THE COOPER COMPANIES, INC. 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 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, and escalating global trade barriers, including additional tariffs, by countries such asChina . •Changes in tax laws or their interpretation, changes in statutory tax rates, and adverse outcomes in tax disputes including but not limited to, theU.S. , theUnited Kingdom 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 obtain 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). •Adverse changes in global political and economic conditions, and related uncertainty caused by theUnited Kingdom's withdrawal from theEuropean Union (EU) and its potential impact on, among other things, the movement of goods and materials in our supply chain, additional regulatory approvals and requirements, and increased tariffs and duties. •Compliance costs and potential liability in connection withU.S. and foreign laws and health care regulations pertaining to privacy and security of personal information, such as HIPAA and the California Consumer Privacy 22 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Act (CCPA) in theU.S. and the General Data Protection Regulation requirements inEurope , 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. •NewU.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 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. •Environmental risks, including increasing environmental legislation and the broader impacts of climate change. •Other events described in ourSecurities and Exchange Commission filings, including the "Business" and "Risk Factors" sections in our Annual Report on Form 10-K for the fiscal year endedOctober 31, 2020 , 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. 23
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of OperationsResults of Operations
In this section, we discuss the results of our operations for the second quarter of fiscal 2021 endedApril 30, 2021 and compare them with the same period of fiscal 2020. 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.
Non-GAAP Financial Measures
The succeeding sections of Management's Discussion and Analysis (MD&A) may include certain financial measures that are not defined by accounting principles generally accepted inthe United States (GAAP). These measures, which are referred to as non-GAAP measures, are listed below: •Free Cash Flow - Free cash flow is calculated as net cash provided by operating activities less capital expenditures. •Constant currency - Constant currency is defined as excluding the effect of foreign currency fluctuations. For a discussion of these measures and the reasons management believes they are useful to investors, refer to "Summary of Non-GAAP Financial Measures" below. To the extent applicable, this MD&A includes reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. The presentation of these non-GAAP financial measures is not intended to be a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP and may be different from non-GAAP financial measures used by other companies, and therefore, may not be comparable among companies.
COVID-19 Considerations
TheWorld 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 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 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, higher cost of production and higher freight charges as a result of the COVID-19 pandemic. As a result, we instituted an inventory control project to reduce buildup of excess inventory. 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 around the world without 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, 24 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
duration and severity of the pandemic outbreak and any subsequent waves of additional outbreaks, 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.
[[Image Removed: coo-20210430_g1.jpg]]
Second Quarter Highlights
•Gross profit of $487.1 million , up 51% from $323.5 million in the prior year
period
•Operating income of $143.2 million , up 401% from $28.6 million in the prior
year period
•Diluted earnings per share of $2.36 , up 922% from $0.23 per share in the prior
year period
•Cash provided by operations of $192.6 million , compared to $25.8 million in the
prior year period
Six Months Highlights
•Gross profit $937.8 million , up 25% from $750.0 million in the prior year
period
•Operating income $276.6 million , up 98% from $139.7 million in the prior year
period
•Diluted earnings per share of $44.65 , up 2076% from $2.05 per share in the
prior year period
•Cash provided by operations $340.3 million , compared to $155.5 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 foreign
currency volatility, changes in tax legislation, debt concerns, the uncertainty
following the United Kingdom's withdrawal from the EU, changes to existing
regulations 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 and myopia management contact
lenses offered in a variety of materials including using silicone hydrogel
Aquaform® technology, PC Technology™ and ActivControl® 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
25
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 markets with products such as 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 available in the
United States during fiscal 2020. 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 entities during the six months ended
April 30, 2021 :
• A privately-held U.K. contact lens manufacturer on April 26, 2021
• A privately-held medical device company on January 19, 2021
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 six months ended
April 30, 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
CooperSurgical acquired the following entity during the six months ended
April 30, 2020 :
•A privately-held distributor of IVF medical devices and systems on December 13,
2019
Capital Resources - At April 30, 2021 , we had $105.9 million in unrestricted
cash, primarily held outside the United States , and $813.6 million available
under our 2020 Credit Agreement. The $850.0 million term loan entered into on
April 1, 2020 , and the $350.0 million term loan entered into on October 16,
2020 , remain outstanding as of April 30, 2021 .
See Note 5. Debt of the Consolidated Condensed Financial Statements for
additional information.
Transition from LIBOR
TheUnited Kingdom's Financial Conduct Authority , which regulates theLondon Interbank Offered Rate (LIBOR), announced inJuly 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021. Further, inMarch 2020 , the 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. The Company has material contracts that are indexed to LIBOR and is 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 are not yet able to reasonably estimate the expected impact. 26 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Selected Statistical Information - Percentage of
Three Months Six Months
Percentage of Net Sales 2021 vs 2020 % Percentage of Net Sales 2021 vs 2020 %
Change in Change in
Periods Ended April 30, 2021 2020 Absolute Values 2021 2020 Absolute Values
Net sales 100 % 100 % 37 % 100 % 100 % 20 %
Cost of sales 32 % 38 % 15 % 33 % 36 % 10 %
Gross profit 68 % 62 % 51 % 67 % 64 % 25 %
Selling, general and administrative
expense 40 % 45 % 20 % 39 % 42 % 10 %
Research and development expense 3 % 5 % (12) % 3 % 4 % (8) %
Amortization of intangibles 5 % 6 % 10 % 5 % 6 % 4 %
Operating income 20 % 5 % 401 % 20 % 12 % 98 %
Net Sales Growth by Business Unit
Periods Ended April 30, Three Months Six Months
2021 vs 2020 2021 vs 2020 %
($ in millions) 2021 2020 Increase % Change 2021 2020 Increase Change
CooperVision $ 522.6 $ 402.2 $ 120.4 30 % $ 1,029.6 $ 887.4 $ 142.2 16 %
CooperSurgical 196.9 122.7 74.2 60 % 370.4 283.7 86.7 31 %
Net sales $ 719.5 $ 524.9 $ 194.6 37 % $ 1,400.0 $ 1,171.1 $ 228.9 20 %
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
[[Image Removed: coo-20210430_g2.jpg]][[Image Removed: coo-20210430_g3.jpg]]
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended April 30, 2021 vs 2020
($ in millions) 2021 2020 % Change
Toric $ 172.8 $ 133.6 29 %
Multifocal 58.0 45.1 29 %
Single-use spheres 144.5 116.1 24 %
Non single-use sphere, other 147.3 107.4 37 %
$ 522.6 $ 402.2 30 %
[[Image Removed: coo-20210430_g4.jpg]][[Image Removed: coo-20210430_g5.jpg]]
Six Months Ended April 30, 2021 vs 2020
($ in millions) 2021 2020 % Change
Toric $ 335.1 $ 288.7 16 %
Multifocal 115.7 96.9 19 %
Single-use spheres 290.5 254.2 14 %
Non single-use sphere, other 288.3 247.6 16 %
$ 1,029.6 $ 887.4 16 %
In the three and six months ended April 30, 2021 :
•Toric and multifocal lenses grew primarily through the success of Biofinity and
MyDay.
•Single-use sphere lenses growth was primarily attributed to MyDay and clariti
lenses.
•"Other" products primarily include lens care which represented approximately 2%
of net sales in both the three and six months ended April 30, 2021 and 2020.
•Total silicone hydrogel products increased by 36% and 21% in the three and six
months ended April 30, 2021 , representing 77% of net sales, compared to 73% in
the three and six months ended April 30, 2020 .
•Foreign exchange rates positively impacted sales by approximately $21.5 million
and $36.3 million in the three and six months ended April 30, 2021 and had a
negative impact of $7.5 million and $9.7 million in the prior year periods. In
the three and six months ended April 30, 2021 , net sales increased by 25% and
12% in constant currency over the prior year periods.
28
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
•Sales growth was primarily driven by an increase in the volume of lenses sold
across our core portfolio due to a recovery in demand from the impact of the
COVID-19 pandemic. Average realized prices by product did not materially
influence sales.
•We expect to continue seeing downward pressure and volatility in certain
markets related to net sales if the COVID-19 pandemic continues, as optical
retailers and healthcare centers continue to restrict access, and social
distancing measures continue.
CooperVision Net Sales by Geography
CooperVision competes in the worldwide soft contact lens market and services in
three primary regions: the Americas , EMEA (Europe , Middle East and Africa ) and
Asia Pacific .
Periods Ended April 30, Three Months Six Months
2021 vs 2020 2021 vs 2020
($ in millions) 2021 2020 % Change 2021 2020 % Change
Americas $ 207.5 $ 149.6 39 % $ 407.9 $ 339.0 20 %
EMEA 194.2 154.1 26 % 383.0 341.1 12 %
Asia Pacific 120.9 98.5 23 % 238.7 207.3 15 %
$ 522.6 $ 402.2 30 % $ 1,029.6 $ 887.4 16 %
CooperVision's growth in net sales across all regions was primarily attributable
to market gains of silicone hydrogel contact lenses and favorable foreign
currency impacts. 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.
[[Image Removed: coo-20210430_g6.jpg]][[Image Removed: coo-20210430_g7.jpg]]
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended April 30 , 2021 vs 2020
($ in millions) 2021 2020 % Change
Office and surgical products $ 112.6 $ 69.6 62 %
Fertility 84.3 53.1 58 %
$ 196.9 $ 122.7 60 %
[[Image Removed: coo-20210430_g8.jpg]][[Image Removed: coo-20210430_g9.jpg]]
Six Months Ended April 30 , 2021 vs 2020
($ in millions) 2021 2020 % Change
Office and surgical products $ 216.1 $ 168.0 29 %
Fertility 154.3 115.7 33 %
$ 370.4 $ 283.7 31 %
In the three and six months ended April 30, 2021 :
•Office and surgical products increased compared to the prior year periods
mainly due to an increase in PARAGARD® sales compared to the prior year periods.
Further, there was an increase from other office and surgical products such as
Uterine Manipulators, Retractors, Closure products, LEEP products and
Point-of-Care products.
•Fertility net sales increased compared to the prior year periods mainly due to
an increase in revenue from IVF consumables, equipment sales, preimplantation
genetic testing and sales from our recent acquisition, Embryo Options.
•Foreign exchange rates positively impacted sales by approximately $3.0 million
and $4.1 million in the three and six months ended April 30, 2021 and had a
negative impact of $1.4 million and $2.1 million in the prior year periods. In
the three and six months ended April 30, 2021 , net sales increased by 58% and
29% in constant currency over the prior year periods.
•Sales growth was primarily driven by stronger demand for our products and
services as a result of our customers continuing to reopen their health care
facilities and medical offices.
•We expect to continue seeing downward pressure and volatility in certain
markets related to net sales if the COVID-19 pandemic continues, as hospitals
and healthcare centers continue to restrict access, and social distancing
measures continue.
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of OperationsGross Margin
Consolidated gross margins were 68% and 67% in the three and six months endedApril 30, 2021 , up from 62% and 64% in the prior year periods, primarily driven by product mix and favorable currency. Selling, General and Administrative Expense (SGA) Three Months Ended April 30, 2021 vs 2020 ($ in millions) 2021 % Net Sales 2020 % Net Sales % Change CooperVision$ 194.5 37 %$ 160.8 40 % 21 % CooperSurgical 79.7 40 % 62.9 51 % 27 % Corporate 11.6 - 13.5 - (14) %$ 285.8 40 %$ 237.2 45 % 20 % Six Months Ended April 30, 2021 vs 2020 ($ in millions) 2021 % Net Sales 2020 % Net Sales % Change CooperVision$ 373.6 36 %$ 333.2 38 % 12 % CooperSurgical 150.3 41 % 135.3 48 % 11 % Corporate 23.1 - 27.0 - (14) %$ 547.0 39 %$ 495.5 42 % 10 % CooperVision's SGA increased in the three and six months endedApril 30, 2021 compared to fiscal 2020 primarily due to increases in distribution costs, general and administrative costs and advertising and marketing activities primarily related to myopia management, partially offset by lower travel expenses due to the COVID-19 pandemic. CooperVision's SGA in the three and six months endedApril 30, 2021 included$1.1 million and$3.0 million of costs primarily related to acquisition and integration activities. CooperVision's SGA in the three and six months endedApril 30, 2020 included$0.8 million and$1.4 million of costs primarily related to integration activities. CooperSurgical's SGA increased in the three and six months endedApril 30, 2021 compared to fiscal 2020 primarily due to increases in selling expenses, partially offset by lower advertising and marketing costs and travel expenses due to the COVID-19 pandemic. CooperSurgical's SGA in the three and six months endedApril 30, 2021 included$4.9 million and$6.7 million of acquisition and integration expenses and legal settlement. CooperSurgical's SGA in the three and six months endedApril 30, 2020 included$4.4 million and$10.5 million of integration expenses and European Medical Devices Regulation costs. Corporate SGA decreased in the three and six months endedApril 30, 2021 compared to fiscal 2020 primarily due to savings from lower travel expenses due to the COVID-19 pandemic and timing of corporate projects. Research and Development Expense (R&D) Three Months Ended April 30, 2021 vs 2020 ($ in millions) 2021 % Net Sales 2020 % Net Sales % Change CooperVision 13.8 3 % 12.8 3 % 8 % CooperSurgical 7.2 4 % 11.0 9 % (35) % 21.0 3 % 23.8 5 % (12) % Six Months Ended April 30, 2021 vs 2020 ($ in millions) 2021 % Net Sales 2020 % Net Sales % Change CooperVision 27.9 3 % 25.9 3 % 8 % CooperSurgical 14.5 4 % 20.1 7 % (28) % 42.4 3 % 46.0 4 % (8) %
In the three and six months ended
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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 increased in the three and six months ended April
30, 2021 compared to fiscal 2020, mainly due to MiSight and timing of R&D
projects. As a percentage of sales, 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 decreased in the three and six months ended April
30, 2021 compared to fiscal 2020, mainly due to timing of R&D projects and
changes in headcount. CooperSurgical has not paused research programs during the
COVID-19 pandemic and has maintained its spend on innovations and increased its
spend on key regulatory investment areas to support our long-term objectives. As
a percentage of sales, CooperSurgical's R&D expense decreased, primarily due to
an increase in net sales. CooperSurgical's R&D activities are focused on
upgrading existing and developing new products ranging from diagnostics,
surgical devices to fertility instruments and solutions.
Amortization Expense
Three Months Ended April 30, 2021 vs 2020
($ in millions) 2021 % Net Sales 2020 % Net Sales % Change
CooperVision $ 9.4 2 % $ 7.8 2 % 22 %
CooperSurgical 27.7 14 % 26.1 21 % 6 %
$ 37.1 5 % $ 33.9 6 % 10 %
Six Months Ended April 30, 2021 vs 2020
($ in millions) 2021 % Net Sales 2020 % Net Sales % Change
CooperVision $ 17.9 2 % $ 16.4 2 % 9 %
CooperSurgical 53.9 15 % 52.4 18 % 3 %
$ 71.8 5 % $ 68.8 6 % 4 %
CooperVision's and CooperSurgical's amortization expense remained relatively
flat in the three and six months ended April 30, 2021 compared to fiscal 2020.
As a percentage of sales, CooperSurgical's amortization expense decreased,
primarily due to an increase in net sales.
Operating Income
Three Months Ended April 30, 2021 vs 2020
($ in millions) 2021 % Net Sales 2020 % Net Sales % Change
CooperVision $ 131.7 25 % $ 67.7 17 % 95 %
CooperSurgical 23.1 12 % (25.6) (21) % 190 %
Corporate (11.6) - (13.5) - 14 %
$ 143.2 20 % $ 28.6 5 % 401 %
Six Months Ended April 30, 2021 vs 2020
($ in millions) 2021 % Net Sales 2020 % Net Sales % Change
CooperVision $ 259.2 25 % $ 190.6 21 % 36 %
CooperSurgical 40.6 11 % (23.9) (8) % 270 %
Corporate (23.2) - (27.0) - 14 %
$ 276.6 20 % $ 139.7 12 % 98 %
CooperVision's operating income increased as a percentage of net sales and in
absolute dollars in the three and six months ended April 30, 2021 compared to
the prior year periods, primarily due to an increase in net sales.
CooperSurgical's operating income increased as a percentage of net sales and in
absolute dollars in the three and six months ended April 30, 2021 compared to
the prior year periods, primarily due to an increase in net sales and a decrease
in R&D expenses.
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Corporate operating loss decreased in the three and six months ended April 30,
2021 compared to the prior year periods, primarily due to lower professional
fees and travel expenses as a result of the COVID-19 pandemic.
On a consolidated basis, operating income increased as a percentage of net sales
and in absolute dollars primarily due to the increase in consolidated net sales.
Interest Expense
Three Months Ended April 30, 2021 vs 2020
($ in millions) 2021 % Net Sales 2020 % Net Sales % Change
Interest expense $ 6.1 1 % $ 12.8 2 % (52) %
Six Months Ended April 30, 2021 vs 2020
($ in millions) 2021 % Net Sales 2020 % Net Sales % Change
Interest expense $ 12.5 1 % $ 24.4 2 % (49) %
Interest expense decreased as a percentage of net sales and in absolute dollars
during the three and six months ended April 30, 2021 primarily due to lower
interest rates and lower average debt balances compared to the prior year
periods.
Other (Income) Expense, Net
Periods Ended April 30, Three Months Six Months
($ in millions) 2021 2020 2021 2020
Investment gain $ - $ - $ (11.5) -
Foreign exchange (gain) loss 1.3 2.4 1.2 $ 3.8
Other (income) expense, net (0.6) 4.4 (1.5) 5.1
$ 0.7 $ 6.8 $ (11.8) $ 8.9
On January 19, 2021 , CooperVision acquired all of the remaining equity interests
of a privately-held medical device company that develops spectacle lenses for
myopia management. The fair value remeasurement of our previous equity
investment immediately before the acquisition resulted in a gain of
$11.5 million recognized in the first quarter of fiscal 2021.
Foreign exchange (gain) loss primarily resulted from the revaluation and
settlement of foreign currency-denominated balances.
Other income increased in the three and six months ended April 30, 2021 ,
primarily due to an increase in defined benefit plan related income and gains on
minority investments during the periods.
Provision for Income Taxes
Our effective tax rates for the three months ended April 30, 2021 and April 30,
2020 were 13.8% and (27.7)%, respectively. The increase was primarily due to
changes in the geographical composition of pre-tax earnings. Our effective tax
rate for the second quarter of fiscal 2021 was lower than the U.S. federal
statutory tax rate primarily due to earnings in foreign jurisdictions with lower
tax rates and excess tax benefits from share-based compensation.
Our effective tax rates for the six months ended April 30, 2021 and April 30,
2020 were (704.2)% and 4.2%, respectively. The decrease was primarily due to an
intra-group transfer of intellectual property, as discussed below. Our effective
tax rate for the six months ended April 30, 2021 was lower than the U.S. federal
statutory tax rate primarily due to the intra-group transfer. Our effective tax
rates for the six months ended April 30, 2021 and April 30, 2020 were otherwise
lower than the U.S. federal statutory tax rate primarily due to earnings in
foreign jurisdictions with lower tax rates and excess tax benefits from
share-based compensation.
In November 2020 , we completed an intra-group transfer of certain intellectual
property and related assets to a UK subsidiary as part of a group restructuring
to establish headquarters operations in the UK . Income before income taxes
resulting from this transfer is eliminated upon consolidation. 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
33
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
these assets. As a result, we recognized a deferred tax asset of $1,987.9
million , with a corresponding income tax benefit, during the three months ended
January 31, 2021 .
Share-Based Compensation Plans
We have several share-based compensation plans that are described in our Annual
Report on Form 10-K for the fiscal year ended October 31, 2020 . The compensation
expense and related income tax benefit recognized in our Consolidated Statements
of Income and Comprehensive Income for share-based awards were as follows:
Periods Ended April 30, Three Months Six Months
($ in millions) 2021 2020 2021 2020
Selling, general and administrative expense $ 8.7 $ 8.3 $ 17.8 $ 17.0
Cost of sales 0.9 1.1 2.0 2.1
Research and development expense 0.6 0.6 1.2 1.2
Total share-based compensation expense $ 10.2 $ 10.0 $ 21.0 $ 20.3
Related income tax benefit $ 1.2 $ 1.1 $ 2.4 $ 2.5
Capital Resources and Liquidity
Second Quarter Highlights
•Operating cash flow of $192.6 million compared to $25.8 million in the prior
year period
•Expenditures for purchases of property, plant and equipment of $49.9 million
compared to $89.3 million in the prior year period
•Cash payments for acquisitions and others of $91.1 million compared to $1.8
million in the prior year period
•Cash provided by operations of $192.6 million offset by capital expenditures of
$49.9 million resulted in positive free cash flow of $142.7 million , up $206.2
million compared to the prior year period
Six-Month Highlights
•Operating cash flow of $340.3 million compared to $155.5 million in the prior
year period
•Expenditures for purchases of property, plant and equipment of $105.8 million
compared to $158.3 million in the prior year period
•Cash payments for acquisitions and others of $170.9 million compared to $11.2
million in the prior year period
•Cash provided by operations of $340.3 million offset by capital expenditures of
$105.8 million resulted in positive free cash flow of $234.5 million , up $237.3
million compared to the prior year period
Comparative Statistics
($ in millions) April 30, 2021 October 31, 2020
Cash and cash equivalents $ 105.9 $ 115.9
Total assets $ 9,013.8 $ 6,737.5
Working capital $ 329.9 $ 269.8
Total debt $ 1,737.5 $ 1,793.2
Stockholders' equity $ 6,162.8 $ 3,824.8
Ratio of debt to equity 0.28:1 0.47:1
Debt as a percentage of total capitalization 22 % 32 %
34
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Working Capital
The increase in working capital at April 30, 2021 from the end of fiscal 2020
was primarily due to:
•increase in trade accounts receivable of $54.7 million primarily due to higher
sales and timing of collections;
•increase in inventories of $11.6 million primarily due to higher sales and the
build up of inventory for future product launches;
•decrease in accounts payable of $34.4 million due to timing of payments,
partially offset by:
•increase in other current liabilities of $10.5 million ;
•decrease in cash and cash equivalents of $10.0 million ;
•increase in employee compensation and benefits of $8.0 million ;
•decrease in prepaid expense and other current assets of $7.9 million ; and
•increase in short-term debt of $3.3 million .
At April 30, 2021 , our inventory months on hand was 7.5 compared to 6.6 at
October 31, 2020 . The $11.6 million increase in inventories was primarily due to
higher sales and the build up of inventory for future product launches.
Our days sales outstanding (DSO) were relatively consistent at 59 days at April
30, 2021 , compared to 60 days at October 31, 2020 .
Operating Cash Flow
Cash provided by operating activities increased by $184.8 million from $155.5
million in the first half of fiscal 2020 to $340.3 million in the first half of
fiscal 2021. This increase in cash flow provided by operating activities
primarily consists of:
•increase in net income of $2,116.6 million from a net income of $102.0 million
in the first half of fiscal 2020 to $2,218.6 million in the first half of fiscal
2021;
•increase of $13.6 million in net changes in depreciation and amortization, from
$139.4 million during the first half of fiscal 2020 to $153.0 million during the
first half of fiscal 2021;
•increase of $58.4 million in net cash flow from changes in operating capital,
from $119.8 million outflow in the first half of fiscal 2020 to $61.4 million
outflow in the first half of fiscal 2021, partially offset by:
•decrease of $1,974.0 million in the net changes in deferred income taxes. Refer
to Note 6. Income Taxes for further information; and
•decrease from other non-cash items of $29.8 million , from $37.5 million during
the first half of fiscal 2020 to $7.7 million during the first half of fiscal
2021.
The increase in net income of $2,116.6 million was primarily due to:
•recognized income tax benefit of $1,987.9 million . Refer to Note 6. Income
Taxes for further information;
•increase of $136.9 million in operating income from $139.7 in the first half of
fiscal 2020 to $276.6 million in the first half of fiscal 2021 primarily due to
the increase in consolidated net sales and decrease in certain costs; and
•an investment gain of $11.5 million . Refer to Note 2. Acquisitions for further
information.
•interest expense decrease of $11.9 primarily due to lower interest rates and
lower average debt balances compared to the prior year period.
35
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The $58.4 million increase in the net cash flow from changes in operating
capital compared to the prior year period is primarily due to:
•$80.6 million increase in the net changes in accrued liabilities and other
primarily due to impact from adoption of ASC 842, Leases in prior year period
and higher customer rebate accruals in current period as a result of higher
sales;
•$52.4 million increase in the net changes in inventories due to lower sales in
prior year period;
•$28.5 million increase in the net changes in income tax payable, partially
offset by:
•$97.2 million decrease in the net changes in trade and other receivables
primarily due to timing of collections and higher sales.
The $29.8 million decrease in non-cash items compared to the prior year period
is primarily due to:
•an investment gain of $11.5 million . Refer to Note 2. Acquisitions for further
information;
•$9.2 million decrease in the net changes in other long-term assets, and
•$8.1 million decrease from effect of exchange rate change on cash.
Investing Cash Flow
Cash used in investing activities increased by $107.2 million to $276.7 million
in the first half of fiscal 2021 from $169.5 million in the first half of fiscal
2020 due to:
•$161.6 million increase in payments made for acquisitions in the first half of fiscal 2021 compared to the prior year period, partially offset by;
•$52.5 million decrease in capital expenditures. Financing Cash Flow Cash flows from financing activities decreased by$87.4 million to$79.0 million cash outflow in the first half of fiscal 2021 compared to$8.4 million inflow in the first half of fiscal 2020, primarily due to: •$1,375.7 million decrease in proceeds from long-term debt, primarily due to funds received from the 2020 Credit Agreement, partially offset by; •$1,235.7 million decrease in repayments of long-term debt, primarily due to repayments of funds from the 2020 Credit Agreement in first half of fiscal 2021 compared to repayment of funds from the 2016 Credit Agreement in the prior year period; •$23.0 million decrease in repurchase of common stock compared to prior year period; •$15.4 million decrease in net repayments from short-term debt, primarily due to movements in short term loans. OnApril 1, 2020 , the Company entered into a Revolving Credit and Term Loan Agreement (the 2020 Credit Agreement), among the Company andKeyBank 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 onApril 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. 36 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OnOctober 16, 2020 , the Company entered into a 364-day,$350.0 million , term loan agreement (the 2020 Term Loan Agreement) by and among the Company, the lenders party thereto and The Bank of Nova Scotia, as administrative agent which matures onOctober 15, 2021 .
The following is a summary of the maximum commitments and the net amounts
available to us under different credit facilities as of
Facility Limit Outstanding Outstanding Total Amount Maturity Date
(In millions) Borrowings Letters of Credit Available
2020 Revolving Credit Facility
$ 1.4 $ 813.6 April 1, 2025
2020 Term Loan Facility 850.0 850.0 n/a - April 1, 2025
2020 Term Loan 350.0 350.0 n/a - October 15, 2021
Total $ 2,490.0 $ 1,675.0 $ 1.4 $ 813.6
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 April 30, 2021 , we were
in compliance with the Interest Coverage Ratio at 36.81 to 1.00 and the Total
Leverage Ratio at 1.78 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
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 April 30, 2021 , $334.8 million remained authorized for repurchase under the
program.
The Company's share repurchases during the six months ended April 30, 2021 and
2020, were as follows:
Six Months
Periods Ended April 30, 2021 2020
Number of shares 69,622 160,850
Average repurchase price per share $ 356.61 $ 296.88
Total costs of shares repurchased (in millions)
47.8
Dividends
We paid a semiannual dividend of approximately
37
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THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of OperationsSummary of Non-GAAP Financial Measures
The non-GAAP financial measures that may be included in Management's Discussion and Analysis and the reasons management believes they are useful to investors are described below. These measures should be considered supplemental in nature and are not intended to be a substitute for the related financial information prepared in accordance with GAAP. In addition, these measures may not be the same as similarly named measures presented by other companies. Free cash flow is defined as cash provided by operating activities less capital expenditures. Management believes free cash flow is useful for investors as an additional measure of liquidity because it represents cash that is available to grow the business, make strategic acquisitions, repay debt, buyback common stock or fund the dividend. We use free cash flow internally to understand, manage, make operating decisions and evaluate our business. In addition, we use free cash flow to help plan and forecast future periods. Constant currency is defined as excluding the effect of foreign currency rate fluctuations. In order to assist with the assessment of how our underlying businesses performed, we compare the percentage change in net sales from one period to another, excluding the effect of foreign currency fluctuations. To present this information, current period revenue for entities reporting in currencies other thanthe United States dollar are converted intoUnited States dollars at the average foreign exchange rates for the corresponding period in the prior year. 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 endedOctober 31, 2020 . There have been no material changes in our policies from those previously discussed in our Form 10-K for the fiscal yearOctober 31, 2020 . 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 ofThe Cooper Companies, Inc. , its affiliates and/or subsidiaries. PC Technology™ is a trademark ofThe Cooper Companies, Inc. , its affiliates and/or subsidiaries. The clariti® mark is a registered trademark ofThe Cooper Companies, Inc. , its affiliates and/or subsidiaries worldwide except inthe United States where the use of clariti® is licensed. INSORB®, PARAGARD® and Mara® are registered trademarks ofCooperSurgical, Inc. 38 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
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