UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarterly Period Ended July 31, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ________ to ___________
Commission File Number 1-8597
The Cooper Companies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 94-2657368
------------------------------ ----------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
One Bridge Plaza, Fort Lee, New Jersey 07024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(201) 585-5100
Indicate by check mark whether the registrant (1) has filled all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.10 par value 34,432,041 Shares
----------------------------- -----------------------------
Class Outstanding at
August 25, 1995
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statement of
Income - Three and Nine Months
Ended July 31, 1995 and 1994 3
Consolidated Condensed Balance Sheet -
July 31, 1995 and October 31, 1994 4
Consolidated Condensed Statement
of Cash Flows - Nine Months Ended
July 31, 1995 and 1994 5
Notes to Consolidated Condensed
Financial Statements 6 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12 - 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
Index of Exhibits
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Income
(In thousands, except per share figures)
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------ -----------------------
1995 1994 1995 1994
-------- -------- -------- --------
Net sales of products $ 14,751 $ 13,010 $ 40,323 $ 37,558
Net service revenue 10,498 10,891 31,930 33,705
-------- -------- -------- --------
Net operating revenue 25,249 23,901 72,253 71,263
-------- -------- -------- --------
Cost of services provided 10,110 10,175 30,477 30,601
Cost of products sold 4,628 4,626 12,939 13,333
Research and development
expense 632 904 2,507 3,232
Selling, general and admin-
istrative expense 6,744 7,044 20,275 24,236
Amortization of intangibles 211 211 633 633
-------- -------- -------- --------
Income (loss) from operations 2,924 941 5,422 (772)
-------- -------- -------- --------
Provision (credit) for
settlement of disputes (1,031) 1,000 (1,499) 4,950
Interest expense 1,192 1,042 3,472 3,468
Other income (expense), net 142 268 442 (485)
-------- -------- -------- --------
Income (loss) before income
taxes 2,905 (833) 3,891 (9,675)
Provision for (benefit of)
income taxes 85 (3,887) 191 (3,729)
-------- -------- -------- --------
Net income (loss) 2,820 3,054 3,700 (5,946)
Less, preferred stock dividend -- 54 -- 54
-------- -------- -------- --------
Net income (loss) applicable
to common stock $ 2,820 $ 3,000 $ 3,700 $ (6,000)
======== ======== ======== ========
Net income (loss) per
common share $ 0.08 $ 0.09 $ 0.11 $ (0.20)
======== ======== ======== ========
Average number of common
shares outstanding 34,772 34,361 34,777 30,206
======== ======== ======== ========
See accompanying notes.
3
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
(In thousands)
(Unaudited)
July 31, October 31,
1995 1994
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,786 $ 10,320
Trade and other receivables, net 20,704 18,252
Inventories 10,347 11,696
Other current assets 2,787 3,237
---------- ----------
Total current assets 42,624 43,505
---------- ----------
Property, plant and equipment at cost 46,005 45,470
Less, accumulated depreciation and
amortization 11,946 10,683
---------- ----------
34,059 34,787
---------- ----------
Intangibles, net:
Excess of cost over net assets acquired 13,468 14,133
Other 1,882 1,194
---------- ----------
15,350 15,327
---------- ----------
Other assets 1,297 1,439
---------- ----------
$ 93,330 $ 95,058
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Borrowings under line of credit $ 2,885 --
Current installments of long-term debt 2,346 1,453
Accounts payable 5,752 6,580
Employee compensation, benefits and
severance 6,114 6,390
Other accrued liabilities 13,290 17,728
Accrued income taxes 10,066 10,105
---------- ----------
Total current liabilities 40,453 42,256
---------- ----------
Long-term debt 43,561 45,989
Other noncurrent liabilities 8,652 10,467
---------- ----------
Total liabilities 92,666 98,712
---------- ----------
Commitments and Contingencies (see Note 2)
Stockholders' equity (deficit):
Common stock, $.10 par value 3,433 3,388
Additional paid-in capital 180,586 179,883
Translation adjustments (526) (396)
Accumulated deficit (182,829) (186,529)
---------- ----------
Total stockholders' equity (deficit) 664 (3,654)
---------- ----------
$ 93,330 $ 95,058
========== ==========
See accompanying notes.
4
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
July 31,
1995 1994
-------- --------
Net cash used by operating activities $ (1,651) $ (3,332)
-------- --------
Cash flows from investing activities:
Cash from sales of assets and
businesses (including releases of
cash from escrow) 145 2,622
Sales of temporary investments 37 7,285
Purchase of intangible (614) --
Purchases of property, plant and
equipment (1,450) (451)
-------- --------
Net cash provided (used) by investing
activities (1,882) 9,456
-------- --------
Cash flows from financing activities:
Proceeds from line of credit, net 2,885 --
Payments associated with the Exchange
Offer and Consent Solicitation including
debt restructuring costs -- (5,405)
Payments of current installments of
long-term debt (960) (1,112)
Proceeds from exercise of warrants 74 --
-------- --------
Net cash provided (used) by financing
activities 1,999 (6,517)
-------- --------
Net decrease in cash and cash equivalents (1,534) (393)
Cash and cash equivalents - beginning of
period 10,320 10,113
-------- --------
Cash and cash equivalents - end of period $ 8,786 $ 9,720
======== ========
Cash paid for:
Interest $ 3,237 $ 3,130
======== ========
Income taxes $ 230 $ 120
======== ========
In January 1994 the Company issued $22,000,000 of 10% Senior Subordinated
Secured Notes due 2003 and paid approximately $4,350,000 in cash (exclusive of
transaction costs) in exchange for approximately $30,000,000 of 10-5/8%
Convertible Subordinated Reset Debentures due 2005.
See accompanying notes.
5
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1. General
The Cooper Companies, Inc. and its subsidiaries (the "Company") develop,
manufacture and market healthcare products, including a range of contact lenses
and diagnostic and surgical instruments and accessories. The Company also
provides healthcare services through the ownership and operation of certain
psychiatric facilities and, through May 1995, the management of other such
facilities.
During interim periods, the Company follows the accounting policies set forth in
its Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Readers are encouraged to refer to the Company's Form 10-K for the
fiscal year ended October 31, 1994 when reviewing interim financial results.
Quarterly results are not necessarily indicative of results to be expected for
other quarters or the fiscal year.
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements contain all adjustments necessary to present fairly the
Company's consolidated financial position as of July 31, 1995 and October 31,
1994 and the consolidated results of its operations for the three- and
nine-month periods ended July 31, 1995 and 1994, and its consolidated cash flows
for the nine months ended July 31, 1995 and 1994. With the exception of certain
adjustments discussed in Part I, Item 2 under "Settlement of Disputes," such
adjustments consist only of normal and recurring adjustments. Certain
reclassifications have been applied to the prior periods' financial statements
to conform such statements to the current periods' presentation. None of such
reclassifications had any impact on the prior periods' net results.
Note 2. Legal Proceedings
The Company is a defendant in a number of legal actions relating to its past or
present businesses in which plaintiffs are seeking damages. Except as described
below, in the opinion of management, after consultation with counsel, the
ultimate disposition of those actions will not materially affect the Company's
financial position.
The Company is named as a nominal defendant in a shareholder derivative action
entitled Harry Lewis and Gary Goldberg v. Gary A. Singer, Steven G. Singer,
Arthur C. Bass, Joseph C. Feghali, Warren J. Keegan, Robert S. Holcombe and
Robert S. Weiss, which was filed on May 27, 1992 in the Court of Chancery, State
of Delaware, New Castle County. Lewis and Goldberg subsequently amended their
complaint, and the Delaware Chancery Court consolidated the amended complaint
with a similar complaint filed by another plaintiff as In re The Cooper
Companies, Inc. Litigation, Consolidated C.A. 12584.
6
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The Lewis and Goldberg amended complaint was designated as the operative
complaint (the "Derivative Complaint").
The Derivative Complaint alleges that certain directors of the Company and Gary
A. Singer, as Co-Chairman of the Board of Directors, caused or allowed the
Company to be a party to a "trading scheme" to "frontrun" high yield bond
purchases by the Keystone Custodian Fund, Inc., a group of mutual funds. The
Derivative Complaint also alleges that the defendants violated their fiduciary
duties to the Company by not vigorously investigating certain allegations of
securities fraud. The Derivative Complaint requests that the Court order the
defendants (other than the Company) to pay damages and expenses to the Company
and certain of the defendants to disgorge their profits to the Company. On
October 16, 1992, the defendants moved to dismiss the Derivative Complaint on
the grounds that it fails to comply with Delaware Chancery Court Rule 23.1 and
that Count III of the Derivative Complaint fails to state a claim. No further
proceedings, except discovery, have taken place. The parties have been engaged
in negotiations and have agreed upon the terms of a settlement, which will have
no material impact on the Company. Upon completion of discovery and the
settlement documentation, the proposed settlement will be submitted to the Court
for approval following notice to the Company's shareholders and a hearing.
Accordingly, there can be no assurance that the proposed settlement will
ultimately end the litigation. The individual defendants have advised the
Company that they believe they have meritorious defenses to the lawsuit and
that, in the event the case proceeds to trial, they intend to defend vigorously
against the allegations in the Derivative Complaint.
The Company was also named as a nominal defendant in a shareholder derivative
action entitled Bruce D. Sturman v. Gary A. Singer, Steven G. Singer, Brad C.
Singer, Dorothy Singer as the Executrix of the Estate of Martin Singer, Karen
Sue Singer, Norma Singer Brandes, Normel Construction Corp., Brandes & Singer,
and Romulus Holdings, Inc., which was filed on June 6, 1995 in the Court of
Chancery of the State of Delaware, New Castle County. The complaint is
similar to a derivative complaint filed by Mr. Sturman in the Supreme Court of
the State of New York on May 26, 1992, which was dismissed under New York Civil
Practice Rule 327(a) on August 17, 1993. The dismissal of the New York case was
affirmed by the Appellate Division on March 28, 1995. The allegations in the
newly filed complaint relate to substantially the same facts and events at issue
in In re The Cooper Companies, Inc. Litigation described above, and similar
relief is sought. On July 19, 1995, the defendants filed a motion to dismiss the
complaint for failure to comply with Delaware Chancery Court Rule 23.1. On
August 18, 1995, the plaintiff filed a motion to consolidate this action with In
re The Cooper Companies, Inc. Litigation. Both motions are pending.
7
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Under an agreement dated July 11, 1985, as amended (the "HMG Agreement"),
Hampton Medical Group, P.A. ("HMG"), which is not affiliated with the Company,
contracted to provide clinical and clinical administrative services at Hampton
Psychiatric Institute ("Hampton Hospital"), the primary facility operated by
Hospital Group of New Jersey, Inc. ("HGNJ"), a subsidiary of the Company's
psychiatric hospital holding company, Hospital Group of America, Inc. ("HGA").
In late 1993 and early 1994, HGNJ delivered notices to HMG asserting that HMG
had defaulted under the HMG Agreement based upon billing practices by HMG that
HGNJ believed to be fraudulent. At the request of HMG, a New York state court
enjoined HGNJ from terminating the HMG Agreement based upon the initial notice
and ordered the parties to arbitrate whether HMG had defaulted.
On February 2, 1994, HMG commenced an arbitration in New York, New York (the
"Arbitration"), entitled Hampton Medical Group, P.A. and Hospital Group of New
Jersey, P.A. (American Arbitration Association), in which it contests the
alleged default. In addition, HMG made a claim against HGNJ for unspecified
damages based on allegedly foregone fees on the contention that HMG has the
right to provide services at all HGNJ-owned facilities in New Jersey, including
certain outpatient clinics and the Hampton Academy, at which non-HMG physicians
have been employed. HGNJ has responded by asserting, among other things, that
(1) HMG has no contractual right to provide services at those facilities, (2)
HMG has waived or lost any such right, if such right ever existed, and (3)
HGNJ's assertions of billing fraud are a defense to any such right.
As HGNJ's knowledge of HMG's billing practices developed, HGNJ notified the
authorities and, subsequently, Blue Cross and Blue Shield of New Jersey, Inc.
("Blue Cross"), the largest of the third party payors from which HGNJ received
payment for its hospital services from 1988 through 1994.
During December 1994, Blue Cross informed HGNJ that it had investigated matters
at Hampton Hospital and concluded that it had been overcharged as a result of
those matters, including fraudulent practices of HMG which resulted in increased
hospital bills to Blue Cross subscribers. On December 30, 1994, Blue Cross and
HGNJ entered into an agreement to settle all claims against Hampton Hospital on
behalf of Blue Cross subscribers and certain other subscribers for whom Blue
Cross administers claims. The settlement includes a cash payment, over time, by
HGNJ, offset by certain amounts owed by Blue Cross to HGNJ.
On the same day, Blue Cross commenced a lawsuit in the Superior Court of New
Jersey entitled Blue Cross and Blue Shield of New Jersey, Inc. v. Hampton
Medical Group, et al. against HMG and certain related entities and individuals
unrelated to HGNJ or its
8
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
affiliates alleging, among other things, fraudulent billing practices (the "Blue
Cross Action"). HGNJ is cooperating with Blue Cross in Blue Cross' investigation
of HMG. HGNJ has also received certain requests for information from the State
of New Jersey Department of Insurance with respect to a related investigation,
with which HGNJ is also cooperating.
On or about April 12, 1995, an individual defendant in the Blue Cross Action who
was formerly employed by HMG, Dr. Charles Dackis, commenced a third party claim
in the Blue Cross Action against HGNJ, HGA and the Company, alleging a right
under the HMG Agreement to indemnity in an unspecified amount for fees, expenses
and damages that he might incur in that action. In a letter brief filed on or
about April 17, 1995, HMG indicated an intention to bring a similar claim at a
later date. On or about May 16, 1995, HGNJ, HGA and the Company filed an answer
to the complaint, and HGNJ and HGA brought counter-claims against Dr. Dackis and
cross- claims against HMG and Dr. A.L.C. Pottash, another individual defendant
and the owner of HMG, in an amount to be determined, based on allegations of
fraudulent and improper billing practices.
The Company and Dr. Pottash have recently agreed to suspend the Arbitration
pending discussions between the parties with a view toward negotiating a buy out
of the HMG Agreement and a dismissal of the claims against the Company, HGA and
HGNJ in the Blue Cross Action. There can be no assurance that such discussions
will result in a settlement of the dispute. If a settlement is achieved, it
would probably require a payment, or a series of payments over time, to HMG that
could have a material adverse effect on the Company's fiscal 1995 net income. In
the opinion of the Company's management, however, results of operations at
Hampton Hospital would be expected to improve significantly after termination of
the HMG Agreement and the Company's long-term financial condition would not be
adversely affected.
In the absence of a settlement, HGNJ intends to seek recovery from HMG for any
losses, expenses or other damages HGNJ incurs or has incurred by reason of HMG's
conduct, including any damages that may result from any future claims by other
third party payors or others arising out of the billing or other practices at
Hampton Hospital, which claims could, in the aggregate, be material. Management
of the Company, however, after consultation with counsel, does not believe that
the outcome of such future claims (should any be brought) would, in the
aggregate, have a material adverse effect on the Company's financial condition.
There can be no assurance, however, that HGA will be able to recover the amount
of any or all such losses, expenses or damages from HMG.
9
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 3. Settlement of Disputes
On April 30, 1995, HGA and Progressions Health Systems, Inc. entered into an
agreement which settled cross claims between the parties related to purchase
price adjustments (which were credited to goodwill) and other disputes and
provided for a series of payments to be made to HGA. Pursuant to this agreement,
HGA received approximately $625,000 in the nine months ended July 31, 1995,
$255,000 of which has been credited to Settlement of Disputes.
In July 1995 the Company received and credited to Settlement of Disputes a
payment of approximately $900,000 from one of its insurers representing the
settlement of a claim the Company had made on such insurer under a directors and
officers liability insurance policy. The Company's claim was associated with
litigation expenses and settlements of litigation involving previous management
of the Company.
The balance of the $1,499,000 credit recorded in 1995 primarily relates to
adjustments to certain estimated accruals no longer required.
Note 4. Inventories
Inventories are stated at the lower of cost, determined on a first in, first out
or average cost basis, or market.
The components of inventories are as follows:
July 31, October 31,
1995 1994
-------- -----------
(In thousands)
Raw materials $ 2,234 $ 3,197
Work-in-process 1,030 973
Finished goods 7,083 7,526
------- -------
$10,347 $11,696
======= =======
10
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 5. Long-Term Debt
Long-term debt consists of the following:
July 31, October 31,
1995 1994
--------- -----------
(In thousands)
10% Senior Subordinated
Secured Notes due 2003 $ 24,958 $ 25,410
10-5/8% Convertible Sub-
ordinated Reset Debentures
due 2005 9,214 9,210
Bank term loan 10,056 10,556
Industrial Revenue Bonds 1,595 2,000
Capitalized leases 84 266
-------- --------
45,907 47,442
Less current installments 2,346 1,453
-------- --------
$ 43,561 $ 45,989
======== ========
Note 6. Subsequent Event
On August 30, 1995, the 30-day average of the price of the Company's common
stock exceeded $3.00 per share. Accordingly, participants in the Company's
Turnaround Incentive Plan (the "TIP") were awarded the remaining two-thirds of
the total award for which they were eligible under the TIP. The initial
one-third was earned and paid to participants in May 1994. See "The Company's
Turnaround Incentive Plan" in Note 11 of Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year ended
October 31, 1994. Payments for the final two-thirds will be made in September
1995 in cash (a total of $475,833) and by means of the issuance of a total of
291,946 shares of restricted stock under the Company's Long-Term Incentive Plan.
In general, restrictions will be removed from 50% of such restricted shares on
August 30, 1996, and from the balance one year later.
11
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
References to Note numbers below are references to the Notes to Consolidated
Condensed Financial Statements of the Company located in Item 1. herein.
Capital Resources & Liquidity
The Company's financial condition has stabilized significantly in fiscal 1995.
Subsequent to the first quarter, in which payments to settle disputes and for
legal fees resulted in negative operating cash flow of $5,008,000, the Company
has generated $3,357,000 in positive operating cash flow, thereby narrowing the
nine-month operating cash flow deficit to $1,651,000. Included in 1995's
year-to-date operating cash flow was $1,417,000 cash received from the
successful settlement of certain disputes. The primary contributors to this
positive cash flow include continued strong performance by CooperVision, Inc.
("CVI"), the Company's contact lens business, in combination with decreased
headquarters expenses (including legal fees) and the successful settlement of
certain disputes and litigation. In addition, the Company has adjusted its
corporate focus to favor acquiring products ready for market and/or already in
the market, rather than funding longer-term higher risk research and development
projects. Management expects that this will result in improved ongoing cash flow
and, together with the financing activities discussed below, greater
availability of cash to fund strategic acquisitions and other cash requirements.
The Company is in active discussions with the medical group that has the
exclusive contract to provide psychiatric services at Hampton Hospital, with a
view toward negotiating a contract buy out that would improve future operating
results. (See Note 2.)
Management believes that, absent extraordinary events, the Company is now in a
position to generate sufficient cash to fund its internal operating needs.
In 1994, CVI entered into a credit agreement with a commercial lender providing
for advances of up to $8,000,000. To date, CVI has drawn down on this agreement
only to the extent required to generate interest expense equal to minimum
interest requirements included in the agreement. At July 31, 1995, there was
$2,885,000 owing under the credit agreement. The Company is evaluating various
acquisition opportunities and, should it consummate any of those transactions,
funds available under the credit agreement may be used. The Company is also
exploring various methods of raising additional capital.
12
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three and Nine Months Ended July 31, 1995 Compared with Three and Nine Months
Ended July 31, 1994.
Net Sales of Products: Net sales of products increased by $1,741,000 or 13% and
$2,765,000 or 7% for the three and nine months ended July 31, 1995,
respectively, over the corresponding 1994 periods.
(Dollars in 000's)
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------------------------- ---------------------------------------
% Incr. % Incr.
1995 1994 (Decrease) 1995 1994 (Decrease)
------- ------- ---------- ------- ------- ----------
CVI* $11,481 $ 9,740 18% $30,833 $27,712 11%
CSI** 3,270 3,178 3% 9,474 9,523 (1%)
CVP*** -- 92 N/A 16 323 N/A
------- ------- ------- -------
$14,751 $13,010 13% $40,323 $37,558 7%
======= ======= ======= =======
* CVI = CooperVision, Inc.
** CSI = CooperSurgical, Inc.
*** CVP = CooperVision Pharmaceuticals, Inc.
Net sales of CVI increased both domestically and in Canada. The primary
contributors to the growth included increased sales of the Preference spherical
product line and the Hydrasoft'r' toric and Preference Toric'tm' product lines
(the latter of which was launched in the fourth quarter of fiscal 1994), which
grew by approximately 50% in the aggregate over the comparable nine-month
periods. These increases were partially offset by anticipated decreases in sales
of more mature product lines.
Net sales of CSI increased in the third quarter 1995 v. the third quarter 1994
in its gynecology product lines (which include LEEP'tm' instruments) by
approximately 10%; the increase was offset by reduced sales of endoscopy
products.
Net Service Revenue: Hospital Group of America, Inc.'s ("HGA") net service
revenue consists of the following:
(Dollars in 000's)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------------------------ -----------------------------------------
% Incr./ % Incr./
1995 1994 (Decrease) 1995 1994 (Decrease)
-------- -------- ---------- -------- -------- ---------
Net patient
revenue $ 10,347 $ 10,391 -- $ 30,779 $ 32,205 (4%)
Management
fees 151 500 (70%) 1,151 1,500 (23%)
-------- -------- -------- --------
$ 10,498 $ 10,891 (4%) $ 31,930 $ 33,705 (5%)
======== ======== ========= ========
13
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Net patient revenue was flat for the third quarter 1995 v. the third quarter
1994. Net patient revenue for the first nine months of 1995 decreased by
$1,426,000 or 4% v. the first nine months of 1994. Revenues have been pressured
by the current industry trend towards increased managed care, which results in
decreased daily rates and declines in average lengths of stay. Management is
endeavoring to mitigate those pressures by increasing the number of admissions
to its hospitals, and by providing outpatient and other ancillary services. In
addition, management estimates that the dispute with the Hampton Medical Group
has reduced revenues during the first nine months of 1995 at Hampton Hospital by
approximately $1,000,000 compared with the first nine months of 1994 (see Note
2). Management fees resulted from a contract to manage three psychiatric
facilities. The contract expired by its terms in May 1995.
Cost of Services Provided: Cost of services provided represents all of the costs
(other than financing costs) incurred by HGA in generating net service revenue.
The result of subtracting cost of services provided from net service revenue is
a profit of $388,000, or 3.7%, of net service revenue in the third quarter of
1995 and $1,453,000, or 4.6%, in the first nine months of 1995. The
corresponding profits were $716,000, or 6.6% of net service revenue, and
$3,104,000, or 9.2%, in the three- and nine-month periods ended July 31, 1994,
respectively. The decreased percentage of profit is primarily attributable to a
reduction in patient days at the hospitals operated by HGA, exacerbated by lower
average billing rates and the cost of the previously mentioned dispute with the
Hampton Medical Group.
Cost of Products Sold: Gross profit (net sales of products less cost of products
sold) as a percentage of net sales of products ("margin") was as follows:
Margin % Margin %
Three Months Ended Nine Months Ended
July 31, July 31,
----------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
CVI 73 71 73 71
CSI 53 40 52 48
Consolidated 69 64 68 65
CVI's margin has increased due to efficiencies associated with higher production
volumes, as well as a favorable product mix. CSI's margins in 1994 were impacted
by a $200,000 write-down of endoscopy inventory, which reduced margins by 6% and
2% for the third quarter and nine months, respectively.
14
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Research and Development Expense: Research and development expense was $632,000
and $2,507,000 for the three and nine months ended July 31, 1995, respectively.
The respective prior year amounts were $904,000 and $3,232,000. The decrease for
both periods is primarily attributable to reduced development activity related
to CVP's calcium channel blocker, CalOptic'tm'. The nine-month decrease is
partially offset by an increase in CSI's research and development expenses
related to the development and evaluation of a proprietary thermal endometrial
ablation technology. In May 1995, CSI announced that it had discontinued funding
of this project. CVP's research and development expenditures were $310,000 and
$1,180,000 for the third quarter and first nine months of 1995, respectively.
These expenditures were $258,000 and $955,000 less than 1994's third quarter and
first nine months, respectively. Discussions continue with a number of potential
strategic partners to out-license CalOptic'tm'.
The Company currently anticipates a continued downtrend in the level of spending
on research and development. The Company now favors acquiring products which
will be marketable immediately or in the short-term, rather than funding
longer-term, higher risk research and development projects.
Selling, General and Administrative Expense: Selling, general and administrative
(SG&A) expenses by business unit and corporate were as follows:
(Dollars in 000's)
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------------------------- -------------------------------------------
% Incr. % Incr.
1995 1994 (Decr.) 1995 1994 (Decr.)
-------- -------- --------- -------- -------- ---------
CVI $ 4,010 $ 3,366 19% $ 11,828 $ 10,311 15%
CSI 1,453 1,643 (12%) 4,132 4,588 (10%)
CVP 27 97 (72%) 64 327 (80%)
Corporate/
Other 1,254 1,938 (35%) 4,251 9,010 (53%)
-------- -------- -------- --------
$ 6,744 $ 7,044 (4%) $ 20,275 $ 24,236 (16%)
======== ======== ======== ========
SG&A expenses for the three- and nine-month periods have decreased 4% and 16%
from the prior year's three- and nine-month periods, respectively, largely as a
result of the resolution of various legal matters and a reduction in the level
of corporate staffing. CVP's SG&A expenses decreased as it discontinued sales of
its branded generic line of ophthalmic pharmaceuticals. Continued cost cutting
measures at CSI resulted in a reduction of 10% in the nine-month period ended
July 31, 1995 v. the comparable 1994 period. These decreases were partially
offset by increased SG&A expenses incurred by CVI to effect the successful
launch of Preference Toric'tm', and to prepare for the launch of additional new
products.
15
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Income (Loss) From Operations: As a result of the variances discussed above,
income from operations improved by nearly $2,000,000 and $6,200,000,
respectively, from the amounts reported for the 1994 three- and nine-month
periods. Income (loss) from operations by business unit and corporate was as
follows:
(Dollars in 000's)
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------------------- -----------------------------------
Incr. Incr.
1995 1994 (Decr.) 1995 1994 (Decr.)
-------- -------- ------- -------- -------- -------
CVI $ 4,078 $ 3,244 $ 834 $ 9,738 $ 8,334 $ 1,404
CVP (343) (678) 335 (1,226) (2,378) 1,152
CSI 106 (552) 658 (138) (668) 530
HGA 336 662 (326) 1,292 2,917 (1,625)
Corporate/
Other (1,253) (1,735) 482 (4,244) (8,977) 4,733
------- ------- ------- ------- ------- -------
$ 2,924 $ 941 $ 1,983 $ 5,422 $ (772) $ 6,194
======= ======= ======= ======= ======= =======
Settlement of Disputes: In the first nine months of 1995, the Company recorded a
credit to income of $1,499,000 related to the successful settlement of certain
disputes. Of this amount, $1,417,000 represented cash received by the Company
from an insurance company and from Progressions Health Systems, Inc. in
connection with the settlement of litigation. (See Note 3.) The balance
represented adjustments to certain estimated accruals.
In the first nine months of 1994, the Company recorded the following items
related to settlement of disputes:
A credit of $850,000 following receipt of funds by the Company to settle
certain claims made by the Company associated with a real estate
transaction.
A charge of $5,800,000, which represented the Company's estimate, at that
time, of costs required to settle certain disputes and litigation,
including U.S. Attorney/SEC, employee related and patent related matters.
Other Income (Expense), Net: Included in other income (expense), net are:
1) Debt Restructuring Costs: In the first nine months of 1994, the Company
recorded a charge of $429,000 to refine the estimate for debt restructuring
costs related to its 1993 Exchange Offer and Consent Solicitation. There
has been no similar activity in fiscal 1995.
16
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
2) Interest income of $93,000 and $104,000 for the three months ended July
31, 1995 and 1994, respectively, and $256,000 and $276,000 for the nine
months ended July 31, 1995 and 1994, respectively. The decrease for the
nine-month period primarily reflects lower average cash balances over the
respective periods.
3) Net gains (losses) on temporary investments of $105,000 for the three
months ended July 31, 1994, and $37,000 and ($547,000) for the nine months
ended July 31, 1995 and 1994, respectively.
4) Gain on Sales of Assets and Businesses, Net: In the first nine months of
1994, the Company sold two parcels of land for cash and notes for a net
gain of $134,000. The Company also sold its EYEscrub'tm' trademark in
Canada for a net gain of $80,000. There has been no similar activity in
fiscal 1995.
Provision for Income Taxes: The provision for income taxes reflects primarily
state income and franchise taxes. Tax accruals of $4,000,0000, which were no
longer required, were reversed in the third quarter of 1994.
Earnings Per Share: Earnings per share are based on the weighted average number
of common and common equivalent shares outstanding during each of the respective
three- and nine-month periods.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See "Note 2. Legal Proceedings" in Part I Item 1 herein for a description of
legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
11 Calculation of Net Income (Loss) Per Common
Share.
27 Financial Data Schedule.
(b) The Company filed no reports on Form 8-K during the period from May 1, 1995
to July 31, 1995.
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Cooper Companies, Inc.
------------------------------------
(Registrant)
Date: September 1, 1995 /s/ Robert S. Weiss
------------------------------------
Senior Vice President, Treasurer and
Chief Financial Officer
19
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as... 'r'
The trademark symbol shall be expressed as.............. 'tm'
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Index of Exhibits
Exhibit No. Page No.
----------- --------
11 Calculation of Net Income (Loss) 21
Per Common Share.
27 Financial Data Schedule. 22
20
Exhibit 11
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Calculation of Net Income (Loss) Per Common Share
(In thousands, except per share figures)
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
-------- -------- -------- ---------
Net income (loss) $ 2,820 $ 3,054 $ 3,700 $ (5,946)
-------- -------- -------- ---------
Less dividend require-
ments on preferred
stock $ -- $ 54 $ -- $ 54
-------- -------- -------- ---------
Net income (loss)
applicable to common
stock $ 2,820 $ 3,000 $ 3,700 $ (6,000)
======== ======== ======== =========
Weighted average
number of common
shares outstanding 34,160 30,360 34,132 30,206
Contingently issuable
shares 612 4,001 645 --
-------- -------- -------- ---------
Weighted average
number of common and
common equivalent
shares outstanding for
earnings per share 34,772 34,361 34,777 30,206
======== ======== ======== =========
Earnings (loss) per
common share $ 0.08 $ 0.09 $ 0.11 $ (0.20)
======== ======== ======== =========
21
FINANCIAL DATA SCHEDULE
5
1,000
9-MOS
OCT-31-1995
NOV-01-1994
JUL-31-1995
8,786
0
22,899
2,297
10,347
42,624
46,005
11,946
93,330
40,453
43,561
3,433
0
0
(2,769)
93,330
40,323
72,253
12,939
43,416
0
0
3,472
3,891
191
3,700
0
0
0
3,700
.08
.08
