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 January 31, 1997
( ) Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to
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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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
6140 Stoneridge Mall Rd., Suite 590, Pleasanton, CA 94588
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(510) 460-3600
One Bridge Plaza, Fort Lee, New Jersey 07024
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(Former address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed 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 11,680,144 Shares
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Class Outstanding at
February 28, 1997
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of
Income - Three Months Ended
January 31, 1997 and 1996 3
Consolidated Condensed Balance Sheets -
January 31, 1997 and October 31, 1996 4
Consolidated Condensed Statements
of Cash Flows -- Three Months
Ended January 31, 1997 and 1996 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Index of Exhibits 17
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
(In thousands, except per share figures)
(Unaudited)
Three Months Ended
January 31,
1997 1996
-------- ------
Net sales of products $ 17,027 $ 13,554
Net service revenue 11,349 8,695
-------- --------
Net operating revenue 28,376 22,249
-------- --------
Cost of products sold 5,031 4,141
Cost of services provided 10,682 9,146
Selling, general and administrative
expense 7,946 6,759
Research and development expense 324 277
Amortization of intangibles 288 227
-------- --------
Income from operations 4,105 1,699
-------- --------
Interest expense 1,229 1,294
Other income, net 20 272
-------- --------
Income before income taxes 2,896 677
Provision for (benefit of) income taxes (414) 25
-------- --------
Net income $ 3,310 $ 652
======== ========
Earnings per share $ 0.28 $ 0.06
======== ========
Number of shares used to compute
earnings per share 11,880 11,707
======== ========
See accompanying notes.
3
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
January 31, October 31,
1997 1996
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 2,636 $ 6,837
Trade receivables, net 22,315 21,650
Inventories 11,000 10,363
Prepaid expenses and other current assets 4,565 3,645
--------- ---------
Total current assets 40,516 42,495
--------- ---------
Property, plant and equipment at cost 51,422 49,306
Less, accumulated depreciation and
amortization 15,203 14,632
--------- ---------
36,219 34,674
--------- ---------
Goodwill and other intangibles, net 21,481 21,468
Other assets 4,592 4,272
--------- ---------
$ 102,808 $ 102,909
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt, primarily Convertible
Debentures called for redemption
(see Note 3) $ 11,657 $ 844
Accounts payable 8,990 9,206
Employee compensation, benefits and
severance 4,391 6,418
Other accrued liabilities 7,265 7,303
Accrued income taxes 9,163 9,537
--------- ---------
Total current liabilities 41,466 33,308
--------- ---------
Long-term debt 38,323 47,920
Other noncurrent liabilities 4,344 6,351
--------- ---------
Total liabilities 84,133 87,579
--------- ---------
Stockholders' equity:
Common stock, $.10 par value 1,168 1,167
Additional paid-in capital 184,410 184,300
Other equity (deficit) (402) (326)
Accumulated deficit (166,501) (169,811)
--------- ---------
Total stockholders' equity 18,675 15,330
--------- ---------
$ 102,808 $ 102,909
========= =========
See accompanying notes.
4
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
January 31,
1997 1996
-------- --------
Net cash used by operating activities $ (2,252) $ (7,833)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and
equipment (2,234) (398)
Acquisition deposits (1,100) --
Other -- 183
-------- --------
Net cash used by investing activities (3,334) (215)
-------- --------
Cash flows from financing activities:
Proceeds from line of credit, net 1,529 683
Payments of long-term debt (190) (1,571)
Proceeds from exercise of warrants
and options 46 73
Proceeds from long-term note -- 1,336
-------- --------
Net cash provided by financing activities 1,385 521
-------- --------
Net decrease in cash and cash equivalents (4,201) (7,527)
Cash and cash equivalents - beginning of
period 6,837 11,207
-------- --------
Cash and cash equivalents - end of period $ 2,636 $ 3,680
======== ========
Cash paid for:
Interest (Net of amounts capitalized) $ 893 $ 917
======== ========
Income taxes $ 250 $ 34
======== ========
See accompanying notes.
5
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1. General
The Cooper Companies, Inc., (together with its subsidiaries, the "Company")
develops, manufactures and markets healthcare products, including a range of
hard and soft daily, flexible and extended wear contact lenses and diagnostic
and surgical instruments. The Company also provides healthcare services through
the ownership of psychiatric facilities and by providing outpatient and other
ancillary services.
During interim periods, the Company follows the accounting policies set forth in
its Form 10-K filed with the Securities and Exchange Commission. Readers are
encouraged to refer to the Company's Form 10-K and its Annual Report to
Stockholders for the fiscal year ended October 31, 1996 when reviewing this Form
10-Q. Quarterly results reported herein are not necessarily indicative of
results to be expected for other quarters.
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 January 31, 1997 and October 31,
1996 and the consolidated results of its operations and its consolidated cash
flows for the three months ended January 31, 1997 and 1996. Except for the
recording of a $290,000 reduction to the deferred tax asset valuation allowance,
based on Management's belief that the Company's future results will continue to
compare favorably with those of the prior year, adjustments consist only of
normal recurring items.
Note 2. 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:
January 31, October 31,
1997 1996
---------- -----------
(In thousands)
Raw materials $ 2,388 $ 2,318
Work-in-process 1,028 1,028
Finished goods 7,584 7,017
------ ------
$11,000 $10,363
====== ======
6
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 3. Long-Term Debt
Long-term debt consists of the following:
January 31, October 31,
1997 1996
----------- -----------
(In thousands)
10% Senior Subordinated
Secured Notes due 2003 $24,161 $24,285
10-5/8% Convertible Sub-
ordinated Reset Debentures
due 2005 9,221 9,220
Promissory notes 4,000 4,000
HGA term loan 10,509 10,675
Capitalized leases 560 584
------ ------
48,451 48,764
Less current installments 10,128 844
------ ------
$38,323 $47,920
====== ======
On March 5, 1997, the Company announced that it will call for redemption on
April 9, 1997 (the "Redemption Date") all $9,290,000 principal amount of its
10 5/8% Convertible Subordinated Reset Debentures due March 1, 2005
("Debentures") at 100% of principal value, plus unpaid interest through the
Redemption Date. On the Redemption Date, the redemption price and unpaid
interest on each Debenture then outstanding will become due and payable. No
interest will accrue or be paid on the Debentures after the Redemption Date.
As an alternative to redemption, holders may convert, at the rate of $15 per
share, any or all of their Debentures into shares of the Company's common stock
at any time up to 5:00 p.m. Eastern Standard Time on April 2, 1997. Holders who
elect to convert will receive approximately 66 shares of the Company's common
stock, plus cash in lieu of fractional shares, for each $1,000 principal amount
of Debentures converted, and will forfeit the right to receive any interest on
such Debentures after March 1, 1997. No gain or loss will be recorded by the
Company in connection with the redemption.
Note 4. Subsequent Event
On February 10, 1997, the Company announced that, subject to the approval of the
Federal Trade Commission ("FTC"), it had agreed to acquire in the United States
the Natural Touch'r' line of opaque contact lenses from Wesley-Jessen
Corporation ("W-J"). The Company's CooperVision, Inc. subsidiary will market
these
7
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
products. A deposit of $1,000,000 was paid to W-J in the first quarter, which is
refundable if the FTC does not approve the acquisition.
8
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 to the Notes to Consolidated Condensed
Financial Statements located in Item 1.
CAPITAL RESOURCES & LIQUIDITY
The Company's financial condition continues to strengthen in each of the
Company's business segments. On a consolidated basis, revenue improved by $6.1
million or 28%, and operating income improved by $2.4 million or 142% in the
first quarter of 1997 over the first quarter of 1996. In the first quarter of
each fiscal year, the Company experienced cash outflow from operations. In the
first quarter of fiscal 1997, operating cash usage was $2.3 million, which was a
$5.5 million improvement over the $7.8 million used in the first quarter of
1996. The major uses of cash in the first quarter 1997 included payments of $1.8
million associated with settlements of disputes and payments totaling $2.0
million to fund fiscal 1996 entitlements under the Company's annual bonus plans,
partially offset by normal operating cash flows for the quarter. First quarter
1996 cash outflows from operating activities included payments associated with
settlements of disputes of $4.4 million. Primary uses of cash for investing
activities in the first quarter of 1997 were purchases of property, plant and
equipment of $2.2 million, approximately $0.5 million of which relates to
CooperVision's expansion of the Scottsville, New York, plant, and approximately
$0.9 million related to the construction of the Midwest Center for Youth and
Families, a residential treatment center that HGA will open this March. Also,
the Company paid a $1 million deposit regarding the potential acquisition of the
Natural Touch'r' line of opaque contact lenses from Wesley-Jessen Corporation,
which acquisition is subject to the approval of the Federal Trade Commission.
Financing activities related primarily to a $1.5 million draw down on the
Company's line of credit which was used to support the operating and investing
activities. In February 1997, the Company's CooperVision subsidiary obtained a
15-year $3 million Industrial Development Bond to fund the Scottsville, New
York, expansion. The proceeds will be used for the construction and equipment
purchased.
The Company currently anticipates that operating cash flows of its existing
businesses will be positive for the remaining three quarters of fiscal 1997 and
that cash requirements for operating activities and the repayment of the line of
credit will be met through cash generated by its established operating
businesses.
The Company is evaluating acquisition opportunities which, if completed, would
be funded by a combination of cash then on hand, financing vehicles now in place
and additional capital raised by other methods.
9
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
On March 5, 1997, the Company announced that it will call for redemption on
April 9, 1997 all $9.3 million principal amount of its Debentures. The Company
expects that the redemption will not be dilutive to 1997 earnings. To the extent
that holders of any Debentures elect to redeem them for cash rather than
converting them into shares of the Company's common stock, the Company would
fund this requirement by using cash on hand and financing vehicles in place. See
Note 3 for a further discussion of the redemption.
RESULTS OF OPERATIONS
Three Months Ended January 31, 1997 Compared with Three Months Ended January 31,
1996.
NET SALES OF PRODUCTS: Net sales of products increased by $3.5 million or 26%:
Three Months Ended %
January 31, Increase
1997 1996 (Decrease)
---- ---- ---------
(In thousands)
CooperVision, Inc. ("CVI") $12,232 $10,070 21%
CooperSurgical, Inc. ("CSI") 4,795 3,484 38%
------- -------
$17,027 $13,554 26%
======= =======
Net sales of CVI increased both domestically and in Canada. The primary
contributors to the growth included increased sales of the Preference'r'
spherical product line and the Preference Toric'tm' product line, which together
grew by approximately 64% over the comparable three-month period. Sales of toric
lenses to correct astigmatism, CVI's leading product group, grew 47% over the
comparable three-month period and now account for 53% of its sales, up from 44%
last year. These increases were partially offset by anticipated decreases in
sales of more mature product lines.
At CSI, net sales increased by 38%. CSI's gynecology product lines grew by
approximately 64%, primarily due to sales of Unimar'r' products acquired in
April 1996. Sales of product in CSI's gynecology product line account for
approximately 90% of its total sales.
NET SERVICE REVENUE: Hospital Group of America, Inc.'s ("HGA") net service
revenue of $11.3 million increased by 31%. Late in the first quarter of fiscal
1996, a transition of the medical staff began at Hampton Hospital as a result of
the settlement of a dispute with the physician group that formerly staffed the
hospital. Before the changeover period, Hampton's revenue
10
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
declined significantly. Further, poor weather reduced admissions and outpatient
visits throughout HGA during the first quarter of fiscal 1996, and to a lesser
degree, the first quarter of 1997. Revenue continues to be pressured by the
current industry trend towards increased managed care, which results in
decreased per diems and declines in average lengths of stay. Management is
mitigating these pressures by increasing the number of admissions to its
hospitals, improving its payer mix and expanding outpatient and other ancillary
services.
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:
First Quarter Margin %
----------------------
1997 1996
---- ----
CVI 78 76
CSI 52 50
Consolidated 70 69
CVI's margin has increased due to efficiencies associated with higher production
volumes. Also, CVI's product mix continues to improve, with increased sales of
its toric contact lenses that generate higher margins.
Margin improved at CSI primarily due to the mix of sales between domestic and
international markets. In the first quarter of fiscal 1997, a larger percentage
of CSI's sales were made domestically, which sales typically generate higher
margin.
COST OF SERVICES PROVIDED: Cost of services provided represents all normal
operating costs (other than financing costs and amortization of intangibles)
incurred by HGA in generating net service revenue. The result of subtracting
cost of services provided from net service revenue is a profit of $667 thousand,
or 6%, of net service revenue in the first quarter of 1997 and a loss of $451
thousand, or (5%), in the first quarter of 1996. The increase in profit is
primarily attributable to a combination of improved revenue and cost controls.
11
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: Selling, general and administrative
(SG&A) expense by business unit and corporate were as follows:
Three Months Ended %
January 31, Increase
1997 1996 (Decrease)
------- -------- ----------
(In thousands)
CVI $ 4,782 $ 4,163 15%
CSI 1,798 1,281 40%
Corporate/other 1,366 1,315 4%
------- -------
$ 7,946 $ 6,759 18%
======= =======
SG&A expense for the three-month period increased 18%, largely as a result of
higher selling, promotion and distribution costs at CVI, which drove an 21%
year-to-year increase in sales. The increase in CSI SG&A expense is primarily a
result of the acquisition of the Unimar(R) products which contributed
significantly to its 38% increase in sales.
RESEARCH AND DEVELOPMENT EXPENSE: Research and development expense was $324
thousand and $277 thousand for the three-month periods ended January 31, 1997
and 1996, respectively.
INCOME FROM OPERATIONS: As a result of the variances discussed above, income
from operations improved by $2.4 million or 142% from the amount reported for
the 1996 first quarter. Income (loss) from operations for each business unit and
corporate was as follows:
Three Months Ended
January 31, Increase
1997 1996 (Decrease)
------- ------- ----------
(In thousands)
CVI $ 4,430 $ 3,229 $ 1,201
CSI 419 292 127
HGA 622 (502) 1,124
Corporate/Other (1,366) (1,320) (46)
------ ------ ------
$ 4,105 $ 1,699 $ 2,406
====== ====== ======
INTEREST EXPENSE: The decrease in interest expense primarily related to interest
on the line of credit at CVI on which the Company did not draw funds until late
in the first quarter of 1997 and reduced interest rates on the HGA term loan and
the CVI line of credit.
12
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The above decreases were partially offset by additional interest expense in the
first quarter of 1997 on the Promissory Notes issued in April 1996 related to
the Unimar acquisition.
PROVISION FOR INCOME TAXES: The 1997 provision for federal and state taxes of
$91 thousand was offset by a reversal of $215 thousand of tax accruals no longer
required, and the recognition of an additional income tax benefit of $290
thousand from reducing the valuation allowance against the net deferred tax
assets, based on Management's belief that the Company's future results will
continue to compare favorably with those of the prior year. The first quarter
1996 provision was for federal and state taxes.
FISCAL YEAR 1997 BUSINESS OUTLOOK: The following statements and any mention of
them above are based on current expectations that contain a number of risks and
uncertainties. These statements are forward-looking and actual results may
differ materially. Factors that could cause or contribute to such differences
include: major changes in business conditions and the economy in general, new
competitive inroads, costs to integrate acquisitions, decisions to invest in
research and development projects, regulatory and other delays on new products
and programs, unexpected changes in reimbursement rates and payer mix,
unforeseen litigation, any decision to divest certain businesses and the cost of
acquisition activity, particularly if a large acquisition is not completed.
The Company anticipates that its earnings per share for fiscal 1997 will range
from $1.55 to $1.65 including a deferred tax benefit of about 15 cents per share
and that its consolidated revenue and operating income will grow by more than
15% and 30%, respectively, in 1997, based mainly on these expectations:
CooperVision sales will grow at mid-teens percentages during fiscal 1997 as
it continues to gain market share in the toric segment of the global contact
lens market.
CooperSurgical is expected to continue to benefit from the 1996 acquisition
of Unimar and grow 1997 sales and operating income at double-digit rates as
the market for gynecologic procedures is increasingly driven by growth in
population of women over 45 years of age in the United States.
13
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
HGA revenue and operating income in 1997 is expected to achieve
double-digit growth through new outpatient clinics, geriatric programs and
lower cost residential treatment services, assuming that patient revenue and
operating expenses can continue successfully to adjust to changes in third
party reimbursement rates for psychiatric care.
14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- ------------
11 Calculation of Earnings Per Share.
27 Financial Data Schedule.
(b) The Company filed the following reports on Form 8-K during the period
from November 1, 1996 to January 31, 1997
Date of Report Item Reported
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December 12, 1996 Item 5. Other Events
January 10, 1997 Item 5. Other Events
January 30, 1997 Item 5. Other Events
15
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: March 6, 1997 /s/ Robert S. Weiss
-----------------------------------
Executive Vice President, Treasurer
and Chief Financial Officer
16
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as 'tm'
The registered trademark symbol shall be expressed as 'r'
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Index of Exhibits
Exhibit No. Page No.
- ---------- --------
11 Calculation of Earnings Per Share.
27 Financial Data Schedule.
17
Exhibit 11
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Calculation of Earnings Per Share
(In thousands, except per share figures)
(Unaudited)
Three Months Ended
January 31,
1997 1996
------ -------
Primary:
Net income $ 3,310 $ 652
======= =======
Weighted average number of common
shares outstanding 11,676 11,607
Number of common equivalent shares
using the treasury stock method 204 100
------- -------
Average number of common shares used
to compute earnings per share 11,880 11,707
======= =======
Earnings per share $ 0.28 $ 0.06
======= =======
Fully Diluted:
Net income $ 3,310 $ 652
======= =======
Weighted average number of common
shares outstanding 11,676 11,607
Number of common equivalent shares
using the treasury stock method 299 129
------- -------
Average number of common shares used
to compute earnings per share 11,975 11,736
======= =======
Earnings per share $ 0.28 $ 0.06
======= =======
5
1,000
3-MOS
OCT-31-1997
NOV-01-1996
JAN-31-1997
2,636
0
24,310
1,995
11,000
40,516
51,422
15,203
102,808
32,245
47,544
1,168
0
0
17,507
102,808
17,027
28,376
5,031
15,713
0
0
1,229
2,896
(414)
3,310
0
0
0
3,310
.28
.28
