Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Note numbers refer to “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

RESULTS OF OPERATIONS

We discuss below the results of our operations for fiscal 2015 compared with fiscal 2014 and the results of our operations for fiscal 2014 compared with fiscal 2013. We discuss our cash flows and current financial condition under “Capital Resources and Liquidity.” Certain prior period amounts have been reclassified to conform to the current period's presentation. Within the tables presented, percentages are calculated based on the underlying whole-dollar amounts and, therefore, may not recalculate from the rounded numbers used for disclosure purposes.

Outlook

Overall, we remain optimistic about the long-term prospects for the worldwide contact lens and women’s healthcare markets. However, events affecting the economy as a whole, including the uncertainty and instability of global markets driven by foreign currency volatility, European debt concerns and the Affordable Care Act, including the trend of consolidation within the healthcare industry, impact our current performance and continue to represent a risk to our performance for fiscal year 2016.

CooperVision - We compete in the worldwide contact lens market with our spherical, toric and multifocal contact lenses offered in a variety of materials including using silicone hydrogel Aquaform® technology and phosphorylcholine (PC) 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 modalities such as single-use and monthly wearing options. CooperVision is focused on greater worldwide market penetration as we introduce new products and continue to expand our presence in existing and emerging markets, including through acquisitions.

On August 6, 2014, we acquired Sauflon Pharmaceuticals Limited (Sauflon), a privately-held European manufacturer and distributor of soft contact lenses and aftercare solutions. The acquisition of Sauflon expanded our contact lens product portfolio particularly with Sauflon's clariti® 1day brand of single-use silicone hydrogel spherical, toric and multifocal lenses.

Sales of contact lenses utilizing silicone hydrogel materials continue to grow and this product material represents about half of the industry. 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 markets monthly and two-week silicone hydrogel spherical and toric lens products under our Biofinity®, clariti® and Avaira® brands and a monthly silicone hydrogel multifocal lens under Biofinity. CooperVision markets single-use spherical, toric and multifocal lenses under our clariti 1day brand and a single-use silicone hydrogel spherical lens under MyDay®.

We believe that the global market for single-use contact lenses will continue to grow and our single-use silicone hydrogel products represent an opportunity for our business. Our clariti 1day brand provides the only single-use silicone hydrogel lenses in the marketplace with a complete line of spherical, toric and multifocal contact lenses. We forecast increasing aggregate demand for clariti 1day, MyDay, and Proclear 1 Day products, as well as future single-use products. To meet this anticipated demand, we plan to continue the implementation of capital projects to invest in increased single-use manufacturing capacity.

CooperSurgical - Our CooperSurgical business competes in the highly fragmented medical device segment of the women's healthcare market. CooperSurgical has established its market presence and distribution system

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

by developing products and acquiring companies and products that complement its business model. In August 2015, CooperSurgical acquired Reprogenetics, a genetics laboratory specializing in preimplantation genetic screening (PGS) and preimplantation genetic diagnosis (PGD) used during the in vitro fertilization (IVF) process. We paid $46.8 million for Reprogenetics and expect the acquisition to be neutral to earnings per share excluding acquisition costs and related amortization through fiscal 2016. We intend to continue to invest in CooperSurgical's business through acquisitions of companies and product lines. CooperSurgical product sales are categorized based on the point of healthcare delivery including products used in medical office and surgical procedures by obstetricians and gynecologists (ob/gyns) that represented 66% of CooperSurgical's net sales in fiscal 2015. CooperSurgical's remaining sales are products used in fertility clinics that now represent 34% of CooperSurgical's net sales compared to 35% in fiscal 2014.

Capital Resources - At October 31, 2015, we had $16.4 million in cash, primarily outside the United States, and $890.8 million available under our revolving Credit Agreement. The $700.0 million term loan entered into on August 4, 2014, and the $300.0 million term loan entered into on September 12, 2013, remain outstanding as of October 31, 2015. On March 24, 2015, we entered into two new uncommitted revolving lines of credit with a termination date of March 24, 2016, and a maximum combined capacity of $200.0 million. At October 31, 2015, all $200.0 million was outstanding and the proceeds had been utilized to pay down higher interest rate debt on our revolving Credit Agreement.

On July 14, 2015, CooperVision made a one-time lump sum payment to JJVC of $17.0 million to settle our existing patent disputes. As discussed in Note 12 of the notes to consolidated financial statements, the settlement was royalty-free and neither party admitted any liability. On April 7, 2015, we paid all of the outstanding loan notes issued to previous holders of Sauflon shares for the Sauflon acquisition in the amount of $51.2 million that had been recorded in short-term debt. Our current cash balance and availability under existing credit facilities reflects the use of cash outside the United States and the use of existing credit facilities to fund the $1.1 billion acquisition of Sauflon in August 2014. We believe that our cash and cash equivalents, cash flow from operating activities and borrowing capacity under existing credit facilities will fund operations both in the next 12 months and in the longer term as well as current and long-term cash requirements for capital expenditures, acquisitions, share repurchases and cash dividends. However, depending on the size or timing of these business activities, we may seek to raise additional debt financing.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

2015 Compared with 2014

Highlights: 2015 vs. 2014

•	Net sales up 5% to $1.80 billion from $1.72 billion in fiscal year 2014

•	Gross margin 60% of net sales down from 64%

•	Operating income down 23% to $236.7 million from $306.5 million

•	Interest expense increased to $18.1 million from $8.0 million

•	Diluted earnings per share down 25% to $4.14 from $5.51

•	Operating cash flow $391.0 million down 14% from $454.8 million

Fiscal 2015 pre-tax results include $51.5 million for amortization of intangible assets and $126.4 million of acquisition, integration and restructuring costs primarily related to the acquisition of Sauflon as well as certain legal costs. Acquisition related and integration expenses include items such as personnel costs for transitional employees, other acquired employee related costs and integration related professional services. Restructuring expenses consist of employee severance, product rationalization, facility and other exit costs. We expect amortization of intangible assets will recur in future periods; however, the amounts are affected by the timing and size of our acquisitions. Expenses such as the acquisition related and integration expenses generally diminish over time with respect to past acquisitions. However, we generally will incur similar expenses in connection with any future acquisitions.

The fiscal 2015 results include $57.8 million of expenses primarily due to product and equipment rationalization related to recent acquisitions, $8.0 million of costs associated with the start-up of new manufacturing facilities, and $4.5 million of severance costs, all recorded in cost of sales. Included in our selling, general and administrative expense is $31.7 million in costs for CooperVision's acquisition of Sauflon and the related integration and restructuring activities, severance costs in our CooperSurgical fertility business along with other acquisition costs; and $19.8 million of legal costs. The legal costs include a $17.0 million settlement related to intellectual property claims by Johnson & Johnson Vision Care (JJVC) as well as litigation costs relating to the class action complaints filed against CooperVision and other contact lens manufacturers, distributors and retailers relating to Unilateral Pricing Policy (UPP). Research and development expense includes $4.6 million of integration and restructuring activities primarily for equipment rationalization along with severance costs.

The fiscal 2014 integration and restructuring costs include $16.5 million in charges to cost of sales primarily for product rationalization arising from the acquisition of Sauflon. The charge for product rationalization was based on our review of products, materials and manufacturing processes of Sauflon. Included in our selling, general and administrative expense is $44.5 million in costs for CooperVision's acquisition of Sauflon and the related integration and restructuring activities, severance costs in our CooperSurgical fertility business along with other acquisition costs. Research and development expense includes $0.6 million of severance costs related to integration and restructuring activities.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

Selected Statistical Information – Percentage of Net Sales

Years Ended October 31,	2015			2015 vs. 2014 % Change			2014			2014 vs. 2013 % Change			2013
Net sales	100	%		5	%		100	%		8	%		100	%
Cost of sales	40	%		16	%		36	%		12	%		35	%
Gross profit	60	%		(2	)%		64	%		6	%		65	%
Selling, general and administrative expense	40	%		4	%		40	%		12	%		38	%
Research and development expense	4	%		5	%		4	%		13	%		4	%
Amortization of intangibles	3	%		44	%		2	%		18	%		2	%
Loss on divestiture of Aime	—			—			—			—			2	%
Operating income	13	%		(23	)%		18	%		0.2	%		19	%

Net Sales

Our two business units, CooperVision and CooperSurgical, generate all of our sales.

•	CooperVision develops, manufactures and markets a broad range of soft contact lenses for the worldwide vision correction market.

•	CooperSurgical develops, manufactures and markets medical devices and procedure solutions to improve healthcare delivery to women.

Net Sales Growth by Business Unit

Our consolidated net sales grew by $79.3 million or 5% in fiscal 2015 and $130.0 million or 8% in fiscal 2014:

($ in millions)	2015 vs. 2014				% Change			2014 vs. 2013				% Change
CooperVision	$	95.1			7	%		$	124.3			10	%
CooperSurgical	(15.8		)		(5	)%		5.7				2	%
	$	79.3			5	%		$	130.0			8	%

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.

•	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.

In order to achieve comfortable and healthy contact lens wear, products are sold with recommended replacement schedules, often defined as modalities, with the primary modalities being single-use, two-week and monthly. CooperVision offers spherical, aspherical, toric, multifocal and toric multifocal lens products in most modalities.

Single-use lenses are designed for daily replacement and frequently replaced lenses are designed for two-week or monthly replacement. Significantly, the market for spherical lenses is growing with value-added

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

spherical lenses to alleviate dry eye symptoms, to add aspherical optical properties and/or higher oxygen permeable lenses such as silicone hydrogels.

CooperVision’s Proclear brand aspheric, toric and multifocal contact lenses, manufactured using PC Technology, help enhance tissue/device compatibility and offer improved lens comfort.

CooperVision’s silicone hydrogel Biofinity brand spherical, toric and multifocal contact lenses, Avaira brand spherical and toric products and MyDay brand spherical lenses are manufactured using proprietary Aquaform technology to increase oxygen transmissibility for longer wear. Our silicone hydrogel clariti brand spherical, toric and multifocal contact lenses are available in monthly and single-use modalities. We believe the clariti single-use silicone hydrogel lens products provide a competitive advantage in approved markets as clariti is the only single-use silicone hydrogel lens available in all vision correction categories - spherical, toric and multifocal.

CooperVision fiscal 2015 net sales increased 7% from fiscal 2014 to $1.49 billion. Net sales growth included increases in total sphere lenses up 5%, representing 55% of net sales, compared to 56% in the prior year, primarily on sales of Biofinity, clariti and MyDay lenses. Total toric lenses grew 3%, representing 30% of net sales, compared to 31% in the prior year on sales of Biofinity, clariti and Avaira lenses. Total multifocal lenses grew 10%, representing 11% of net sales, the same as in the prior year, on sales of Biofinity, clariti and Proclear lenses. Total silicone hydrogel products, including Biofinity, clariti, MyDay and Avaira, grew 19%, representing 55% of net sales up from 49% in the prior year. CooperVision's older conventional lens products declined 21% and represent 2% of net sales, the same as in the prior year.

CooperVision competes in the worldwide soft contact lens market and services three primary regions: the Americas, EMEA (Europe, Middle East and Africa) and Asia Pacific.

CooperVision Net Sales by Geography

($ in millions)	2015				2014				2015 vs. 2014 % Change
Americas	$	624.3			$	585.6			7	%
EMEA	602.1				533.5				13	%
Asia Pacific	261.4				273.5				(4	)%
	$	1,487.8			$	1,392.6			7	%

CooperVision fiscal 2015 net sales growth was partially offset by foreign exchange rate fluctuations, which decreased net sales by $138.4 million. Americas net sales growth was primarily due to market gains of silicone hydrogel contact lenses including Biofinity, clariti and MyDay partially offset by a decrease in sales of older hydrogel lens products. EMEA net sales growth was primarily driven by sales of clariti and MyDay silicone hydrogel lenses. The increase in EMEA net sales was partially offset by the negative impact from the weakening of foreign currencies as compared to the United States dollar. Net sales to the Asia Pacific region decreased due to the negative impact from the weakening of foreign currencies, primarily the Japanese yen, compared to the United States dollar. Excluding the impact of currency, sales in the Asia Pacific region grew on market gains of silicone hydrogel lenses, including Biofinity, clariti and MyDay, along with growth in sales of Proclear 1 Day lenses.

CooperVision’s net sales growth was driven primarily by increases in the volume of lenses sold, including recently introduced silicone hydrogel products and products from the acquisition of Sauflon. While unit growth and product mix have influenced CooperVision’s sales growth, average realized prices by product have not materially influenced sales growth.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

CooperSurgical Net Sales

CooperSurgical supplies the market for women's healthcare with a diversified portfolio of products for use in surgical and other medical procedures that are performed primarily by obstetricians and gynecologists in hospitals, surgical centers, fertility clinics and in the medical office. Fertility products include highly specialized products and services that target in vitro fertilization (IVF) treatment with a goal to make fertility treatment safer, more efficient and convenient.

Year Ended October 31, ($ in millions)		2015				% Net Sales			2014				% Net Sales			2015 vs. 2014 % Change
Office and surgical procedures		$	204.1			66	%		$	211.9			65	%		(4	)%
Fertility		105.2				34	%		113.2				35	%		(7	)%
		$	309.3			100	%		$	325.1			100	%		(5	)%

CooperSurgical's net sales of medical office and surgical procedures decreased compared to the prior year due to declines in sales of medical equipment partially offset by growth in sales of disposable products. The net sales decline in fertility products was primarily due to the negative impact from the weakening of foreign currencies as compared to the United States dollar. Excluding the impact of currency, sales grew on market gains of products and services recently acquired with Reprogenetics and sales of our existing fertility products were flat compared to the prior year.

CooperSurgical’s sales primarily include women’s healthcare products used in fertility procedures and by gynecologists and obstetricians in office and surgical procedures. The balance consists of sales of medical devices outside of women’s healthcare which CooperSurgical does not actively market. CooperSurgical's sales growth was driven primarily by products from recent acquisitions. Unit growth and product mix, primarily sales of fertility products, along with increased average realized prices on disposable products also influenced sales growth.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

2014 Compared with 2013

Highlights: 2014 vs. 2013

•	Net sales up 8% to $1.72 billion from $1.59 billion in fiscal year 2013

•	Gross margin 64% of net sales down from 65%

•	Operating income up 0.2% to $306.5 million from $305.9 million

•	Interest expense down 13% to $8.0 million from $9.2 million

•	Diluted earnings per share down 8% to $5.51 from $5.96

•	Operating cash flow $454.8 million up 9% from $415.9 million

Fiscal 2014 pre-tax results include $35.7 million for amortization of intangible assets and $62.8 million of acquisition, integration and restructuring costs primarily related to the acquisition of Sauflon. We expect amortization of intangible assets will recur in future periods; however, the amounts are affected by the timing and size of our acquisitions. Expenses such as the acquisition related and integration expenses generally diminish over time with respect to past acquisitions. However, we generally will incur similar expenses in connection with any future acquisitions. We incurred significant expenses in connection with our acquisitions and also incurred certain other operating expenses or income, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Many of these costs relate to our acquisition of Sauflon in our fiscal fourth quarter of 2014. Acquisition related and integration expenses consist of personnel related costs for transitional employees, other acquired employee related costs and integration related professional services. Restructuring expenses consist of employee severance, product rationalization, facility and other exit costs.

The fiscal 2014 integration and restructuring costs include $16.5 million in charges to cost of sales primarily for product rationalization arising from the acquisition of Sauflon. The charge for product rationalization is based on our review of products, materials and manufacturing processes of Sauflon. Included in our selling, general and administrative expense (SGA) is $44.5 million in costs for CooperVision's acquisition of Sauflon and the related integration and restructuring activities, severance costs in our CooperSurgical fertility business along with other acquisition costs. Research and development expense includes $0.6 million of severance costs related to integration and restructuring activities.

Fiscal 2013 pre-tax results include $30.2 million for amortization of intangible assets, a $21.1 million loss on divestiture of Aime, $14.1 million of insurance proceeds related to a business interruption claim and $0.6 million of costs, included in SGA expense, related to the acquisition of Origio.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

Selected Statistical Information – Percentage of Net Sales

Years Ended October 31,	2014			2014 vs. 2013 % Change			2013			2013 vs. 2012 % Change			2012
Net sales	100	%		8	%		100	%		10	%		100	%
Cost of sales	36	%		12	%		35	%		8	%		36	%
Gross profit	64	%		6	%		65	%		11	%		64	%
Selling, general and administrative expense	40	%		12	%		38	%		8	%		39	%
Research and development expense	4	%		13	%		4	%		14	%		4	%
Amortization of intangibles	2	%		18	%		2	%		26	%		1	%
Loss on divestiture of Aime	—			—			2	%		—			—
Operating income	18	%		0.2	%		19	%		8	%		20	%

Net Sales

Our two business units, CooperVision and CooperSurgical, generate all of our sales.

•	CooperVision develops, manufactures and markets a broad range of soft contact lenses for the worldwide vision correction market.

•	CooperSurgical develops, manufactures and markets medical devices and procedure solutions to improve healthcare delivery to women.

Net Sales Growth by Business Unit

Our consolidated net sales grew by $130.0 million or 8% in fiscal 2014 and $142.6 million or 10% in fiscal 2013:

($ in millions)	2014 vs. 2013				% Change			2013 vs. 2012				% Change
CooperVision	$	124.3			10	%		$	79.1			7	%
CooperSurgical	5.7				2	%		63.5				25	%
	$	130.0			8	%		$	142.6			10	%

CooperVision Net Sales

CooperVision fiscal 2014 net sales increased 10% from fiscal 2013 to $1.4 billion including Sauflon's net sales, subsequent to the acquisition, of $49.7 million. CooperVision net sales growth included increases in total sphere lenses up 9%, representing 56% of net sales, the same as the prior year, and total toric lenses up 11%, representing 31% of net sales, the same as in the prior year. Total multifocal lenses grew 21% to 11% of net sales up from 10% in the prior year on increased sales of Biofinity monthly and Proclear single-use multifocal products. Total silicone hydrogel products, including MyDay, our single-use silicone hydrogel lens, and Sauflon's silicone hydrogel products, including clariti, grew 27%, representing 49% of net sales up from 43% in the prior year. Excluding Sauflon, silicone hydrogel products grew 21%. Proclear product sales grew 6% and represented 24% of net sales compared to 25% in the prior year. CooperVision's older conventional lens products, including cosmetic lenses, declined 12% and now represent 2% of net sales compared to 3% in the prior year. The year over year comparison of net sales also reflects no sales in fiscal 2014 of Aime products, divested on October 31, 2013, as compared to $25.8 million of net sales in fiscal 2013.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

CooperVision competes in the worldwide soft contact lens market and services three primary regions: the Americas, EMEA (Europe, Middle East and Africa) and Asia Pacific.

CooperVision Net Sales by Geography

($ in millions)	2014				2013				2014 vs. 2013 % Change
Americas	$	585.6			$	546.2			7	%
EMEA	533.5				439.4				22	%
Asia Pacific	273.5				282.7				(3	)%
	$	1,392.6			$	1,268.3			10	%

CooperVision’s worldwide net sales grew 10% in the year-to-year comparison, including Sauflon as discussed above. Americas net sales growth was primarily due to market gains of silicone hydrogel contact lenses along with single-use sphere and multifocal products. EMEA net sales growth was primarily driven by increased sales of silicone hydrogel lenses including Sauflon's silicone hydrogel single-use products. Net sales to the Asia Pacific region decreased due to the negative impact of the weakening of the Japanese yen compared to the United States dollar. Excluding the impact of currency, sales in the Asia Pacific region grew on market gains of silicone hydrogel lenses and single-use products, including Proclear multifocal single-use lenses.

CooperVision’s net sales growth was driven primarily by increases in the volume of lenses sold, including recently introduced silicone hydrogel products and products from the August 2014 acquisition of Sauflon. While unit growth and product mix have influenced CooperVision’s sales growth, average realized prices by product have not materially influenced sales growth.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

CooperSurgical Net Sales

CooperSurgical supplies the market for women's healthcare with its diversified portfolio of products for use in surgical and other medical procedures that are performed by obstetricians and gynecologists in hospitals, surgical centers, fertility clinics and in the medical office. With the July 2012 acquisition of Origio a/s, a global in-vitro fertilization (IVF) medical device company, CooperSurgical develops, manufactures and distributes highly specialized products that target IVF treatment with a goal to make fertility treatment safer, more efficient and convenient.

Year Ended October 31, ($ in millions)		2014				% Net Sales			2013				% Net Sales			2014 vs. 2013 % Change
Office and surgical procedures		$	211.9			65	%		$	213.4			67	%		(1	)%
Fertility		113.2				35	%		106.0				33	%		7	%
		$	325.1			100	%		$	319.4			100	%		2	%

CooperSurgical's net sales of fertility products increased primarily due to market gains of disposable products partially offset by slower growth in sales of medical equipment. The decline in net sales of medical office and surgical procedures was primarily due to declines in sales of medical equipment offset in part by growth in sales of disposable products.

CooperSurgical’s sales primarily comprise women’s healthcare products used in fertility procedures and by gynecologists and obstetricians in surgical procedures and in the medical office. The balance consists of sales of medical devices outside of women’s healthcare which CooperSurgical does not actively market. Unit growth and product mix, primarily sales of fertility products, along with increased average realized prices on disposable products influenced sales growth.

2015 Compared to 2014 and 2014 Compared to 2013

Cost of Sales/Gross Profit

Gross Profit Percentage of Net Sales	2015			2014			2013
CooperVision	59	%		63	%		65	%
CooperSurgical	64	%		64	%		64	%
Consolidated	60	%		64	%		65	%

The decrease in CooperVision's gross margin in the three year period ending October 31, 2015, was primarily attributable to negative effects of foreign currency changes, product and equipment rationalization costs and facility start-up costs. Foreign currency unfavorably impacted gross margin as we reported lower net sales due to the weakening of the foreign currencies as compared to the United States dollar. Gross margin was negatively impacted by product and equipment charges and the related severance costs to rationalize products, arising from our review of Sauflon's products, materials and manufacturing processes. In addition, gross margin was negatively impacted by costs associated with the start-up of new manufacturing facilities. The decrease in gross margin was partially offset by the increase in sales of higher margin products including Biofinity.

CooperSurgical's gross margin remained flat primarily due to an improved mix of higher margin products offset by the unfavorable impact of foreign currency as we reported lower net sales partially due to the weakening of foreign currencies as compared to the United States dollar.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

Selling, General and Administrative Expense (SGA)

($ in millions)	2015				% Net Sales			2015 vs. 2014 % Change			2014				% Net Sales			2014 vs. 2013 % Change			2013				% Net Sales
CooperVision	$	552.1			37	%		7	%		$	518.2			37	%		16	%		$	448.2			35	%
CooperSurgical	111.2				36	%		(2	)%		113.4				35	%		(4	)%		118.5				37	%
Corporate	49.2				—			(4	)%		51.5				—			17	%		44.0				—
	$	712.5			40	%		4	%		$	683.1			40	%		12	%		$	610.7			38	%

The increase in CooperVision's SGA in fiscal 2015 compared to fiscal 2014 in absolute dollars is primarily due to operating expenses of Sauflon. CooperVision's SGA also included approximately $24.5 million primarily for restructuring and integration costs, largely made up of professional fees and personnel related costs for transitional employees related to Sauflon restructuring and integration activities. Fiscal 2015 SGA expenses also include $19.8 million of litigation settlement and legal costs, of which $17.0 million relates to the settlement to intellectual property claims by JJVC, as well as litigation costs relating to the class action complaints filed against CooperVision and other contact lens manufacturers, distributors and retailers relating to UPP. In addition to the restructuring and integration activities related to Sauflon, CooperVision continues to invest in sales and marketing to promote our silicone hydrogel products, including MyDay, to reach new customers and support geographic expansion.

The increase in CooperVision's SGA in fiscal 2014 compared to fiscal 2013 in absolute dollars and as a percentage of net sales is primarily due to operating expenses of Sauflon, acquired in our fiscal fourth quarter of 2014, and approximately $42.3 million of acquisition, restructuring and integration costs, largely made up of legal fees, professional fees and severance costs expensed in fiscal 2014.

The decrease in CooperSurgical's SGA in fiscal 2015 compared to fiscal 2014 in absolute dollars is primarily due to efficiencies as a result of cost control measures partially offset by approximately $4.9 million primarily for integration costs in our fertility business and costs related to the acquisition of Reprogenetics in our fiscal fourth quarter of 2015. The increase in CooperSurgical's SGA in fiscal 2015 compared to fiscal 2014 as a percentage of net sales reflects the acquisition and acquisition costs along with lower net sales in the current year. CooperSurgical continues to invest in sales activities to promote our products and to reach new customers.

The decrease in CooperSurgical's SGA in fiscal 2014 compared to fiscal 2013 in absolute dollars and as a percentage of net sales is primarily due to efficiencies as a result of cost control measures in fiscal 2014 and costs included in fiscal 2013 for acquisition and integration activities related to Origio.

The decrease in Corporate SGA in absolute dollars in fiscal 2015 as compared to fiscal 2014 is due to lower share-based compensation costs, primarily attributable to the timing of grants. The growth in absolute dollars in fiscal 2014 as compared to 2013 was primarily due to increased share-based compensation costs and acquisition-related professional service costs.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

Research and Development Expense (R&D)

($ in millions)	2015				% Net Sales			2015 vs. 2014 % Change			2014				% Net Sales			2014 vs. 2013 % Change			2013				% Net Sales
CooperVision	$	55.2			4	%		5	%		$	52.3			4	%		13	%		$	46.4			4	%
CooperSurgical	14.4				5	%		3	%		14.0				4	%		12	%		12.4				4	%
	$	69.6			4	%		5	%		$	66.3			4	%		13	%		$	58.8			4	%

The sequential increases in CooperVision's R&D in absolute dollars over the fiscal years presented are primarily due to investments in new technologies, clinical trials and increased headcount. The increase in fiscal 2015 compared to fiscal 2014 is primarily due to the inclusion of Sauflon R&D activities and $4.6 million in charges primarily for equipment rationalization and severance costs related to integration activities. CooperVision’s R&D activities are primarily focused on the development of contact lenses and manufacturing improvements.

The sequential increases in CooperSurgical's R&D in absolute dollars and as a percentage of sales over the fiscal years presented are primarily due to increased activity to bring newly acquired products to market, increased investment in projects to develop new products and the upgrade of existing products. CooperSurgical's research and development activities include in vitro fertilization product development and the design and upgrade of surgical procedure devices.

Amortization of Intangibles

($ in millions)	2015				% Net Sales			2015 vs. 2014 % Change			2014				% Net Sales			2014 vs. 2013 % Change			2013				% Net Sales
CooperVision	$	36.6			3	%		61	%		$	22.7			2	%		36	%		$	16.7			1	%
CooperSurgical	14.9				5	%		14	%		13.0				4	%		(4	)%		13.5				4	%
	$	51.5			3	%		44	%		$	35.7			2	%		18	%		$	30.2			2	%

The sequential increases in amortization are due to acquired intangible assets related to acquisitions, primarily the acquisitions of Reprogenetics in August 2015 and Sauflon in August 2014. We expect amortization in fiscal 2016 to be approximately $12.9 million in each of the fiscal first through third quarters and $12.0 million in the fiscal fourth quarter primarily due to intangible assets acquired with Reprogenetics and Sauflon, offset by intangible assets which we forecast to become fully amortized.

Divested Operation

On October 31, 2013, we completed a transaction to sell Aime, our rigid gas-permeable contact lens and solutions business in Japan, to Nippon Contact Lens Inc. The business was originally obtained as part of the December 1, 2010, acquisition which included obtaining the rights to market Biofinity in Japan. The divestiture was consistent with CooperVision’s strategy to focus on its core soft contact lens business. Additionally, Aime revenue had declined in recent periods, and the products had lower than average company margins.

We recorded a pre-tax loss of approximately $21.1 million in our Consolidated Statement of Income for fiscal 2013. Results from operations of Aime are included in our Consolidated Statements of Income for fiscal 2013, and we have not segregated the results of operations or net assets of Aime on our financial statements for any period presented. The disposition of the assets and liabilities of Aime did not qualify for classification as discontinued operations as CooperVision maintains continuing involvement through a distribution arrangement with Aime for a minimum of three years post divestiture.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

Restructuring Costs

During the fiscal fourth quarter of 2014, in connection with the Sauflon acquisition, our CooperVision business unit initiated restructuring and integration activities to optimize operational synergies of the combined companies. The 2014 Sauflon Integration Plan activities include workforce reductions, consolidation of duplicative facilities and product rationalization. We estimate the total restructuring costs under this plan to be $112.0 million. The increase over our prior estimates relates to additional product rationalization and related equipment disposals and accelerated depreciation, primarily related to our hydrogel contact lenses, based on our review of products, materials and manufacturing processes of Sauflon. We expect to be substantially complete with activities related to operating expenses in our fiscal first quarter of 2016, and to incur costs related to manufacturing activities through the end of fiscal 2016.

Pursuant to the 2014 Sauflon Integration Plan, in fiscal 2015, we recorded expenses in cost of sales of $57.7 million arising from production-related asset disposals and accelerated depreciation on equipment, primarily related to our hydrogel lenses, based on our review of products, materials and manufacturing processes of Sauflon. We also recorded in cost of sales $4.0 million of employee termination costs. We reduced the accrued employee termination costs in selling, general and administrative expense by $7.2 million based on current estimates of the expected costs and the results of voluntary terminations. We recorded in research and development expense $0.7 million of employee termination costs in fiscal 2015. We also recorded in selling, general and administrative expense $0.4 million for lease termination costs. We may, from time to time, decide to pursue additional restructuring activities that involve charges in future periods. See the notes to consolidated financial statements for additional information.

Operating Income

($ in millions)	2015				% Net Sales			2015 vs. 2014 % Change			2014				% Net Sales			2014 vs. 2013 % Change			2013				% Net Sales
CooperVision	$	229.8			15	%		(20	)%		$	289.0			21	%		—	%		$	289.3			23	%
CooperSurgical	56.1				18	%		(19	)%		69.0				21	%		14	%		60.6				19	%
Corporate	(49.2		)		—			4	%		(51.5		)		—			(17	)%		(44.0		)		—
	$	236.7			13	%		(23	)%		$	306.5			18	%		0.2	%		$	305.9			19	%

The decrease in consolidated operating income in fiscal 2015 as compared to 2014 in absolute dollars and as a percentage of net sales is primarily due to the decrease in gross profit of 2% and the increase in operating expenses of 6%. The decreases in consolidated and CooperVision operating income in fiscal 2015 as compared to fiscal 2014 in absolute dollars and as a percentage of sales was primarily due to the intellectual property settlement with JJVC along with restructuring, integration and amortization costs primarily related to Sauflon, as discussed above, recorded in cost of sales and operating expenses. CooperSurgical's operating income in fiscal 2015 decreased in absolute dollars and as a percentage of net sales primarily due to the decrease in net sales of 5%.

The consolidated operating income in fiscal 2014 remained flat as compared to fiscal 2013 in absolute dollars primarily due to the increase in gross profit of 6%, offset by the increase in operating expenses of 9%. The decreases in consolidated and CooperVision operating income as a percentage of sales in fiscal 2014 as compared to fiscal 2013 was due to the acquisition, restructuring and integration costs primarily related to Sauflon, as discussed above, recorded in cost of sales and operating expenses. CooperSurgical's operating income in fiscal 2014 increased in absolute dollars and as a percentage of net sales due to the increase of gross profit of 2% and decrease of total operating expense of 3%.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

Interest Expense

($ in millions)	2015				% Net Sales			2015 vs. 2014 % Change			2014				% Net Sales			2014 vs. 2013 % Change			2013				% Net Sales
Interest expense	$	18.1			1	%		127	%		$	8.0			0.5	%		(13	)%		$	9.2			0.6	%

Interest expense increased in absolute dollars and as a percentage of net sales in fiscal 2015 compared to fiscal 2014 reflecting higher average debt as a result of debt incurred in connection with the August 2014 acquisition of Sauflon as well a higher interest rates on our revolving Credit Agreement as such interest rates vary based on leverage. The decrease in interest expense in absolute dollars in fiscal 2014 compared to fiscal 2013 reflects lower average debt and lower average interest rates during the year. Total debt was $1.35 billion, $1.38 billion and $0.3 billion at October 31, 2015, 2014 and 2013, respectively. Current period debt outstanding includes $200.0 million on two uncommitted revolving lines of credit, entered into on March 24, 2015, the $700.0 million term loan, entered into on August 4, 2014, the $300.0 million term loan, entered into on September 12, 2013, as well as about $109.2 million drawn on our revolving Credit Agreement.

Insurance Proceeds

On October 28, 2011, a manufacturing building in the United Kingdom experienced an incident in which a pipe broke in our fire suppression system, causing water and fire retardant foam damage to the facility. While this incident did not substantially impact our existing customers, the repairs to the facility and resultant decrease in manufacturing capacity impacted the timing of marketing initiatives to generate additional sales. In January 2013, we resolved our business interruption claim with our insurer for a total of $19.1 million. We received payments of $5.0 million in our fiscal fourth quarter of 2012. In our fiscal first quarter of 2013, we recorded the remaining $14.1 million in our Consolidated Statement of Income of which we received payment of $2.9 million during the fiscal first quarter of 2013 and payment of the remaining $11.2 million in the fiscal second quarter of 2013.

Other Expense (Income), Net

Years Ended October 31, (In millions)	2015				2014				2013
Foreign exchange loss (gain)	$	3.5			$	2.9			$	(0.1	)
Other income, net	(0.4		)		(0.9		)		(1.3		)
	$	3.1			$	2.0			$	(1.4	)

Provision for Income Taxes

We recorded income tax expense of $10.3 million in fiscal 2015 compared to $24.7 million in fiscal 2014. Our effective tax rate (ETR) (provision for income taxes divided by pretax income) was 4.8% for fiscal 2015, 8.3% for fiscal 2014 and 4.9% for fiscal 2013. The ETR in fiscal 2015 decreased in comparison to fiscal 2014 partially due to discrete items and integration activities. The ETR in fiscal 2014 increased in comparison to fiscal 2013 to reflect the inclusion in the fiscal 2013 ETR of several discrete items causing a reduction in that year. These items related primarily to the statutory income tax rate reduction in the United Kingdom and the renewal of the R&D tax credit in the United States.

The ETR is below the United States statutory rate as a majority of our taxable income is earned in foreign jurisdictions with lower tax rates. The ratio of domestic taxable income to worldwide taxable income has decreased over recent fiscal years effectively lowering the overall tax rate due to the fact that the tax rates in the majority of foreign jurisdictions where we operate are significantly lower than the statutory rate in the United States.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

The impact on our provision for income taxes of income earned in foreign jurisdictions being taxed at rates different than the United States federal statutory rate was a benefit of approximately $72.6 million and a foreign effective tax rate of approximately 5.6% in our fiscal year 2015 compared to $85.5 million and a foreign effective tax rate of approximately 2.6% in our fiscal year 2014. The foreign jurisdictions with lower tax rates as compared to the United States federal statutory rate that had the most significant impact on our provision for foreign income taxes in the fiscal years presented include the United Kingdom, Barbados and Puerto Rico. See the notes to consolidated financial statements for additional information.

Share Repurchases

In December 2011, our Board of Directors authorized a share repurchase program and subsequently amended the total repurchase authorization to $500.0 million. The program has no expiration date and may be discontinued at any time. During fiscal 2015, we repurchased 468 thousand shares of our common stock for $67.3 million at an average purchase price of $139.60 per share. During fiscal 2014, we repurchased 572 thousand shares of our common stock for $75.8 million at an average purchase price of $132.49 per share. At October 31, 2015, we had remaining authorization to repurchase about $118.4 million of our common stock. See the notes to consolidated financial statements for additional information.

Share-Based Compensation Plans

We grant various share-based compensation awards, including stock options, performance shares, restricted stock and restricted stock units. The share-based compensation and related income tax benefit recognized in the consolidated financial statements in fiscal 2015 was $32.9 million and $10.2 million, respectively, compared to $36.5 million and $11.7 million, respectively, in fiscal 2014. As of October 31, 2015, there was $62.2 million of total unrecognized share-based compensation cost related to non-vested awards: $5.0 million for stock options; $48.8 million for restricted stock units; and $8.4 million for performance shares. The unrecognized compensation is expected to be recognized over weighted average remaining vesting periods of 2.9 years for nonvested stock options, 3.4 years for restricted stock units and 1.7 years for performance shares. Net (payments) proceeds related to share-based compensation awards for the fiscal years ended October 31, 2015, 2014 and 2013 were approximately $(4.8) million, $8.6 million and $19.3 million, respectively.

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 2015 would have increased by approximately $4.50. 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 2015 would have increased by approximately $1.30.

We estimate stock option forfeitures based on historical data for each employee grouping and adjust the rate of expected forfeitures periodically. The adjustment of the forfeiture rate will result in a cumulative catch-up adjustment in the period the forfeiture estimate is changed.

We grant performance units that provide for the issuance of common stock to certain executive officers and other key employees if the Company achieves specified long-term performance goals over a three-year period. We estimate the fair value of each award on the date of grant based on the current market price of

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

our common stock. The total amount of compensation expense recognized reflects our initial assumptions of the achievement of the performance goals and the estimated forfeiture rates. We review our assessment of the probability of the achievement of the performance goals each fiscal quarter. If the goals are not achieved or it is determined that achievement of the goals is not probable, previously recognized compensation expense is adjusted to reflect the expected achievement. If we determine that achievement of the goals will exceed the original assessment, additional compensation expense is recognized.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

CAPITAL RESOURCES AND LIQUIDITY

2015 Highlights

•	Operating cash flow $391.0 million down from $454.8 million in fiscal 2014

•	Expenditures for purchases of property, plant and equipment $243.0 million up from $238.1 million in fiscal 2014

•	Cash payments for acquisitions, $44.9 million, primarily for Reprogenetics, compared to $1.1 billion in fiscal 2014, primarily for Sauflon

•	Total debt at $1.35 billion at the end of fiscal 2015 compared to $1.38 billion at the end of fiscal 2014

Comparative Statistics

Years Ended October 31, ($ in millions)	2015				2014
Cash and cash equivalents	$	16.4			$	25.2
Total assets	$	4,460.6			$	4,458.3
Working capital	$	272.6			$	349.4
Total debt	$	1,350.0			$	1,382.4
Stockholders’ equity	$	2,673.9			$	2,588.4
Ratio of debt to equity	0.50:1				0.53:1
Debt as a percentage of total capitalization	34		%		35		%

Working Capital

The decrease in working capital at the end of fiscal 2015 from the end of fiscal 2014 was primarily due to the increase in short term debt from the $200.0 million in new revolving lines of credit, borrowed in the fiscal second quarter of 2015, and utilized to pay down higher interest rate debt on our long term revolving Credit Agreement. Working capital at the end of fiscal 2014 includes $55.1 million of loan notes issued related to the acquisition of Sauflon which was paid in fiscal 2015. The decrease in working capital was also due to the decrease in cash offset by the increases in inventories, accounts receivable and other current assets along with the decrease in accounts payable.

The $38.2 million increase in inventories was primarily related to increased production to support product launches of single-use lenses including clariti and MyDay, our single-use silicone hydrogel contact lenses. Our inventory months on hand (MOH) were 7.5 at October 31, 2015, after adjusting for product rationalization costs related to the acquisition of Sauflon and facility start-up costs. This represents an increase from MOH at October 31, 2014 of 6.6 that were adjusted for product rationalization costs related to the acquisition of Sauflon. Our unadjusted inventory MOH was 6.2 and 6.1 at October 31, 2015 and 2014, respectively. Our days sales outstanding (DSO) increased to 57 days at October 31, 2015, compared to 53 days at October 31, 2014 as trade accounts receivable increased by $6.6 million, primarily due to timing of collections.

We have reviewed our needs in the United States for possible repatriation of undistributed earnings or cash of our foreign subsidiaries. We presently intend to continue to indefinitely invest all earnings and cash outside of the United States of all foreign subsidiaries to fund foreign investments or meet foreign working capital and property, plant and equipment requirements.

Operating Cash Flow

Cash flow provided by operating activities in fiscal 2015 continued to be our major source of liquidity, at $391.0 million compared to $454.8 million in fiscal 2014 and $415.9 million in fiscal 2013. Fiscal 2015

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

results include $205.1 million of net income and non-cash items primarily made up of $191.4 million related to depreciation and amortization, $32.9 million of expense and $17.3 million of excess tax benefits both related to share-based compensation, $10.3 million related to net gains in currency translation, $42.4 million related to loss on retirement of property, plant and equipment. Results also include changes in operating assets and liabilities, which primarily reflect the increases in inventories and other assets of $46.8 million, the increases in trade and other receivables of $7.3 million, and the increase of $1.2 million relating to taxes. The $63.9 million decrease in cash flows provided by operating activities in fiscal 2015 as compared to fiscal 2014 is primarily due to the decrease in net income, the $17.0 million settlement with JJVC in the fiscal third quarter of 2015, and unfavorable changes in working capital.

For fiscal 2015, our primary source of cash flows provided by operating activities was cash collections from our customers for purchase of our products. Our primary uses of cash flows from operating activities were for personnel and material costs along with cash payments of $14.0 million for interest, and $17.0 million settlement with JJVC.

For fiscal 2014, our primary source of cash flows provided by operating activities was cash collections from our customers for purchase of our products. Our primary uses of cash flows from operating activities were for personnel and material costs along with cash payments of $4.1 million for interest.

Investing Cash Flow

Cash used in investing activities of $287.9 million in fiscal 2015 was for capital expenditures of $243.0 million primarily to increase manufacturing capacity and payments of $44.9 million related to acquisitions, primarily the acquisition of Reprogenetics in the fiscal fourth quarter of 2015. We forecast increasing aggregate demand for existing and future single-use products. To meet this anticipated demand, in fiscal 2016 we plan to continue the implementation of capital projects to invest in increased single-use manufacturing capacity.

Cash used in investing activities of $1,346.4 million in fiscal 2014 was for payments of $1,109.7 million related to acquisitions, primarily the acquisition of Sauflon, and capital expenditures of $238.1 million, primarily to increase manufacturing capacity, partially offset by the $1.4 million insurance recovery related to facility repairs.

Financing Cash Flow

The changes in cash flows from financing activities primarily relate to borrowings and payments of debt as well as share repurchases and share-based compensation awards. Cash used in financing activities of $106.7 million in fiscal 2015 was driven by $67.3 million in payments for share repurchases under our existing share repurchase plan, $37.3 million from net repayments of debt, $8.1 million for purchases of noncontrolling interests, net payments of $4.8 million related to vested share-based compensation awards, a $3.2 million payment for contingent consideration, $2.9 million for dividends, and distributions of $1.1 million to noncontrolling interests. Cash used in financing activities was partially offset by $17.3 million in excess tax benefits from share-based compensation awards and $0.7 million of proceeds from a construction allowance. Net repayment of debt in the period includes the payment of $51.2 million to settle all the outstanding loan notes issued for the Sauflon acquisition.

In fiscal 2014, the changes in cash flows from financing activities primarily related to borrowings and payments of debt as well as share repurchases and share-based compensation awards. Cash provided by financing activities of $842.2 million in fiscal 2014 was driven by $887.9 million from net borrowings of debt, $19.3 million in excess tax benefits from share-based compensation awards, $12.2 million of proceeds from a construction allowance and $8.6 million of proceeds from exercise of share-based compensation awards. Cash provided by financing activities was partially offset by $75.8 million in payments for share repurchases under our share repurchase plan, a $3.8 million payment for contingent consideration, $2.9

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

million for dividends, $2.4 million of distributions to noncontrolling interests, and $0.9 million of debt acquisition costs associated with obtaining the term loan.

At October 31, 2015, we had $16.4 million in cash, primarily outside the United States, and $890.8 million available under our existing revolving Credit Agreement. The $200.0 million borrowed on the new revolving lines of credit, the $700.0 million term loan entered into on August 4, 2014, and the $300.0 million term loan entered into on September 12, 2013, were outstanding as of October 31, 2015. We are in compliance with our financial covenants including the Interest Coverage Ratio at 31.34 to 1.00 and the Total Leverage Ratio at 2.38 to 1.00. As defined, in both the Credit Agreement and term loans, the Interest Coverage Ratio is the ratio of Consolidated Proforma EBITDA to Consolidated Interest Expense with the requirement to be at least 3.00 to 1.00 and the Total Leverage Ratio is the ratio of Consolidated Funded Indebtedness to Consolidated Proforma EBITDA with the requirement to be no higher than 3.75 to 1.00.

OFF BALANCE SHEET ARRANGEMENTS

None.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

As of October 31, 2015, we had the following contractual obligations and commercial commitments:

Payments Due by Period (In millions)	Total				2016				2017 & 2018				2019 & 2020				2021 & Beyond
Contractual obligations:
Long-term debt	$	1,109.6			$	3.8			$	1,105.5			$	—			$	0.3
Interest payments	29.5				15.0				14.5				—				—
Operating leases	238.8				27.8				45.6				36.3				129.1
Contingent consideration	1.0				0.5				0.5								—
Total contractual obligations	1,378.9				47.1				1,166.1				36.3				129.4
Commercial commitments:
Stand-by letters of credit	2.5				2.5				—				—				—
Total	$	1,381.4			$	49.6			$	1,166.1			$	36.3			$	129.4

The expected future benefit payments for pension plans through 2025 are disclosed in Note 10. Employee Benefits.

We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, about $28.4 million of our long-term income taxes payable have been excluded from the table above. However, other long-term liabilities, included in our consolidated balance sheet, include these uncertain tax positions. See Note 6 for additional information.

Inflation and Changing Prices

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

Accounting Pronouncements Issued and Not Yet Adopted

In April 2015, the FASB issued Accounting Standards Update (ASU) 2015-03, Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. The amendments in this

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We do not anticipate the adoption of these amendments, which are effective for the Company for the fiscal year beginning on November 1, 2016, will have a material impact on our consolidated results of operations, financial condition or cash flows.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 sets forth a new revenue recognition model that requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. The amendments in the ASU can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. We are currently evaluating the impact of ASU 2014-09, which is effective for the Company in our fiscal year beginning on November 1, 2018.

Accounting Pronouncements Recently Adopted

On November 1, 2014, we adopted ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. When a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available, or the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The adoption of ASU 2013-11 did not have a significant impact on our consolidated financial statements.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

Estimates and Critical Accounting Policies

Management estimates and judgments are an integral part of financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). We believe that the critical accounting policies described in this section address the more significant estimates required of management when preparing our 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.

•

Revenue recognition - We recognize product net sales, net of discounts, returns and rebates in accordance with related accounting standards and SEC Staff Accounting Bulletins. As required by these standards, we recognize revenue when it is realized or realizable and earned, based on terms of sale with the customer, where persuasive evidence of an agreement exists, delivery has occurred, the seller's price is fixed and determinable and collectability is reasonably assured. For contact lenses as well as CooperSurgical medical devices, diagnostic products and surgical instruments and accessories, this primarily occurs when title and risk of ownership transfers to our customers. We believe our revenue recognition policies are appropriate in all circumstances, and that our policies are reflective of our customer arrangements. We record, based on historical statistics, estimated reductions to revenue for customer incentive programs offered including cash discounts, promotional and advertising allowances, volume discounts, contractual pricing allowances, rebates and specifically established customer product return programs. We record taxes collected from customers on a net basis, as these taxes are not included in net sales.

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Net realizable value of inventory - In assessing the value of inventories, we make estimates and judgments regarding aging of inventories and other relevant issues potentially affecting the saleable condition of products and estimated prices at which those products will sell. On an ongoing basis, we review the carrying value of our inventory, measuring number of months on hand and other indications of saleability. We reduce the value of inventory if there are indications that the carrying value is greater than market, resulting in a new, lower-cost basis for that inventory. Subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. While estimates are involved, historically, obsolescence has not been a significant factor due to long product dating and lengthy product life cycles. We target to keep, on average, five to seven months of inventory on hand to maintain high customer service levels given the complexity of our contact lens and women's healthcare product portfolios.

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Valuation of goodwill - We account for goodwill and evaluate our goodwill balances and test them 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 in accordance with related accounting standards. We performed our annual impairment test in our fiscal third quarter of 2015, and our analysis indicated that we had no impairment of goodwill. We performed our annual impairment test in our fiscal third quarter of 2014 and concluded that we had no impairment of goodwill in that year.

In fiscal 2015 and 2014, we performed qualitative assessments 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 two-step impairment test will be performed.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

Initially, we compare the book value of net assets to the fair value of each reporting unit that has goodwill assigned to it. If the fair value is determined to be less than the book value, a second step is performed to compute the amount of the impairment. A reporting unit is the level of reporting at which goodwill is tested for impairment. Our reporting units are the same as our business segments - CooperVision and CooperSurgical - reflecting the way that we manage our business.

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 annual goodwill impairment test indicates an impairment of our goodwill, we may have to recognize a non-cash impairment of our goodwill that could be material, and could adversely affect our results of operations in the period recognized and also adversely affect our total assets, stockholders' equity and financial condition.

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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. As of the acquisition date, goodwill is measured as the excess of consideration given, generally measured at fair value, and 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 carryforwards. 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 are required to estimate 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.

Regarding accounting for uncertainty in income taxes, we recognize the benefit from a tax position only if it is more likely than not that the position would be sustained upon audit based solely on the technical merits of the tax position. We measure the income tax benefits from the tax positions that are recognized, assess the timing of the derecognition of previously recognized tax benefits and classify and disclose the liabilities within the consolidated financial statements for any unrecognized

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

tax benefits based on the guidance in the interpretation of related accounting guidance for income taxes. The interpretation also provides guidance on how the interest and penalties related to tax positions may be recorded and classified within our Consolidated Statement of Income and presented in the Consolidated Balance Sheet. We classify interest and penalties related to uncertain tax positions as additional income tax expense.

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Share-Based Compensation - We grant various share-based compensation awards, including stock options, performance unit shares, restricted stock and restricted stock units. Under fair value recognition provisions, share-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating Cooper's stock price volatility, employee exercise behaviors and related employee forfeiture rates.

The expected life of the share-based awards 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. In determining the expected volatility, management considers implied volatility from publicly-traded options on Cooper's common stock at the date of grant, historical volatility and other factors. The risk-free interest rate is based on the continuous rates provided by the United States Treasury with a term equal to the expected life of the award. The dividend yield is based on the projected annual dividend payment per share, divided by the stock price at the date of grant.

As share-based compensation expense recognized in our Consolidated Statement of Income is based on awards ultimately expected to vest, the amount of expense has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant, based on historical experience, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

If factors change and we employ different assumptions in the application of the fair value recognition provisions, the compensation expense that we record in future periods may differ significantly from what we have recorded in the current period.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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

Trademarks

Aquaform®, Avaira®, Biofinity®, MyDay® and Proclear® are registered trademarks of The Cooper Companies, Inc., its affiliates and/or subsidiaries. PC Technology™, FIPS™ and A Quality of Life Company™ are trademarks of The Cooper Companies, Inc., its affiliates and/or subsidiaries. The clariti® mark is a registered trademark of The Cooper Companies, Inc., its affiliates and/or subsidiaries worldwide except in the United States where the use of clariti® is licensed.