What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-12-10 compared with 2020-12-11 · 262 added, 228 removed, 290 unchanged (63% of the section changed)

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Non-GAAP Financial Measures

The succeeding sections of Management’s Discussion and Analysis (MD&A) may include certain financial measures that are not defined by accounting principles generally accepted in the United States of America (GAAP).

These measures, which are referred to as non-GAAP measures, are listed below:

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As a result of healthcare systems responding to the demands of managing the pandemic, governments around the world imposing measures designed to reduce the transmission of the COVID-19 virus, and individuals responding to the concerns of contracting the COVID-19 virus, many optical practitioners and retailers, hospitals, medical offices and fertility clinics closed their facilities, restricted access, or delayed or canceled patient visits, exams and elective medical procedures, and many customers that have reopened are experiencing reduced patient visits.

This has had, and we believe will continue to have, an adverse effect on our sales, operating results and cash flows.

These factors have had, and in the future may have, an adverse effect on our sales, operating results and cash flows.

THE COOPER COMPANIES, INC.

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however, we have experienced higher unabsorbed fixed overhead costs, labor inefficiencies, higher cost of production and higher freight charges as a result of the COVID-19 pandemic.

As a result, we instituted an inventory control project to reduce buildup of excess inventory.

Our manufacturing and distribution operations have responded to the impacts related to the COVID-19 pandemic, and we have been able to continue to supply our products around the world without interruption.

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At this time, future developments are highly uncertain, difficult to predict and largely outside of our control.

These include, but are not limited to, the spread, duration and severity of the pandemic outbreak and any subsequent waves of additional outbreaks, actions taken by governments to contain the pandemic, address its impact or respond to the reduction in global and local economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

These include, but are not limited to, the spread, duration and severity of the pandemic outbreak and any subsequent waves of additional outbreaks, including the emergence and spread of variants of the COVID-19 virus, actions taken by governments to contain the pandemic, address its impact or respond to the reduction in global and local economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

We will continue to closely monitor the developments relating to the COVID-19 pandemic and the responses from governments and private sector participants and their respective impact on our Company and on our customers, suppliers, vendors and business partners.

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However, the impact, risks and uncertainty relating to the global COVID-19 pandemic and related economic disruptions, as further described in the “COVID-19 Considerations” section above and in the “Risk Factors” section in Part I, Item 1A of this filing, have adversely affected our sales, cash flow and current performance and are likely to further adversely affect our future sales, cash flow and performance.

Additionally, other events affecting the economy as a whole, including but not limited to the uncertainty and instability of global markets driven by foreign currency volatility, changes in tax legislation, debt concerns, the uncertainty during and after the transition period following the United Kingdom's withdrawal from the EU, changes to existing regulations and new regulations, global trade barriers including additional tariffs and the trend of consolidations within the health care industry could impact our current performance and continue to represent a risk to our future performance.

Additionally, other events affecting the economy as a whole, including but not limited to the uncertainty and instability of global markets driven by foreign currency volatility, inflation, changes in tax legislation, debt concerns, the uncertainty following the United Kingdom (UK)'s withdrawal from the EU, changes to existing and new regulations, global trade barriers including additional tariffs and the trend of consolidations within the health care industry could impact our current performance and continue to represent a risk to our future performance.

CooperVision - We compete in the worldwide contact lens market with our spherical, toric, multifocal, toric multifocal and myopia management contact lenses offered in a variety of materials including using silicone hydrogel Aquaform ® technology, PC Technology™ and ActivControl ® technology.

We believe that there will be lower contact lens wearer dropout rates as technology improves and enhances the

We believe that there will be lower contact lens wearer dropout rates as technology improves and enhances the wearing experience through a combination of improved designs and materials and the growth of preferred

THE COOPER COMPANIES, INC.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

wearing experience through a combination of improved designs and materials and the growth of preferred modalities such as single-use and monthly wearing options.

CooperVision also competes in the myopia management and specialty eye care markets with products such as ortho-k and scleral lenses.

modalities such as single-use and monthly wearing options.

CooperVision also competes in the myopia management and specialty eye care markets with products such as orthokeratology (ortho-k) and scleral lenses.

In November 2019, CooperVision received United States Food and Drug Administration (FDA) approval for its MiSight ® 1 day lens, which is the first and only FDA-approved product indicated to slow the progression of myopia in children with treatment initiated between the ages of 8-12 and became available in the United States during fiscal 2020.

In August 2021, CooperVision received Chinese National Medical Products Administration (NMPA) approval for its MiSight ® 1 day lens for use in China.

CooperVision is focused on greater worldwide market penetration using recently introduced products, and we continue to expand our presence in existing and emerging markets, including through acquisitions.

On August 7, 2020, CooperVision completed the acquisition of a privately-held U.S contact lens manufacturer focusing on ortho-k lenses.

This acquisition expands CooperVision’s specialty eye care portfolio and its leadership in addressing the increasing severity and prevalence of myopia.

On December 28, 2018, CooperVision completed the acquisition of a privately-held scleral lens company, which expands CooperVision's specialty and scleral lens portfolio.

CooperVision acquired the following entities during fiscal 2021:

• A privately-held UK contact lens manufacturer on April 26, 2021

• A privately-held medical device company on January 19, 2021

CooperVision acquired the following entity during fiscal 2020:

• A privately-held US contact lens manufacturer focusing on ortho-k lenses on August 7, 2020

Our ability to compete successfully with a full range of silicone hydrogel products is an important factor to achieving our desired future levels of sales growth and profitability.

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CooperSurgical has established its market presence and distribution system by developing products and acquiring companies, products and services that complement its business model.

CooperSurgical acquired a privately-held distributor of IVF medical devices and systems on December 13, 2019.

On December 31, 2018, CooperSurgical acquired a privately-held U.S.

medical device company that develops mechanical surgical solutions for skin closure.

CooperSurgical acquired the following entities during fiscal 2021:

• A privately-held medical device company that develops single-use illuminating medical devices on May 3, 2021

• A privately-held medical device company on March 1, 2021

• A privately-held medical device company on February 1, 2021

• A privately-held in vitro fertilization (IVF) cryo-storage software solutions company on December 31, 2020

CooperSurgical acquired the following entity during fiscal 2020:

• A privately-held distributor of IVF medical devices and systems on December 13, 2019

On November 6, 2021, subsequent to the fiscal year ended October 31, 2021, CooperSurgical entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire Generate Life Sciences, a privately held leading provider of donor egg and sperm for fertility treatments, fertility cryopreservation services and newborn stem cell (cord blood and cord tissue) storage.

The aggregate consideration is

THE COOPER COMPANIES, INC.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

$1.605 billion in cash, subject to adjustment as set forth in the Merger Agreement.

The transaction is anticipated to close in the first quarter of fiscal 2022 and is subject to customary closing conditions, including regulatory approval.

Subsequent Events of the Consolidated Financial Statements for additional information.

Capital Resources - At October 31, 2021, we had $95.9 million in unrestricted cash, primarily held outside the United States, and $742.6 million available under our 2020 Revolving Credit Facility.

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• $546.1 million drawn under our 2020 Revolving Credit Facility entered into on April 1, 2020

$350.0 million term loan entered into on October 16, 2020

Debt of the Consolidated Financial Statements for additional information.

On November 2, 2021, subsequent to the fiscal year ended October 31, 2021, we entered into a 364-day, $840.0 million, term loan agreement by and among us, the lenders party thereto and The Bank of Nova Scotia, as administrative agent, which matures on November 1, 2022.

We used part of the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility and for general corporate purposes.

Subsequent Events of the Consolidated Financial Statements for additional information.

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.

We intend to operate the previously wholly-owned subsidiary as a joint venture with the purchaser of the 50% interest once the transaction is closed.

We concluded the substantive terms of the joint venture during the third quarter of fiscal 2021, and as of July 31, 2021, the assets and liabilities of this disposal group were reclassified as held for sale.

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 October 31, 2021, we were in the process of finalizing the joint venture related ancillary agreements, and the disposal group continues to be classified as held for sale.

We did not record any impairment in fiscal 2021, and this disposal did not qualify as a discontinued operation.

Acquisitions and Assets Held for Sale of the Consolidated Financial Statements for additional information.

Transition from LIBOR

The United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered

THE COOPER COMPANIES, INC.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Rate (LIBOR), announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021.

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):

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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.

The Company has material contracts that are indexed to LIBOR and is continuing to monitor this activity and evaluate the related risk.

We are continuing to evaluate the scope of impacted contracts and the potential impact.

We have material contracts that are indexed to LIBOR and are continuing to monitor this activity and evaluate the related risk.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

continuing to evaluate the scope of impacted contracts and the potential impact.

We are also monitoring the developments regarding alternative rates and may amend certain contracts to accommodate those rates if the contract does not already specify a replacement rate.

While the notional value of agreements potentially indexed to LIBOR is material, we are not yet able to reasonably estimate the expected impact.

While the notional value of agreements potentially indexed to LIBOR is material, we do not expect a material impact on our financial statements related to this transition.

We believe that current cash, cash equivalents and future cash flow from operating activities 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 financial statements included in this annual report.

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2021 Compared with 2020

Gross margin decreased to 63% of net sales compared with 66% in fiscal 2019, primarily due to the negative impact of the COVID-19 pandemic on net sales and cost of sales

Operating income decreased 43% to $311.8 million from $546.7 million

• Gross margin increased to 67% of net sales compared with 63% in fiscal 2020

• Operating income increased by 62% to $505.8 million from $311.8 million

• Interest expense decreased to $23.1 million from $36.8 million due to lower average debt balances and lower interest rates

Diluted earnings per share decreased 48% to $ 4.81 from $ 9.33

Operating cash flow decreased 32% to $486.6 million from $713.2 million.

• Diluted earnings per share increased by 1,131% to $59.16 from $4.81

• Operating cash flow increased by 52% to $738.6 million from $486.6 million.

Selected Statistical Information – Percentage of Net Sales

Years Ended October 31,

Years Ended October 31, 2021 2020 2021 vs.

2020 % Change in Absolute Values

Net sales 100 % 100 % 20 %

Cost of sales 33 % 37 % 8 %

Gross profit 67 % 63 % 27 %

Selling, general and administrative expense 41 % 41 % 22 %

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Amortization of intangibles 5 % 6 % 6 %

Gain on sale of an intangible

Operating income 17 % 13 % 62 %

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

CooperVision Net Sales

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• Toric and multifocal lenses including lenses that, in addition to correcting near- and farsightedness, address more complex visual defects such as astigmatism and presbyopia by adding optical properties of cylinder and axis, which correct for irregularities in the shape of the cornea.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

CooperVision Net Sales by Category

($ in millions)

($ in millions) 2021 2020 2021 vs.

2020 % Change

Toric $ 697.5 $ 598.2 17 %

Multifocal 238.6 197.0 21 %

Single-use spheres 616.3 529.0 16 %

Non single-use sphere, other 599.6 518.8 16 %

$ 2,152.0 $ 1,843.0 17 %

In the fiscal year ended October 31, 2021:

The COVID-19 pandemic has negatively impacted our business.

Net sales in fiscal 2020 declined by 7%, compared to fiscal 2019.

Customers have either slowed down purchases or delayed orders due to a desire to reduce inventories, reduced contact lens wear driven by limited social interaction and lack of patient access on account of certain office closures and reduced access as offices reopen.

We started experiencing downward pressure on net sales when markets started closing during our second quarter of fiscal 2020 as social restrictions were put in place and the offices of health care providers were closed

CooperVision’s net sales declined across product categories and all our markets, however the net sales decline was partially offset by higher sales of MyDay, MiSight and Biofinity Energys

• Toric and multifocal lenses grew primarily through the success of Biofinity toric and multifocal and MyDay toric.

• Single-use sphere lenses growth was primarily driven by MyDay, clariti and MiSight lenses.

• Non single-use sphere lenses growth was primarily driven by Biofinity and ortho-k lenses.

• "Other" products primarily include lens care which represented approximately 2% of net sales in fiscal 2021 and 2020.

• Total silicone hydrogel products increased by 21%, representing 76% of net sales in fiscal 2021 compared to 74% in fiscal 2020.

• Foreign exchange rates positively impacted sales by approximately $58.9 million and had a negative impact of $2.4 million in fiscal 2020.

In fiscal 2021, net sales increased by 14% in constant currency over the prior year.

• Sales growth was primarily driven by an increase in the volume of lenses sold across our core portfolio due to a recovery in demand from the impact of the COVID-19 pandemic.

Average realized prices by product did not materially influence sales growth.

• We expect to continue seeing downward pressure and volatility in certain markets related to net sales if the COVID-19 pandemic continues, as optical retailers and healthcare centers continue to restrict access, and social distancing measures continue.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Total silicone hydrogel products decreased by 4%, representing 74% of net sales in the fiscal 2020 compared to 72% in fiscal 2019

Foreign exchange rates negatively impacted sales by approximately $2.4 million, compared to a negative impact of $53.6 million in fiscal 2019.

In fiscal 2020, net sales decreased 6% in constant currency over the prior year

Sales reduction was primarily driven by a decrease in the volume of lenses sold.

Average realized prices by product did not materially influence sales

We expect to continue seeing downward pressure on net sales if the COVID-19 pandemic continues, optical retailers and healthcare centers continue to restrict access, and social distancing measures continue.

CooperVision Net Sales by Geography

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the Americas, EMEA (Europe, Middle East and Africa) and Asia Pacific.

($ in millions)

($ in millions) 2021 2020 2021 vs.

2020 % Change

CooperVision's regional reduction in net sales was primarily attributable to disruption from the COVID-19 pandemic.

Americas $ 832.1 $ 720.3 16 %

EMEA 819.5 690.1 19 %

Asia Pacific 500.4 432.6 16 %

$ 2,152.0 $ 1,843.0 17 %

CooperVision's growth in net sales across all regions was primarily attributable to market gains of silicone hydrogel contact lenses and favorable foreign currency impacts.

Refer to CooperVision Net Sales by Category above for further discussion.

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CooperSurgical supplies the family health care market with a diversified portfolio of products and services.

Our office and surgical offerings include products that facilitate surgical and non-surgical procedures that are commonly performed primarily by OB/GYN in hospitals, surgical centers, fertility clinics and medical offices.

Our office and surgical offerings include products that facilitate surgical and non-surgical procedures that are commonly performed primarily by Obstetricians/Gynecologists (OB/GYN) in hospitals, surgical centers, fertility clinics and medical offices.

Fertility offerings include highly specialized products and services that target the IVF process, including diagnostics testing with a goal to make fertility treatment safer, more efficient and convenient.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The chart below shows the percentage of net sales of office and surgical products and fertility.

($ in millions)

2020 vs 2019 % Change

2021 2020 2021 vs.

2020 % Change

Office and surgical products $ 451.3 $ 358.8 26 %

In th e fiscal year ended October 31, 2020 :

We have experienced COVID-19 pandemic-related economic disruptions and decline in net sales during fiscal 2020.

We experienced downward pressure on revenue when major markets started closing as social restrictions were put in place and the offices of certain health care providers were closed.

In response to the COVID-19 pandemic, as a precautionary measure, certain health care facilities and medical offices were closed or restricted access and surgeries and elective medical procedures and exams have been deferred or canceled.

Further, there has been a significant reduction in physician office visits, and healthcare centers have postponed or canceled capital purchases

Office and surgical products decreased compared to the prior year mainly due to reduction in PARAGARD IUD sales.

Further, there has been a reduction in revenue from other surgical products such as Uterine Manipulators and Closure products, partially offset by an increase in revenue from Incisive Surgical and Endosee products

Fertility net sales declined compared to the prior year mainly due to reduction in revenue from IVF consumables and equipment

Foreign exchange rates negatively impacted sales by approximately $2.1 million, compared to a negative impact of $9.0 million in the prior year.

In fiscal 2020, net sales decreased 13% in constant currency over the prior year

We expect to continue seeing downward pressure on net sales if the COVID-19 pandemic continues, hospitals and healthcare centers continue to restrict access, and social distancing measures continue.

Fertility 319.2 229.1 39 %

$ 770.5 $ 587.9 31 %

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Consolidated Gross Margin decreased in fiscal 2020 to 63% compared to 66% of fiscal 2019 due to:

Decreased revenue due to negative impact of COVID-19 pandemic

Increased cost of sales which included $90.1 million of costs primarily related to the COVID-19 pandemic and other manufacturing related costs

Fiscal 2019 included $28.2 million of primarily product transition, integration and manufacturing related costs.

In th e fiscal year ended October 31, 2021:

• Office and surgical products increased compared to the prior year due to an increase in PARAGARD ® sales compared to the prior year.

Further, there was an increase from other office and surgical products such as Uterine Manipulators, Retractors, Closure products, Point-of-Care products and sales from our recent acquisitions, Illuminate and Fetal Pillow ® .

• Fertility net sales increased compared to the prior year mainly due to an increase in revenue from fertility consumables, equipment sales, preimplantation genetic testing and sales from our recent acquisition, Embryo Options.

• Foreign exchange rates positively impacted sales by approximately $6.2 million and had a negative impact of $2.1 million in the prior year.

In fiscal 2021, net sales increased by 30% in constant currency over the prior year.

• Sales growth was primarily driven by stronger demand for our products and services as a result of our customers continuing to reopen their health care facilities and medical offices.

• We expect to continue seeing downward pressure and volatility in certain markets related to net sales if the COVID-19 pandemic continues, as hospitals and healthcare centers continue to restrict access, and social distancing measures continue.

Consolidated Gross Margin increased in fiscal 2021 to 67% compared to 63% of fiscal 2020 primarily driven by favorable product mix and increased sales due to a recovery in demand from the impact of the COVID-19 pandemic.

Fiscal 2021 included $29.4 million of costs primarily related to integration and other manufacturing related costs.

Fiscal 2020 included $90.1 million of costs primarily related to the COVID-19 pandemic and other manufacturing related costs.

Selling, General and Administrative Expense (SGA)

($ in millions)

CooperSurgical

SGA expense remained relatively flat in fiscal 2020 compared with fiscal 2019.

As a percentage of sales, SGA increased in fiscal 2020 compared to fiscal 2019, due to salaries and benefits, selling, advertising and marketing activities, and fixed General and Administrative (G&A) costs.

CooperVision's SGA remained relatively flat in fiscal 2020 compared to fiscal 2019 primarily due to advertising and marketing activities, including MiSight and increase in G&A costs, partially, offset by lower travel expenses.

CooperVision's SGA in fiscal 2020 included $6.5 million primarily related to acquisition and integration activities.

CooperVision's SGA in fiscal 2019 included $7.1 million of acquisition costs, integration costs and costs related to new product launches.

The decrease in CooperSurgical's SGA in fiscal 2020 compared to fiscal 2019 was primarily due to lower selling and distribution expenses due to lower sales and savings from lower travel expenses, partially offset by an increase in G&A costs.

CooperSurgical's SGA in fiscal 2020, included $19.8 million, primarily related to integration expenses and MDR costs.

CooperSurgical's SGA in fiscal 2019 included $19.6 million of acquisition and integration expenses of acquired companies, as well as MDR costs.

Corporate SGA increased in fiscal 2020 compared to fiscal 2019 primarily due to higher share-based compensation expense.

Research and Development Expense (R&D)

($ in millions)

($ in millions) 2021 % Net

Sales 2020 % Net

Sales 2021 vs.

CooperVision $ 843.9 39 % $ 682.3 37 % 24 %

CooperSurgical 320.0 42 % 261.0 44 % 23 %

CooperVision's R&D decreased in fiscal 2020 compared to fiscal 2019 mainly due to timing of clinical studies.

As a percentage of sales, R&D expense remained flat.

CooperVision's R&D activities are primarily focused on the development of contact lenses, manufacturing technology and process enhancements

The increase in CooperSurgical's R&D in fiscal 2020 compared to fiscal 2019 was primarily due to increased investment activities in developing new products and services and upgrades of existing products.

CooperSurgical has not paused research programs during the COVID-19

Corporate 47.3 — 49.2 — (4) %

$ 1,211.2 41 % $ 992.5 41 % 22 %

CooperVision's SGA increased in fiscal 2021 compared to fiscal 2020 primarily due to increases in distribution costs, general and administrative costs and advertising and marketing activities primarily related to myopia management.

CooperVision's SGA in fiscal 2021 included $63.9 million of costs primarily related to the increase in fair value of the contingent consideration of $56.8 million as described in Note 3.

Acquisitions and Assets Held for Sale of the Consolidated Financial Statements.

CooperVision's SGA in fiscal 2020 included $6.5 million of costs primarily related to acquisition and integration activities.

CooperSurgical's SGA increased in fiscal 2021 compared to fiscal 2020 primarily due to increases in selling expenses and advertising and marketing activities.

CooperSurgical's SGA in fiscal 2021 included $19.3 million of costs primarily related to the increase in fair value of the contingent consideration of $9.3 million as described in Note 3.

Acquisitions and Assets Held for Sale of the Consolidated Financial Statements and acquisition and integration expenses.

CooperSurgical's SGA in fiscal 2020 included $19.8 million of costs primarily related to integration expenses and Medical Devices Regulation (MDR) costs.

Corporate SGA decreased in fiscal 2021 compared to fiscal 2020 primarily due to savings from lower professional fees and travel expenses as a result of the COVID-19 pandemic.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

pandemic and has maintained its spend on innovations and increased its spend on key regulatory investment areas to support our long-term objectives.

As a percentage of sales, R&D expense increased due to increased investment in developing new products coupled with a decline in sales.

CooperSurgical's R&D activities include diagnostics, IVF product development and the design and upgrade of surgical procedure devices.

Research and Development Expense (R&D)

($ in millions) 2021 % Net

Sales 2020 % Net

Sales 2021 vs.

CooperVision $ 61.6 3 % $ 54.1 3 % 14 %

CooperSurgical 31.1 4 % 39.2 7 % (21) %

$ 92.7 3 % $ 93.3 4 % (1) %

CooperVision's R&D expense increased in fiscal 2021 compared to fiscal 2020 primarily due to myopia management programs and timing of R&D projects.

As a percentage of sales, CooperVision's R&D expense remained relatively flat.

CooperVision's R&D activities are primarily focused on the development of contact lenses, manufacturing technology and process enhancements.

CooperSurgical's R&D expense decreased in fiscal 2021 compared to fiscal 2020 primarily due to timing of R&D projects and changes in headcount.

CooperSurgical has not paused research programs during the COVID-19 pandemic and has maintained its spend on innovations and increased its spend on key regulatory investment areas to support our long-term objectives.

As a percentage of sales, CooperSurgical's R&D expense decreased primarily due to an increase in net sales.

CooperSurgical's R&D activities are focused on upgrading existing and developing new products ranging from diagnostics, surgical devices to fertility instruments and solutions.

Amortization Expense

($ in millions)

($ in millions) 2021 % Net

Sales 2020 % Net

Sales 2021 vs.

CooperVision $ 35.7 2 % $ 32.4 2 % 10 %

CooperSurgical 110.4 14 % 104.8 18 % 5 %

CooperVision amortization expense decreased in fiscal 2020 compared to fiscal 2019 due to certain intangible assets becoming fully amortized.

CooperSurgical's amortization expense remained relatively flat.

Gain on Sale of an Intangible Asset

In the second quarter of fiscal 2019, CooperSurgical sold an exclusive distribution right to distribute Filshie Clip System in the United States for $21.0 million and recognized a gain of $19.0 million.

$ 146.1 5 % $ 137.2 6 % 6 %

CooperVision's and CooperSurgical's amortization expense increased in absolute dollars in fiscal 2021 compared to fiscal 2020, primarily due to the amortization of intangible assets newly acquired through acquisitions.

As a percentage of sales, CooperSurgical's amortization expense decreased, primarily due to an increase in net sales.

Operating Income

($ in millions)

($ in millions) 2021 % Net

Sales 2020 % Net

Sales 2021 vs.

CooperVision $ 481.3 22 % $ 375.7 20 % 28 %

CooperSurgical 71.8 9 % (14.7) (3) % 588 %

The operating income for fiscal 2020 was primarily impacted by the COVID-19 pandemic which resulted from a decrease to our net sales and additional expenses due to the COVID-19 pandemic related costs as discussed above.

CooperVision operating income decreased as a percentage of net sales and in absolute dollars in fiscal 2020 compared to fiscal 2019 primarily due to a decrease in net sales partially offset by a decrease in operating expenses and a decrease in amortization expenses.

CooperSurgical operating income decreased as a percentage of net sales and in absolute dollars in fiscal 2020 compared to fiscal 2019 primarily due to a decrease in net sales and higher R&D expenses to support growth partially offset by a decrease in SGA.

In the second quarter of fiscal 2019, CooperSurgical sold an exclusive distribution right to distribute Filshie Clip System in the U.S.

for $21.0 million and recognized a gain of $19.0 million.

Corporate operating loss increased in fiscal 2020 compared to fiscal 2019, primarily due to higher stock-based compensation expense.

Corporate (47.3) — (49.2) — 4 %

$ 505.8 17 % $ 311.8 13 % 62 %

CooperVision's operating income increased as a percentage of net sales and in absolute dollars in fiscal 2021 compared to fiscal 2020, primarily due to an increase in net sales partially offset by a $56.8 million expense related to the increase in fair value of the contingent consideration as described in Note 3.

Acquisitions and Assets Held for Sale of the Consolidated Financial Statements.

CooperSurgical's operating income increased as a percentage of net sales and in absolute dollars in fiscal 2021 compared to fiscal 2020, primarily due to an increase in net sales and a decrease in R&D expenses.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

On a consolidated basis, operating income decreased in absolute dollars and as a percentage of net sales primarily due to the negative impact of the COVID-19 pandemic, as discussed above.

Corporate operating loss decreased in fiscal 2021 compared to fiscal 2020, primarily due to savings from lower professional fees and travel expenses as a result of the COVID-19 pandemic.

On a consolidated basis, operating income increased as a percentage of net sales and in absolute dollars in fiscal 2021 compared to fiscal 2020, primarily due to the increase in consolidated net sales.

Interest Expense

($ in millions)

($ in millions) 2021 % Net

Sales 2020 % Net

Sales 2021 vs.

Interest expense $ 23.1 1 % $ 36.8 2 % (37) %

Interest expense decreased as a percentage of net sales and in absolute dollars during fiscal 2020 primarily due to lower interest rates and lower average debt balances compared to the prior year, partially offset by the write-off of debt issuance costs.

Other Expense (Income), Net

Interest expense decreased as a percentage of net sales and in absolute dollars during fiscal 2021 compared to the prior year, primarily due to lower average debt balances and lower interest rates.

Other (Income) Expense, Net

($ in millions) 2021 2020

Investment gain $ (11.6) $ —

Foreign exchange loss 5.5 1.2

Other expense (income), net

Other (income) expense, net (2.7) 7.3

$ (8.8) $ 8.5

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 recognized in the first quarter of fiscal 2021.

Foreign exchange loss primarily resulted from the revaluation and settlement of foreign currency-denominated balances.

Other expense (income) increased in fiscal 2020, primarily due to non-consolidated subsidiary investments losses and advances during the year.

Other income increased in fiscal 2021, primarily due to an increase in defined benefit plan related income and a decrease in losses on minority investments during the year.

Provision for Income Taxes

The Company’s effective tax rate (ETR) was 10.6% and 2.3% for fiscal 2020 and fiscal 2019, respectively.

The ETR in fiscal 2020 increased in comparison to fiscal 2019 primarily due to foreign earnings subject to US tax, partially offset by a shift in the geographic mix of income.

The ETR for both fiscal 2020 and fiscal 2019 was less than the US federal statutory tax rate primarily due to foreign earnings in jurisdictions with lower tax rates, a step-up of the US tax-deductible basis of intellectual property rights from intra-entity sales and excess tax benefits from share-based compensation.

This was partially offset by foreign earnings subject to US tax.

The jurisdictions with lower tax rates with the most significant tax impact include Barbados, Puerto Rico and the United Kingdom.

The effective tax rates for fiscal 2021 and 2020 were (499.1)% and 10.6%, respectively.

The decrease was primarily due to an intra-group transfer of intellectual property, as discussed below, and remeasurement of the related deferred tax assets caused by the UK enactment of a 25% corporate tax rate.

The effective tax rate otherwise increased due to changes in the geographical composition of pre-tax earnings, partially offset by changes in foreign earnings subject to US tax.

The effective tax rate for fiscal 2021 was lower than the US federal statutory tax rate primarily due to the intra-group transfer, the remeasurement of deferred tax assets, and earnings in foreign jurisdictions with lower tax rates partially offset by foreign earnings subject to US tax.

The effective tax rate for fiscal 2020 was lower than the US federal statutory rate primarily due to foreign earnings in jurisdictions with lower tax rates partially offset by foreign earnings subject to US tax.

In November 2020, we completed an intra-group transfer of certain intellectual property and related assets of the CooperVision business to a UK subsidiary as part of a group restructuring to establish headquarters operations in the UK.

Determining fair value involved significant judgment related to future revenue growth, operating margins and discount rates.

Income before income taxes resulting from this transfer is eliminated upon consolidation.

The transfer resulted in a step-up of the UK tax-deductible basis in the

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

intellectual property and goodwill, creating a temporary difference between the book basis and the tax basis of these assets.

As a result, we recognized a deferred tax asset of $1,987.9 million, with a corresponding income tax benefit, during the three months ended January 31, 2021.

Income Taxes of the Consolidated Financial Statements for additional information.

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We grant various share-based compensation awards, including stock options, performance shares and restricted stock units.

The share-based compensation and related income tax benefit recognized in the Consolidated Financial Statements in fiscal 2020 was $38.6 and $4.8, respectively, compared to $36.3 million and $5.1 million, respectively, in fiscal 2019.

The share-based compensation and related income tax benefit recognized in the Consolidated Financial Statements in fiscal 2021 was $44.7 million and $5.6 million, respectively, compared to $38.6 million and $4.8 million, respectively, in fiscal 2020.

As of October 31, 2021, there was $94.3 million of total unrecognized share-based compensation cost related to non-vested awards.

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The expected life of the stock option is based on the observed and expected time to post-vesting forfeiture and/or exercise.

Groups of employees that have similar historical exercise behavior are

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

considered separately for valuation purposes.

Groups of employees that have similar historical exercise behavior are considered separately for valuation purposes.

If our assumption for the expected life increased by one year, the fair value of an individual option granted in fiscal 2021 would have increased by approximately $9.60.

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If our assumption for stock price volatility increased by one percentage point, the fair value of an individual option granted in fiscal 2021 would have increased by approximately $2.62.

Retirement Income Plan Soft Freeze

On June 18, 2019 the Board of Directors of the Company approved a soft freeze of the Plan effective August 1, 2019.

The Plan was closed to employees hired on or after August 1, 2019, including former participants or employees rehired on or after August 1, 2019 and employees hired in connection with a stock or asset acquisition, merger or other similar transaction on or after August 1, 2019.

Existing employees already covered by the Plan, continue to accrue their benefits.

There is no material impact on the Company's results of operations, financial position and cash flows for the fiscal 2020 and 2019.

Employee Stock Purchase Plan

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These shares will be made available from shares of common stock reacquired by the Company as Treasury Stock.

During fiscal year ended October 31, 2020, we issued 11,641 shares to our employees under the ESPP.

During fiscal 2021 and 2020, we issued 17,575 and 11,641 shares to our employees under the ESPP, respectively.

At October 31, 2021, the number of shares remaining available for future issuance under the ESPP is 970,784 shares.

Total ESPP Share-based compensation recognized during the fiscal year ended October 31, 2020 was $0.7 million .

Total ESPP Share-based compensation recognized during fiscal 2021 and 2020 was $1.0 million and $0.7 million.

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• Operating cash flow of $738.6 million compared to $486.6 million in fiscal 2020

Expenditures for purchases of property, plant and equipment of $ 310.4 million up from $ 292.1 million in fiscal 2019

• Expenditures for purchases of property, plant and equipment of $214.4 million compared to $310.4 million in fiscal 2020

• Cash payments for acquisitions and others of $235.9 million compared to $54.1 million in fiscal 2020

• Total debt, net of debt issuance cost, at $1.5 billion at the end of fiscal 2021 compared to $1.8 billion at the end of fiscal 2020

Cash provided by operations of $ 486.6 million offset by capital expenditures of $ 310.4 million resulted in positive free cash flow of $ 176.2 million, down 58% compared to the prior year period

• Cash provided by operations of $738.6 million offset by capital expenditures of $214.4 million resulted in positive free cash flow of $524.2 million, up 198% compared to the prior year

Comparative Statistics

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Cash and cash equivalents $95.9 $115.9

Total assets $9,606.2 $6,737.5

Working capital $733.2 $269.8

Total debt $1,479.0 $1,793.2

Stockholders’ equity $6,942.0 $3,824.8

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The increase in working capital at October 31, 2021 from the end of fiscal 2020 was primarily due to:

decrease in short-term debt of $ 154.4 million primarily due to repayment of the outstanding balance of the 2019 Term Loan at maturity net of the amount of borrowings received under the new 2020 Term Loan Agreement, entered into on October 16, 2020 (see below)

increase in inventories of $ 63.5 million due to lower sales from the impact of the COVID-19 pandemic and higher manufacturing costs

increase in cash and cash equivalents of $ 26.9 million

decrease in other current liabilities of $ 25.3 million primarily due to timing of payments and a reduction in fiscal 2020 customer rebate accruals due to the decrease in sales resulting from the COVID-19 pandemic

increase in prepaid expense and other current assets of $ 20.3 million, partially offset by;

increase in accounts payable of $ 25.9 million due to timing of payments

• decrease in short-term debt of $326.4 million primarily due to repayment of the outstanding balance of the 2020 Term Loan at maturity;

• increase in assets held-for-sale of $89.2 million.

Refer to Note 3.

Acquisitions and Assets Held for Sale for additional information;

• increase in trade accounts receivable of $79.9 million primarily due to higher sales and timing of collections;

• increase in prepaid expense and other current assets of $26.8 million,

• increase in inventories of $15.2 million due to higher sales;

• decrease in accounts payable of $14.6 million due to timing of payments, partially offset by:

• increase in other current liabilities of $34.9 million;

• increase in employee compensation and benefits of $29.7 million;

recognition of current operating lease liabilities of $ 33.3 million on adoption of ASC 842, Leases.

• decrease in cash and cash equivalents of $20.0 million.

At October 31, 2021, our inventory months on hand were 6.8 compared to 6.6 at October 31, 2020.

The $ 63.5 million increase in inventories was primarily due to lower sales from the impact of the COVID-19 pandemic and higher manufacturing costs.

The $15.2 million increase in inventories was primarily due to higher sales, and the buildup of inventory for future product launches.

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Operating Cash Flow

Cash provided by operating activities decreased by $ 226.6 million from $ 713.2 million in fiscal 2019 to $ 486.6 million in fiscal 2020.

This decrease in cash flow provided by operating activities primarily consists of:

decrease in net income of $ 228.3 million from a net income of $ 466.7 million in fiscal 2019 to $ 238.4 million in fiscal 2020 which resulted from a decrease in our net sales and additional expenses due to the COVID-19 pandemic;

$ 80.9 million decrease in the net changes in prepayments and other assets primarily due to the refund of the prepayment made to the U.K.

Tax Authorities in the prior year period and capitalized cloud computing costs;

$ 42.4 million decrease in the net changes in accrued liabilities partially due to reduction in indirect value-added tax, chargebacks and customer rebate accruals as a result of the decrease in sales;

$ 25.0 million decrease in the net changes in inventories primarily due to lower sales;

$20.0 million decrease in the net changes in operating lease liability and right-of-use asset due to impact from adoption of ASC 842, Leases;

$ 21.1 million decrease in the net changes in income tax payable, partially offset by;

$ 64.1 million increase in the net changes in trade receivables primarily due to timing of collections;

increase of $ 32.5 million in non-cash lease expense due to impact from adoption of ASC 842, Leases;

increase of $ 20.0 million driven by net changes in long term tax liabilities and defined benefit plan;

$ 19.6 million increase in the net changes in accounts payable primarily due to timing of payments;

decrease of $19.0 million due to a gain on sale of an intangible asset, representing the sale by CooperSurgical of the Filshie Clip exclusive distribution right recognized in prior year period;

increase of $16.7 million in impairment and loss on disposal of property, plant and equipment;

$ 15.0 million increase in the net changes in deferred income taxes.

Cash provided by operating activities increased by $252.0 million from $486.6 million in fiscal 2020 to $738.6 million in fiscal 2021.

This increase in cash flow provided by operating activities primarily consists of:

• increase in net income of $2,706.3 million from a net income of $238.4 million in fiscal 2020 to $2,944.7 million in fiscal 2021;

• $68.4 million increase in the net changes in accrued liabilities partially due to impact from adoption of ASC 842, Leases in prior year period and higher customer rebate accruals in current period as a result of higher sales;

• $66.1 million increase in the net changes in the fair value of contingent consideration.

Refer to Note 3.

Acquisitions and Assets Held for Sale for further information;

• $53.1 million increase in the net changes in inventories primarily due to higher sales;

• $22.4 million increase in the net changes in income tax payable;

• $22.2 million increase in net changes in depreciation and amortization, from $287.1 million in fiscal 2020 to $309.3 million in fiscal 2021, partially offset by;

• $2501.3 million decrease in the net changes in deferred income taxes.

Refer to Note 6.

Income Taxes for additional information;

• $84.0 million decrease in the net changes in trade receivables primarily due to timing of collections;

• $39.2 million decrease in the net changes in accounts payable primarily due to timing of payments;

• $28.0 million decrease in the net changes in prepayments and other assets primarily due to the capitalized cloud computing costs and increase in prepaid inventory;

• $27.5 million decrease in impairment and loss on disposal of property, plant and equipment, and other.

Investing Cash Flow

Cash used in investing activities increased by $85.8 million to $450.3 million in fiscal 2021 from $364.5 million in fiscal 2020, primarily due to:

increase of $ 18.3 million in capital expenditures, partially offset by;

decrease of $ 5.1 million in payments made for acquisitions in the fiscal 2020 compared to the prior year period.

• increase of $181.8 million in payments made for acquisitions in fiscal 2021 compared to the prior year period, partially offset by;

• decrease of $96.0 million in capital expenditures.

Financing Cash Flow

Cash used in financing activities increased by $215.9 million to $311.4 million in fiscal 2021 from $95.5 million in fiscal 2020, primarily due to:

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financing Cash Flow

Cash provided by financing activities decreased by $ 255.9 million to $ 95.5 million cash outflow in fiscal 2020 compared to $ 351.4 million cash outflow in fiscal 2019, primarily due to:

$ 2,068.6 million increase in proceeds from long-term debt, primarily due to funds received from the 2020 Credit Agreement (as defined below) partially offset by;

$ 1,374.1 million increase in repayments of long-term debt, primarily related to termination of 2019 Term Loan Agreement (as defined below), 2017 Term Loan Agreement (as defined below) and the 2016 Credit Agreement (as defined below);

$ 531.9 million decrease in net proceeds from short-term debt, primarily due to movements in short term loans.

• $1,777.9 million decrease in proceeds from long-term debt, primarily due to funds received from the 2020 Credit Agreement (as defined below);

• $314.7 million increase in net repayments of short-term debt, primarily due to the repayments of the 2020 Term Loan Agreement (as defined below), partially offset by;

• $1,819.9 million decrease in repayments of long-term debt, primarily related to repayments of funds from the 2020 Credit Agreement (as defined below) in fiscal 2021, and termination of the 2020 Term Loan Agreement (as defined below), the 2017 Term Loan Agreement and the 2016 Credit Agreement in fiscal 2020.

On April 1, 2020, the Company entered into a Revolving Credit and Term Loan Agreement (the 2020 Credit Agreement), among the Company and KeyBank National Association, as administrative agent.

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In addition, the Company has the ability from time to time to request an increase to the size of the revolving credit facility or establish one or more new term loans under the term loan facility in an aggregate amount up to $1.605 billion, subject to the discretionary participation of the lenders.

On April 1, 2020, in connection with the Company’s entry into the 2020 Credit Agreement, the Company terminated the senior unsecured term loan agreement entered into on November 1, 2017 in connection with PARAGARD (the 2017 Term Loan Agreement) and the Revolving Credit and Term Loan Agreement entered into on March 1, 2016 (the 2016 Credit Agreement).

In connection with the termination, all borrowings outstanding under the 2017 Term Loan Agreement and the 2016 Credit Agreement were repaid.

At maturity, on September 25, 2020, outstanding amounts under the 2019 Term Loan Agreement (including the Second Amendment to the 2018 Term Loan Agreement) were fully repaid using borrowings under the 2020 Revolving Credit Facility.

On October 16, 2020, the Company entered into a 364 -day, $350.0 million , term loan agreement (the 2020 Term Loan Agreement) by and among the Company, the lenders party thereto and The Bank of Nova Scotia, as administrative agent which matures on October 15, 2021.

On October 16, 2020, the Company entered into a 364-day, $350.0 million, term loan agreement (the 2020 Term Loan Agreement) by and among the Company, the lenders party thereto and The Bank of Nova Scotia, as administrative agent, which matured on October 15, 2021.

At maturity, outstanding amounts under this agreement were fully repaid using borrowings under the 2020 Revolving Credit Facility.

On November 2, 2021, subsequent to the fiscal year ended October 31, 2021, the Company entered into a 364-day, $840.0 million, term loan agreement by and among the Company, the lenders party thereto and The Bank of Nova Scotia, as administrative agent, which matures on November 1, 2022.

The Company used part of the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility and for general corporate purposes.

Subsequent Events of the Consolidated Financial Statements for additional information.

The following is a summary of the maximum commitments and the net amounts available to us under different credit facilities as of October 31, 2021:

(In millions)

Facility Limit

Outstanding Borrowings

Outstanding Letters of Credit

Total Amount Available

Maturity Date

2020 Revolving Credit Facility

April 1, 2025

2020 Term Loan Facility

April 1, 2025

2020 Term Loan

October 15, 2021

The 2020 Credit Agreement and the 2019 Term Loan Agreement contain customary restrictive covenants, as well as financial covenants that require the Company to maintain a certain Total Leverage Ratio and

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Interest Coverage Ratio.

As defined, in the 2020 Credit Agreement and the 2019 Term Loan Agreement, we are required to maintain an Interest Coverage Ratio of at least 3.00 to 1.00, and a Total Leverage Ratio of no higher than 3.75 to 1.00.

(In millions) Facility Limit Outstanding Borrowings Outstanding Letters of Credit Total Amount Available Maturity Date

2020 Revolving Credit Facility $ 1,290.0 $ 546.1 $ 1.3 $ 742.6 April 1, 2025

2020 Term Loan Facility 850.0 850.0 n/a — April 1, 2025

Total $ 2,140.0 $ 1,396.1 $ 1.3 $ 742.6

The 2020 Credit Agreement contains customary restrictive covenants, as well as financial covenants that require the Company to maintain a certain Total Leverage Ratio and Interest Coverage Ratio.

As defined, in the 2020 Credit Agreement, we are required to maintain an Interest Coverage Ratio of at least 3.00 to 1.00, and a Total Leverage Ratio of no higher than 3.75 to 1.00.

At October 31, 2021, we were in compliance with the Interest Coverage Ratio at 43.29 to 1.00 and the Total Leverage Ratio at 1.38 to 1.00.

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Debt of the Consolidated Financial Statements for additional information.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Considering recent market conditions and the ongoing COVID-19 pandemic crisis, 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 Financial Statements included in this quarterly report.

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Purchases under the 2012 Share Repurchase 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.

The Company's share repurchases during the fiscal year ended October 31, 2020 and 2019 as follows:

The Company's share repurchases during the fiscal years ended October 31, 2021 and 2020 are as follows:

Years Ended October 31, 2021 2020

($ in millions)

Number of shares 69,622 160,850

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$1.5 million or 3 cents per share on February 9, 2021 to stockholders of record on January 22, 2021;

$1.5 million or 3 cents on August 7, 2020 to stockholders of record on July 23, 2020;

$1.5 million or 3 cents per share on August 11, 2021 to stockholders of record on July 27, 2021;

$1.5 million or 3 cents per share on February 10, 2020 to stockholders of record on January 23, 2020;

$1.5 million or 3 cents per share on August 7, 2020 to stockholders of record on July 23, 2020.

OFF BALANCE SHEET ARRANGEMENTS

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As of October 31, 2021, we had the following contractual obligations and commercial commitments:

Payments Due by Period

Payments Due by Fiscal Year

(In millions)

Total 2022 2023

Contractual obligations:

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Transition tax on unremitted foreign earnings and profits (1)

Purchase obligation (2)

112.2 11.8 34.0 66.4 —

Purchase obligations (2)

196.0 86.5 58.0 50.2 1.3

Defined benefit plan (3)

142.8 10.7 24.4 28.1 79.6

Total contractual obligations 2,252.1 173.4 229.3 1,619.6 229.8

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Stand-by letters of credit 4.9 4.9 — — —

(1) As of October 31, 2020, we had $124.0 million of income tax liabilities related to the one-time transition tax that resulted from the enactment of the 2017 Act, which is payable in six annual installments.

The installment for 2021 is classified as a current income tax payable on our consolidated balance sheet.

We are unable to reliably estimate the timing of future payments related to uncertain tax positions;

therefore, about $58.5 million of our long-term income taxes payable have been excluded from the table above.

However, other long-term liabilities, included in our consolidated balance sheet, include a reserve for a portion of these uncertain tax positions.

Total $ 2,257.0 $ 178.3 $ 229.3 $ 1,619.6 $ 229.8

(1) As of October 31, 2021, we had $112.2 million of income tax liabilities related to the one-time transition tax that resulted from the enactment of the 2017 US Tax Act, which is payable in annual installments through fiscal 2026.

The installment for fiscal 2021 is classified as a current income tax payable on our consolidated balance sheet.

We are unable to reliably estimate the timing of future payments related to uncertain tax positions and have excluded $39.2 million of long-term income taxes payable from the table above.

Income Taxes of the Consolidated Financial Statements for additional information.

(2) Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding and includes obligations for inventory, capital expenditures and other operating expense commitments.

(3) The expected future benefit payments for pension plans through 2030 are disclosed in Note 10.

(3) The expected future benefit payments for our Retirement Income Plan through 2031 are disclosed in Note 10.

Employee Benefits of the Consolidated Financial Statements.

Inflation and Changing Prices

Inflation has had no appreciable effect on our operations in the last three fiscal years.

Summary of Non-GAAP Financial Measures

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Free cash flow is defined as cash provided by operating activities less capital expenditures.

Management believes free cash flow is useful for investors as an additional measure of liquidity because it represents

Management believes free cash flow is useful for investors as an additional measure of liquidity because it represents cash that is available to grow the business, make strategic acquisitions, repay debt, buyback common stock or fund the dividend.

We use free cash flow internally to understand, manage, make operating decisions and evaluate our business.

In addition, we use free cash flow to help plan and forecast future periods.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

cash that is available to grow the business, make strategic acquisitions, repay debt, buyback common stock or fund the dividend.

We use free cash flow internally to understand, manage, make operating decisions and evaluate our business.

In addition, we use free cash flow to help plan and forecast future periods.

Constant currency is defined as excluding the effect of foreign currency rate fluctuations.

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however, actual results could differ from the original estimates, requiring adjustment to these balances in future periods.

The World Health Organization categorized the Coronavirus disease 2019 (COVID-19) as a pandemic.

The World Health Organization categorized the COVID-19 as a pandemic.

The COVID-19 pandemic has caused a severe global health crisis, along with economic and societal disruptions and uncertainties, which have negatively impacted business and healthcare activity globally.

This has had, and we believe will continue to have, an adverse effect on our sales, operating results and cash flows.

These factors have had, and in the future may have, an adverse effect on our sales, operating results and cash flows.

The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of net sales and expenses during the reporting period.

Actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions impacted by uncertainty surrounding the COVID-19 pandemic and related economic disruptions.

The extent to which the COVID-19 pandemic and related economic disruptions impact our accounting estimates will depend on future developments including, but not limited to, the continued spread, duration and severity of the COVID-19 pandemic;

the occurrence, spread, duration and severity of any subsequent wave or waves of outbreaks;

Actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions reasonably available to the Company and the uncertain future impacts of the COVID-19 pandemic and related economic disruptions.

The extent to which the COVID-19 pandemic and related economic disruptions impact our business and financial results will depend on future developments including, but not limited to, the continued spread, duration and severity of the COVID-19 pandemic;

the occurrence, spread, duration and severity of any subsequent wave or waves of outbreaks, including the emergence and spread of variants of the COVID-19 virus;

the actions taken by the U.S.

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the impact of the developments described above on our customers and suppliers;

and how quickly and to what extent normal economic and operating conditions can resume.

The accounting matters assessed included, but were not limited to:

• allowance for doubtful accounts and credit losses

• the carrying value of inventory

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

quickly and to what extent normal economic and operating conditions can resume.

The accounting matters assessed included, but were not limited to:

allowance for doubtful accounts and credit losses

carrying value of inventory

carrying value of goodwill and other long-lived assets

• the carrying value of goodwill and other long-lived assets

There was not a material impact to the above estimates in our Consolidated Financial Statements for fiscal 2021 as a result of the COVID-19 pandemic.

We continually monitor and evaluates the estimates used as additional information becomes available.

We continually monitor and evaluate the estimates used as additional information becomes available.

Adjustments will be made to these provisions periodically to reflect new facts and circumstances that may indicate that historical experience may not be indicative of current and/or future results.

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We account for goodwill, evaluate and test goodwill balances for impairment in accordance with related accounting standards.

We performed an annual impairment assessment in our third quarter of fiscal 2020 and 2019 , and our analysis indicated that we had no impairment of goodwill in our reporting units.

We test goodwill impairment in accordance with ASU 2017-04, Intangibles - Goodwill and other (Topic 350):

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Qualitative factors considered in this assessment include industry and market considerations, overall financial performance and other relevant events and factors affecting each reporting unit.

Based on our qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be compared with its carrying amount and an impairment charge will be

A reporting unit is the level of reporting at which goodwill is tested for impairment.

Goodwill impairment analysis and measurement is a process that requires significant judgment.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

recognized for the amount that the carrying value exceeds the fair value of the reporting unit.

A reporting unit is the level of reporting at which goodwill is tested for impairment.

Goodwill impairment analysis and measurement is a process that requires significant judgment.

If our common stock price trades below book value per share, there are changes in market conditions or a future downturn in our business, or a future goodwill impairment test indicates an impairment of our goodwill, we may have to recognize a non-cash impairment of goodwill that could be material and could adversely affect our results of operations in the period recognized and also adversely affect our total assets and stockholders' equity.

Leases - We consider an arrangement a lease if the arrangement transfers the right to control the use of an identified asset in exchange for consideration.

We have operating leases, but do not have material financing leases.

Lease right-of-use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make payments arising from the lease agreement.

These assets and liabilities are recognized at the commencement of the lease based upon the present value of the future minimum lease payments over the lease term.

The lease term reflects the noncancelable period of the lease together with periods covered by an option to extend or terminate the lease when it is reasonably certain that we will exercise such option.

Changes in the lease term assumption could impact the right-of-use assets and lease liabilities recognized on the balance sheet.

As our leases typically do not contain a readily determinable implicit rate, we determine the present value of the lease liability using our incremental borrowing rate at the lease commencement date based on the lease term on a collateralized basis.

could be material and could adversely affect our results of operations in the period recognized and also adversely affect our total assets and stockholders' equity.

• Business combinations - We routinely consummate business combinations.

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Frequent changes in tax laws in each jurisdiction complicate future estimates.

To determine the tax rate, we use the full-year income and the related income tax

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

expense in each jurisdiction.

To determine the tax rate, we use the full-year income and the related income tax expense in each jurisdiction.

We update the estimated effective tax rate for the effect of significant unusual items as they are identified.

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All tax reserves are analyzed quarterly and adjustments are made as events occur that result in changes in judgment.

Aquaform ® , Avaira ® , Avaira Vitality ® , Biofinity ® , Biofinity Energys ® , MyDay ® , MiSight ® , ActivControl ® and Proclear ® are registered trademarks of The Cooper Companies, Inc., its affiliates and/or subsidiaries.

THE COOPER COMPANIES, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Aquaform ® , Avaira ® , Avaira Vitality ® , Biofinity ® , Biofinity Energys ® , MyDay ® , MiSight ® , ActivControl ® , Proclear ® and Biomedics ® are registered trademarks of The Cooper Companies, Inc., its affiliates and/or subsidiaries.

PC Technology™ and FIPS™ are trademarks of The Cooper Companies, Inc., its affiliates and/or subsidiaries.

The clariti ® mark is a registered trademark of The Cooper Companies, Inc., its affiliates and/or subsidiaries worldwide except in the United States where the use of clariti ® is licensed.

PARAGARD ® is a registered trademark of CooperSurgical, Inc.

PARAGARD ® , Mara ® and Fetal Pillow ® are registered trademarks of CooperSurgical, Inc.

THE COOPER COMPANIES, INC.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis