================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000 COMMISSION FILE NO. 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) IDENTIFICATION NO.)
6140 STONERIDGE MALL ROAD, SUITE 590 94588
PLEASANTON, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
925-460-3600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
Common Stock, $.10 Par Value, and New York Stock Exchange
associated Rights
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of
the registrant as of December 31, 2000: Common Stock, $.10 Par Value -
$567,548,890.
Number of shares outstanding of the registrant's common stock, as of
December 31, 2000: 14,472,890.
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT PART OF FORM 10-K
-------- -----------------
Portions of the Annual Report to Stockholders for the Parts I and II
fiscal year ended October 31, 2000
Portions of the Proxy Statement for the Annual Part III
Meeting of Stockholders to be held March 28, 2001
================================================================================
PART I
ITEM 1. BUSINESS.
INTRODUCTION
The Cooper Companies, Inc. (the "Company," "Cooper" or "we" and similar
pronouns), through its principal subsidiaries, develops, manufactures and
markets healthcare products. CooperVision ("CVI") markets a range of contact
lenses to correct visual defects, specializing in toric lenses that correct
astigmatism. Its leading products are disposable-planned replacement toric and
spherical lenses. CVI also markets conventional toric and spherical lenses and
lenses for patients with more complex vision disorders. CooperSurgical ("CSI")
markets diagnostic products, surgical instruments and accessories to the women's
healthcare market.
FORWARD-LOOKING STATEMENTS
Some of the information included in this report contains
"forward-looking statements" as defined by the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include all statements regarding
anticipated growth in our revenue, anticipated market conditions and results of
operations. To identify forward-looking statements, look for words like
"believes," "expects," "may," "will," "should," "seeks," "intends," "plans,"
"estimates" or "anticipates" and similar words or phrases. Discussions of
strategy, plans or intentions often contain forward-looking statements. These,
and all forward-looking statements, necessarily depend on assumptions, data or
methods that may be incorrect or imprecise.
Events, among others, that could cause actual results and future
actions to differ materially from those described by or contemplated in the
forward-looking statements include major changes in business conditions, a major
disruption in the operations of our manufacturing facilities, new competitors or
technologies, the impact of an undetected virus on our computer systems,
acquisition integration delays or costs, foreign currency exchange exposure,
investments in research and development and other start-up projects, dilution to
earnings per share from acquisitions or issuing stock, regulatory issues,
significant environmental cleanup costs above those already accrued, litigation
costs, costs of business divestitures, the requirement to provide for a
significant liability or to write off significant assets, changes in accounting
principles or estimates, and other factors described in our Securities and
Exchange Commission filings, including the "Business" section in this Form 10-K
for the year ended October 31, 2000 and the related portions of the Company's
2000 Annual Report to Stockholders ("2000 Annual Report") incorporated here by
reference. The 2000 Annual Report is included as Exhibit 13 to this Form 10-K.
We caution investors not to rely on forward-looking statements. They reflect our
analysis only on their stated dates or the date of this report. We disclaim any
intent or obligation to update these forward-looking statements.
GENERAL DESCRIPTION AND DEVELOPMENT OF BUSINESSES
The information required by this item is incorporated by reference to
the caption "To Our Shareholders" and the additional "CooperSurgical:
Consolidating Women's Healthcare for Profitable Growth" section in the 2000
Annual Report.
2
RESEARCH AND DEVELOPMENT
Company-sponsored research and development expenditures during the
fiscal years ended October 31, 2000, 1999 and 1998 were $2.7 million, $2 million
and $1.9 million, respectively. During fiscal 2000, CooperVision spent about 60%
and CooperSurgical spent about 40% of the total. Cooper did not conduct any
customer-sponsored research and development programs.
Cooper employs 26 people in its research and development and
manufacturing engineering departments. Outside specialists in lens design,
formulation science, polymer chemistry, microbiology and biochemistry support
product development and clinical research for CVI products. CSI conducts
research and development in-house and also employs outside surgical specialists,
including members of its surgical advisory board.
GOVERNMENT REGULATION
The U.S. Food and Drug Administration ("FDA"), other federal agencies
and foreign ministries of health regulate the development, testing, production
and marketing of the Company's products. The Federal Food, Drug and Cosmetic Act
and other statutes and regulations govern the testing, manufacturing, labeling,
storage, advertising and promotion of these products. If applicable regulations
are not followed, companies may be subject to fines, product recall or seizure,
suspension of production and criminal prosecution.
Cooper develops and markets medical devices under different levels of
FDA regulation depending upon the classification of the device. Class III
devices, such as flexible and extended wear contact lenses, require extensive
premarket testing and approval, while Class I and II devices require
substantially lower levels of regulation.
Before a new contact lens can be sold commercially, CVI must complete
these steps: (1) compile data on its chemistry and toxicology, (2) determine its
microbiological profile and (3) define the proposed manufacturing process. This
data must be submitted to the FDA to support an application for an
Investigational Device Exemption. Once this is granted, clinical trials can
begin. These are subject to review and approval by an Institutional Review Board
and, where a lens is determined to have a significant risk, the FDA. After the
clinical trials are completed, a Premarket Approval Application must be
submitted and approved by the FDA.
In connection with some of Cooper's new products, we can submit an
expedited procedure known as a 510(k) application for premarket notification to
the FDA. Any product that can demonstrate that it is substantially equivalent to
another device marketed before May 28, 1976 can use this procedure. If the new
product is not substantially equivalent to a preexisting device or if the FDA
rejects a claim of substantial equivalence, FDA approval to market would require
extensive preclinical and clinical testing. This would increase the cost and
would delay product marketing substantially.
FDA and state regulations also require the Company to adhere to
applicable "good manufacturing practices" ("GMP"). They require detailed quality
assurance and record keeping and periodic unscheduled regulatory inspections.
The Company believes it is in compliance with GMP regulations.
Health authorities in foreign countries regulate Cooper's clinical
trials and medical device sales. The regulations vary widely from country to
country. Even if the FDA has approved a product, the regulatory agencies in each
country must approve new products before they are marketed.
These regulatory procedures require considerable resources and usually
result in a substantial time lag between new product development and marketing.
Cooper cannot assure that all necessary approvals will be obtained, or obtained
in a timely manner. If the Company does not maintain compliance with regulatory
standards or if problems occur after marketing, product approval may be
withdrawn.
3
ISO 9000 CERTIFICATION AND CE MARK APPROVAL
In addition to FDA regulatory requirements, the Company also maintains
ISO 9000 certification and CE Mark approvals for all lens products. These
quality programs and approvals are required by the European Medical Device
Directive and must be maintained for all products intended to be sold in the
European market. In order to maintain these prestigious quality benchmarks, the
Company is subjected to rigorous biannual reassessment audits of their quality
systems and procedures.
RAW MATERIALS
In general, CVI's raw materials consist of various polymers and
packaging materials. There are alternative supply sources of all of these
materials. Raw materials used by CSI or its suppliers are generally available
from more than one source. However, because some products require specialized
manufacturing procedures, CSI could experience inventory shortages if it were
required to use an alternative manufacturer on short notice.
MARKETING AND DISTRIBUTION
In the United States, Canada and some European countries, CVI markets
its products through its field sales representatives, who call on
ophthalmologists, optometrists, opticians and optical chains. In the United
States, field sales representatives also call on distributors. In Japan and
certain European countries, CVI uses distributors and has given them the
exclusive right to market our products.
CSI's products are marketed worldwide by a network of field sales
representatives and distributors. In the United States, Cooper augments its
sales and marketing activities by employing e-commerce, telemarketing, direct
mail, advertising in professional journals, and the use of a direct mail
catalog.
PATENTS, TRADEMARKS AND LICENSING AGREEMENTS
Cooper owns or licenses a variety of domestic and foreign patents
which, in total, are material to its businesses. The names of certain of
Cooper's products are protected by trademark registrations in the United States
Patent and Trademark Office and, in some cases, also in foreign trademark
offices. Applications are pending for additional trademark registrations. Cooper
aggressively enforces and defends its patents and other proprietary technology.
DEPENDENCE ON CUSTOMERS
Neither of Cooper's business segments depends on any one customer or
any one affiliated group of customers.
GOVERNMENT CONTRACTS
Cooper's business is not materially subject to profit renegotiation or
termination of contracts or subcontracts at the election of the United States
government.
4
COMPETITION
Each of Cooper's businesses operates in a highly competitive
environment. Competition in the healthcare industry revolves around the search
for technological and therapeutic innovations in the prevention, diagnosis and
treatment of illness or disease. Cooper competes primarily on the basis of
product quality and differentiation, technological benefit, service and
reliability.
Many companies develop and manufacture contact lenses. CVI competes
primarily on its product quality, service and reputation among medical
professionals. It sponsors clinical studies to generate medical information to
improve its lenses. Major competitors have greater financial resources and
larger research and development and sales forces than CVI. Many of these
competitors offer a greater range of contact lenses and a variety of other
eyecare products, including lens care products and ophthalmic pharmaceuticals,
which may give them a competitive advantage in marketing their lenses to high
volume contract accounts.
In the surgical segment where Cooper concentrates on Women's
healthcare, competitive factors include technological and scientific advances,
product quality, price and effective communication of product information to
physicians and hospitals. CSI believes that it benefits from the technological
advantages of certain of its products and from developing new medical procedures
that can create new markets for equipment and instruments. CSI competes by
focusing on distinct niche markets and by supplying these with high quality
equipment, instruments and disposable products. For certain procedures, medical
practitioners can obtain all of the equipment, instruments and disposable
products from CSI. As CSI develops products for new medical procedures, it
offers to train medical professionals to perform them. CSI competes with a
number of manufacturers in each of its niche markets, including larger
manufacturers with greater financial and personnel resources who sell a
substantially larger number of product lines.
BACKLOG
Backlog is not a material factor in Cooper's businesses.
SEASONALITY
CVI's contact lens sales in the first fiscal quarter are typically
lower than subsequent quarters, as fewer patients visit practitioners during the
holiday season.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Federal, state and local provisions that regulate the discharge of
materials into the environment, or relate to the protection of the environment,
do not currently materially affect Cooper's capital expenditures, earnings or
competitive position. Refer to "Environmental" in Note 11 of Notes to
Consolidated Financial Statements of the Company included in the 2000 Annual
Report, regarding certain anticipated remediation costs is incorporated here by
reference.
WORKING CAPITAL
Cooper's businesses have not required any material working capital
arrangements in the past five years.
5
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS, GEOGRAPHIC AREAS,
FOREIGN OPERATIONS AND EXPORT SALES
The information required by this item is incorporated here by reference
to Note 12 "Business Segment Information" of Notes to Consolidated Financial
Statements of the Company included in the 2000 Annual Report.
EMPLOYEES
On October 31, 2000, Cooper had approximately 2,100 employees. The
Company believes that its relations with its employees are good.
ITEM 2. PROPERTIES.
The following are Cooper's principal facilities as of October 31, 2000:
APPROXIMATE OWNED
FLOOR AREA OR LEASE
LOCATION OPERATIONS (SQ. FT.) LEASED EXPIRATION
-------- ---------- --------- ------ ----------
United States
Pleasanton, CA Executive Offices 13,700 Leased Sept. 2005
Lake Forest, CA Executive Offices
and CVI Offices 8,100 Leased Jan. 2005
Huntington Beach, CA CVI Manufacturing &
Technical Offices 20,600 Leased March 2002
Fairport, NY CVI Administrative
Offices & Marketing 23,500 Leased April 2003
Scottsville, NY CVI Manufacturing
and Research 49,500 Owned N/A
Henrietta, NY CVI Distribution
and Warehouse Facility 56,000 Leased Feb. 2003
Shelton, CT CSI Manufacturing,
Research and
Development, Marketing,
Distribution and
Warehouse Facilities 35,000 Leased April 2002
Canada
Markham, Ont. CVI Offices,
Manufacturing
Distribution and
Warehouse Facilities 23,000 Leased Feb. 2005
United Kingdom
Hamble, Hampshire, Aspect Manufacturing,
England Research and Development,
Marketing and Admin.
Offices 93,800 Owned N/A
Fareham, Hampshire, Distribution and Customer
England Service 30,800 Leased Jan. 2018
Fareham, Hampshire, Manufacturing and
England Warehouse 27,100 Leased June 2018
The Company believes its properties are suitable and adequate for its
businesses.
6
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of fiscal 2000, the Company did not submit
any matters to a vote of the Company's security holders.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated here by reference
to "Quarterly Common Stock Price Range" and "Corporate Information" in the 2000
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated here by reference
to "Five Year Financial Highlights" in the 2000 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this item is incorporated here by reference
to "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the 2000 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is primarily exposed to market risks that relate
principally to changes in interest rates and foreign currency fluctuations. The
Company's policy is to minimize, to the extent reasonable and practical, its
exposure to the impact of changing interest rates and foreign currency
fluctuations by entering into interest rate swaps and foreign currency forward
exchange contracts, respectively. The Company does not enter into derivative
financial instrument transactions for speculative purposes. Additional
information for this item is incorporated here by reference to "Derivatives" in
Note 1 "Summary of Significant Accounting Policies" and in Note 7 "Financial
Instruments" in the 2000 Annual Report.
LONG-TERM DEBT
Proceeds from the sale of Hospital Group of America ("HGA"), our former
psychiatric services business, were used to pay down debt carrying an average
interest rate of approximately 7%. Total debt was reduced to $48.4 million at
October 31, 2000 from $62 million at October 31, 1999:
October 31, 2000 October 31, 1999
---------------- ----------------
(In millions)
Short term $ 8.1 $ 4.9
Long term 40.3 57.1
----- -----
Total $48.4 $62.0
===== =====
On an annualized basis the debt reduction would result in a decrease in
interest expense of approximately $1 million, assuming we do not raise debt for
other purposes.
8
As of October 31, 2000, the scheduled maturities of each of the
Company's fixed and variable rate long-term debt obligations (excluding
capitalized leases), their weighted average interest rates and their estimated
fair values were as follows:
Expected Maturity Date - Fiscal Year
--------------------------------------------------------------
There- Fair
2001 2002 2003 2004 2005 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
($ in Millions)
Long-term debt:
Fixed interest rate $ - $ - $20.7 $ - $ - $ - $20.7 $20.7
Average interest rate 8.0% 8.0% 8.0%
Variable interest rate $0.5 $0.6 $ 4.3 $0.6 $0.6 $8.2 $14.8 $14.8
Average interest rate 6.6% 6.7% 6.6% 6.7% 6.7% 6.8%
INTEREST RATE EXPOSURES
The Company enters into interest rate swap agreements to minimize the
impact of changes in interest rates on its variable rate long-term debt
obligations. The Company currently has two interest rate swap agreements on a
total of $6.7 million of its outstanding variable rate debt obligations. These
instruments have the effect of converting variable rate instruments to fixed
rate instruments. The swaps fix the interest rate at 4.9% on $2.5 million
variable-rate debt due January 2012 and at 7.1% on $4.2 million variable-rate
due April 2003. The table below shows the notional amount and weighted average
interest rates of each of the Company's interest rate swaps by maturity. The
receive rate is based on October 31, 2000 rates, and projected based on the
consumer price index. Notional amounts are used to calculate the contractual
payments to be made under the contracts.
Notional Amounts Maturing in Fiscal Year
--------------------------------------------------------------
There- Fair
2001 2002 2003 2004 2005 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
($ in Millions)
Interest rate swaps:
Variable to fixed $0.2 $0.3 $0.3 $0.3 $0.3 $1.1 $2.5 $2.5
Average pay rate 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9%
Average receive rate 5.1% 5.2% 5.4% 5.6% 5.8% 6.6% 6.1%
Variable to fixed $ - $ - $4.2 $ - $ - $ - $4.2 $4.1
Average pay rate 7.1% 7.1% 7.1% 7.1%
Average receive rate 6.6% 6.8% 7.1% 6.2%
FOREIGN CURRENCY EXPOSURES
The Company uses forward exchange contracts to minimize the effect of
foreign currency fluctuations on its intercompany receivables denominated in
Canadian dollars and its long-term debt obligations denominated in Great Britain
Pounds ("GBP"), incurred to fund a portion of the Company's acquisition of
Aspect Vision Care Ltd. (see caption "Aspect Acquisition" in Note 2
"Acquisitions" in the 2000 Annual Report, which is incorporated here by
reference). The following table provides information on the Company's foreign
currency forward exchange contracts. The information is provided in U.S. Dollar
equivalent amounts, which is the way it is presented in the Company's financial
statements. The table shows the notional amounts at the contract exchange rates
and the weighted average contractual foreign currency exchange rates by expected
maturity dates.
9
Notional Amounts Maturing in Fiscal Year
--------------------------------------------------------------
There- Fair
2001 2002 2003 2004 2005 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
Foreign contracts to buy GBP:
Notional amount (in millions) $ 5.3 $ 5.6 $23.4 $13.6 $ - $ - $48.0 $44.3
Average contractual exchange rate $1.57 $1.62 $1.62 $1.53 $ - $ - $1.58
Foreign contracts to sell Canadian $:
Notional amount (in millions) $ 2.9 $ - $ - $ - $ - $ - $ 2.9 $ 2.9
Average contractual exchange rate: $ .67 $ - $ - $ - $ - $ - $ .67
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is incorporated here by reference
to "Consolidated Balance Sheets," "Consolidated Statements of Income,"
"Consolidated Statements of Cash Flows," "Consolidated Statements of
Comprehensive Income," "Notes to Consolidated Financial Statements,"
"Independent Auditors' Report" and "Two Year Quarterly Financial Data" in the
2000 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information included under the heading "Election of Directors" and
"Executive Officers of the Company" in the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held on March 28, 2001 (the "2001 Proxy
Statement") is incorporated by reference for each of the Company's directors and
the executive officers who are not also directors of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
The information included under the subheadings "Executive Compensation"
and "Compensation of Directors" of the "Election of Directors" section of the
2001 Proxy Statement is incorporated by reference for the Company's chief
executive officer, the four other most highly compensated executive officers of
the Company and the Company's directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information included under the subheadings "Securities Held by
Management" and "Principal Security Holders" of the "Election of Directors"
section of the 2001 Proxy Statement is incorporated by reference with respect to
certain beneficial owners, the directors and management.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated here by reference
to the heading "Aspect Acquisition" in Note 2 "Acquisitions" in the 2000 Annual
Report.
11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Accountants' Consent and Report on Schedule.
2. Financial Statement Schedule of the Company.
SCHEDULE
NUMBER DESCRIPTION
------ -----------
Schedule II Valuation and Qualifying Accounts
3. Exhibits
The exhibits listed on the accompanying Exhibit Index are
filed as part of this report.
All other schedules which are included in the applicable
accounting regulations of the Securities and Exchange Commission
are not required here because they are not applicable.
(b) Reports filed on form 8-K:
Cooper filed the following reports on Form 8-K during the
period August 1, 2000 through October 31, 2000.
August 24, 2000 -- Item 5. Other Events.
October 18, 2000 -- Item 5. Other Events.
12
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors THE COOPER COMPANIES, INC.
Under date December 8, 2000, we reported on the consolidated balance
sheets of The Cooper Companies, Inc. and subsidiaries (the "Company") as of
October 31, 2000 and 1999, and the related consolidated statements of income,
comprehensive income and cash flows for each of the years in the three-year
period ended October 31, 2000, which are incorporated herein by reference. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in Item 14 of the Annual Report on Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
We consent to incorporation by reference in Registration Statement Nos.
33-50016, 33-11298, 333-22417, 333-25051, 333-27639, 333-80795, 333-48152 and
333-34206 on Forms S-3 and Registration Statement Nos. 333-10997, 33-27938,
33-36325, 33-36326 and 333-58839 on Forms S-8 of The Cooper Companies, Inc. of
our reports dated December 8, 2000, relating to the consolidated balance sheets
of The Cooper Companies, Inc. and subsidiaries as of October 31, 2000 and 1999
and the related consolidated statements of income, comprehensive income and cash
flows for each of the years in the three-year period ended October 31, 2000, and
related schedule, which reports appear in or are incorporated by reference to
the October 31, 2000 Annual Report on Form 10-K of The Cooper Companies, Inc.
KPMG LLP
San Francisco, California
January 25, 2001
13
SCHEDULE II
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED OCTOBER 31, 2000
ADDITIONS
BALANCE AT CHARGED TO (DEDUCTIONS)/ BALANCE
BEGINNING COSTS AND RECOVERIES/ AT END
OF YEAR EXPENSES OTHER (1) OF YEAR
------- -------- --------- -------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended October 31, 2000.....................$ 1,136 $ 426 $ 878 $ 2,440
======== ======= ======= ========
Year ended October 31, 1999.....................$ 1,087 $ 321 $ (272) $ 1,136
======== ======= ======= ========
Year ended October 31, 1998.....................$ 721 $ 283 $ 83 $ 1,087
======== ======= ======== ========
(1) Consists of additions representing acquired allowances and recoveries,
less deductions representing receivables written off as uncollectible.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on January 26, 2001.
THE COOPER COMPANIES, INC.
By: /s/ A. THOMAS BENDER
----------------------------------
A. THOMAS BENDER
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the dates set forth opposite their
respective names.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ ALLAN E. RUBENSTEIN, M.D. Chairman of the Board of Directors January 26, 2001
----------------------------------
(ALLAN E. RUBENSTEIN)
/s/ A. THOMAS BENDER President, Chief Executive Officer January 26, 2001
---------------------------------- and Director
(A. THOMAS BENDER)
/s/ ROBERT S. WEISS Executive Vice President, Treasurer, January 26, 2001
---------------------------------- Chief Financial Officer and Director
(ROBERT S. WEISS)
/s/ STEPHEN C. WHITEFORD Vice President and Corporate January 26, 2001
---------------------------------- Controller
(STEPHEN C. WHITEFORD)
/s/ MICHAEL H. KALKSTEIN Director January 26, 2001
----------------------------------
(MICHAEL H. KALKSTEIN)
/s/ MOSES MARX Director January 26, 2001
----------------------------------
(MOSES MARX)
/s/ DONALD PRESS Director January 26, 2001
----------------------------------
(DONALD PRESS)
/s/ STEVEN ROSENBERG Director January 26, 2001
----------------------------------
(STEVEN ROSENBERG)
/s/ STANLEY ZINBERG, M.D. Director January 26, 2001
----------------------------------
(STANLEY ZINBERG)
15
EXHIBIT INDEX
LOCATION OF
EXHIBIT IN
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBER SYSTEM
- ------- ----------------------- --------------
3.1 - Restated Certificate of Incorporation, as partially
amended, incorporated by reference to Exhibit 4(a) to the
Company's Registration Statement on Form S-3 (No. 33-17330)
and Exhibits 19(a) and 19(c) to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 30,
1988.................................. .....................
3.2 - Certificate of Amendment of Restated Certificate of
Incorporation dated September 21, 1995 incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1995 .......
3.3 - Amended and Restated By-Laws dated December 16, 1999,
incorporated by reference to Exhibit 3.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1999............................ ...............
3.4 - Certificate of Amendment of Certificate of Incorporation
dated May 24, 2000 ..................... ...................
4.1 - Certificate of Elimination of Series A Junior Participating
Preferred Stock of The Cooper Companies, Inc. filed with
the Delaware Secretary of State on October 30, 1997,
incorporated by reference to Exhibit 4.1 on Form 10-K for
fiscal year ended October 31, 1997...........................
4.2 - Rights Agreement, dated as of October 29, 1997, between the
Company and American Stock Transfer & Trust Company,
incorporated by reference to Exhibit 4.0 to the Company's
Current Report on Form 8-K dated October 29, 1997 ...........
4.3 Amendment No. 1 to Rights Agreement dated September 26,
1998, incorporated by reference to Exhibit 99.1 of the
Company's Current Report on Form 8-K dated September 25,
1998.................................... ....................
4.4 - Certificate of Designations of Series A Junior
Participating Preferred Stock of The Cooper Companies,
Inc., incorporated by reference to Exhibit 4.0 of the
Company's Current Report on Form 8-K dated October 29, 1997..
10.1 - 1998 Long-term Incentive Plan, incorporated by reference to
Exhibit A of the Company's Proxy Statement for its 1998
Annual Meeting of Shareholders held on April 2, 1998.........
10.2 - Amendment No. 1 to 1998 Long-term Incentive Plan of The
Cooper Companies, Inc. dated April 2, 1998, incorporated by
reference to Exhibit 4.7 to the Company's post-effective
Amendment No. 1 to Form S-8 Registration Statement filed on
January 20, 1999.............................................
10.3 - Severance Agreement entered into as of June 10, 1991, by
and between CooperVision, Inc. and A. Thomas Bender,
incorporated by reference to Exhibit 10.26 to Amendment
No. 1 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1992...........................
10.4 - Letter dated March 25, 1994, to A. Thomas Bender from the
Chairman of the Compensation Committee of the Company's
Board of Directors, incorporated by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1994...........................
10.5 - Severance Agreement entered into as of April 26, 1990, by
and between Nicholas J. Pichotta and the Company
incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for fiscal year ended October
31, 1995.....................................................
10.6 - Letter Agreement dated November 1, 1992, by and between
Nicholas J. Pichotta and the Company incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1995 ........
10.7 - Severance Agreement entered into as of August 21, 1989, by
and between Robert S. Weiss and the Company, incorporated
by reference to Exhibit 10.28 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1992.......................................
16
LOCATION OF
EXHIBIT IN
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBER SYSTEM
- ------- ----------------------- --------------
10.8 - 2001 Long-term Incentive Plan................................
10.9 - Agreement dated as of September 28, 1993, among Medical
Engineering Corporation, Bristol-Myers Squibb Company and
the Company, incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K dated October 1,
1993.........................................................
10.10 - Change in Control Agreement dated as of October 14, 1999,
between The Cooper Companies, Inc. and Carol R. Kaufman,
incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1999.............................................
11* - Calculation of Earnings per share............................
13 - 2000 Annual Report to Stockholders. The following portions
of such report are incorporated by reference in this
document and are deemed "filed." Letter to Shareholders,
the additional "CooperSurgical: Consolidating Women's
Healthcare for Profitable Growth" section and Financial
Section which includes: Five Year Financial Highlights, Two
Year Quarterly Information, Quarterly Common Stock Price
Range, Management's Discussion and Analysis of Financial
Condition and Results of Operations, the Consolidated
Financial Statements and the Notes thereto, Corporate
Information and the Independent Auditors' Report.............
21 - Subsidiaries.................................................
27 - Financial Data Schedule......................................
* The information required in this exhibit is incorporated here by reference to
Note 4, "Earnings Per Share," in the 2000 Annual Report.
17
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as............................... 'TM'
The registered trademark symbol shall be expressed as.................... 'r'
The British pound sterling sign shall be expressed as.................... 'L'
The dagger symbol shall be expressed as.................................. 'D'
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
THE COOPER COMPANIES, INC.
The Cooper Companies, Inc. (the "Corporation") a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
1. That at a meeting of the Board of Directors of The Cooper Companies,
Inc. resolutions were duly adopted setting forth a proposed amendment
of the Certificate of Incorporation of said Corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of
said Corporation for consideration thereof. The resolution setting
forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
Corporation be amended by changing the Article thereof numbered
"Article IV (a)" so that, as amended, said Article shall be and read as
follows:
ARTICLE IV (a)
The total number of shares of all classes of stock
which the corporation shall have authority to issue is
41,000,000 consisting of (i) 40,000,000 shares of Common
Stock, each share having a par value of $.100000, and (ii)
1,000,000 shares Preferred Stock each share having a par value
of $.100000.
2. That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called
and held upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary
number of shares as required by statute were voted in favor of the
amendment.
3. That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State if Delaware.
4. That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of the Certificate of Incorporation on this 24th day of May, 2000.
The Cooper Companies, Inc.
/s/ Carol R. Kaufman
-------------------------------------
Carol R. Kaufman, Vice President
1
Exhibit 10.8
THE COOPER COMPANIES, INC.
2001 LONG TERM INCENTIVE PLAN
THE COOPER COMPANIES, INC.
2001 LONG TERM INCENTIVE PLAN
TABLE OF CONTENTS
SECTION 1. Purpose; Definitions.......................................... 1
SECTION 2. Administration................................................ 2
SECTION 3. Stock Subject to Plan......................................... 3
SECTION 4. Eligibility................................................... 4
SECTION 5. Stock Options................................................. 4
SECTION 6. Stock Appreciation Rights..................................... 6
SECTION 7. Restricted Stock.............................................. 7
SECTION 8. Deferred Stock................................................ 8
SECTION 9. Stock Purchase Rights......................................... 8
SECTION 10. Long Term Performance Awards.................................. 9
SECTION 11. Phantom Stock Units........................................... 10
SECTION 12. Amendments And Termination.................................... 10
SECTION 13. Unfunded Status of Plan....................................... 11
SECTION 14. General Provisions............................................ 11
SECTION 15. Effective Date of Plan........................................ 12
SECTION 16. Term of Plan.................................................. 12
SECTION 17. Certain Stock Options for United Kingdom Employees............ 12
Schedule A
THE COOPER COMPANIES, INC.
2001 LONG TERM INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of The Cooper Companies, Inc. 2001 Long Term Incentive Plan
(the 'Plan') is to enable the Company to attract, retain and reward key
employees and consultants to the Company and its Subsidiaries and Affiliates,
and strengthen the mutuality of interests between such key employees,
consultants and the Company's stockholders, by offering such key employees and
consultants performance-based incentive equity interests in the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) 'Affiliate' means any entity other than the Company and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Company directly or indirectly owns at least 20% of
the combined voting power of all classes of stock of such entity or at least
20% of the ownership interests in such entity.
(b) 'Board' means the Board of Directors of the Company.
(c) 'Book Value' means, as of any given date, on a per share basis (i) the
Stockholders' Equity in the Company as of the end of the immediately preceding
fiscal year as reflected in the Company's consolidated balance sheet, subject to
such adjustments as the Committee shall specify at or after grant, divided by
(ii) the number of then outstanding shares of Stock as of such year-end date (as
adjusted by the Committee for subsequent events).
(d) 'Code' means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
(e) 'Committee' shall mean the Board or, if the Board delegates its power
and authority to administer this Plan to a committee of the Board described in
this Section 2 of the Plan, such committee.
(f) 'Company' means The Cooper Companies, Inc., a corporation organized
under the laws of the State of Delaware, or any successor corporation.
(g) 'Deferred Stock' or 'Deferred Stock Award' means an award made pursuant
to Section 8 below of the right to receive Stock at the end of a specified
deferral period.
(h) 'Disability' means disability as determined under procedures
established by the Committee for purposes of this Plan.
(i) 'Early Retirement' means retirement with the express consent for
purposes of this Plan of the Company at or before the time of such retirement,
from consulting or active employment with the Company and any Subsidiary or
Affiliate pursuant to the early retirement provisions of the applicable pension
plan of such entity.
(j) 'Fair Market Value' means, as of any given date, unless otherwise
determined by the Committee in good faith, the closing price of the Stock on the
New York Stock Exchange as reported in the Wall Street Journal or, if no such
sale of Stock occurs on the New York Stock Exchange on such date, the fair
market value of the Stock as determined by the Committee in good faith.
(k) 'Grant' means an instrument or agreement evidencing an option, SAR, etc
granted hereunder, which may, but need not be, acknowledged by the recipient
thereof.
(l) 'Incentive Stock Option' or `ISO' means any Stock Option intended to be
and designated as an 'Incentive Stock Option' within the meaning of Section 422
of the Code.
(m) 'Long Term Performance Award' means an award under Section 10 below
that is valued in whole or in part based on the achievement of Company,
Subsidiary, Affiliate, or individual performance factors or criteria as the
Committee may deem appropriate.
(n) 'Non-Employee Director' shall have the meaning set forth in Rule 16b-3
as promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, or any successor definition adopted by the Commission.
(o) 'Non-Qualified Stock Option' or `NQSO' means any Stock Option that is
not an Incentive Stock Option.
(p) 'Normal Retirement' means retirement from consulting or active
employment with the Company and any Subsidiary or Affiliate on or after age 65.
1
(q) 'Phantom Stock Unit' means a right, pursuant to an award granted under
Section II and subject to the provisions thereof, to receive from the Company
cash in an amount equal to the Fair Market Value of a share of Stock.
(r) 'Plan' means this 2001 Long Term Incentive Plan, as hereinafter amended
from time to time.
(s) 'Restricted Stock' means an award of shares of Stock that is subject to
restrictions under Section 7 below.
(t) 'Retirement' means Normal or Early Retirement.
(u) 'Stock' means the Common Stock, $0.10 par value per share, of the
Company.
(v) 'Stock Appreciation Right' or `SAR' means the right pursuant to an
award granted under Section 6 below to (a) surrender to the Company all (or a
portion) of a Stock Option in exchange for an amount in any combination of cash
or Common Stock equal to the difference between (i) the Fair Market Value, as of
the date such Stock Option (or such portion thereof) is surrendered, of the
shares of Stock covered by such Stock Option (or such portion thereof), subject,
where applicable, to the pricing provisions in Section 6(b)(ii), and (ii) the
aggregate exercise price of such Stock Option (or such portion thereof) or (b)
to receive from the Company an amount of cash based upon the excess, if any, of
the Fair Market Value of a number of shares of Stock specified in such award at
the time of exercise of the right over the Fair Market Value of such number of
shares of Stock on the date the right was granted.
(w) 'Stock Option' or 'Option' means any option to purchase shares of Stock
(including Restricted Stock and Deferred Stock, if the Committee so determines)
granted pursuant to Section 5 below.
(x) 'Stock Purchase Right' means the right to purchase Stock pursuant to
Section 9.
(y) 'Subsidiary' means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50%, or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
In addition, the term 'Cause' shall have the meaning set forth in Section
5(i) below.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Board or, if the Board delegates its
power and authority to administer this Plan to a committee of the Board, such
committee. Any such committee shall consist solely of two or more directors
appointed by and holding office at the pleasure of the Board, each of whom is a
'Non-Employee Director' of the Company as defined in Rule 16b-3 and an 'outside
director' for purposes of Section 162(m) of the Code. If the Board delegates its
power and authority to administer this Plan to a committee, the members of such
committee shall serve at the pleasure of the Board, such committee members may
resign at any time by delivering written notice to the Board and vacancies in
the committee may be filled by the Board.
The Committee shall have full authority to grant, pursuant to the terms of
the Plan, to officers, consultants and other key employees eligible under
Section 4: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted
Stock, (iv) Deferred Stock, (v) Stock Purchase Rights, (vi) Long Term
Performance Awards and/or (vii) Phantom Stock Units.
In particular, the Committee shall have the authority:
(i) to select the officers, consultants and other key employees of
the Company and its Subsidiaries and Affiliates to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Stock Purchase
Rights, Long Term Performance Awards and/or Phantom Stock Units may from
time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock, Deferred Stock, Stock Purchase Rights, Long Term Performance Awards
and/or Phantom Stock Units, or any combination thereof, are to be granted
hereunder to one or more eligible employees;
(iii) to determine the number of shares, if applicable, to be
covered by each such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any
vesting acceleration or waiver of forfeiture restrictions regarding any
Stock Option or other award and/or the shares of Stock relating thereto,
based in each case on such factors as the Committee shall determine, in its
sole discretion);
2
(v) to determine whether and under what circumstances a Stock
Option may be settled in cash, Restricted Stock and/or Deferred Stock under
Section 5(k) or (1), as applicable, instead of Stock;
(vi) to determine whether, to what extent and under what
circumstances Option grants and/or other awards under the Plan and/or other
cash awards made by the Company are to be made, and operate, on a tandem
basis vis a vis other awards under the Plan and/or cash awards made outside
of the Plan, or on an additive basis;
(vii) to determine whether, to what extent and under what
circumstances Stock and other amounts, payable with respect to an award
under this Plan shall be deferred either automatically or at the election of
the participant (including providing for and determining the amount (if any)
of any deemed earnings on any deferred amount during any deferral period);
and
(viii) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Stock purchased by exercising such Rights.
(ix) to interpret the Plan and remedy any inconsistencies and
ambiguities herein and between any agreement evidencing an award thereunder.
The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be made in the Committee's sole discretion and shall be final and binding
on all persons, including the Company and Plan participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for distribution
pursuant to stock options or other awards relating to Stock made under the Plan
shall be 700,000 shares. Such shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares. The maximum number of shares
with respect to which an employee may be granted options under this Plan during
any fiscal year is 250,000.
Subject to Section 6(b)(iv) below, if any shares of Stock that have been
optioned cease to be subject to a Stock Option, or if any such shares of Stock
that are subject to any Restricted Stock or Deferred Stock Award, Stock Purchase
Right, or Long Term Performance Award granted hereunder are forfeited or any
such award otherwise terminates without a payment being made to the participant
in the form of Stock, such shares shall again be available for distribution in
connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
Stock dividend, Stock split or other change in corporate structure affecting the
Stock, such substitution or adjustment shall be made in the aggregate number of
shares reserved for issuance under the Plan, in the number and option price of
shares subject to outstanding Options granted under the Plan, in the number and
purchase price of shares subject to outstanding Stock Purchase Rights under the
Plan, and in the number of Phantom Stock Units, and in the number of shares
subject to other outstanding awards granted under the Plan as may be determined
to be appropriate by the Committee, in its sole discretion, provided that the
number of shares subject to any award shall always be a whole number. Such
adjusted option price shall also be used to determine the amount payable by the
Company upon the exercise of any Stock Appreciation Right associated with any
Stock Option. In addition, the Committee, in its sole discretion, shall
determine the amount of cash to which the recipient of a Stock Appreciation
Right not associated with an Option shall be entitled upon exercise so that
there will be no increase or decrease in the cash to which the recipient shall
be entitled upon exercise by reason of such event. In addition, in the event of
any merger or other corporate transaction or event which results in shares of
Stock being purchased for cash, or being exchanged for or converted into cash or
the right to receive cash, the Committee, in its sole discretion, and on such
terms and conditions as it deems appropriate, may provide that any Stock Option,
Stock Appreciation Right, Restricted Stock or Deferred Stock Award, Stock
Purchase Right, Long Term Performance Award or Phantom Stock Unit Award shall be
converted into the right to receive an amount of cash equal to the amount of
cash, if any, that would have been received, in the event of such merger or
corporate transaction or event, if such Stock Option, Stock Appreciation Right,
Restricted Stock or Deferred Stock Award, Stock Purchase Right, Long Term
Performance Award or Phantom Stock Unit Award had been fully exercisable or
payable, or vested and had been exercised or paid immediately prior to such
merger or other corporate transaction or event to the extent of the cash value
thereof, and, upon such conversion, such Stock Option, Stock Appreciation Right,
Restricted Stock or Deferred Stock Award, Stock Purchase Right, Long Term
Performance Award or Phantom Stock Unit Award (including any such Stock Option,
Stock Appreciation Right, Restricted Stock or Deferred Stock Award, Stock
Purchase Right, Long Term Performance Award or Phantom Stock Unit Award which,
under the terms of such merger or other corporate transaction or event, would
have no cash value) shall be cancelled.
3
SECTION 4. ELIGIBILITY.
Officers, consultants and other key employees of the Company and its
Subsidiaries and Affiliates (but excluding members of the Committee and any
person who serves only as a director) who are responsible for or contribute to
the management, growth and/or profitability of the business of the Company
and/or its Subsidiaries and Affiliates are eligible to be granted awards under
the Plan.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone, in addition to or in tandem with other
awards granted under the Plan and/or cash awards made outside of the Plan. Any
Stock Option granted under the Plan shall be in such form as the Committee may
from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant to any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however that
Incentive Stock Options shall only be granted to an individual who, at the time
of grant, is an employee of the Company or a Subsidiary.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant but shall not be less than 85% of Fair Market Value as
determined by the Committee; provided, however, that in the case of an
Incentive Stock Option, the option price shall not be less than 100% of Fair
Market Value as of the date of grant.
(b) Option Term. The term of each Stock Option shall be fixed
by the Committee, but no Stock Option shall be exercisable more than ten
years after the date the Option is granted.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant, provided, however, that,
except as provided in Section 5(f), (g) and (h), unless otherwise determined
by the Committee at or after grant, no Stock Option shall be exercisable
prior to the first anniversary date of the granting of the Option. If the
Committee provides, in its sole discretion, that any Stock Option is
exercisable only in installments, the Committee may waive such installment
exercise provisions at any time at or after grant in whole or in part, based
on such factors as the Committee shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment
exercise provisions apply under Section 5(c), Stock Options may be exercised
in whole or in part at any time during the option period, by giving written
notice of exercise to the Company specifying the number of shares to be
purchased.
Such notice shall be accompanied by payment in full of the purchase
price, either by check, note or such other instrument as the Committee may
accept. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of unrestricted
or, in the case of the exercise of a Non-Qualified Stock Option, Restricted
Stock subject to an award (based, in each case, on the Fair Market Value of the
Stock on the date the option is exercised, as determined by the Committee);
provided, however, that, in the case of an Incentive Stock Option, the right to
make a payment in the form of already owned shares may be authorized only at the
time the option is granted. If payment of the option exercise price of a
Non-Qualified Stock Option is made in whole or in part in the form of Restricted
Stock, any Stock received upon the exercise shall be subject to the same
forfeiture restrictions or deferral limitations, unless otherwise determined by
the Committee, in its sole discretion, at or after grant.
No shares of Stock shall be issued until full payment therefor has been
made. An optionee shall generally have the rights to dividends or other rights
of a stockholder with respect to shares subject to the Option when the optionee
has given written notice of exercise, has paid in full for such shares, and, if
requested, has given the representation described in Section 15(a).
(e) Transferability of Options. Except as otherwise determined
by the Committee in its sole discretion and set forth in the applicable
Stock Option agreement, no Stock Option shall be transferable by the
optionee otherwise than by will or by the laws of descent and distribution,
and all Stock Options shall be exercisable, during the optionee's lifetime,
only by the optionee; provided, however, NQSOs held by a participant may be
transferred to such family members or family trusts as the Committee in its
sole discretion shall approve, unless otherwise restricted from such
transfer under the terms of the Grant.
4
(f) Termination by Death. Subject to Section 5(j), if an
optionee's employment by or consultancy with the Company and any Subsidiary
or Affiliate terminates by reason of death, any Stock Option held by such
optionee may thereafter be exercised, to the extent such option was
exercisable at the time of death or on such accelerated basis as the
Committee may determine at or after grant (or as may be determined in
accordance with procedures established by the Committee), by the legal
representative of the estate or by the legatee of the optionee under the
will of the optionee, for a period of three years (or such other period as
the Committee may specify at grant) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(g) Termination by Reason of Disability. Subject to Section
5(j), if an optionee's employment by or consultancy with the Company and any
Subsidiary or Affiliate terminates by reason of Disability, any Stock Option
held by such optionee may thereafter be exercised by the optionee, to the
extent it was exercisable at the time of termination or on such accelerated
basis as the Committee may determine at or after grant (or as may be
determined in accordance with procedures established by the Committee), for
a period of three years (or such other period as the Committee may specify
at grant) from the date of such termination of employment or consultancy or
until the expiration of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that, if the optionee dies within
such three-year period (or such other period as the Committee shall specify
at grant), any unexercised Stock Option held by such optionee shall
thereafter be exercisable to the extent to which it was exercisable at the
time of death for a period of twelve months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever
period is the shorter. In the event of termination of employment by reason
of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of
the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
(h) Termination by Reason of Retirement. Subject to Section
5(j), if an optionee's employment by or consultancy with the Company and any
Subsidiary or Affiliate terminates by reason of Normal or Early Retirement,
any Stock Option held by such optionee may thereafter be exercised by the
optionee, to the extent it was exercisable at the time of such Retirement or
on such accelerated basis as the Committee may determine at or after grant
(or as may be, determined in accordance with procedures established by the
Committee), for a period of three years (or such other period as the
Committee may specify at grant) from the date of such termination of
employment or consultancy or the expiration of the stated term of such Stock
Option, whichever period is the shorter; provided, however, that, if the
optionee dies within such three-year period (or such other period as the
Committee may specify at grant), any unexercised Stock Option held by such
optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of twelve months from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of termination of
employment by reason of Retirement, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will thereafter be treated
as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the
Committee (or pursuant to procedures established by the Committee) at or
after grant, if an optionee's employment by or consultancy with the Company
and any Subsidiary or Affiliate terminates for any reason other than death,
Disability or Normal or Early Retirement, the Stock Option shall thereupon
terminate, except that such Stock Option may be exercised for the lesser of
three months or the balance of such Stock Option's term if the optionee is
involuntarily terminated by the Company and any Subsidiary or Affiliate
without Cause. For purposes of this Plan, 'Cause' means the conviction of,
or plea of nolo contendere to a felony by the participant, or a
participant's willful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company or any
Subsidiary or Affiliate.
(j) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any discretion
or authority granted under the Plan be so exercised, so as to disqualify the
Plan under Section 422 of the Code, or, without the consent of the
optionee(s) affected, to disqualify any Incentive Stock Option under such
Section 422.
To the extent required for 'incentive stock option' status
under Section 422(b)(7) of the Code (taking into account applicable Internal
Revenue Service regulations and pronouncements), the Plan shall be deemed to
provide that the aggregate Fair Market Value (determined as of the time of
grant) of the stock with respect to which Incentive Stock Options are
exercisable for the first time by the optionee during any calendar year
under the Plan and/or any other stock option plan of the Company or any
Subsidiary or parent corporation (within the meaning of Section 424 of the
Code) after 1986 shall not exceed $100,000. If the aggregate Fair Market
Value exceeds $100,000, then those options in excess of $100,000 will not be
treated as ISOs. Those shares not treated as ISOs will be taxed at ordinary
income rates on exercise. If Section 422 is hereafter amended to delete the
requirement now in Section 422(b)(7) that the plan text expressly provide
for the $100,000 limitation set forth in Section 422(b)(7), then this
paragraph of Section 5(j) shall no longer be operative.
5
(k) Buyout Provisions. The Committee may at any time offer to
buy out for a payment in cash, Stock, Deferred Stock or Restricted Stock an
option previously granted, based on such terms and conditions as the
Committee shall establish and communicate to the optionee at the time that
such offer is made.
(l) Settlement Provisions. If the option agreement so provides
at grant or is amended after grant and prior to exercise to so provide (with
the optionee's consent), the Committee may require that all or part of the
shares to be issued with respect to the spread value of an exercised Option
take the form of Deferred or Restricted Stock, which shall be valued on the
date of exercise on the basis of the Fair Market Value (as determined by the
Committee) of such Deferred or Restricted Stock determined without regard to
the deferral limitations and/or forfeiture restrictions involved.
(m) 10% Stockholders. No Incentive Stock Option may be granted
under this Plan to any employee who, at the time the Incentive Stock Option
is granted, owns, or is considered as owning, within the meaning of Section
422 of the Internal Revenue Code, shares possessing more than ten percent
(10%) of the total combined voting power or value of all classes of stock of
the Company, a Subsidiary or a parent corporation (within the meaning of
Section 424 of the Code) unless the option price under such Option is at one
hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the date such Option is granted and the duration of such Option is no more
than five (5) years.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be granted separately
or in conjunction with all or part of any Stock Option granted under the Plan.
In the case of a Non-Qualified Stock Option, such rights may be granted either
at or after the time of the grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of the grant
of such Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, subject to such
provisions as the Committee may specify at grant where a Stock Appreciation
Right is granted with respect to less than the full number of shares, covered by
a related Stock Option.
A Stock Appreciation Right may be exercised by a recipient, subject to
Section 6(b), in accordance with the procedures established by the Committee for
such purpose. Upon such exercise, the recipient shall be entitled to receive an
amount determined in the manner prescribed in Section 6(b). Stock Options
relating to exercised Stock Appreciation Rights shall no longer be exercisable
to the extent that the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to such
terms and conditions, not inconsistent with the provisions of the Plan, as shall
be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights awarded with no associated Stock
Option shall be exercisable in accordance with their terms and Stock
Appreciation Rights granted in association with Stock Options shall be
exercisable only at such time or times and to the extent that the Stock
Options to which they relate shall be exercisable in accordance with the
provisions of Section 5 and this Section 6 of the Plan. The exercise of
Stock Appreciation Rights held by recipients who are subject to Section
16(b) of the Exchange Act shall comply with Rule 16b-3 thereunder, to the
extent applicable.
(ii) Upon the exercise of a Stock Appreciation Right granted
in association with a Stock Option, a recipient shall be entitled to receive
an amount in cash and/or shares of Stock, as the Committee in its sole
discretion shall determine, equal in value to the excess of the Fair Market
Value of one share of Stock over the option price per share specified in the
associated Stock Option multiplied by the number of shares in respect of
which the Stock Appreciation Right shall have been exercised. Upon the
exercise of a Stock Appreciation Right awarded with no associated Stock
Option, a recipient shall be entitled to receive an amount in cash equal in
value to the excess, if any, of the Fair Market Value of a number of shares
of Stock specified in the award at the date of exercise of the Stock
Appreciation Right over the Fair Market Value of such number of shares of
Stock at the date of grant of the Stock Appreciation Right. When payment is
to be made in shares, the number of shares to be paid shall be calculated on
the basis of the Fair Market Value of the shares on the date of exercise.
When payment is to be made in cash to a recipient subject to Section 16(b)
of the Exchange Act, such amount shall be calculated on the basis of the
closing price, regular way, of the stock on the New York Stock Exchange
during the applicable period referred to in Rule 16b-3(e) under the Exchange
Act to the extent applicable.
(iii) Stock Appreciation Rights shall not be transferable by
the recipient thereof otherwise than by will or by the laws of descent and
distribution, and all Stock Appreciation Rights shall be exercisable, during
the recipient's lifetime, only by the recipient.
6
(iv) Upon the exercise of a Stock Appreciation Right, any
Stock Option or part thereof to which such Stock Appreciation Right is
associated shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares of
Stock to be issued under the Plan.
SECTION 7. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued either alone,
in addition to or in tandem with other awards granted under the Plan and/or cash
awards made outside of the Plan. The Committee shall determine the eligible
persons to whom, and the time or times at which, grants of Restricted Stock will
be made, the number of shares to be awarded, the price to be paid by the
recipient of Restricted Stock (subject to Section 7(b)), the time or times
within which such awards may be subject to forfeiture, and all other terms and
conditions of the awards.
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors as the Committee
may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same with respect
to each recipient.
(b) Awards and Certificates. The prospective recipient of a Restricted Stock
Award shall not have any rights with respect to such award, unless and until
such recipient has executed an agreement evidencing the award and has delivered
a fully executed copy thereof to the Company, and has otherwise complied with
the applicable terms and conditions of such award. Each award shall be subject
to the following terms and conditions:
(i) The purchase price for shares of Restricted Stock shall be
equal to or greater than their par value.
(ii) Awards of Restricted Stock must be accepted within a
period of 60 days (or such shorter period as the Committee may specify at
grant) after the award date, by executing a Restricted Stock Award agreement
and paying whatever price is required under Section 7(b)(i).
(iii) Each participant receiving a Restricted Stock Award
shall be issued a stock certificate in respect of such shares of Restricted
Stock. Such certificate shall be registered in the name of such participant,
and shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award.
(iv) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions, if any, thereon shall have lapsed, and that, as a condition of
any Restricted Stock Award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the date of
such award (the 'Restriction Period'), the participant shall not be
permitted to sell, transfer, pledge or assign shares of Restricted Stock
awarded under the Plan. Within these limits, the Committee, in its sole
discretion, may provide for the lapse of such restrictions in installments
and may accelerate or waive such restrictions in whole or in part, based on
service, performance and/or such other factors or criteria as the Committee
may determine, in its sole discretion.
(ii) Except as provided in this paragraph (ii) and Section
7(c)(i), the participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a stockholder of the Company,
including the right to vote the shares, and the right to receive any cash
dividends. The Committee, in its sole discretion, as determined at the time
of award, may permit or require the payment of cash dividends to be deferred
and, if the Committee so determines, reinvested, subject to Section 14(e),
in additional Restricted Stock to the extent shares are available under
Section 3, or otherwise reinvested. Pursuant to Section 3 above, Stock
dividends issued with respect to Restricted Stock shall be treated as
additional shares of Restricted Stock that are subject to the same
restrictions and other terms and conditions that apply to the shares with
respect to which such dividends are issued.
(iii) Subject to the applicable provisions of the award
agreement and this Section 7, upon termination of a participant's employment
or consultancy with the Company and any Subsidiary or Affiliate for any
reason during the Restriction Period, all shares still subject to
restriction will vest, or be forfeited, in accordance with the terms and
conditions established by the Committee at or after grant. If any Restricted
Stock is forfeited, the Company shall pay to the participant (or the estate
of a deceased participant) an amount equal to the price the participant paid
with respect to such Restricted Stock.
7
(iv) If and when the Restriction Period expires without a
prior forfeiture of the Restricted Stock subject to such Restriction Period,
certificates for an appropriate number of unrestricted shares shall be
delivered to the participant promptly.
SECTION 8. DEFERRED STOCK.
(a) Administration. Deferred Stock may be awarded either alone, in addition
to or in tandem with other awards granted under the Plan and/or cash awards made
outside of the Plan. The Committee shall determine the eligible persons to whom
and the time or times at which Deferred Stock shall be awarded, the number of
shares of Deferred Stock to be awarded to any person, the duration of the period
(the 'Deferral Period') during which, and the conditions under which, receipt of
the Stock will be deferred, and the other terms and conditions of the award in
addition to those set forth in Section 8(b).
The Committee may condition the grant of Deferred Stock upon the attainment
of specified performance goals or such other factors or criteria as the
Committee shall determine, in its sole discretion.
The provisions of Deferred Stock Awards need not be the same with respect to
each recipient.
(b) Terms and Conditions. The shares of Deferred Stock awarded pursuant to
this Section 8 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award
agreement referred to in Section 8(b)(vi) below, Deferred Stock Awards may
not be sold, assigned, transferred, pledged or otherwise encumbered during
the Deferral Period. At the expiration of the Deferral Period (or the
Elective Deferral Period referred to in Section 8(b)(v), where applicable),
share certificates shall be issued and delivered to the participant, or his
legal representative, in a number equal to the shares covered by the
Deferred Stock Award.
(ii) Unless otherwise determined by the Committee at grant,
amounts equal to any dividends declared during the Deferral Period with
respect to the number of shares covered by a Deferred Stock Award will be
paid to the participant currently, or deferred and deemed to be reinvested
in additional Deferred Stock, or otherwise reinvested, all as determined at
or after the time of the award by the Committee, in its sole discretion.
(iii) Subject to the provisions of the award agreement and
this Section 8, upon termination of a participant's employment or
consultancy with the Company and any Subsidiary or Affiliate for any reason
during the Deferral Period for a given award, the Deferred Stock in question
will vest, or be forfeited, in accordance with the terms and conditions
established by the Committee at or after grant. If any Deferred Stock is
forfeited, the Company shall pay to the participant (or the estate of a
deceased participant) an amount equal to the price, if any, the participant
paid with respect to such Deferred Stock.
(iv) Based on service, performance and/or such other factors
or criteria as the Committee may determine, the Committee may, at or after
grant, accelerate the vesting of all or any part of any Deferred Stock Award
and/or waive the deferral limitations for all or any part of such award.
(v) A participant may elect to further defer receipt of an
award (or an installment of an award) for a specified period or until a
specified event (the 'Elective Deferral Period'), subject in each case to
the Committee's approval and to such terms as are determined by the
Committee, all in its sole discretion. Subject to any exceptions adopted by
the Committee, such election must generally be made at least 12 months prior
to completion of the Deferral Period for such Deferred Stock Award (or such
installment).
(vi) Each award shall be confirmed by, and subject to the
terms of, a Deferred Stock agreement executed by the Company and the
participant.
(vii) A recipient of a Deferred Stock Award shall have no
rights as a stockholder with respect to any shares covered by his Deferred
Stock Award until the issuance of a stock certificate for such shares.
SECTION 9. STOCK PURCHASE RIGHTS.
(a) Awards and Administration. Subject to Section 3 above, the Committee may
grant eligible participants Stock Purchase Rights which shall enable such
participants to purchase Stock (including Deferred Stock and Restricted Stock):
(i) at its Fair Market Value on the date of grant;
(ii) at 50% of such Fair Market Value on such date;
8
(iii) at an amount equal to Book Value on such date; or
(iv) at an amount equal to the par value of such Stock on such
date.
However, no share of Stock shall be sold at less than its par value. The
Committee shall also impose such deferral, forfeiture and/or other terms and
conditions as it shall determine, in its sole discretion, on such Stock Purchase
Rights or the exercise thereof.
The terms of Stock Purchase Rights Awards need not be the same with respect
to each participant. Each Stock Purchase Right Award shall be confirmed by, and
be subject to the terms of, a Stock Purchase Rights agreement.
(b) Exercisability. Stock Purchase Rights shall generally be exercisable for
such period after grant as is determined by the Committee not to exceed 90 days.
(c) Loans. If the Committee so determines, the Company shall make or arrange
for a loan to a participant with respect to the exercise of Stock Purchase
Rights. The Committee shall have full authority to decide whether such a loan
should be made and to determine the amount, term and other provisions of any
such loan, including the interest rate to be charged, whether the loan is to be
with or without recourse against the borrower, the security, if any, therefor,
the terms on which the loan is to be repaid and the conditions, if any, under
which it may be forgiven. However, no loan hereunder shall have a term
(including extensions) exceeding ten years in duration or be in an amount
exceeding 90%, of the total purchase price paid by the borrower.
SECTION 10. LONG TERM PERFORMANCE AWARDS.
(a) Administration. Long Term Performance Awards may be granted either alone
or in addition to other awards granted under the Plan. The Committee shall
determine the nature, length and starting date of the performance period (the
'Performance Period') for each Long Term Performance Award, which shall be at
least two years (subject to Section 11), and shall determine the performance
objectives to be used in the valuation of Long Term Performance Awards and
determining the extent to which such Long Term Performance Awards have been
earned. Performance objectives may vary, from participant to participant and
between groups of participants and shall be based upon such Company, Subsidiary,
Affiliate or individual performance factors or criteria as the Committee may
deem appropriate, including, but not limited to, earnings per share or return on
equity. Performance Periods may overlap and participants may participate
simultaneously with respect to Long Term Performance Awards that are subject to
different Performance Periods and different performance factors and criteria.
Long Term Performance Awards shall be confirmed by, and be subject to the terms
of, a Long Term Performance Award agreement. The terms of such awards need not
be the same with respect to each participant.
At the beginning of each Performance Period, the Committee shall determine
for each Long Term Performance Award subject to such Performance Period the
range of dollar values or number of shares of Stock (including Deferred or
Restricted Stock) to be awarded to the participant at the end of the Performance
Period if and to the extent that the relevant measures of performance for such
Long Term Performance Award are met. Such dollar values or number of shares of
Stock may be fixed or may vary in accordance with such performance or other
criteria as may be determined by the Committee.
(b) Adjustment of Awards. The Committee may adjust the performance goals and
measurements applicable to the Long Term Performance Awards to take into account
changes in law and accounting and tax rules and to make such Adjustments as the
Committee deems necessary or appropriate to reflect the inclusion or exclusion
of the impact of extraordinary or unusual items, events or circumstances in
order to avoid windfalls or hardships.
(c) Termination. Unless otherwise provided in the applicable Long Term
Performance Award agreement, if a participant terminates employment or his
consultancy during a Performance Period because of death, Disability or
Retirement, such participant shall be entitled to a payment with respect to each
outstanding Long Term Performance Award at the end of the applicable Performance
Period:
(i) based, to the extent relevant under the terms of the
award, upon the participant's performance for the portion of such
Performance Period ending on the date of termination and the performance of
the Company or any applicable business unit for the entire Performance
Period, and
(ii) prorated for the portion of the Performance Period
during which the Participant was employed by the Company, a subsidiary or
affiliate,
all as determined by the Committee. The Committee may provide for an earlier
payment in settlement of such award in such amount and under such terms and
conditions as the Committee deems appropriate.
9
Except as otherwise provided in the applicable Long Term Performance Award
agreement, if a participant terminates employment or his consultancy during a
Performance Period for any other reason, then such participant shall not be
entitled to any payment with respect to the Long Term Performance Award subject
to such Performance Period, unless the Committee shall otherwise determine.
(d) Form of Payment. The earned portion of a Long Term Performance Award may
be paid currently or on a deferred basis with such interest or earnings
equivalent as may be determined by the Committee. Payment shall be made in the
form of cash or whole shares of Stock, including Restricted Stock or Deferred
Stock, or a combination thereof, either in a lump sum payment or in annual
installments, all as the Committee shall determine. If and to the extent a Long
Term Performance Award is payable in Stock and the full amount therefor is not
paid in Stock, then the shares of Stock representing the portion of the value of
the Long Term Performance Award not paid in Stock shall again become available
for award under the Plan.
SECTION 11. PHANTOM STOCK UNITS.
(a) Administration. Phantom Stock Units may be awarded alone, in addition to
or in tandem with other awards granted under the Plan and/or cash awards made
outside of the Plan. The Committee shall determine the eligible persons to whom
and the time or times at which Phantom Stock Units shall be awarded, the number
of Phantom Stock Units to be awarded to any person and the terms and conditions
of the award in addition to those set forth in Section 11(b).
The Committee may condition the grant of Phantom Stock Units upon the
attainment of specified performance goals or such other factors or criteria as
the Committee in its sole discretion, shall determine.
The provisions of Phantom Stock Unit Awards need not be the same with
respect to each recipient.
(b) Terms and Conditions. The Phantom Stock Units awarded pursuant to this
Section 11 shall be subject to the following terms and conditions:
(i) Subject to the provisions of the Plan, Phantom Stock Units
may not be sold, assigned, transferred, pledged or otherwise encumbered.
(ii) Unless otherwise determined by the Committee at grant,
amounts equal to cash dividends, or the Fair Market Value of Stock dividends
declared and paid with respect to the number of shares of Stock equal to the
number of Phantom Stock Units previously granted to a recipient but not yet
surrendered as provided in clause (iii) below will be paid to the recipient
currently or reinvested, at the sole discretion of the Committee, in an
additional number of Phantom Stock Units, which number shall be determined
by dividing the amount of such cash dividends, or the Fair Market Value of
such Stock dividends, by the Fair Market Value of a share of Stock on the
date the dividends were declared, provided that fractional Phantom Stock
Units shall be paid in cash.
(iii) A recipient shall be entitled to surrender to the
Company Phantom Stock Units granted to him, such surrender to be upon any
date or dates or during any period specified by the Committee, in its sole
discretion, in the award and upon such other terms and conditions as the
Committee, in its sole discretion, shall specify in such award. Upon such
surrender the Company shall deliver to the recipient cash in an amount equal
to the Fair Market Value of a share of Stock on the date of surrender
multiplied by the number of Phantom Stock Units so surrendered.
(iv) Subject to the provisions of the award and this Section
11, upon termination of a recipient's employment or consultancy with the
Company and any Subsidiary or Affiliate for any reason, all Phantom Stock
Units previously granted to the recipient that have not vested will vest, or
be forfeited, in accordance with the terms and conditions of the award
established by the Committee at or after grant.
(v) Subject to the provisions of the award and this Section
11, if termination of a recipient's employment or consultancy with the
Company and any Subsidiary or Affiliate is by reason of death, Early
Retirement, Normal Retirement or Disability, the recipient or the
representatives of his estate shall have the privilege of surrendering for
cash the recipient's Phantom Stock Units which the recipient or the deceased
could have surrendered at the time of his Early Retirement, Normal
Retirement, Disability or death, provided that such surrender must occur
prior to the expiration of the surrender period and within six months after
the recipient's Early Retirement, Normal Retirement, Disability or death.
SECTION 12. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of an
optionee or participant under a Stock Option, Stock Appreciation Right (or
Limited Stock Appreciation Right),
10
Restricted or Deferred Stock Award, Stock Purchase Right, Phantom Stock Unit
Award, or Long Term Performance Award theretofore granted, without the
optionee's or participant's consent, or which, without the approval of the
Company's stockholders, would:
(a) except as expressly provided in this Plan, increase the
total number of shares reserved for the purpose of the Plan;
(b) change the employees or class of employees eligible to
participate in the Plan; or
(c) extend the maximum option period under Section 5(b) of the
Plan.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options (on a one for one or other basis), including
previously granted Stock Options having higher option exercise prices. Except
for adjustments permitted under Section 3 of the Plan, there will be no
repricing of "underwater" stock options (stock options whose exercise price is
greater than market price) without first obtaining stockholder approval.
Subject to the above provisions, the Board shall have broad authority to
amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
SECTION 13. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an 'unfunded' plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that, unless the Committee otherwise determines
with the consent of the affected participant, the existence of such trusts or
other arrangements is consistent with the 'unfunded' status of the Plan.
SECTION 14. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option or other award under the Plan to represent to and agree with the
Company in writing that the optionee or participant is acquiring the shares for
investment and without a view to distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to reflect
any restrictions on transfer.
The Committee may condition the exercise of an Option or the issuance and
delivery of Stock upon the listing, registration or qualification of the Stock
upon a securities exchange or under applicable securities laws.
All certificates for shares of Stock or other securities delivered under the
Plan shall be subject to such stock-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) The making of an award under this Plan shall not confer upon any
employee of the Company or any Subsidiary or Affiliate any right to continued
employment with the Company or a Subsidiary or Affiliate, as the case may be,
nor shall it interfere in any way with the right of the Company or a Subsidiary
or Affiliate to terminate the employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes includable in
the gross income of the participant for Federal income tax purposes with respect
to any award under the Plan, the participant shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Stock, including Stock that is part
of the award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements
and the Company and its Subsidiaries or Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the participant.
11
(e) The actual or deemed reinvestment of dividends or dividend equivalents
in additional Restricted Stock (or in Deferred Stock or other types of Plan
awards other than Phantom Stock Units) at the time of any dividend payment shall
only be permissible if sufficient shares of Stock are available under Section 3
for such reinvestment (taking into account then outstanding Stock Options, Stock
Purchase Rights and other Plan awards other than Phantom Stock Units).
(f) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
SECTION 15. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of January 1, 2001; subject to the approval
of the Plan by the holders of a majority of the shares of the Company's Common
Stock at the next annual stockholders' meeting in 2001. Any grants made under
the Plan prior to such approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall be conditioned on,
and subject to, such approval of the Plan by such stockholders. Notwithstanding
any other provision of the Plan to the contrary, no Option, Stock Appreciation
Right or Stock Purchase Right may be exercised and no Restricted or Deferred
Stock or Long Term Performance Award shall become vested until such approval.
SECTION 16. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Restricted Stock Award, Deferred
Stock Award, Stock Purchase Right, Other Stock-Based Award, Phantom Stock Unit
Award or Long Term Performance Award shall be granted pursuant to the Plan on or
after December 31, 2004, but awards granted prior to such date may extend beyond
that date.
SECTION 17. CERTAIN STOCK OPTIONS FOR UNITED KINGDOM EMPLOYEES
Stock Options granted under Section 5 which are Non-Qualified Stock Options
may be granted subject to the terms and conditions of Schedule A hereto. Such
Non-Qualified Stock Options shall be subject to the terms and conditions of the
Plan, including Section 5.
12
SCHEDULE A
THE COOPER COMPANIES, INC.
2001 LONG TERM INCENTIVE PLAN
CERTAIN STOCK OPTIONS FOR UNITED KINGDOM EMPLOYEES
(Providing for the grant of Non-Qualified Stock Options which it is intended
shall satisfy the requirements of the UK Inland Revenue pursuant to Schedule 9
of the UK Income and Corporation Taxes Act 1988 (the 'Taxes Act')).
Non-Qualified Stock Options may be granted pursuant to this Schedule A in
accordance with such provisions as would be applicable if the provisions of the
Cooper Companies, Inc. 2001 Long Term Incentive Plan (the 'Plan') relating to
Stock Options were here set out in full (provided that such stock options shall
not be granted to an individual in conjunction with any other form of award
under the Plan and that Sections 6, 7, 8, 9, 10, and 11 shall not apply to this
Schedule A), subject to the following modifications:
SECTION A1. ELIGIBILITY.
Non-Qualified Stock Options may only be granted under this Schedule A to
individuals who are directors or employees of the Company and its subsidiaries
(and for this purpose a subsidiary shall mean any company of which the Company
has control as defined in section 840 of the Taxes Act) and who are not
ineligible to participate in accordance with the provisions of paragraph 8 of
Schedule 9 to the Taxes Act and, if a director, is required to work in that
capacity for the Company and/or any such subsidiary for at least 25 hours per
week, excluding meal breaks.
SECTION A2. STOCK SUBJECT TO THE PLAN.
(a) Non-Qualified Stock Options granted under this Schedule A may only be
made and may only be exercised in respect of Stock which satisfies the
requirements of paragraphs 10-14 of Schedule 9 to the Taxes Act.
(b) Only in the event of any reorganization, consolidation,
recapitalization, Stock dividend, Stock split or other variation of the
Company's Stock, may an adjustment be made under Section 3 of the Plan to the
amount of Stock which is the subject of Non-Qualified Stock Options granted
under this Schedule A and the option price payable in respect thereof and then
only with the prior approval of the UK Inland Revenue and in such manner as the
auditors of the Company confirm in writing to be fair and reasonable.
SECTION A3. STOCK OPTIONS.
(a) Non-Qualified Stock Options may only be granted pursuant to this
Schedule A at an option price which is not less than 100% of Fair Market Value
as of the date of grant provided that if no sale of Stock occurs on the New York
Stock Exchange on such date the option price shall not be less than the Fair
Market Value of the Stock as determined in accordance with Part VIII of the UK
Taxation of Chargeable Gains Act 1992 and agreed on or before that date for the
purposes of this Schedule A with the UK Inland Revenue Shares Valuation
Division.
(b) No Non-Qualified Stock Options may be granted to an employee or director
which will result in the aggregate option price for all the Stock comprised in
outstanding Non-Qualified Stock Options granted to him under this Schedule A
together with the aggregate option price of all Stock comprised in outstanding
Non-Qualified Stock Options granted to him under any other stock option scheme
established by the Company, or any associated company (as defined in Section 416
of the Taxes Act), approved under Schedule 9 to the Taxes Act (except under any
savings-related stock option scheme) exceeding 30,000 UK pounds sterling
(converting, for this purpose the option price into pounds sterling using the
exchange rate applicable on the date of grant of such option) or such other
amount as is for the time being specified as being the appropriate limit for the
purposes of paragraph 28(1) of Schedule 9 to the Taxes Act. For the avoidance of
doubt, the limit set out in Section 5(j) of the Plan applying to Incentive Stock
Options shall not apply to Non-Qualified Stock Options granted under this
Schedule A.
(c) The conditions attaching to Non-Qualified Stock Options granted under
this Schedule A shall be determined at grant and may not be determined following
the grant of such option.
(d) In the event of the optionee's death a Non-Qualified Stock Option
granted pursuant to this Schedule A must be exercised within twelve months of
the optionee's death whereupon, to the extent it has not been exercised, such
option shall lapse.
(e) No Non-Qualified Stock Option granted under this Schedule A may be
exercised at any time if the holder of such option is precluded from
participating under this Schedule A by paragraph 8 of Schedule 9 to the Taxes
Act.
(f) Sections 5(k), (l) and for the avoidance of doubt 5(m) and Section
12(iv) of the Plan shall not apply to Non-Qualified Stock Options granted under
this Schedule A. Payments for Non-Qualified Stock Options granted under this
Schedule A may not be made in the form of Restricted Stock.
(g) Within 30 days of the receipt of a written notice (in the form
prescribed by the Company) duly signed by the optionee together with their
option certificate and the full purchase price of the Stock being acquired
pursuant to the exercise of their option the Company shall procure that the
optionee acquires the Stock in respect of which the option has been validly
exercised by (i) allotting Stock to the optionee; or (ii) procuring the transfer
of Stock to the optionee and shall issue a definitive certificate for the Stock
acquired pursuant to the exercise of the option.
(h) Stock issued pursuant to this Schedule A shall rank pari passu with the
issued Stock and the Company shall at all times keep available sufficient Stock
to satisfy the exercise of, to the full extent possible, all options granted
pursuant to this Schedule A which have neither lapsed nor become fully
exercisable.
SECTION A4. AMENDMENTS AND TERMINATION.
For the purposes of this Schedule A no amendments to this Schedule A
(including any provision of the Plan which is incorporated within this Schedule
A) pursuant to Section 12 shall have effect until the approval of the UK Inland
Revenue has been obtained in respect thereof. This Section A4. shall not however
restrict the general power of the Board of Directors to amend the Plan where the
amendment will not apply to this Schedule A.
2000 Annual Report The Cooper Companies, Inc.
CONTENTS
Fiscal 2000
Financial Highlights ... 2
Letter to
Shareholders ........... 3
Financial Section ..... 28
Corporate
Information ........... 62
THE COOPER COMPANIES, INC. is a rapidly growing
specialty healthcare company serving the vision care
and women's healthcare markets around the world
with high quality products and services.
CooperVision markets a broad range of contact
lenses, concentrating on high-growth value-added
market segments.
CooperSurgical offers diagnostic products as well
as surgical instruments and accessories used primarily
by gynecologists and obstetricians.
Note About Internet Addresses in this Report: The Internet addresses in this
report are for informational purposes only and not intended as hyperlinks.
Nothing referred to by any of these addresses is a part of this annual report.
FINANCIAL HIGHLIGHTS
Selected Financial Information for Five Years
(In thousands except per share data)
THE COOPER COMPANIES, INC. (NYSE:COO)
2 0 0 0 1 9 9 9 1 9 9 8 1 9 9 7 1 9 9 6
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION:
Income from continuing operations* $ 2.03 $ 1.54 $ 0.91 $ 0.77 $ 0.57
Net income as reported $ 2.00 $ 1.75 $ 2.61 $ 2.39 $ 1.41
Dividends $ 0.08 $ 0.04 N/A N/A N/A
Cash flow** $ 3.51 $ 2.82 $ 1.93 $ 1.50 $ 1.13
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Diluted average shares $ 14,510 $ 14,312 $ 15,269 $ 13,120 $ 11,794
Stock price - high $ 38.81 $ 31.88 $ 51.69 $ 41.13 $ 15.13
Stock price - low $ 24.63 $ 11.75 $ 14.00 $ 14.00 $ 5.63
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Sales $197,317 $165,328 $147,192 $ 88,769 $ 66,118
Gross profit $129,217 $106,319 $ 91,428 $ 61,444 $ 46,207
Operating income $ 46,869 $ 38,811 $ 29,700 $ 19,803 $ 14,270
Operating income/sales 24% 23% 20% 22% 22%
Interest expense $ 4,744 $ 6,330 $ 6,253 $ 3,174 $ 3,421
Provision for (benefit of) income taxes $ 12,727 $ 10,711 $(34,723) $(26,735) $ (4,438)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Working capital $ 47,410 $ 58,565 $ 69,376 $ 71,456 $ 32,394
Property, plant and equipment, net $ 47,933 $ 40,319 $ 34,234 $ 7,634 $ 4,650
Total assets $322,565 $285,873 $296,041 $170,624 $ 84,230
Total debt $ 48,351 $ 61,955 $ 90,247 $ 9,563 $ 38,089
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 14,665 $ 10,121 $ 19,573 $ 7,735 $ 3,182
Depreciation and amortization $ 8,734 $ 8,440 $ 8,416 $ 4,267 $ 3,352
- ---------------------------------------------------------------------------------------------------------------------------
* 1996, 1997 and 1998 are pro forma, assuming a 40 percent tax rate
** Pretax income from continuing operations plus depreciation and amortization
2
TO OUR SHAREHOLDERS
In fiscal year 2000, The Cooper Companies continued to generate strong increases
in revenue, earnings and cash flow. Since 1995, the first full year under the
current management, Cooper's revenue has grown at a compounded annual rate of 29
percent, its operating income at 46 percent, its pro forma earnings per share
from continuing operations at 45 percent and its cash flow per share at 38
percent.
During this period, both of our medical device business units have
prospered. CooperVision (CVI), our contact lens business, has grown its revenue
at a compounded annual rate of 29 percent and today is one of the world's
leading and fastest growing manufacturers of contact lenses.
CooperSurgical (CSI), our women's healthcare business, has achieved
significant scale, with revenue growing at a compounded annual rate of 29
percent and now approaching $50 million annually, as we continue to consolidate
a fragmented market. During this period, CSI has become a major manufacturer
and marketer of medical device products for the gynecology segment of the
women's healthcare market in the United States and, we believe, the largest
supplier of gynecology devices for the physician's office.
Other measures of financial performance are equally strong. Over the past
five years:
Cash flow (pretax income from continuing operations plus depreciation and
amortization) per share has grown from $.69 to $3.51.
Debt has declined to 20 percent of total capitalization.
One hundred shares of Cooper stock that cost $588 on October 31, 1995
increased in value by over 500 percent to $3,575 by the end of fiscal 2000.
During this period the Company's market capitalization grew from $68
million to $517 million.
We are proud of this record of consistent growth that Cooper's employees
have delivered and thank them for their continued commitment to our goals.
As we look ahead, we see positive market dynamics driven by favorable
demographics for both businesses and continued efficiency and innovation in
serving them.
The soft contact lens market around the world remains attractive, growing at
about six percent to an estimated $3 billion in 2000. In the United States and
in other industrialized countries, a new group of teenagers is entering the
market. As contact lens wear begins in the pre- and early teen years, these new
wearers are now beginning to generate a revenue annuity.
In Japan, the world's second largest contact lens market, practitioners are
rapidly shifting to disposable and planned replacement soft contact lenses from
hard gas permeable lenses.
[GRAPHIC]
In the United States, "Generation Y" is stimulating the contact lens market.
By 2007, there will be two million more high school students than there were in
1997.
3
In addition to these positive macro market trends, many lens manufacturers
are now launching new specialty, value-added products that are upgrading the
value of the market. In many countries outside the United States, contact lens
fitters are finding that toric lenses both benefit patient vision and enhance
practice income, and the market is expanding. Toric lenses, the fastest growing
segment of the worldwide contact lens market, are CooperVision's leading
products.
New aspheric lens designs that provide a crisper quality of vision and
improved acuity in low light conditions also have been well accepted. CVI's
Frequency Aspheric lens has become the worldwide leader in this value added
category. CVI also married its aspheric technology to a new line of cosmetic
lenses, Frequency Colors, and entered this second fastest growing segment of the
worldwide specialty lens market during 2000.
Favorable demographic trends also drive our women's healthcare business.
Women of the "baby-boomer" generation are reaching the age when gynecology
procedures are performed most frequently, and CooperSurgical has, through both
acquisition and internal development, built an extensive product line to support
them. You'll read more about this below in a special section, CooperSurgical:
Consolidating Women's Healthcare for Profitable Growth, that details the women's
healthcare market and CooperSurgical's strategy. We feel strongly that
CooperSurgical is an important member of the Cooper family, and this section
describes why.
YEAR IN REVIEW
The Cooper Companies reported sales of $197.3 million for the fiscal year, a
19 percent increase over 1999. CVI's revenue grew to $151.8 million, up 12
percent, while CSI's grew to $45.5 million, a 55 percent increase that reflects
primarily the acquisition of two lines of women's healthcare products earlier in
the fiscal year. Diluted earnings per share from continuing operations grew 32
percent to $2.03. Cash flow per share reached $3.51, up from $2.82 the previous
year.
[GRAPHIC]
REVENUE (IN MILLIONS OF U.S. DOLLARS)
[GRAPHIC]
OPERATING INCOME
(IN MILLIONS OF U.S. DOLLARS)
COOPERVISION
COOPERSURGICAL
4
[GRAPHIC]
CooperVision's Japanese partner,
Rohto Pharmaceuticals, Inc., has launched
CVI's conventional lenses in Japan
and expects to introduce its planned
replacement lenses in 2002.
COOPERVISION
In the United States, the largest contact lens market in the world, CVI's
revenue grew 18 percent to $97.8 million, improving its market share by about
one share point.
Outside the United States, CVI's core revenue grew 18 percent at constant
currency rates as new product launches, particularly in Canada and in Europe,
brought fresh vigor to our operations abroad. With the recent acquisition of
distributors in Sweden and Spain, we now have CVI infrastructures in five
countries outside the United States.
In Japan, through its marketing partner Rohto Pharmaceuticals, Inc., a
leader in the Japanese consumer eye care market, CVI has so far introduced only
conventional lenses - those worn for about a year before replacement - and
revenue is limited. We expect Rohto to introduce CVI's line of frequently
replaced lenses to Japanese practitioners in 2002 following regulatory approval.
Rohto is the fourth-largest company in Japan's drug, cosmetic and healthcare
products industry with 2000 revenue of about $515 million and about 640
employees. It is the leading "over-the-counter" eye drop manufacturer in Japan
and ranks second or third in sales of contact lens solutions. Rohto will use its
significant distribution presence to market CVI's contact lenses.
Rohto received Japanese regulatory approval in 1999 to sell CVI's
conventional spherical and toric lenses and has introduced these lenses under
the Rohto i.Q brand in Japan.
Toric lenses to correct astigmatism continue to be CVI's strongest product
line. The torics lens market, about $330 million worldwide, continues to grow
faster than any other segment of the contact lens market. In the United States,
where about three-quarters of these products are sold,
5
we estimate that the toric market grew 7 percent, compared with a flat market
for spherical lenses, which correct only near- and farsightedness.
Sales of CVI's toric products in the United States grew 19 percent in fiscal
2000, six times faster than the total U.S. contact lens market, and its share of
the total toric lens market in the United States reached 31 percent, up more
than two share points. CVI's disposable planned replacement toric revenue, led
by Frequency Toric and the new CV Encore Toric, grew 32 percent. CVI now holds
about 34 percent of this market.
CVI's gross margin improved from 66 percent of revenue to 69 percent year to
year due to a favorable product mix shift to higher margin products and to
continuing manufacturing efficiencies. As our sales to Rohto in Japan become
significant, we expect our gross margin to decline but operating margins to
remain at historic levels while we generate incremental operating income from
our Japanese sales. Under our agreement, Rohto will incur the costs to market
the lenses in Japan, and our prices to them will reflect this arrangement. These
lower prices will reduce our gross margins, but without local marketing costs,
our operating margins will remain intact.
CVI launched three important new specialty lens products during 2000. In the
first quarter, we launched Frequency Aspheric in the United States following its
overseas introduction in 1999. The optical properties of this lens improve
visual acuity in low light conditions and correct low amounts of astigmatism
where toric lenses are not indicated. This offers practitioners the opportunity
to improve patient vision while adding incremental income to their practices
with a value added, highly featured product.
[GRAPHIC]
CVI competes in the disposable planned
replacement toric market with products for
two-week, monthly and quarterly replacement.
6
IN CANADA, WHERE
CVI IS THE SECOND LEADING
CONTACT LENS MANUFACTURER,
WE INTRODUCED ENCORE COLORS
TO PRACTITIONERS WITH THIS
MESSAGE:
"Real color gets people into cosmetic lenses;
real comfort keeps people wearing them. Encore
Colors are manufactured using the same UltraSync
molding process that makes every Encore lens
comfortable. Additionally, Encore Colors' tinting
process does not compromise comfort. You can
fit Encore Colors as a full time lens for most of
your spherical patients."
[GRAPHIC]
Real photos from a model's eyes.
They have not been digitally retouched in
any way. Gray, aqua, blue, green, hazel.
In May, CVI introduced Frequency Colors in Europe and in September, launched
Encore Colors in Canada. In the first quarter of 2001, CVI will start marketing
Frequency Colors in the United States. The cosmetic lens market - opaque and
color enhancing lenses that change the appearance of the eye's natural color -
is the second largest specialty lens market segment behind toric lenses.
Worldwide revenue is about $250 million, growing at about 8 percent annually.
The Frequency Colors line of five opaque colored lenses is well differentiated
from its competition in three important ways:
First, patients rated Frequency Colors equal or better in appearance than
the top-selling brand of disposable color contacts. The technology used to color
the lenses randomly places dashes of color throughout the lens in varying tones
and intensity to give the appearance of a natural iris.
Second, Frequency Colors has demonstrated superior comfort in clinical
trials compared to the leading competitive products'D'.
Third, it incorporates the benefits of the aspheric design of Frequency
Aspheric.
Importantly, CVI's line of colored lenses are interchangeable with the
leading brands of disposable spherical lenses, so practitioners will not have to
refit current wearers who want to use colored lenses occasionally.
During 2000, CVI also introduced a cast molded toric lens, CV Encore Toric,
to compete in the two-week segment of the disposable toric market in the United
States. Because of the efficient UltraSync manufacturing technology, this lens
can be priced competitively.
7
CLINICAL RESULTS WITH FREQUENCY COLORS
[GRAPHIC]
In a clinical comparison of Encore Colors versus the top selling brand of
disposable color contacts, 63 percent of patients found Encore Colors more
comfortable.
CVI also introduced the Cooper Prosthetic Lens this year. Prosthetic lenses
are similar to opaque lenses, but are denser in color to mask corneal scarring
and other conditions that cause the eye to appear unattractive.
CVI's bifocal lens remains in clinical trials with a marketing decision
expected during 2001. Results must be superior to competitive lens performance
after six months of wear or we will not introduce this product.
CVI expanded its presence on the World Wide Web during 2000 with a new
marketing initiative that informs consumers about its advanced technology lenses
and refers them to local contact lens practitioners who have registered on the
CVI site. A second feature allows practitioners to ship lenses directly to their
patients or order lenses directly for their own inventory. The Website is
www.coopervision.com.
[GRAPHIC]
CVI also features a line of novelty lenses
used during holidays such as Halloween
and Mardi Gras to add festive accents
to fancy dress and costumes.
'D'. Data on file at CooperVision
8
COOPERSURGICAL
Two acquisitions helped drive CSI's 2000 revenue to $45.5 million, up 55
percent. In December 1999, CSI purchased a group of women's healthcare products
from BEI Medical Systems Company, Inc., including a well-known uterine
manipulator and other products for the gynecological surgery market.
In January 2000, CSI purchased Leisegang Medical, Inc, a leading global
designer and manufacturer of precision instruments for women's healthcare
including colposcopes, instruments to perform loop electrosurgical excision
procedures, hand-held gynecology instruments, disposable specula and
cryosurgical systems. Many of the products are disposable, including the
Sani-Spec line of plastic specula, its largest product group. CSI believes it is
now the world's leading manufacturer and marketer of colposcopy products -
instruments used to examine the cervix.
In another transaction announced in October 2000, CSI purchased
MedaSonics, Inc., which markets a line of compact, hand-held Doppler ultrasound
systems used in obstetrics and gynecology, cardiology and other medical
specialties. Fetal Dopplers detect fetal life and viability from as early as
nine weeks gestation and assess the rate and rhythm of the fetal heartbeat.
Vascular Dopplers locate and determine the status of blood vessels and measure
systolic blood pressure in infants, and patients with trauma or obesity. During
surgery, dopplers detect venous air embolism, evaluates direct vessel and
transcutaneous blood flow and measures systolic blood pressure.
In November, CSI announced an exclusive distribution agreement with
Norland Medical Systems, Inc. to distribute a line of bone measurement systems
used to evaluate osteoporosis, a condition that affects 22 million American
women, many of whom could benefit from early diagnosis through pharmaceutical
intervention.
9
These transactions continue CSI's market consolidation strategy, and CSI
now believes that it is the largest manufacturer and marketer of products for
the physician's office segment of the gynecology market. CSI's target is to
reach $100 million in revenue by 2003 or 2004.
During fiscal 2000, CSI's operating income grew 45 percent. In fiscal
2001, we expect its operating margin to approach 20 percent as we complete the
integration of the recent acquisitions.
In January 2000, the FemExam pH and Amines TestCard System - a rapid,
economical point of care diagnostic test used to help determine if a vaginal
infection is bacterial or fungal - received reimbursement codes and guidelines
from the American Medical Association and the United States Health Care
Financing Administration.
Since then, it has shown strong growth, averaging 30 percent sequential
quarterly revenue growth in the past three quarters. The Cerveillance Digital
Colposcope line of advanced imaging and information processing technologies used
to examine and monitor cervical tissue generates about $2.5 million in annual
revenue.
NEXT YEAR'S GOALS
We see the momentum of the past five years continuing in 2001. We expect
earnings per share from continuing operations in the range of $2.36 to $2.42
with revenue increasing between 16 percent and 21 percent. Both of our
businesses will continue to benefit from favorable demographics. At
CooperVision, recently introduced contact lens products and geographic expansion
will drive incremental revenue, and we look forward to beginning, late in the
year, to compete aggressively in Japan, the world's second largest market. At
CooperSurgical, we will continue to pursue our strategy to consolidate the
gynecology segment of the women's healthcare market.
Thank you for your continued support.
Allan E. Rubenstein, M.D.
-----------------------------
Allan E. Rubenstein, M.D.
Chairman of the Board
A. Thomas Bender
-------------------------------------
A. Thomas Bender
President and Chief Executive Officer
January 24, 2001
10
This special section describes the continuing opportunity for CSI in
women's healthcare. In it, we review the market opportunity and important
emerging trends, discuss CSI's approach to consolidating the market and
integrating businesses and explain the unique mix of product and distribution
strategies that will support our future growth.
COOPERSURGICAL:
CONSOLIDATING WOMEN'S
HEALTHCARE FOR PROFITABLE GROWTH
In 1990, CooperSurgical, sensing a long-term opportunity, launched a
strategy to consolidate the highly fragmented women's healthcare medical device
market by acquiring businesses and product lines that primarily serve the
obstetrician/gynecologist (Ob/Gyn).
CSI is now at the forefront of women's healthcare, a growing market
driven by favorable demographics and advancing technology. Its sales,
approaching $50 million annually, represent 23 percent of Cooper's total
revenue. Operating margin is expected to approach 20 percent in the second half
of 2001.
The market consolidation strategy continues: CSI has added 11 major
products or product lines to date - four in the past 18 months. This strategy
fits well with Cooper's strong cash flow. The cash generated by CooperVision
coupled with the $139 million of net operating losses remaining at the end of
fiscal 2000, allows CSI to readily compete for the superb opportunities
available in women's healthcare.
12
THE MARKET FOR MEDICAL
DEVICES IN WOMEN'S HEALTHCARE
FAVORABLE DEMOGRAPHICS DRIVE THE MARKET
In 1999, over 90 million women between the ages of 15 and 64 recorded
more than 118 million visits to the Ob/Gyn. Over 70 million of these related to
gynecologic complaints(1).
By 2010, the United States Census Bureau projects that the number of
women in this age group will grow by 12 percent. Over 40 million of these women
will be 45 to 64 years of age, as the `baby boomers' - women born between 1946
and 1964 -begin to experience the gynecologic problems associated with advancing
age. By then, total patient visits to U.S. Ob/Gyns are projected to reach 132
million.
VISITS TO U.S OB/GYNS REFLECT AN
AGING FEMALE POPULATION
Annual examinations, cancer screening, menstrual disorders, vaginitis,
and the management of menopause account for approximately two-thirds of the
patient visits to Ob/Gyns in the United States, with the rest for pregnancy and
reproductive management.
Office visits for pregnancy and reproductive management are, as
expected, by women between the ages of 15 - 44, while older patients 45 - 65
manifest gynecologic concerns(1). Consistent with an aging population, visits
for menstrual disorders and menopause are growing, and osteoporosis (reduction
in bone mass) has become one of the most frequent diagnoses.
In 1999, nearly 5 million patient contacts to monitor and treat
abnormal Pap smears were reported, mostly in the 25 to 44-year age group(2).
Follow-up visits include repeat Pap smears and colposcopic examination
(visualization of the cervix with a light source and microscope). Visits for
abnormal Pap smear have remained constant at about 4.5 percent of the total
visits for the past five years and are expected to remain at this level.
Vaginitis (inflammation of vaginal tissue) represents about 4 percent of
the total visits with about 80 percent of these cases between the ages of 15 and
44(1). Office visits include assessment of the vaginal ecosystem and the
identification of infectious agents.
(1) Physician's Drug and Diagnostic Audit, January - December 1999.
Philadelphia, Pa: Scott-Levin, Inc.
(2) Women's Health 2000, A Contemporary Ob/Gyn Fact Book. Contemporary Ob/Gyn
2000; 67-68.
13
The Ob/Gyn also is the primary contact for fertility assessment and
treatment. These visits occur primarily in the 25 - 44 year age group and
include evaluation of ovulatory function, fallopian tube patency and the status
of the endometrium (the lining of the uterus).
MOST FREQUENTLY PERFORMED
PROCEDURES MIRROR AGING TRENDS
Endometrial sampling is the Ob/Gyn's most frequently performed
procedure, often done in conjunction with the start of hormone replacement
therapy (HRT), and in the evaluation of menstrual disorders. As the population
continues to age, the incidence of menstrual disorders and the use of HRT will
also rise.
Hysterectomy (removal of the uterus), the second most frequently
performed major surgical procedure among reproductive age women after Cesarean
delivery, is widely performed for menstrual disorders. More than a fourth of
American women will have a hysterectomy performed by the time they are 60 years
old. Sometimes, the ovaries and the fallopian tubes are removed at the same
time. About three-quarters of these procedures are performed abdominally and
one-quarter vaginally. A small number are performed using a laparoscope, a
minimally invasive surgical instrument.
Hysteroscopy (evaluation of the uterus using an endoscope) and
myomectomy (removal of a uterine tumor) assess and correct abnormal uterine
bleeding or improve fertility. Diagnostic hysteroscopy is performed in the
physician's office or in an outpatient facility, to obtain biopsies and
determine the presence of tumors.
Tubal ligation, a sterilization procedure involving destruction or
occlusion of the fallopian tubes, is the third most frequently performed
gynecologic surgical procedure. It is often carried out during a Cesarean
section or following a vaginal delivery.
-------------------------------------------------------------------
WHY WOMEN VISIT 2000 1999 1995
AN OB/GYN(1) ESTIMATE
-------------------------------------------------------------------
Normal pregnancy 22,486 22,594 21,806
-------------------------------------------------------------------
Contraceptive management 12,305 12,061 10,894
-------------------------------------------------------------------
Gynecologic examination 11,709 13,658 12,586
-------------------------------------------------------------------
Female climacteric (menopause) 10,046 10,247 7,831
-------------------------------------------------------------------
Menstrual disorders 5,391 5,230 3,847
-------------------------------------------------------------------
Abnormal Pap smear 4,953 4,840 4,495
-------------------------------------------------------------------
Vaginitis 4,431 4,398 4,450
-------------------------------------------------------------------
Surgery follow-up 2,810 2,811 3,191
-------------------------------------------------------------------
Routine post-partum follow-up 2,306 2,676 2,585
-------------------------------------------------------------------
Genital symptoms 1,673 1,570 1,749
-------------------------------------------------------------------
Urinary tract infection 1,059 1,185 1,141
-------------------------------------------------------------------
Absence of menstruation 1,018 1,035 1,024
-------------------------------------------------------------------
Infertility screening 970 833 980
-------------------------------------------------------------------
Osteoporosis 770 541 0
-------------------------------------------------------------------
Other 36,518 34,775 34,757
-------------------------------------------------------------------
Total visits 118,445 118,454 111,336
-------------------------------------------------------------------
(1) Physician's Drug and Diagnostic Audit, January - December 1999.
Philadelphia, Pa: Scott-Levin, Inc.
MOST COMMON MEDICAL PROCEDURES
IN OB/GYN PRACTICE, 1999(3)
----------------------------------------
MEDICAL PROCEDURE % OB/GYNS
CURRENTLY
PERFORMING
----------------------------------------
Endometrial sampling 94
----------------------------------------
Abdominal hysterectomy 90
----------------------------------------
Laparoscopy 89
----------------------------------------
Tubal ligation 86
----------------------------------------
Vaginal hysterectomy 85
----------------------------------------
Laparotomy 84
----------------------------------------
Pap smear
----------------------------------------
Manually read 83
---------------------------------
Automated 34
----------------------------------------
Colposcopy imaging 78
----------------------------------------
Cryosurgery 78
----------------------------------------
Loop electrosurgical excision 76
procedure (LEEP)
----------------------------------------
Hysteroscopy 74
----------------------------------------
Myomectomy 72
----------------------------------------
Gynecologic ultrasound 69
----------------------------------------
Infertility testing/treatment 68
----------------------------------------
OB ultrasound 67
----------------------------------------
(3) 1999 Technology Study. Contemporary Ob/Gyn, 1999; 8-9.
14
LEADING GYNECOLOGICAL PROCEDURES
IN HOSPITALS, 1996(4)
--------------------------------------------------------
NUMBER OF PROCEDURES
--------------------------------------------------------
Hysterectomy 591,000
--------------------------------------------------------
Ovary and fallopian 475,000
tube removal
--------------------------------------------------------
Bilateral destruction or 342,000
occlusion of fallopian tubes
--------------------------------------------------------
Repair of cystocele and 151,000
rectocele
--------------------------------------------------------
Dilation and curettage 83,000
(D&C) of the uterus
--------------------------------------------------------
Mastectomy 89,000
--------------------------------------------------------
(4) National Hospital Discharge Survey, Annual Summary, 1996.
National Center for Health Statistics. Vital Health Statistics, 1998.
OB/GYN PRACTICE SETTINGS(6)
--------------------------------------------------------
PRACTICE SETTING NUMBER OF SITES
--------------------------------------------------------
Ob-Gyn offices:
--------------------------------------------------------
Solo practices 7,928
--------------------------------------------------------
Group practices 8,174
--------------------------------------------------------
Total offices 16,102
--------------------------------------------------------
Hospitals 6,000
--------------------------------------------------------
Fertility clinics 300
--------------------------------------------------------
(6) American Medical International Database, Los Angeles, CA, October 2000.
OB/GYN DISTRIBUTION BY AGE AND GENDER(7)
--------------------------------------------------------
AGE FEMALE PERCENT MALE PERCENT
OF TOTAL OF TOTAL
--------------------------------------------------------
Under 35 3,364 10 1,860 5
--------------------------------------------------------
35 - 44 4,388 13 5,015 14
--------------------------------------------------------
45 - 54 2,599 7 7,211 21
--------------------------------------------------------
55 - 64 858 2 5,588 16
--------------------------------------------------------
65+ 271 1 3,968 11
--------------------------------------------------------
All Ages 11,480 33 23,642 67
--------------------------------------------------------
(7) Women's Health 2000, A Contemporary Ob/Gyn Fact Book.
Contemporary Ob/Gyn 2000; 30.
TRENDS IN OB/GYN PRACTICE PROFILES
In a 1996 review of practice profiles(5), the American College of
Obstetricians and Gynecologists reported that:
Nearly two-thirds of Ob/Gyns worked exclusively in private practice, 13
percent worked in a private practice and held a salaried position, and 23
percent held salaried positions only. This reflects a significant shift
toward managed care employment compared with the College's 1991 report.
More than half of private practice Ob/Gyns worked in group practices, a
significant increase from 1991. About 20 percent of these physicians
practiced gynecology only.
Women comprised about 65 percent of residents, a significant demographic
change since the 1991 survey.
CONSOLIDATING THE
WOMEN'S HEALTHCARE MARKET
While general medical practitioners play an important role in women's
primary healthcare, the Ob/Gyn is recognized as the reproductive health
specialist and is the predominant customer for associated medical devices.
Historically, many small medical device companies have supplied the
women's healthcare market with a wide range of products through a necessarily
fragmented distribution system. There are over 75 of these companies serving the
United States women's healthcare market today, reflecting the wide scope of
women's healthcare needs and the large number and varied types of providers who
meet them. There are nearly 31,000 Ob/Gyn's under the age of 65 practicing at
16,100 locations in the United States, as well as 6,000 hospitals with clinics,
outpatient and surgical facilities, plus 300 fertility clinics specializing in
assisted reproductive technologies.
Until recently, larger companies have not sensed an opportunity to build
a large, integrated women's healthcare business. This has allowed smaller
companies to target a single procedure or disease and develop a limited product
line to address either its diagnosis or treatment. Most of these businesses have
remained small and, as their growth slowed, many looked to exit the market.
(5) ACOG Economic Impact Study: Profile of Ob/Gyn Practices, 1991-1994:
Washington, American College of Obstetrics and Gynecology, 1996.
15
CSI's business strategy has been to selectively identify smaller
companies and product lines and acquire those that can improve its existing
market position or offer opportunities in new clinical areas.
ACQUISITIONS WITH A CLINICAL FOCUS
CSI has historically concentrated on five high potential areas in women's
healthcare:
GYNECOLOGY: medical and surgical management of gynecologic disorders
ONCOLOGY: medical and surgical approaches to treat malignancies of the
cervix, ovary, uterus, and vulva
REPRODUCTIVE ENDOCRINOLOGY AND FERTILITY: reproductive biology
including hormones and assisted reproductive technologies
OFFICE PRACTICE: diagnostic evaluations within primary and preventive
care
OBSTETRICS: evaluation and monitoring of a pregnant woman and her fetus.
Most of the medical device usage comes from the first three categories,
as does CSI's revenue.
Since the early '90s, CSI has developed a business model that surrounds
Ob/Gyns with premium medical devices for their highest volume procedures. Over
the past six years, CSI has acquired or licensed 11 major companies or product
lines.
CSI achieves financial benefit from its acquisitions by rapidly
integrating technologies and manufacturing functions to improve profitability.
Using this approach, CSI gross margin currently approaches 55 percent, the high
end of the medical device industry average.
THE COOPERSURGICAL BRAND
CSI has gained a strong market position with a customer base in nearly
60 percent of Ob/Gyn offices, 65 percent of hospitals and 69 percent of
fertility clinics. Each new addition presents opportunities to expose CSI's
existing product line to new customers and new products to existing customers.
[GRAPHIC]
Gynecology......57%
Oncology........21%
Reproductive
endocrinology &
fertility.......14%
Office practice..8%
CSI OB/GYN REVENUE
DISTRIBUTION BY CLINICAL AREA
THE DISTRIBUTION OF CSI REVENUE BY
PRIMARY CLINICAL PRACTICE AREA IN 2000
16
[GRAPHIC]
Colposcopy imaging....31%
Endometrial sampling..11%
Vaginitis sampling.....5%
Cryosurgery............4%
Other.................16%
Loop electrosurgical
excision procedure....33%
OFFICE-BASED OB/GYN SALES
BY MEDICAL PROCEDURE, 2000
The distribution of CSI's 2000 revenue
by procedure type indicates its success in
focusing on high volume procedures.
CSI rapidly integrates acquired companies or products into its portfolio
through a branding strategy. Because CSI has excellent name recognition and
recall with its customers, the marketing strategy features "CooperSurgical" in a
high profile position and at the same time promotes the acquired product line or
company brand names. As a result, CSI grows in importance and substance to the
customer as a source of preferred products.
MEETING CUSTOMER NEEDS WITH A MULTIPLE SITE,
MULTIPLE PRODUCT STRATEGY
CSI markets a diversified product mix in a variety of clinical settings.
The product line contains more than 2,100 offerings. In 2000, 51 percent of
CSI's Ob/Gyn revenue was generated in the office setting, 38 percent in the
hospital and 11 percent in fertility clinics. About 60 percent of CSI's products
are disposable. For optimal market coverage, CSI employs a direct sales force of
28 representatives, 7 independent sales representatives, catalogs and other
direct marketing programs, including a business-to-business e-commerce site
(www.cooopersurgical.com) for physicians and hospitals.
OFFICE-BASED SALES
CSI's group of products for the practitioner's office addresses high
volume clinical conditions:
ABNORMAL PAP SMEARS: When a Pap test result is abnormal, the physician
often repeats it or performs a colposcopic examination--a visual inspection of
the cervix and surrounding tissues--and samples suspicious tissue. Depending on
the result, the physician may recommend a follow-up Pap and colposcopic
examination or a Loop Electrosurgical Excision Procedure (LEEP) to biopsy
tissue, remove it or both.
CSI offers a complete product line to support the evaluation of abnormal
Pap smears: vaginal specula, the Cervex - Brush for specimen collection,
colposcopes with supporting instrumentation and a full LEEP product line.
CSI entered the colposcopy market with its 1990 acquisition of
Frigitronics and later introduced the first overhead colposcopy unit
specifically designed for LEEP.
17
In 1998, CSI introduced, the Cerveillance Scope, which uses digital
technology to visualize and document cervical lesions. This is the first
device to combine digital imaging technology and proprietary software in
a fully integrated compact instrument. CSI became a world leader in colposcopy
with its 2000 acquisition of Leisegang Medical, a leading colposcopy
manufacturer.
In 1991, CSI introduced the LEEP procedure to the United States market and
followed with a complete line of products to surround it. These include the LEEP
System 1000 electrosurgical generator, the CooperSurgical Smoke Evacuation
System 6080, and the non-conductive, autoclavable instrumentation and ancillary
disposable products used in each case. It also includes the Prima Series
speculum that resists staining and surface degradation, and disposable products
such as sterile single use LEEP electrodes and LEEP RediKit.
Menopause: Menopause is the permanent cessation of menstruation after loss of
ovarian function. As the female population has aged, visits related to menopause
have grown to over 10 million per year(8). The United States Census Bureau
projects a 30 percent increase in women in this age group over the next ten
years.
Hormone replacement therapy (HRT) is recommended for the primary symptoms of
menopause -- hot flashes and vaginal atrophy -- and to reduce the long-term
effects of estrogen deficiency: cardiovascular disease, weakening of the pelvic
support structures and osteoporosis. Before starting HRT, physicians often
sample cells from the endometrium, particularly when bleeding is irregular or
heavy. With some therapeutic regimens, physicians test annually to monitor the
thickening of the uterine lining, which occurs in up to 30 percent of women
receiving estrogens alone as their HRT(8).
(8) Menopause. In: Visscher CH, ed. Precis V, An Update in Obstetrics and
Gynecology, American College of Obstetrics and Gynecology, 1994; 404.
[Graphic]
The Cerveillance Scope uses state-of-the art digital technology to examine the
cervix and serially document changes.
[Graphic]
CSI's Loop Electrical Excision Procedure Equipment.
Office Based Gynecology Procedures
Reason Annual Rank in Product
for Visit Office Annual Categories
Visits, Visits to Used
1999 (000's) Ob/Gyns
- --------------------------------------------------------------------------------
Gynecological 13,658 Third Vaginal
examinations specula
Pap smear
- --------------------------------------------------------------------------------
Menopause 10,247 Fourth Endometrial
sampling
- --------------------------------------------------------------------------------
Menstrual 5,230 Fifth Endometrial
disorders sampling
Hysteroscopy
- --------------------------------------------------------------------------------
Abnormal 4,840 Sixth LEEP
Pap smear products
Colposcopes
Pap smear
- --------------------------------------------------------------------------------
Vaginitis 4,398 Seventh Vaginitis
testing
- --------------------------------------------------------------------------------
Female genital 1,570 Tenth Cryosurgery
symptoms Electrosurgery
- --------------------------------------------------------------------------------
18
Endometrial cell sampling helps evaluate abnormal uterine bleeding in women
at risk for endometrial polyps or abnormal cellular growth. Clinicians regard
CSI's Pipelle, a disposable aspiration device, as the premier product for this
procedure.
Menstrual Disorders: Office visits for menstrual disorders have risen
significantly in the last five years. There are three main classes: abnormal
uterine bleeding, the absence of a menstrual cycle, and a painful menstrual
cycle. More than 50 percent of women experience pain associated with their
menstrual cycle(9). A comprehensive differential diagnosis of this condition
often includes laparoscopy.
Abnormal uterine bleeding is common in women approaching menopause. The
standard diagnostic process involves a physical examination, blood tests,
pelvic ultrasound and endometrial biopsy, where the CSI Pipelle is used.
Anatomic causes of abnormal uterine bleeding, including benign tumors that
are found in about 50 percent of women over 35(10), are identified through
laparoscopic or hysteroscopic examination. Operative hysteroscopy is often
performed to remove benign tumors.
Hysteroscopy is performed either in the physician's office or at the
hospital. Diagnostic hysteroscopy provides a direct view of uterine cavity
abnormalities before treatment. The equipment required includes a scope,
a light source and a mechanism to distend the uterus. Operative hysteroscopy
is usually performed in hospitals or at outpatient surgical facilities. CSI
offers an array of diagnostic hysteroscopy products including a fully integrated
system with light source, camera and monitor for office use, and a variety of
hysteroscopes. CSI also markets Hyskon, a solution used to distend the uterus.
[Graphic]
The Pipelle offers a rapid, simple technique and excellent patient acceptance
for cervical cell sampling
[Graphic]
The Hysteroscopy Series 4000 offers a modular design for maximum flexibility in
hysteroscopy.
(9) Rapkin A. Pelvic Pain and Dysmenorrhea. In Berek ed., Novak's Gynecology,
12th Edition. Baltimore: Williams & Wilkins, 1996; 408.
(10) Hillard P. Benign Diseases of the Female Reproductive Tract: Symptoms and
Signs. In: Berek JS ed., Novak's Gynecology, 12th Edition. Baltimore:
Williams & Wilkins, 1996; 408.
19
Vaginitis: The signs of vaginitis are redness, swelling and discharge caused
by an infection or disturbance in the vaginal ecosystem mainly due to bacterial
vaginosis (BV), Candidiasis (yeast), and Trichomoniasis.
Apart from physical discomfort, the consequences of yeast infections are
relatively benign. BV and Trichomoniasis infections, however, can lead to
serious consequences. BV has been associated with early pregnancy loss, preterm
delivery, premature rupture of membranes, and postpartum endometritis as well as
post surgical infections and pelvic inflammatory disease. Trichomoniasis is
linked to postoperative infection, preterm delivery and premature rupture of
membranes. The differential diagnosis of vaginitis includes evaluation of the
discharge through pH measurement and determination of the presence or absence of
amines.
In 1998, CSI introduced FemExam pH and Amines TestCard, a point of care
diagnostic test used to differentiate these infections. The card objectively
indicates elevated pH and the presence of amines, two of the four criteria used
to diagnose BV. When positive, these two criteria provide a presumptive
diagnosis of BV. During 2000, the American Medical Association created a
specific reimbursement code for amines testing to supplement the existing code
for pH testing. The Health Care Financing Administration has set a suggested
reimbursement rate.
Female Genital Symptoms: Most cases of Female Genital Symptoms relate to the
human papilloma virus (HPV), which is the most common sexually transmitted viral
infection in the United States. Manifestations of HPV include genital warts and
precancerous conditions of the cervix and the vagina.
Diagnosis is through colposcopic inspection, and where indicated, biopsy.
There are no known cures. Treatment regimens include keratolytic agents that
promote skin shedding, immunotherapy and surgical procedures such as
cryosurgery, electrocautery (LEEP) and laser therapy. CSI offers both
electrosurgical and cryosurgical equipment for office-based treatment of
differing stages of the infection.
[Graphic]
CSI's FemExam diagnostic cards help clinicians differentiate between bacterial
and fungal vaginal infections.
[Graphic]
The Cryo-Plus offers the economy and convenience of interchangeable probes.
20
Hospital-Based Sales
CSI derives 38 percent of its Ob/Gyn revenue from hospital- based products,
primarily from three major procedure areas: laparoscopy, hysteroscopy and
hysterectomy. Because office-based practitioners are primarily responsible for
specifying which products will be used when these procedures are performed in
the hospital, CSI presents its products for hospital use to physicians when
calling in their offices.
Diagnostic Laparoscopy: Diagnostic laparoscopy is a minimally invasive
procedure used in both the hospital and the outpatient clinic to diagnose many
gynecologic conditions. The standard equipment used includes a laparoscope,
light source, camera with monitor, a device to aid in visualization of the
pelvic cavity and a variety of laparoscopic surgical instruments. In addition,
laparoscopic surgery on women who have not had a hysterectomy requires a uterine
manipulator to improve access and visualization within the pelvic cavity.
CSI developed a strong presence in the United States disposable uterine
manipulation market when it acquired the Kronner Manipujector and ZUMI products.
These disposables aid in manipulation of the uterus and permit dye injection to
test fallopian tube patency. In addition, for added control, CSI offers RUMI, a
uterine control device that incorporates a reusable handle with disposable tips.
Operative Laparoscopy: The techniques and indications for laparoscopic
surgery continue to evolve. In all cases, skill, training and experience are
needed to achieve outcomes equivalent to those in more invasive "open"
procedures. There are several well-defined laparoscopic indications in
gynecology including sterilization, management of ectopic pregnancy, removal
of benign ovarian masses and reduction of uterine tumors. Advanced procedures
require specific instrumentation to improve access and duplicate the conditions
of an open procedure. CSI's KOH Colpotomizer System facilitates laparoscopic
hysterectomy. This patented system that includes disposables, improves
anatomical landmarks for the physician, which accelerates the
[Graphic]
Laparoscopy........63%
Hysterectomy........9%
Hysteroscopy........9%
Other..............19%
CSI OB/GYN HOSPITAL SALES
BY MEDICAL PROCEDURE, 2000
CSI offers products for most major procedures performed in the hospital.
[Graphic]
The Kronner is a disposable uterine manipulator injector used for laproscopic
procedures, tubal sterilizations and fertility studies.
[Graphic]
The RUMI System offers total control of the uterus during pelvic laproscopic
procedures.
21
procedure and improves safety. Experienced clinicians have demonstrated similar
operative times to open procedures using this system.
As with diagnostic laparoscopy, all operative procedures where a uterus is
present require a uterine manipulator. With its premier product line, including
the Kronner Manipujector, CSI is a leading supplier of disposable uterine
manipulators.
CSI also provides Nu-Tip, a range of popular laparoscopic instruments with
reusable handles for added durability and stability, and disposable tip
assemblies for rapid instrument turnaround and consistent performance. The
laparoscopic line includes a patented disposable access trocar and the Marlow
Balloon Cannula, which improves the surgeon's control and reduces patient
trauma.
Diagnostic Hysteroscopy: Although clinicians can perform diagnostic
hysteroscopy in the office, it is done more often in the hospital or outpatient
clinic where equipment is readily available. CSI's Hyskon is routinely used as
the distension media for diagnostic procedures in the hospital setting.
Hysterectomy: Hysterectomy, the second most frequent surgical procedure in
women of reproductive age, is often performed to treat menstrual disorders.
Always carried out in a hospital, the surgical approaches are: abdominal,
vaginal and laparoscopic with about 75 percent done through an abdominal
incision, 25 percent vaginally and a negligible number laparoscopically(11).
Surgeons perceive CSI's Zeppelin hysterectomy products as the premier
instrument line for abdominal procedures.
Pelvic Repair: The main causes of pelvic support problems are childbirth and
aging. The physical stress of childbirth can cause irreversible tissue and
ligament damage. With the onset of menopause, the loss of estrogen further
complicates this. Symptoms range from a feeling of fullness or heaviness in the
bladder to urinary incontinence.
HOSPITAL-BASED GYNECOLOGIC
PROCEDURES
- --------------------------------------------------------------------------------
DIAGNOSTIC LAPAROSCOPY
- --------------------------------------------------------------------------------
Infertility evaluations
Assessment of pelvic pain
Diagnosis and staging of endometriosis
Diagnosis of ectopic pregnancy
Evaluation of pelvic masses
- --------------------------------------------------------------------------------
DIAGNOSTIC HYSTEROSCOPY
- --------------------------------------------------------------------------------
Evaluation of the endocervical canal
Evaluation of abnormal uterine bleeding
Diagnosis of uterine adhesions
- --------------------------------------------------------------------------------
OPERATIVE LAPAROSCOPY
- --------------------------------------------------------------------------------
Tubal sterilization
Management of ectopic pregnancy
Selected ovarian surgeries
Hysterectomy
Fertility related operations
Endometriosis
- --------------------------------------------------------------------------------
HYSTERECTOMY
- --------------------------------------------------------------------------------
Abdominal
Vaginal
[Graphic]
KOH Colpotomizer System
A unique product innovation for effective laparoscopic surgery.
[Graphic]
The Zepplin hysterectomy clamp is hand-crafted from the finest German stainless
steel to provide superior performance.
(11) Stovall TG. Hysterectomy. In Novak's Gynecology, 12th Edition. Baltimore:
Williams & Wilkins, 1996; 408; 727.
22
FERTILITY PROCEDURES
- --------------------------------------------------------------------------------
Primary Products
Location
- --------------------------------------------------------------------------------
FERTILITY
ASSESSMENT
- --------------------------------------------------------------------------------
X-Ray of the uterus Hospital Uterine injectors and
and fallopian ancillaries
tubes
- --------------------------------------------------------------------------------
Post-coital sample Office Endocervical
collection aspirator
Cervical mucus
evaluations
- --------------------------------------------------------------------------------
FERTILITY
TREATMENT
- --------------------------------------------------------------------------------
Intrauterine Office Artificial
injection Fertility insemination
Clinic catheters
- --------------------------------------------------------------------------------
Embryo transfer Fertility Embryo transfer
Clinic catheters and stylets
- --------------------------------------------------------------------------------
Treatment, depending on the cause and severity, includes HRT, vaginal
hysterectomy and advanced pelvic support surgery where the surgeon reconstructs
critical ligaments. CSI's Nichols Pelvic Reconstructive Surgery Set is used
here. Incontinence surgery has increased in recent years as the population ages.
Reproductive Product Sales
Products used to treat reproductive disorders in fertility clinics represent
11 percent of CSI revenue, primarily for fertility assessment and treatment.
Infertility is defined as the failure of a couple to establish a pregnancy
after one year of unprotected intercourse. This is based on expected monthly
conception rates of 20-25 percent in healthy young couples(12). Fertility
decreases significantly in women over the age of 35(13). Approximately 15
percent of couples are infertile and in 15 percent of these cases, no cause can
be identified(14).
Increased infertility in the U.S over the past 25 years is due to an increase
in sexually transmitted diseases and the deferral of childbearing to later
years. In addition, increased public information regarding new treatments and
a greater willingness to discuss fertility issues openly have caused more
couples to seek treatment. Basic infertility evaluations can identify the cause
in approximately 85 percent of couples.(15)
Cervical and coital factors: Abnormalities in cervical mucus combined with
other causes can contribute to infertility. For example, disruption or
[Graphic]
The Nichols Pelvic Reconstruction Surgery Set permits multiple suture placement
with a single application.
90% IVF products
7% Endometrial Sampling
3% IUI products
[GRAPHIC]
Percent of CSI Reproductive
Product Sales to Fertility Clinics
by Procedures Type, 2000
CSI's holds a strong position in devices used for embryo transfer.
(12) Moghissi KS, ed. Infertility. In: Holzman, GB, ed. Precis, Reproductive
Endocrinology: An Update in Obstetrics and Gynecology. Washington, ACOG,
1998; 71.
(13) Ibid; 71.
(14) Ibid; 71.
(15) Ibid; 71.
23
removal of cervical epithelium during surgical procedures may narrow the
cervical opening or cause inadequate mucus production, compromising the
mechanism for sperm transport and storage.
Clinicians use postcoital testing to assess cervical and coital factors. This
test, usually performed early in the assessment, evaluates mucus quality and
sperm-mucus interaction through visual and microscopic observations. The CSI
Aspirette endocervical suction curette helps physicians collect clean samples.
Additional early infertility testing includes a Pap smear and cervical cultures
to evaluate potential underlying sexually transmitted infection.
Intrauterine insemination using an injection catheter has achieved high
pregnancy rates in couples with cervical factor infertility caused by structural
abnormalities. CSI offers two artificial insemination catheters, the Uni-Sem and
the Wallace. The nature of the condition and the preference of the physician
determine which is used.
Uterine Factors: Reduced fertility has been associated with many uterine
conditions including chronic endometritis, benign tumors, adhesions, congenital
malformations and polyps. Endometritis, an inflammation of the endometrial
lining, interferes with ovum implantation. The other conditions prevent either
implantation or the proper endometrial development that is essential in
providing nutrients for sustained growth. Endometritis is identified by
endometrial biopsy and culture.
X-ray of the uterus and fallopian tubes after injection of a contrast dye
identifies other causes. The dye is injected using a specially designed catheter
fitted with a balloon to prevent leakage from the cervical canal. CSI offers
several disposable dye injection catheters to accommodate variations in cervical
and uterine size including the HUI, HUI MiniFlex and ZUI uterine injectors. CSI
also provides a disposable procedure kit that contains the items essential for
catheter introduction.
[Graphic]
Wallace catheters are the premier line of embryo transfer and artificial
insemination catheters for use in advanced reproductive techniques.
[Graphic]
The HUI (Harris Uterine Injector) allows injection of contrast media or gas into
the uterine cavity without reflux.
[Graphic]
The HUI MiniFlex uses a small easily inserted catheter to minimize catheter
resistance.
24
Fallopian tube factors: Tubal infertility results when the ovum cannot
descend into the uterine cavity. It is evaluated using either an X-ray procedure
or through laparoscopic surgery. One of the most common causes of infertility is
distal (the section closest to the ovary) fallopian tube disease. Treatment
includes operative laparoscopy or, in extreme cases, an open procedure.
Successful pregnancies occur in 5-30 percent for moderate to severe disease and
50-70 percent in mild cases(16). There are fewer patients with proximal (nearest
the point of attachment) tubal disease. Several surgical procedures are used for
proximal tube repair and successful pregnancies have occurred in 20-40 percent
of these patients(17).
Many patients with severe disease or with a history of previously
unsuccessful tubal surgery consider in vitro fertilization (IVF) as an
alternative. IVF, the most frequently used assisted reproductive technology
(ART), involves manipulation of eggs and embryos outside of the body. Fertilized
eggs are then returned into the body to establish pregnancy. These complex
procedures are performed in fertility clinics, as they require a highly
specialized team of clinicians.
In IVF, a hormone mixture stimulates the ovaries to maximize the production
of oocytes (eggs not yet completely developed). An oocyte retrieval needle
collects the eggs under ultrasonic guidance. They are placed with sperm in media
conducive to fertilization. Two or three days later, the embryos are graded.
Those chosen for transfer are introduced into the uterus with a special transfer
catheter. CSI's Wallace product line leads the United States embryo transfer
catheter market. Other Wallace products include insertion stylets, trial
transfer catheters and the recently introduced oocyte retrieval needle.
Peritoneal factors: Peritoneal related infertility factors (those related to
the lining of the abdominal cavity) include pelvic inflammatory disease,
endometriosis, ruptured appendix, ruptured ovarian cyst, previous surgery, and
foreign body reaction. Adhesions (a fibrous band holding together parts that are
usually separated) resulting from these processes can involve the fallopian
tubes or ovaries and interfere with normal oocyte delivery. To minimize further
adhesion formation, diagnostic evaluation and treatment is usually performed
laparoscopically.
(16) Infertility. In Visscher HC, ed. Precis V, An Update in Obstetrics and
Gynecology. American College of Obstetrics and Gynecology, 1994; 424.
(17) Ibid; 425.
25
Endometriosis is the presence of endometrial tissue outside of the uterine
cavity. Although benign, it can invade and destroy tissue causing severe
inflammation and adhesions. About 7 percent(18) of women of reproductive age in
the United States have some form of endometriosis. About 30 percent(19) of
infertile women who are otherwise normal have this condition.
Endometriosis is either monitored with "watchful waiting" or treated using
hormonal therapy or surgery, depending on the patient's age, desire for
childbearing, severity of symptoms and coexisting medical conditions.
Conservative surgical procedures include excision, vaporization and coagulation
of endometrial implants and removal of adhesions using laparoscopy.
Ovulatory factors: Patients with ovulatory disorders complain of amenorrhea
(lack of menses), menorrhagia (abnormal bleeding) or infertility. Diagnosis
is through hormone level testing, basal body temperature measurement,
endometrial biopsy and early fertility evaluation. Treatment includes ovulation
induction with agents such as clomiphene citrate. Follicle development is
often monitored using ultrasound. Endometrial biopsies are also recommended,
as up to 25 percent(20) of menstrual cycles induced by clomiphene citrate
produce an endometrial environment unfriendly to implantation. In addition,
cervical mucus is evaluated during therapy, as approximately 15 percent(21) of
patients develop dysfunctional mucus production requiring intrauterine
insemination. The pregnancy rate for this therapy is only about 40 percent(22),
so ovulatory induction is frequently used in conjunction with intrauterine
insemination.
Male factors: Male infertility causes nearly half of all couples' inability
to conceive. Several mechanisms may cause this, including abnormal sperm
production, disordered sperm maturation, abnormal sperm function or ineffective
sperm delivery. Unfortunately, medical or surgical treatment is appropriate in
only 10 percent of these cases and assisted reproductive technologies offer the
best opportunity for conception. CSI does not currently offer any specific
products for evaluation of male infertility.
- --------------------------------------------------------------------------------
CAUSE OF INFERTILITY(16) INCIDENCE RATE
- --------------------------------------------------------------------------------
Male Factor 40-50%
- --------------------------------------------------------------------------------
Tubal and Peritoneal Factors 25-30%
- --------------------------------------------------------------------------------
Ovulatory defects 20-25%
- --------------------------------------------------------------------------------
Cervical and Uterine Factors 10%
- --------------------------------------------------------------------------------
BASIC INFERTILITY EVALUATIONS
- --------------------------------------------------------------------------------
CAUSE OF INFERTILITY INITIAL EVALUATIONS
- --------------------------------------------------------------------------------
Cervical and coital factors Post coital test
Cervical cytology
Cervical cultures
- --------------------------------------------------------------------------------
Uterine and tubal factors X-Ray of the uterus and
fallopian tubes
Hysteroscopy
- --------------------------------------------------------------------------------
Peritoneal factors Laparoscopy
- --------------------------------------------------------------------------------
Ovulatory factors Basal body temperature
- --------------------------------------------------------------------------------
Endometrial sample and/or
serum progesterone
- --------------------------------------------------------------------------------
Home ovulation
detection kit
- --------------------------------------------------------------------------------
Male factors Semen analysis
- --------------------------------------------------------------------------------
(18) Moghissi KS, ed. Infertility. In Holzman GB, ed. Precis, Reproductive
Endocrinology: An Update in Obstetrics and Gynecology. Washington, ACOG,
1998; 79.
(19) Ibid; 80.
(20) Ibid; 84.
(21) Ibid; 84.
(22) Ibid; 84.
26
CooperSurgical:
At The Forefront of Women's Healthcare
By acquiring products, companies and technologies focused in gynecology,
oncology and reproductive medicine, CSI has become a premier supplier of branded
medical devices to the Ob/Gyn and has built the volume necessary to develop the
first comprehensive medical device distribution system in women's healthcare.
CSI has the profitability and market presence necessary for sustained growth and
leadership within this very attractive segment.
Sources:
Physician's Drug and Diagnostic Audit, January - December 1999.
Philadelphia, Pa: Scott-Levin, Inc.
Women's Health 2000, A Contemporary Ob/Gyn Fact Book. Contemporary Ob/Gyn
2000.
1999 Technology Study. Contemporary Ob/Gyn,1999.
National Hospital Discharge Survey, Annual Summary, 1996. National Center
for Health Statistics. Vital Health Statistics, 1998.
ACOG Economic Impact Study: Profile of Ob/Gyn Practices, 1991-1994:
Washington,: American College of Obstetrics and Gynecology, 1996.
American Medical International Database, Los Angeles, CA, October 2000.
Women's Health 2000, A Contemporary Ob/Gyn Fact Book. Contemporary Ob/Gyn
2000.
Visscher CH, ed. Precis V, An Update in Obstetrics and Gynecology, American
College of Obstetrics and Gynecology, 1994.
Novak's Gynecology, 12th Edition. Baltimore: Williams & Wilkins, 1996.
Holzman, GB, ed. Precis, Reproductive Endocrinology: An Update in
Obstetrics and Gynecology. Washington, ACOG, 1998.
27
[GRAPH]
QUARTERLY COMMON
STOCK PRICE RANGE
HIGH LOW
2000
----
JAN 31 APR 30 JULY 31 OCT 31
- --------------- --------------- --------------- ---------------
$33.63 $24.63 $36.00 $25.00 $38.81 $32.38 $36.38 $26.25
[GRAPH]
1999
----
JAN 31 APR 30 JULY 31 OCT 31
- --------------- --------------- --------------- ---------------
$28.00 $12.38 $16.33 $11.75 $25.12 $15.38 $31.88 $19.63
At December 31, 2000
and 1999, there were 1,719
and 1,902 common
stockholders of record,
respectively.
INDEX TO FINANCIAL INFORMATION
Quarterly Common Stock Price Range 28
Five Year Financial Highlights 30
Two Year Quarterly Information 31
Managment's Discussion and Analysis of 32
Financial Condition and Results of Operations
Independent Auditors' Report 38
Management's Statement Regarding Financial Reporting 38
Consolidated Statements of Income 39
Consolidated Balance Sheets 40
Consolidated Statements of Cash Flows 41
Consolidated Statements of Comprehensive Income 42
Notes of Consolidated Financial Statements 43
28
Five Year Financial Highlights
Consolidated Operations
(In thousands, except per share amounts) Years Ended Octoer 31,
2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
Net sales $197,317 $165,328 $147,192 $ 88,769 $ 66,118
==========================================================
Gross profit $129,217 $106,319 $ 91,428 $ 61,444 $ 46,207
==========================================================
Income from continuing operations
before income taxes $ 42,127 $ 32,712 $ 23,087 $ 16,936 $ 11,167
Provision for (benefit of) income taxes 12,727 10,711 (34,723) (26,735) (4,438)
----------------------------------------------------------
Income before items below 29,400 22,001 57,810 43,671 15,605
Discontinued operations, net of taxes -- 3,099 (17,964) (13,750) 998
Extraordinary item, net -- -- -- 1,461 --
Cumulative effect of change in accounting
principle (432) -- -- -- --
----------------------------------------------------------
Net income $ 28,968 $ 25,100 $ 39,846 $ 31,382 $ 16,603
==========================================================
Diluted earnings (loss) per share:
Continuing operations $ 2.03 $ 1.54 $ 3.79 $ 3.33 $ 1.32
Discontinued operations -- 0.21 (1.18) (1.05) 0.09
Extraordinary item, net -- -- -- 0.11 --
Cumulative effect of change in accounting
principle (0.03) -- -- -- --
----------------------------------------------------------
Earnings per share $ 2.00 $ 1.75 $ 2.61 $ 2.39 $ 1.41
==========================================================
Average number of shares used to
compute diluted earnings per share 14,510 14,312 15,269 13,120 11,794
Consolidated Financial Position
(In thousands) October 31,
2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
Current assets $112,685 $100,461 $116,077* $ 100,574* $ 58,712*
Property, plant and equipment, net 47,933 40,319 34,234 7,634 4,650
Intangible assets, net 110,854 80,518 84,308 32,274 16,864
Other assets 51,093 64,575 61,422 30,142 4,004
----------------------------------------------------------
$322,565 $285,873 $296,041 $170,624 $ 84,230
==========================================================
Short-term debt $8,094 $ 4,888 $ 11,570 $ 438 $ 177
Other current liabilities 57,181 37,008 35,131 28,680 26,141
Long-term debt 40,257 57,067 78,677 9,125 37,912
Other long-term liabilities 18,595 22,767 25,410 20,848 4,670
----------------------------------------------------------
Total liabilities 124,127 121,730 150,788 59,091 68,900
Stockholders' equity 198,438 164,143 145,253 111,533 15,330
----------------------------------------------------------
$322,565 $285,873 $296,041 $170,624 $ 84,230
==========================================================
* Includes net assets of discontinued operations, which were sold in 1999.
The Cooper Companies, Inc. and Subsidiaries 30
Two Year Quarterly Financial Data
2000
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------
Net sales $40,404 $50,769 $50,908 $55,236
=============================================
Gross profit $26,632 $32,484 $33,500 $36,601
=============================================
Income from continuing operations
before income taxes $ 7,259 $10,169 $11,245 $13,454
Provision for income taxes 2,432 3,406 2,584 4,305
---------------------------------------------
Income from continuing operations 4,827 6,763 8,661 9,149
Cumulative effect of change in
accounting principle (432) -- -- --
---------------------------------------------
Net income $ 4,395 $ 6,763 $8,661 $ 9,149
=============================================
Diluted earnings per share*:
Continuing operations $0.34 $ 0.47 $0.59 $ 0.63
Cumulative effect of change
in accounting principle (0.03) -- -- --
---------------------------------------------
Net income $0.31 $ 0.47 $0.59 $ 0.63
=============================================
Number of shares used to compute
diluted earnings per share 14,359 14,438 14,596 14,618
=============================================
1999
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------
Net sales $34,959 $41,743 $43,404 $45,222
=============================================
Gross profit $21,543 $26,569 $28,288 $29,919
=============================================
Income from continuing operations
before income taxes $ 4,088 $7,898 $ 9,627 $11,099
Provision for income taxes 1,447 2,604 3,081 3,579
---------------------------------------------
Income from continuing operations 2,641 5,294 6,546 7,520
Discontinued operations, net of taxes:
Income (loss) (21) 150 -- --
Gain on disposal 1,279 1,691 -- --
---------------------------------------------
Income from discontinued operations 1,258 1,841 -- --
---------------------------------------------
Net income $ 3,899 $ 7,135 $ 6,546 $7,520
=============================================
Diluted earnings per share*:
Continuing operations $ 0.18 $ 0.38 $ 0.46 $ 0.53
Discontinued operations 0.09 0.13 -- --
---------------------------------------------
Net income $ 0.27 $ 0.51 $ 0.46 $ 0.53
=============================================
Number of shares used to compute
diluted earnings per share 14,668 14,071 14,194 14,299
=============================================
* The sum of earnings per share for the four quarters is different from the
full year amount because we base our calculations on the weighted average
number of common shares outstanding in each respective period.
31 The Cooper Companies, Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Note numbers refer to the "Notes to Consolidated Financial Statements" beginning
on page 43 of this report.
RESULTS OF OPERATIONS
In this section we discuss the results of our operations for fiscal 2000 and
compare them with those for fiscal 1999 and 1998. We discuss our cash flows and
current financial condition under "Capital Resources and Liquidity."
Highlights: Fiscal Year 2000 vs. Fiscal Year 1999
Net sales up 19% to $197.3 million.
Gross profit up 22%; margin improved by one percentage point to 65% of net
sales.
Operating income up 21% to $46.9 million.
Diluted earnings per share from continuing operations up 32% to $2.03 from
$1.54.
Selected Statistical Information -
Percentage of Net Sales and Growth
Percent of Sales
Years Ended October 31,
-------------------------------------
% %
2000 Growth 1999 Growth 1998
- ------------------------------------------------------------
Net sales 100% 19% 100% 12% 100%
Cost of sales 35% 15% 36% 6% 38%
Gross profit 65% 22% 64% 16% 62%
Selling, general
and administrative 38% 22% 37% 10% 38%
Research and
development 1% 37% 1% 2% 1%
Amortization 2% 11% 2% 7% 2%
Operating income 24% 21% 23% 31% 20%
Net Sales
All revenue is generated by our two business units, CooperVision ("CVI") and
CooperSurgical ("CSI"):
CVI markets a broad range of contact lenses primarily in North America and
Europe.
CSI markets diagnostic products, surgical instruments and accessories to
the women's healthcare market, primarily in the U.S.
Our consolidated revenue grew by 19% in 2000 and 12% in 1999. Both CVI and CSI
have generated consistent net sales growth over the three-year period.
($ in millions) Growth
2000 vs. 1999 1999 vs. 1998
- --------------------------------------------------------
Business Unit
CVI $ 15.8 12% $ 16.8 14%
========================================================
CSI $ 16.2 55% $ 1.3 5%
========================================================
2000 Compared with 1999
CVI
CVI's worldwide core business, which we define as all revenue other than sales
to other contact lens suppliers ("OEM" sales), grew 16% in fiscal 2000:
($ in millions) % % %
2000 Total 1999 Total Growth
- ----------------------------------------------------------------
United States $ 97.8 64% $ 82.9 61% 18%
International 49.6 33% 44.3 33% 11%
-------------------------------------
Core business 147.4 97% 127.2 94% 16%
OEM 4.4 3% 8.8 6% (49%)
-------------------------------------
Total $151.8 100% $136.0 100% 12%
=====================================
The 11% growth in International (revenue generated by overseas subsidiaries and
to overseas distributors) includes the negative effect on reported revenue of
weakness in the pound sterling and the euro, which lost 12% and 20%,
respectively, in value against the U.S. dollar in fiscal 2000. In constant
currency terms, our core business and our International revenue each grew by
18%.
In the United States, the largest contact lens market in the world, CVI
revenue grew 18% to $97.8 million, improving its share of the market to 8.5%.
U.S. sales of toric lenses to correct astigmatism continued to drive CVI's sales
gains, growing 19% in 2000, or about six times faster than the total contact
lens market.
The disposable-planned replacement ("DPR") toric market grew about 27% for
the nine months ended September 30, 2000 and continues to be the fastest growing
category in the U.S. contact lens market. Sales of CVI's DPR torics grew 32% in
the U.S., led by Frequency 55 Toric and Encore Toric. CVI believes that it holds
a 34% share of this market segment.
Internationally, revenue grew 18% in constant currency. In 2000, we
acquired former distributors in Sweden and Spain and now have a direct presence
in five overseas countries. Our operations in Canada, where we hold an overall
number two market share, and Italy generated particularly strong results.
In 2000, CVI introduced three new specialty lenses:
Frequency Aspheric - Designed to improve visual acuity in low light
conditions and correct low levels of astigmatism.
The Cooper Companies, Inc. and Subsidiaries 32
Management's Discussion and Analysis
of Financial Condition and Results of Operations--continued
Frequency Colors - Opaque and color enhancing lenses that change eye
appearance. This is our entree into the second fastest growing specialty
market segment, behind toric lenses.
Encore Toric - A cast-molded toric lens competing in the two-week segment
of the U.S. DPR toric market.
As expected, OEM sales decreased 49% in 2000. We expect this trend to continue
as our product mix shifts toward higher margin branded products.
We believe that CVI will continue to compete successfully in the worldwide
contact lens market, particularly with its DPR toric line and newer specialty
products including color lenses and aspheric lenses. Demographics are also
favorable, as the teenaged population, the age when most people begin to wear
contact lenses, is projected to show dramatic growth near to mid-term.
CSI
CSI revenue grew 55%, primarily due to the recent acquisitions of products from
BEI Medical Systems, Inc. and Leisegang Medical, Inc. Both the FemExam pH and
Amines TestCard System as well as the Cerveillance Digital Colposcope line
continued to perform well. We believe that CSI is now the largest manufacturer
of in-office gynecological devices used in the women's healthcare market.
In December 1999, CSI acquired a well-known line of uterine manipulators
and other products for the gynecologist's office from BEI Medical Systems
Company, Inc.
At the end of January 2000, CSI completed the acquisition of Leisegang
Medical, Inc. The products acquired include diagnostic and surgical instruments:
colposcopes, instruments to perform loop electrosurgical excision procedures,
hand-held gynecological instruments, specula and cryosurgical systems. Many
products are disposable, including the Sani-Spec line of plastic specula,
Leisegang's largest product group.
Favorable demographic trends also drive CSI's business. The women of the
"baby-boomer" generation are reaching the age when gynecological procedures are
performed most frequently, and CSI has, through both acquisition and internal
development, built an extensive product line for the Ob/Gyn professional.
We anticipate that CSI will continue its strategy to consolidate the
fragmented women's healthcare market.
1999 Compared with 1998
CVI
CVI's worldwide core business, grew 16% in fiscal 1999:
($ in millions) % % %
($ in millions) % % %
1999 Total 1998 Total Growth
- ----------------------------------------------------------------
U.S. $ 82.9 61% $ 70.3 59% 18%
International 44.3 33% 39.8 33% 11%
Core Business 127.2 94% 110.1 92% 16%
OEM 8.8 6% 9.1 8% (4%)
Total $136.0 100% $119.2 100% 14%
CVI's core product sales grew 18% in the U.S. and 11% internationally. CVI
believes that through fiscal 1999, it gained one market share point in the U.S.
In the United States, sales of toric lenses grew 26%, and DPR torics sales
grew 41% as Preference Toric, CVI's premium toric brand, and Frequency 55 Toric
both showed strong results. CVI believes that it led the U.S. DPR toric sector
with about 34% of the revenue generated, up from 29% in 1998.
U.S. sales of all DPR lenses -- torics and spheres together -- grew about
9% through the first nine calendar months, according to an industry market
research audit. Sales of CVI's DPR lenses in the U.S. were 38% ahead for the
fiscal year. DPR lenses represented 66% of CVI's U.S. revenue and 75% of its
worldwide revenue.
Internationally, our Canadian and Italian businesses generated strong
sales, and new product introductions continued in Europe, including toric and
other specialty lenses.
CSI
CSI's revenue grew 5% in fiscal 1999. CSI's sales of gynecology ("GYN") products
grew 6%, led by its FemExam, infrared coagulator, Marlow and Cerveillance Scope
product lines. The growth in these product lines was partially offset by lower
sales of more mature product lines. GYN product sales accounted for over 90% of
CSI's sales in fiscal 1999. In July, CSI announced that it had agreed with 3M
Pharmaceuticals (NYSE: MMM) and Matria Healthcare Inc. (NASDAQ: MATR) to
co-market its FemExam pH and Amines TestCard in the United States and that the
American Medical Association had awarded the FemExam Card an additional third
party reimbursement code. The FemExam Card is an accurate,
33 The Cooper Companies, Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations--continued
convenient point of care diagnostic test used to help determine if a vaginal
infection is bacterial or fungal. In August, CSI and BioStar, Inc., a Thermo
Electron Corporation (NYSE: TMO) subsidiary, agreed to co-market three
additional in-office tests for vaginitis. All four tests are being developed
under CSI's licensing agreement with Litmus Concepts, Inc. In the United States,
vaginitis accounts for about 13 million physician office visits and about 10
million clinic visits, annually.
Cost of Sales/Gross Profit
Our consolidated gross profit margin has consistently improved over the
three-year period:
Gross Profit % of Net Sales
2000 1999 1998
- ---------------------------------------------------
CVI 69% 66% 64%
CSI 54% 56% 55%
Consolidated 65% 64% 62%
The gross margin improvement at CVI results from:
Continuing cost reduction projects at our U.S. and U.K. manufacturing
facilities.
A shift in our sales mix from OEM to value-added products.
The weak pound sterling reducing the translated production costs at our
U.K. manufacturing plant.
Excluding a major change in product mix, we believe that further cost reductions
will improve margins in the future. This mix change could result from a
substantial increase in our business in Japan through Rohto and/or the rapid
expansion of opaque contact lenses, both of which generate lower gross margins.
A major cost improvement project began in the fourth quarter of 1998, when we
spent about $1.7 million to improve efficiency, rationalize manufacturing,
expand capacity and fill back orders. The combination of increased revenue and
improved margin has resulted in CVI's gross profit increasing from $76.1 million
in 1998 to $89.9 million in 1999 and to $104.7 million this year.
CSI's gross margin declined in 2000 reflecting primarily the lower margins
of the products recently acquired from BEI and Leisegang. We expect that,
following the integration of acquisitions, CSI's margins will return to, and
then surpass, the 56% of sales generated in fiscal 1999. The nature and timing
of future acquisitions will determine when this happens.
Selling, General and Administrative Expense ("SGA")
(In millions) 2000 1999 1998
- ------------------------------------------------
CVI $ 53.6 $ 45.8 $ 38.5
CSI 15.1 9.6 10.7
Headquarters 6.7 6.3 7.0
----------------------------
$ 75.4 $ 61.7 $ 56.2
============================
Consolidated SGA increased by 22% in 2000 and 10% in 1999.
SGA at CVI increased by 17% in 2000 and 19% in 1999. The increases in both
periods resulted primarily from selling, promotion and distribution costs to
launch new products. Also in 2000, we incurred one-time costs for a new
distribution system. As a percentage of revenue, SGA at CVI was 35% in 2000, 34%
in 1999 and 32% in 1998.
SGA increased at CSI in 2000 by 58% over 1999 reflecting the additional
costs associated with acquisitions that contributed all but 4% of CSI's 55%
revenue growth. CSI's 1999 SGA decreased vs. 1998, when it incurred a high level
of costs to launch new products.
Headquarters SGA dropped to 3.4% of consolidated revenue from 3.8% in 1999
and 4.8% in 1998, when we resolved certain legal issues. We anticipate that
Headquarters SGA will continue to grow at a rate below sales growth.
Research and Development Expense
Research and development expense was 1% of revenue in each year of the
three-year period: $2.7 million in 2000, $2 million in 1999 and $1.9 million in
1998.
We expect the current level of research and development spending to remain
stable as a percentage of sales, as we continue to focus on acquiring products
that can be marketed immediately or in the short-term, rather than on
longer-term, higher-risk research and development projects.
Amortization of Intangibles
Amortization of intangibles was $4.2 million in 2000, $3.8 million in 1999 and
$3.6 million in 1998. The increase in each year reflects the effect of
acquisition activity during the three-year period.
The Cooper Companies, Inc. and Subsidiaries 34
Management's Discussion and Analysis
of Financial Condition and Results of Operations -- continued
Operating Income
Operating income improved by $17.2 million between 1998 and 2000:
(In millions) Years Ended October 31,
2000 1999 1998
- ----------------------------------------------------------
CVI $ 47.3 $ 40.8 $ 34.6
CSI 6.3 4.3 2.1
Headquarters (6.7) (6.3) (7.0)
--------------------------------
$ 46.9 $ 38.8 $ 29.7
================================
Percent growth 21% 31%
=====================
Settlement of Disputes, Net
In 2000, we recorded a charge to income of $653,000 to settle a dispute with a
German distributor that included the write-off of a related investment in a
joint venture.
In 1998, we recorded a charge to income of $1.3 million to settle a dispute
with GT Laboratories and for other smaller matters.
Other Income, Net
(In thousands) Years Ended October 31,
2000 1999 1998
- -----------------------------------------------------------
Interest income $ 499 $ 375 $ 311
Foreign exchange gain
(loss) (256) (325) 591(1)
Gain on swap contract 240 -- --
Other 172 181 (12)
--------------------------------
$ 655 $ 231 $ 890
================================
(1) The foreign exchange gain of $591,000 includes a one-time gain of $850,000
reflecting weakness in sterling occurring before we implemented our hedging
program, partially offset by losses over the period.
Interest income increased in 2000 and 1999 because of higher investment balances
primarily from cash received from our sale of Hospital Group of America ("HGA"),
our former psychiatric services business, and positive cash flow from
operations, net of debt repayments.
In 2000, we repaid the Midland Bank loan and cancelled an interest rate
swap, realizing a gain of $240,000.
Interest Expense
Interest expense was $4.7 million in 2000 and $6.3 million in each of fiscal
1999 and 1998. The decrease in 2000 reflects debt repayments funded by operating
cash flow and cash received from the sale of HGA (see Capital Resources and
Liquidity).
Provision for (Benefit of) Income Taxes
In fiscal 1998, we recorded a large tax benefit for the remaining anticipated
value of our $184 million net operating loss carryforwards ("NOLs"). As a
result, in fiscal years 1999 and 2000, we report our provision for income taxes
as if we were a taxpayer with no NOLs.
We implemented a global tax plan in 1999 to minimize both the taxes
reported in our income statement and the actual taxes we will have to pay once
we fully use the benefits of our NOLs. Our full year 1999 effective tax rate
("ETR") on income from continuing operations was 32.7%, which includes the
impact of the global tax plan and a reversal of $1.1 million of tax reserves no
longer required. Our full-year 2000 ETR was 30.2%, which includes the impact of
the global tax plan and a reversal of $1.4 million of tax reserves no longer
required.
We expect that our global tax plan will result in our ETR being reduced to
approximately 30% over the next several years. This plan could also extend the
cash flow benefits of our NOLs through 2003, assuming no major acquisitions or
large stock issuance. We expect that actual payments for taxes will be about 10%
of pretax income during this period.
Income from Discontinued Operations
Income from discontinued operations is income derived from HGA, which we
declared a discontinued operation in October 1998. The reported income of
$129,000 and $4.3 million for the fiscal years ended 1999 and 1998,
respectively, is net of income tax expense of $66,000 and $130,000.
Loss from Disposal
of Discontinued Operations
In 1998, we wrote down HGA's net assets by $22.3 million to the then estimated
fair market value in anticipation of the sale of the business. In 1999, we
revised our estimated loss by $3 million to $19.3 million.
CAPITAL RESOURCES & LIQUIDITY
Year 2000 Highlights:
Operating cash flow $41 million, up 48% vs. $27.7 million in 1999.
Cash flow (pretax income from continuing operations plus depreciation and
amortization) per diluted share $3.51 vs. $2.82 in 1999.
35 The Cooper Companies, Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations -- continued
Closed five acquisitions for cash payments totaling $24.4 million.
Refinanced approximately $18 million of long-term debt, replacing it with
less expensive debt under our Revolving Credit Agreement.
Expenditures for purchases of property, plant and equipment $14.7 million
vs. $10.1 million in 1999.
Comparative Statistics:
($ in millions) October 31,
2000 1999
- --------------------------------------------------------
Cash and
cash equivalents $ 14.6 $ 20.9
Total assets $ 322.6 $ 285.9
Working capital $ 47.4 $ 58.6
Total debt $ 48.4 $ 62.0
Ratio of debt to equity 0.24:1 0.38:1
Debt as a percentage
of total capitalization 20% 27%
Operating Cash Flows
Our major source of liquidity continues to be cash flow from operating
activities. Operating cash flow for fiscal 2000 was $41 million, a growth of 48%
from the $27.7 million generated in fiscal 1999. In fiscal 2000, first quarter
operating cash flow was significantly ahead of 1999's first quarter, providing
cash of $5.3 million as opposed to the $3.4 million of cash used reported in the
first quarter of 1999. The first quarter continues to be our weakest cash flow
quarter, reflecting payments to settle disputes, bonus payments and, to a
greater extent in 1999, inventory builds in anticipation of new product
launches. We now anticipate generating positive operating cash flow each
quarter.
Quarterly Operating Cash Flow:
(In millions) 2000 1999
- --------------------------------------------------------
Q1 $ 5.3 $ (3.4)
Q2 10.6 9.2
Q3 12.5 9.5
Q4 12.6 12.4
-----------------------
Fiscal year $ 41.0 $ 27.7
=======================
The full year increase of $13.3 million was driven by strong operating results
(operating income of $46.9 million, up 21%) and a reduced investment in
inventory. Of the total increase in inventory of $4.8 million, approximately
$3.9 million represented inventories of companies acquired this year. Major uses
of cash for operating activities in fiscal 2000, in addition to those required
in the ordinary course of our business, included approximately $6 million
related to various settlements, $1.4 million to fund entitlements under Cooper's
bonus plans and approximately $4.1 million in interest payments.
Investing Cash Flows
From an inflow of $20.2 million in 1999, which was driven by net cash of $25.3
million received from the sale of HGA, our investing cash flows swung to an
outflow of $40.6 million in 2000. The outflow in 2000 was driven by capital
expenditures of $14.7 million and expenditures of about $24 million to fund
acquisitions.
Financing Cash Flows
Our financing activities resulted in the use of $7.2 million cash this year and
$34.6 million in 1999. This year we spent about $18 million to refinance a
portion of the debt raised in 1998 to fund an acquisition. We funded most of the
$18 million drawing on our KeyBank line of credit, which carries a lower
effective interest rate. Because the debt we paid off was backed by a letter of
credit from KeyBank, and was, therefore, deducted from the total facility
amount, we lost no availability under our line of credit. We also repaid
approximately $12.7 million of debt this year. In 1999 we repaid a large portion
of debt when we disposed of HGA and spent $7.3 million to purchase shares of our
common stock on the open market.
Risk Management (See Note 7)
We are exposed to risks caused by changes in foreign currency exchange rates,
principally debt denominated in pounds sterling and from overseas operations
denominated in foreign currencies. We have hedged most of the debt by entering
into contracts to buy sterling forward. We are also exposed to risk associated
with changes in interest rates, as the interest rate on certain of our debt
varies with the London Interbank Offered Rate.
The Cooper Companies, Inc. and Subsidiaries 36
Management's Discussion and Analysis
of Financial Condition and Results of Operations -- concluded
Outlook
We believe that cash and cash equivalents on hand of $14.6 million plus cash
from operating activities will fund future operations, capital expenditures,
cash dividends and smaller acquisitions. We may need additional funds for larger
acquisitions and other strategic alliances. At October 31, 2000, we had $35.7
million available under the KeyBank line of credit and, based on conversations
with KeyBank, anticipate that additional financing would be available as
required.
Inflation and Changing Prices
Inflation has not had any appreciable effect on our operations in the last three
years.
New Accounting Pronouncements
(See Note 1)
Forward-Looking Statements
Some of the information included in this annual report contains "forward-looking
statements" as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include all statements regarding anticipated growth
in our revenue, anticipated market conditions and results of operations. To
identify forward-looking statements look for words like "believes," "expects,"
"may," "will," "should," "seeks," "intends," "plans," "estimates" or
"anticipates" and similar words or phrases. Discussions of strategy, plans or
intentions often contain forward-looking statements. These, and all
forward-looking statements, necessarily depend on assumptions, data or methods
that may be incorrect or imprecise.
Events, among others, that could cause actual results and future actions to
differ materially from those described by or contemplated in forward-looking
statements include major changes in business conditions, a major disruption in
the operations of our manufacturing facilities, new competitors or technologies,
the impact of an undetected virus on our computer systems, acquisition
integration delays or costs, foreign currency exchange exposure, investments in
research and development and other start-up projects, dilution to earnings per
share from acquisitions or issuing stock, regulatory issues, significant
environmental cleanup costs above those already accrued, litigation costs, cost
of business divestitures, the requirement to provide for a significant liability
or to write off a significant asset, changes in accounting principles or
estimates, and other factors described in our Securities and Exchange Commission
filings, including the "Business" section in our Annual Report on Form 10-K for
the year ended October 31, 2000. We caution investors not to rely on
forward-looking statements. They reflect our analysis only on their stated dates
or the date of this report. We disclaim any intent or obligation to update these
forward-looking statements.
37 The Cooper Companies, Inc. and Subsidiaries
Independent Auditors' Report
The Board of Directors and Stockholders
The Cooper Companies, Inc:
We have audited the accompanying consolidated balance sheets of The Cooper
Companies, Inc. and subsidiaries as of October 31, 2000 and 1999, and the
related consolidated statements of income, comprehensive income and cash flows
for each of the years in the three-year period ended October 31, 2000. These
consolidated financial statements are the responsibility of the Company's
Management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by Management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Cooper
Companies, Inc. and subsidiaries as of October 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended October 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
San Francisco, California
December 8, 2000
Management's Statement
We prepared the financial statements in this report according to accounting
principles generally accepted in the United States of America, and we are
responsible for them. They include estimates based on our informed judgment. The
other financial information in the report is consistent with that in the
financial statements.
Our accounting systems include controls to reasonably assure the
safeguarding of Cooper's assets and the production of financial statements that
conform to accounting principles generally accepted in the United States of
America. We supplement these with qualified personnel and provide for
appropriate separation of duties. The Board of Directors, through its Audit and
Finance Committee of three outside directors, determines whether we fulfill
our responsibilities to prepare financial statements and maintain financial
controls. This committee recommends to the Board of Directors appointment of the
Company's independent certified public accountants, subject to ratification by
the stockholders. It meets regularly with management and the independent
accountants. The independent accountants have access to the committee without
management present to discuss auditing and financial reporting. Each committee
member is familiar with finance and accounting, and the chair is a financial
executive.
KPMG LLP has been the Company's independent certified public accountants
since 1980, when the Company incorporated. KPMG provides an objective,
independent review of the fairness of reported operating results and financial
position.
A. Thomas Bender Robert S. Weiss
A. Thomas Bender Robert S. Weiss
President and Chief Executive Officer Executive Vice President,
Treasurer and Chief Financial Officer
The Cooper Companies, Inc. and Subsidiaries 38
Consolidated Statements of Income
(In thousands, except per share amounts) Years Ended October 31,
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
Net sales $ 197,317 $ 165,328 $ 147,192
Cost of sales 68,100 59,009 55,764
---------------------------------------
Gross profit 129,217 106,319 91,428
Selling, general and administrative expense 75,424 61,734 56,226
Research and development expense 2,711 1,977 1,944
Amortization of intangibles 4,213 3,797 3,558
---------------------------------------
Operating income 46,869 38,811 29,700
---------------------------------------
Settlement of disputes, net 653 -- 1,250
Other income, net 655 231 890
Interest expense 4,744 6,330 6,253
---------------------------------------
Income from continuing operations before income taxes 42,127 32,712 23,087
Provision for (benefit of) income taxes 12,727 10,711 (34,723)
---------------------------------------
Income from continuing operations 29,400 22,001 57,810
Discontinued operations, net of taxes:
Income -- 129 4,336
Gain (loss) from disposal -- 2,970 (22,300)
---------------------------------------
-- 3,099 (17,964)
---------------------------------------
Income before cumulative effect of change in accounting principle 29,400 25,100 39,846
Cumulative effect of change in accounting principle (432) -- --
---------------------------------------
Net income $ 28,968 $ 25,100 $ 39,846
=======================================
Basic earnings per share:
Continuing operations $ 2.07 $ 1.56 $ 3.90
Discontinued operations -- 0.22 (1.21)
Cumulative effect of change in accounting principle (0.03) -- --
---------------------------------------
Earnings per share $ 2.04 $ 1.78 $ 2.69
=======================================
Diluted earnings per share:
Continuing operations $ 2.03 $ 1.54 $ 3.79
Discontinued operations -- 0.21 (1.18)
Cumulative effect of change in accounting principle (0.03) -- --
---------------------------------------
Earnings per share $ 2.00 $ 1.75 $ 2.61
=======================================
Number of shares used to compute earnings per share:
Basic 14,188 14,098 14,828
=======================================
Diluted 14,510 14,312 15,269
=======================================
See accompanying notes to consolidated financial statements.
39 The Cooper Companies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands) October 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------
Assets ------------------------
Current assets:
Cash and cash equivalents $ 14,608 $ 20,922
Accounts receivable, less allowances of $2,440 in 2000 and $1,136 in 1999 33,058 26,792
Inventories 38,219 33,430
Deferred tax assets 17,800 11,638
Prepaid expenses and other current assets 9,000 7,679
------------------------
Total current assets 112,685 100,461
------------------------
Property, plant and equipment, at cost 67,216 54,211
Less accumulated depreciation and amortization 19,283 13,892
------------------------
47,933 40,319
------------------------
Goodwill and other intangibles, net 110,854 80,518
Deferred tax assets 42,979 56,519
Other assets 8,114 8,056
------------------------
$ 322,565 $ 285,873
========================
Liabilities and Stockholders' Equity ------------------------
Current liabilities:
Notes payable $ 6,062 $ 2,583
Current installments of long-term debt 2,032 2,305
Accounts payable 7,733 6,263
Employee compensation and benefits 6,652 5,885
Accrued divestiture costs 1,533 3,231
Accrued acquisition costs 18,900 229
Accrued income taxes 8,033 11,351
Other accrued liabilities 14,330 10,049
------------------------
Total current liabilities 65,275 41,896
------------------------
Long-term debt 40,257 57,067
Other noncurrent liabilities 18,595 22,767
------------------------
Total liabilities 124,127 121,730
------------------------
Commitments and contingencies (see Note 11)
Stockholders' equity:
Preferred stock, 10 cents par value, shares authorized:
1,000; zero shares issued or outstanding
Common stock, 10 cents par value, shares authorized: -- --
40,000; issued: 15,189 and 14,975 at October 31, 2000
and 1999, respectively 1,519 1,497
Additional paid-in capital 257,994 251,345
Less:
Accumulated other comprehensive loss (3,558) (595)
Deferred compensation (129) --
Accumulated deficit (46,210) (74,044)
Treasury stock at cost: 729 and 917 shares at
October 31, 2000 and 1999, respectively (11,178) (14,060)
------------------------
Stockholders' equity 198,438 164,143
------------------------
$ 322,565 $ 285,873
========================
See accompanying notes to consolidated financial statements.
The Cooper Companies, Inc. and Subsidiaries 40
Consolidated Statement of Cash Flows
(In thousands) Years Ended October 31,
2000 1999 1998
- ------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 28,968 $ 25,100 $ 39,846
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income taxes 10,894 6,790 (35,787)
Depreciation expense 4,521 4,561 4,678
Provision for doubtful accounts 426 1,273 1,813
Amortization expense 4,213 3,879 3,738
(Gain) loss from disposal of discontinued operations -- (2,970) 22,300
Change in operating assets and liabilities excluding effects
from acquisitions:
Receivables (4,314) (3,086) (3,910)
Inventories (2,150) (3,116) (6,933)
Other assets (471) 1,703 (952)
Accounts payable 1,339 (2,657) 1,130
Accrued liabilities 3,644 (864) (5,949)
Income taxes payable (3,042) (619) (5,104)
Other long-term liabilities (3,000) (2,500) (3,973)
Other -- 204 471
----------------------------------
Cash provided by operating activities 41,028 27,698 11,368
----------------------------------
Cash flows from investing activities:
Purchases of assets and businesses (24,444) -- (34,298)
Disposition of discontinued operations -- 28,685 --
Disposition costs paid (1,455) (3,412) --
Purchases of property, plant and equipment (14,665) (10,121) (19,573)
Sale of (investment in) marketable securities -- 5,419 (5,419)
Other -- (415) --
----------------------------------
Cash provided (used) by investing activities (40,564) 20,156 (59,290)
----------------------------------
See accompanying notes to consolidated financial statements.
41 The Cooper Companies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows - Concluded
(In thousands) Years Ended October 31,
2000 1999 1998
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term line of credit $ 23,658 $ 8,568 $ 36,500
Repayment of long-term line of credit (16,500) (30,368) (14,700)
Principal payments on long-term obligations (19,881) (7,145) (7,603)
Proceeds from long-term borrowings -- 2,965 29,682
Net borrowings under short-term agreements 3,566 -- 1,011
Purchase of treasury stock -- (7,345) (7,993)
Exercise of warrant and options 3,078 948 --
Dividends on common stock (1,134) (561) --
Short-term debt payment -- (2,142) --
Other -- 514 430
-------------------------------------
Cash provided (used) by financing activities (7,213) (34,566) 37,327
-------------------------------------
Effect of exchange rate changes on cash and cash equivalents 435 301 (321)
Net increase (decrease) in cash and cash equivalents (6,314) 13,589 (10,916)
Cash and cash equivalents at beginning of year 20,922 7,333 18,249
-------------------------------------
Cash and cash equivalents at end of year $ 14,608 $ 20,922 $ 7,333
=====================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amounts capitalized) $ 4,130 $ 7,248 $ 4,536
=====================================
Income taxes $ 4,480 $ 2,116 $ 5,846
=====================================
Supplemental disclosure of noncash investing and financing activities:
Earn-out agreement:
As part of the acquisition of Aspect Vision Care Ltd. (see Note 2), in fiscal
2000, we agreed to pay the former owners of Aspect, in addition to the 'L'5
million payment previously accrued, 'L'8.5 million ($13 million on the date
of the agreement). The total amount is included under other liabilities in our
consolidated balance sheet.
Acquisitions:
Fair value of assets acquired $ 35,742 $ 93,406
Less, liabilities assumed and acquisition costs (5,106) (29,607)
-------------------------------------
$ 30,636 $ 63,799
=====================================
Funded by:
Cash payments $ 24,444 $ 34,298
Issuance of stock and debt 6,192 29,501
-------------------------------------
$ 30,636 $ 63,799
=====================================
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income
(In thousands) Years Ended October 31,
2000 1999 1998
- ----------------------------------------------------------------------------------------------------
Net income $ 28,968 $ 25,100 $ 39,846
Other comprehensive income (loss):
Foreign currency translation adjustment (2,963) 71 (311)
-------------------------------------
Comprehensive income $ 26,005 $ 25,171 $ 39,535
=====================================
See accompanying notes to consolidated financial statements.
The Cooper Companies, Inc. and Subsidiaries 42
Notes to Consolidated Financial Statements
Note 1.
Summary of Significant Accounting Policies
General
The Cooper Companies, Inc. and subsidiaries (the "Company," "Cooper" or "we" and
similar pronouns), through its principal business segments, develop, manufacture
and market healthcare products. CooperVision ("CVI") markets a range of
specialty contact lenses to correct visual defects, including toric lenses that
correct astigmatism, cosmetic lenses that change or enhance the appearance of
the eyes' natural color and aspheric lenses that improve vision in low light
conditions. CooperSurgical ("CSI") markets diagnostic products and surgical
instruments and accessories to the women's healthcare market.
Consolidation
The financial statements in this report include the accounts of all the
Company's consolidated entities. Intercompany transactions and balances are
eliminated in consolidation.
Foreign Currency Translation
We translate assets and liabilities of our operations located outside the United
States into U.S. dollars at prevailing year-end exchange rates. We translate
income and expense accounts at weighted average rates for each year. We record
gains and losses from the translation of financial statements in foreign
currencies into U.S. dollars in other comprehensive income. We record gains and
losses from changes in exchange rates on transactions denominated in currencies
other than each reporting location's functional currency in net income for each
period. Net foreign exchange gain (loss) included in the determination of net
income for the years ended October 31, 2000, 1999 and 1998 was ($256,000),
($325,000) and $591,000, respectively.
Derivatives
We use derivatives to reduce market risk from changes in foreign exchange and
interest rates. We do not use derivative financial instruments for trading or
speculative purposes. We believe that the counter party with whom we enter into
forward exchange contracts and interest rate swap agreements is financially
sound and that the credit risk of these contracts is negligible.
Estimates in the Preparation of Financial Statements
We prepare our financial statements in conformity with accounting principles
generally accepted in the United States of America, which requires us to make
informed estimates and judgments about certain amounts appearing in them. The
actual results could differ from the estimated figures included in our financial
statements.
Revenue Recognition
We recognize revenue upon shipment of our products, when risk of ownership
transfers to our customers. We record, based on historical statistics,
appropriate provisions for shipments to customers who have the right of return.
Cash and Cash Equivalents
Cash and cash equivalents include commercial paper and other short-term income
producing securities with maturity dates of three months or less. These
investments are readily convertible to cash and are carried at cost, which
approximates market value.
Inventories, at the Lower of Average Cost or Market
(In thousands) October 31,
2000 1999
- --------------------------------------------------
Raw materials $ 9,740 $ 8,151
Work-in-process 6,056 3,786
Finished goods 22,423 21,493
-----------------------
$38,219 $33,430
=======================
Property, Plant and Equipment, at Cost
(In thousands) October 31,
2000 1999
- --------------------------------------------------
Land and improvements $ 1,343 $ 1,500
Buildings and
improvements 11,371 11,036
Machinery and
equipment 54,502 41,675
-----------------------
$67,216 $54,211
=======================
We compute depreciation using the straight-line method in amounts sufficient to
write off depreciable assets over their estimated useful lives. We amortize
leasehold improvements
43 The Cooper Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- continued
over their estimated useful lives or the period of the related lease, whichever
is shorter. We depreciate buildings over 35 to 40 years and machinery and
equipment over 3 to 15 years.
We expense costs for maintenance and repairs, and we capitalize major
replacements, renewals and betterments. We eliminate the cost and accumulated
depreciation of depreciable assets retired or otherwise disposed of from the
asset and accumulated depreciation accounts and reflect any gains or losses in
operations for the period.
Amortization of Intangibles
We amortize intangible assets (primarily goodwill of $96.9 million and $65.4
million at October 31, 2000 and 1999) on a straight-line basis over periods of
up to 40 years. Accumulated amortization at October 31, 2000 and 1999 was $16.9
million and $12.7 million, respectively. We assess the recoverability of
goodwill and other long-lived assets by determining whether the amortization of
the related balance over its remaining life can be recovered through reasonably
expected undiscounted future cash flows. We also evaluate amortization periods
of intangibles to determine whether later events and circumstances warrant
revised estimates of useful lives. To date, no such adjustments have been
required.
Earnings Per Share ("EPS")
We determine basic EPS by using the weighted average number of shares
outstanding and then add outstanding dilutive stock warrants and options to
determine diluted EPS.
Stock-Based Compensation
We account for stock-based compensation in accordance with Statement of
Financial Accounting Standards ("SFAS") 123, Accounting for Stock-Based
Compensation. This statement establishes financial accounting and reporting
standards for stock-based compensation, including employee stock option plans.
As allowed by SFAS 123, we continue to measure compensation expense under
Accounting Principles Board ("APB") Opinion No. 25, Accounting For Stock Issued
to Employees, and related interpretations (see Note 9).
New Accounting Pronouncements
In April 1998, The American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Cost of Start-up
Activities." The SOP broadly defines start-up activities and requires us to
expense them as incurred, effective for fiscal years beginning after December
15, 1998. We adopted the SOP in the first quarter of this year and reported an
after tax charge of $432,000 as the cumulative effect of a change in accounting
principle. Our previous policy had been to defer the cost of start-up activities
as appropriate and amortize them over future periods.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (as amended by SFAS Nos. 137 and
138). SFAS 133 is required to be adopted in the first quarter of fiscal years
beginning after June 15, 2000. SFAS 133 requires us to recognize all derivatives
at fair value on the balance sheet. Changes in fair value must be recognized
currently in earnings unless we meet specific hedge accounting criteria. We will
adopt SFAS 133 in the first quarter of fiscal 2001 and do not anticipate that it
will have a material effect on our consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements." SAB 101 is to be adopted for fiscal years beginning after December
15, 1999. We will adopt SAB 101 in the fourth quarter of fiscal 2001 and do not
expect that it will have a material effect on our consolidated financial
statements.
In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." This
issue, which will become effective for us in the fourth quarter of fiscal 2001,
addresses the income statement classification for shipping and handling fees and
costs by companies. We are currently analyzing EITF 00-10 and do not expect its
implementation to have a material impact on our consolidated financial
statements, other than a potential income statement reclassification that may
result in increased revenue and selling, general and administrative expenses
with no effect on operating income.
In May 2000, the EITF reached a consensus on Issue 00-14, "Accounting for
Certain Sales Incentives." This issue, which will become effective for us in the
fourth quarter of fiscal 2001, addresses the recognition, measurement, and
income statement classification for sales incentives offered voluntarily by a
vendor without charge to customers that can be used in, or are exercisable by a
customer as a result of, a single exchange transaction. We are currently
analyzing EITF 00-14, and based on our current understanding and interpretation,
we do not expect that our implementation of EITF 00-14 will have a material
impact on our consolidated financial statements.
The Cooper Companies, Inc. and Subsidiaries 44
Notes to Consolidated Financial Statements -- continued
Note 2.
Acquisitions
MedaSonics Acquisition
On October 18, 2000, we acquired MedaSonics, Inc., including its line of
handheld and compact Doppler ultrasound systems used in obstetrics and
gynecology as well as in cardiology and other medical specialties.
We paid cash of $500,000 and 162,290 shares of our common stock, having a
market value of $5.6 million at the closing. A maximum of 28,469 additional
shares will be paid at a later date.
The acquisition has been accounted for as a purchase. The excess of the
purchase price over the fair value of the net assets acquired (goodwill) has
been recorded at $5.4 million and is being amortized over 20 years.
Leisegang Acquisition
On January 31, 2000, we acquired a group of women's healthcare products (the
"Leisegang Business") from NetOptix Corporation for approximately $10 million in
cash at closing, plus in May 2000, an additional $250,000. Before the
acquisition, the Leisegang Business had annual revenue of more than $11 million
from operations in the U.S., Germany and Canada.
The Leisegang Business consists of diagnostic and surgical instruments
including colposcopes, instruments to perform loop electrosurgical excision
procedures, hand-held gynecological instruments, disposable specula and
cryosurgical systems. Many of these products are disposable, including the
Sani-Spec line of plastic specula, its largest product group.
The acquisition has been accounted for as a purchase. Goodwill has been
recorded at $5.4 million and is being amortized over 20 years.
BEI Acquisition
On December 8, 1999, we acquired a group of women's healthcare products from BEI
Medical Systems Company, Inc., including uterine manipulators and other products
for the gynecological surgery market, for approximately $10.3 million in cash.
Most of these products are disposable. Physicians use them in both their offices
and in hospitals.
The acquisition has been accounted for as a purchase. Goodwill
has been recorded at $8.4 million and is being amortized over 20 years.
Investment in Litmus
In February 1998, we purchased, for approximately $10 million cash, a 10% equity
position in Litmus Concepts Inc. and received an exclusive license to distribute
Litmus' FemExam TestCard System of diagnostic tests in the women's professional
healthcare market in North America. Of the $10 million purchase price, we
allocated $5 million to the equity investment and $5 million to the exclusive
license. We are accounting for our investment in Litmus on the cost basis and
amortizing the license over 17 years. We agreed to annual minimum purchases,
which end when we have purchased 10 million units of the products or on the
sixth anniversary of the agreement, whichever occurs first. If we do not meet
the required minimum purchases, Litmus' only remedy is to cancel the exclusivity
of the license.
Aspect Acquisition
In December 1997, we acquired Aspect Vision Care Ltd. ("Aspect"), a privately
held manufacturer of high quality contact lenses sold primarily in the United
Kingdom and other European countries. Aspect is an English company with the
pound sterling as its functional currency. We have included Aspect in CVI's
results from the date of its acquisition.
We paid approximately $51 million at closing ($21.6 million in cash, 38,000
shares of Cooper's common stock with a value of $1.5 million and $28 million in
8% five-year notes to the selling shareholders), and based on Aspect's
performance over the last three years, we will pay an additional 'L'13.5
million (approximately $20.5 million) as follows: $17.2 million is payable in
two payments - one on December 11, 2000 and the other on June 11, 2001 and is
included in current accrued liabilities. The balance of $3.3 million is payable
on December 11, 2001 and is included in other long-term liabilities. The cash
paid at closing was partially financed under our $50 million line of credit (see
"Midland Bank" Note 6). The acquisition has been accounted for as a purchase.
Based on an independent valuation report, Goodwill has been recorded at $57.9
million ($44.9 million at closing, including about $7.5 million for the minimum
earn-out, and an additional $13 million accrued in October 2000 in anticipation
of payment of the aforementioned amounts). The entire amount of goodwill will be
amortized on the 40th anniversary of the acquisition. Other intangibles of $3.5
million are being amortized over periods of from 10 to 30 years.
45 The Cooper Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- continued
Following the acquisition, some of the selling shareholders became
employees of Cooper. As of October 31, 2000 and 1999, approximately $41.2
million and $23.4 million, respectively, of the five-year notes and the
additional payments owed by Cooper in connection with the acquisition are
payable to these employees or members of their immediate family. None of these
employees are officers of Cooper. For the years ended October 31, 2000, 1999 and
1998, our consolidated income statement included $1.8 million, $1.9 million and
$2 million of interest expense and $2.3 million, $2.4 million and $2.3 million
of royalty expense paid or payable to these individuals.
In connection with the Aspect acquisition, Cooper agreed to make quarterly
royalty payments of from 5% to 7 1/2% on sales of certain Aspect-manufactured
products, with a minimum royalty for five years of 'L'1 million a year. The
balance of royalties payable under the agreement was $481,000 and $586,000 at
October 31, 2000 and 1999, respectively, and is included in other accrued
liabilities in the accompanying consolidated balance sheet.
Note 3.
Discontinued Operations
In 1998, we declared Hospital Group of America ("HGA"), our psychiatric services
business, a discontinued operation and recorded a charge of $22.3 million
reflecting our initial estimate of the ultimate loss on disposition.
In January 1999, we completed the sale of a portion of HGA for $5 million
in cash and trade receivables. On April 15, 1999, we sold the remainder of HGA
to Universal Health Services, Inc. for $27 million and recorded gains on
disposal of $1.3 million in the first quarter and $1.7 million in the second
quarter, reflecting adjustments to the loss estimated in 1998.
HGA's patient revenues were $20.8 million and $55.5 million for fiscal
years ended October 31, 1999 and 1998, respectively.
The Cooper Companies, Inc. and Subsidiaries 46
Notes to Consolidated Financial Statements -- continued
Note 4.
Earnings Per Share
(In thousands, except per share amounts) Years Ended October 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------------
Income from continuing operations $ 29,400 $ 22,001 $ 57,810
Discontinued operations, net of income taxes -- 3,099 (17,964)
Cumulative effect of change in accounting principle (432) -- --
-----------------------------------------
Net income $ 28,968 $ 25,100 $ 39,846
=========================================
Basic:
Weighted average common shares 14,188 14,098 14,828
=========================================
Basic earnings per common share:
Continuing operations $ 2.07 $ 1.56 $ 3.90
Discontinued operations -- 0.22 (1.21)
Cumulative effect of change in accounting principle (0.03) -- --
-----------------------------------------
Basic earnings per share: $ 2.04 $ 1.78 $ 2.69
=========================================
Diluted:
Weighted average common shares 14,188 14,098 14,828
Add:
Dilutive warrants -- 23 56
Dilutive options 322 191 385
-----------------------------------------
Effect of dilutive securities 322 214 441
-----------------------------------------
Diluted weighted average common shares 14,510 14,312 15,269
=========================================
Diluted earnings per share:
Continuing operations $ 2.03 $ 1.54 $ 3.79
Discontinued operations -- 0.21 (1.18)
Cumulative effect of change in accounting principle (0.03) -- --
-----------------------------------------
Diluted earnings per share: $ 2.00 $ 1.75 $ 2.61
=========================================
We excluded the following options to purchase Cooper's common
stock from the computation of diluted EPS because their exercise
prices were above the average market price.
Years Ended October 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------------
Number of shares excluded 989,250 1,321,083 571,250
-----------------------------------------
Range of exercise prices $34-$62.21 $21-$62.21 $36-$62.21
=========================================
47 The Cooper Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- continued
Note 5.
Income Taxes
The income tax provision (benefit) related to income from all operations in the
consolidated statements of income consists of:
(In thousands) Years Ended October 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------------------
From continuing operations $ 12,727 $ 10,711 $(34,723)
From cumulative effect of a change in accounting principle (218) -- --
From discontinued operations -- (6,425) 130
----------------------------------------
$ 12,509 $ 4,286 $(34,593)
========================================
The income tax provision (benefit) related to income from continuing operations
in the consolidated statements of income consists of:
(In thousands) Years Ended October 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------------------
Current
Federal $ 1,508 $ 445 $ 462
State (2,474) (641) 471
Foreign 2,799 2,222 131
----------------------------------------
1,833 2,026 1,064
----------------------------------------
Deferred
Federal 9,532 8,730 (35,955)
State 1,362 (45) --
Foreign -- -- 168
----------------------------------------
10,894 8,685 (35,787)
----------------------------------------
$ 12,727 $ 10,711 $(34,723)
========================================
The Cooper Companies, Inc. and Subsidiaries 48
Notes to Consolidated Financial Statements -- continued
We reconcile the provision for (benefit of) income taxes attributable to income
from continuing operations and the amount computed by applying the statutory
federal income tax rate of 35% to income from continuing operations before
income taxes as follows:
(In thousands) Years Ended October 31,
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Computed expected provision for taxes from continuing operations $ 14,744 $ 11,449 $ 8,080
Increase (decrease) in taxes resulting from:
Income (loss) outside the United States subject to different tax rates (534) (325) 431
Amortization of intangibles 426 392 477
State taxes, net of federal income tax benefit 1,271 312 306
Reversal of prior years' estimated state tax liabilities
no longer required (2,330) (1,121) --
Utilization of net operating loss carryforwards -- -- (10,359)
Change in valuation allowance (655) 331 (35,787)
Other, net (195) (327) 2,129
------------------------------------------
Actual provision (benefit) of income taxes $ 12,727 $ 10,711 $(34,723)
==========================================
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities are:
(In thousands) October 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Accounts receivable, principally due to allowances for doubtful accounts $ 852 $ 559
Inventories, principally due to obsolescence reserves 2,310 1,329
Litigation settlements 6,000 7,200
Accrued liabilities, reserves and compensation accruals 3,593 1,696
Net operating loss carryforwards 48,671 56,957
Capital loss carryforwards 2,991 2,991
Tax credit carryforwards 3,712 4,138
Other -- 1,933
---------------------------
Total gross deferred tax assets 68,129 76,803
Less valuation allowance (6,488) (7,996)
---------------------------
Deferred tax assets 61,641 68,807
---------------------------
Deferred tax liabilities:
Plant and equipment (862) (650)
---------------------------
Net deferred tax assets $ 60,779 $ 68,157
===========================
49 The Cooper Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- continued
The net (increase)/decrease in the total valuation allowance for the years ended
October 31, 2000, 1999 and 1998 was $1.5 million, ($923,000) and $45.4 million,
respectively. In 1998, we recognized an income tax benefit of $35.8 million
($23.3 million in the fourth quarter of fiscal 1998) from reducing the valuation
allowance based primarily on the continued improvement in Cooper's operating
results and future prospects. The recognition of the net deferred tax assets is
based upon expected future earnings that we believe are more likely than not to
be realized.
At October 31, 2000 Cooper had net operating loss and tax credit
carryforwards for federal tax purposes that expire as follows:
Net Operating Tax
Year of Expiration Losses Credits
- -------------------------------------------------------------------------
(In thousands)
- -------------------------------------------------------------------------
2000 $ -- $ 1,132
2001 -- 202
2002 790 29
2003 1,378 330
2004 22,241 --
2005 11,006 --
2006 22,265 --
2007 22,058 --
2008 49,535 --
2009 6,553 --
2010 1,318 --
2018 823 --
2019 1,092 --
Indefinite life -- 2,019
------------------------------------
$139,059 $ 3,712
====================================
Note 6.
Long-Term Debt
(In thousands) October 31,
2000 1999
- ------------------------------------------------------------------
Aspect promissory
notes due December
2, 2002 (see Note 2) $ 20,653 $23,439
KeyBank line of credit 7,059 --
Midland Bank Debt -- 17,445
Aspect bank loans 5,264 6,292
County of Monroe
Industrial
Development Agency
("COMIDA") Bond 2,455 2,695
Capitalized leases,
interest rates from 7%
to 11%, maturing
1999 to 2007 6,832 9,401
Other 26 100
---------------------------------
42,289 59,372
Less current
installments 2,032 2,305
---------------------------------
$ 40,257 $57,067
=================================
Our long-term debt matures as follows over the next five years:
(In thousands) Long-Term Debt
- ------------------------------------------------------------------
2001 $ 2,032
2002 $ 1,817
2003 $ 26,103
2004 $ 1,613
2005 $ 1,425
The Cooper Companies Inc. and Subsidiaries 50
Notes to Consolidated Financial Statements -- continued
KeyBank Line of Credit
We have a $50 million senior secured revolving credit facility with KeyBank
National Association ("KeyBank"). KeyBank syndicated a portion of the facility
to one other lender and acts as agent. The facility matures September 11, 2002.
Interest rates range from 50 to 200 basis points over the London Interbank
Offered Rate (LIBOR) depending on certain financial ratios. The interest rate
may be floating or fixed at our option. We had outstanding borrowings from the
credit facility of $7.1 million and zero at October 31, 2000 and 1999,
respectively. On October 31, 2000, the effective rates ranged from 6.9% to 7.7%.
Cooper pays an annual commitment fee of 0.375% on the unused portion of the
revolving credit facility and pays interest monthly on outstanding balances.
Terms include a first security interest in all Cooper assets. During the
term of the facility, we may borrow, repay and re-borrow up to the $50 million,
unless we opt to reduce the line voluntarily. We have used the KeyBank line of
credit to guarantee other foreign borrowings by issuing $7.2 million of letters
of credit against the line of credit, which reduced its unused portion. At
October 31, 2000, we had $35.7 million available.
Under certain circumstances when we obtain additional debt or equity,
mandatory prepayments will be required to repay outstanding amounts and
permanently reduce the total commitment amount available.
The KeyBank line of credit contains various covenants, including
maintenance of certain ratios and transaction limitations requiring approval of
the lenders. Certain prepayments are subject to penalties.
Midland Bank
We partially funded the Aspect acquisition by a 'L'10.5 million loan from
Midland Bank plc, due November 27, 2002. In March 1998, we converted the
denomination of the loan to U.S. dollars and entered into an interest rate swap
to fix the interest rate at 6.19% per annum (see Note 7). KeyBank issued a
letter of credit to secure the Midland loan. Interest on the Midland loan is 20
basis points (0.2%) over sterling LIBOR, adjusted monthly, and Cooper pays an
annual letter of credit fee of 1% of the balance to KeyBank. In January 2000, we
repaid the 'L'10.5 million, and cancelled the interest rate swap. On the
cancellation of the swap, we realized a gain of $240,000, which is recorded in
other income.
Aspect Bank Loans
The balance of these loans at October 31, 2000, was $5.3 million and is
secured by certain assets of Aspect and a $4.2 million letter of credit in favor
of National Westminster Bank ("NWB") from KeyBank. Loan maturity dates range
from March 2003 to June 2007. The interest rate on 'L'2.5 million borrowed March
30, 1998 is 0.2625% above sterling LIBOR. Sterling LIBOR ranged between 5.8% and
6.6% for the period of the loan. The interest rate on other NWB loans is 1.5%
above the base rate, which ranged between 5.3% and 6% for the reporting period.
In 1998, the proceeds were used to repay a loan of 'L'827,000 ($1.4 million),
included in acquired debt, and to fund capital expenditures.
Capitalized Leases
The capitalized lease balance at October 31, 2000, was $6.8 million. The leases
primarily relate to manufacturing equipment in the U.S. and the United Kingdom
and are secured by those assets. The amount of our capitalized leases decreased
for the period primarily because of payments on existing capitalized leases.
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. The interest rate has been
effectively fixed at 4.88%, through a rate swap transaction (see Note 7).
Principal is repaid quarterly, from July 1997 to October 2012. The IRB is
secured by substantially all of CVI's rights to the facility.
KeyBank issued a letter of credit 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, under a reimbursement
agreement, which Cooper guarantees. The agreement contains customary provisions
and covenants, including certain required 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.
51 The Cooper Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- continued
Note 7.
Financial Instruments
The fair values of our financial instruments, including cash and cash
equivalents, trade receivables, lines of credit, accounts payable and accrued
liabilities, approximated their carrying values as of October 31, 2000 and 1999
because of the short maturity of these instruments. We believe that there are no
significant concentrations of credit risk in trade receivables.
The fair value of our other long-term debt approximated the carrying value
at October 31, 2000 and 1999 because we believe that we could obtain similar
financing with similar terms.
Derivatives
Foreign Exchange Instruments
Cooper enters into forward exchange contracts to hedge the currency exposure of
liabilities and firm commitments denominated in foreign currencies. We recognize
gains and losses on hedges in our results of operations in the same period as we
realize the gain or loss from remeasuring the foreign currency denominated asset
or liability. As of October 31, 2000, we had outstanding forward exchange
contracts of $48 million to purchase 'L'30.1 million, which are to be
purchased from time to time through November 2002. We obtained the fair value of
the forward exchange contracts through KeyBank's foreign exchange department.
The fair value indicated that termination of the forward exchange contracts at
October 31, 2000 would have resulted in a loss of $3.7 million.
We also enter into forward exchange contracts to minimize the net currency
exposure of intercompany liabilities and commitments denominated in foreign
currencies. We record gains and losses on these forward contracts in our
results, and they offset the gains and losses from the remeasurement of our
intercompany accounts. At October 31, 2000, we had outstanding forward exchange
contracts against our intercompany accounts of $2.9 million to sell 4.4 million
Canadian Dollars. We obtained the fair value of the forward exchange contracts
through KeyBank's Foreign Exchange department. The fair value indicated that
termination of these forward exchange contracts at October 31, 2000 would have
resulted in a loss of $17,000.
Interest Rate Swaps
On a selective basis, we enter into interest rate swap agreements to reduce
the potential negative impact of increases in interest rates on our outstanding
variable-rate debt under the Midland Bank Loan and the IRB. We recognize in our
results of operations over the life of the contract, as interest expense, the
amortization of contract premiums incurred from buying interest rate swaps. We
record net payments or receipts resulting from these agreements as adjustments
to interest expense. The effect of interest rate instruments on our results of
operations in fiscal years ended October 31, 2000, 1999 and 1998 was not
significant. As of October 31, 2000, Cooper had interest rate swap agreements
with notional amounts totaling $6.7 million. As of October 31, 2000, we had a
$2.5 million interest rate swap that matures on January 1, 2012 and a $4.2
million interest rate swap that matures on April 1, 2003.
We obtained the fair value of the swap agreements through KeyBank's
derivative department. The fair value indicated that termination of the swap
agreements at October 31, 2000 would have resulted in an $82,000 loss.
The Cooper Companies, Inc. and Subsidiaries 52
Notes to Consolidated Financial Statements -- continued
Note 8.
Stockholders' Equity
(In thousands) Years Ended October 31,
Additional
Common Common Paid-in Accumulated Treasury
Shares Stock Capital Deficit Stock
- -------------------------------------------------------------------------------------------------------
Balance at October 31, 1997 14,798 $1,480 $249,213 $(138,429) $ --
Exercise of stock options 75 7 419 -- --
Treasury stock purchased -- -- -- -- (7,993)
Restricted stock amortization and
share issuance 1 -- 47 -- --
Stock issued for acquisition
(see Note 2) 38 4 1,488 -- --
Net income -- -- -- 39,846 --
-----------------------------------------------------------
Balance at October 31, 1998 14,912 1,491 251,167 (98,583) (7,993)
Exercise of stock options 61 6 461 -- --
Treasury stock purchased -- -- -- -- (7,345)
Exercise of warrants and treasury
stock used -- -- (330) -- 1,278
Restricted stock amortization and
share issuance 2 -- 47 -- --
Dividends on common stock -- -- -- (561) --
Net income -- -- -- 25,100 --
-----------------------------------------------------------
Balance at October 31, 1999 14,975 1,497 251,345 (74,044) (14,060)
Exercise of stock options 212 22 3,040 -- 16
Treasury stock used for acquisitions -- -- 3,326 -- 2,866
Restricted stock/stock option
amortization and share
issuance 2 -- 283 -- --
Dividends on common stock -- -- -- (1,134) --
Net income -- -- -- 28,968 --
-----------------------------------------------------------
Balance at October 31, 2000 15,189 $1,519 $257,994 $(46,210) $(11,178)
===========================================================
53 The Cooper Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- continued
Cash Dividends
On May 20, 1999, Cooper announced an annual cash dividend on its common stock of
8 cents per share, payable in quarterly installments of 2 cents per share. We
made four payments in fiscal 2000 and two in fiscal 1999.
Treasury Stock
In September 1998, our Board of Directors authorized us to purchase up to one
million shares of our common stock. All of these shares have been purchased.
(In thousands) Shares Purchase Price
- --------------------------------------------------------
Purchased and paid
for in fiscal 1999 514 $7,345
-----------------------
Purchased and paid
for in fiscal 1998 486 7,993
-----------------------
1,000 15,338
Reissued in fiscal 2000(1) (188) (2,882)
Reissued in fiscal 1999(2) (83) (1,278)
-----------------------
729 $11,178
=======================
(1) Cooper issued 187,876 shares of treasury stock for:
1) Issued 24,586 treasury shares related to a prior acquisition.
2) Issued 162,290 treasury shares related to the MedaSonics acquisition.
3) Issued 1,000 treasury shares upon the exercise of stock options.
Treasury stock was credited for $2.9 million for the average cost of
the treasury stock, charging approximately $400,000 to additional paid
in capital, receiving $14,000 in cash, and charging $2.5 million to
intangibles for the acquisition.
(2) Cooper issued 83,333 shares of treasury stock upon the exercise of a
warrant related to a prior acquisition. We received $948,000 cash upon
the exercise of the warrant, crediting treasury stock for $1.3 million
for the average cost of the treasury stock and charging the balance of
$330,000 against additional paid in capital.
Stockholders' Rights Plan
Under our stockholder rights plan, each outstanding share of our common stock
carries one preferred share purchase right (a "Right"). The Rights will become
exercisable only under certain circumstances involving acquisition of beneficial
ownership of 20% or more of the our common stock by a person or group (an
"Acquiring Person") without the prior consent of Cooper's Board of Directors. If
a person or group becomes an Acquiring Person, each Right would then entitle the
holder (other than an Acquiring Person) to purchase, for the then purchase price
of the Right (currently $145, subject to adjustment), shares of Cooper's common
stock, or shares of common stock of any person into which we are thereafter
merged or to which 50% or more of our assets or earning power is sold, with a
market value of twice the purchase price. The Rights will expire in October 2007
unless earlier exercised or redeemed. The Board of Directors may redeem the
Rights for $.01 per Right prior to any person or group becoming an Acquiring
Person.
Note 9.
Employee Stock Plans
At October 31, 2000, Cooper had two stock-based compensation plans:
1998 Long-Term Incentive Plans ("1998 LTIP")
We designed the 1998 LTIP to increase Cooper's stockholder value by attracting,
retaining and motivating key employees and consultants who directly influence
our profitability. Stockholders approved the 1998 LTIP in April 1998.
The 1998 LTIP authorized either a committee of three or more individuals
not eligible to participate in the 1998 LTIP or Cooper's Board of Directors to
grant to eligible individuals during a five-year period, stock options, stock
appreciation rights, restricted stock, deferred stock, stock purchase rights,
phantom stock units and long-term performance awards for up to 1 million shares
of common stock, subject to adjustment for future stock splits, stock dividends,
expirations, forfeitures and similar events. Options generally vest based on
Cooper's stock price, however, in some cases, both stock price and time are the
criteria. As of October 31, 2000, 30,000 shares remained available under the
1998 LTIP for future grants. No restricted shares have been granted under the
1998 LTIP. Approximately 2 million shares of restricted stock and stock options
were granted under a predecessor plan.
We intend to submit a new LTIP for shareholder approval at the Annual
Meeting of Stockholders in March 2001. The guidelines for granting awards under
the new plan will be substantially the same as the current plan.
1996 Long-Term Incentive Plan for Non-Employee Directors ("1996 NEDRSP")
The 1996 NEDRSP provides for annual grants of restricted stock and options to
non-employee directors at the start of each fiscal year. Specifically, each
non-employee director will be awarded the right to purchase restricted stock
worth $7,500 (or $9,375 in the case of the Chairman of the Board who is a
non-employee director) for $0.10 per share by January 15 of the year following
the date of the grant. Grants of restricted stock not exercised by then will
expire. The restrictions on
The Cooper Companies, Inc. and Subsidiaries 54
Notes to Consolidated Financial Statements -- continued
the restricted stock will lapse when the stock reaches certain target values or
by the fifth anniversary of the date of grants. In addition, each non-employee
director was granted an option to purchase 10,000 shares of Cooper's common
stock in fiscal 2000 and 1999 (or, in the case of the Chairman of the Board who
is a non-employee director, 11,250 shares). In fiscal 1998, each non-employee
director was granted an option to purchase 5,000 shares (or, in the case of the
Chairman of the Board who is a non-employee director, 6,250 shares). 260,000
shares of Cooper's authorized but unissued common stock had been reserved for
this. As of October 31, 2000, 65,971 shares remained available under the 1996
NEDRSP for future grants. Restricted shares of 1,775, 1,994 and 1,312 were
granted under the 1996 NEDRSP in fiscal 2000, 1999 and 1998, respectively, and
there were no restricted shares with restrictions in place outstanding at
October 31, 2000. The 1996 NEDRSP expired on November 16, 2000. We intend to
institute a new plan that will be substantially identical to the current plan.
Common stock activity under these plans was:
Years Ended October 31,
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average Weighted Average
Options Exercise Price Options Exercise Price Options Exercise Price
- ----------------------------------------------------------------------------------------------------------------
Outstanding at beginning
of year 1,796,778 $29.39 1,660,797 $29.12 929,564 $19.39
Granted 295,750 33.12 231,250 27.29 806,250 38.16
Exercised (213,696) 14.40 (60,269) 7.76 (75,017) 5.68
Forfeited (37,000) 36.48 (35,000) 39.85 -- --
-----------------------------------------------------------------------------
Outstanding at end of year 1,841,832 $31.59 1,796,778 $29.39 1,660,797 $29.12
=============================================================================
Options exercisable
at year end 1,222,332 $26.34 1,080,478 $23.17 605,797 $19.99
=============================================================================
Weighted-avg. fair value of
options granted during
the year $12.90 $11.33 $ 8.57
=============================================================================
The options outstanding at October 31, 2000 for the stock option plans are:
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------
Number Weighted Average Number
Outstanding Remaining Weighted Average Outstanding Weighted Average
Exercise Prices at 10/31/00 Contractual Life Exercise Price at 10/31/00 Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
$5.91-7.68 80,334 4.63 $ 6.92 80,334 $ 6.92
$14.31-16.00 107,165 5.91 14.90 107,165 14.90
$20.00-21.00 103,333 5.78 20.13 103,333 20.13
$23.44-25.56 247,250 8.20 24.11 246,400 24.10
$26.00-30.69 315,000 7.91 27.44 302,650 27.30
$34.00-35.09 477,500 8.32 34.98 243,000 34.87
$36.00-40.38 273,250 7.38 37.81 139,450 37.97
$43.20-62.21 238,000 7.90 51.72 -- --
-------------------------------------------------------------------------
$5.91-62.21 1,841,832 7.60 $31.59 1,222,332 $26.34
=========================================================================
55 The Cooper Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- continued
The excess of market value over $.10 per share of restricted shares on
respective dates of grant is initially recorded as deferred compensation and
charged to operations as earned. Restricted shares and other stock compensation
charged against operating income for the years ended October 31, 2000, 1999 and
1998 was $154,000, $210,000 and $260,000, respectively.
Pro Forma Information
As permitted by FASB 123, Cooper applies APB Opinion No. 25 and related
interpretations to account for its plans for stock options issued to employees.
Accordingly, no compensation cost has been recognized for its employee stock
option plans, as options are granted with exercise prices equal to or greater
than 100% of their fair value at the grant date. Had compensation cost for our
stock-based compensation plans been determined under the fair value method
included in SFAS 123, our net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
(In thousands, Years Ended October 31,
except per share amounts) 2000 1999 1998
- ---------------------------------------------------------
Net Income As reported $28,968 $25,100 $39,846
Pro forma $27,694 $21,721 $34,512
Basic earnings
per share As reported $ 2.04 $ 1.78 $ 2.69
Pro forma $ 1.95 $ 1.54 $ 2.33
Diluted
earnings As reported $ 2.00 $ 1.75 $ 2.61
per share Pro forma $ 1.93 $ 1.54 $ 2.28
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in fiscal 2000, 1999 and 1998: dividend yield:
0.249%, 0.382% and 0%; expected volatility: 45%, 50% and 48%; expected option
lives of 3.5 years for all three years and risk-free interest rates of 5.9%,
5.8% and 4.8%, respectively.
Note 10.
Employee Benefits
Cooper's Retirement Income Plan
Cooper's Retirement Income Plan (the "Plan") covers substantially all full-time
United States employees. Cooper's contributions are designed to fund normal cost
on a current basis and to fund over 30 years the estimated prior service cost of
benefit improvements (15 years for annual gains and losses). The unit credit
actuarial cost method is used to determine the annual cost. Cooper pays the
entire cost of the Plan and funds such costs as they accrue. Virtually all of
the assets of the Plan are comprised of participation in equity and fixed income
funds.
The Cooper Companies, Inc. and Subsidiaries 56
>
Notes to Consolidated Financial Statements -- continued
Net periodic pension cost of the Plan was:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Change in benefit obligation November 1 to October 31
Projected benefit obligation at beginning of year $ 11,281 $ 10,465 $ 8,957
Service cost 664 649 398
Interest cost 830 763 664
Benefits paid (445) (410) (381)
Actuarial (gain)/loss -- (186) 827
----------------------------------------------
Projected benefit obligation at end of year $ 12,330 $ 11,281 $ 10,465
==============================================
Change in plan assets November 1 to October 31
Fair value of plan assets at beginning of year $ 9,628 $ 8,824 $ 9,012
Actual return on plan assets 1,004 1,214 142
Employer contributions 886 -- 51
Benefits paid (445) (410) (381)
----------------------------------------------
Fair value of plan assets at end of year $ 11,073 $ 9,628 $ 8,824
==============================================
Funded status $ (1,257) $ (1,653) $ (1,641)
Unrecognized transition amount 311 336 362
Unrecognized prior service cost 428 458 (26)
Unrecognized net (gain)/loss (827) (675) 401
----------------------------------------------
Accrued pension liability $ (1,345) $ (1,534) $ (904)
==============================================
Reconciliation of accrued pension liability
Accrued cost at November 1 $ (1,534) $ (904) $ (663)
Net periodic pension cost for year (697) (630) (292)
Contributions made during year 886 -- 51
----------------------------------------------
Accrued cost at October 31 $ (1,345) $ (1,534) $ (904)
==============================================
Actuarial assumptions
Discount rate 7.5% 7.5% 7.0%
Expected return on assets 9.0% 9.0% 9.0%
Average compensation increase 4.0% 4.0% 4.0%
Cost of living 3.5% 3.5% 3.5%
Net periodic pension costs
Service cost $ 664 $ 649 $ 398
Interest cost 830 763 664
Asset return (1,004) (1,214) (142)
Amortization
Net transition obligations 25 26 26
Prior service cost 30 30 (3)
Gain/(loss) 152 376 (651)
----------------------------------------------
Net periodic pension cost total $ 697 $ 630 $ 292
==============================================
57 The Cooper Companies, Inc. and Subsidiaries
>
Notes to Consolidated Financial Statements -- continued
Cooper's 401(k) Savings Plan
Cooper's 401(k) Savings Plan provides for the deferral of compensation as
described in the Internal Revenue Code and is available to substantially all
full-time United States employees of Cooper. Employees who participate in the
401(k) Plan may elect to have from 1% to 16% of their pre-tax salary or wages
deferred and contributed to the trust established under the Plan. Cooper's
contribution on account of participating employees, net of forfeiture credits,
was $627,000, $333,000 and $396,000 for the years ended October 31, 2000, 1999
and 1998, respectively.
Cooper's Incentive Payment Plan
Cooper's Incentive Payment Plan is available to officers and other key
executives. Participants may, in certain years, receive bonuses based on
performance. Total bonuses earned for the years ended October 31, 2000, 1999 and
1998, were approximately $1.7 million, $1.4 million and $851,000, respectively.
Note 11.
Commitments and Contingencies
Lease Commitments
Total minimum annual rental obligations (net of sublease revenue of
approximately $306,000 in fiscal 2000 and $195,000 per year thereafter through
March 2005) under noncancelable operating leases (substantially all real
property or equipment) in force at October 31, 2000 are payable in subsequent
years as follows:
(In thousands)
- --------------------------------------------
2001 $ 4,720
2002 4,356
2003 3,774
2004 3,127
2005 2,045
2006 and thereafter 6,477
--------
$ 24,499
========
Aggregate rental expense for both cancelable and noncancelable contracts
amounted to $5.2 million, $5.7 million and $3.2 million in 2000, 1999 and 1998,
respectively.
MEC
In 1993, we reached agreement with Medical Engineering Corporation ("MEC"), a
subsidiary of Bristol-Myers Squibb Company, which limited our contingent
liabilities associated with breast implant litigation involving a former
division of ours (the "MEC Agreement"). The remaining liability recorded for
payments to be made to MEC under the MEC Agreement is due as follows:
December 31, (In thousands)
- --------------------------------------------
2000 $ 3,500
2001 4,000
2002 4,500
2003 3,000
--------
$ 15,000
========
Payments to MEC of $11.5 million beginning December 31, 2001 are contingent upon
our earning net income before taxes in each fiscal year. They were recorded in
Cooper's financial statements in fiscal 1997 as loss from sale of discontinued
operations as Management concluded that the maximum payments would be required.
They are reflected on the balance sheet in "Other accrued liabilities" for the
amount due on December 31, 2000 and in "Other noncurrent liabilities" for the
amounts due thereafter. These payments are limited to the lesser of 50% of our
net income before taxes in each fiscal year on a noncumulative basis, or the
amounts shown above.
Environmental
In 1997, environmental consultants that Cooper engaged identified a contained
area of groundwater contamination consisting of industrial solvents including
trichloroethane (also known as TCA) at one of CVI's sites. In the opinion of
counsel, the solvents were released into the ground before we acquired the
business at that site, and the area containing these chemicals is limited. On
April 6, 1999, Cooper and the New York Department of Environmental Conservation
entered into a voluntary agreement covering the environmental investigation of
the site. The investigation has been completed and we expect to initiate a
state-approved mediation in the spring of 2001. As of October 31, 2000, we have
accrued approximately $300,000 for that purpose. In our opinion, the cost of
remediation will not be material, considering this accrual.
The Cooper Companies, Inc. and Subsidiaries 58
>
Notes to Consolidated Financial Statements -- continued
Note 12.
Business Segment Information
Cooper is organized by product line for management reporting with operating
income, as presented in our financial reports, as the primary measure of segment
profitability. No costs from corporate functions are allocated to the segments'
operating income. Items below operating income are not considered when measuring
the profitability of a segment. The accounting policies used to generate segment
results are the same as our overall accounting policies.
Two business segments comprise Cooper's operations:
CVI, which develops, manufactures and markets a range of contact lenses,
and
CSI, which develops, manufactures and distributes diagnostic products and
surgical equipment, instruments and disposables, primarily for obstetrics
and women's healthcare.
Total net sales include sales to customers as reported in our consolidated
statements of income and sales between geographic areas that are priced at terms
that allow for a reasonable profit for the seller. Income (loss) from operations
is total net sales less cost of sales, research and development expenses,
selling, general and administrative expenses and amortization of intangible
assets. Corporate operating loss is principally corporate headquarters expense.
Investment income, net, settlement of disputes, net, other income (expense),
net, and interest expense were not allocated to individual businesses. Our
business segments do not rely on any one major customer.
Identifiable assets are those used in continuing operations except cash and
cash equivalents, which are included as corporate assets.
59 The Cooper Companies, Inc. and Subsidiaries
>
Notes to Consolidated Financial Statements -- continued
Information by business segment for each of the years in the three-year period
ended October 31, 2000 follows: (In thousands)
Corporate &
2000 CVI CSI Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------
Net revenue from non-affiliates $ 151,788 $ 45,529 $ -- $ 197,317
=================================================================
Operating income (loss) $ 47,287 $ 6,277 $ (6,695) $ 46,869
=================================================
Investment income, net 499
Settlement of dispute (653)
Other income (expense), net 156
Interest expense (4,744)
---------------
Income before income taxes $ 42,127
===============
Identifiable assets $ 180,433 $ 66,428 $ 75,704 $ 322,565
=================================================================
Depreciation expense $ 3,849 $ 608 $ 64 $ 4,521
=================================================================
Amortization expense $ 2,155 $ 2,058 $ -- $ 4,213
=================================================================
Capital expenditures $ 14,089 $ 554 $ 22 $ 14,665
=================================================================
1999
- -------------------------------------------------------------------------------------------------------------
Net revenue from non-affiliates $ 135,978 $ 29,350 $ -- $ 165,328
=================================================================
Operating income (loss) $ 40,802 $ 4,336 $ (6,327) $ 38,811
=================================================
Investment income, net 419
Other income (expense), net (188)
Interest expense (6,330)
---------------
Income before income taxes $ 32,712
===============
Identifiable assets $ 153,759 $ 41,491 $ 90,623 $ 285,873
=================================================================
Depreciation expense $ 3,224 $ 515 $ 75 $ 3,814
=================================================================
Amortization expense $ 2,209 $ 1,588 $ -- $ 3,797
=================================================================
Capital expenditures $ 9,837 $ 290 $ 15 $ 10,142
=================================================================
1998
- -------------------------------------------------------------------------------------------------------------
Net revenue from non-affiliates $ 119,210 $ 27,982 $ -- $ 147,192
=================================================================
Operating income (loss) $ 34,574 $ 2,136 $ (7,010) $ 29,700
=================================================
Investment income, net 329
Settlement of disputes, net (1,250)
Other income (expense), net 561
Interest expense (6,253)
---------------
Income before income taxes $ 23,087
===============
Identifiable assets $ 143,888 $ 41,887 $ 110,266 $ 296,041
=================================================================
Depreciation expense $ 2,307 $ 484 $ 81 $ 2,872
=================================================================
Amortization expense $ 2,090 $ 1,468 $ -- $ 3,558
=================================================================
Capital expenditures $ 16,941 $ 746 $ 45 $ 17,732
=================================================================
The Cooper Companies, Inc. and Subsidiaries 60
Notes to Consolidated Financial Statements -- concluded
Information by geographical area by country of domicile for each of the years in
the three-year period ended October 31, 2000 follows: (In thousands)
Other,
Eliminations
2000 United States Europe Canada & Corporate Consolidated
- ---------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 145,416 $ 36,048 $ 15,772 $ 81 $ 197,317
Sales between geographic areas 163 30,058 -- (30,221) --
-------------------------------------------------------------------------
Net sales $ 145,579 $ 66,106 $ 15,772 $ (30,140) $ 197,317
=========================================================================
Operating income (loss) $ 38,915 $ 57 $ 930 $ 6,967 $ 46,869
=========================================================================
Identifiable assets $ 127,414 $ 111,474 $ 6,389 $ 77,288 $ 322,565
=========================================================================
1999
- ---------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 115,754 $ 37,648 $ 11,441 $ 485 $ 165,328
Sales between geographic areas 3,410 19,232 -- (22,642) --
-------------------------------------------------------------------------
Net sales $ 119,164 $ 56,880 $ 11,441 $ (22,157) $ 165,328
=========================================================================
Operating income (loss) $ 32,215 $ 11,829 $ (366) $ (4,867) $ 38,811
=========================================================================
Identifiable assets $ 86,367 $ 92,025 $ 4,434 $ 103,047 $ 285,873
=========================================================================
1998
- ---------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 102,181 $ 34,952 $ 10,059 $ -- $ 147,192
Sales between geographic areas 3,403 5,858 -- (9,261) --
-------------------------------------------------------------------------
Net sales $ 105,584 $ 40,810 $ 10,059 $ (9,261) $ 147,192
=========================================================================
Operating income (loss) $ 34,134 $ 2,081 $ 495 $ (7,010) $ 29,700
=========================================================================
Identifiable assets $ 105,095 $ 78,042 $ 2,638 $ 110,266 $ 296,041
=========================================================================
61 The Cooper Companies, Inc. and Subsidiaries
Corporate Information
Board of Directors: Principal Subsidiaries:
Allan E. Rubenstein, M.D. CooperVision, Inc.
Chairman of the Board University HeartScan 21062 Bake Parkway, Suite 200
Lake Forest, CA 92630
A. Thomas Bender Voice: (949) 597-8130 Fax: (949) 597-0663
President and Chief Executive Officer www.coopervision.com
Michael H. Kalkstein CooperSurgical, Inc.
Partner, Oppenheimer, Wolff & Donnelly, LLP 15 Forest Parkway, Shelton, CT 06484
Voice: (203) 929-6321 Fax: (203) 925-0135
Moses Marx www.coopersurgical.com
General Partner, United Equities
Corporate Offices:
Donald Press
Executive Vice President, The Cooper Companies, Inc.
Broadway Management Co., Inc. 21062 Bake Parkway, Suite 200
Lake Forest, CA 92630
Steven Rosenberg Voice: (949) 597-4700 or toll free, (888)-822-2660
President and Chief Executive Officer, Fax: (949) 597-0662
Berkshire Bankcorp Inc.
The Cooper Companies, Inc.
Robert S. Weiss 6140 Stoneridge Mall Road, Suite 590
Executive Vice President, Pleasanton, CA 94588
Treasurer and Chief Financial Officer Voice: (925) 460-3600 Fax: (925) 460-3648
www.coopercos.com
Stanley Zinberg, M.D.
Vice President Practice Activities, American Transfer Agent:
College of Obstetricians and Gynecologists
American Stock Transfer & Trust Company
Committees of the Board: 40 Wall Street, New York, NY 10005
(800) 937-5449
Management Committee
Certified Public Accountants:
Allan E. Rubenstein, M.D.
(Chairman), Donald Press KPMG LLP
Audit and Finance Committee Stock Exchange Listing:
Steven Rosenberg (Chairman) The New York Stock Exchange
Michael H. Kalkstein Ticker Symbol "COO"
Stanley Zinberg, M.D.
Trademarks:
Compensation Committee
The Cooper Companies, Inc., its subsidiaries
Michael H. Kalkstein (Chairman) and/or affiliates own, license or distribute
Donald Press the following trademarks. They are italicized
Allan E. Rubenstein, M.D. in this report:
Nominating Committee Cerveillance'r', CooperSurgical'r' Infrared
Coagulator, FemExam'r' pH and Amines
Allan E. Rubenstein, M.D. (Chairman) TestCard'TM', Frequency'r', Unimar'r',
Moses Marx CooperVision Total Toric'r', UltraSync'r',
A. Thomas Bender Prima Series'r', Cervex-Brush'r', LEEP
Redikit'r', CooperSurgical'r' Smoke
Officers: Evacuation System 6080, Pipelle'r',
Hyskon'r', Cooper'r' Prosthetic Lens,
A. Thomas Bender Euromed'r', RUMI'r', The RUMI System'r',
President and Chief Executive Officer Sani-Spec'r', Nu-Tip'r', and Aspirette'r',
and President CooperVision, Inc. are registered trademarks of The Cooper
Companies, Inc. and or its subsidiaries.
Robert S. Weiss
Executive Vice President, CV Encore Toric'TM', Hysteroscopy Series
Treasurer and Chief Financial Officer 4000'TM', LEEP System 1000'TM', Marlow'TM',
KOH Colpotomizer'TM', Nichols Pelvic
B. Norris Battin Reconstructive Surgery Set'TM', and
Vice President, Investor Relations Uni-Sem'TM', Zui'TM' and Zumi'TM' are
and Communications trademarks of The Cooper Companies, Inc. and
or its subsidiaries.
Gregory A. Fryling
Chief Operating Officer, Crazy'r' Lens is a registered trademark of CL
CooperVision, Inc. Tinters, Zepplin'r' is a registered trademark
of Zepplin Manufacturing, Kronner
Carol R. Kaufman Manipujector'r' HUI'r' and HUI Miniflex'TM'
Vice President of Legal Affairs, are registered trademarks of Richard Kronner
Secretary and Chief Administrative Officer and Wallace'r' is a registered trademark of
Sims Portex Limited.
Nicholas J. Pichotta
President and Chief Executive Officer
CooperSurgical, Inc.
Stephen C. Whiteford
Vice President and Corporate Controller
Investor Information:
Corporate information, including the current share price, recent news releases
and the Company's annual report on Securities and Exchange Commission Form 10-K
without exhibits, is available free of charge through the Company's interactive
stockholder communication system. Call 1-800-334-1986, seven days a week, 24
hours a day. Visit The Cooper Companies, Inc. on the World Wide Web at
www.coopercos.com.
Investor Relations Contact:
B. Norris Battin
21062 Bake Parkway, Suite 200
Lake Forest, CA 92630
Voice: (949) 597-4700 Fax: (949) 597-3688
email: ir@coopercompanies.com
Annual Meeting:
The Cooper Companies, Inc. will hold its Annual Stockholders' Meeting on March
28, 2001 at the New York Marriott East Side, New York, NY at 10:00 A.M.
The Cooper Companies, Inc. 21062 Bake Parkway
Suite 200
Lake Forest, CA 92630
Voice: 949.597.8130
Fax: 949.597.0663
www.cooperco.com
[Cooper Logo]
2000 Annual Report The Cooper Companies, Inc.
EXHIBIT 21
SUBSIDIARIES OF
THE COOPER COMPANIES, INC.
A DELAWARE CORPORATION
JURISDICTION OF
NAME INCORPORATION
- ------------------------------------------------------------------------------------------
THE COOPER COMPANIES, INC. Delaware
CooperVision, Inc. New York
CooperVision, LLC Delaware
CooperVision Technology, Inc. Delaware
CooperVision International Holding Company, L.P. England
CooperVision Canada Corp. Canada
Aspect Vision Holdings, Limited England-Wales
Aspect Vision Care Limited England-Wales
CooperVision Scandinavia Aktiebolag Sweden
CooperVision Limited England-Wales
Cooper Aspect Iberica SL Spain
Aspect Vision Italia s.r.l. Italy
CooperSurgical, Inc. Delaware
5
1,000
12-MOS
OCT-31-2000
NOV-01-1999
OCT-31-2000
14,608
0
35,498
2,440
38,219
112,685
67,216
19,283
322,565
65,275
40,257
1,519
0
0
196,919
322,565
197,317
197,317
68,100
68,100
0
0
4,744
42,127
12,727
29,400
0
0
(432)
28,968
2.04
2.00