What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-12-06 compared with 2023-12-08 · 85 added, 107 removed, 168 unchanged (53% of the section changed)

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In this section, we discuss the results of our operations for fiscal 2024 compared with fiscal 2023.

We discuss our cash flows and current financial condition under “Capital Resources and Liquidity.” For a discussion related to fiscal 2022 compared with fiscal 2021, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended October 31, 2022, which was filed with the United States Securities and Exchange Commission (SEC) on December 9, 2022, and is available on the SEC's website at www.sec.gov and our Investor Relations website at investor.coopercos.com.

We discuss our cash flows and current financial condition under “Capital Resources and Liquidity.” For a discussion related to fiscal 2023 compared with fiscal 2022, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended October 31, 2023, which was filed with the SEC on December 8, 2023, and is available on the SEC's website at www.sec.gov and our Investor Relations website at investor.coopercos.com.

Within the tables presented, percentages are calculated based on the underlying whole-dollar amounts and, therefore, may not recalculate exactly from the rounded numbers used for disclosure purposes.

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The contact lens market has two major product categories:

• Spherical lenses including lenses that correct near- and farsightedness uncomplicated by more complex visual defects;

• 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;

• Spherical lenses, including lenses that correct near- and farsightedness uncomplicated by more complex visual defects, myopia management lenses, which slow the progression of and correct myopia in age-appropriate children, and other specialty lenses.

CooperVision Net Sales by Category

Single-use spheres – This includes Biomedics 1 day, clariti 1 day, MiSight, MyDay, and Proclear 1 day

Toric – This includes Avaira Vitality toric, Biofinity toric, Biomedics toric, clariti 1 day toric, MyDay toric and Proclear toric

Multifocal – This includes Biofinity multifocal, Biofinity toric multifocal, clariti 1 day multifocal, MyDay multifocal and Proclear 1 day multifocal

Non single-use sphere, other – This includes our frequent replacement product (FRP) lens portfolio (Avaira Vitality spheres, Biofinity spheres, Biofinity Energys spheres, Biomedics spheres, clariti spheres, Proclear spheres), specialty lenses (custom, ortho-k, and scleral lenses) and other.

THE COOPER COMPANIES, INC.

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

($ in millions) 2023 2022 2023 vs.

2022 % Change

Toric $ 828.7 $ 737.4 12 %

Multifocal 305.7 264.4 16 %

Single-use spheres 705.4 661.6 7 %

Non single-use sphere, other 583.9 579.9 1 %

($ in millions) 2024 2023 2024 vs 2023 % Change

Toric and multifocal

$ 1,257.2 $ 1,134.4 11 %

Sphere, other

1,352.2 1,289.3 5 %

$ 2,609.4 $ 2,423.7 8 %

In the fiscal year ended October 31, 2024, the growth experienced across all categories was partially offset by unfavorable foreign exchange rate fluctuations, which approximated $14.6 million.

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

• Single-use sphere lenses grew primarily through MyDay, MiSight, and clariti lenses.

• Non single-use sphere lenses grew primarily through specialty lenses.

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

• Sphere, other grew primarily through MyDay, MiSight and Biofinity.

• "Other" products represented approximately 1% of net sales in fiscal 2024 and 2023.

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CooperVision competes in the worldwide soft contact lens market and services in three primary regions:

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

the Americas, EMEA and Asia Pacific.

($ in millions) 2024 2023 2024 vs.

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$ 2,609.4 $ 2,423.7 8 %

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

CooperVision's growth in net sales across all regions was primarily attributable to increased sales of silicone hydrogel contact lenses.

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

CooperSurgical Net Sales by Category

CooperSurgical supplies the fertility and women's 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 obstetricians and gynecologists in hospitals, surgical centers, fertility clinics and medical offices.

CooperSurgical Net Sales

CooperSurgical supplies the fertility and women's health care market with a diversified portfolio of products and services in two categories:

• Office and surgical offerings include products that facilitate surgical and non-surgical procedures that are commonly performed primarily by obstetricians and gynecologists in hospitals, surgery centers, and medical offices.

This includes medical devices, cryostorage (such as cord blood and cord tissue storage), and contraception.

• 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.

This includes fertility consumables and equipment, donor gamete services, and genomic services (including genetic testing).

THE COOPER COMPANIES, INC.

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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 and fertility.

Office/Surgical – This includes Endosee endometrial imaging products, Fetal Pillow cephalic elevation devices for use in Cesarean sections, illuminated speculum products, Lone Star retractor systems, loop electrosurgical excision procedure (LEEP) products, Mara water ablation systems, cryostorage (such as cord blood and cord tissue storage), Paragard contraceptive IUDs, point-of-care products and uterine positioning products.

Fertility – This includes fertility consumables and equipment, donor gamete services, and genomic services (including genetic testing).

CooperSurgical Net Sales by Category

($ in millions) 2024 2023 2024 vs.

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Office and surgical $ 774.7 $ 689.5 12 %

$ 689.5 $ 633.6 9 %

Fertility 511.3 480.0 7 %

$ 1,286.0 $ 1,169.5 10 %

In th e fiscal year ended October 31, 2023, the net sales increase in both categories was partially due to the addition of Generate Life Sciences (Generate) on December 17, 2021.

Additionally, office and surgical net sales increased due to an increase in sales from products such as Uterine Manipulators, Fetal Pillow and Surgical Retractors, and fertility net sales increased due to an increase in revenue from consumable products and genomic services.

The increase was partially offset by unfavorable foreign exchange rate fluctuations, which approximated $15.1 million.

In the fiscal year ended October 31, 2024, office and surgical net sales increased primarily due to the addition of Cook Medical on November 1, 2023.

Fertility net sales increased due to an increase in revenue from consumable products and genetic testing.

The above growth experienced across all categories was partially offset by unfavorable foreign exchange rate fluctuations, which approximated $9.5 million.

Consolidated gross margin was relatively flat at 67% in fiscal 2024 compared to 66% in fiscal 2023.

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Sales 2024 vs.

2023 % Change

CooperVision $ 910.7 35 % $ 871.1 36 % 5 %

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$ 1,533.7 39 % $ 1,501.2 42 % 2 %

CooperVision's SGA expenses increased in fiscal 2023 compared to fiscal 2022 primarily due to an increase in selling and marketing activities, distribution costs, and an intangible assets impairment charge associated with the discontinuation of

CooperVision's SGA expenses increased in fiscal 2024 compared to fiscal 2023 primarily due to a $31.8 million release of contingent consideration liability associated with SightGlass Vision's regulatory approval milestone in fiscal 2023 and increased selling activities in fiscal 2024.

THE COOPER COMPANIES, INC.

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

certain products, 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 fiscal 2023 compared to fiscal 2022 primarily due to an increase in selling and marketing activities and the payment of a $45.0 million termination fee under an asset purchase agreement related to Cook Medical’s reproductive health business.

Acquisitions and Joint Venture for further information on the termination fee.

Corporate SGA expenses increased in fiscal 2023 compared to fiscal 2022 primarily due to share-based compensation related expenses.

CooperSurgical's SGA expenses decreased in fiscal 2024 compared to fiscal 2023 primarily due to the payment of a $45.0 million termination fee under an asset purchase agreement related to Cook Medical’s reproductive health business in fiscal 2023, partially offset by an increase in selling activities and distribution costs.

Corporate SGA expenses increased in fiscal 2024 compared to fiscal 2023 primarily due to share-based compensation related expenses and corporate support functions.

Research and Development (R&D) Expenses

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Sales 2024 vs.

2023 % Change

CooperVision $ 82.9 3 % $ 73.4 3 % 13 %

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$ 155.1 4 % $ 137.4 4 % 13 %

CooperVision's R&D expenses increased in fiscal 2023 compared to fiscal 2022 primarily due to European Medical Device Regulation costs and myopia management programs, and timing of R&D projects.

Coop erVision's R&D expenses increased in fiscal 2024 compared to fiscal 2023 primarily due to myopia management programs and 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 fiscal 2023 compared to fiscal 2022 mainly due to European Medical Device Regulation costs.

CooperSurgical's R&D expenses increased in fiscal 2024 compared to fiscal 2023 mainly due to an increase in R&D project spend.

CooperSurgical's R&D activities are focused on developing and refining diagnostic and therapeutic products including medical interventions, surgical devices and fertility solutions.

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Sales 2024 vs.

2023 % Change

CooperVision $ 28.2 1 % $ 32.9 1 % (14) %

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$ 201.2 5 % $ 186.2 5 % 8 %

CooperVision's amortization expense for fiscal 2023 compared to fiscal 2022 remained relatively flat year over year.

CooperVision's amortization expense for fiscal 2024 comp ared to fiscal 2023 decreased primarily due to more intangible assets becoming fully amortized during fiscal 2024.

CooperSurgical's amortization expense increased in fiscal 2024 compared to fiscal 2023, primarily due to the amortization of intangible assets recently acquired through acquisitions.

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Sales 2024 vs.

2023 % Change

CooperVision $ 676.2 26 % $ 587.7 24 % 15 %

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$ 705.7 18 % $ 533.1 15 % 32 %

CooperVision's operating income increased in fiscal 2023 compared to fiscal 2022, primarily due to an increase in net sales partially offset by net changes in operating expenses.

CooperSurgical's operating income decreased in fiscal 2023 compared to fiscal 2022, primarily due to an increase in SGA and R&D expenses, partially offset by an increase in net sales.

CooperVision's operating income increased in fiscal 2024 compared to fiscal 2023, primarily due to the increase in net sales outpaced the increase in operating expenses.

CooperSurgical's operating income increased in fiscal 2024 compared to fiscal 2023, primarily due to payment of a $45.0 million termination fee under an asset purchase agreement related to Cook Medical’s reproductive health business in fiscal 2023 and decrease in advertising and marketing expenses in fiscal 2024.

THE COOPER COMPANIES, INC.

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Sales 2024 vs.

2023 % Change

Interest expense $ 114.3 3 % $ 105.3 3 % 9 %

Interest expense increased during fiscal 2023 compared to the prior year, primarily due to higher interest rates.

Other Expense (Income), Net

Interest expense increased during fiscal 2024 compared to the prior year, primarily due to higher interest rates and higher debt balances.

Other Expense, Net

($ in millions) 2024 2023

Investment gain $ — $ (47.7)

Foreign exchange loss 5.2 7.0

Other expense (income), net 7.9 0.7

$ 14.9 $ (25.0)

Investment gain in fiscal 2022 primarily consists of a gain on remeasurement of the fair value of retained equity investment in SGV as a result of deconsolidation.

Foreign exchange loss is primarily associated with the weakening of the U.S.

Other expense, net

Foreign exchange loss was primarily associated with the relative weakening of the U.S.

dollar against foreign currencies and the effect on intercompany receivables.

Other expenses (income), net increased in fiscal 2023, primarily due to a loss on minority investments, partially offset by defined benefit plan related income.

Other expense, net decreased in fiscal 2024, primarily due to a decrease in loss on minority investments.

Provision for Income Taxes

The effective tax rates for fiscal 2024 and 2023 were 32.6% and 28.7%, respectively.

The increase was 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 effective tax rate for fiscal 2023 was higher than the US federal statutory rate primarily due to foreign earnings subject to US tax.

The effective tax rate for fiscal 2022 was lower than the US federal statutory rate primarily due to foreign earnings in jurisdictions with lower tax rates and changes in unrecognized tax benefits, partially offset by foreign earnings subject to US tax.

The increase was primarily due to changes in the geographic composition of pre-tax earnings and an increase in the UK statutory tax rate from 19% to 25%.

The effective tax rate for fiscal 2024 was higher than the U.S.

federal statutory rate primarily due to foreign earnings subject to U.S.

tax and foreign earnings in jurisdictions with higher tax rates.

The effective tax rate for fiscal 2023 was higher than the U.S.

federal statutory rate primarily due to foreign earnings subject to U.S.

Income Taxes for further information.

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Working capital at October 31, 2024, and October 31, 2023, was $928.7 million and $735.9 million, respectively.

The increase in working capital was primarily due to repayment of the 364-day term loan during fiscal 2023 and an increase in inventories.

Financing Arrangements for further information.

The increase in working capital was primarily due to increases in trade accounts receivable, prepaid expenses and other current assets, and inventories, partially offset by an increase in other current liabilities.

($ in millions) 2024 2023 2022

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cash and restricted cash equivalents 2.9 (2.3) (12.9)

(Decrease) increase in cash, cash equivalents, restricted cash and

Net decrease in cash, cash equivalents, restricted cash and

restricted cash equivalents

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Operating Cash Flow

Cash provided by operating activities in fiscal 2023 decreased compared to fiscal 2022, primarily due to the payment of a $45 million termination fee under an asset purchase agreement and net changes in operating capital, partially offset by net changes in other non-cash items.

The $45.0 million termination fee under an asset purchase agreement related to Cook Medical’s reproductive health business was accrued for during the second quarter of fiscal 2023 and paid on August 9, 2023.

Acquisitions and Joint Venture for further information on the termination fee.

Cash provided by operating activities in fiscal 2024 increased compared to fiscal 2023, primarily due to increases in net income, and non-cash add backs such as deferred income taxes and share-based compensation expenses in fiscal 2024 and the release of $31.8 million contingent consideration liability associated with SightGlass Vision's regulatory approval milestone in fiscal 2023, offset by net changes in operating capital.

Investing Cash Flow

Cash used in investing activities in fiscal 2023 was lower than cash used in investing activities in fiscal 2022, primarily attributable to $1.6 billion cash paid, net of cash acquired, for the Generate acquisition in fiscal 2022.

The decrease in cash used for acquisitions was partially offset by an increase in purchases of property, plant and equipment.

Cash used in investing activities in fiscal 2024 increased compared to cash used in investing activities in fiscal 2023, primarily attributable to $343.4 million cash paid for acquisitions in fiscal 2024.

Financing Cash Flow

Cash used in financing activities in fiscal 2023 was primarily due to repayments of $338.0 million on the 2021 364-day term loan, partially offset by $172.6 million of funds drawn on the 2020 Revolving Credit.

Cash provided by financing activities in 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 $561.5 million repayments of the 2020 Revolving Credit, $502.0 million repayments of the 2021 364-day term loan facility, and $78.5 million repurchases of common stock.

Cash provided by financing activities in fiscal 2024 was primarily attributable to funds received from the 2024 Revolving Credit Facility, partially offset by repayments to fully repay all borrowings outstanding under the 2020 Term Loan Facility and the 2020 Revolving Credit Facility.

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 October 31, 2024:

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Revolving Credit:

2020 Revolving Credit $ 1,290.0 $ 172.6 $ 2.1 $ 1,115.3 April 1, 2025

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

2024 Revolving Credit $ 2,300.0 $ 1,049.2 $ 4.75 $ 1,246.1 May 1, 2029

2021 Term Loan 1,500.0 1,500.0 n/a — December 17, 2026

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As of October 31, 2024, the Company was in compliance with all debt covenants.

On May 1, 2024, the Company entered into a Revolving Credit Agreement.

The Company drew on the 2024 Credit Agreement to fully repay borrowings outstanding under the 2020 Term Loan and 2020 Revolving Credit Facility and terminated the 2020 Credit Agreement.

Financing Arrangements 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 2024 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 annual report.

To the extent additional funds are necessary to meet our liquidity needs such as

THE COOPER COMPANIES, INC.

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

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 Financial Statements included in this annual 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;

for acquisitions, share repurchases 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 Repurchases

In December 2011, the Company's Board of Directors authorized the 2012 Share Repurchase Program ("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.

In fiscal 2023, there were no share repurchases under the 2012 Program.

At October 31, 2023, $256.4 million remained authorized for repurchase under the program.

In March 2017, the authorization under the 2012 Share Repurchase Program (2012 Program) was increased to $1.0 billion by the Company's Board of Directors.

As of October 31, 2024, $256.4 million remained authorized for repurchase under the program.

Stockholders’ Equity for additional information.

In fiscal 2023 and 2022, the Company declared regular dividends of 6 cents per share (a semiannual dividend of 3 cents per share) and paid a total of $3.0 million in each fiscal year.

In December 2023, our Board of Directors decided to end the declaration of the semiannual dividend.

In fiscal 2024, there were no share repurchases under the 2012 Program.

In December 2023, the Company's Board of Directors decided to end the declaration of the semiannual dividend.

On February 16, 2024, the Company effected a four-for-one stock split of its outstanding shares of common stock.

All share and per share information has been retroactively adjusted to reflect the stock split for all periods presented.

The par value of the common stock remains $0.10 per share.

Contractual Obligations

As of October 31, 2023, we had the following contractual obligations:

Payments Due by Fiscal Year

(In millions)

Total 2024 2025 & 2026 2027 & 2028 2029 & Beyond

Interest payments $ 249.0 $ 113.3 $ 135.7 $ — $ —

Transition tax on unremitted foreign earnings and profits (1)

88.6 22.1 66.5 — —

Purchase obligations (2)

408.5 201.7 139.7 62.0 5.1

Total contractual obligations $ 746.1 $ 337.1 $ 341.9 $ 62.0 $ 5.1

(1) As of October 31, 2023, we had $88.6 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 2023 is classified in " Other current liabilities" i n our Consolidated Balance Sheet.

We are unable to reliably estimate the timing of future payments related to uncertain tax positions and have excluded $24.0 million of long-term income taxes payable from the table above.

Income Taxes for additional information.

As of October 31, 2024, our material cash requirements consisted of future payments for debt and related interests, income tax liabilities related to one-time transition tax, purchase obligations, operating lease and Retirement Income Plan.

We incur interest on a revolving loan and a term loan.

Using the same interest rate of October 31, 2024, and assuming borrowings as of October 31, 2024, remain constant throughout all periods, these loans would result in interest payments of $109.5 million in the twelve months ending October 31, 2025, and $272.1 million in the years thereafter.

Financing Arrangements for additional information related to debt and interests.

Income tax liabilities related to the one-time transition tax resulted from the enactment of the 2017 U.S.

Tax Act and are payable in annual installments through fiscal 2026.

The installment for fiscal 2024 is classified in "Other current liabilities" in our Consolidated Balance Sheet.

We are unable to reliably estimate the timing of future payments related to uncertain tax positions and have excluded $20.4 million of long-term income taxes payable.

Income Taxes for the expected one-time transition tax payments.

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.

The table above excludes future payments for operating leases, long-term debt, and our defined benefit plan.

As of October 31, 2024, we had purchase obligations of $696.0 million, with $272.8 million payable within the twelve months ending Oct 31, 2025.

The minimum future payments for operating leases are disclosed in Note 2.

Operating Leases and future maturities of long-term debt are disclosed in Note 5.

Financing Arrangements.

The expected future benefit payments for our Retirement Income Plan through 2033 are disclosed in Note 10.

Operating Leases and the expected future benefit payments for our Retirement Income Plan through 2033 are disclosed in Note 10.

Employee Benefits.

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

THE COOPER COMPANIES, INC.

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

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").

THE COOPER COMPANIES, INC.

AND SUBSIDIARIES

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

Critical Accounting Estimates

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Provisions for certain rebates, sales incentives, volume discounts, contractual pricing allowances and product returns are accounted for as variable consideration and recorded as a reduction in sales.

Estimating these provisions requires judgment based on current and historical customer patterns related to these programs or contractual terms as described below.

Product discounts, including certain rebates, sales incentives, and volume discounts are granted based on terms of the arrangement with direct distribution customers and at times the indirect end consumer.

We evaluate contractual terms, historical experience, and perform internal analysis to estimate total product discounts at the time revenue is recognized.

CooperSurgical rebates are predominately related to the Medicaid rebate provision that is estimated based upon contractual terms, historical experience, and trend analysis.

Variations between our estimates and actual product discounts have not been material.

CooperSurgical rebates are predominately related to the Medicaid rebate provision that is estimated based upon contractual terms, historical experience, and trend analysis which requires judgment due to the length of time between sale and reimbursement from Medicaid.

Sales returns are estimated and recorded based on historical sales return data.

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Results of operations for acquired companies are included in our consolidated results of operations from the date of acquisition.

We recognize separately from goodwill, the identifiable assets acquired, including acquired in-process research and development, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date fair values as defined by accounting standards related to fair value measurements.

Key assumptions routinely utilized the allocation of purchase price to intangible assets include discount rates, and projected financial information such as revenue projections for companies acquired.

As of the acquisition date, goodwill is measured as the excess of consideration given, over the net of the acquisition date fair values of the identifiable assets acquired and the liabilities assumed.

Direct acquisition costs are expensed as incurred.

We recognize separately from goodwill, the identifiable assets acquired, including acquired in-process research and development (IPR&D), the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date fair values as defined by accounting standards related to fair value measurements.

The fair value of the identifiable intangible assets is determined primarily using the “income approach.” Key assumptions routinely utilized in the income approach to allocate the purchase price to intangible assets include risk-adjusted discount rates and projected financial information such as revenue projections, expected gross and operating margins for the acquired companies.

The fair value of IPR&D also factors in probability assumptions about the stage of development and successful completion.

If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill.

• Income taxes - Income taxes are estimated based on enacted income tax laws and the results of operations in each jurisdiction.

Deferred tax assets and liabilities are estimated based on temporary differences between the financial reporting basis and income tax basis of assets and liabilities.

Deferred tax assets are reduced by a valuation allowance to the extent it is more likely than not they are not expected to be realized.

Long-term tax payable is estimated income tax to be paid for unrecognized tax benefits.

Judgment is required in measuring the value of deferred tax assets, which are reduced by a valuation allowance to the extent it is more likely than not the assets are not expected to be realized.

These deferred tax assets are primarily tax credits and net operating loss carryforwards expected to expire before they can be claimed or deducted.

For uncertain tax positions, judgment is required in evaluating tax positions for uncertainty in the application of accounting guidance and tax laws.

A tax benefit is recognized if it is more likely than not a tax position will be sustained based on its technical merits in a tax authority examination, based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority.

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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