.

Note 10. Contingencies

The Company is involved in various lawsuits, claims and other legal matters from time to time that arise in the ordinary course of conducting business, including matters involving our products, intellectual property, supplier relationships, distributors, competitor relationships, employees and other matters. The Company does not believe that the ultimate resolution of these proceedings or claims pending against it could have a material adverse effect on its financial condition or results of operations. At each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies. Legal fees are expensed as incurred.

Note 11. Business Segment Information

The following tables present revenue and other financial information by reportable segment:

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)

Segment information:


Period Ended January 31,	Three Months
(In millions)	2023		2022
CooperVision net sales by category:
Toric lens	$	189.8	$	182.2
Multifocal lens	71.8		65.8
Single-use sphere lens	168.3		167.0
Non single-use sphere, other	151.4		146.5
Total CooperVision net sales	$	581.3	$	561.5
CooperSurgical net sales by category:
Office and surgical	$	165.2	$	128.9
Fertility	112.0		96.8
CooperSurgical net sales	277.2		225.7
Total net sales	$	858.5	$	787.2
Operating income (loss):
CooperVision	$	160.1	$	127.4
CooperSurgical	5.8		15.6
Corporate	(16.4)		(12.2)
Total operating income	149.5		130.8
Interest expense	26.1		6.6


Other expense, net	1.3		2.3
Income before income taxes	$	122.1	$	121.9


(In millions)	January 31, 2023		October 31, 2022
Total identifiable assets:
CooperVision	$	6,945.7	$	6,778.9
CooperSurgical	4,333.9		4,407.8
Corporate	281.5		305.6
Total	$	11,561.1	$	11,492.3

Geographic information:


Period Ended January 31,	Three Months
(In millions)	2023		2022
Net sales to unaffiliated customers by country of domicile:
United States	$	434.8	$	365.3
Europe	248.2		250.4
Rest of world	175.5		171.5
Total	$	858.5	$	787.2


(In millions)	January 31, 2023		October 31, 2022
Net property, plant and equipment by country of domicile:
United States	$	871.3	$	856.1
Europe	325.3		310.8
Rest of world	267.4		266.0
Total	$	1,464.0	$	1,432.9

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)

Note 12. Financial Derivatives and Hedging

On April 6, 2020, the Company entered into six interest rate swap contracts which were used to hedge its exposure to changes in cash flows associated with its variable rate debt and were designated as derivatives in a cash flow hedge. The payment streams were based on a total notional amount of $1.5 billion at the inception of the contracts. As of January 31, 2023, three of the six interest rate swap contracts have matured and the outstanding contracts have a total notional amount of $1.0 billion and remaining maturities of five years or less. The Company did not have any cross-currency swaps or foreign currency forward contracts as of January 31, 2023.

The interest rate swap contracts are fair valued by netting discounted future fixed cash payments and the discounted expected variable cash receipts, which are estimated based on observable market interest rate curves (Level 2). The cumulative pre-tax impact of the gain on derivatives designated for hedge accounting recognized in accumulated other comprehensive income was $96.7 million ($73.4 million, net of tax) as of January 31, 2023, and $34.8 million ($26.4 million, net of tax) as of January 31, 2022. The fair value of derivative instruments are classified in "Other non-current assets" on our Consolidated Condensed Balance Sheets.

The following table summarizes the amounts recognized with respect to our derivative instruments within the accompanying Consolidated Statements of Income and Comprehensive Income:


Period Ended January 31,		Three Months
(In millions)		2023		2022
Derivatives designated as cash flow hedges	Location of (Gain)/Loss Recognized on Derivatives
Interest rate swap contracts	Interest (income) expense	$	(8.3)	$	1.9

The Company expects that $38.1 million recorded as a component of accumulated other comprehensive 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.

The following table details the changes in accumulated other comprehensive income:


Period Ended January 31,	Three Months
(In millions)	2023		2022
Beginning balance gain	$	124.5	$	17.2
Amount recognized in other comprehensive income on interest rate swap contracts, gross ($(14.8) million, net of tax and $11.9 million, net of tax, respectively)	(19.5)		15.7
Amount reclassified from other comprehensive income into earnings, gross ($(6.2) million, net of tax and $1.4 million, net of tax, respectively)	(8.3)		1.9
Ending balance gain	$	96.7	$	34.8

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: statements regarding the expected impacts of global macroeconomic, health and political conditions; and statements regarding acquisitions (including acquired companies' financial positions, our market position based on acquisitions, product development and business strategies, anticipated cost synergies, expected timing and benefits of pending transactions, and integration of acquired entities or operations, as well as estimates of our and the acquired entities' future expenses, sales and earnings per share) that are forward-looking. In addition, all statements regarding anticipated growth in our revenues, anticipated market conditions, planned product launches, restructuring or business transition expectations, regulatory plans, and expected results of operations 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:

•Adverse changes in the global or regional general business, political and economic conditions, including the impact of continuing uncertainty and instability of certain countries, man-made or natural disasters and pandemic conditions, that could adversely affect our global markets, and the potential adverse economic impact and related uncertainty caused by these items.

•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.

•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.

•Changes in tax laws, examinations by tax authorities, and changes in our geographic composition of income.

•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 Act (CCPA) in the U.S. and the General Data Protection Regulation (GDPR) 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 challenges associated with integration of acquisitions, man-made or natural disasters, pandemic conditions, 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 (MDR) and the EU In Vitro Diagnostic Medical Devices Regulation (IVDR).

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

•Legal costs, insurance expenses, settlement costs and the risk of an adverse decision, prohibitive injunction or settlement related to product liability, patent infringement, contractual disputes, 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 payers 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, 2022, 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.

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 first quarter of fiscal 2023 ended January 31, 2023, and compare them with the same period of fiscal 2022. We also 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.

Outlook

We are optimistic about the long-term prospects for the worldwide contact lens and general health care markets, and the resilience of and growth prospects for our businesses and products. However, we face significant risks and uncertainties in our global operating environment. These risks include uncertain global and regional business, political and economic conditions, including but not limited to those associated with man-made or natural disasters, pandemic conditions, inflation, foreign exchange rate fluctuations, regulatory developments, supply chain disruptions, and escalating global trade barriers. For more information on the risks associated with our global operating environment, refer to Part II, Item 1A "Risk Factors" herein. These risks and uncertainties have adversely affected our sales, cash flow and performance in the past and are likely to further adversely affect our future sales, cash flow and performance.

Global Market and Economic Conditions - Over the last few years in the U.S. and globally, market and economic conditions have been challenging, particularly in light of the COVID-19 pandemic. Foreign countries, in particular the Euro zone, have experienced recessionary pressures and face continued concerns about the systemic impacts of adverse economic conditions and geopolitical issues. In addition, changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the war in Ukraine, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic, as well as other stimulus and spending programs, have led to higher inflation, which is likely to lead to an increase in costs and may cause changes in fiscal and monetary policy, including increased interest rates. In a higher inflationary environment, we may be unable to raise the prices of our products and services sufficiently to keep up with the increase in our costs. These market and economic conditions could have a material adverse effect on our results of operations and financial condition.

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 U.S. 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 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.

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 monthly and 2-week 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, including medical devices, fertility, genomics, diagnostics, cryostorage, contraception and healthcare technology services (such as cord blood and cord tissue storage and genomic testing). CooperSurgical has established its market presence and distribution system by developing products and acquiring companies, products and services that complement its business model.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

Competitive factors in the segments in which CooperSurgical competes include technological and scientific advances, product quality and availability, price and customer service (including response time and effective communication of product information to physicians, consumers, fertility clinics and hospitals).

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.

CooperVision Net Sales by Category

Single-use spheres – This includes Biomedics 1 day, clariti 1 day, MyDay, MiSight and Proclear 1 day

Toric – This includes Avaira Vitality toric, Biomedics toric, Biofinity toric, clariti 1 day toric, MyDay toric and Proclear toric

Multifocal – This includes Biofinity multifocal, Biofinity toric multifocal, clariti 1 day multifocal, MyDay multifocal and Proclear 1 day multifocal

Non single-use sphere, other – This includes our Avaira Vitality spheres, frequent replacement product (FRP) lens portfolio (Biofinity spheres, Biofinity Energys, Biomedics, Proclear spheres, clariti spheres), ortho-k, scleral and custom lenses, contact lens solutions and other

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations



Three Months Ended January 31,					2023 vs 2022 % Change
($ in millions)	2023		2022
Toric	$	189.8	$	182.2	4	%
Multifocal	71.8		65.8		9	%
Single-use spheres	168.3		167.0		1	%
Non single-use sphere, other	151.4		146.5		3	%
	$	581.3	$	561.5	4	%

In the three months ended January 31, 2023, the growth experienced across all categories was partially offset by unfavorable foreign exchange rate fluctuations, which approximated $43.4 million.

•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 primarily include lens care which represented approximately 1% of net sales in the three months ended January 31, 2023 and 2022.

•Total silicone hydrogel products increased by 4% in the three months ended January 31, 2023, representing 79% of net sales, compared to 78% in the three months ended January 31, 2022.

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.



Period Ended January 31,	Three Months
($ in millions)	2023		2022		2023 vs 2022 % Change
Americas	$	241.4	$	215.5	12	%
EMEA	214.4		213.5		—	%
Asia Pacific	125.5		132.5		(5)	%
	$	581.3	$	561.5	4	%

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 and fertility.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

Office/Surgical – This includes Endosee endometrial imaging products, Fetal Pillow cephalic elevation devices for use in Cesarean sections, illuminated speculum products, Lone Star retractor systems, loop electrosurgical excision procedure (LEEP) products, Mara water ablation systems, newborn stem cell storage, PARAGARD contraceptive IUDs, point-of-care products and uterine positioning products.

Fertility – Our significant fertility products and services include cryostorage, donor gamete services, fertility consumables and equipment and genomic services (including preimplantation genetic testing).



Three Months Ended January 31,					2023 vs 2022 % Change
($ in millions)	2023		2022
Office and surgical	$	165.2	$	128.9	28	%
Fertility	112.0		96.8		16	%
	$	277.2	$	225.7	23	%

In the three months ended January 31, 2023, the net sales increase in both categories was primarily due to the addition of Generate. The increase was slightly offset by unfavorable foreign exchange rate fluctuations, which approximated $7.8 million.

Gross Margin

Consolidated gross margin decreased in the three months ended January 31, 2023 to 65% compared to 66% in the three months ended January 31, 2022, primarily driven by unfavorable currency.

Selling, General and Administrative Expense (SGA)



Three Months Ended January 31,									2023 vs 2022 % Change
($ in millions)	2023		% Net Sales		2022		% Net Sales
CooperVision	$	187.3	32	%	$	210.8	38	%	(11)	%
CooperSurgical	127.2		46	%	96.1		43	%	32	%
Corporate	16.4		—		12.2		—		34	%
	$	330.9	39	%	$	319.1	41	%	4	%

CooperVision's SGA decreased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to the $31.8 million release of contingent consideration liability associated with SightGlass Vision's regulatory approval milestone.

CooperSurgical's SGA increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to the addition of Generate's SGA and acquisition and integration expenses.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

Corporate SGA increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to share-based compensation related expenses.

Research and Development Expense (R&D)



Three Months Ended January 31,									2023 vs 2022 % Change
($ in millions)	2023		% Net Sales		2022		% Net Sales
CooperVision	$	16.7	3	%	$	16.1	3	%	4	%
CooperSurgical	14.9		5	%	10.1		4	%	47	%
	$	31.6	4	%	$	26.2	3	%	20	%

CooperVision's R&D expense for the three months ended January 31, 2023 remained relatively flat year over year. 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 months ended January 31, 2023 compared to the three months ended January 31, 2022, mainly due to European Medical Device Regulation costs. 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 January 31,									2023 vs 2022 % Change
($ in millions)	2023		% Net Sales		2022		% Net Sales
CooperVision	$	8.4	1	%	$	8.2	1	%	2	%
CooperSurgical	38.1		14	%	34.1		15	%	12	%
	$	46.5	5	%	$	42.3	5	%	10	%

CooperVision's amortization expense for the three months ended January 31, 2023 remained relatively flat year over year. CooperSurgical's amortization expense increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to the amortization of intangible assets newly acquired through acquisitions.

Operating Income



Three Months Ended January 31,									2023 vs 2022 % Change
($ in millions)	2023		% Net Sales		2022		% Net Sales
CooperVision	$	160.1	28	%	$	127.4	23	%	26	%
CooperSurgical	5.8		2	%	15.6		7	%	(63)	%
Corporate	(16.4)		—		(12.2)		—		34	%
	$	149.5	17	%	$	130.8	17	%	14	%

CooperVision's operating income increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to an increase in net sales partially offset by net changes in operating expenses.

CooperSurgical's operating income decreased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to an increase in SGA and amortization expenses, partially offset by an increase in net sales.

Corporate operating loss increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to higher share-based compensation expense.

On a consolidated basis, operating income increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due an increase in consolidated net sales.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

Interest Expense



Three Months Ended January 31,									2023 vs 2022 % Change
($ in millions)	2023		% Net Sales		2022		% Net Sales
Interest expense	$	26.1	3	%	$	6.6	1	%	295	%

Interest expense increased during the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to higher average debt balances and higher interest rates.

Other Expense (Income), Net


Period Ended January 31,	Three Months
($ in millions)	2023		2022

Foreign exchange (gain) loss	(1.0)		3.3
Other expense (income), net	2.3		(1.0)
	$	1.3	$	2.3

Foreign exchange gain is primarily associated with the relative weakening of the US dollar against foreign currencies and the effect on intercompany receivables during the three months ended January 31, 2023.

Other expense (income), net increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to loss on minority investments, partially offset by defined benefit plan related income.

Provision for Income Taxes

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

Capital Resources and Liquidity

Working capital on January 31, 2023 and October 31, 2022, was $661.7 million and $253.4 million, respectively. The increase in working capital was primarily due to repayment of the 364-day term loan during the first three months of fiscal 2023. See Note 5. Financing Arrangements for further information.

Cash Flow


($ in millions)	January 31, 2023		January 31, 2022
Operating activities	$	166.6	$	166.0
Investing activities	(113.3)		(1,669.3)
Financing activities	(77.6)		1,693.6
Effect of exchange rate changes on cash, cash equivalents, restricted cash	4.2		(3.7)
Net (decrease) increase in cash, cash equivalents, restricted cash and cash held for sale	$	(20.1)	$	186.6

Operating Cash Flow

Cash provided by operating activities in the first three months of fiscal 2023 remains flat compared to the first three months of fiscal 2022, primarily due to net changes in other non-cash items, partially offset by the net cash flow from changes in operating capital and the $31.8 million release of contingent consideration liability associated with SGV's regulatory approval milestone.

Investing Cash Flow

Cash used in investing activities in the first three months of fiscal 2023 was lower than cash used in the first three months of fiscal 2022, primarily attributable to $1.6 billion cash paid, net of cash acquired, for the Generate acquisition in the first three months of fiscal 2022. Refer to Note 2. Acquisitions and Joint Venture for further information.

Financing Cash Flow

Cash used in financing activities in the first three months of fiscal 2023 was primarily due to repayments of $338.0 million on the 2021 364-day term loan, partially offset by $276.5 million of funds drawn on the 2020 revolving credit.

Cash provided by financing activities in the first three months of fiscal 2022 was primarily due to funds received from the 2021 term loan facility ($1.5 billion) and the 2021 364-day term loan facility ($840.0 million), partially offset by $546.1 million repayments of the 2021 revolving credit and $78.5 million repurchases of common stock.

Refer to Note 5. Financing Arrangements for further information.

The following is a summary of the maximum commitments and the net amounts available to us under different credit facilities as of January 31, 2023:


(In millions)	Facility Limit		Outstanding Borrowings		Outstanding Letters of Credit		Total Amount Available		Maturity Date

Revolving Credit:
2020 Revolving Credit	$	1,290.0	$	276.5	$	1.4	$	1,012.1	April 1, 2025
Term loan:
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	$	3,640.0	$	2,626.5	$	1.4	$	1,012.1

As of January 31, 2023, the Company was in compliance with all debt covenants. See Note 5. Financing Arrangements of the Consolidated Condensed Financial Statements for additional information.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

Considering recent market conditions and the 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

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. The 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. As of January 31, 2023, $256.4 million remains authorized for repurchase under the 2012 Share Repurchase Program.

During the three months ended January 31, 2023, there was no share repurchase under the 2012 Share Repurchase Program.

Dividends

We paid a semiannual dividend of approximately $1.5 million or 3 cents per share, on February 9, 2023, to stockholders of record on January 20, 2023.

Transition from LIBOR

The UK’s Financial Conduct Authority (FCA), 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. Effective February 1, 2023, the Company transitioned its credit agreements from LIBOR to the Secured Overnight Financing Rate ("SOFR"). 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.

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, 2022. 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, 2022.

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®, Biomedics®, Proclear®, 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. Endosee®, Insorb®, Paragard®, Mara®, Fetal Pillow® and Generate Life Sciences® are registered trademarks of CooperSurgical, Inc, its affiliates and/or subsidiaries.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosure About Market Risk

We are exposed to market risks that relate principally to changes in interest rates and foreign currency fluctuations. We do not enter into derivative financial instrument transactions for speculative purposes.

Foreign Currency Exchange Risk

We operate multiple foreign subsidiaries that manufacture and market our products worldwide. As a result, our earnings, cash flow and financial position are exposed to foreign currency risk from foreign currency denominated receivables and payables, sales transactions, capital expenditures and net investment in certain foreign operations. 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 and Japanese yen denominated debt and receivables denominated in currencies other than the United States dollar, and from operations in other foreign currencies. We did not have any cross-currency swaps or foreign currency forward contracts as of January 31, 2023.

Interest Rate Risk

We are 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 SOFR (and, previously, LIBOR). As of January 31, 2023, we had outstanding debt for an aggregate carrying amount of $2.7 billion. We have entered, and in the future may enter, into interest rate swaps to manage interest rate risk. Effective February 1, 2023, the interest rate on our credit agreements was converted from LIBOR to SOFR.

Our ultimate realized gain or loss with respect to interest rate fluctuations will depend on interest rates, the exposures that arise during the period and our hedging strategies at that time. As an example, if interest rates were to increase or decrease by 1% or 100 basis points, the quarterly interest expense would have increased or decreased by approximately $4.5 million based on average debt outstanding, after consideration of our interest rate swap contracts, during the first quarter of fiscal 2023. See Note 5. Financing Arrangements 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 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 first quarter of fiscal 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding legal proceedings is included in Note 10. 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, 2022. There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October 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. As of January 31, 2023, $256.4 million remains authorized for repurchase under the 2012 Share Repurchase Program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 6. Exhibits


Exhibit Number			Description

10.1			Amendment No.1, dated as of February 1, 2023, to the Term Loan Agreement, dated as of December 17, 2021, by and among The Cooper Companies, Inc. and PNC Bank, National Association, as the administrative agent.

10.2			Amendment No. 3, dated as of February 1, 2023, to the Revolving Credit and Term Loan Agreement, dated as of April 1, 2020, by and among the Company, CooperVision International Limited, and CooperSurgical Holdings Limited, the borrowers party thereto, and KeyBank National Association, as administrative agent.

10.3			The Cooper Companies, Inc. 2023 Incentive Payment Plan, incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on December 19, 2022

31.1			Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

31.2			Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

32.1			Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350

32.2			Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350

101.1			The following materials from the Company's Quarterly Report on Form 10-Q for the three months period ended January 31, 2023 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)

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: March 3, 2023			/s/ Brian G. Andrews
			Brian G. Andrews
			Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)



Date: March 3, 2023			/s/ Agostino Ricupati
			Agostino Ricupati
			Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

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The Cooper Companies, Inc. (COO) 10-Q2023 Q1 Quarterly report

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