COOPER COMPANIES, INC. Discussion and analysis by management of the financial situation and operating results. (form 10-K)

Note numbers refer to “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
RESULTS OF OPERATIONS
In this section, we discuss the results of our operations for fiscal 2021 compared with fiscal 2020. We discuss our cash flows and current financial condition under "Capital Resources and Liquidity." For a discussion related to fiscal 2020 compared with fiscal 2019, 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 EndedOctober 31, 2020 , which was filed with theUnited States Securities and Exchange Commission (SEC) onDecember 11, 2020 , and is available on theSEC's website at www.sec.gov and our Investor Relations website at investor.coopercos.com.
In the tables shown, percentages are calculated based on the underlying whole dollar amounts and, therefore, may not be exactly recalculated from the rounded numbers used for disclosure purposes.
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 inthe United States (GAAP). These measures, which are referred to as non-GAAP measures, are listed below: •Free Cash Flow - Free cash flow is calculated as net cash provided by operating activities less capital expenditures. •Constant currency - Constant currency is defined as excluding the effect of foreign currency fluctuations. For a discussion of these measures and the reasons management believes they are useful to investors, refer to "Summary of Non-GAAP Financial Measures" below. To the extent applicable, this MD&A includes reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. The presentation of these non-GAAP financial measures is not intended to be a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP and may be different from non-GAAP financial measures used by other companies, and therefore, may not be comparable among companies.
COVID-19 Considerations
TheWorld Health Organization categorized the Coronavirus disease 2019 (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. 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. These factors have had, and in the future may have, an adverse effect on our sales, operating results and cash flows. 66 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations We have taken an active role in addressing the ongoing pandemic's impact on our employees, suppliers, distribution channels, operations and customers, including taking precautionary measures, such as implementing contingency plans, and making operational adjustments as necessary. We have taken measures to help ensure the safety of our personnel in all our facilities, and we have endeavored and continue to follow recommended actions of government and health authorities to protect our employees worldwide. As of the date of this filing, we have not experienced any significant disruption at our manufacturing facilities. We have had no significant disruption in our access to necessary raw materials and other supplies or with our distribution network; 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. 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. In the future, we may decide or need to implement additional precautionary measures or operational adjustments as we deem prudent to meet consumer demand or to help further ensure employee safety. We believe that the actions we are taking have enabled us to keep our employees safe and our supply chain intact and will help us emerge from this global pandemic operationally sound and well positioned for long-term growth. The extent to which the global COVID-19 pandemic and related economic disruptions impact our business, results of operations, cash flow and financial condition will depend on future developments. 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, 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. For more information on the risks associated with the COVID-19 pandemic, refer to Part I, Item 1A, "Risk Factors" herein. Outlook Overall, we remain optimistic about the long-term prospects for the worldwide contact lens and general health care markets. 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, inflation, changes in tax legislation, debt concerns, the uncertainty following theUnited 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 wearing experience through a combination of improved designs and materials and the growth of preferred 67 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations 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. InNovember 2019 , CooperVision receivedUnited 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 inthe United States during fiscal 2020. InAugust 2021 , CooperVision receivedChinese National Medical Products Administration (NMPA) approval for its MiSight® 1 day lens for use inChina . 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. CooperVision acquired the following entities during fiscal 2021: •A privately-heldUK contact lens manufacturer onApril 26, 2021 •A privately-held medical device company onJanuary 19, 2021 CooperVision acquired the following entity during fiscal 2020: •A privately-held US contact lens manufacturer focusing on ortho-k lenses onAugust 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. CooperVision manufactures and markets a wide variety of silicone hydrogel contact lenses. Our single-use silicone hydrogel product franchises, clariti® and MyDay®, remain a focus as we expect increasing demand for these products as well as future single-use products as the global contact lens market continues to shift to this modality. Outside of single-use, the Biofinity® and Avaira Vitality® product families comprise our focus in the FRP, or frequent replacement product, market which encompasses the 2-week and monthly modalities. Included in this segment are unique products such as Biofinity Energys®, which helps individuals with digital eye fatigue. CooperSurgical - Our CooperSurgical business competes in the general health care market with a commitment to advancing the health of women, babies and families through its diversified portfolio of products and services focusing on women's health and fertility. 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 the following entities during fiscal 2021: •A privately-held medical device company that develops single-use illuminating medical devices onMay 3, 2021 •A privately-held medical device company onMarch 1, 2021 •A privately-held medical device company onFebruary 1, 2021 •A privately-held in vitro fertilization (IVF) cryo-storage software solutions company onDecember 31, 2020 CooperSurgical acquired the following entity during fiscal 2020: •A privately-held distributor of IVF medical devices and systems onDecember 13, 2019 OnNovember 6, 2021 , subsequent to the fiscal year endedOctober 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 68 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position 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. See Note 15. Subsequent Events of the Consolidated Financial Statements for additional information. Capital Resources - AtOctober 31, 2021 , we had$95.9 million in unrestricted cash, primarily held outsidethe United States , and$742.6 million available under our 2020 Revolving Credit Facility. Debt outstanding atOctober 31, 2021 primarily consisted of: •$850.0 million term loan entered into onApril 1, 2020 •$546.1 million drawn under our 2020 Revolving Credit Facility entered into onApril 1, 2020
See note 5. Debt from the consolidated financial statements for more information.
OnNovember 2, 2021 , subsequent to the fiscal year endedOctober 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 onNovember 1, 2022 . We used part of the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility and for general corporate purposes. See Note 15. Subsequent Events of the Consolidated Financial Statements for additional information.
Assets held for sale
OnFebruary 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 onJanuary 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 ofJuly 31, 2021 , the assets and liabilities of this disposal group were reclassified as held for sale. OnAugust 1, 2021 , CooperVision entered into a stockholders agreement, which outlines the terms regarding the operation and management of the joint venture. As ofOctober 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.
See note 3. Acquisitions and assets held for sale to the consolidated financial statements for more information.
LIBOR transition
TheUK's Financial Conduct Authority (FCA), which regulates the London Interbank Offered Rate (LIBOR), announced inJuly 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021. InMarch 2021 , theFCA confirmed its intention to stop requiring banks to submit rates required to calculate LIBOR after 2021. However, forU.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 untilJune 2023 . Further, inMarch 2020 , theFinancial Accounting Standards Board (FASB) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. We have material contracts that are indexed to LIBOR and are continuing to monitor this activity and evaluate the related risk. We are 69 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position 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 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. 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 will 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. 70 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations
2021 Compared to 2020
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Highlights: 2021 vs 2020
•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 increased by 1,131% to$59.16 from$4.81 •Operating cash flow increased by 52% to$738.6 million from$486.6 million .
Selected statistical information – Percentage of
2021 vs. 2020 % Change in Years Ended October 31, 2021 2020 Absolute Values Net sales 100 % 100 % 20 % Cost of sales 33 % 37 % 8 % Gross profit 67 % 63 % 27 % Selling, general and administrative expense 41 % 41 % 22 % Research and development expense 3 % 4 % (1) % Amortization of intangibles 5 % 6 % 6 % Operating income 17 % 13 % 62 % CooperVision Net Sales The contact lens market has two major product categories: •Spherical lenses including lenses that correct near- and farsightedness uncomplicated by more complex visual defects; and •Toric and multifocal lenses including lenses that, in addition to correcting near- and farsightedness, address more complex visual defects such as astigmatism and presbyopia by adding optical properties of cylinder and axis, which correct for irregularities in the shape of the cornea. 71 -------------------------------------------------------------------------------- THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations
CooperVision Net Sales by Category
[[Image Removed: coo-20211031_g6.jpg]][[Image Removed: coo-20211031_g7.jpg]] ($ 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 endedOctober 31, 2021 : •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$2.4 million in fiscal 2020. In fiscal 2021, net sales increased by 14% in constant currency over the prior year. •Sales growth was primarily driven by an increase in the volume of lenses sold across our core portfolio due to a recovery in demand from the impact of the COVID-19 pandemic. Average realized prices by product did not materially influence sales growth. •We expect to continue seeing downward pressure and volatility in certain markets related to net sales if the COVID-19 pandemic continues, as optical retailers and healthcare centers continue to restrict access, and social distancing measures continue. 72 -------------------------------------------------------------------------------- THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations CooperVision Net Sales by Geography CooperVision competes in the worldwide soft contact lens market and services in three primary regions: theAmericas , EMEA (Europe ,Middle East andAfrica ) andAsia Pacific . ($ in millions) 2021 2020 2021 vs. 2020 % Change 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. CooperSurgical Net Sales by Category 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 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. The chart below shows the percentage of net sales of office and surgical products and fertility. [[Image Removed: coo-20211031_g8.jpg]][[Image Removed: coo-20211031_g9.jpg]] ($ in millions) 2021 2020 2021 vs. 2020 % Change Office and surgical products$ 451.3 $ 358.8 26 % Fertility 319.2 229.1 39 %$ 770.5 $ 587.9 31 % 73
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Management report and analysis of the financial position and results of
Operations In the fiscal year endedOctober 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. Gross Margin 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$90.1 million of costs primarily related to the COVID-19 pandemic and other manufacturing related costs.
Selling, general and administrative expenses (SGA)
% Net % Net 2021 vs. 2020 ($ in millions) 2021 Sales 2020 Sales % Change CooperVision$ 843.9 39 %$ 682.3 37 % 24 % CooperSurgical 320.0 42 % 261.0 44 % 23 % 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$19.8 million of costs primarily related to integration expenses and Medical Devices Regulation (MDR) costs. Corporate SGA decreased in fiscal 2021 compared to fiscal 2020 primarily due to savings from lower professional fees and travel expenses as a result of the COVID-19 pandemic. 74 -------------------------------------------------------------------------------- THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations
Research and development (R&D) costs
% Net % Net 2021 vs. 2020 ($ in millions) 2021 Sales 2020 Sales % Change 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 expenses increased in FY2021 compared to FY2020, primarily due to myopia management programs and the timing of R&D projects. As a percentage of sales, CooperVision’s R&D spending has remained relatively stable. CooperVision’s R&D activities are primarily focused on contact lens development, manufacturing technology and process improvement.
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 % Net % Net 2021 vs. 2020 ($ in millions) 2021 Sales 2020 Sales % Change CooperVision$ 35.7 2 %$ 32.4 2 % 10 % CooperSurgical 110.4 14 % 104.8 18 % 5 %$ 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 % Net % Net 2021 vs. 2020 ($ in millions) 2021 Sales 2020 Sales % Change CooperVision$ 481.3 22 %$ 375.7 20 % 28 % CooperSurgical 71.8 9 % (14.7) (3) % 588 % 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$56.8 million expense related to the increase in fair value of the contingent consideration as described in Note 3. Acquisitions and Assets Held for Sale of the Consolidated Financial Statements. CooperSurgical's operating income increased as a percentage of net sales and in absolute dollars in fiscal 2021 compared to fiscal 2020, primarily due to an increase in net sales and a decrease in R&D expenses. 75 -------------------------------------------------------------------------------- THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations
The company’s operating loss decreased in fiscal 2021 compared to fiscal 2020, primarily due to savings from lower professional fees and travel costs due to the pandemic of COVID-19.
On a consolidated basis, operating income increased as a percentage of net sales and in absolute dollars in fiscal 2021 compared to fiscal 2020, primarily due to the increase in consolidated net sales. Interest Expense % Net % Net 2021 vs. 2020 ($ in millions) 2021 Sales 2020 Sales % Change Interest expense$ 23.1 1 %$ 36.8 2 % (37) % 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 (income) expense, net (2.7) 7.3$ (8.8) $ 8.5 OnJanuary 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 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 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 theUK 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. InNovember 2020 , we completed an intra-group transfer of certain intellectual property and related assets of the CooperVision business to aUK subsidiary as part of a group restructuring to establish headquarters operations in theUK . 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 theUK tax-deductible basis in the 76 -------------------------------------------------------------------------------- THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position 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 endedJanuary 31, 2021 .
See note 6. Income taxes to the consolidated financial statements for more information.
Share-based compensation plans
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 2021 was$44.7 million and$5.6 million , respectively, compared to$38.6 million and$4.8 million , respectively, in fiscal 2020. As ofOctober 31, 2021 , there was$94.3 million of total unrecognized share-based compensation cost related to non-vested awards. See Note 9. Stock Plans of the Consolidated Financial Statements for additional information. We estimate the fair value of each stock option award on the date of grant using the Black-Scholes valuation model, which requires management to make estimates regarding expected option life, stock price volatility and other assumptions. The use of different assumptions could lead to a different estimate of fair value. 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 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 . To determine the stock price volatility, management considers implied volatility from publicly-traded options on the Company's stock at the date of grant, historical volatility and other factors. 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 .
Employee share purchase plan
OnMarch 18, 2019 , the Company received stockholder approval for the Employee Stock Purchase Plan (ESPP). The first offering period began onNovember 4, 2019 and offerings are generally made on a quarterly basis. The purpose of the ESPP is to provide eligible employees of the Company with the opportunity to acquire shares of common stock at 85% of the market price on the last business day of each offering period by means of accumulated payroll deductions. Payroll deductions will be limited to 15% of the employee's eligible compensation, not to exceed$21.3 thousand in any one calendar year. The ESPP initially authorized the issuance of 1,000,000 shares of common stock. These shares will be made available from shares of common stock reacquired by the Company asTreasury Stock. During fiscal 2021 and 2020, we issued 17,575 and 11,641 shares to our employees under the ESPP, respectively. AtOctober 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 fiscal 2021 and 2020 was$1.0 million and$0.7 million . 77 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations CAPITAL RESOURCES AND LIQUIDITY 2021 Highlights •Operating cash flow of$738.6 million compared to$486.6 million in fiscal 2020 •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$738.6 million offset by capital expenditures of$214.4 million resulted in positive free cash flow of$524.2 million , up 198% compared to the prior year Comparative Statistics Years EndedOctober 31 , ($ in millions) 2021 2020 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 Ratio of debt to equity 0.21:1 0.47:1
Debt as a percentage of total capitalization 18% 32%
Working Capital The increase in working capital atOctober 31, 2021 from the end of fiscal 2020 was primarily due to: •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 ; and •decrease in cash and cash equivalents of$20.0 million . AtOctober 31, 2021 , our inventory months on hand were 6.8 compared to 6.6 atOctober 31, 2020 . The$15.2 million increase in inventories was primarily due to higher sales, and the buildup of inventory for future product launches. 78 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations Our days sales outstanding (DSO) was 64 days atOctober 31, 2021 compared to 60 days atOctober 31, 2020 . The increase in DSO fromOctober 31, 2020 toOctober 31, 2021 was primarily due to timing of collections.
Operating cash flow
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; and •$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$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.
Cash flow financing
Cash used in financing activities increased by
during the 2021 financial year of
79 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations •$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. OnApril 1, 2020 , the Company entered into a Revolving Credit and Term Loan Agreement (the 2020 Credit Agreement), among the Company andKeyBank National Association , as administrative agent. The 2020 Credit Agreement provides for (a) a multicurrency revolving credit facility (the 2020 Revolving Credit Facility) in an aggregate principal amount of$1.29 billion and (b) a term loan facility (the 2020 Term Loan Facility) in an aggregate principal amount of$850.0 million , each of which, unless terminated earlier, mature onApril 1, 2025 . 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. OnOctober 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 onOctober 15, 2021 . At maturity, outstanding amounts under this agreement were fully repaid using borrowings under the 2020 Revolving Credit Facility. OnNovember 2, 2021 , subsequent to the fiscal year endedOctober 31, 2021 , the Company entered into a 364-day,$840.0 million , term loan agreement by and among the Company, the lenders party thereto and The Bank of Nova Scotia, as administrative agent, which matures onNovember 1, 2022 . The Company used part of the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility and for general corporate purposes. See Note 15. Subsequent Events of the Consolidated Financial Statements for additional information.
The following is a summary of the maximum commitments and net amounts available to us under various credit facilities as of the
Facility Limit Outstanding Outstanding Total Amount Maturity Date (In millions) Borrowings Letters of Credit Available 2020 Revolving Credit Facility$ 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. AtOctober 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. The Company, after considering the potential impacts of the COVID-19 pandemic, expects to remain in compliance with its financial maintenance covenant and meet its debt service obligations for at least the twelve months following the date of issuance of these financial statements.
See note 5. Debt from the consolidated financial statements for more information.
80 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position 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. 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 will 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 InDecember 2011 , the Company's Board of Directors authorized the 2012 Share Repurchase Program and through subsequent amendments, the most recent inMarch 2017 , the total repurchase authorization was increased from$500.0 million to$1.0 billion of the Company's common stock. The program has no expiration date and may be discontinued at any time. Purchases under the 2012 Share Repurchase Program are subject to a review of the circumstances in place at the time and may be made from time to time as permitted by securities laws and other legal requirements. The Company's share repurchases during the fiscal years endedOctober 31, 2021 and 2020 are as follows: Years EndedOctober 31, 2021
2020
Number of shares 69,622
160,850
Average repurchase price per share$ 356.6 $ 296.9 Total costs of shares repurchased (in millions)$ 24.8 $ 47.8 AtOctober 31, 2021 ,$334.8 million remained authorized for repurchase under the program. Dividends In fiscal 2021 and 2020, the Company paid a semiannual dividend of3 cents per share:$1.5 million or3 cents per share onFebruary 9, 2021 to stockholders of record onJanuary 22, 2021 ;$1.5 million or3 cents per share onAugust 11, 2021 to stockholders of record onJuly 27, 2021 ;$1.5 million or3 cents per share onFebruary 10, 2020 to stockholders of record onJanuary 23, 2020 ;$1.5 million or3 cents per share onAugust 7, 2020 to stockholders of record onJuly 23, 2020 . 81 -------------------------------------------------------------------------------- THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
From
2023 2025 2027 (In millions) Total 2022 & 2024 & 2026 & Beyond Contractual obligations: Long-term debt$ 1,396.3 $ - $ -$ 1,396.3 $ - Interest payments 87.2 21.9 43.7 19.0 2.6 Operating leases 317.6 42.5 69.2 59.6 146.3 Transition tax on unremitted foreign earnings and profits (1) 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 Commercial commitments: Stand-by letters of credit 4.9 4.9 - - - Total$ 2,257.0 $ 178.3 $ 229.3 $ 1,619.6 $ 229.8 (1) As ofOctober 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
(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 our Retirement Income Plan through 2031 are disclosed in Note 10. Employee Benefits of the Consolidated Financial Statements.
Summary of Non-GAAP Financial Measures
The non-GAAP financial measures that may be included in this MD&A and the reasons management believes they are useful to investors are described below. These measures should be considered supplemental in nature and are not intended to be a substitute for the related financial information prepared in accordance with GAAP. In addition, these measures may not be the same as similarly named measures presented by other companies. 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 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. 82 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations Constant currency is defined as excluding the effect of foreign currency rate fluctuations. In order to assist with the assessment of how our underlying businesses performed, we compare the percentage change in net sales from one period to another, excluding the effect of foreign currency fluctuations. To present this information, current period revenue for entities reporting in currencies other thanthe United States dollar are converted intoUnited States dollars at the average foreign exchange rates for the corresponding period in the prior year.
Accounting positions Information concerning new accounting positions is included in note 1. Accounting methods of the consolidated financial statements.
Critical accounting policies and estimates
Management estimates and judgments are an integral part of financial statements prepared in accordance with GAAP. We believe that the critical accounting policies described in this section address the more significant estimates required of management when preparing the Consolidated Financial Statements in accordance with GAAP. We consider an accounting estimate critical if changes in the estimate may have a material impact on our financial condition or results of operations. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustment to these balances in future periods. TheWorld 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. 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. 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 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 theU.S. and foreign governments to contain the COVID-19 pandemic, address its impact or respond to the reduction in global and local economic activity; the occurrence, duration and severity of a global, regional or national recession, depression or other sustained adverse market event; 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 bad debts • the carrying amount of inventories
83 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations
• the carrying amount of goodwill and other long-term 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 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. Our future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material changes to the estimates and material impacts to our Consolidated Financial Statements in future reporting periods. Our critical accounting policies include: •Revenue recognition - We recognize revenue from product sales when obligations under the terms of a contract with the customer are satisfied; generally, this occurs with the transfer of control of the goods to customers and/or when services are rendered. Our payment terms are typically between 30 to 120 days. 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. 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. Our PARAGARD program is subject to Medicaid rebates, which are estimated at the time of sale based upon the difference between current retail pricing and contractual Medicaid pricing and an estimate of the number of units that will be sold to Medicaid patients, which is informed by historical trends of claim history. Sales returns are estimated and recorded based on historical sales return data. Promotional programs, such as cooperative advertising arrangements, are recorded in the same period as related sales. Reasonably likely changes to assumptions used to calculate the accruals for rebates, sales incentives, volume discounts, contractual pricing allowances and product returns are not anticipated to have a material effect on the financial statements. We currently disclose the impact of changes to assumptions in the quarterly or annual filing in which there is a material financial statement impact. •Valuation of goodwill - We evaluate goodwill for impairment annually during the fiscal third quarter and when an event occurs or circumstances change such that it is reasonably possible that impairment may exist. We account for goodwill, evaluate and test goodwill balances for impairment in accordance with related accounting standards. We test goodwill impairment in accordance with ASU 2017-04, Intangibles -Goodwill and other (Topic 350): Simplifying the Test for Goodwill Impairment. We perform a qualitative assessment to test each reporting unit's goodwill for impairment. 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 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 84 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Management report and analysis of the financial position and results of
Operations 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. 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 in allocation of purchase price to intangible assets include 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. •Income taxes - We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As part of the process of preparing our Consolidated Financial Statements, we must estimate our income tax expense for each of the jurisdictions in which we operate. This process requires significant management judgments and involves estimating our current tax exposures in each jurisdiction including the impact, if any, of additional taxes resulting from tax examinations as well as judging the recoverability of deferred tax assets. To the extent recovery of deferred tax assets is not likely based on our estimation of future taxable income in each jurisdiction, a valuation allowance is established. Tax exposures can involve complex issues and may require an extended period to resolve. 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 expense in each jurisdiction. We update the estimated effective tax rate for the effect of significant unusual items as they are identified. Changes in the geographic mix or estimated level of annual pre-tax income can affect the overall effective tax rate, and such changes could be material. We file income tax returns in all jurisdictions in which we operate. We record a liability for uncertain tax positions taken or expected to be taken in income tax returns that we have determined are not more-likely-than-not realizable. Our financial statements reflect expected future tax consequences of such positions presuming the taxing authorities' full knowledge of the position and all relevant facts. These tax reserves have been established based on management's assessment as to the potential exposure attributable to our uncertain tax positions as well as interest and penalties attributable to these uncertain tax positions. All tax reserves are analyzed quarterly and adjustments are made as events occur that result in changes in judgment. 85
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Management report and analysis of the financial position and results of
Operations Trademarks Aquaform®, Avaira®, Avaira Vitality®, Biofinity®, Biofinity Energys®, MyDay®, MiSight®, ActivControl®, Proclear® and Biomedics® are registered trademarks ofThe Cooper Companies, Inc. , its affiliates and/or subsidiaries. PC Technology™ and FIPS™ are trademarks ofThe Cooper Companies, Inc. , its affiliates and/or subsidiaries. The clariti® mark is a registered trademark ofThe Cooper Companies, Inc. , its affiliates and/or subsidiaries worldwide except inthe United States where the use of clariti® is licensed. PARAGARD®, Mara® and Fetal Pillow® are registered trademarks ofCooperSurgical, Inc. 86 --------------------------------------------------------------------------------THE COOPER COMPANIES, INC. AND SUBSIDIARIES
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