Cooper Companies, Inc. — FY2021 Form 10-K
Business and period: Global medical-device company operating CooperVision, which sells contact lenses, and CooperSurgical, focused on women’s health, fertility and related services. This annual report covers the fiscal year ended October 31, 2021; comparisons are with fiscal 2020.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $2,922.5 million | $2,430.9 million |
| Gross profit / margin | $1,955.8 million / 67% | $1,534.8 million / 63% |
| Operating income / margin | $505.8 million / 17% | $311.8 million / 13% |
| Net income | $2,944.7 million | $238.4 million |
| Diluted EPS | $59.16 | $4.81 |
| Cash from operations | $738.6 million | $486.6 million |
| Capital expenditures | $214.4 million | $310.4 million |
| Free cash flow (non-GAAP) | $524.2 million | $176.2 million |
| Total debt | $1,479.0 million | $1,793.2 million |
| Cash and cash equivalents | $95.9 million | $115.9 million |
Sales rose 20% overall; CooperVision revenue increased 17% to $2,152.0 million and CooperSurgical revenue increased 31% to $770.5 million. Management attributed growth mainly to recovering customer demand and higher lens volumes, with favorable currency effects. Sales in constant currency grew 14% at CooperVision and 30% at CooperSurgical. Consolidated gross margin improved, reflecting favorable product mix and demand recovery; the company also reported $29.4 million of integration and manufacturing-related costs in FY2021, compared with $90.1 million of primarily pandemic and manufacturing-related costs in FY2020.
Liquidity included $742.6 million available under the revolving credit facility. Working capital was $733.2 million, up from $269.8 million. The company reported compliance with its debt covenants. Interest expense declined to $23.1 million from $36.8 million.
Material changes and unusual items
- Tax benefit drove reported earnings: FY2021 included a $1,987.9 million deferred-tax benefit from transferring certain CooperVision intellectual property to a UK subsidiary, plus a $536.7 million benefit from remeasurement of deferred tax assets following the UK corporate tax-rate change. The resulting effective tax rate was an unusual negative 499.1%, versus 10.6% in FY2020. FY2021 net income and EPS are therefore not directly comparable with prior-year results; the filing does not provide an adjusted EPS figure excluding these items.
- Operating income rose 62%. CooperSurgical moved from a $14.7 million operating loss to $71.8 million operating income; CooperVision operating income rose to $481.3 million from $375.7 million.
- The company completed several acquisitions during FY2021. Acquisition cash payments and related items were $235.9 million. A contingent-consideration remeasurement generated a $56.8 million CooperVision SG&A expense; total contingent consideration liability was $97.4 million at year-end.
- At October 31, 2021, assets held for sale were $89.2 million, relating to a planned sale of a 50% interest in a recently acquired CooperVision business to form a joint venture. No impairment was recorded.
Outlook, risks and contingencies
Management remained optimistic about the long-term contact-lens and general health-care markets, but provided no specific numerical revenue, earnings or margin guidance in the supplied filing text. It cautioned that COVID-19, facility restrictions and reduced patient visits could continue to affect demand and performance. Management said cash, expected operating cash flow and available credit should meet anticipated needs for at least 12 months after issuance of the financial statements.
- On November 6, 2021, CooperSurgical agreed to acquire Generate Life Sciences for $1.605 billion in cash, subject to adjustment, customary conditions and regulatory approval; closing was anticipated in the first quarter of FY2022. This is a subsequent event, not an FY2021 completed transaction.
- On November 2, 2021, the company entered a 364-day, $840 million term loan, using part of the proceeds to repay revolving borrowings and the balance for general corporate purposes.
- Principal risks include continuing COVID-19 effects, inflation and supply-chain constraints, dependence on selected suppliers, foreign-exchange and interest-rate exposure, acquisition integration and leverage, regulatory changes (including EU medical-device and diagnostic rules), reimbursement and pricing pressure, product liability, and cybersecurity and data privacy.
- Unrecognized tax benefits were $353.8 million at year-end, and tax filings remain subject to examination. The company said ordinary-course legal matters were not expected to have a material adverse effect, but disclosed no quantified loss range.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified valuation of transferred intellectual property used to recognize the deferred tax asset as a critical audit matter, involving significant assumptions about revenue growth, operating margins and discount rates.
Key facts for investors to verify
- Assess earnings and EPS excluding the exceptional intellectual-property-related tax benefits; the filing does not provide a company-reported adjusted measure.
- Review the assumptions supporting the $1,987.9 million deferred tax asset and the recoverability of the resulting tax benefits, alongside the $353.8 million of unrecognized tax benefits.
- Check the financing, expected closing, regulatory conditions and integration risks for the $1.605 billion Generate Life Sciences acquisition, including the effect of the post-year-end $840 million term loan.
- Monitor whether demand recovery, currency movements, product mix and manufacturing costs sustain the FY2021 sales and margin improvement.
- Track debt, covenant headroom, available liquidity and cash needs as acquisitions and investment plans proceed.