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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 the quarterly period ended July 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)
_____________________________________________________________
Delaware94-2657368
(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 (925460-3600
_____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $.10 par valueCOOThe 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 filerAccelerated 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 August 26, 2022, 49,345,985 shares of Common Stock, $0.10 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 and Comprehensive Income
Periods Ended July 31,
(In millions, except for earnings per share)
(Unaudited)
Three MonthsNine Months
  
2022202120222021
Net sales$843.4 $763.4 $2,460.3 $2,163.4 
Cost of sales291.3 247.3 857.3 709.5 
Gross profit552.1 516.1 1,603.0 1,453.9 
Selling, general and administrative expense342.7 352.5 984.2 899.6 
Research and development expense28.7 24.8 81.2 67.0 
Amortization of intangibles40.1 38.2 133.5 110.0 
Operating income140.6 100.6 404.1 377.3 
Interest expense17.1 5.6 34.5 18.1 
Other expense (income), net6.2 1.0 (33.3)(10.7)
Income before income taxes117.3 94.0 402.9 369.9 
Provision for income taxes (Note 6)18.9 (521.8)82.7 (2,464.5)
Net income $98.4 $615.8 $320.2 $2,834.4 
Earnings per share (Note 7):
Basic$1.99 $12.50 $6.49 $57.61 
Diluted$1.98 $12.37 $6.44 $57.01 
Number of shares used to compute earnings per share:
Basic49.3 49.3 49.3 49.2 
Diluted49.6 49.8 49.7 49.7 
Other comprehensive income, net of tax:
Cash flow hedges$(10.5)$(8.9)$42.1 $10.8 
Foreign currency translation adjustment(32.3)(3.7)(178.1)101.4 
Comprehensive income$55.6 $603.2 $184.2 $2,946.6 

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

3


THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets
(In millions, unaudited)
July 31, 2022October 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$246.3 $95.9 
Trade accounts receivable, net of allowance for credit losses of $16.6 at July 31, 2022, and $9.2 at October 31, 2021
543.6 515.3 
Inventories (Note 3)621.6 585.6 
Prepaid expense and other current assets186.2 179.3 
Assets held-for-sale 89.2 
Total current assets1,597.7 1,465.3 
Property, plant and equipment, at cost2,746.2 2,655.7 
Less: accumulated depreciation and amortization1,384.9 1,308.1 
1,361.3 1,347.6 
Operating lease right-of-use assets240.0 257.0 
Goodwill (Note 4)3,665.8 2,574.0 
Other intangibles, net (Note 4)1,917.3 1,271.5 
Deferred tax assets2,464.0 2,546.6 
Other assets306.0 144.2 
Total assets$11,552.1 $9,606.2 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt (Note 5)$534.6 $82.9 
Accounts payable227.2 161.4 
Employee compensation and benefits140.8 148.7 
Operating lease liabilities35.9 35.7 
Other current liabilities437.2 301.7 
Liabilities held-for-sale 1.7 
Total current liabilities1,375.7 732.1 
Long-term debt (Note 5)2,346.9 1,396.1 
Deferred tax liabilities143.8 24.1 
Long-term tax payable116.8 139.6 
Operating lease liabilities215.6 231.7 
Accrued pension liability and other270.2 140.6 
Total liabilities$4,469.0 $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 49.3 outstanding at July 31, 2022, and 53.7 issued and 49.3 outstanding at October 31, 2021
5.4 5.4 
Additional paid-in capital1,751.0 1,715.2 
Accumulated other comprehensive loss(477.3)(341.3)
Retained earnings6,519.4 6,202.1 
Treasury stock at cost: 4.6 shares at July 31, 2022, and 4.4 shares at October 31, 2021
(715.6)(639.6)
Total Cooper stockholders’ equity7,082.9 6,941.8 
Noncontrolling interests0.2 0.2 
Stockholders’ equity (Note 9)7,083.1 6,942.0 
Total liabilities and stockholders’ equity$11,552.1 $9,606.2 
    
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
4


THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Stockholders' Equity
(In millions, unaudited)
 Common SharesTreasury StockAdditional Paid-In CapitalAccumulated
Other
Comprehensive
Income (Loss)
Retained EarningsTreasury StockNoncontrolling InterestsTotal
Stockholders'
Equity
SharesAmountSharesAmount
Balance at November 1, 202049.1 $4.9 4.3 $0.4 $1,646.8 $(472.0)$3,261.8 $(617.3)$0.2 $3,824.8 
Net income— — — — — — 2,101.1 — — 2,101.1 
Other comprehensive income, net of tax— — — — — 90.7 — — — 90.7 
Issuance of common stock for stock plans, net0.1 — — — (11.0)— — — — (11.0)
Issuance of common stock for employee stock purchase plan— — — — 0.8 — — 0.6 — 1.4 
Dividends on common stock ($0.03 per share)
— — — — — — (1.5)— — (1.5)
Share-based compensation expense— — — — 10.6 — — — — 10.6 
Treasury stock repurchase(0.1)— 0.1 — — — — (24.8)— (24.8)
ASU 2016-13 adoption— — — — — — (1.4)— — (1.4)
Balance at January 31, 202149.1 $4.9 4.4 $0.4 $1,647.2 $(381.3)$5,360.0 $(641.5)$0.2 $5,989.9 
Net income— — — — — — 117.5 — — 117.5 
Other comprehensive income, net of tax— — — — — 34.1 — — — 34.1 
Issuance of common stock for stock plans, net0.1 0.1 — — 9.7 — — — — 9.8 
Issuance of common stock for employee stock purchase plan— — — — 0.9 — — 0.6 — 1.5 
Share-based compensation expense— — — — 10.0 — — — — 10.0 
Balance at April 30, 202149.2 $5.0 4.4 $0.4 $1,667.8 $(347.2)$5,477.5 $(640.9)$0.2 $6,162.8 
Net Income— — — —   615.8  — 615.8 
Other comprehensive loss, net of tax— — — —  (12.6)—  — (12.6)
Issuance of common stock for stock plans, net— — — — 7.3  —  — 7.3 
Issuance of common stock for employee stock purchase plan— — — — 1.2  — 0.6 — 1.8 
Dividends on common stock ($0.03 per share)
— — — — —  (1.5) — (1.5)
Share-based compensation expense— — — — 11.8  —  — 11.8 
Balance at July 31, 202149.2 $5.0 4.4 $0.4 $1,688.1 $(359.8)$6,091.8 $(640.3)$0.2 $6,785.4 
5


THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Stockholders' Equity
(In millions, unaudited)
Common SharesTreasury StockAdditional Paid-In CapitalAccumulated
Other
Comprehensive
Income (Loss)
Retained EarningsTreasury StockNoncontrolling InterestsTotal
Stockholders'
Equity
SharesAmountSharesAmount
Balance at November 1, 202149.3 $5.0 4.4 $0.4 $1,715.2 $(341.3)$6,202.1 $(639.6)$0.2 $6,942.0 
Net income— — — — — — 95.3 — — 95.3 
Other comprehensive income, net of tax— — — — — (35.9)— — — (35.9)
Issuance of common stock for stock plans, net0.1 — — — (10.0)— — — — (10.0)
Issuance of common stock for employee stock purchase plan— — — — 1.2 — — 0.7 — 1.9 
Dividends on common stock ($0.03 per share)
— — — — — — (1.5)— — (1.5)
Share-based compensation expense— — — — 12.8 — — — — 12.8 
Treasury stock repurchase(0.2)— 0.2 — — — — (78.5)— (78.5)
Balance at January 31, 202249.2 $5.0 4.6 $0.4 $1,719.2 $(377.2)$6,295.9 $(717.4)$0.2 $6,926.1 
Net income— — — — — — 126.6 — — 126.6 
Other comprehensive income, net of tax— — — — — (57.3)— — — (57.3)
Issuance of common stock for stock plans, net0.1 — — — 3.5 — — — — 3.5 
Issuance of common stock for employee stock purchase plan— — — — 1.4 — — 0.8 — 2.2 
Share-based compensation expense— — — — 12.7 — — — — 12.7 
Balance at April 30, 202249.3 $5.0 4.6 $0.4 $1,736.8 $(434.5)$6,422.5 $(716.6)$0.2 $7,013.8 
Net income— — — — — — 98.4 — — 98.4 
Other comprehensive income, net of tax— — — — — (42.8)— — — (42.8)
Issuance of common stock for stock plans, net— — — — (0.4)— — — — (0.4)
Issuance of common stock for employee stock purchase plan— — — — 1.2 — — 1.0 — 2.2 
Dividends on common stock ($0.03 per share)
— — — — — — (1.5)— — (1.5)
Share-based compensation expense— — — — 13.4 — — — — 13.4 
Balance at July 31, 202249.3 $5.0 4.6 $0.4 $1,751.0 $(477.3)$6,519.4 $(715.6)$0.2 $7,083.1 
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
6



THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows
Nine Months Ended July 31,
(In millions, unaudited)
20222021
Cash flows from operating activities:
Net income $320.2 $2,834.4 
Depreciation and amortization257.1 231.9 
Settlement of contingent consideration (Note 2)(40.7) 
Change in fair value of contingent consideration (Note 2)(10.7)56.8 
Net changes in operating capital(8.7)(81.6)
Deferred income taxes55.0 (2,489.5)
Other non-cash items(10.5)12.1 
Net cash provided by operating activities$561.7 $564.1 
Cash flows from investing activities:
Purchases of property, plant and equipment(147.1)(149.4)
Acquisitions of businesses and assets, net of cash acquired, and other(1,636.5)(234.9)
Proceeds from sale of interest in a subsidiary (Note 2)52.1  
Net cash used in investing activities$(1,731.5)$(384.3)
Cash flows from financing activities:
Proceeds from long-term debt1,503.0 815.0 
Repayments of long-term debt(549.6)(1,019.4)
Net proceeds from short-term debt462.7 33.0 
Net (payments) proceeds related to share-based compensation awards(8.0)6.0 
Dividends on common stock(1.5)(1.5)
Repurchase of common stock(78.5)(24.8)
Issuance of common stock for employee stock purchase plan5.4 4.1 
Debt issuance costs(3.5) 
Settlement of contingent consideration (Note 2)(2.2) 
Net cash provided by (used in) financing activities$1,327.8 $(187.6)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(8.0)4.0 
Net increase (decrease) in cash, cash equivalents, restricted cash, and cash held for sale150.0 (3.8)
Cash, cash equivalents and restricted cash at beginning of period96.6 116.8 
Cash, cash equivalents, restricted cash, and cash held for sale at end of period$246.6 $113.0 
Reconciliation of cash flow information:
Cash and cash equivalents$246.3 $112.2 
Restricted cash included in other current assets0.3 0.6 
Cash held for sale 0.2 
Total cash, cash equivalents, restricted cash, and cash held for sale at end of period$246.6 $113.0 
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

7

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1. General

The accompanying Consolidated Condensed Financial Statements of the Cooper Companies, Inc. and its subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and with the requirements of Regulation S-X, Rule 10-01 for financial statements required to be filed as a part of this Quarterly Report on Form 10-Q. Unless the context requires otherwise, terms "the Company", "we", "us", and "our" are used to refer collectively to the Cooper Companies, Inc. and its subsidiaries.

The accompanying Consolidated Condensed Financial Statements and related notes are unaudited and 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, 2021. The Consolidated Condensed Financial Statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the interim periods presented. Readers should not assume that the results reported here either indicate or guarantee future performance.
Accounting Policies

There have been no material changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.
Estimates

The World Health Organization categorized the Coronavirus disease 2019 (COVID-19) as a pandemic. The COVID-19 pandemic has caused a severe global health crisis, along with economic and societal disruptions and uncertainties, which have negatively impacted business and healthcare activity globally. As a result of healthcare systems responding to the demands of managing the pandemic, governments around the world imposing measures designed to reduce the transmission of the COVID-19 virus, and individuals responding to the concerns of contracting the COVID-19 virus, many optical practitioners & retailers, hospitals, medical offices and fertility clinics closed their facilities, restricted access, or delayed or canceled patient visits, exams and elective medical procedures, and many customers that have reopened are experiencing reduced patient visits. These factors have had, and in the future may continue to have, an adverse effect on our sales, operating results and cash flows.
The preparation of Consolidated Condensed Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions reasonably available to the Company and the uncertain future impacts of the COVID-19 pandemic and related economic disruptions. The extent to which the COVID-19 pandemic and related economic disruptions impact our business and financial results will depend on future developments including, but not limited to, the continued spread, duration and severity of the COVID-19 pandemic; the occurrence, spread, duration and severity of any subsequent wave or waves of outbreaks, including the emergence and spread of variants of the COVID-19 virus; the actions taken by the U.S. and foreign governments to contain the COVID-19 pandemic, address its impact or respond to the reduction in global and local economic activity; the occurrence, duration and severity of a global, regional or national recession, depression or other sustained adverse market event; the impact of the developments described above on our customers and suppliers; and how quickly and to what extent normal economic and operating conditions can resume. The accounting matters assessed included, but were not limited to:
allowance for doubtful accounts and credit losses
the carrying value of inventory
the carrying value of goodwill and other long-lived assets
There was not a material impact to the above estimates in the Company’s Consolidated Condensed Financial Statements for the three and nine months ended July 31, 2022. The Company continually monitors and evaluates the estimates used as additional information becomes available. Adjustments will be made to these provisions periodically to reflect new facts and circumstances that may indicate that historical experience may not be indicative of current and/or future results. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material
8

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
changes to the estimates and material impacts to the Company’s Consolidated Condensed Financial Statements in future reporting periods.
Exit costs

During the second quarter of fiscal 2022, the Company initiated a plan to exit its contact lens care business, a non-core business unit of the CooperVision segment. We expect the exit activity to be substantially completed in the first half of fiscal 2023. Exit charges recognized in the three and nine months ended July 31, 2022, were $3.3 million and $24.0 million, of which $19.1 million is recognized in cost of sales and $4.9 million is recognized in selling, general, and administrative expense in the Consolidated Statements of Income. Exit costs primarily related to inventory write-down, asset impairments and employee-related costs. Total exit costs are expected to be in a range of $30.0 million to $40.0 million.
Accounting Pronouncements Recently Adopted

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions to the general principles in Topic 740 and enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company adopted this guidance on November 1, 2021, and it did not have an impact on the Consolidated Condensed Financial Statements.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This update amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity and improves and amends the related EPS guidance for both Subtopics. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company early adopted this guidance on November 1, 2021, and it did not have an impact on the Consolidated Condensed Financial Statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022, and should be applied prospectively to business combinations occurring on or after the effective date of the standard. Early adoption is permitted, including adoption in an interim period. The Company early adopted this guidance on November 1, 2021, and has applied the guidance to the business combinations entered into during fiscal 2022. Refer to Note 2. Acquisitions and Joint Venture for further information.

Accounting Pronouncements Issued Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequent amendment to the initial guidance: ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, “Topic 848”). Topic 848 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance generally can be applied from March 12, 2020 through December 31, 2022. The Company is currently assessing the impacts of the practical expedients provided in Topic 848 and which, if any, the Company will adopt.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This standard is effective for fiscal years beginning after December 15, 2021, and should be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2021-10 on the Consolidated Condensed Financial Statements.

9

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
No other recently issued accounting pronouncements had or are expected to have a material impact on the Company's Consolidated Condensed Financial Statements.

Note 2. Acquisitions and Joint Venture
The following is a summary of the allocation of the total purchase consideration for business and asset acquisitions that the Company completed during the nine months ended July 31, 2022, and fiscal 2021:
(In millions)July 31, 2022October 31, 2021
Technology$1.9 $178.6 
In-Process Research & Development (IPR&D) 20.0 
Customer relationships730.0 7.5 
Trademarks55.4 1.3 
Other 0.6 
Total identifiable intangible assets$787.3 $208.0 
Goodwill1,206.3 91.6 
Net tangible liabilities(309.0)(10.8)
Fair value of contingent consideration(1.5)(39.1)
Total closing purchase price$1,683.1 $249.7 
All acquisitions were funded by cash generated from operations or facility borrowings.
For business acquisitions, the Company recorded tangible and intangible assets acquired and liabilities assumed at their fair values as of the applicable date of acquisition. For asset acquisitions, the Company recorded tangible and intangible assets acquired and liabilities assumed at their estimated and relative fair values as of the applicable date of acquisition.

The Company believes these acquisitions strengthen CooperSurgical's and CooperVision's businesses through the addition of new distributors or complementary products and services.
Fiscal Year 2022

On May 31, 2022, CooperVision completed the acquisition of a privately-held Denmark-based contact lens distributor focusing on orthokeratology and scleral contact lenses. This acquisition expands CooperVision’s ortho-k eye care portfolio in the Nordic market.

On April 6, 2022, CooperSurgical completed the acquisition of a private cryopreservation services company that specializes in cryogenic services. The purchase price allocation is preliminary, and the Company is in the process of finalizing information primarily related to the valuation of intangible assets and property, plant and equipment and the corresponding impact on goodwill.

Refer to "Fiscal Year 2021" below for details on formation of a joint venture with Essilor International and related activities that occurred in fiscal year 2022 following the acquisition of SightGlass Vision, Inc. (SGV) in fiscal year 2021.

On April 6, 2022, CooperSurgical entered into an asset purchase agreement to acquire Cook Medical's Reproductive Health business, a manufacturer of minimally invasive medical devices focused on the fertility, obstetrics and gynecology markets. The aggregate consideration is $875.0 million in cash, with $675.0 million payable at the closing and the remaining $200.0 million payable in $50.0 million installments following each of the first, second, third and fourth anniversaries of the closing. The transaction is subject to customary closing conditions, including receipt of required regulatory approvals, and compliance with local consultation requirements.

Generate Life Sciences®

On December 17, 2021, CooperSurgical completed the acquisition of 100% of the equity interests in Generate Life Sciences (Generate), a privately held leading provider of donor egg and sperm for fertility treatments, fertility cryopreservation services and newborn stem cell storage (cord blood & cord tissue), and paid an aggregate purchase consideration of approximately $1.663 billion, reflecting working capital, and other adjustments. The cash consideration was funded through a combination of $1.5 billion in proceeds from the issuance of a senior unsecured term loan and available cash on hand.

10

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The Company has accounted for the acquisition of Generate as a business combination, in accordance with ASC Topic 805, Business Combinations. The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the acquisition date:

(In millions)
Current assets:
Cash and cash equivalents
$58.6 
Trade accounts receivable, net
23.3 
Inventories
4.0 
Prepaid expense and other current assets
29.5 
Total current assets115.4 
Property, plant and equipment
32.5 
Operating lease right-of-use assets
21.3 
Goodwill1,196.5 
Customer relationships
719.1 
Trademarks
54.9 
Deferred tax assets15.8 
Other assets
0.8 
Total assets acquired
$2,156.3 
Current liabilities:
Accounts payable
$12.6 
Employee compensation and benefits
12.3 
Operating lease liabilities
2.6 
Deferred revenue69.6 
Other current liabilities
15.1 
Total current liabilities112.2 
Deferred tax liabilities
151.8 
Operating lease liabilities
18.8 
Deferred revenue
208.8 
Other liabilities
1.6 
Total liabilities assumed
$493.2 
Total purchase price
$1,663.1 

The purchase accounting is incomplete and subject to change during the measurement period, which may result in material changes to the purchase price allocation. The Company is in the process of finalizing information primarily related to the valuation of intangible assets and property, plant and equipment, the measurement of deferred revenue, the associated deferred tax adjustments and the corresponding impact on goodwill. The Company recorded measurement period adjustments of $33.8 million and $96.1 million to goodwill in the three and nine months ended July 31, 2022.

Deferred revenue was recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers, as a result of the adoption of ASU 2021-08. See Note 1. General for additional information.

The Company currently estimates that customer relationships will be amortized over 13 years and trademarks will be amortized over 14 years. Goodwill is primarily attributable to assembled workforce and expected synergies to be achieved. The goodwill recognized is not deductible for tax purposes.

The transaction costs associated with the acquisition consisted primarily of legal, regulatory and financial advisory fees, which were expensed as incurred as selling, general and administrative expense.

11

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Generate's revenue and net income for the period from the acquisition date to July 31, 2022, were $177.3 million and $20.9 million, respectively. The following unaudited pro forma information summarizes the combined results of operations of the Company and Generate as if the acquisition had been completed at the beginning of the Company’s fiscal 2021:

Three months ended July 31,Nine months ended July 31,
(In millions)
2022202120222021
Revenue
$843.2 $835.5 $2,496.2 $2,367.9 
Net income
$97.9 $614.9 $303.7 $2,837.7 

The unaudited pro forma information for the first nine months of fiscal 2022 and 2021 was calculated after applying the Company's accounting policies and the impact of acquisition date fair value adjustments. The adjustments primarily include increased amortization for the fair value of acquired intangible assets, increased depreciation for the fair value of acquired property, plant, and equipment, increased revenue as a result of the ASU 2021-08 deferred revenue adjustments, decreased interest expense as a result of the reversal of Generate's historical interest expense partially offset by additional interest expense on the debt obtained to finance the transaction.

The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred at the beginning of fiscal 2021, or of future results of the consolidated entities.

Fiscal Year 2021

On May 3, 2021, CooperSurgical completed the acquisition of a privately-held medical device company that develops single-use illuminating medical devices.

On April 26, 2021, CooperVision completed the acquisition of a privately-held UK contact lens manufacturer focusing on specialty contact lenses. This acquisition expands CooperVision’s specialty eye care portfolio and accelerates its development of myopia management solutions in the UK.

On March 1, 2021, CooperSurgical completed the acquisition of a privately-held medical device company that designed and developed an innovative obstetric product for use in urgent obstetrics to reduce risks associated with childbirth.

On February 1, 2021, CooperSurgical acquired all of the remaining equity interests of a privately-held medical device company that developed the Mara® Water Vapor Ablation System, which is used for endometrial ablation. The Company accounted for this acquisition as an asset acquisition, whereby the Company allocated the total cost of the acquisition to the net assets acquired on the basis of their estimated relative fair values on the acquisition date with no goodwill recognized. The primary asset acquired in this asset acquisition is Technology.

On January 19, 2021, CooperVision acquired all of the remaining equity interests of SGV, a privately-held medical device company that developed spectacle lenses for myopia management. The transaction included potential payments of future consideration that were contingent upon the achievement of the regulatory approval milestone (the regulatory approval payment) and the acquired business reaching certain revenue thresholds over a specified period (the revenue payments). The undiscounted range of the contingent consideration was zero to $139.1 million payable to the other former equity interest owners.

The fair value of the regulatory approval payment was determined using an option pricing framework based on the expected payment under the contractual terms and the estimates of the probability of achieving the regulatory approval. The fair value of the revenue payments was determined using a Monte Carlo simulation based on the revenue projections and the expected payment for each simulation.

In March 2022, the entities amended the terms of the contingent consideration, which resulted in CooperVision paying $42.9 million to the former equity interest owners in exchange for the elimination of the revenue payments. CooperVision recognized a net gain of $12.2 million during the nine months ended July 31, 2022 and no gain or loss during the three months ended July 31, 2022. As of July 31, 2022, the remaining contingent liability related to regulatory approval payment was $31.8 million.

Further, CooperVision and Essilor International SAS (Essilor) executed the Contribution Agreement and Stock Purchase Agreement (the “Agreements”) in March. Essilor paid CooperVision $52.1 million in exchange for 50% interest in SGV and their proportionate share of the revenue payments. As part of the Agreements, each party contributed their interest in SGV
12

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
and $10 million in cash to form a new joint venture. CooperVision then remeasured the fair value of its retained equity investment in the joint venture at $90.0 million which resulted in a $56.9 million gain in Other (income) expense on deconsolidation of SGV.

The fair value of the joint venture was determined using the income valuation approach. Under the income approach, we used a discounted cash flow model (“DCF”) in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate expected rate of return. The discount rate used for cash flows reflects capital market conditions and the specific risks associated with the business. This valuation approaches is considered a Level 3 fair value measurement. Fair value determination requires complex assumptions and judgment by management in projecting future operating results, selecting guideline companies for comparisons, determining appropriate market value multiples, selecting the discount rate to measure the risks inherent in the future cash flows. Any material changes in key assumptions, including failure to meet business plans, deterioration in the financial market, an increase in interest rate or an increase in the cost of equity financing by market participants within the industry or other unanticipated events and circumstances, may affect such estimates.
On December 31, 2020, CooperSurgical completed the acquisition of a privately-held in vitro fertilization (IVF) cryo-storage software solutions company.
The pro forma results of operations of these acquisitions have not been presented because the effect of the business combinations described above was not material to the consolidated results of operations.

Contingent Consideration

Certain of the Company’s business combinations involve potential payments of future consideration that are contingent upon the achievement of regulatory milestones and/or the acquired business reaching certain revenue thresholds. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized in selling, general and administrative expense in the Consolidated Statements of Income and Comprehensive Income.

The following table provides a reconciliation of the beginning and ending balances of contingent consideration:

Periods Ended July 31,Three MonthsNine Months
(In millions)2022202120222021
Beginning balance$45.6 $30.8 $97.4 $ 
Purchase price contingent consideration 0.5 1.5 31.3 
Payments  (42.9) 
Change in fair value(0.3)56.8 (10.7)56.8 
Ending balance$45.3 $88.1 $45.3 $88.1 

Note 3. Inventories
(In millions)July 31, 2022October 31, 2021
Raw materials$166.3 $137.7 
Work-in-process14.6 14.0 
Finished goods440.7 433.9 
Total inventories$621.6 $585.6 
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.

13

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 4. Intangible Assets

Goodwill
(In millions)CooperVisionCooperSurgicalTotal
Balance at October 31, 2021$1,841.0 $733.0 $2,574.0 
Current period additions0.8 1,205.4 1,206.2 
Foreign currency translation adjustment(99.0)(15.4)(114.4)
Balance at July 31, 2022$1,742.8 $1,923.0 $3,665.8 

The Company evaluates goodwill for impairment annually during the third quarter of the fiscal year and when an event occurs or circumstances change such that it is reasonably possible that impairment may exist. The Company accounts for goodwill, evaluates and tests goodwill balances for impairment in accordance with related accounting standards.

Qualitative factors considered in the assessment include industry and market considerations, overall financial performance and other relevant events and factors affecting each reporting unit. Based on the Company's qualitative assessment, if the Company determines that the fair value of a reporting unit is more likely than not to be less than its carrying amount, the fair value of the 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. The Company has three reporting units: CooperVision, and within the CooperSurgical segment, Office/Surgical and Fertility, reflecting the current way the Company manages its business.

Goodwill impairment analysis and measurement is a process that requires significant judgment. If the Company's common stock price trades below book value per share, there are changes in market conditions or a future downturn in its business, or a future goodwill impairment test indicates an impairment of our goodwill, the Company may have to recognize a non-cash impairment of goodwill that could be material and could adversely affect the Company's results of operations in the period recognized and also adversely affect its total assets and stockholders' equity.

The Company considered the impact on its near and long-term forecasts from the general deterioration of economic and market conditions as a result of higher inflation, regional and global conflict, supply chain disruption, and the ongoing disruptions of COVID-19 pandemic. Based on our assessment, we determined that it was not more likely than not that the fair value of reporting units or relevant asset groups was below carrying amounts. Therefore, there was no impairment to goodwill at July 31, 2022.
Other Intangible Assets
 July 31, 2022October 31, 2021
(In millions)