Cooper Companies 10-Q 2022-01-31

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, 2022

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

For the transition period from to

Commission File Number 1-8597

_____________________________________________________________

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 25, 2022, 49,301,550 shares of Common Stock, $0.10 par value, were outstanding.

INDEX

						Page No.
PART I.			FINANCIAL INFORMATION
Item 1.			Unaudited Financial Statements
			Consolidated Statements of Income and Comprehensive Income			3
			Consolidated Condensed Balance Sheets			4
			Consolidated Condensed Statements of Stockholders' Equity			5
			Consolidated Condensed Statements of Cash Flows			6
			Notes to Consolidated Condensed Financial Statements			7
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3.			Quantitative and Qualitative Disclosure About Market Risk			40
Item 4.			Controls and Procedures			40
PART II.			OTHER INFORMATION
Item 1.			Legal Proceedings			42
Item 1A.			Risk Factors			42
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3.			Defaults Upon Senior Securities			45
Item 4.			Mine Safety Disclosures			45
Item 5.			Other Information			45
Item 6.			Exhibits			46
Signature						47

PART I. FINANCIAL INFORMATION

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income

Three Months Ended January 31,

(In millions, except for earnings per share)

(Unaudited)

			2022						2021
Net sales			$	787.2					$	680.5
Cost of sales			268.8						229.8
Gross profit			518.4						450.7
Selling, general and administrative expense			319.1						261.2
Research and development expense			26.2						21.4
Amortization of intangibles			42.3						34.7
Operating income			130.8						133.4
Interest expense			6.6						6.4
Other expense (income), net			2.3						(12.5)
Income before income taxes			121.9						139.5
Provision for income taxes (Note 6)			26.6						(1,961.6)
Net income			$	95.3					$	2,101.1
Earnings per share (Note 7):
Basic			$	1.93					$	42.77
Diluted			$	1.91					$	42.31
Number of shares used to compute earnings per share:
Basic			49.4						49.1
Diluted			49.9						49.7
Other comprehensive income, net of tax:
Cash flow hedges			$	13.3					$	4.5
Foreign currency translation adjustment			(49.2)						86.2
Comprehensive income			$	59.4					$	2,191.8

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, 2022						October 31, 2021
ASSETS
Current assets:
Cash and cash equivalents			$	280.7					$	95.9
Trade accounts receivable, net of allowance for credit losses of $11.3 at January 31, 2022 and $9.2 at October 31, 2021			525.9						515.3
Inventories (Note 3)			588.1						585.6
Prepaid expense and other current assets			196.6						179.3
Assets held-for-sale (Note 2)			106.8						89.2
Total current assets			1,698.1						1,465.3
Property, plant and equipment, at cost			2,695.6						2,655.7
Less: accumulated depreciation and amortization			1,334.1						1,308.1
			1,361.5						1,347.6
Operating lease right-of-use assets			268.0						257.0
Goodwill (Note 4)			3,835.7						2,574.0
Other intangibles, net (Note 4)			1,842.0						1,271.5
Deferred tax assets			2,488.2						2,546.6
Other assets			169.0						144.2
Total assets			$	11,662.5					$	9,606.2
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt (Note 5)			$	912.0					$	82.9
Accounts payable			149.0						161.4
Employee compensation and benefits			122.2						148.7
Operating lease liabilities			36.7						35.7
Other current liabilities			425.5						301.7
Liabilities held-for-sale (Note 2)			19.0						1.7
Total current liabilities			1,664.4						732.1
Long-term debt (Note 5)			2,346.5						1,396.1
Deferred tax liabilities			100.6						24.1
Long-term tax payable			138.0						139.6
Operating lease liabilities			241.0						231.7
Accrued pension liability and other			245.9						140.6
Total liabilities			$	4,736.4					$	2,664.2
Contingencies (Note 12)
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, 53.8 issued and 49.2 outstanding at January 31, 2022 and 53.7 issued and 49.3 outstanding at October 31, 2021			5.4						5.4
Additional paid-in capital			1,719.2						1,715.2
Accumulated other comprehensive loss			(377.2)						(341.3)
Retained earnings			6,295.9						6,202.1
Treasury stock at cost: 4.6 shares at January 31, 2022 and 4.4 shares at October 31, 2021			(717.4)						(639.6)
Total Cooper stockholders’ equity			6,925.9						6,941.8
Noncontrolling interests			0.2						0.2
Stockholders’ equity (Note 9)			6,926.1						6,942.0
Total liabilities and stockholders’ equity			$	11,662.5					$	9,606.2

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)

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and Results of Operations

Gross Margin

Consolidated gross margin remained relatively flat at 66% in both the first quarter of fiscal 2022 and fiscal 2021.

Selling, General and Administrative Expense (SGA)

Three Months Ended January 31,****($ in millions)						2022						% Net Sales						2021						% Net Sales						2022 vs 2021 % Change
CooperVision						$	210.8					38		%				$	179.1					35		%				18		%
CooperSurgical						96.1						43		%				70.6						41		%				36		%
Corporate						12.2						—						11.5						—						6		%
						$	319.1					41		%				$	261.2					38		%				22		%

CooperVision's SGA increased in the first quarter of fiscal 2022 compared to fiscal 2021 due to increases in distribution costs, general and administrative costs and advertising and marketing activities primarily related to myopia management. CooperVision's SGA in the first quarter of fiscal 2022 included $6.3 million of costs primarily related to the increase in fair value of the contingent consideration of $3.5 million as described in Note 2. Acquisitions and Assets Held for Sale. CooperVision's SGA in the first quarter of fiscal 2021 included $1.8 million of costs primarily related to acquisition and integration activities.

CooperSurgical's SGA increased in the first quarter of fiscal 2022 compared to fiscal 2021 primarily due to the addition of Generate's SGA. CooperSurgical's SGA in the first quarter of fiscal 2022 included $6.0 million of costs primarily related to acquisition and integration activities. CooperSurgical's SGA in the first quarter of fiscal 2021 included $1.8 million of acquisition and integration expenses.

Corporate SGA increased in the first quarter of fiscal 2022 compared to fiscal 2021 primarily due to higher share-based compensation expense.

Research and Development Expense (R&D)

Three Months Ended January 31,****($ in millions)						2022						% Net Sales						2021						% Net Sales						2022 vs 2021 % Change
CooperVision						$	16.1					3		%				$	14.1					3		%				14		%
CooperSurgical						10.1						4		%				7.3						4		%				38		%
						$	26.2					3		%				$	21.4					3		%				22		%

In the three months ended January 31, 2022:

• CooperVision's R&D expense increased in the three months ended January 31, 2022 compared to fiscal 2021, mainly due to myopia management programs, increases in headcount 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 increased in the three months ended January 31, 2022 compared to fiscal 2021, mainly due to the addition of Generate's R&D expense and increases in headcount. As a percentage of sales, CooperSurgical's R&D expense remained relatively flat. CooperSurgical's R&D activities are focused on developing and refining diagnostic and therapeutic products including medical interventions, surgical devices and fertility solutions.

Amortization Expense

Three Months Ended January 31,****($ in millions)			2022						% Net Sales						2021						% Net Sales						2022 vs 2021 % Change
CooperVision			$	8.2					1		%				$	8.4					2		%				(2)		%
CooperSurgical			34.1						15		%				26.3						15		%				30		%
			$	42.3					5		%				$	34.7					5		%				22		%

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

CooperVision's amortization expense remained relatively flat in absolute dollars in the first quarter of fiscal 2022 compared to fiscal 2021. As a percentage of sales, CooperVision's amortization expense decreased, primarily due to an increase in net sales.

CooperSurgical's amortization expense increased in absolute dollars in the three months ended January 31, 2022 compared to fiscal 2021, primarily due to the amortization of intangible assets newly acquired through acquisitions. As a percentage of sales, CooperSurgical's amortization expense remained relatively flat, primarily due to an increase in net sales.

Operating Income

Three Months Ended January 31,****($ in millions)			2022						% Net Sales						2021						% Net Sales						2022 vs 2021 % Change
CooperVision			$	127.4					23		%				$	127.5					25		%				—		%
CooperSurgical			15.6						7		%				17.5						10		%				(10)		%
Corporate			(12.2)						—						(11.6)						—						(6)		%
			$	130.8					17		%				$	133.4					20		%				(2)		%

CooperVision's operating income remained relatively flat in absolute dollars in the three months ended January 31, 2022 compared to fiscal 2021. As a percentage of net sales, CooperVision's operating income decreased, primarily due to an increase in net sales.

CooperSurgical's operating income decreased in absolute dollars and as a percentage of net sales in the first quarter of fiscal 2022 compared to fiscal 2021, primarily due to an increase in SGA and amortization expense, partially offset by an increase in net sales.

Corporate operating loss increased in the three months ended January 31, 2022 compared to fiscal 2021, primarily due to higher share-based compensation expense.

On a consolidated basis, operating income decreased in absolute dollars and as a percentage of net sales, primarily due to an increase in SGA and amortization expense, partially offset by an increase in consolidated net sales.

Interest Expense

Three Months Ended January 31,****($ in millions)			2022						% Net Sales						2021						% Net Sales						2022 vs 2021 % Change
Interest expense			$	6.6					1		%				$	6.4					1		%				3		%

Interest expense remained relatively flat as a percentage of net sales and in absolute dollars during the three months ended January 31, 2022 compared to fiscal 2021.

Other Expense (Income), Net

Three Months Ended January 31,
($ in millions)						2022						2021
Investment gain						$	—					$	(11.5)
Foreign exchange loss (gain)						3.3						(0.1)
Other income, net						(1.0)						(0.9)
						$	2.3					$	(12.5)

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 in the prior year period.

Foreign exchange loss (gain) primarily resulted from the revaluation and settlement of foreign currency-denominated balances.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

Other income, net increased in the three months ended January 31, 2022, primarily due to an increase in defined benefit plan related income during the period, partially offset by losses on minority investments.

Provision for Income Taxes

Our effective tax rates for the three months ended January 31, 2022 and January 31, 2021 were 21.8% and (1,406.3)%, respectively. The increase was primarily due to an intra-group transfer of intellectual property during the three months ended January 31, 2021, as discussed below.

In November 2020, we completed an intra-group transfer of certain intellectual property and related assets of CooperVision to a UK subsidiary as part of a group restructuring to establish headquarters operations in the UK. Determining fair value involved significant judgment related to future revenue growth, operating margins and discount rates. The transfer resulted in a step-up of the UK tax-deductible basis in the intellectual property and goodwill, creating a temporary difference between the book basis and the tax basis of these assets. As a result, we recognized a deferred tax asset of $1,987.9 million, with a corresponding income tax benefit, during the three months ended January 31, 2021.

Share-Based Compensation Plans

We have several share-based compensation plans that are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. The compensation expense and related income tax benefit recognized in our Consolidated Statements of Income and Comprehensive Income for share-based awards were as follows:

Three Months Ended January 31,
($ in millions)						2022						2021
Selling, general and administrative expense						$	11.5					$	9.1
Cost of sales						1.3						1.1
Research and development expense						0.8						0.6
Total share-based compensation expense						$	13.6					$	10.8
Related income tax benefit						$	1.6					$	1.2

Capital Resources and Liquidity

First Quarter Highlights

• Operating cash flow of $166.0 million compared to $147.7 million in the prior year period

• Expenditures for purchases of property, plant and equipment of $57.1 million compared to $55.9 million in the prior year period

• Cash payments for acquisitions and others of $1,612.2 million compared to $79.8 million in the prior year period

• Cash provided by operations of $166.0 million offset by capital expenditures of $57.1 million resulted in positive free cash flow of $108.9 million, up 19% compared to the prior year period

Comparative Statistics

($ in millions)						January 31, 2022						October 31, 2021
Cash and cash equivalents						$	280.7					$	95.9
Total assets						$	11,662.5					$	9,606.2
Working capital						$	33.7					$	733.2
Total debt						$	3,258.5					$	1,479.0
Stockholders' equity						$	6,926.1					$	6,942.0
Ratio of debt to equity						0.47:1						0.21:1
Debt as a percentage of total capitalization						32		%				18		%

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

Working Capital

The decrease in working capital at January 31, 2022 from the end of fiscal 2021 was primarily due to:

• increase in short-term debt of $829.1 million primarily due to the 2021 364-Day Term Loan Agreement entered into on November 2, 2021; and

• increase in other current liabilities of $123.8 million, primarily due to the Generate acquisition. Refer to Note 2. Acquisitions and Assets Held for Sale for further information; partially offset by:

• increase in cash and cash equivalents of $184.8 million;

• decrease in employee compensation and benefits of $26.5 million;

• increase in prepaid expenses and other current assets of $17.3 million;

• decrease in accounts payable of $12.4 million due to timing of payments and the Generate acquisition; and

• increase in trade accounts receivables of $10.6 million.

At January 31, 2022, our inventory months on hand was 6.6 compared to 6.8 at October 31, 2021. Inventory remained relatively flat.

Our days sales outstanding (DSO) were relatively consistent at 61 days at January 31, 2022, compared to 64 days at October 31, 2021.

Operating Cash Flow

Cash provided by operating activities increased by $18.3 million from $147.7 million in the first quarter of fiscal 2021 to $166.0 million in the first quarter of fiscal 2022. This increase in cash flow provided by operating activities primarily consists of:

• increase of $1,996.0 million in the net changes in deferred income taxes. Refer to Note 6. Income Taxes for further information;

• increase of $56.1 million in net cash flow from changes in operating capital, from $49.9 million outflow in the first quarter of fiscal 2021 to $6.2 million inflow in the first quarter of fiscal 2022; and

• increase of $6.5 million in net changes in depreciation and amortization, from $75.5 million during the first quarter of fiscal 2021 to $82.0 million during the first quarter of fiscal 2022; partially offset by:

• decrease in net income of $2,005.8 million from a net income of $2,101.1 million in the first quarter of fiscal 2021 to $95.3 million in the first quarter of fiscal 2022; and

• decrease from other non-cash items of $34.5 million, from $2.3 million inflow during the first quarter of fiscal 2021 to 32.2 million outflow during the first quarter of fiscal 2022, primarily due to the net changes in long-term liabilities, partially offset by an investment gain of $11.5 million in the first quarter of fiscal 2021. Refer to Note 2. Acquisitions and Assets Held for Sale for further information.

The decrease in net income of $2,005.8 million was primarily due to:

• recognized income tax benefit of $1,987.9 million in the prior year period. Refer to Note 6. Income Taxes for further information; and

• an investment gain of $11.5 million recognized in the prior year period. Refer to Note 2. Acquisitions and Assets Held for Sale for further information.

The $56.1 million increase in the net cash flow from changes in operating capital compared to the prior year period is primarily due to:

• $40.6 million increase in the net changes in trade and other receivables primarily due to timing of collections; and

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

• $22.5 million increase in the net changes in accounts payable primarily due to timing of payments and payables assumed from the Generate acquisition; partially offset by:

• $12.2 million decrease in the net changes in the transaction gain (loss).

The $34.5 million decrease in non-cash items compared to the prior year period is primarily due to:

• $64.7 million decrease in the net changes in long-term liabilities; partially offset by:

• an investment gain of $11.5 million recognized in the prior year period. Refer to Note 2. Acquisitions and Assets Held for Sale for further information; and

• $8.2 million increase from the effect of exchange rate change on cash.

Investing Cash Flow

Cash used in investing activities increased by $1,533.6 million to $1,669.3 million in the first quarter of fiscal 2022 from $135.7 million in the first quarter of fiscal 2021 due to:

• $1.5 billion increase in payments made for acquisitions in the first quarter of fiscal 2022 compared to the prior year period, largely due to the Generate acquisition in the first three months of fiscal 2022.

Financing Cash Flow

Cash flows from financing activities increase by $1,707.2 million to $1,693.6 million cash inflow in the first quarter of fiscal 2022 compared to $13.6 million cash outflow in the first quarter of fiscal 2021, primarily due to:

• $1,250.0 million increase in proceeds from long-term debt, primarily due to funds received from the 2021 Term Loan Facility; and

• $839.2 million increase in net proceeds from short-term debt, primarily due to the 2021 364-Day Term Loan Agreement; partially offset by:

• $325.4 million increase in repayments of long-term debt, primarily due to repayments of funds from the 2021 Credit Agreement in the first three months of fiscal 2022 compared to repayment of funds from the 2020 Credit Agreement in the prior year period; and

• $53.7 million increase in repurchases of common stock.

On November 2, 2021, the Company entered into a 364-day, $840.0 million, term loan agreement by and among the Company, the lenders party thereto and The Bank of Nova Scotia, as administrative agent (the 2021 364-Day Term Loan Agreement), which matures on November 1, 2022. The Company used part of the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility and for general corporate purposes.

On December 17, 2021, the Company entered into a Term Loan Agreement (the 2021 Credit Agreement) by and among the Company, the lenders from time to time party thereto, and PNC Bank, National Association, as administrative agent. The 2021 Credit Agreement provides for a term loan facility (the 2021 Term Loan Facility) in an aggregate principal amount of $1.5 billion, which, unless terminated earlier, matures on December 17, 2026. In addition, the Company has the ability from time to time to request an increase to the commitments under the 2021 Term Loan Facility or to establish a new term loan facility under the 2021 Credit Agreement in an aggregate principal amount not to exceed $1.125 billion, upon prior written notice to the administrative agent and subject to the discretionary participation of the lenders funding such term loans and certain limitations set forth in the 2021 Credit Agreement.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

The following is a summary of the maximum commitments and the net amounts available to us under different credit facilities as of January 31, 2022:

(In millions)						Facility Limit						Outstanding Borrowings						Outstanding Letters of Credit						Total Amount Available						Maturity Date
2021 Term Loan Facility						$	1,500.0					$	1,500.0					n/a						$	—					December 17, 2026
2021 364-Day Term Loan						840.0						840.0						n/a						—						November 1, 2022
2020 Revolving Credit Facility						1,290.0						—						1.4						1,288.6						April 1, 2025
2020 Term Loan Facility						850.0						850.0						n/a						—						April 1, 2025
Total						$	4,480.0					$	3,190.0					$	1.4					$	1,288.6

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 January 31, 2022, we were in compliance with the Interest Coverage Ratio at 47.19 to 1.00 and the Total Leverage Ratio at 2.71 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 January 31, 2022, $256.4 million remained authorized for repurchase under the program.

The Company's share repurchases during the three months ended January 31, 2022 and January 31, 2021 were as follows:

Periods Ended January 31,			2022						2021
Number of shares			191,165						69,622
Average repurchase price per share			$	410.41					$	356.61
Total costs of shares repurchased (in millions)			$	78.5					$	24.8

Dividends

We paid a semiannual dividend of approximately $1.5 million or 3 cents per share, on February 9, 2022, to stockholders of record on January 21, 2022.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

and Results of Operations

Summary 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 than the United States dollar are converted into United 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 ended October 31, 2021. There have been no material changes in our policies from those previously discussed in our Form 10-K for the fiscal year October 31, 2021.

Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 1. General of the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

Trademarks

ActivControl®, Aquaform®, Avaira Vitality®, Biofinity®, Biofinity Energys®, MyDay® and MiSight® are registered trademarks of The Cooper Companies, Inc., its affiliates and/or subsidiaries. PC Technology™ is a trademark of The Cooper Companies, Inc., its affiliates and/or subsidiaries. The clariti® mark is a registered trademark of The Cooper Companies, Inc., its affiliates and/or subsidiaries worldwide except in the United States where the use of clariti® is licensed. INSORB®, PARAGARD®, Mara® and Fetal Pillow® are registered trademarks of CooperSurgical, Inc.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Most of our operations outside the United States have their local currency as their functional currency. We are exposed to risks caused by changes in foreign exchange, principally our British pound sterling, euro, Japanese yen and Danish krone denominated debt and receivables denominated in currencies other than the United States dollar, and from operations in other foreign currencies. Although we may enter into foreign exchange agreements with financial institutions to reduce our exposure to fluctuations in foreign currency values relative to our debt or receivables obligations, these hedging transactions do not eliminate that risk entirely. We are also exposed to risks associated with changes in interest rates, as the interest rates on our revolving lines of credit and term loans may vary with the federal funds rate and LIBOR. We may decrease this interest rate risk by hedging a portion of variable rate debt effectively converting it to fixed rate debt for varying periods.

On April 6, 2020, we entered into six interest rate swap contracts to hedge the Company's exposure to changes in cash flows associated with its variable rate debt. The interest rate swap contracts became effective on April 6, 2020 and had maturities of seven years or less. As of January 31, 2022, the outstanding contracts have a total notional amount of $1.0 billion.

We did not have any cross currency swaps or foreign currency forward contracts as of January 31, 2022.

On April 1, 2020, we entered into a Revolving Credit and Term Loan Agreement (the 2020 Credit Agreement), among us, CooperVision International Holding Company, LP, CooperSurgical Netherlands B.V., CooperVision Holding Kft. the lenders from time to time party thereto, and KeyBank National Association, as administrative agent. The 2020 Credit Agreement provides for (a) a multicurrency revolving credit facility (the 2020 Revolving Credit Facility) in an aggregate principal amount of $1.29 billion and (b) a term loan facility (the 2020 Term Loan Facility) in an aggregate principal amount of $850.0 million, each of which, unless terminated earlier, mature on April 1, 2025. The 2020 Credit Agreement replaced our previous credit agreement and funds from the new term loan were used to repay the outstanding amounts under the previous credit agreement, to repay an outstanding term loan, and for general corporate purposes. At January 31, 2022, the Company had $1,288.6 million available under the 2020 Revolving Credit Facility and $850.0 million outstanding under the 2020 Term Loan Facility.

On November 2, 2021, the Company entered into a 364-day, $840.0 million, term loan agreement by and among the Company, the lenders party thereto and The Bank of Nova Scotia, as administrative agent (the 2021 364-Day Term Loan Agreement), which matures on November 1, 2022. The Company used part of the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility and for general corporate purposes. At January 31, 2022, the Company had $840.0 million outstanding under the 2021 364-Day Term Loan Agreement.

On December 17, 2021, the Company entered into a Term Loan Agreement (the 2021 Credit Agreement) by and among the Company, the lenders from time to time party thereto, and PNC Bank, National Association, as administrative agent. The 2021 Credit Agreement provides for a term loan facility (the 2021 Term Loan Facility) in an aggregate principal amount of $1.5 billion, which, unless terminated earlier, matures on December 17, 2026. In addition, the Company has the ability from time to time to request an increase to the commitments under the 2021 Term Loan Facility or to establish a new term loan facility under the 2021 Credit Agreement in an aggregate principal amount not to exceed $1.125 billion, upon prior written notice to the administrative agent and subject to the discretionary participation of the lenders funding such term loans and certain limitations set forth in the 2021 Credit Agreement. At January 31, 2022, the Company had $1.5 billion outstanding under the 2021 Term Loan Facility.

If interest rates were to have increased or decreased by 1% or 100 basis points, the quarterly interest expense would have increased or decreased by approximately $3.7 million based on average debt outstanding for the first quarter of fiscal 2022, after consideration of our interest rate swap contracts.

See Note 5. Debt of the Consolidated Condensed Financial Statements for additional information.

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

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that certain of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 related considerations and any impact on the design and operating effectiveness of our internal control over financial reporting.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding legal proceedings is included in Note 12. Contingencies of the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

Our business faces significant risks. These risks include those described below and may include additional risks and uncertainties not presently known to us or that we currently deem immaterial. Our business, financial condition and results of operations could be materially adversely affected by any of these risks, and the trading prices of our common stock could decline by virtue of these risks. These risks should be read in conjunction with the other information in this report.

Risk factors describing the major risks to our business can be found under Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. In the first quarter of fiscal 2022, we updated some of our risk factors as described below. There have been no other material changes in our risk factors from those previously discussed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

Our substantial and expanding international operations are subject to uncertainties which could affect our operating results.

A significant portion of our current operations are conducted and located outside the United States, and our growth strategy involves expanding our existing foreign operations and entering into new foreign jurisdictions. We have significant manufacturing and distribution sites in North America, Latin America and Europe. Over half of our net sales for the first quarter of fiscal 2022 and the fiscal year ended October 31, 2021 were derived from the sale of products outside the United States. We believe that sales outside the United States will continue to account for a material portion of our total net sales for the foreseeable future. International operations and business expansion plans are subject to numerous additional risks, including:

• we may find it difficult to manage the effects of the ongoing COVID-19 pandemic on our ability to operate internationally and for our employees to travel internationally;

• we may have difficulty enforcing intellectual property rights in some foreign countries;

• we may have difficulty gaining market share in countries such as Japan and China because of regulatory restrictions and customer preferences;

• we may find it difficult to grow in emerging markets such as China, India, Russia, Brazil and other developing nations due to, among other things, customer acceptance, undeveloped and/or unfamiliar distribution channels, regulatory restrictions and changes, and business knowledge of these new markets;

• foreign earnings may be subject to withholding requirements or the imposition of tariffs, exchange controls or other restrictions, including the tariffs enacted by the Chinese government on certain U.S. goods, the scope and duration of which remain uncertain;

• we may find it difficult to comply with a variety of United States and foreign legal, compliance and regulatory requirements such as the Foreign Corrupt Practices Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the United Kingdom Bribery Act, international data security and privacy laws, EU MDR and IVDR;

• we may find it difficult to manage a large organization spread throughout various countries;

• fluctuations in currency exchange rates could adversely affect our results;

• foreign customers may have longer payment cycles than customers in the United States;

• failure to comply with United States Department of Commerce and other nations' import-export controls may result in fines and/or penalties;

• general economic and political conditions in the countries where we operate may have an adverse effect on our operations in those countries or not be favorable to our growth strategy;

• natural disasters, pandemics such as COVID-19, war, terrorism, labor disruptions and international conflicts may cause significant economic disruption and political and social instability, resulting in decreased demand for our products, adversely affecting our manufacturing and distribution capabilities, or causing interruptions in our supply chain;

• foreign governments may adopt regulations, including those similar to the EU MDR and IVDR or take other actions that would have a direct or indirect adverse impact on our business and market opportunities, including but not limited to increased enforcement of potentially conflicting and ambiguous anti-bribery laws;

• we may have difficulty enforcing agreements and collecting receivables through some foreign legal systems; and

• we may be subject to unforeseen economic or political events in certain countries that may have an impact on our customers' ability or preferences to buy our products.

In addition, Russia’s invasion of Ukraine and the global response to this invasion could have an adverse impact on our business, including by impacting our ability to market and sell products in Russia, by creating disruptions in the global supply chain, by potentially having an adverse impact on the global economy, European economy, financial markets, energy markets, currency rates and otherwise.

As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. However, any of these factors could adversely affect our international operations and, consequently, our operating results.

We face risks associated with disruption of our manufacturing, distribution and storage operations, including possible failure to develop necessary manufacturing processes, or constrained, idle or excess capacity, which could adversely affect our profitability or competitive position.

We manufacture a significant portion of the medical device products we sell. Any prolonged disruption in the operations of our existing manufacturing or distribution facilities, or in the operations of our fertility and stem cell storage facilities, whether due to the effects of the COVID-19 pandemic and related work stoppages, technical or labor difficulties, integration difficulties, destruction of or damage to any facility (as a result of natural disaster, use and storage of hazardous materials or other events), enforcement action by the FDA or other regulatory body if we are found to be in non-compliance with current Good Manufacturing Practices (cGMP) or similar foreign requirements or other reasons, could have a material adverse effect on our business, financial condition and results of operations. In addition, materials such as silicone hydrogel require improvements to our manufacturing processes to make them cost effective. While we have improved our manufacturing capabilities for our silicone hydrogel products, our failure to continue to develop improvements to our manufacturing processes and reduce our cost of goods could significantly impact our ability to compete. Conversely, constrained, excess or idle capacity, which could result from acquisitions, unexpected demand, inaccurate sales forecasting or unexpected manufacturing efficiencies, could significantly impact our profitability, capital investments, customer service levels and near-term financial condition.

CooperVision manufactures molded contact lenses, which represent the majority of our contact lens revenues, primarily at our facilities in Costa Rica, Hungary, Puerto Rico, the United Kingdom and the United States, with other smaller facilities also existing in multiple locations around the world. CooperSurgical manufactures the majority of its products in Costa Rica, the United Kingdom and the United States, with other smaller locations also existing in multiple locations around the world. In November 2017, CooperSurgical purchased a manufacturing facility in Costa Rica to consolidate a portion of global manufacturing. We manufacture certain products at only one manufacturing site for certain markets, and certain of our products are approved for manufacturing only at one site. If there were any prolonged disruption in the operations of the approved facility, it could take a significant amount of time to obtain required regulatory approvals, validate a second site and replace lost product, which could result in lost customers and thereby reduce sales, profitability and market share.

CooperVision distributes products out of Belgium, Hungary, the United Kingdom and the United States and various smaller international distribution sites. CooperSurgical primarily distributes products out of its facilities in the United States and the Netherlands and operates fertility and stem cell storage facilities in the United States, Canada and Australia. Any prolonged disruption in the operations of our existing distribution or storage facilities, whether due to technical or labor difficulties, challenges related to system implementation, destruction of or damage to any facility (as a result of natural disaster, use and storage of hazardous materials or other events) or other reasons, could have a material adverse effect on our business, financial condition and results of operations.

We could experience losses from product liability claims or legal claims relating to our service offerings, including such claims and other losses resulting from sales of counterfeit and other infringing products.

We face an inherent risk of exposure to product liability claims in the event that the use of our products results in personal injury. We also face the risk that defects in the design or manufacture of our products or sales of counterfeit or other infringing products might necessitate a product recall and other actions by manufacturers, distributors or retailers in order to safeguard the health of consumers and protect the integrity of the subject brand. Additionally, we face the inherent risk of exposure to legal claims, including negligence, relating to our provision of certain service offerings, including the accuracy

and quality of our genetic testing, fertility cryopreservation, fertility donor gamete supply, and stem cell storage services. Consumers may halt or delay purchases of a product or service that is the subject of a claim or recall or has been counterfeited. We handle some risk with third-party carrier policies that are subject to deductibles and limitations. There can be no assurance that we will not experience material losses due to product liability claims or recalls, legal claims relating to our service offerings, or a decline in sales resulting from sales of counterfeit or other infringing products, in the future.

Ethical, legal and social concerns related to the use of genetic information, sperm and egg selection services and stem cells could reduce demand for our service offerings.

Genetic testing, sperm and egg selection services and the use of stem cells have raised ethical, legal and social issues regarding privacy and the appropriate uses of information related to these services. Government authorities could, for social or other purposes, limit or regulate the use of genetic information or genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. They also could limit, regulate or prohibit (1) sperm and egg selection services or (2) the use of stem cells. Ethical, legal or social concerns may lead patients to refuse to use, or physicians to be reluctant to order or recommend, genetic tests, sperm and egg selection services and stem cell storage services even if permissible. These and other ethical, legal and social concerns may limit market acceptance and adoption of our service offerings or reduce the potential markets for our service offerings, either of which could have an adverse effect on our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The Company's share repurchase activity during the three-month period ended January 31, 2022, was as follows:

Period						Total Number of Shares Purchased						Average Price Paid Per Share						Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs						Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Plans or Programs
11/1/21 - 11/30/21						—						$	—					—						$	334,827,542
12/1/21 - 12/31/21						10,424						$	414.49					10,424						$	330,506,945
1/1/22 - 1/31/22						180,741						$	410.18					180,741						$	256,371,445
						191,165												191,165

The transactions described in the table above represent the repurchase of the Company's common stock on the New York Stock Exchange as part of the share repurchase program approved by the Company’s Board of Directors in December 2011 (the 2012 Share Repurchase Program). The program as amended in December 2012, December 2013 and March 2017 provides authorization to repurchase up to a total of $1.0 billion of the Company’s common stock. Purchases under the 2012 Share Repurchase Program may be made from time to time on the open market at prevailing market prices or in privately negotiated transactions and are subject to a review of the circumstances in place at the time and will be made from time to time as permitted by securities laws and other legal requirements. This program has no expiration date and may be discontinued at any time.

During the first quarter of fiscal 2022, we repurchased 191.2 thousand shares of the Company’s common stock for $78.5 million, at an average purchase price of $410.41 per share. During the first quarter of fiscal 2021, we repurchased 69.6 thousand shares of the Company’s common stock for $24.8 million, at an average purchase price of $356.61 per share.

At January 31, 2022, approximately $256.4 million remained authorized under the 2012 Share Repurchase Program.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

None.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Exhibit Number			Description
10.1			The Cooper Companies, Inc. 2022 Incentive Payment Plan, incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on December 10, 2021.
10.2			Term Loan Agreement, dated as of December 17, 2021, by and among The Cooper Companies, Inc., the lenders from time to time party thereto, and PNC Bank, National Association, as administrative agent, incorporated by reference to the Company's Current Report on Form 8-K filed on December 17, 2021.
10.3			Amendment No.2 and Joinder, dated as of December 17, 2021, to Revolving Credit and Term Loan Agreement, dated as of April 1, 2020, among the Company, CooperVision International Limited, CooperVision Holding Kft., CooperSurgical Holdings Limited, the lenders party thereto, and KeyBank, National Association, as administrative agent.
10.4			Letter of Intent by and among CooperSurgical, Inc. & Cook Medical Holdings LLC (including the form of Purchase Agreement attached as Exhibit A thereto) incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on February 7, 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, 2022 formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Income and Comprehensive Income, (ii) Consolidated Condensed Balance Sheets, (iii) Consolidated Condensed Statements of Stockholders' Equity, (iv) Consolidated Condensed Statements of Cash Flows and (v) related Notes to Consolidated Condensed Financial Statements.
104.1			Cover Page Interactive Data File (embedded within the Inline XBRL document)

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

SIGNATURE

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

			The Cooper Companies, Inc.
			(Registrant)
Date: March 4, 2022			/s/ Brian G. Andrews
			Brian G. Andrews
			Executive Vice President, Chief Financial Officer & Treasurer (Principal Financial Officer)
Date: March 4, 2022			/s/ Agostino Ricupati
			Agostino Ricupati
			Chief Accounting Officer & Senior Vice President, Finance & Tax (Principal Accounting Officer)