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Acquisitions and Assets Held for Sale | 3 Months Ended
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Jan. 31, 2022
Business Combination and Asset Acquisition [Abstract] |
Acquisitions and Assets Held for Sale | Acquisitions and Assets Held for Sale The following is a summary of the allocation of the total purchase consideration for business and asset acquisitions that the Company completed during the three months ended January 31, 2022 and fiscal 2021:
(In millions) | January 31, 2022 |  | October 31, 2021
Technology | $ | 1.8 |  |  | $ | 178.6 |
In-Process Research & Development (IPR&D) | — |  |  | 20.0 |
Customer relationships | 472.0 |  |  | 7.5 |
Trademarks | 142.0 |  |  | 1.3 |
Other | — |  |  | 0.6 |
Total identifiable intangible assets | $ | 615.8 |  |  | $ | 208.0 |
Goodwill | 1,288.2 |  |  | 91.6 |
Net tangible liabilities | (238.3) |  |  | (10.8) |
Fair value of contingent consideration | — |  |  | (39.1) |
Total closing purchase price | $ | 1,665.7 |  |  | $ | 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 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 consideration of approximately $1.666 billion in cash, 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. 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 provisional 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 | 29.9 |
Total current assets | 115.8 |
Property, plant and equipment | 25.1 |
Operating lease right-of-use assets | 21.4 |
Goodwill | 1,292.6 |
Customer relationships | 472.0 |
Trademarks | 142.0 |
Deferred tax assets | 15.8 |
Other assets | 0.8 |
Total assets acquired | $ | 2,085.5 |
Current liabilities: |
Accounts payable | $ | 12.6 |
Employee compensation and benefits | 12.3 |
Operating lease liabilities | 2.5 |
Deferred revenue | 68.4 |
Other current liabilities | 8.8 |
Total current liabilities | 104.6 |
Deferred tax liabilities | 134.4 |
Operating lease liabilities | 18.8 |
Deferred revenue | 160.9 |
Other liabilities | 1.1 |
Total liabilities assumed | $ | 419.8 |
Total purchase price | $ | 1,665.7 |
To develop the provisional fair values of assets acquired and liabilities assumed, the Company utilized currently available information and fair value allocation benchmarks from similar completed transactions. 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 initial 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, the measurement of deferred revenue, the associated deferred tax adjustments and the corresponding impact on goodwill. 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. Generate's revenue and net income for the period from the acquisition date to January 31, 2022 were $33.8 million and $1.6 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 January 31, |  |  |  |
(In millions) |  | 2022 |  | 2021
Revenue |  | $ | 823.4 |  |  | $ | 744.8 |
Net income |  | $ | 79.9 |  |  | $ | 2,111.5 |
The unaudited pro forma information for the first three 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 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. Subsequent Events On February 7, 2022, subsequent to the fiscal quarter ended January 31, 2022, CooperSurgical entered into a binding letter of intent 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 entry into a definitive acquisition agreement and regulatory approvals, and compliance with certain local employee consultation requirements. See Note 15. Subsequent Events for additional information. Fiscal Year 2021 On May 3, 2021, Coo perSurgical completed the acquisition of a privately-held medical device company that develops single-use illuminating medical devices. 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 inventory, the associated deferred tax adjustments and the corresponding impact on goodwill. 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 a privately-held medical device company that develops spectacle lenses for myopia management. The fair value remeasurement of our previous equity investment immediately before the acquisition resulted in a gain of $11.5 million, which was recorded in other income. The terms of the acquisition include upfront cash consideration paid at closing of approximately $40.9 million attributable to the equity interests not held by the Company on the closing date. The transaction also includes potential payments of future consideration that are 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 pa yments). The undiscounted range of the contingent consideration is zero to $139.1 million payable to the other former equity interest owners. The estimated fair value of the contingent consideration on the acquisition date was approximately $37.9 million, and, accordingly, the Company recorded a liability of approximately $30.2 million, which represents the fair value of the contingent consideration 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 fiscal 2021, a $56.8 million expense was recognized in selling, general and administrative expense in the Consolidated Statements of Income and Comprehensive Income, resulting from the increase in fair value of the contingent consideration. This was primarily driven by increases in revenue projections, which increased the estimated fair value of the revenue payments. During the three months ended January 31, 2022, a $3.5 million expense was recognized in selling, general and administrative expense in the Consolidated Statements of Income and Comprehensive Income, resulting from the increase in fair value of the regulatory approval payment. As of January 31, 2022, no contingent consideration has been paid. On December 31, 2020, CooperSurgic al 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:
Three Months Ended January 31, |
(In millions) | 2022 |  | 2021
Beginning balance | $ | 97.4 |  |  | $ | — |
Purchase price contingent consideration | — |  |  | 30.2 |
Payments | — |  |  | — |
Change in fair value | 3.5 |  |  | — |
Ending balance | $ | 100.9 |  |  | $ | 30.2 |
Assets Held for Sale On February 2, 2021, CooperVision entered into a stock purchase agreement to sell 50% of the equity interest in a wholly-owned subsidiary that was acquired by CooperVision on January 19, 2021. The closing of this transaction is subject to certain closing conditions including required regulatory approvals. The Company intends to operate the previously wholly-owned subsidiary as a joint venture with the purchaser of the 50% interest once the transaction is closed. The Company concluded the substantive terms of the joint venture during the third quarter of fiscal 2021, and the assets and liabilities of this disposal group were reclassified as held for sale as of July 31, 2021. On August 1, 2021, CooperVision entered into a stockholders agreement, which outlines the terms regarding the operation and management of the joint venture. As of January 31, 2022, the Company was in the process of finalizing the joint venture related ancillary agreements, and the disposal group continues to be classified as held for sale as of January 31, 2022. Pursuant to ASC 360, assets held for sale were measured at the lower of their carrying amounts or fair value less cost to sell. The Company did not record any impairment during the three months ended January 31, 2022 and fiscal 2021. The Company has determined that this disposal did not qualify as a discontinued operation as the sale was deemed to not be a strategic shift that has or will have a major effect on the Company's operations and financial results. Included in the Company's Consolidated Condensed Balance Sheets as of January 31, 2022 and October 31, 2021 are the following carrying amounts of the assets and liabilities held for sale:
(In millions) | January 31, 2022 |  | October 31, 2021
ASSETS |  |  |
Cash | $ | 0.3 |  |  | $ | 0.3 |
Goodwill | 20.2 |  |  | 23.2 |
Other intangibles, net | 83.6 |  |  | 83.6 |
Deferred tax assets | — |  |  | (19.9) |
Other assets | 2.7 |  |  | 2.0 |
Total assets held-for-sale | $ | 106.8 |  |  | $ | 89.2 |
LIABILITIES |  |  |
Deferred tax liabilities | $ | 16.8 |  |  | $ | — |
Other liabilities | 2.2 |  |  | 1.7 |
Total liabilities held-for-sale | $ | 19.0 |  |  | $ | 1.7 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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