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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 Quarterly Period Ended July 31, 2019
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.)
6140 Stoneridge Mall Road, Suite 590, Pleasanton, CA 94588
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (925460-3600
_____________________________________________________________
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  
Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date.
On August 23, 2019, 49,573,612 shares of Common Stock, $.10 par value, were outstanding.




 
 
 


INDEX
 
 
 
Page No.
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 

2



 
 
 

PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Periods Ended July 31,
(In millions, except for earnings per share)
(Unaudited)
 
Three Months
 
Nine Months
  
2019
 
2018
 
2019
 
2018
Net sales (Note 2)
$
679.4

 
$
660.0

 
$
1,961.8

 
$
1,881.3

Cost of sales
228.7

 
233.2

 
660.0

 
679.1

Gross profit
450.7

 
426.8

 
1,301.8

 
1,202.2

Selling, general and administrative expense
249.8

 
251.0

 
746.6

 
724.7

Research and development expense
21.5

 
22.5

 
63.4

 
62.2

Amortization of intangibles
37.2

 
37.7

 
110.7

 
110.5

Impairment of intangibles

 

 

 
24.4

Gain on sale of an intangible (Note 5)

 

 
(19.0
)
 

Operating income
142.2

 
115.6

 
400.1

 
280.4

Interest expense
16.7


22.8


53.3


59.9

Other (income) expense, net
(1.5
)

2.4


(2.1
)

1.3

Income before income taxes
127.0

 
90.4

 
348.9

 
219.2

Provision (benefit) for income taxes (Note 7)
6.9

 
(10.4
)
 
3.2

 
180.0

Net income
$
120.1

 
$
100.8

 
$
345.7

 
$
39.2

Earnings per share - basic (Note 8)
$
2.43

 
$
2.05

 
$
7.00

 
$
0.80

Earnings per share - diluted (Note 8)
$
2.40

 
$
2.03

 
$
6.91

 
$
0.79

Number of shares used to compute earnings per share:

 

 

 

Basic
49.5

 
49.1

 
49.4

 
49.0

Diluted
50.1

 
49.7

 
50.0

 
49.6

See accompanying notes.

3



 
 
 

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income
Periods Ended July 31,
(In millions)
(Unaudited)
 
Three Months
 
Nine Months
  
2019
 
2018
 
2019
 
2018
Net income
$
120.1

 
$
100.8

 
$
345.7

 
$
39.2

Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of tax
(65.2
)
 
(69.6
)
 
(51.1
)
 
(10.3
)
Comprehensive income
$
54.9

 
$
31.2

 
$
294.6

 
$
28.9

See accompanying notes.

4



 
 
 

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets
(In millions)
(Unaudited)
 
July 31, 2019
 
October 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
112.7

 
$
77.7

Trade accounts receivable, net of allowance for doubtful accounts of $17.1 at July 31, 2019 and $19.0 at October 31, 2018
404.7

 
374.7

Inventories (Note 4)
502.1

 
468.8

Prepaid expense and other current assets
131.3

 
169.7

Total current assets
1,150.8

 
1,090.9

Property, plant and equipment, at cost
2,086.9

 
1,930.3

Less: accumulated depreciation and amortization
1,021.5

 
954.3

 
1,065.4

 
976.0

Goodwill (Note 5)
2,391.4

 
2,392.1

Other intangibles, net (Note 5)
1,438.6

 
1,521.3

Deferred tax assets
63.1

 
58.4

Other assets
63.5

 
74.1

 
$
6,172.8

 
$
6,112.8

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt (Note 6)
$
390.0

 
$
37.1

Accounts payable
141.5

 
146.4

Employee compensation and benefits
89.5

 
94.0

Other current liabilities
268.4

 
259.0

Total current liabilities
889.4

 
536.5

Long-term debt (Note 6)
1,422.6

 
1,985.7

Deferred tax liabilities
31.5

 
31.0

Long-term tax payable
124.8

 
141.5

Accrued pension liability and other
89.0

 
110.3

Total liabilities
2,557.3

 
2,805.0

Contingencies (see Note 13)

 

Stockholders’ equity:

 
 
Preferred stock, 10 cents par value, shares authorized: 1.0; zero shares issued or outstanding

 

Common stock, 10 cents par value, shares authorized: 120.0; issued 53.2 at July 31, 2019 and 52.8 at October 31, 2018
5.3

 
5.3

Additional paid-in capital
1,607.6

 
1,572.1

Accumulated other comprehensive loss
(481.8
)
 
(430.7
)
Retained earnings
2,905.4

 
2,576.0

Treasury stock at cost: 3.6 shares at July 31, 2019 and 3.6 shares at October 31, 2018
(421.2
)
 
(415.1
)
Noncontrolling interests
0.2

 
0.2

Stockholders’ equity (Note 10)
3,615.5

 
3,307.8

 
$
6,172.8

 
$
6,112.8

See accompanying notes.

5

Table of Contents
THE COOPER COMPANIES, INC. AND SUBSIDIARIES


Consolidated Condensed Statements of Stockholders' Equity
 
Common Shares
 
Treasury Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Noncontrolling Interests
 
Total
Stockholders'
Equity
(In millions)
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balance at November 1, 2017
48.8

 
$
4.9

 
3.6

 
$
0.3

 
$
1,526.7

 
$
(375.3
)
 
$
2,434.2

 
$
(415.1
)
 
$
0.1

 
$
3,175.8

Net loss

 

 

 

 

 

 
(122.5
)
 

 

 
(122.5
)
Other comprehensive income, net of tax

 

 

 

 

 
102.3

 

 

 

 
102.3

Issuance of common stock for stock plans, net
0.2

 
0.1

 

 

 
(10.6
)
 

 

 

 

 
(10.5
)
Dividends on common stock

 

 

 

 

 

 
(1.4
)
 

 

 
(1.4
)
Share-based compensation expense

 

 

 

 
12.7

 

 

 

 

 
12.7

Balance at January 31, 2018
49.0

 
$
5.0

 
3.6

 
$
0.3

 
$
1,528.8

 
$
(273.0
)
 
$
2,310.3

 
$
(415.1
)
 
$
0.1

 
$
3,156.4

Net income

 

 

 

 

 

 
60.9

 

 

 
60.9

Other comprehensive loss, net of tax

 

 

 

 

 
(43.0
)
 

 

 

 
(43.0
)
Issuance of common stock for stock plans, net
0.1

 

 

 

 
0.1

 

 

 

 

 
0.1

Share-based compensation expense

 

 

 

 
13.6

 

 

 

 

 
13.6

Balance at April 30, 2018
49.1

 
$
5.0

 
3.6

 
$
0.3

 
$
1,542.5

 
$
(316.0
)
 
$
2,371.2

 
$
(415.1
)
 
$
0.1

 
$
3,188.0

Net income

 

 

 

 

 

 
100.8

 

 

 
100.8

Other comprehensive loss, net of tax

 

 

 

 

 
(69.6
)
 

 

 

 
(69.6
)
Issuance of common stock for stock plans, net

 

 

 

 
0.8

 

 

 

 

 
0.8

Dividends on common stock


 

 

 

 

 

 
(1.5
)
 

 

 
(1.5
)
Share-based compensation expense

 

 

 

 
8.1

 

 

 

 

 
8.1

Balance at July 31, 2018
49.1

 
$
5.0

 
3.6

 
$
0.3

 
$
1,551.4

 
$
(385.6
)
 
$
2,470.5

 
$
(415.1
)
 
$
0.1

 
$
3,226.6












6

Table of Contents
THE COOPER COMPANIES, INC. AND SUBSIDIARIES


Consolidated Condensed Statements of Stockholders' Equity
 
Common Shares
 
Treasury Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Noncontrolling Interests
 
Total
Stockholders'
Equity
(In millions)
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balance at November 1, 2018
49.2

 
$
5.0

 
3.6

 
$
0.3

 
$
1,572.1

 
$
(430.7
)
 
$
2,576.0

 
$
(415.1
)
 
$
0.2

 
$
3,307.8

Net income

 

 

 

 

 

 
103.2

 

 

 
103.2

Other comprehensive income, net of tax

 

 

 

 

 
32.7

 

 

 

 
32.7

Issuance of common stock for stock plans, net
0.1

 

 

 

 
(9.0
)
 

 

 

 

 
(9.0
)
Treasury stock repurchase

 

 

 

 

 

 

 
(6.1
)
 

 
(6.1
)
Dividends on common stock

 

 

 

 

 

 
(1.5
)
 

 

 
(1.5
)
Share-based compensation expense

 

 

 

 
11.7

 

 

 

 

 
11.7

ASU 2016-16 adoption (1)

 

 

 

 

 

 
(13.3
)
 

 

 
(13.3
)
Balance at January 31, 2019
49.3

 
$
5.0

 
3.6

 
$
0.3

 
$
1,574.8

 
$
(398.0
)
 
$
2,664.4

 
$
(421.2
)
 
$
0.2

 
$
3,425.5

Net income

 

 

 

 

 

 
122.4

 

 

 
122.4

Other comprehensive loss, net of tax

 

 

 

 

 
(18.6
)
 

 

 

 
(18.6
)
Issuance of common stock for stock plans, net
0.2

 

 

 

 
4.5

 

 

 

 

 
4.5

Share-based compensation expense

 

 

 

 
8.4

 

 

 

 

 
8.4

Balance at April 30, 2019
49.5

 
$
5.0

 
3.6

 
$
0.3

 
$
1,587.7

 
$
(416.6
)
 
$
2,786.8

 
$
(421.2
)
 
$
0.2

 
$
3,542.2

Net income

 

 

 

 

 

 
120.1

 

 

 
120.1

Other comprehensive loss, net of tax

 

 

 

 

 
(65.2
)
 

 

 

 
(65.2
)
Issuance of common stock for stock plans, net
0.1

 

 

 

 
12.2

 

 

 

 

 
12.2

Dividends on common stock

 

 

 

 

 

 
(1.5
)
 

 

 
(1.5
)
Share-based compensation expense

 

 

 

 
7.7

 

 

 

 

 
7.7

Balance at July 31, 2019
49.6

 
$
5.0

 
3.6

 
$
0.3

 
$
1,607.6

 
$
(481.8
)
 
$
2,905.4

 
$
(421.2
)
 
$
0.2

 
$
3,615.5

See accompanying notes to consolidated financial statements.
(1) We adopted ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory in the first quarter of fiscal 2019. Refer to “Note 1. General" for further information.

7



 
 
 

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows
Nine Months Ended July 31,
(In millions)
(Unaudited)
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
345.7

 
$
39.2

Depreciation and amortization
210.2

 
204.6

Gain on sale of an intangible (Note 5)
(19.0
)
 

Impairment of intangibles

 
24.4

Increase in operating capital
(22.1
)
 
(141.1
)
Other non-cash items
(1.5
)
 
305.2

Net cash provided by operating activities
513.3

 
432.3

Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(207.3
)
 
(150.2
)
Acquisitions of businesses and assets, net of cash acquired, and other
(59.1
)
 
(1,320.8
)
Net cash used in investing activities
(266.4
)
 
(1,471.0
)
Cash flows from financing activities:
 
 
 
Proceeds from long-term debt
576.8

 
2,073.1

Repayments of long-term debt
(1,140.8
)
 
(971.1
)
Net proceeds from short-term debt
351.8

 
21.0

Net proceeds (payments) related to share-based compensation awards
7.7

 
(9.8
)
Dividends on common stock
(1.5
)
 
(1.5
)
Repurchase of common stock
(6.1
)
 

Debt acquisition costs
(0.2
)
 
(3.9
)
Payment of contingent consideration

 
(0.1
)
Net cash (used in) provided by financing activities
(212.3
)
 
1,107.7

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(1.6
)
 
(2.2
)
Net increase in cash, cash equivalents and restricted cash
33.0

 
66.8

Cash, cash equivalents and restricted cash at beginning of period
80.2

 
88.8

Cash, cash equivalents and restricted cash at end of period
$
113.2

 
$
155.6

Reconciliation of cash flow information:
 
 
 
Cash and cash equivalents
$
112.7

 
$
155.6

Restricted cash included in other current assets
0.5

 

Total cash, cash equivalents, and restricted cash
$
113.2

 
$
155.6




See accompanying notes.

8

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)






Note 1. General

The accompanying unaudited interim consolidated condensed financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Cooper Companies, Inc. and its subsidiaries (the Company) and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2018. The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. Readers should not assume that the results reported here either indicate or guarantee future performance. The terms "the Company", "we", "us", and "our" are used to refer collectively to the Cooper Companies, Inc. and its subsidiaries.
Accounting Pronouncements Recently Adopted

In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections. The ASU clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations, thereby eliminating redundancies and making the codification easier to apply. The Company adopted this guidance during third quarter of fiscal 2019, and it did not have a material impact on the Company’s reported consolidated financial results.

In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires an entity to disaggregate the service cost component from the other components of net benefit cost. The service cost component is now presented in the same income statement line as other compensation costs arising from services rendered by the pertinent employees during the period and the other components of net benefit costs are presented separately as other income/expense below operating income. The Company adopted this guidance on November 1, 2018, and it did not have a material impact on the Company’s reported consolidated financial results.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences on an intra-entity transfer of an asset other than inventory when the transfer occurs. The ASU changes the timing of the recognition of the income tax consequences of non-inventory transfers which under previous guidance deferred the income tax consequences until the asset was sold to an outside party or otherwise recognized. The guidance for the amendments of ASU 2016-16 requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. The Company adopted ASU 2016-16 in the first quarter of fiscal 2019 on a modified retrospective basis. The Company recorded the cumulative effect of the change as a decrease to retained earnings of approximately $13.3 million. The cumulative effect adjustment represents the recognition of unrecognized income tax effects from intra-entity transfers of assets other than inventory that occurred prior to the date of adoption.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU requires revenue recognition to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in the ASU can be applied either retrospectively to each prior reporting period presented or alternatively, the modified retrospective transition method whereby the company recognizes the cumulative effect of initially applying the guidance as an opening balance sheet adjustment to equity in the period of initial application. This alternative approach must be supplemented by additional disclosures.

We adopted ASU 2014-09 on November 1, 2018, using the modified retrospective transition method. We did not recognize any cumulative effect of initially applying the new revenue standard as an adjustment to our opening balance of retained earnings due to its immaterial impact. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. There was no material impact of ASU 2014-09 to our financial statements during the three and nine months ended July 31, 2019. We do not expect the adoption of the new revenue standard to have a material impact to our net income on an ongoing basis.


9

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)





The Company applies the provisions of Accounting Standards Codification (ASC) 606-10 or ASU 2014-09, Revenue from Contracts with Customers, and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. For a complete discussion of accounting for net product revenue, see Note 2. Revenue Recognition.
Accounting Pronouncements Issued Not Yet Adopted

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), Clarifying the Interaction between Topic 808 and Topic 606. This guidance amended Topic 808 and Topic 606 to clarify that transactions in a collaborative arrangement should be accounted for under Topic 606 when the counterparty is a customer for a distinct good or service (i.e., unit of account). The amendments preclude an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. We are currently evaluating the impact of ASU 2018-18 which is effective for the Company in our fiscal year and interim periods beginning on November 1, 2020.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance requires companies to apply the internal-use software guidance in ASC 350-40 to implementation costs incurred in a hosting arrangement that is a service contract to determine whether to capitalize certain implementation costs or expense them as incurred. We are currently evaluating the impact of ASU 2018-15 which is effective for the Company in our fiscal year and interim periods beginning on November 1, 2020.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (ROU) asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases Topic 842 Target improvements, which provides an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which further clarifies the determination of fair value of the underlying asset by lessors that are not manufacturers or dealers and modifies transition disclosure requirements for changes in accounting principles and other technical updates. This standard is effective for the Company in our fiscal year and interim periods beginning on November 1, 2019.

We anticipate this standard to have a material impact on our Consolidated Balance Sheets and related disclosures due to the recognition of ROU assets and lease liabilities for operating leases. However, we do not expect the adoption to have a material impact on our Consolidated Statements of Income. We are continuing to assess and evaluate the potential impacts of the standard as well as the election of transition method and certain practical expedients available within ASU 2019-01. We are in the process of documenting and analyzing our lease contracts, assessing business processes and controls, implementing a system solution and completing our analysis of information necessary to determine the impact to the consolidated financial statements.

Note 2. Revenue Recognition

Product Revenue, Net

The Company sells its products principally to a limited number of distributors, group purchasing organizations, eye care or health care professionals including independent practices, corporate retailers, hospitals and clinics or authorized resellers (collectively, its Customers). These Customers subsequently resell the Company’s products to eye care or health care

10

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)





providers and patients. In addition to product supply and distribution agreements with Customers, the Company enters into arrangements with health care providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of the Company’s products. The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be contracts with a customer. In situations where sales are to a distributor, the Company has concluded that its contracts are with the distributor. As part of its consideration of the contract, the Company evaluates certain factors including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations.
  
Revenues from product sales are recognized when the Customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment or delivery to the Customer. When the Company performs shipping and handling activities after the transfer of control to the Customer (e.g., when control transfers prior to delivery), they are considered as fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues. The Company does not have any revenue recognized on payment expected to be received more than one year after the transfer of control of the products. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that the Company would have recognized is one year or less. See Note14. Business Segment Information, for disaggregation of revenue.
 
Reserves for Variable Consideration  

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from discounts, returns, chargebacks, rebates and other allowances that are offered within contracts between the Company and its Customers, health care providers, payors and other indirect customers relating to the Company’s sales of its products. These reserves are based on the amounts earned or to be claimed on the related sales and are classified primarily in current liabilities. Variable consideration is estimated based on the most likely amount or expected value approach, depending on which method the Company expects to better predict the amount of consideration to which it will be entitled. Once the Company elects one of the methods to estimate variable consideration for a particular type of performance obligation, the Company applies that method consistently.

Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.
 
Trade Discounts and Allowances

The Company generally provides Customers with discounts, which include incentive fees that are stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, the Company receives sales order management, data and distribution services from certain Customers. To the extent the services received are distinct from the Company’s sale of products to the Customer and have readily determinable fair value, these payments are classified in selling, general and administrative expenses in the Consolidated Statements of Income of the Company.
 
Product Returns

Consistent with industry practice, the Company generally offers Customers a limited right of return for a product that has been purchased from the Company. The Company estimates the amount of its product sales that may be returned by its Customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. There is inherent judgment in estimating future refunds as they are susceptible to factors outside of our influence. However, we have significant experience in estimating the amount of refunds, based primarily on historical data. Our refund liability for product returns was $9.9 million at July 31, 2019 which is included in Accrued Liabilities on our Condensed Consolidated Balance Sheets and represents the expected value of the aggregate refunds that will be due to our customers.
 


11

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)





Rebates and Chargebacks

Rebates are estimated based on contractual terms, historical experience, customer mix, trend analysis and projected market conditions in the various markets served.

Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list wholesale prices charged to the Company’s direct customers. For certain office and surgical products in CooperSurgical, customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by Customers. CooperSurgical rebates are predominately related to the Medicaid rebate provision that is estimated based upon contractual terms, historical experience, and trend analysis.

Contract balances

The timing of billing and revenue recognition primarily occurs simultaneously. The Company does not have material contract assets or liabilities.

Note 3. Acquisitions
The following is a summary of the allocation of the total purchase consideration for business and asset acquisitions that the Company completed during fiscal 2019 and 2018:
(In millions)
July 31, 2019
 
October 31, 2018
Technology
$
12.3

 
$

Customer relationships
7.5

 
23.5

Trademarks
10.2

 
100.0

Composite intangible asset

 
1,061.9

Other
0.1

 
4.2

Total identifiable intangible assets
$
30.1

 
$
1,189.6

Goodwill
35.8

 
70.6

Net tangible assets
1.3

 
59.6

Total purchase price
$
67.2

 
$
1,319.8


All the acquisitions were funded by cash generated from operations or facility borrowings.
For business acquisitions, we recorded the tangible and intangible assets acquired and liabilities assumed at their fair values as of the applicable date of acquisition. For assets acquisitions, we recorded the tangible and intangible assets acquired and liabilities assumed at their estimated and relative fair values as of the applicable date of acquisition.

We believe these acquisitions strengthen CooperSurgical's and CooperVision's businesses through the addition of new or complementary products and services.
Fiscal Year 2019

On December 31, 2018, CooperSurgical completed the acquisition of Incisive Surgical Inc., a privately-held U.S. medical device company that develops mechanical surgical solutions for skin closure. The purchase price allocation is preliminary and we are in the process of finalizing information primarily related to taxes and the corresponding impact on goodwill.

On December 28, 2018, CooperVision completed the acquisition of Blanchard Contact Lenses. Blanchard is a privately-held scleral lens company, which expands CooperVision's specialty and scleral lens portfolio. The purchase price allocation is preliminary and we are in the process of finalizing information primarily related to property plant and equipment, taxes and the corresponding impact on goodwill.

12

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)





The pro forma results of operations of these acquisitions have not been presented because the effects of the business combinations described above, individually and in the aggregate, were not material to our reported consolidated financial results.
Fiscal Year 2018

PARAGARD

On November 1, 2017, CooperSurgical acquired the assets of the PARAGARD Intrauterine Device (IUD) business (PARAGARD) from Teva Pharmaceuticals Industries Limited for $1.1 billion. This asset acquisition broadened and strengthened CooperSurgical's product portfolio. PARAGARD® is the only hormone-free, long lasting, reversible contraceptive approved by the United States Food and Drug Administration (FDA) available in the United States.

The following table summarizes the relative fair values of net assets acquired and liabilities assumed using the cost accumulation and allocation model:
(In millions)
Relative Fair Value
Composite intangible asset (1)
$
1,061.9

Assembled workforce intangible asset (2)
1.2

Property, plant and equipment
2.0

Inventory (3)
47.3

Other assets
9.4

Total assets acquired
$
1,121.8

Less: liabilities assumed
16.4

Total Purchase Price
$
1,105.4


The Company proportionally allocated the acquisition costs to the net assets acquired. The acquisition-related costs included advisory, legal, valuation and other professional fees.

(1) Composite Intangible asset consists of technology, trade name, New Drug Application (NDA) approval and physician relationships, which have been valued as a single composite intangible asset as they are inextricably linked. The composite asset was identified as the primary asset acquired, was valued using the Multi-Period Excess Earnings Method and will be amortized over 15 years.
(2) An assembled workforce was recognized as a separate acquired intangible asset, given the purchase of assets and will be amortized over 5 years.
(3) Inventory relative fair value includes step up of $45.4 million.
Other Acquisitions
On April 3, 2018, CooperSurgical completed the acquisition of The LifeGlobal Group (LifeGlobal). LifeGlobal was a privately held company that specializes primarily in in-vitro fertilization (IVF) media. LifeGlobal’s product categories include media products as well as IVF laboratory air filtration products and dishware. We have completed the purchase price allocation for this acquisition.
On January 4, 2018, CooperVision acquired Blueyes Ltd, a long-standing distribution partner, with a leading position in the distribution of contact lenses to the Optical and Pharmacy sector in Israel. We have completed the purchase price allocation for this acquisition.
On December 1, 2017, CooperVision acquired Paragon Vision Sciences, a leading provider of orthokeratology (ortho-k) specialty contact lenses and oxygen permeable rigid contact lens materials. Ortho-k contact lenses are overnight lenses which enable corneal topography correction for myopia (nearsightedness) patients. We have completed the purchase price allocation for this acquisition.





13

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)





Note 4. Inventories
(In millions)
July 31, 2019
 
October 31, 2018
Raw materials
$
127.1

 
$
112.5

Work-in-process
13.4

 
12.6

Finished goods
361.6

 
343.7

 
$
502.1

 
$
468.8


Inventories are stated at the lower of cost and net realizable value. Cost is computed using standard cost that approximates actual cost, on a first-in, first-out basis.

Note 5. Intangible Assets

Goodwill
(In millions)
CooperVision
 
CooperSurgical
 
Total
Balance at October 31, 2017
$
1,735.7

 
$
619.1

 
$
2,354.8

Net additions during the year ended October 31, 2018
36.8

 
34.4

 
71.2

Translation
(29.6
)
 
(4.3
)
 
(33.9
)
Balance at October 31, 2018
1,742.9

 
649.2

 
2,392.1

Net additions during the nine months ended July 31, 2019
13.8

 
22.0

 
35.8

Translation
(33.0
)
 
(3.5
)
 
(36.5
)
Balance at July 31, 2019
$
1,723.7

 
$
667.7

 
$
2,391.4



Effective April 30, 2019, there was a change in the reporting units as a result of realignment in the internal reporting structure of the business around markets and customers at CooperSurgical. As such, Cooper Surgical has evolved into two reporting units, namely, Office/Surgical and Fertility, which reflects management oversight of operations. The change in reporting units did not result in a change in operating segments. We allocated CooperSurgical's goodwill based on relative fair values utilizing the discounted cash flow method and guideline public company method as our allocation base, and the allocated fair values exceeded the carrying values for each of the three reporting units as of April 30, 2019.

We evaluate goodwill for impairment annually during the fiscal third quarter and when an event occurs or circumstances change such that it is reasonably possible that impairment may exist. We account for goodwill and evaluate our goodwill balances and test them for impairment in accordance with related accounting standards. We performed our annual impairment assessment in our third quarter of fiscal 2019 and 2018, and our analysis indicated that we had no impairment of goodwill in our reporting units.

We performed a qualitative assessment to test each reporting unit's goodwill for impairment. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance and other relevant events and factors affecting each reporting unit. Based on our qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value of the reporting unit. A reporting unit is the level of reporting at which goodwill is tested for impairment. Our reporting units are CooperVision, Office/Surgical and Fertility reflecting the current way we manage our business. Goodwill impairment analysis and measurement is a process that requires significant judgment. If our common stock price trades below book value per share, there are changes in market conditions or a future downturn in our business, or a future goodwill impairment test indicates an impairment of our goodwill, we may have to recognize a non-cash impairment of goodwill that could be material and could adversely affect our results of operations in the period recognized and also adversely affect our total assets and stockholders' equity.

14

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)





Other Intangible Assets
 
July 31, 2019
 
October 31, 2018
 
 
(In millions)
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Weighted Average Amortization Period (In years)
Intangible assets with definite lives:
 
 
 
 
 
 
 
 
 
Trademarks
$
148.3

 
$
24.6

 
$
138.1

 
$
16.9

 
14
Composite intangible asset
1,061.9

 
123.9

 
1,061.9

 
70.8

 
15
Technology
398.8

 
213.0

 
387.2

 
190.7

 
11
Customer relationships
356.1

 
187.0

 
350.0

 
168.6

 
13
License and distribution rights and other (1)
27.8

 
14.7

 
74.9

 
52.7

 
11
 
1,992.9

 
$
563.2

 
2,012.1

 
$
499.7

 
14
Less: accumulated amortization and translation
563.2

 
 
 
499.7

 
 
 
 
Intangible assets with definite lives, net
1,429.7

 
 
 
1,512.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible assets with indefinite lives, net (2)
8.9

 
 
 
8.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total other intangible assets, net
$
1,438.6

 
 
 
$
1,521.3

 
 
 
 

(1) In the second quarter of fiscal 2019, CooperSurgical sold an exclusive distribution right to distribute Filshie Clip System in the U.S. for $21.0 million and recognized a gain of $19.0 million. In the third quarter of fiscal 2019, CooperVision removed $37.3 million of fully amortized non-compete agreements.
(2) Intangible assets with indefinite lives include trademark and technology intangible assets.
Balances include foreign currency translation adjustments.
As of July 31, 2019, the estimation of amortization expenses for intangible assets with definite lives is as follows:
Fiscal years:
(In millions)
Remainder of 2019
$
35.1

2020
135.6

2021
134.3

2022
132.4

2023
130.2

Thereafter
862.1

Total remaining amortization for intangible assets with definite lives
$
1,429.7


The Company assesses definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying amount of a definite-lived intangible asset (asset group) may not be recoverable. When events or changes in circumstances indicate that the carrying amount of a definite-lived intangible asset may not be recoverable, the Company evaluates whether the definite-lived intangible asset is impaired by comparing its carrying value to its undiscounted future cash flows. The Company assesses indefinite-lived intangible assets annually in the third quarter of the fiscal year, or whenever events or circumstances indicate that the carrying amount of an indefinite-lived intangible asset (asset group) may not be recoverable. The Company evaluates whether the indefinite-lived intangible asset is impaired by comparing its carrying value to its fair value.
If the carrying value of a definite-lived or indefinite-lived intangible asset is not recoverable, an impairment loss is recognized based on the amount by which the carrying value exceeds the fair value. The inputs used in the fair value analysis fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair

15

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)





value. The Company did not recognize any material definite-lived or indefinite-lived intangible asset impairment charges during the three and nine months ended July 31, 2019.

Note 6. Debt
(In millions)
July 31, 2019
 
October 31, 2018
Overdraft and other credit facilities
$
65.0

 
$
37.1

Term loans
325.0

 

Short-term Debt
$
390.0

 
$
37.1

 
 
 
 
Revolving credit
$

 
$
439.0

Term loans
1,425.0

 
1,550.0

Other
0.2

 
0.2

Less: unamortized debt issuance cost
(2.6
)
 
(3.5
)
Long-term Debt
$
1,422.6

 
$
1,985.7

 
 
 
 
Total Debt
$
1,812.6

 
$
2,022.8



$400 million Term Loan on November 1, 2018
On November 1, 2018, the Company entered into a 364-day, $400.0 million, senior unsecured term loan agreement by and among the Company, the lenders party thereto and PNC Bank, National Association, as administrative agent which matures on October 31, 2019 (the 2018 Term Loan Agreement). The Company used the funds to partially repay outstanding borrowings under the 2016 Revolving Credit Facility. At July 31, 2019, we had $325.0 million outstanding under the 2018 Term Loan Agreement.
Amounts outstanding under the 2018 Term Loan Agreement will bear interest, at the Company's option, at either the base rate, or the adjusted LIBO rate (each as defined in the 2018 Term Loan Agreement), plus, in each case, an applicable rate of 0.00% in respect of base rate loans and 0.60% in respect of adjusted LIBO rate loans. The weighted average interest rate for the three months and nine months ended July 31, 2019 were 3.02% and 3.04%, respectively.

The 2018 Term Loan Agreement contains customary restrictive covenants, as well as financial covenants that require the Company to maintain a certain Total Leverage Ratio and Interest Coverage Ratio (each as defined in the 2018 Term Loan Agreement) consistent with the 2016 Credit Agreement discussed below.
$1.425 billion Term Loan on November 1, 2017
On November 1, 2017, in connection with the PARAGARD acquisition, we entered into a five-year, $1.425 billion, senior unsecured term loan agreement (the 2017 Term Loan Agreement) by and among the Company, the lenders party thereto and DNB Bank ASA, New York Branch, as administrative agent which matures on November 1, 2022. The Company used part of the facility to fund the PARAGARD acquisition and used the remainder of the funds to partially repay outstanding borrowings under our revolving credit agreement.
Amounts outstanding under the 2017 Term Loan Agreement will bear interest, at our option, at either the base rate, or the adjusted LIBO rate (each as defined in the 2017 Term Loan Agreement), plus, in each case, an applicable rate of, between 0.00% and 0.75% in respect of base rate loans and between 1.00% and 1.75% in respect of adjusted LIBO rate loans, in each case in accordance with a pricing grid tied to the Total Leverage Ratio as defined in the 2017 Term Loan Agreement.