Cooper Companies, Inc. — FY2020 Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended October 31, 2020; fourth-quarter figures are also reported. Cooper is a global medical-device company with two segments: CooperVision, which develops and sells contact lenses, and CooperSurgical, which provides women’s health, fertility, diagnostic and surgical products and services.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $2,430.9 million | $2,653.4 million |
| Gross profit / margin | $1,534.8 million / 63% | $1,756.8 million / 66% |
| Operating income / margin | $311.8 million / 13% | $546.7 million / 21% |
| Net income attributable to Cooper stockholders | $238.4 million | $466.7 million |
| Diluted EPS | $4.81 | $9.33 |
| Operating cash flow | $486.6 million | $713.2 million |
| Capital expenditures | $310.4 million | $292.1 million |
| Free cash flow (non-GAAP) | $176.2 million | $421.1 million |
- Sales declined 8%; operating income fell 43%, net income 49%, and diluted EPS 48%. Gross margin fell by about 3 percentage points.
- CooperVision sales were $1,843.0 million, down 7%; segment operating income was $375.7 million versus $506.4 million. Sales declined across regions and product categories, partly offset by MyDay, MiSight and Biofinity Energys.
- CooperSurgical sales were $587.9 million, down 14%; segment operating loss was $14.7 million versus income of $87.9 million. Lower PARAGARD, surgical-product and fertility sales contributed to the decline.
- Interest expense fell to $36.8 million from $68.0 million, mainly from lower rates and lower average debt balances. The effective tax rate was 10.6%, versus 2.3% in FY2019.
- At October 31, 2020, cash was $115.9 million, working capital $269.8 million and total debt $1,793.2 million. The company reported $754.6 million available on its revolving facility. Debt-to-equity was 0.47:1.
Fourth quarter: Net sales were $681.6 million versus $691.6 million in Q4 FY2019; net income was $81.2 million versus $121.0 million; diluted EPS was $1.64 versus $2.42.
Material changes, outlook and risks
- COVID-19 impact: Facility closures, restricted patient access, delayed elective procedures and reduced patient visits pressured demand. Cooper reported $90.1 million of costs primarily related to the pandemic and manufacturing, including higher unabsorbed overhead, labor inefficiencies and freight. It said manufacturing, supply and distribution had continued without significant disruption as of the filing, but warned that further disruption could weigh on sales, cash flow and operations.
- Cash, debt and capital allocation: Operating cash flow fell 32% and free cash flow fell 58%. FY2020 included $47.8 million of share repurchases and $3.0 million of dividends. The company said cash, expected operating cash flow and available borrowing capacity should cover anticipated needs for at least 12 months. A $350 million term loan matures October 15, 2021; other principal facilities mature in 2025. The company reported compliance with its leverage and interest-coverage covenants at year-end.
- Acquisitions and products: FY2020 acquisitions expanded CooperVision’s ortho-k lens business and CooperSurgical’s IVF distribution. MiSight, FDA-approved to slow myopia progression in children when treatment begins at ages 8–12, became available in the U.S. during FY2020.
- Outlook: Management expressed long-term optimism for contact lenses and general health care, but gave no quantified FY2021 guidance in the supplied filing text. It warned that ongoing pandemic effects and economic, regulatory, currency, trade and Brexit uncertainty could continue to affect results.
- Notable tax item: In November 2020, after fiscal year-end, the company transferred certain intellectual property and related assets to a UK subsidiary. It expected the transfer to create a deferred tax asset of up to $2.4 billion and a corresponding income tax benefit; valuation and calculation were still to be finalized in FY2021 Q1.
- Other exposures: Risks include international operations and foreign exchange, variable-rate debt and LIBOR transition, acquisition integration, concentrated suppliers for some lens materials, cybersecurity and ERP implementation, product liability and recalls, and extensive medical-device, laboratory, privacy and reimbursement regulation. The company reported no legal proceedings it believed would materially adversely affect its financial condition or results. Its annual goodwill impairment assessment found no impairment.
Most important facts for investors to verify
- Whether patient traffic and elective procedures recover, and whether CooperVision and CooperSurgical sales and margins rebound after FY2020 declines.
- Whether elevated inventory, which increased $63.5 million year over year, and receivable collection timing normalize.
- The finalized accounting, tax treatment and realized benefit of the post-year-end IP transfer and the potential deferred tax asset of up to $2.4 billion.
- Debt repayment and refinancing plans, especially the $350 million loan due in October 2021, covenant headroom and interest-rate exposure.
- Whether the $90.1 million of pandemic/manufacturing-related costs persist and whether planned capital spending supports growth and manufacturing efficiency.
- Acquisition integration and returns, regulatory readiness for EU MDR/IVDR requirements, and exposure to product, supply-chain, privacy and cybersecurity risks.