Item 2. Management’s Discussion and Analysis of Financial Condition

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Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

CooperSurgical's R&D expense increased in the three and six months ended April 30, 2022, compared to fiscal 2021, mainly due to the addition of Generate's R&D expense and changes in headcount. As a percentage of sales, CooperSurgical's R&D expense remained relatively flat. CooperSurgical's R&D activities are focused on developing and refining diagnostic and therapeutic products including medical interventions, surgical devices and fertility solutions.

Amortization Expense



Three Months Ended April 30,									2022 vs 2021 % Change
($ in millions)	2022		% Net Sales		2021		% Net Sales
CooperVision	$	8.0	1	%	$	9.4	2	%	(15)	%
CooperSurgical	43.1		16	%	27.7		14	%	56	%
	$	51.1	6	%	$	37.1	5	%	38	%

Six Months Ended April 30,									2022 vs 2021 % Change
($ in millions)	2022		% Net Sales		2021		% Net Sales
CooperVision	$	16.2	1	%	$	17.9	2	%	(9)	%
CooperSurgical	77.2		15	%	53.9		15	%	43	%
	$	93.4	6	%	$	71.8	5	%	30	%

CooperVision's amortization expense decreased in absolute dollars in the three and six months ended April 30, 2022, compared to fiscal 2021, primarily due to the deconsolidation of SGV. As a percentage of sales, CooperVision's amortization expense decreased, primarily due to an increase in net sales.

CooperSurgical's amortization expense increased in the three and six months ended April 30, 2022, compared to fiscal 2021, primarily due to the amortization of intangible assets newly acquired through acquisitions. As a percentage of sales, CooperSurgical's amortization expense remained relatively flat, primarily due to an increase in net sales.

Operating Income



Three Months Ended April 30,									2022 vs 2021 % Change
($ in millions)	2022		% Net Sales		2021		% Net Sales
CooperVision	$	135.4	24	%	$	131.7	25	%	3	%
CooperSurgical	10.9		4	%	23.1		12	%	(53)	%
Corporate	(13.6)		—		(11.6)		—		17	%
	$	132.7	16	%	$	143.2	20	%	(7)	%

Six Months Ended April 30,									2022 vs 2021 % Change
($ in millions)	2022		% Net Sales		2021		% Net Sales
CooperVision	$	262.8	24	%	$	259.2	25	%	1	%
CooperSurgical	26.6		5	%	40.6		11	%	(35)	%
Corporate	(25.8)		—		(23.2)		—		11	%
	$	263.6	16	%	$	276.6	20	%	(5)	%

CooperVision's operating income increased in absolute dollars in the three and six months ended April 30, 2022, compared to the prior year periods primarily due to an increase in net sales partially offset by net changes in operating expenses. As a percentage of net sales, CooperVision's operating income decreased, primarily due to an increase in net sales.

CooperSurgical's operating income decreased as a percentage of net sales and in absolute dollars in the three and six months ended April 30, 2022, compared to the prior year periods, primarily due to an increase in SGA and amortization expenses, partially offset by an increase in net sales.

Corporate operating loss increased in the three and six months ended April 30, 2022, compared to the prior year periods, primarily due to higher share-based compensation expense.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

On a consolidated basis, operating income decreased as a percentage of net sales and in absolute dollars primarily due to an increase in SGA and amortization expense, partially offset by an increase in consolidated net sales.

Interest Expense



Three Months Ended April 30,									2022 vs 2021 % Change
($ in millions)	2022		% Net Sales		2021		% Net Sales
Interest expense	$	10.8	1	%	$	6.1	1	%	78	%

Six Months Ended April 30,									2022 vs 2021 % Change
($ in millions)	2022		% Net Sales		2021		% Net Sales
Interest expense	$	17.4	1	%	$	12.5	1	%	39	%

Interest expense increased in absolute dollars during the three and six months ended April 30, 2022, primarily due to higher average debt balances compared to the prior year periods.

Other (Income) Expense, Net


Periods Ended April 30,	Three Months				Six Months
($ in millions)	2022		2021		2022		2021
Investment gain	$	(48.4)	$	—	$	(48.4)	(11.5)
Foreign exchange loss	7.0		1.3		10.3		$	1.2
Other income, net	(0.4)		(0.6)		(1.3)		(1.5)
	$	(41.8)	$	0.7	$	(39.4)	$	(11.8)

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

Foreign exchange loss is mainly associated with intercompany receivables from Yen and Euro activity during the quarter.

Other income, net decreased in the three and six months ended April 30, 2022, primarily due to loss on minority investments, partially offset by defined benefit plan related income.

Provision for Income Taxes

Our effective tax rates for the three months ended April 30, 2022, and April 30, 2021, were 22.7% and 13.8%, respectively. The increase was primarily due to changes in the geographical composition of pre-tax earnings and excess tax benefits from share-based compensation.

Our effective tax rates for the six months ended April 30, 2022, and April 30, 2021, were 22.3% and (704.2)%, respectively. The increase was primarily due to an intra-group transfer of intellectual property during the six months ended April 30, 2021, as discussed below.

In November 2020, we completed an intra-group transfer of certain intellectual property and related assets of CooperVision to a UK subsidiary as part of a group restructuring to establish headquarters operations in the UK. Determining fair value involved significant judgment related to future revenue growth, operating margins and discount rates. The transfer resulted in a step-up of the UK tax-deductible basis in the intellectual property and goodwill, creating a temporary difference between the book basis and the tax basis of these assets. As a result, we recognized a deferred tax asset of $1,987.9 million, with a corresponding income tax benefit, during the three months ended January 31, 2021.

Share-Based Compensation Plans

We have several share-based compensation plans that are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. The compensation expense and related income tax benefit recognized in our Consolidated Statements of Income and Comprehensive Income for share-based awards were as follows:

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations


Periods Ended April 30,	Three Months				Six Months
($ in millions)	2022		2021		2022		2021
Selling, general and administrative expense	$	11.3	$	8.7	$	22.8	$	17.8
Cost of sales	1.0		0.9		2.3		2.0
Research and development expense	0.7		0.6		1.5		1.2
Total share-based compensation expense	$	13.0	$	10.2	$	26.6	$	21.0
Related income tax benefit	$	1.1	$	1.2	$	2.7	$	2.4

Capital Resources and Liquidity

Second Quarter Highlights

Operating cash flow of $131.8 million compared to $192.6 million in the prior year period
Expenditures for purchases of property, plant and equipment of $43.4 million compared to $49.9 million in the prior year period
Cash proceeds from sale of interest in a subsidiary of $52.6 million. Refer to Note 2. Acquisitions and Joint Venture for additional information
Cash payments for acquisitions and others of $24.8 million compared to $91.1 million in the prior year period
Cash provided by operations of $131.8 million offset by capital expenditures of $43.4 million resulted in positive free cash flow of $88.4 million, down $54.3 million compared to the prior year period

Six-Month Highlights

Operating cash flow of $297.8 million compared to $340.3 million in the prior year period
Expenditures for purchases of property, plant and equipment of $100.5 million compared to $105.8 million in the prior year period
Cash proceeds from sale of interest in a subsidiary of $52.6 million. Refer to Note 2. Acquisitions and Joint Venture for additional information
Cash payments for acquisitions and others of $1,637.1 million compared to $170.9 million in the prior year period
Cash provided by operations of $297.8 million offset by capital expenditures of $100.5 million resulted in positive free cash flow of $197.3 million, down $37.2 million compared to the prior year period

Comparative Statistics


($ in millions)	April 30, 2022			October 31, 2021
Cash and cash equivalents	$	399.2		$	95.9
Total assets	$	11,778.0		$	9,606.2
Working capital	$	89.8		$	733.2
Total debt	$	3,252.4		$	1,479.0
Stockholders' equity	$	7,013.8		$	6,942.0
Ratio of debt to equity	0.46:1			0.21:1
Debt as a percentage of total capitalization	32		%	18		%

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Working Capital

The decrease in working capital at April 30, 2022, from the end of fiscal 2021 was primarily due to:

increase in short-term debt of $822.8 million, primarily due to the 2021 364-Day Term Loan Agreement entered into on November 2, 2021;
increase in other current liabilities of $100.7 million, primarily due to the Generate acquisition. Refer to Note 2. Acquisitions and Joint Venture for further information;
decrease in assets held-for-sale of $89.2 million due to deconsolidation of SGV and forming of a new joint venture. Refer to Note 2. Acquisitions and Joint Venture for further information;
increase in accounts payable of $22.7 million due to timing of payments; partially offset by:
increase in cash and cash equivalents of $303.3 million;
decrease in employee compensation and benefits of $28.7 million due to timing of payments;
increase in prepaid expense and other current assets of $23.9 million due to timing of payments;
increase in inventories of $18.2 million primarily due to increase in production and the build up of inventory for future product launches;
increase in trade accounts receivable of $16.7 million primarily due to higher sales and timing of collections.

At April 30, 2022, our inventory months on hand was 6.1 compared to 6.8 at October 31, 2021. The $18.2 million increase in inventories was primarily due to increase in production and the build up of inventory for future product launches.

Our days sales outstanding (DSO) was 57 days at April 30, 2022, compared to 64 days at October 31, 2021. The decrease in DSO from October 31, 2021 to April 30, 2022 was primarily due to timing of collections.

Operating Cash Flow

Cash provided by operating activities decreased by $42.5 million from $340.3 million in the first half of fiscal 2021 to $297.8 million in the first half of fiscal 2022. This decrease in cash flow provided by operating activities primarily consists of:

decrease in net income of $1,996.8 million from a net income of $2,218.6 million in the first half of fiscal 2021 to $221.8 million in the first half of fiscal 2022;
decrease from other non-cash items of $49.6 million, from $7.7 million cash inflow during the first half of fiscal 2021 to $41.9 million cash outflow during the first half of fiscal 2022;
decrease from $40.7 million settlement of contingent consideration. Refer to Note 2. Acquisitions and Joint Venture for further information; partially offset by:
increase of $2,013.2 million in the net changes in deferred income taxes. Refer to Note 6. Income Taxes for further information;
increase of $22.4 million in net changes in depreciation and amortization, from $153.0 million during the first half of fiscal 2021 to $175.4 million during the first half of fiscal 2022;
increase of $9.0 million in net cash flow from changes in operating capital, from $61.4 million outflow in the first half of fiscal 2021 to $52.4 million outflow in the first half of fiscal 2022.

The decrease in net income of $1,996.8 million was primarily due to:

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

recognized income tax benefit of $1,987.9 million in the prior year period. Refer to Note 6. Income Taxes for further information;
decrease of $13.00 million in operating income from $276.6 million in the first half of fiscal 2021 to $263.6 million in the first half of fiscal 2022 primarily due to the increase in certain costs;

The $9.0 million increase in the net cash flow from changes in operating capital compared to the prior year period is primarily due to:

$46.5 million increase in the net changes in accounts payable primarily due to timing of payments;
$42.9 million increase in the net changes in trade and other receivables primarily due to timing of collections and higher sales;
$14.3 million increase in the net changes in prepaid and other assets due to timing of payments; partially offset by:
$56.1 million decrease in the net changes in accrued liabilities;
$23.8 million decrease in the net changes in the translation gain (loss);
$8.6 million decrease in the net changes in income tax payable;
$6.2 million decrease in the net changes in inventories.

The $49.6 million decrease in non-cash items compared to the prior year period is primarily due to:

$57.4 million gain on remeasurement of the fair value of the retained equity investment in SGV as a result of deconsolidation;
$36.7 million decrease in the net changes in long-term liabilities;
$12.2 million decrease from change in fair value of contingent consideration; partially offset by:
$24.6 million increase in net changes in other long-term assets & other;
$13.1 million increase from minority interest in net income;
$11.3 million increase from the effect of exchange rate change on cash.

Investing Cash Flow

Cash used in investing activities increased by $1,408.3 million to $1,685.0 million in the first half of fiscal 2022 from $276.7 million in the first half of fiscal 2021 due to:

$1,466.2 million increase in payments made for acquisitions in the first half of fiscal 2022 compared to the prior year period, largely due to the Generate acquisition, partially offset by;
$52.6 million increase in cash flows from sale of SGV. Refer to Note 2. Acquisitions and Joint Venture for further information.

Financing Cash Flow

Cash flows from financing activities increased by $1775.5 million to $1,696.5 million cash inflow in the first half of fiscal 2022 compared to $79.0 million outflow in the first half of fiscal 2021, primarily due to:

$1,016.7 million increase in proceeds from long-term debt, primarily due to funds received from the 2021 Term Loan Facility; and

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

$826.9 million increase in net proceeds from short-term debt, primarily due to the 2021 364-Day Term Loan Agreement; partially offset by:
$53.7 million increase in repurchase of common stock compared to prior year period.

On November 2, 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 (the 2021 364-Day Term Loan Agreement), which matures on November 1, 2022. The Company used part of the funds to partially repay outstanding borrowings under the 2020 Revolving Credit Facility and for general corporate purposes.

On December 17, 2021, the Company entered into a Term Loan Agreement (the 2021 Credit Agreement) by and among the Company, the lenders from time to time party thereto, and PNC Bank, National Association, as administrative agent. The 2021 Credit Agreement provides for a term loan facility (the 2021 Term Loan Facility) in an aggregate principal amount of $1.5 billion, which, unless terminated earlier, matures on December 17, 2026. In addition, the Company has the ability from time to time to request an increase to the commitments under the 2021 Term Loan Facility or to establish a new term loan facility under the 2021 Credit Agreement in an aggregate principal amount not to exceed $1.125 billion, upon prior written notice to the administrative agent and subject to the discretionary participation of the lenders funding such term loans and certain limitations set forth in the 2021 Credit Agreement.

The following is a summary of the maximum commitments and the net amounts available to us under different credit facilities as of April 30, 2022:


(In millions)	Facility Limit		Outstanding Borrowings		Outstanding Letters of Credit		Total Amount Available		Maturity Date
2021 Term Loan Facility	$	1,500.0	$	1,500.0	n/a		—		December 17, 2026
2021 364-Day Term Loan	840.0		840.0		n/a		—		November 1, 2022
2020 Revolving Credit Facility	1,290.0		—		$	1.3	$	1,288.7	April 1, 2025
2020 Term Loan Facility	850.0		850.0		n/a		—		April 1, 2025
Total	$	4,480.0	$	3,190.0	$	1.3	$	1,288.7

The 2020 Credit Agreement contains customary restrictive covenants, as well as financial covenants that require us to maintain a certain Total Leverage Ratio and Interest Coverage Ratio. As defined, in the 2020 Credit Agreement, we are required to maintain an Interest Coverage Ratio of at least 3.00 to 1.00, and a Total Leverage Ratio of no higher than 3.75 to 1.00. At April 30, 2022, we were in compliance with the Interest Coverage Ratio at 39.28 to 1.00 and the Total Leverage Ratio at 2.59 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 of the Consolidated Condensed Financial Statements for additional information.

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 Condensed 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 Repurchase

In December 2011, our Board of Directors authorized the 2012 Share Repurchase Program and through subsequent amendments, the most recent in March 2017, the total repurchase authorization was increased from $500.0 million to $1.0 billion of the Company's common stock. This 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 COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

At April 30, 2022, $256.4 million remained authorized for repurchase under the 2012 Share Repurchase Program.

The Company's share repurchases during the six months ended April 30, 2022, and 2021, were as follows:


	Six Months
Periods Ended April 30,	2022		2021
Number of shares	191,165		69,622
Average repurchase price per share	$	410.41	$	356.61
Total costs of shares repurchased (in millions)	$	78.5	$	24.8

Dividends

We paid a semiannual dividend of approximately $1.5 million or 3 cents per share, on February 9, 2022, to stockholders of record on January 21, 2022.

Summary of Non-GAAP Financial Measures

The non-GAAP financial measures that may be included in Management's Discussion and Analysis 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.

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 than the United States dollar are converted into United States dollars at the average foreign exchange rates for the corresponding period in the prior year.

Estimates and Critical Accounting Policies

Information regarding estimates and critical accounting policies is included in Management's Discussion and Analysis on Form 10-K for the fiscal year ended October 31, 2021. There have been no material changes in our policies from those previously discussed in our Form 10-K for the fiscal year ended October 31, 2021.

Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 1. General of the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

Trademarks

ActivControl®, Aquaform®, Avaira Vitality®, Biofinity®, Biofinity Energys®, MyDay® and MiSight® are registered trademarks of The Cooper Companies, Inc., its affiliates and/or subsidiaries. PC Technology™ is a trademark 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. INSORB®, PARAGARD®, Mara® and Fetal Pillow® are registered trademarks of CooperSurgical, Inc.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

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