COOPER COMPANIES, INC. 10-K

Item 7A. 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. To the extent reasonable and practical, we may decide to reduce the risk of changing interest rates and foreign currency fluctuations on the underlying exposure by entering into interest rate swaps and foreign currency forward exchange contracts, respectively. We do not emphasize such transactions to the same degree as some other companies with international operations. We do not enter into derivative financial instrument transactions for speculative purposes. 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. Although we may enter into foreign exchange agreements with financial institutions to reduce our exposure to fluctuations in foreign currency values relative to our debt or receivables obligations, these hedging transactions do not eliminate that risk entirely. At October 31, 2020 , a uniform hypothetical 5% increase or decrease in the foreign currency exchange rates in comparison to the United States dollar would have resulted in a corresponding increase or decrease in approximately $30.9 million in operating income for the fiscal year ended October 31, 2020 . For additional information, see Item 1A. Risk Factors - " Our substantial and expanding international operations are subject to uncertainties which could affect our operating results. ” and See Note 1. Accounting Policies of the Consolidated Financial Statements for additional information. We are also 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 LIBOR. We may decrease this interest rate risk by hedging a portion of variable rate debt effectively converting it to fixed rate debt for varying periods. On April 6, 2020, we entered into six interest rate swap contracts to hedge variable cash flows associated with LIBOR. The interest rate swap contracts became effective on April 6, 2020 and have maturities of seven years or less with a total notional amount of $1.5 billion. The outstanding contracts as of October 31, 2020 have a total notional amount of $1.4 billion. We believe that we are not significantly exposed to interest rate risk at this time. We did not have any cross-currency swaps or foreign currency forward contracts as of October 31, 2020. On October 16, 2020, we entered into a 364-day, $350.0 million, term loan agreement by and among us, the lenders party thereto and The Bank of Nova Scotia, as administrative agent which matures on October 15, 2021. We used the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility (as defined below). At October 31, 2020, we had $350.0 million outstanding under this agreement. The interest rate was 0.93% at October 31, 2020. On April 1, 2020, we entered into a Revolving Credit and Term Loan Agreement (the 2020 Credit Agreement), among us, CooperVision International Holding Company, LP, CooperSurgical Netherlands B.V., CooperVision Holding Kft. the lenders from time to time party thereto, and KeyBank National Association, as administrative agent. The 2020 Credit Agreement provides for (a) a multicurrency revolving credit facility (the 2020 Revolving Credit Facility) in an aggregate principal amount of $1.29 billion and (b) a term loan facility (the 2020 Term Loan Facility) in an aggregate principal amount of $850.0 million, each of which, unless terminated earlier, mature on April 1, 2025. The 2020 Credit Agreement replaced our previous credit agreement and funds from the new term loan were used to repay the outstanding amounts under the previous credit agreement, to repay an outstanding term loan, and for general corporate purposes. At October 31, 2020, we had $754.6 million available under the 2020 79 THE COOPER COMPANIES, INC. AND SUBSIDIARIES Revolving Credit Facility and $850.0 million outstanding under the 2020 Term Loan Facility. The interest rate on the 2020 Term Loan Facility was 1.15% at October 31, 2020. On September 27, 2019, we extended the maturity of the 2018 Term Loan Agreement to September 25, 2020 and increased the amount to $500.0 million (as so amended, the 2019 Term Loan Agreement). At maturity, on September 25, 2020, outstanding amounts under the 2019 Term Loan Agreement were fully repaid using borrowings under the 2020 Revolving Credit Facility. The interest rate on the 2020 Revolving Credit Facility was 1.15% at October 31, 2020. See Note 5. Debt of the Consolidated Financial Statements for additional information. October 31, (In millions) 2020 2019 Short-term debt $ 409.4 $ 563.7 Long-term debt 1,384.2 1,264.2 Less: unamortized debt issuance cost (0.4 ) (1.6 ) Total $ 1,793.2 $ 1,826.3 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. If interest rates were to increase or decrease by 1% or 100 basis points, annual interest expense would increase or decrease by approximately $10.2 million based on average debt outstanding, after consideration of our interest rate swap contracts, for fiscal 2020. For further information about our debt, see Item 1A. Risk Factors - “We are vulnerable to interest rate risk with respect to our debt.” and Note 1. Accounting Policies and Note 5. Debt of the Consolidated Financial Statements for additional information. 80 THE COOPER COMPANIES, INC. AND SUBSIDIARIES