filings.toolsCooper Companies 10-Q 2023-07-31
Filed 2023-08-31. 8 sections, 127K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
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, 2023
| ☐ | 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)
_____________________________________________________________
| Delaware | 94-2657368 | ||||
| (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 (925) 460-3600
_____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
| Common Stock, $.10 par value | COO | The 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 filer | ☒ | Accelerated 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 25, 2023, 49,524,149 shares of Common Stock, $0.10 par value, were outstanding.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income and Comprehensive Income
Periods Ended July 31,
(In millions, except for earnings per share)
(Unaudited)
| Three Months | Nine Months | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net sales | $ | 930.2 | $ | 843.4 | $ | 2,666.1 | $ | 2,460.3 | |||||||||||||||
| Cost of sales | 320.2 | 291.3 | 914.7 | 857.3 | |||||||||||||||||||
| Gross profit | 610.0 | 552.1 | 1,751.4 | 1,603.0 | |||||||||||||||||||
| Selling, general and administrative expense | 375.2 | 342.7 | 1,113.6 | 984.2 | |||||||||||||||||||
| Research and development expense | 36.5 | 28.7 | 100.7 | 81.2 | |||||||||||||||||||
| Amortization of intangibles | 46.7 | 40.1 | 139.7 | 133.5 | |||||||||||||||||||
| Operating income | 151.6 | 140.6 | 397.4 | 404.1 | |||||||||||||||||||
| Interest expense | 26.8 | 17.1 | 79.0 | 34.5 | |||||||||||||||||||
| Other expense (income), net | 6.0 | 6.2 | 11.9 | (33.3) | |||||||||||||||||||
| Income before income taxes | 118.8 | 117.3 | 306.5 | 402.9 | |||||||||||||||||||
| Provision for income taxes (Note 6) | 33.5 | 18.9 | 96.8 | 82.7 | |||||||||||||||||||
| Net income | $ | 85.3 | $ | 98.4 | $ | 209.7 | $ | 320.2 | |||||||||||||||
| Earnings per share (Note 7): | |||||||||||||||||||||||
| Basic | $ | 1.72 | $ | 1.99 | $ | 4.24 | $ | 6.49 | |||||||||||||||
| Diluted | $ | 1.71 | $ | 1.98 | $ | 4.21 | $ | 6.44 | |||||||||||||||
| Number of shares used to compute earnings per share: | |||||||||||||||||||||||
| Basic | 49.5 | 49.3 | 49.5 | 49.3 | |||||||||||||||||||
| Diluted | 49.9 | 49.6 | 49.8 | 49.7 | |||||||||||||||||||
| Other comprehensive income, net of tax: | |||||||||||||||||||||||
| Cash flow hedges | $ | 14.6 | $ | (10.5) | $ | (11.9) | $ | 42.1 | |||||||||||||||
| Foreign currency translation adjustment | 34.4 | (32.3) | 103.9 | (178.1) | |||||||||||||||||||
| Comprehensive income | $ | 134.3 | $ | 55.6 | $ | 301.7 | $ | 184.2 |
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In millions, unaudited)
| July 31, 2023 | October 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 117.3 | $ | 138.2 | |||||||
| Trade accounts receivable, net of allowance for credit losses of $27.6 at July 31, 2023, and $20.7 at October 31, 2022 | 629.9 | 557.8 | |||||||||
| Inventories (Note 3) | 723.6 | 628.7 | |||||||||
| Prepaid expense and other current assets | 240.2 | 208.9 | |||||||||
| Total current assets | 1,711.0 | 1,533.6 | |||||||||
| Property, plant and equipment, net | 1,535.0 | 1,432.9 | |||||||||
| Goodwill | 3,683.1 | 3,609.7 | |||||||||
| Other intangibles, net (Note 4) | 1,770.6 | 1,885.1 | |||||||||
| Deferred tax assets | 2,369.4 | 2,443.1 | |||||||||
| Other assets | 628.2 | 587.9 | |||||||||
| Total assets | $ | 11,697.3 | $ | 11,492.3 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt (Note 5) | $ | 79.6 | $ | 412.6 | |||||||
| Accounts payable | 226.7 | 248.8 | |||||||||
| Employee compensation and benefits | 154.6 | 152.1 | |||||||||
| Deferred revenue | 122.8 | 93.6 | |||||||||
| Other current liabilities | 409.9 | 373.1 | |||||||||
| Total current liabilities | 993.6 | 1,280.2 | |||||||||
| Long-term debt (Note 5) | 2,514.7 | 2,350.8 | |||||||||
| Deferred tax liabilities | 137.6 | 149.9 | |||||||||
| Long-term tax payable | 90.5 | 113.2 | |||||||||
| Deferred revenue | 185.5 | 198.3 | |||||||||
| Accrued pension liability and other | 246.9 | 225.2 | |||||||||
| Total liabilities | $ | 4,168.8 | $ | 4,317.6 | |||||||
| Contingencies (Note 10) | |||||||||||
| 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, 53.9 issued and 49.5 outstanding at July 31, 2023, and 53.8 issued and 49.3 outstanding at October 31, 2022 | 5.4 | 5.4 | |||||||||
| Additional paid-in capital | 1,817.4 | 1,765.5 | |||||||||
| Accumulated other comprehensive loss | (374.8) | (466.8) | |||||||||
| Retained earnings | 6,791.6 | 6,584.9 | |||||||||
| Treasury stock at cost: 4.4 shares at July 31, 2023, and 4.5 shares at October 31, 2022 | (711.3) | (714.5) | |||||||||
| Total Cooper stockholders’ equity | 7,528.3 | 7,174.5 | |||||||||
| Noncontrolling interests | 0.2 | 0.2 | |||||||||
| Stockholders’ equity (Note 9) | 7,528.5 | 7,174.7 | |||||||||
| Total liabilities and stockholders’ equity | $ | 11,697.3 | $ | 11,492.3 | |||||||
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Stockholders' Equity
(In millions, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --
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Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Selling, General and Administrative (SGA) Expenses
| Three Months Ended July 31, | 2023 vs 2022 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 228.2 | 36 | % | $ | 212.2 | 37 | % | 8 | % | ||||||||||||||||||||||
| CooperSurgical | 128.1 | 43 | % | 116.2 | 42 | % | 10 | % | ||||||||||||||||||||||||
| Corporate | 18.9 | — | 14.3 | — | 32 | % | ||||||||||||||||||||||||||
| $ | 375.2 | 40 | % | $ | 342.7 | 41 | % | 9 | % | |||||||||||||||||||||||
| Nine Months Ended July 31, | 2023 vs 2022 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 637.3 | 35 | % | $ | 611.8 | 36 | % | 4 | % | ||||||||||||||||||||||
| CooperSurgical | 423.7 | 49 | % | 332.3 | 43 | % | 28 | % | ||||||||||||||||||||||||
| Corporate | 52.6 | — | 40.1 | — | 31 | % | ||||||||||||||||||||||||||
| $ | 1,113.6 | 42 | % | $ | 984.2 | 40 | % | 13 | % |
CooperVision's SGA expenses increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to increases in selling and marketing activities, and distribution costs. The increase in the nine months ended July 31, 2023, was partially offset by $31.8 million release of contingent consideration liability associated with SightGlass Vision's regulatory approval milestone.
CooperSurgical's SGA expenses increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to an increase in selling and marketing activities supporting increased sales. The increase in the nine months ended July 31, 2023, was also due to the accrual of a $45.0 million termination fee under an asset purchase agreement related to Cook Medical’s reproductive health business. See Note 2. Acquisitions and Joint Venture of the Consolidated Condensed Financial Statements for further information on the termination fee.
Corporate SGA expenses increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to share-based compensation related expenses.
Research and Development (R&D) Expenses
| Three Months Ended July 31, | 2023 vs 2022 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 19.4 | 3 | % | $ | 16.0 | 3 | % | 21 | % | ||||||||||||||||||||||
| CooperSurgical | 17.1 | 6 | % | 12.7 | 5 | % | 34 | % | ||||||||||||||||||||||||
| $ | 36.5 | 4 | % | $ | 28.7 | 3 | % | 27 | % | |||||||||||||||||||||||
| Nine Months Ended July 31, | 2023 vs 2022 % Change | |||||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | ||||||||||||||||||||||||||||
| CooperVision | $ | 53.0 | 3 | % | $ | 46.5 | 3 | % | 14 | % | ||||||||||||||||||||||
| CooperSurgical | 47.7 | 6 | % | 34.7 | 4 | % | 38 | % | ||||||||||||||||||||||||
| $ | 100.7 | 4 | % | $ | 81.2 | 3 | % | 24 | % |
CooperVision's R&D expenses increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to myopia management programs and the timing of R&D projects. CooperVision's R&D activities are primarily focused on the development of contact lenses, manufacturing technology and process enhancements.
CooperSurgical's R&D expenses increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, mainly due to European Medical Device Regulation costs. CooperSurgical's R&D activities are
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
focused on developing and refining diagnostic and therapeutic products including medical interventions, surgical devices and fertility solutions.
Amortization Expense
| Three Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 8.3 | 1 | % | $ | 8.0 | 1 | % | 4 | % | |||||||||||||||||||
| CooperSurgical | 38.4 | 13 | % | 32.1 | 12 | % | 19 | % | |||||||||||||||||||||
| $ | 46.7 | 5 | % | $ | 40.1 | 5 | % | 16 | % | ||||||||||||||||||||
| Nine Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 25.0 | 1 | % | $ | 24.2 | 1 | % | 3 | % | |||||||||||||||||||
| CooperSurgical | 114.7 | 13 | % | 109.3 | 14 | % | 5 | % | |||||||||||||||||||||
| $ | 139.7 | 5 | % | $ | 133.5 | 5 | % | 5 | % |
CooperVision's amortization expense for the three and nine months ended July 31, 2023, remained relatively flat year over year. CooperSurgical's amortization expense increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to the amortization of intangible assets recently acquired through acquisitions.
Operating Income
| Three Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 151.7 | 24 | % | $ | 124.5 | 22 | % | 22 | % | |||||||||||||||||||
| CooperSurgical | 18.8 | 6 | % | 30.4 | 11 | % | (38) | % | |||||||||||||||||||||
| Corporate | (18.9) | — | (14.3) | — | 32 | % | |||||||||||||||||||||||
| $ | 151.6 | 16 | % | $ | 140.6 | 17 | % | 8 | % | ||||||||||||||||||||
| Nine Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| CooperVision | $ | 449.7 | 25 | % | $ | 387.3 | 23 | % | 16 | % | |||||||||||||||||||
| CooperSurgical | 0.3 | — | % | 56.9 | 7 | % | (99) | % | |||||||||||||||||||||
| Corporate | (52.6) | — | (40.1) | — | 31 | % | |||||||||||||||||||||||
| $ | 397.4 | 15 | % | $ | 404.1 | 16 | % | (2) | % |
CooperVision's operating income increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to an increase in net sales partially offset by net changes in operating expenses.
CooperSurgical's operating income decreased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to an increase in SGA expenses, partially offset by an increase in net sales.
Corporate operating loss increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to higher share-based compensation expenses.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Interest Expense
| Three Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| Interest expense | $ | 26.8 | 3 | % | $ | 17.1 | 2 | % | 57 | % | |||||||||||||||||||
| Nine Months Ended July 31, | 2023 vs 2022 % Change | ||||||||||||||||||||||||||||
| ($ in millions) | 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||||||||||||||
| Interest expense | $ | 79.0 | 3 | % | $ | 34.5 | 1 | % | 129 | % |
Interest expense increased during the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to higher interest rates.
Other Expenses (Income), Net
| Periods Ended July 31, | Three Months | Nine Months | ||||||||||||||||||||||||
| ($ in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Investment loss (gain) | $ | — | $ | 0.7 | $ | — | (47.7) | |||||||||||||||||||
| Foreign exchange loss | 4.3 | 4.2 | 6.1 | $ | 14.5 | |||||||||||||||||||||
| Other expense (income), net | 1.7 | 1.3 | 5.8 | (0.1) | ||||||||||||||||||||||
| $ | 6.0 | $ | 6.2 | $ | 11.9 | $ | (33.3) |
Investment gain during the nine months ended July 31, 2022, primarily consisted of a gain on remeasurement of the fair value of retained equity investment in SightGlass Vision, Inc. (SGV) as a result of deconsolidation. Foreign exchange loss is primarily associated with the weakening of the US dollar against foreign currencies and the effect on intercompany receivables.
Other expenses (income), net increased in the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, primarily due to loss on minority investments, partially offset by defined benefit plan related income.
Provision for Income Taxes
The effective tax rates for the three months ended July 31, 2023, and July 31, 2022, were 28.2% and 16.1%, respectively. The effective tax rates for the nine months ended July 31, 2023, and July 31, 2022, were 31.6% and 20.5%, respectively. The increases were primarily due to changes in the geographic composition of pre-tax earnings, an increase in the UK statutory tax rate from 19% to 25%, capitalization of research and experimental expenditures for fiscal 2023 as required by the 2017 Tax Cuts and Jobs Act, and changes in unrecognized tax benefits.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Capital Resources and Liquidity
Working capital on July 31, 2023, and October 31, 2022, was $717.4 million and $253.4 million, respectively. The increase in working capital was primarily due to repayment of the 364-day term loan during the first nine months of fiscal 2023. See Note 5. Financing Arrangements for further information.
Cash Flow
| ($ in millions) | July 31, 2023 | July 31, 2022 | ||||||||||||
| Operating activities | $ | 433.3 | $ | 561.7 | ||||||||||
| Investing activities | (288.2) | (1,731.5) | ||||||||||||
| Financing activities | (167.4) | 1,327.8 | ||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, restricted cash | 1.2 | (8.0) | ||||||||||||
| Net (decrease) increase in cash, cash equivalents, restricted cash | $ | (21.1) | $ | 150.0 |
Operating Cash Flow
Cash provided by operating activities in the first nine months of fiscal 2023 decreased compared to the first nine months of fiscal 2022, primarily due to net changes in operating capital, partially offset by net changes in other non-cash items.
The $45.0 million termination fee accrued in the first nine months of fiscal 2023 under an asset purchase agreement related to Cook Medical’s reproductive health business was paid on August 9, 2023. See Note 2. Acquisitions and Joint Venture of the Consolidated Condensed Financial Statements for further information on the termination fee.
Investing Cash Flow
Cash used in investing activities in the first nine months of fiscal 2023 was lower than cash used in the first nine months of fiscal 2022, primarily attributable to $1.6 billion cash paid, net of cash acquired, for the Generate acquisition in the first nine months of fiscal 2022. The decrease in cash used for acquisitions was partially offset by an increase in purchases of property, plant and equipment.
Financing Cash Flow
Cash used in financing activities in the first nine months of fiscal 2023 was primarily due to repayments of $338.0 million on the 2021 364-day term loan, partially offset by $163.5 million of funds drawn on the 2020 revolving credit.
Cash provided by financing activities in the first nine months of fiscal 2022 was primarily due to funds received from the 2021 term loan facility ($1.5 billion) and the 2021 364-day term loan facility ($840.0 million), partially offset by $549.0 million repayments of the 2021 revolving credit, $380.0 million repayments of the 2021 364-day term loan facility, and $78.5 million repurchases of common stock.
Refer to Note 5. Financing Arrangements for further information.
The following is a summary of the maximum commitments and the net amounts available to us under different credit facilities as of July 31, 2023:
| (In millions) | Facility Limit | Outstanding Borrowings | Outstanding Letters of Credit | Total Amount Available | Maturity Date | |||||||||||||||||||||||||||
| Revolving Credit: | ||||||||||||||||||||||||||||||||
| 2020 Revolving Credit | $ | 1,290.0 | $ | 163.5 | $ | 2.2 | $ | 1,124.3 | April 1, 2025 | |||||||||||||||||||||||
| Term loan: | ||||||||||||||||||||||||||||||||
| 2020 Term Loan | 850.0 | 850.0 | n/a | — | April 1, 2025 | |||||||||||||||||||||||||||
| 2021 Term Loan | 1,500.0 | 1,500.0 | n/a | — | December 17, 2026 | |||||||||||||||||||||||||||
| Total | $ | 3,640.0 | $ | 2,513.5 | $ | 2.2 | $ | 1,124.3 |
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
As of July 31, 2023, the Company was in compliance with all debt covenants. See Note 5. Financing Arrangements of the Consolidated Condensed Financial Statements for further information.
Considering recent market conditions, we have re-evaluated our operating cash flows and cash requirements and continue to believe that current cash, cash equivalents, future cash flow from operating activities and cash available under our 2020 Credit Agreement will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the Consolidated Condensed Financial Statements included in this quarterly report. To the extent additional funds are necessary to meet our liquidity needs such as that for acquisitions, share repurchases, cash dividends or other activities as we execute our business strategy, we anticipate that additional funds could be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all.
Share Repurchase
In December 2011, our Board of Directors authorized the 2012 Program and through subsequent amendments, the most recent in March 2017, the total repurchase authorization was increased from $500.0 million to $1.0 billion of the Company's common stock. The program has no expiration date and may be discontinued at any time. Purchases under the 2012 Program are subject to a review of the circumstances in place at the time and may be made from time to time as permitted by securities laws and other legal requirements. As of July 31, 2023, $256.4 million remains authorized for repurchase under the 2012 Program.
During the nine months ended July 31, 2023, there were no share repurchases under the 2012 Program. During the nine months ended July 31, 2022, the Company repurchased 191.2 thousand shares of its common stock for $78.5 million, at an average purchase price of $410.41 per share.
Dividends
We paid a semiannual dividend of approximately $1.5 million or 3 cents per share, on February 10, 2023, to stockholders of record on January 23, 2023. We paid another semiannual dividend of approximately $1.5 million or 3 cents per share, on August 11, 2023, to stockholders of record on July 27, 2023.
Transition from LIBOR
The UK’s Financial Conduct Authority (FCA), which regulates the London Interbank Offered Rate (LIBOR), announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021. In March 2021, the FCA confirmed its intention to stop requiring banks to submit rates required to calculate LIBOR after 2021. However, for U.S. dollar-denominated (USD) LIBOR, only one-week and two-month USD LIBOR will cease to be published after 2021, and all remaining USD LIBOR tenors will continue being published until June 2023. Further, in March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance 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. Effective February 1, 2023, the Company transitioned its credit agreements from LIBOR to the Secured Overnight Financing Rate ("SOFR").
Estimates and Critical Accounting Policies
Information regarding estimates and critical accounting policies is included in Management's Discussion and Analysis in our Form 10-K for the fiscal year ended October 31, 2022. There have been no material changes in our policies from those previously discussed in our Form 10-K for the fiscal year ended October 31, 2022.
Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 1. General of the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risks that relate principally to changes in interest rates and foreign currency fluctuations. We do not enter into derivative financial instrument transactions for speculative purposes.
Foreign Currency Exchange Risk
We operate multiple foreign subsidiaries that manufacture and market our products worldwide. As a result, our earnings, cash flow and financial position are exposed to foreign currency risk from foreign currency denominated receivables and payables, sales transactions, capital expenditures and net investment in certain foreign operations. Most of our operations outside the United States have their local currency as their functional currency. We are exposed to risks caused by changes in foreign exchange, principally our British pound sterling, euro and Japanese yen denominated debt and receivables denominated in currencies other than the United States dollar, and from operations in other foreign currencies.
We have taken steps to minimize our balance sheet exposure by entering into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables. These forward contracts are not designated as hedging instruments. The instruments are marked to market through earnings each period.
Interest Rate Risk
We are exposed to risks associated with changes in interest rates, as the interest rates on our revolving lines of credit and term loans may vary with the federal funds rate and SOFR (and, previously, LIBOR). As of July 31, 2023, we had outstanding debt for an aggregate carrying amount of $2.6 billion. We have entered, and in the future may enter, into interest rate swaps to manage interest rate risk. Effective February 1, 2023, the base interest rate on our credit agreements was converted from LIBOR to SOFR.
Our ultimate realized gain or loss with respect to interest rate fluctuations will depend on interest rates, the exposures that arise during the period and our hedging strategies at that time. As an example, if interest rates were to increase or decrease by 1% or 100 basis points, the quarterly interest expense would not have a material impact, based on average debt outstanding, after consideration of our interest rate swap contracts, during the third quarter of fiscal 2023. See Note 5. Financing Arrangements of the Consolidated Condensed Financial Statements for further information.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation (with the participation of our Chief Executive Officer (our Principal Executive Officer) and Chief Financial Officer (our Principal Financial Officer)), as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act)) are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during our third quarter of fiscal 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is included in Note 10. Contingencies of the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
Our business faces significant risks. These risks include those described below and may include additional risks and uncertainties not presently known to us or that we currently deem immaterial. Our business, financial condition and results of operations could be materially adversely affected by any of these risks, and the trading prices of our common stock could decline by virtue of these risks. These risks should be read in conjunction with the other information in this report.
Risk factors describing the major risks to our business can be found under Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022. There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The share repurchase program was approved by the Company’s Board of Directors in December 2011 (2012 Program). The program as amended in December 2012, December 2013 and March 2017 provides authorization to repurchase up to a total of $1.0 billion of the Company’s common stock. As of July 31, 2023, $256.4 million remains authorized for repurchase under the 2012 Program.
During the three and nine months ended July 31, 2023, there were no share repurchases under the 2012 Program.
During the three months ended July 31, 2022, there were no share repurchases under the 2012 Program. During the nine months ended July 31, 2022, the Company repurchased 191.2 thousand shares of its common stock for $78.5 million, at an average purchase price of $410.41 per share.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended July 31, 2023, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 6. Exhibits
| Exhibit Number | Description | ||||
| 31.1 | Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 | ||||
| 31.2 | Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 | ||||
| 32.1 | Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 | ||||
| 32.2 | Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 | ||||
| 101.1 | The following materials from the Company's Quarterly Report on Form 10-Q for the three and nine months period ended July 31, 2023 formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Condensed Statements of Income and Comprehensive Income, (ii) Consolidated Condensed Balance Sheets, (iii) Consolidated Condensed Statements of Stockholders' Equity, (iv) Consolidated Condensed Statements of Cash Flows and (v) related Notes to Consolidated Condensed Financial Statements. | ||||
| 104.1 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | ||||
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| The Cooper Companies, Inc. | |||||
| (Registrant) | |||||
| Date: August 31, 2023 | /s/ Brian G. Andrews | ||||
| Brian G. Andrews | |||||
| Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | |||||
| Date: August 31, 2023 | /s/ Agostino Ricupati | ||||
| Agostino Ricupati | |||||
| Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) |