The Cooper Companies(COO) - 2023 Q4 - Annual Report

Part I Business Overview The Cooper Companies, Inc. is a global medical device company operating through two segments: CooperVision (soft contact lenses) and CooperSurgical (fertility and women's health products and services), focusing on innovation, market penetration, and strategic acquisitions to expand its portfolio and address evolving healthcare needs, while navigating a highly competitive and regulated industry - The Cooper Companies operates through two main business segments: CooperVision, focused on soft contact lenses, and CooperSurgical, dedicated to fertility and women's health products and services13 29 522 - CooperVision's key products include single-use (MyDay, clariti 1 day) and frequent replacement (Biofinity, Avaira Vitality) silicone hydrogel lenses, with a strategic focus on myopia management products like MiSight 1 day, which received FDA and Chinese NMPA approval for slowing myopia progression in children15 17 32 52 55 57 - CooperSurgical offers a broad portfolio including fertility products (IVF devices, donor gametes, genomic services), medical devices for gynecology and obstetrics (e.g., PARAGARD IUD), and cryostorage services (cord blood and tissue), aiming to expand its integrated solutions model through strategic investments and acquisitions14 34 36 57 61 62 63 - Both segments operate in highly competitive markets, emphasizing product quality, differentiation, technological benefits, price, service levels, and reliability, with key competitors including Johnson & Johnson Vision Care, Alcon, Bausch + Lomb for CooperVision, and Vitrolife Group, Cook Medical for CooperSurgical46 47 71 72 - The company's products are subject to extensive regulation by the FDA in the U.S. and various agencies globally, requiring significant time and resources for approvals, compliance with manufacturing standards (QSR, cGMP), and post-market vigilance, with regulatory changes like EU MDR/IVDR posing ongoing compliance challenges79 80 84 85 106 107 110 115 - As of October 31, 2023, the company had a global workforce of over 15,000 employees, with 53% in the Americas, 42% in EMEA, and 5% in Asia Pacific, emphasizing a people-focused culture, diversity, inclusion, health, safety, and continuous employee development121 122 123 125 429 Risk Factors The company faces a broad range of significant risks, including adverse macroeconomic conditions, international conflicts, foreign currency fluctuations, and integration challenges from acquisitions, while regulatory complexities, cybersecurity threats, supply chain disruptions, intense competition, and evolving ESG standards also pose material threats to its business, financial condition, and operating results - Global and regional economic conditions, including inflation, recessionary pressures, and international conflicts, can adversely affect markets, supply chains, and the company's ability to grow sales and manage costs127 128 131 132 152 154 158 - Expanding international operations expose the company to risks such as managing a dispersed organization, foreign currency fluctuations, compliance with diverse legal and regulatory requirements (e.g., anti-bribery, data privacy, EU MDR/IVDR), and challenges in emerging markets130 155 157 - Acquisitions, a key growth strategy, carry risks including integration difficulties, failure to achieve anticipated benefits, increased leverage, potential loss of employees, and compliance with new regulatory frameworks160 432 - Disruptions in manufacturing, distribution, and storage operations due to technical issues, natural disasters, regulatory non-compliance (cGMP), or reliance on sole suppliers for critical raw materials could materially impact the business134 139 161 162 165 188 - Cybersecurity threats are increasing in frequency and sophistication, posing risks of system interruptions, data loss, and reputational harm, despite investments in security measures and third-party partnerships136 189 190 - The highly competitive healthcare industry, market consolidation among customers, and changes in third-party payer coverage and reimbursement create pricing pressures and may adversely affect demand for products138 153 191 - Failure to adequately protect intellectual property (patents, trademarks, trade secrets) or claims of infringement by others could lead to costly litigation, product redesigns, licensing requirements, or limitations on sales167 168 169 170 171 193 195 196 197 199 - Product liability claims, recalls, and legal claims related to service offerings (e.g., genomic services, cryopreservation) pose inherent risks, potentially leading to material losses and reputational damage, especially with direct-to-consumer marketing174 200 - Technological developments by competitors or in alternative vision/healthcare solutions (e.g., Lasik surgery, new pharmaceuticals) could limit demand for the company's products and services, emphasizing the need for continuous product innovation and regulatory approvals180 206 207 239 - Evolving environmental, social, and corporate governance (ESG) matters, including climate change, plastic waste, and new disclosure standards (e.g., EU CSRD, California climate reporting, SEC proposals), require significant effort and expense to comply with, potentially impacting reputation and investor relations182 183 184 208 209 242 244 - The company is subject to rigorous government regulation of medical devices, pharmaceutical products, and human cells/tissues (HCT/Ps) in the U.S. and internationally, where failure to comply, delays in approvals, or changes in regulatory policies (e.g., LDT oversight, post-Roe v. Wade implications) could severely impact business operations and profitability187 213 214 246 247 250 251 254 255 260 263 264 266 267 271 273 274 275 300 302 303 - Interest rate fluctuations on variable-rate debt and foreign currency exchange rate volatility (primarily British pound, Euro, Japanese yen) can adversely affect financial results, despite hedging strategies286 287 313 314 337 338 - Significant indebtedness could limit financial flexibility, increase vulnerability to adverse economic conditions, and place the company at a competitive disadvantage, while changes in tax laws and geographic income composition could also increase tax expenses289 315 316 317 340 342 343 Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - The company has no unresolved staff comments343 Properties The company's principal facilities as of October 31, 2023, include a mix of leased and owned properties globally, primarily for executive offices, manufacturing, research & development, and distribution, with key owned facilities located in the UK, Costa Rica, Puerto Rico, New York, Arizona, and Texas, while leased properties are spread across the Americas, EMEA, and Asia Pacific - The company's principal facilities as of October 31, 2023, are a mix of leased and owned properties, suitable and adequate for its businesses345 - Owned manufacturing and R&D facilities include locations in the United Kingdom (303,872 sq ft), Costa Rica (347,329 sq ft), Puerto Rico (115,000 sq ft), New York (493,833 sq ft), Arizona (80,000 sq ft), and Texas (34,453 sq ft)345 Summary of Leased Facilities by Region (as of October 31, 2023) | Location | Approximate Leased Square Feet | | :--------------- | :----------------------------- | | United States | 685,990 | | Puerto Rico | 740,954 | | Canada | 63,836 | | Brazil | 22,048 | | Other Americas | 58,365 | | United Kingdom | 667,384 | | Hungary | 330,245 | | Belgium | 282,108 | | Spain | 181,145 | | Netherlands | 279,288 | | Other EMEA | 148,980 | | Japan | 109,163 | | Australia | 40,139 | | Other Asia Pacific | 92,517 | Legal Proceedings Information regarding legal proceedings is incorporated by reference to Note 11. Contingencies of the Consolidated Financial Statements, indicating the company is involved in various lawsuits and claims arising in the ordinary course of business, but does not believe their ultimate resolution will have a material adverse effect - Information on legal proceedings is included in Note 11. Contingencies of the Consolidated Financial Statements347 - The company does not believe that the ultimate resolution of pending legal proceedings or claims will have a material adverse effect on its financial condition or results of operations722 Mine Safety Disclosures The company states that Item 4, Mine Safety Disclosures, is not applicable - Item 4. Mine Safety Disclosures is not applicable to the company347 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under the symbol 'COO', with 49,525,982 shares outstanding as of December 1, 2023, and the Board of Directors decided to end the semiannual cash dividend of $0.03 per share in December 2023, while no share repurchases occurred in fiscal 2023, with $256.4 million remaining authorized under the 2012 Share Repurchase Program - Cooper's common stock trades on the Nasdaq Global Select Market under the symbol 'COO'1 323 522 - As of December 1, 2023, there were 49,525,982 shares of common stock outstanding2 - The Board of Directors decided to end the declaration of the semiannual dividend in December 2023, after previously paying annual cash dividends of $0.06 per share ($3.0 million in fiscal 2023 and 2022)324 500 676 - No share repurchase activity occurred during the three-month period ended October 31, 2023, or in fiscal 2023, with $256.4 million remaining authorized under the 2012 Share Repurchase Program as of October 31, 2023327 472 650 Equity Compensation Plan Information (as of October 31, 2023) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (A) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (B) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A) (C) | | :---------------------------------- | :-------------------------------------------------------------------------------------------- | :------------------------------------------------------------------------------ | :-------------------------------------------------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by shareholders | 1,505,841 | $277.29 | 2,325,881 | | Equity compensation plans not approved by shareholders | — | — | — | | Total | 1,505,841 | $277.29 | 2,325,881 | Reserved Item 6 is reserved and contains no information - Item 6 is reserved353 Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial performance for fiscal 2023 compared to fiscal 2022, highlighting net sales growth across both segments, changes in operating expenses, and the impact of interest rates and foreign exchange, also covering capital resources, liquidity, and critical accounting estimates, noting the company's optimism for long-term growth despite global economic uncertainties - The company is optimistic about the long-term prospects for the worldwide contact lens and general health care markets, and the resilience and growth prospects for its businesses and products, despite significant global operating risks and uncertainties357 Consolidated Net Sales (in millions) | Segment | Fiscal 2023 | Fiscal 2022 | | :------------- | :---------- | :---------- | | CooperVision | $2,423.7 | $2,243.3 | | CooperSurgical | $1,169.5 | $1,065.1 | | Consolidated | $3,593.2 | $3,308.4 | - Consolidated Gross Margin remained relatively flat at 66% in fiscal 2023 compared to 65% in fiscal 2022390 Operating Income (in millions) | Segment | Fiscal 2023 | % Net Sales (2023) | Fiscal 2022 | % Net Sales (2022) | % Change (2023 vs. 2022) | | :------------- | :---------- | :----------------- | :---------- | :----------------- | :----------------------- | | CooperVision | $587.7 | 24% | $494.3 | 22% | 19% | | CooperSurgical | $16.1 | 1% | $67.1 | 6% | (76)% | | Corporate | $(70.7) | — | $(53.8) | — | (31)% | | Consolidated | $533.1 | 15% | $507.6 | 15% | 5% | - Interest expense increased by 84% in fiscal 2023 to $105.3 million, primarily due to higher interest rates374 399 - The effective tax rate increased to 28.7% in fiscal 2023 from 18.8% in fiscal 2022, mainly due to changes in geographic composition of pre-tax earnings, an increase in the UK statutory tax rate, and capitalization of R&D expenditures375 404 Cash Flow Summary (in millions) | Activity | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 | | :------------------- | :---------- | :---------- | :---------- | | Operating activities | $607.5 | $692.4 | $738.6 |\ | Investing activities | $(449.0) | $(1,831.2) | $(450.3) |\n| Financing activities | $(173.9) | $1,193.7 | $(311.4) | - Working capital increased significantly to $735.9 million at October 31, 2023, from $253.4 million at October 31, 2022, primarily due to repayment of a 364-day term loan and an increase in inventories377 - Cash provided by operating activities decreased in fiscal 2023, primarily due to a $45 million termination fee payment related to an asset purchase agreement378 - Cash used in investing activities was lower in fiscal 2023 compared to fiscal 2022, mainly due to the $1.6 billion Generate acquisition in fiscal 2022, partially offset by increased purchases of property, plant, and equipment in 2023379 - Cash used in financing activities in fiscal 2023 was primarily due to repayments of $338.0 million on the 2021 364-day term loan, partially offset by $172.6 million drawn on the 2020 Revolving Credit469 Quantitative and Qualitative Disclosure About Market Risk The company is exposed to market risks from changes in interest rates and foreign currency fluctuations, using interest rate swaps to manage variable-rate debt risk and foreign currency forward contracts to minimize short-term foreign currency exchange rate impacts on receivables and payables - The company is exposed to market risks primarily from changes in interest rates and foreign currency fluctuations505 - Interest rates on revolving lines of credit and term loans may vary with the federal funds rate and SOFR (previously LIBOR), with the company using interest rate swaps to manage this risk479 - Foreign currency risk arises from operations in multiple foreign subsidiaries, with significant exposures to the British pound, Euro, and Japanese yen, and foreign currency forward contracts are used to minimize short-term impacts on receivables and payables505 - A hypothetical 10% increase or decrease in foreign currency exchange rates against the U.S. dollar would result in an approximate $95.6 million increase or decrease in operating income for fiscal year ended October 31, 2023505 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements, including statements of income, comprehensive income, balance sheets, stockholders' equity, and cash flows for the fiscal years ended October 31, 2023, 2022, and 2021, also including the independent auditor's report, critical audit matters, and detailed notes on significant accounting policies, acquisitions, financing, income taxes, stock plans, employee benefits, and business segments - KPMG LLP, San Francisco, CA, served as the independent registered public accounting firm, auditing the consolidated financial statements and internal control over financial reporting2 481 513 - A critical audit matter identified was the evaluation of audit evidence sufficiency over inventories ($735.6 million) and net sales ($3,593.2 million) due to the decentralized structure and geographic dispersion of manufacturing and distribution locations486 511 Consolidated Statements of Income (in millions, except EPS) | Metric | 2023 | 2022 | 2021 | | :------------------------- | :---------- | :---------- | :---------- | | Net sales | $3,593.2 | $3,308.4 | $2,922.5 | | Gross profit | $2,357.9 | $2,139.6 | $1,955.8 | | Operating income | $533.1 | $507.6 | $505.8 | | Net income | $294.2 | $385.8 | $2,944.7 | | Basic EPS | $5.94 | $7.83 | $59.80 | | Diluted EPS | $5.91 | $7.76 | $59.16 | Consolidated Balance Sheets (in millions) | Asset/Liability Category | October 31, 2023 | October 31, 2022 | | :----------------------- | :--------------- | :--------------- | | Total current assets | $1,704.9 | $1,533.6 | | Property, plant and equipment, net | $1,632.6 | $1,432.9 | | Goodwill | $3,624.5 | $3,609.7 | | Other intangibles, net | $1,710.3 | $1,885.1 | | Total assets | $11,658.9 | $11,492.3 | | Total current liabilities | $969.0 | $1,280.2 | | Long-term debt | $2,523.8 | $2,350.8 | | Total liabilities | $4,107.9 | $4,317.6 | | Total stockholders' equity | $7,551.0 | $7,174.7 | Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity | 2023 | 2022 | 2021 | | :----------------- | :-------- | :---------- | :-------- | | Operating activities | $607.5 | $692.4 | $738.6 | | Investing activities | $(449.0) | $(1,831.2) | $(450.3) | | Financing activities | $(173.9) | $1,193.7 | $(311.4) | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(17.7) | $42.0 | $(20.2) | - Key accounting policies include revenue recognition, business combinations, income taxes, share-based compensation, and foreign currency translation523 524 526 527 528 529 559 589 - Recent acquisitions include a U.S.-based contact lens company (fiscal 2023), a cryopreservation services company, and Generate Life Sciences (fertility services) in fiscal 2022, with CooperSurgical also acquiring select Cook Medical assets for $300 million in November 2023448 599 601 629 - Total debt as of October 31, 2023, was $2,569.2 million, down from $2,763.4 million in 2022, with credit agreements transitioning from LIBOR to SOFR effective February 1, 2023581 634 - The company's defined benefit plan had a funded status of $(6.9) million at October 31, 2023, an improvement from $(5.1) million in 2022 and $(31.4) million in 2021, and was soft-frozen effective August 1, 2019, for new employees662 721 Net Sales by Business Segment (in millions) | Segment | 2023 | 2022 | 2021 | | :------------- | :---------- | :---------- | :---------- | | CooperVision | $2,423.7 | $2,243.3 | $2,152.0 | | CooperSurgical | $1,169.5 | $1,065.1 | $770.5 | | Total Net Sales | $3,593.2 | $3,308.4 | $2,922.5 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on accounting and financial disclosure matters - There have been no changes in or disagreements with accountants on accounting and financial disclosure732 Controls and Procedures The company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective at a reasonable assurance level as of October 31, 2023, and also assessed and concluded that the company maintained effective internal control over financial reporting based on the COSO framework - The company's disclosure controls and procedures were effective at the reasonable assurance level as of October 31, 2023704 - Management concluded that the company's internal control over financial reporting was effective as of October 31, 2023, based on the COSO framework705 735 - There have been no material changes in the company's internal control over financial reporting during the fiscal quarter ended October 31, 2023707 Other Information The company reported no other information required under Item 9B - No other information is reported under Item 9B737 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The company stated that Item 9C, Disclosure Regarding Foreign Jurisdictions that Prevent Inspections, is not applicable - Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections is not applicable738 Part III Directors, Executive Officers and Corporate Governance Information regarding Directors, Executive Officers, and Corporate Governance is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - Information for this item is incorporated by reference to the 2024 Proxy Statement711 Executive Compensation Information regarding Executive Compensation is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - Information for this item is incorporated by reference to the 2024 Proxy Statement712 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders, with additional details found in Item 5 - Information for this item is incorporated by reference to the 2024 Proxy Statement, with additional details in Item 5713 Certain Relationships and Related Transactions, and Director Independence Information regarding Certain Relationships and Related Transactions, and Director Independence is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - Information for this item is incorporated by reference to the 2024 Proxy Statement714 Principal Accounting Fees and Services Information regarding Principal Accounting Fees and Services is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - Information for this item is incorporated by reference to the 2024 Proxy Statement758 Part IV Exhibits and Financial Statement Schedules This section lists the financial statements filed as part of the report, including consolidated statements of income, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with their related notes and Schedule II Valuation and Qualifying Accounts, also providing a comprehensive index of exhibits incorporated by reference or filed with the report - The report includes consolidated financial statements for the years ended October 31, 2023, 2022, and 2021, covering statements of income, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with their related notes716 - Schedule II Valuation and Qualifying Accounts is also filed as part of this report716 762 - A detailed exhibit index is provided, listing various documents such as the Second Restated Certificate of Incorporation, Amended and Restated By-Laws, executive employment agreements, stock incentive plans, credit agreements, and certifications719 748 764 766 Form 10-K Summary The company reported no Form 10-K Summary - No Form 10-K Summary is provided769 SIGNATURES This section contains the signatures of the company's principal executive officer, principal financial officer, principal accounting officer, and members of the Board of Directors, certifying the filing of the annual report on Form 10-K as of December 8, 2023 - The report is signed by the President and Chief Executive Officer, Albert G. White, III, and other executive officers and directors, certifying its filing on December 8, 2023755 772 CORPORATE INFORMATION This section provides an overview of the company's Board of Directors, Executive Officers, principal subsidiaries (CooperVision, Inc. and CooperSurgical, Inc.), corporate offices, investor relations contact, and independent auditors, also listing the company's stock exchange listing and trademark information - The Board of Directors includes Robert S. Weiss (Chairman), William A. Kozy (Vice Chairman and Lead Director), and Albert G. White, III (President and CEO), among others775 - Key executive officers include Albert G. White, III (President and CEO), Daniel G. McBride (EVP and COO), Brian G. Andrews (EVP, CFO, and Treasurer), and Agostino Ricupati (SVP and Chief Accounting Officer)775 - Principal subsidiaries are CooperVision, Inc. and CooperSurgical, Inc., with corporate offices located in San Ramon, CA775 - KPMG LLP is the independent auditor, and the company's stock is listed on the Nasdaq Global Select Market under ticker symbol 'COO'775