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, 1997
( ) 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.
- --------------------------------------------------------------------------------
(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)
6140 Stoneridge Mall Rd., Suite 590, Pleasanton, CA 94588
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(510) 460-3600
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 14,749,300 Shares
- ------------------------------ ---------------------
Class Outstanding at
August 22, 1997
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of
Income - Three and Nine Months
Ended July 31, 1997 and 1996 3
Consolidated Condensed Balance Sheets -
July 31, 1997 and October 31, 1996 4
Consolidated Condensed Statements
of Cash Flows - Nine Months Ended
July 31, 1997 and 1996 5-6
Notes to Consolidated Condensed
Financial Statements 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13-19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
Index of Exhibits 22
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 Nine Months Ended
July 31, July 31,
--------------------- -------------------------
1997 1996 1997 1996
------ ------ ------ -----
Net sales of products $24,951 $18,001 $ 62,608 $47,339
Net service revenue 13,998 10,870 38,380 30,556
------ ------ ------- ------
Net operating revenue 38,949 28,871 100,988 77,895
------ ------ ------- ------
Cost of products sold 8,277 5,507 19,412 14,252
Cost of services provided 12,107 10,027 34,162 29,164
Selling, general and admin-
istrative expense 10,173 7,283 27,213 21,627
Research and development
expense 487 294 1,225 887
Amortization of intangibles 503 286 1,195 717
------ ------ ------- ------
Income from operations 7,402 5,474 17,781 11,248
------ ------ ------- ------
Interest expense 1,335 1,403 3,819 3,965
Other income, net 94 2 37 407
------ ------ ------- ------
Income before income taxes 6,161 4,073 13,999 7,690
Benefit of income taxes (1,025) (596) (1,870) (440)
------ ------ ------- ------
Net income $ 7,186 $ 4,669 $ 15,869 $ 8,130
====== ====== ======= ======
Earnings per share $ 0.55 $ 0.40 $ 1.28 $ 0.69
====== ====== ======= ======
Number of shares used to
compute earnings per share 12,981 11,793 12,365 11,741
====== ====== ====== ======
See accompanying notes.
3
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
July 31, October 31,
1997 1996
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 43,291 $ 6,837
Trade receivables, net 27,329 21,650
Inventories 13,871 10,363
Other current assets 4,625 3,645
--------- ---------
Total current assets 89,116 42,495
--------- ---------
Property, plant and equipment at cost 54,938 49,306
Less, accumulated depreciation and
amortization 16,451 14,632
--------- ---------
38,487 34,674
--------- ---------
Goodwill and other intangibles, net 37,246 21,468
Other assets 8,808 4,272
--------- ---------
$ 173,657 $ 102,909
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 34,407 $ 844
Trade accounts payable 6,523 4,574
Other current liabilities 16,249 18,353
Accrued income taxes 9,095 9,537
--------- ---------
Total current liabilities 66,274 33,308
--------- ---------
Long-term debt 8,841 47,920
Other noncurrent liabilities 2,845 6,351
--------- ---------
Total liabilities 77,960 87,579
--------- ---------
Stockholders' equity:
Common stock, $.10 par value 1,475 1,167
Additional paid-in capital 248,532 184,300
Accumulated deficit (153,942) (169,811)
Other (368) (326)
--------- ---------
Total stockholders' equity 95,697 15,330
--------- ---------
$ 173,657 $ 102,909
========= =========
See accompanying notes.
4
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
July 31,
1997 1996
-------- --------
Net cash provided (used) by operating
activities $ 2,918 $(2,094)
Cash flows from investing activities:
Acquisitions (7,145) (3,796)
Purchase of property, plant and
equipment (5,807) (1,958)
Investment in escrow funds (2,897) --
Other (358) 313
-------- --------
Net cash used by investing activities (16,207) (5,441)
-------- --------
Cash flows from financing activities:
Proceeds from follow-on offering, net 50,452 --
Payment on Wesley-Jessen promissory note (3,035) --
Proceeds from industrial development note 3,000 --
Payments of current installments of
long-term debt (699) (1,768)
Repayment of line of credit, net -- (180)
Proceeds from long-term debt -- 1,320
Other 25 99
-------- --------
Net cash provided (used) by financing
activities 49,743 (529)
-------- --------
Net increase (decrease) in cash and cash
equivalents 36,454 (8,064)
Cash and cash equivalents - beginning of
period 6,837 11,207
-------- --------
Cash and cash equivalents - end of period $ 43,291 $ 3,143
======== ========
See accompanying notes.
5
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows, Concluded
(In thousands)
(Unaudited)
Supplemental schedule of noncash investing and financing activities:
Acquisitions: 1997 1996
-------- --------
Fair value of assets $ 18,574 $ 9,661
Less:
Cash acquired (45) (404)
Cash paid (7,145) (3,796)
Company stock issued (4,662) --
Notes issued (4,500) (4,000)
-------- --------
Liabilities assumed and acquisition
costs accrued $ 2,222 $ 1,461
======== ========
In April 1996, the Company purchased the net assets of Unimar, Inc. by paying
$3.6 million in cash and issuing $4 million in promissory notes. See Note 4 for
a discussion of fiscal 1997 acquisitions.
See accompanying notes.
6
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 hard and soft
daily, flexible and extended wear contact lenses and diagnostic and surgical
instruments and equipment. 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 future 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, results of operations and cash flows
for those periods presented. Other than a reduction of $2.1 million to the
deferred tax asset valuation allowance recorded during the nine months ended
July 31, 1997, 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:
July 31, October 31,
1997 1996
------- -----------
(In thousands)
Raw materials $ 2,907 $ 2,318
Work-in-process 1,324 1,028
Finished goods 9,640 7,017
------ ------
$13,871 $10,363
====== ======
7
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Note 3. Long-Term Debt
Long-term debt consists of the following:
July 31, October 31,
1997 1996
------- -----------
(In thousands)
10% Senior Subordinated
Secured Notes due 2003 $23,923 $24,285
Promissory notes - Unimar 4,155 4,000
Promissory note - Wesley-Jessen
Corporation ("W-J") 1,517 --
County of Monroe Industrial
Development Agency ("COMIDA")
Bond 3,000 --
HGA term loan 10,175 10,675
10-5/8% Convertible Sub-
ordinated Reset Debentures
due 2005 - 9,220
Other 470 584
------ ------
43,240 48,764
Less, current installments 34,399 844
------ ------
$ 8,841 $47,920
====== ======
On July 29, 1997, the Company announced that it had called for redemption on
September 1, 1997, all $21.9 million principal amount of its 10% Senior
Subordinated Secured Notes due 2003 (the "Notes") at 100% of principal value
plus unpaid interest through September 1, 1997. No interest will accrue or be
paid on the Notes after September 1, 1997. It is anticipated that an
extraordinary gain will be recorded in the fourth quarter as a result of the
redemption.
The Company called for redemption on April 9, 1997 (the "Redemption Date") all
$9.3 million 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, holders of
47 Debentures received cash totaling an aggregate redemption price of $47,000
plus $527 of interest. Holders of $9.2 million of Debentures converted, at a
conversion price of $15 per share, all of their Debentures into shares of the
Company's common stock. A total of 616,187 shares of the Company's common stock,
plus $253 of cash in lieu of fractional shares, were issued upon such
conversions. The holders who converted forfeited the right to receive any
interest on such Debentures after March 1, 1997. No gain or loss was recorded by
the Company.
8
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Promissory Note - W-J
The W-J promissory note, due March 17, 2001, was issued in conjunction with the
acquisition of Natural Touch'r'. (See Note 4.) Interest on the W-J promissory
note is payable semi-annually and accrues at a rate of 12% per annum, of which
8% per annum is payable in cash and 4% per annum is payable in kind. On July 31,
1997, the Company repaid $3 million of the principal and associated unpaid
interest.
COMIDA Bond
The COMIDA bond is a $3 million Industrial Revenue Bond ("IRB") to finance the
cost of plant expansion, building improvements, and the purchase of equipment
related to CVI's Scottsville, New York, facility. Currently, interest on the IRB
is adjusted weekly. The interest rate in effect on August 22, 1997 was 3.75% per
annum. Interest rates have ranged from 3.45% to 4.85% per annum since the COMIDA
bond was issued. Principal repayments are made quarterly, beginning July 1997
and ending October 2012. At July 31, 1997, unutilized proceeds of $2.9 million
from the IRB, which must be used for the aforementioned project, are carried in
other assets. The IRB is secured by substantially all of CVI's rights to the
facility.
A letter of credit was issued by KeyBank National Association ("KeyBank") to
support certain obligations under the COMIDA bond. CVI is obligated to repay
KeyBank for draws under and expenses incurred in connection with the letter of
credit, pursuant to the terms of a Reimbursement Agreement, which is guaranteed
by the Company. The Reimbursement Agreement contains customary provisions and
covenants, including the maintenance of certain ratios and levels of net worth.
CVI and COMIDA have granted a mortgage lien on the building and real estate
located in Scottsville and a first lien security interest on the equipment
purchased under the bond proceeds to KeyBank to secure payment under the
Reimbursement Agreement.
Note 4. Acquisitions
NATURAL TOUCH'r' ACQUISITION
In March 1997, the Company acquired the United States rights to Natural
Touch'r', a line of opaque, cosmetic contact lenses, from W-J for $7.5 million
($3 million in cash and a $4.5 million promissory note, $3 million of which was
repaid on July 31, 1997)
9
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
plus an ongoing royalty ranging from 3% to 8% per annum on sales of Natural
Touch'r' products other than those supplied by W-J. The Company recorded
intangible assets of $8 million for the patents, trademarks and distribution
rights, which will be amortized over 7 to 15 years (the life of the patents or
trademark).
Presently, a subsidiary of W-J manufactures and supplies the Company with the
products for the Natural Touch'r' line. A divestiture order issued by the
Federal Trade Commission (the "FTC") in connection with the acquisition of the
Natural Touch'r' line requires that the Company either develop on its own the
manufacturing capabilities to produce the Natural Touch'r' line or find a
suitable third-party manufacturer to produce it. The FTC could require the
Company to divest itself of the Natural Touch'r' line if the Company has not
either developed manufacturing capabilities that meet United States Food and
Drug Administration ("FDA") approval or found a suitable third-party
manufacturer meeting FDA approval within 18 months from the closing date (which
deadline may be extended by an additional 24 months.
MARLOW ACQUISITION
In April 1997, the Company acquired Marlow Surgical Technologies, Inc.,
("Marlow"), a gynecology products company, for approximately $3.2 million in
cash, liquidation of $900,000 of Marlow debt and 144,800 shares of the Company's
common stock valued at $2.9 million at closing. As part of the acquisition, the
Company agreed to issue an additional $500,000 of its common stock (valued as of
the closing) on the third anniversary of the closing, subject to reduction by
the amount of any obligations of the seller to indemnify the Company in
connection with the acquisition. Also, the Company has guaranteed that the total
value of the shares of its common stock issued or to be issued in the
acquisition (valued at $3.4 million in total at closing) will appreciate by $1.3
million by the third anniversary of the acquisition. This guarantee has been
included in the purchase price, with a corresponding credit to additional paid
in capital. The acquisition has been accounted for as a purchase. Initially,
$8.4 million has been ascribed to goodwill, which is being amortized over 20
years.
Note 5. Cooper Life Sciences
In April 1997, the Company issued two term notes to Cooper Life Sciences, Inc.
("CLS") totaling $5 million and bearing interest at the prime rate per annum.
The CLS term notes were due January 1998. On July 31, 1997, the notes plus
accrued interest were repaid from the proceeds of the follow-on offering. (See
Note 6.) CLS owns approximately 1,192,133 shares (or
10
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
approximately 8%) of the Company's common stock. Two members of the Company's
Board of Directors were designated by CLS, and one member of the Company's board
owns the majority of the capital stock of CLS. In addition, two of these
directors are also directors of CLS.
Note 6. Supplementary Earnings Per Share Information
On July 23, 1997, the Company filed with the Securities and Exchange Commission
a prospectus supplement for the sale of 2,000,000 shares of the Company's common
stock at the offering price of $23 1/2 per share. The Company sold 2,300,000
shares of common stock (including 300,000 shares for over allotment). The
proceeds from the offering of $50.5 million, net of underwriters discount and
transaction costs of $3.6 million, was used and will be used to repay
outstanding indebtedness.
The following presents supplementary earnings per share information assuming the
proposed offering and the repayment of $34.7 million and $38.2 million of debt,
respectively, on the first day of fiscal 1996 and fiscal 1997:
Year Ended Nine Months
October 31, Ended July 31,
1996 1997
-------- --------------
Earnings per share:
From continuing operations $ 1.55 $ 1.32
Extraordinary item(1) .14 .10
------ ------
Earnings per share $ 1.69 $ 1.42
====== ======
Number of shares used to
compute earnings per
share (in thousands):
Historical 11,761 12,365
Shares, the proceeds of
which are assumed to be
used to repay outstanding
indebtedness 1,584 1,742
------ ------
Total 13,345 14,107
====== ======
- --------
(1) Represents the per share amount related to a net extraordinary gain, net of
taxes and prepayment penalties, of $1.4 million for the nine months ended July
31, 1997 and $1.8 million for the year ended October 31, 1996 related to the
assumed extinguishment of debt, as if such extinguishment had occurred on the
first day of the periods presented.
11
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Concluded
(Unaudited)
Note 7. Impact of Statements of Financial Accounting Standards Issued
But Not Adopted
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
will be effective for financial statements for periods ending after December 15,
1997, including interim periods, and established standards for computing and
presenting earnings per share. Earlier application is not permitted. Beginning
with its unaudited consolidated condensed financial statements for the first
quarter of fiscal 1998, the Company will make the required disclosures of basic
and diluted earnings per share and provide a reconciliation of the numerator and
denominator of its basic and diluted earnings per share computations. All prior
period earnings per share data will be restated by the Company upon adoption of
SFAS 128. The Company expects that basic earnings per share figures to be
reported under SFAS 128 will be somewhat higher than the figures historically
reported, due to the removal of common stock equivalents from the calculation of
average shares and that diluted earnings per share will not differ materially
from historically reported figures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130") which will be effective for financial statements for fiscal years
beginning after December 15, 1997, and establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Earlier application is permitted. The Company will
make the required reporting of comprehensive income beginning with its
consolidated financial statements for the fiscal year beginning November 1,
1998. Upon adoption, reclassification of comparative financial statements for
prior periods to reflect application of the provisions of SFAS 130 is required.
The Company does not expect that the adoption of this statement will have a
material impact on its financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") which will be effective for
financial statements for periods beginning after December 15, 1997, and
establishes standards for disclosures about segments of an enterprise. Earlier
application is encouraged. The Company will make the required disclosures under
SFAS 131 beginning with its consolidated financial statements for the year
ending October 31, 1999. Upon adoption, comparative information for earlier
years is to be restated.
12
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 located in Item 1.
RESULTS OF OPERATIONS
Three and Nine Months Ended July 31, 1997 Compared with Three and Nine Months
Ended July 31, 1996.
NET SALES OF PRODUCTS: Net sales of products increased by $7 million or 39% and
$15.3 million or 32% for the three and nine months ended July 31, 1997,
respectively.
(Dollars in 000's)
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------------------- ----------------------------------
1997 1996 % Incr. 1997 1996 % Incr.
----- ------ ------- ------ ------ -------
CVI* $17,815 $12,963 37% $44,922 $35,191 28%
CSI** 7,136 5,038 42% 17,686 12,148 46%
------ ------ ------ ------
$24,951 $18,001 39% $62,608 $47,339 32%
====== ====== ====== ======
* CVI = CooperVision, Inc.
** CSI = CooperSurgical, Inc.
Net sales of CVI increased both domestically and in Canada. The primary
contributors to the growth included increased sales of the Preference'r'
spherical and the Preference Toric'tm') product lines, which together grew by
approximately 48% over the comparable nine-month period. Sales of toric lenses
to correct astigmatism, CVI's leading product group, grew 40% over the
comparable nine-month period and accounted for 52% of its sales, up from 48%
last year. In March 1997, the Company acquired Natural Touch'r', a line of
opaque, cosmetic contact lenses (see Note 4), which contributed over $2.1
million of sales in fiscal 1997. These increases were partially offset by
anticipated decreases in sales of more mature product lines.
At CSI, year-to-date net sales increased by 46%. CSI's gynecology product lines
grew by approximately 60% over the period primarily due to sales of products
acquired in April 1996 (Unimar'r') and April 1997 (Marlow). (See Note 4.)
NET SERVICE REVENUE: Hospital Group of America, Inc.'s ("HGA") net service
revenue for the nine-month period of $38.4 million increased by 26% over the
prior year, as revenue generated by Hampton Hospital improved dramatically
following a successful transition of the physician group begun in the first
quarter of fiscal 1996.
13
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Revenue continues to be pressured by the trend toward increased managed care,
which results in decreased per diems and pressures average lengths of stay.
Management is mitigating these by increasing the number of admissions to its
hospitals, improving its payer mix and expanding outpatient and other ancillary
services. For the nine-month period ended July 31, 1997, admissions are up 22%,
and outpatient visits are up 57% over the same 1996 period. In April 1997, HGA
opened the Midwest Center for Youth and Families, a 50-bed residential treatment
facility in Kouts, Indiana, and set up a new management services division, which
contracts to manage behavioral health programs.
(Dollars in 000's)
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------------- ----------------------------
% Incr. %Incr.
1997 1996 (Decr.) 1997 1996 (Decr.)
---- ---- ------- ---- ---- -------
Licensed
inpatient
beds 319* 269 19% 319* 269 19%
Inpatient
admissions 1,616 1,373 18% 4,711 3,847 22%
Total
inpatient
days 20,392 15,932 28% 55,669 46,279 20%
Average length
of stay
(days) 11.6 11.6 -- 11.4 12.2 (7%)
Total
outpatient
visits 20,930 11,884 76% 54,081 34,476 57%
*Midwest Center for Youth and Families opened in April 1997, adding 50 licensed
inpatient beds.
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,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
CVI 73 77 76 76
CSI 52 51 52 51
Consolidated 67 69 69 70
14
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
CVI's margin for the third quarter 1997 was decreased by: 1) a write off of
approximately $300,000 of inventory and other costs related to an unsuccessful
attempt to gain access to the over-the-counter ophthalmic pharmaceutical market
in Canada and 2) increased sales of lower margin Natural Touch'r' products
purchased in March 1997.
Margin improved at CSI primarily due to cost reduction programs associated with
Unimar'r' products, acquired in April 1996.
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 $4.2 million, or 11%, and
$1.4 million, or 5%, of net service revenue in the first nine months of 1997 and
1996, respectively. The increase in profit resulted primarily from improved
revenue, particularly at Hampton Hospital and increased outpatient visits that
generate an operating margin approaching 20%, and with the benefit of concurrent
cost controls.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: Selling, general and administrative
(SG&A) expense by business unit and corporate ("HQ") were as follows:
(Dollars in 000's)
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------------------- --------------------------------
% Incr. % Incr.
1997 1996 (Decr.) 1997 1996 (Decr.)
------- ------- ------- ------- ------- -------
CVI $ 6,271 $ 4,051 55% $16,586 $12,567 32%
CSI 2,333 1,804 29% 6,303 4,518 40%
HQ/Other 1,569 1,428 10% 4,324 4,542 (5%)
------ ------ ------ ------
$10,173 $ 7,283 40% $27,213 $21,627 26%
====== ====== ====== ======
SG&A expense for the three- and nine-month periods increased 40% and 26%,
respectively, largely as a result of: (1) higher selling, promotion and
distribution costs at CVI, which contributed to a 28% year-to-year increase in
sales and (2) CSI SG&A expenses related to the Unimar and Marlow acquisitions,
which contributed to CSI's 46% year-to-year revenue increase. The decrease in
HQ/Other SG&A expenses for the nine-month period is primarily the result of
consolidating the executive headquarters.
15
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
INCOME FROM OPERATIONS: As a result of the variances discussed above, income
from operations improved by $1.9 million, or 35%, and $6.5 million, or 58%, for
the three-and nine-month periods, respectively. Income (loss) from operations by
business unit and HQ was as follows:
(Dollars in 000's)
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------------------- ---------------------------------
Incr.
1997 1996 (Decr.) 1997 1996 Incr.
------ ------ ------- ------ ------ --------
CVI $ 6,235 $ 5,625 $ 610 $16,230 $13,505 $ 2,725
CSI 890 491 399 1,792 1,064 728
HGA 1,846 792 1,054 4,083 1,238 2,845
HQ/Other (1,569) (1,434) (135) (4,324) (4,559) 235
------ ------ ------ ------ ------ ------
$ 7,402 $ 5,474 $ 1,928 $17,781 $11,248 $ 6,533
====== ====== ====== ====== ====== ======
INTEREST EXPENSE: The decrease in interest expense is primarily due to: (1)
reduced interest rates on the HGA term loan and the CVI line of credit, (2) the
Debenture redemption and (3) reduced borrowing on the line of credit at CVI.
These savings were partially offset by interest charges associated with the
Unimar Note, W-J Note, CLS Note and COMIDA Bond. (See Notes 3 and 5.)
PROVISION FOR INCOME TAXES: The 1997 provision for federal and state taxes for
the first nine months of $445,000 was offset by a reversal of $215,000 of tax
accruals no longer required, and the recognition of an additional benefit of
$2.1 million 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 Company recorded
no deferred tax benefit prior to the fourth quarter of its 1996 fiscal year. The
tax provision for the first nine months of fiscal 1996 was for federal and state
taxes of $175,000, offset by a reversal of $615,000 of tax accruals no longer
required.
16
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
CAPITAL RESOURCES & LIQUIDITY
OVERVIEW: During the third quarter, the Company raised $51.2 million in a public
offering of 2.3 million shares of its common stock. The offering was
underwritten by Deutsche Morgan Grenfell and PaineWebber Incorporated. As
indicated in the prospectus, the Company is using the proceeds to repay
outstanding indebtedness. Since the follow-on offering, the Company has repaid
approximately $22 million of debt (approximately $12 million of which was repaid
in the third quarter) and has called for redemption on September 1, 1997, all
$21.9 million principal amount of its 10% Senior Subordinated Secured Notes due
2003. Following these repayments, the Company's debt will be reduced to
approximately $9.1 million.
As previously announced, the Company expects to complete a $50 million secured
revolving credit facility in its fourth fiscal quarter. The facility would have
a term of five years, with borrowings having interest rates ranging from 0.5% to
2.25% over the London Interbank Offered Rates (LIBOR) depending on certain
financial ratios. The thirty day LIBOR was approximately 5 5/8% on August 25,
1997. The Company intends to use this debt financing to fund acquisitions and
for general corporate purposes.
In April 1997, the Company redeemed or converted into common stock all $9.3
million principal amount of its 10-5/8% Convertible Subordinated Reset
Debentures due 2005 (see Note 3), in a transaction that is not expected to be
dilutive to the Company's 1997 earnings.
As a result of these transactions and three quarters of profitable operations in
fiscal 1997 (bringing the number of consecutive profitable quarters to seven),
the Company's balance sheet has been dramatically strengthened since the 1996
fiscal year end. The Company's debt to equity ratio has improved from 3.2 to 1
at October 31, 1996 to 0.4 to 1 at July 31, 1997, with net worth up over 500% to
$95.7 million from $15.3 million. Also, cash, cash equivalents and restricted
cash net of debt has improved from a net debt position of $41.9 million at
October 31, 1996 to a net cash, cash equivalents and restricted cash position of
$2.9 million at July 31, 1997. With a competitively priced revolving credit
facility virtually in place and operations that should provide sufficient cash
to fund general corporate activities, management believes that the Company is
well positioned to pursue the acquisition opportunities it is currently
evaluating.
17
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
OPERATING CASH FLOWS: Cash provided by operating activities for the nine months
ended July 31, 1997 was $2.9 million compared with $2.1 million used by
operating activities in the first nine months of fiscal 1996. Operating
activities provided $3.5 million for the fiscal year 1996.
The primary uses of cash for operating activities in the first nine months of
1997 included payments of $4.7 million associated with settlements of certain
disputes and payments totaling $2 million to fund fiscal 1996 entitlements under
the Company's annual bonus plans. Cash disbursements for 1996 operating
activities for the same period included payments of $4.9 million associated with
settlements of certain disputes and payments totaling $2 million to fund fiscal
1995 entitlements under the Company's annual bonus plans.
INVESTING CASH FLOWS: Primary uses of cash for investing activities for the nine
months ended July 31, 1997 included purchases of property, plant and equipment
of $5.8 million, of which approximately $1.3 million relates to CooperVision's
expansion of the Scottsville, New York, plant and approximately $1.7 million
related to the construction of the Midwest Center for Youth and Families, a
residential treatment center that HGA opened in April 1997. Investing activities
also included cash paid for acquisitions of $3 million for Natural Touch(R), a
line of opaque contact lenses from Wesley-Jessen and $4.1 million for Marlow
Surgical Technologies, Inc., a gynecology products company (see Note 4),
investments in escrow funds of $2.9 million and other investment activities of
$0.4 million.
FINANCING CASH FLOWS: Financing activities primarily related to net proceeds
generated from the follow-on offering of $50.5 million (see Note 6), and the $3
million industrial development note and paydown of the Wesley-Jessen Corporation
promissory note by $3 million (see Note 3).
IMPACT OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ISSUED BUT NOT ADOPTED
See Note 7 for a discussion of the impact of the following Statements of
Financial Accounting Standards ("SFAS") issued but not adopted:
SFAS 128 "Earnings Per Share"
SFAS 130 "Reporting Comprehensive Income"
SFAS 131 "Disclosure About Segments of an Enterprise and
Related Information"
18
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Concluded
FORWARD-LOOKING STATEMENTS
Statements contained in this document that are not based on historical fact may
be "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may be identified by
use of forward-looking terminology such as "may," "will," "expect," "estimate,"
"anticipate," "continue" or similar terms. Certain statements in the Company's
periodic and other filings with the Securities and Exchange Commission,
including all the statements under the headings "Risk Factors" and "Recent
Developments" in the Prospectus and Prospectus Supplement for shares of the
Company's common stock attached as an exhibit to a Form 8-K filed July 23, 1997,
constitute cautionary statements identifying important factors that could cause
actual results to differ materially from those contained in the forward-looking
statements. Additional factors that could cause or contribute to differences
include: major changes in business conditions and the economy in general; loss
of key members of senior management; new competitive inroads; costs to integrate
acquisitions; decisions to invest in research and development projects; dilution
to earnings per share associated with acquisitions or stock issuance; regulatory
issues; unexpected changes in reimbursement rates and payor mix; costs
associated with debt restructuring; unforeseen litigation and decisions to
divest businesses. Future results are also dependent on each subsidiary of the
Company meeting specific objectives.
19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
10.19 Letter Agreement Dated April 11, 1997, By and
Between Mark R. Russell and Hospital Group of
America, Inc.
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 May 1, 1997 to July 31, 1997.
Date
of Report Item Reported
--------- -------------
May 21, 1997 Item 5. Other Events.
June 2, 1997 Item 5. Other Events.
July 22, 1997 Item 5. Other Events.
July 23, 1997 Item 5. Other Events.
July 29, 1997 Item 5. Other Events.
20
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: August 29, 1997 /s/ Robert S. Weiss
-----------------------------------
Executive Vice President, Treasurer
and Chief Financial Officer
21
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Index of Exhibits
Exhibit No. Page No.
---------- --------
10.19 Letter Agreement Dated April 11, 1997,
By and Between Mark R. Russell and
Hospital Group of America, Inc.
11 Calculation of Earnings Per Share.
27 Financial Data Schedule.
22
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as................................'tm'
The registered trademark symbol shall be expressed as......................'r'
Exhibit 10.19
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
April 11, 1997
Mr. Mark R. Russell
c/o Hospital Group of America, Inc.
1256 Drummers Lane, Suite 107
Wayne, PA 19087
Re: Employment Agreement with Hospital Group of America, Inc.
Dear Mark:
Reference is made to the Employment Agreement ("Employment Agreement")
dated as of May 27, 1992 between you and Hospital Group of America, Inc.
("HGA"), as amended by the letter agreement effective as of June 15, 1993 among
you, HGA and PSG Management, Inc. ("PSG") and as further amended by Steven G.
Singer's memorandum to you dated November 12, 1993 and by the letter agreements
effective as of January 11, 1996 and April 15, 1996 among you, HGA and PSG.
HGA and PSG each hereby ratifies and confirms the Employment Agreement
in all respects, except that effective as of the date hereof, clause (a) of
Section 1 of the Employment Agreement shall be amended to read in its entirety
as follows: (a) July 1, 1999, and'.
The provisions of Sections 9,10 and 11(c) of the Employment Agreement
shall be deemed incorporated in this Agreement as if fully set forth herein.
Kindly evidence your agreement with the foregoing amendments to the
Employment Agreement by signing in the space provided below for your signature.
Very truly yours,
HOSPITAL GROUP OF AMERICA, INC.
By: /s/ Carol R Kaufman
---------------------------------
PSG MANAGEMENT, INC.
By: /s/ Carol R Kaufman
---------------------------------
Agreed to and accepted this
14th day of April, 1997, to
be effective as of the
date set forth above.
/s/ Mark R. Russell
- ---------------------------
Mark R. Russell
23
Exhibit 11
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Calculation of Earnings Per Share
(In thousands, except per share figures)
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
1997 1996 1997 1996
------- ------- ------- -------
Primary:
Net income $ 7,186 $ 4,669 $15,869 $ 8,130
======= ======= ======= =======
Weighted average
number of common
shares outstanding 12,645 11,657 12,083 11,639
Number of common
equivalent shares
using the treasury
stock method 336 136 282 102
------- ------- ------- -------
Average number of
common shares used
to compute earnings
per share 12,981 11,793 12,365 11,741
======= ======= ======= =======
Earnings per share $ .55 $ .40 $ 1.28 $ .69
======= ======= ======= =======
Fully Diluted:
Net income $ 7,186 $ 4,669 $15,869 $ 8,130
======= ======= ======= =======
Weighted average
number of common
shares outstanding 12,645 11,657 12,083 11,639
Number of common
equivalent shares
using the treasury
stock method 437 168 352 154
------- ------- ------- -------
Average number of
common shares used
to compute earnings
per share 13,082 11,825 12,435 11,793
======= ======= ======= =======
Earnings per share $ .55 $ .39 $ 1.28 $ .69
======= ======= ======= =======
24
5
1,000
9-MOS
OCT-31-1997
JUL-31-1997
43,291
0
29,922
2,593
13,871
89,116
54,938
16,451
173,657
66,274
8,587
0
0
1,475
94,222
173,657
62,608
100,039
19,412
53,574
0
0
3,819
13,999
(1,870)
15,869
0
0
0
15,869
1.28
1.28
