filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition
24K characters. Original on sec.gov · Markdown
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Selling, General and Administrative (SGA) Expenses
| Three Months Ended July 31, | 2023 vs 2022 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 228.2 | 36 | % | $ | 212.2 | 37 | % | 8 | % | ||||||||||||||||||||||
| CooperSurgical | 128.1 | 43 | % | 116.2 | 42 | % | 10 | % | ||||||||||||||||||||||||
| Corporate | 18.9 | — | 14.3 | — | 32 | % | ||||||||||||||||||||||||||
| $ | 375.2 | 40 | % | $ | 342.7 | 41 | % | 9 | % | |||||||||||||||||||||||
| Nine Months Ended July 31, | 2023 vs 2022 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 637.3 | 35 | % | $ | 611.8 | 36 | % | 4 | % | ||||||||||||||||||||||
| CooperSurgical | 423.7 | 49 | % | 332.3 | 43 | % | 28 | % | ||||||||||||||||||||||||
| Corporate | 52.6 | — | 40.1 | — | 31 | % | ||||||||||||||||||||||||||
| $ | 1,113.6 | 42 | % | $ | 984.2 | 40 | % | 13 | % |
CooperVision's SGA expenses increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to increases in selling and marketing activities, and distribution costs. The increase in the nine months ended July 31, 2023, was partially offset by $31.8 million release of contingent consideration liability associated with SightGlass Vision's regulatory approval milestone.
CooperSurgical's SGA expenses increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to an increase in selling and marketing activities supporting increased sales. The increase in the nine months ended July 31, 2023, was also due to the accrual of a $45.0 million termination fee under an asset purchase agreement related to Cook Medical’s reproductive health business. See Note 2. Acquisitions and Joint Venture of the Consolidated Condensed Financial Statements for further information on the termination fee.
Corporate SGA expenses increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to share-based compensation related expenses.
Research and Development (R&D) Expenses
| Three Months Ended July 31, | 2023 vs 2022 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 19.4 | 3 | % | $ | 16.0 | 3 | % | 21 | % | ||||||||||||||||||||||
| CooperSurgical | 17.1 | 6 | % | 12.7 | 5 | % | 34 | % | ||||||||||||||||||||||||
| $ | 36.5 | 4 | % | $ | 28.7 | 3 | % | 27 | % | |||||||||||||||||||||||
| Nine Months Ended July 31, | 2023 vs 2022 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 53.0 | 3 | % | $ | 46.5 | 3 | % | 14 | % | ||||||||||||||||||||||
| CooperSurgical | 47.7 | 6 | % | 34.7 | 4 | % | 38 | % | ||||||||||||||||||||||||
| $ | 100.7 | 4 | % | $ | 81.2 | 3 | % | 24 | % |
CooperVision's R&D expenses increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to myopia management programs and the timing of R&D projects. CooperVision's R&D activities are primarily focused on the development of contact lenses, manufacturing technology and process enhancements.
CooperSurgical's R&D expenses increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, mainly due to European Medical Device Regulation costs. CooperSurgical's R&D activities are
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
focused on developing and refining diagnostic and therapeutic products including medical interventions, surgical devices and fertility solutions.
Amortization Expense
| Three Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 8.3 | 1 | % | $ | 8.0 | 1 | % | 4 | % | |||||||||||||||||||
| CooperSurgical | 38.4 | 13 | % | 32.1 | 12 | % | 19 | % | |||||||||||||||||||||
| $ | 46.7 | 5 | % | $ | 40.1 | 5 | % | 16 | % | ||||||||||||||||||||
| Nine Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 25.0 | 1 | % | $ | 24.2 | 1 | % | 3 | % | |||||||||||||||||||
| CooperSurgical | 114.7 | 13 | % | 109.3 | 14 | % | 5 | % | |||||||||||||||||||||
| $ | 139.7 | 5 | % | $ | 133.5 | 5 | % | 5 | % |
CooperVision's amortization expense for the three and nine months ended July 31, 2023, remained relatively flat year over year. CooperSurgical's amortization expense increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to the amortization of intangible assets recently acquired through acquisitions.
Operating Income
| Three Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 151.7 | 24 | % | $ | 124.5 | 22 | % | 22 | % | |||||||||||||||||||
| CooperSurgical | 18.8 | 6 | % | 30.4 | 11 | % | (38) | % | |||||||||||||||||||||
| Corporate | (18.9) | — | (14.3) | — | 32 | % | |||||||||||||||||||||||
| $ | 151.6 | 16 | % | $ | 140.6 | 17 | % | 8 | % | ||||||||||||||||||||
| Nine Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 449.7 | 25 | % | $ | 387.3 | 23 | % | 16 | % | |||||||||||||||||||
| CooperSurgical | 0.3 | — | % | 56.9 | 7 | % | (99) | % | |||||||||||||||||||||
| Corporate | (52.6) | — | (40.1) | — | 31 | % | |||||||||||||||||||||||
| $ | 397.4 | 15 | % | $ | 404.1 | 16 | % | (2) | % |
CooperVision's operating income increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 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 and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to an increase in SGA expenses, partially offset by an increase in net sales.
Corporate operating loss increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to higher share-based compensation expenses.
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 July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| Interest expense | $ | 26.8 | 3 | % | $ | 17.1 | 2 | % | 57 | % | |||||||||||||||||||
| Nine Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| Interest expense | $ | 79.0 | 3 | % | $ | 34.5 | 1 | % | 129 | % |
Interest expense increased during the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to higher interest rates.
Other Expenses (Income), Net
| Periods Ended July 31, | Three Months | Nine Months | ||||||||||||||||||||||||
| ($ in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Investment loss (gain) | $ | — | $ | 0.7 | $ | — | (47.7) | |||||||||||||||||||
| Foreign exchange loss | 4.3 | 4.2 | 6.1 | $ | 14.5 | |||||||||||||||||||||
| Other expense (income), net | 1.7 | 1.3 | 5.8 | (0.1) | ||||||||||||||||||||||
| $ | 6.0 | $ | 6.2 | $ | 11.9 | $ | (33.3) |
Investment gain during the nine months ended July 31, 2022, primarily consisted of a gain on remeasurement of the fair value of retained equity investment in SightGlass Vision, Inc. (SGV) as a result of deconsolidation. Foreign exchange loss is primarily associated with the weakening of the US dollar against foreign currencies and the effect on intercompany receivables.
Other expenses (income), net increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to loss on minority investments, partially offset by defined benefit plan related income.
Provision for Income Taxes
The effective tax rates for the three months ended July 31, 2023, and July 31, 2022, were 28.2% and 16.1%, respectively. The effective tax rates for the nine months ended July 31, 2023, and July 31, 2022, were 31.6% and 20.5%, respectively. The increases were primarily due to changes in the geographic composition of pre-tax earnings, an increase in the UK statutory tax rate from 19% to 25%, capitalization of research and experimental expenditures for fiscal 2023 as required by the 2017 Tax Cuts and Jobs Act, and changes in unrecognized tax benefits.
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 July 31, 2023, and October 31, 2022, was $717.4 million and $253.4 million, respectively. The increase in working capital was primarily due to repayment of the 364-day term loan during the first nine months of fiscal 2023. See Note 5. Financing Arrangements for further information.
Cash Flow
| ($ in millions) | July 31, 2023 | July 31, 2022 | ||||||||||||
| Operating activities | $ | 433.3 | $ | 561.7 | ||||||||||
| Investing activities | (288.2) | (1,731.5) | ||||||||||||
| Financing activities | (167.4) | 1,327.8 | ||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, restricted cash | 1.2 | (8.0) | ||||||||||||
| Net (decrease) increase in cash, cash equivalents, restricted cash | $ | (21.1) | $ | 150.0 |
Operating Cash Flow
Cash provided by operating activities in the first nine months of fiscal 2023 decreased compared to the first nine months of fiscal 2022, primarily due to net changes in operating capital, partially offset by net changes in other non-cash items.
The $45.0 million termination fee accrued in the first nine months of fiscal 2023 under an asset purchase agreement related to Cook Medical’s reproductive health business was paid on August 9, 2023. See Note 2. Acquisitions and Joint Venture of the Consolidated Condensed Financial Statements for further information on the termination fee.
Investing Cash Flow
Cash used in investing activities in the first nine months of fiscal 2023 was lower than cash used in the first nine months of fiscal 2022, primarily attributable to $1.6 billion cash paid, net of cash acquired, for the Generate acquisition in the first nine months of fiscal 2022. The decrease in cash used for acquisitions was partially offset by an increase in purchases of property, plant and equipment.
Financing Cash Flow
Cash used in financing activities in the first nine months of fiscal 2023 was primarily due to repayments of $338.0 million on the 2021 364-day term loan, partially offset by $163.5 million of funds drawn on the 2020 revolving credit.
Cash provided by financing activities in the first nine 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 $549.0 million repayments of the 2021 revolving credit, $380.0 million repayments of the 2021 364-day term loan facility, 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 July 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 | $ | 163.5 | $ | 2.2 | $ | 1,124.3 | 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 | $ | 2,513.5 | $ | 2.2 | $ | 1,124.3 |
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
As of July 31, 2023, the Company was in compliance with all debt covenants. See Note 5. Financing Arrangements of the Consolidated Condensed Financial Statements for further information.
Considering recent market conditions, 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 could 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 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 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 July 31, 2023, $256.4 million remains authorized for repurchase under the 2012 Program.
During the nine months ended July 31, 2023, there were no share repurchases under the 2012 Program. During the nine months ended July 31, 2022, the Company repurchased 191.2 thousand shares of its common stock for $78.5 million, at an average purchase price of $410.41 per share.
Dividends
We paid a semiannual dividend of approximately $1.5 million or 3 cents per share, on February 10, 2023, to stockholders of record on January 23, 2023. We paid another semiannual dividend of approximately $1.5 million or 3 cents per share, on August 11, 2023, to stockholders of record on July 27, 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").
Estimates and Critical Accounting Policies
Information regarding estimates and critical accounting policies is included in Management's Discussion and Analysis in our 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.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Previous: Item 1. Unaudited Financial Statements · Next: Item 3. Quantitative and Qualitative Disclosure About Market Risk