filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition
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Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Corporate SGA increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to share-based compensation related expenses.
Research and Development Expense (R&D)
| Three Months Ended January 31, | 2023 vs 2022 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 16.7 | 3 | % | $ | 16.1 | 3 | % | 4 | % | ||||||||||||||||||||||
| CooperSurgical | 14.9 | 5 | % | 10.1 | 4 | % | 47 | % | ||||||||||||||||||||||||
| $ | 31.6 | 4 | % | $ | 26.2 | 3 | % | 20 | % | |||||||||||||||||||||||
CooperVision's R&D expense for the three months ended January 31, 2023 remained relatively flat year over year. CooperVision's R&D activities are primarily focused on the development of contact lenses, manufacturing technology and process enhancements.
CooperSurgical's R&D expense increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, mainly due to European Medical Device Regulation costs. CooperSurgical's R&D activities are focused on developing and refining diagnostic and therapeutic products including medical interventions, surgical devices and fertility solutions.
Amortization Expense
| Three Months Ended January 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 8.4 | 1 | % | $ | 8.2 | 1 | % | 2 | % | |||||||||||||||||||
| CooperSurgical | 38.1 | 14 | % | 34.1 | 15 | % | 12 | % | |||||||||||||||||||||
| $ | 46.5 | 5 | % | $ | 42.3 | 5 | % | 10 | % | ||||||||||||||||||||
CooperVision's amortization expense for the three months ended January 31, 2023 remained relatively flat year over year. CooperSurgical's amortization expense increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to the amortization of intangible assets newly acquired through acquisitions.
Operating Income
| Three Months Ended January 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 160.1 | 28 | % | $ | 127.4 | 23 | % | 26 | % | |||||||||||||||||||
| CooperSurgical | 5.8 | 2 | % | 15.6 | 7 | % | (63) | % | |||||||||||||||||||||
| Corporate | (16.4) | — | (12.2) | — | 34 | % | |||||||||||||||||||||||
| $ | 149.5 | 17 | % | $ | 130.8 | 17 | % | 14 | % | ||||||||||||||||||||
CooperVision's operating income increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to an increase in net sales partially offset by net changes in operating expenses.
CooperSurgical's operating income decreased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to an increase in SGA and amortization expenses, partially offset by an increase in net sales.
Corporate operating loss increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to higher share-based compensation expense.
On a consolidated basis, operating income increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due an increase in consolidated net sales.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Interest Expense
| Three Months Ended January 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| Interest expense | $ | 26.1 | 3 | % | $ | 6.6 | 1 | % | 295 | % | |||||||||||||||||||
Interest expense increased during the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to higher average debt balances and higher interest rates.
Other Expense (Income), Net
| Period Ended January 31, | Three Months | |||||||||||||||||||||||||
| ($ in millions) | 2023 | 2022 | ||||||||||||||||||||||||
| Foreign exchange (gain) loss | (1.0) | 3.3 | ||||||||||||||||||||||||
| Other expense (income), net | 2.3 | (1.0) | ||||||||||||||||||||||||
| $ | 1.3 | $ | 2.3 |
Foreign exchange gain is primarily associated with the relative weakening of the US dollar against foreign currencies and the effect on intercompany receivables during the three months ended January 31, 2023.
Other expense (income), net increased in the three months ended January 31, 2023 compared to the three months ended January 31, 2022, primarily due to loss on minority investments, partially offset by defined benefit plan related income.
Provision for Income Taxes
The effective tax rates for the three months ended January 31, 2023 and January 31, 2022 were 30.7% and 21.8%, respectively. The increase was primarily due to changes in the geographic composition of pre-tax earnings, an increase in the UK statutory tax rate from 19% to 25%, and capitalization of research and experimental expenditures for fiscal 2023 as required by the 2017 Tax Cuts and Jobs Act.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Capital Resources and Liquidity
Working capital on January 31, 2023 and October 31, 2022, was $661.7 million and $253.4 million, respectively. The increase in working capital was primarily due to repayment of the 364-day term loan during the first three months of fiscal 2023. See Note 5. Financing Arrangements for further information.
Cash Flow
| ($ in millions) | January 31, 2023 | January 31, 2022 | ||||||||||||
| Operating activities | $ | 166.6 | $ | 166.0 | ||||||||||
| Investing activities | (113.3) | (1,669.3) | ||||||||||||
| Financing activities | (77.6) | 1,693.6 | ||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, restricted cash | 4.2 | (3.7) | ||||||||||||
| Net (decrease) increase in cash, cash equivalents, restricted cash and cash held for sale | $ | (20.1) | $ | 186.6 |
Operating Cash Flow
Cash provided by operating activities in the first three months of fiscal 2023 remains flat compared to the first three months of fiscal 2022, primarily due to net changes in other non-cash items, partially offset by the net cash flow from changes in operating capital and the $31.8 million release of contingent consideration liability associated with SGV's regulatory approval milestone.
Investing Cash Flow
Cash used in investing activities in the first three months of fiscal 2023 was lower than cash used in the first three months of fiscal 2022, primarily attributable to $1.6 billion cash paid, net of cash acquired, for the Generate acquisition in the first three months of fiscal 2022. Refer to Note 2. Acquisitions and Joint Venture for further information.
Financing Cash Flow
Cash used in financing activities in the first three months of fiscal 2023 was primarily due to repayments of $338.0 million on the 2021 364-day term loan, partially offset by $276.5 million of funds drawn on the 2020 revolving credit.
Cash provided by financing activities in the first three months of fiscal 2022 was primarily due to funds received from the 2021 term loan facility ($1.5 billion) and the 2021 364-day term loan facility ($840.0 million), partially offset by $546.1 million repayments of the 2021 revolving credit and $78.5 million repurchases of common stock.
Refer to Note 5. Financing Arrangements for further information.
The following is a summary of the maximum commitments and the net amounts available to us under different credit facilities as of January 31, 2023:
| (In millions) | Facility Limit | Outstanding Borrowings | Outstanding Letters of Credit | Total Amount Available | Maturity Date | |||||||||||||||||||||||||||
| Revolving Credit: | ||||||||||||||||||||||||||||||||
| 2020 Revolving Credit | $ | 1,290.0 | $ | 276.5 | $ | 1.4 | $ | 1,012.1 | April 1, 2025 | |||||||||||||||||||||||
| Term loan: | ||||||||||||||||||||||||||||||||
| 2020 Term Loan | 850.0 | 850.0 | n/a | — | April 1, 2025 | |||||||||||||||||||||||||||
| 2021 Term Loan | 1,500.0 | 1,500.0 | n/a | — | December 17, 2026 | |||||||||||||||||||||||||||
| Total | $ | 3,640.0 | $ | 2,626.5 | $ | 1.4 | $ | 1,012.1 |
As of January 31, 2023, the Company was in compliance with all debt covenants. See Note 5. Financing Arrangements of the Consolidated Condensed Financial Statements for additional information.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Considering recent market conditions and the COVID-19 pandemic crisis, we have re-evaluated our operating cash flows and cash requirements and continue to believe that current cash, cash equivalents, future cash flow from operating activities and cash available under our 2020 Credit Agreement will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the Consolidated Condensed Financial Statements included in this quarterly report. To the extent additional funds are necessary to meet our liquidity needs such as that for acquisitions, share repurchases, cash dividends or other activities as we execute our business strategy, we anticipate that additional funds will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all.
Share Repurchase
In December 2011, our Board of Directors authorized the 2012 Share Repurchase Program and through subsequent amendments, the most recent in March 2017, the total repurchase authorization was increased from $500.0 million to $1.0 billion of the Company's common stock. The program has no expiration date and may be discontinued at any time. Purchases under the 2012 Share Repurchase Program are subject to a review of the circumstances in place at the time and may be made from time to time as permitted by securities laws and other legal requirements. As of January 31, 2023, $256.4 million remains authorized for repurchase under the 2012 Share Repurchase Program.
During the three months ended January 31, 2023, there was no share repurchase under the 2012 Share Repurchase Program.
Dividends
We paid a semiannual dividend of approximately $1.5 million or 3 cents per share, on February 9, 2023, to stockholders of record on January 20, 2023.
Transition from LIBOR
The UK’s Financial Conduct Authority (FCA), which regulates the London Interbank Offered Rate (LIBOR), announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021. In March 2021, the FCA confirmed its intention to stop requiring banks to submit rates required to calculate LIBOR after 2021. However, for U.S. dollar-denominated (USD) LIBOR, only one-week and two-month USD LIBOR will cease to be published after 2021, and all remaining USD LIBOR tenors will continue being published until June 2023. Further, in March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Effective February 1, 2023, the Company transitioned its credit agreements from LIBOR to the Secured Overnight Financing Rate ("SOFR"). While the notional value of agreements potentially indexed to LIBOR is material, we do not expect a material impact on our financial statements related to this transition.
Estimates and Critical Accounting Policies
Information regarding estimates and critical accounting policies is included in Management's Discussion and Analysis on Form 10-K for the fiscal year ended October 31, 2022. There have been no material changes in our policies from those previously discussed in our Form 10-K for the fiscal year ended October 31, 2022.
Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 1. General of the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
Trademarks
ActivControl®, Aquaform®, Avaira Vitality®, Biofinity®, Biofinity Energys®, Biomedics®, Proclear®, MyDay® and MiSight® are registered trademarks of The Cooper Companies, Inc., its affiliates and/or subsidiaries. PC Technology™ is a trademark of The Cooper Companies, Inc., its affiliates and/or subsidiaries. The clariti® mark is a registered trademark of The Cooper Companies, Inc., its affiliates and/or subsidiaries worldwide except in the United States where the use of clariti® is licensed. Endosee®, Insorb®, Paragard®, Mara®, Fetal Pillow® and Generate Life Sciences® are registered trademarks of CooperSurgical, Inc, its affiliates and/or subsidiaries.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
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