<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For Quarterly Period Ended July 31, 1994
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number 1-8597
The Cooper Companies, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-2657368
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Bridge Plaza, Fort Lee, New Jersey 07024
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (201) 585-5100
Indicate by check mark whether the registrant (1) has filled all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common Stock, $.10 par value 30,426,903 Shares
Class Outstanding at August 31, 1994
</TABLE>
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet -- July 31, 1994 and October 31, 1993........................ 3
Consolidated Condensed Statement of Income -- Three and Nine Months Ended July 31, 1994 and
1993............................................................................................. 4
Consolidated Condensed Statement of Cash Flows -- Nine Months Ended July 31, 1994 and 1993........ 5
Notes to Consolidated Condensed Financial Statements.............................................. 6-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 12-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 19
Item 6. Exhibits and Reports on Form 8-K............................................................. 20
Signature.............................................................................................. 21
Index of Exhibits...................................................................................... 22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
1994 1993
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 9,720 $ 10,113
Restricted cash.......................................................................... 333 306
Temporary investments.................................................................... -- 6,438
Receivables:
Trade and patient accounts, net........................................................ 18,627 14,298
Other................................................................................ 435 2,821
--------- -----------
19,062 17,119
--------- -----------
Inventories.............................................................................. 12,126 14,987
Other current assets..................................................................... 3,455 2,912
--------- -----------
Total current assets............................................................... 44,696 51,875
--------- -----------
Property, plant and equipment at cost...................................................... 45,042 48,294
Less, accumulated depreciation and amortization.......................................... 9,971 8,399
--------- -----------
35,071 39,895
--------- -----------
Intangibles, net:
Excess of cost over net assets acquired.................................................. 14,255 14,661
--------- -----------
Other.................................................................................... 1,299 1,624
--------- -----------
15,554 16,285
--------- -----------
Other assets............................................................................... 1,272 1,469
--------- -----------
$ 96,593 $ 109,524
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt:
10-5/8% Convertible Subordinated Reset Debentures due 2005............................. $ -- $ 4,350
Other.................................................................................. 1,465 1,499
--------- -----------
1,465 5,849
--------- -----------
Accounts payable......................................................................... 5,917 4,269
Employee compensation, benefits and severance............................................ 5,710 5,961
Other accrued liabilities................................................................ 21,887 21,079
Income taxes payable..................................................................... 10,989 14,837
--------- -----------
Total current liabilities.......................................................... 45,968 51,995
--------- -----------
Long-term debt:
10% Senior Subordinated Secured Notes due 2003........................................... 25,569 --
10-5/8% Convertible Subordinated Reset Debentures due 2005............................... 9,209 34,647
Other, less current installments......................................................... 11,902 13,430
--------- -----------
46,680 48,077
--------- -----------
Other noncurrent liabilities............................................................... 9,232 9,000
--------- -----------
Total liabilities.................................................................. 101,880 109,072
--------- -----------
Commitments and Contingencies (See Note 3)
Stockholders' equity (deficit):
Series B preferred stock, $.10 par value............................................... -- --
Common stock, $.10 par value........................................................... 3,036 3,013
Additional paid-in capital............................................................. 180,133 179,810
Translation adjustments................................................................ (412) (223)
Accumulated deficit.................................................................... (187,689) (181,743)
Unamortized restricted stock award compensation........................................ (355) (405)
--------- -----------
Total stockholders' equity (deficit)............................................... (5,287) 452
--------- -----------
$ 96,593 $ 109,524
--------- -----------
--------- -----------
</TABLE>
See accompanying notes.
3
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Income
(In thousands, except per share figures)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net service revenue...................................................... $ 10,891 $ 11,344 $ 33,705 $ 36,017
Net sales of products.................................................... 13,010 13,151 37,558 34,497
-------- -------- -------- --------
Net operating revenue.................................................. 23,901 24,495 71,263 70,514
-------- -------- -------- --------
Cost of services provided................................................ 10,175 10,630 30,601 32,568
Cost of products sold.................................................... 4,626 4,515 13,333 12,503
Research and development expense......................................... 904 753 3,232 2,083
Selling, general and administrative expense.............................. 7,044 15,789 24,236 39,458
Cost of restructuring operations......................................... -- -- -- 451
Settlement of disputes................................................... 1,000 4,850 4,950 4,850
Debt restructuring costs................................................. -- -- 429 --
Amortization of intangibles.............................................. 211 214 633 577
Investment income (loss), net............................................ 209 (199) (271) 3,229
Gain on sales of assets and businesses, net.............................. -- -- 214 620
Other income, net........................................................ 59 291 1 477
Interest expense......................................................... 1,042 1,430 3,468 4,600
-------- -------- -------- --------
Loss from continuing operations before income taxes...................... (833) (13,594) (9,675) (22,250)
Provision for (benefit of) income taxes.................................. (3,887) 111 (3,729) 322
-------- -------- -------- --------
Income (loss) from continuing operations before extraordinary item....... 3,054 (13,705) (5,946) (22,572)
Loss on sale of discontinued operations, net of taxes.................... -- -- -- (13,657)
-------- -------- -------- --------
Income (loss) before extraordinary item.................................. 3,054 (13,705) (5,946) (36,229)
Extraordinary item....................................................... -- -- -- 924
-------- -------- -------- --------
Net income (loss)........................................................ 3,054 (13,705) (5,946) (35,305)
Less, dividend requirements on Preferred Stock........................... 54 -- 54 320
-------- -------- -------- --------
Net income (loss) applicable to common stock............................. $ 3,000 $(13,705) $ (6,000) $(35,625)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per common share:
Income (loss) from continuing operations before extraordinary item....... $ .09 $ (.46) $ (.20) $ (.77)
Loss from discontinued operations........................................ -- -- -- (.45)
-------- -------- -------- --------
Income (loss) before extraordinary item.................................. .09 (.46) (.20) (1.22)
Extraordinary item....................................................... -- -- -- .03
-------- -------- -------- --------
Net income (loss) per common share....................................... $ .09 $ (.46) $ (.20) $ (1.19)
-------- -------- -------- --------
-------- -------- -------- --------
Average number of common shares outstanding.............................. 31,921 30,065 30,615 30,055
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes.
4
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
Net cash used by operating activities......................................................... $ (3,332) $(35,345)
-------- --------
Cash flows from investing activities:
Cash from sales of assets and businesses (including releases of cash from escrow)........... 2,622 9,900
Purchase of CoastVision, Inc. net of cash acquired.......................................... -- (9,794)
Sales of temporary investments.............................................................. 7,285 25,566
Purchases of temporary investments.......................................................... -- (3,689)
Purchases of property, plant and equipment.................................................. (451) (1,266)
-------- --------
Net cash provided by investing activities..................................................... 9,456 20,717
-------- --------
Cash flows from financing activities:
Payments associated with the Exchange Offer and Consent Solicitation including debt
restructuring costs....................................................................... (5,405) --
Purchase of the Company's 10-5/8% Debentures................................................ -- (3,861)
Payments of notes payable related to acquisition............................................ -- (400)
Payments of current installments of long-term debt.......................................... (1,112) (5,050)
-------- --------
Net cash used by financing activities......................................................... (6,517) (9,311)
-------- --------
Net decrease in cash and cash equivalents..................................................... (393) (23,939)
Cash and cash equivalents -- beginning of period.............................................. 10,113 38,078
-------- --------
Cash and cash equivalents -- end of period.................................................... $ 9,720 $ 14,139
-------- --------
-------- --------
Cash paid for:
Interest.................................................................................... $ 3,130 $ 3,835
-------- --------
-------- --------
Income taxes................................................................................ $ 120 $ 99
-------- --------
-------- --------
Supplemental schedule of non-cash investing and financing activities:
Fair value of assets and businesses acquired including capitalized costs.................... $ -- $ 11,023
Cash paid for acquisition................................................................... -- (10,300)
-------- --------
Liabilities and debt assumed................................................................ $ -- $ 723
-------- --------
-------- --------
Significant non-cash transactions:
Pay-in-kind stock dividends on Senior Exchangeable Redeemable Restricted Voting Preferred
Stock..................................................................................... $ -- $ 320
-------- --------
-------- --------
January 1994 issuance of $22,000,000 of Notes and payment of approximately $4,350,000 in
cash (exclusive of transaction costs) in exchange for approximately $30,000,000 of
Debentures. See Note 2.
</TABLE>
See accompanying notes.
5
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1. General
The Cooper Companies, Inc. and its subsidiaries (the 'Company') develop,
manufacture and market healthcare products, including a range of hard and soft
daily, flexible and extended wear contact lenses, ophthalmic pharmaceutical
products and diagnostic and surgical instruments. The Company also provides
healthcare services through the ownership and operation of certain psychiatric
facilities and management of other such facilities.
During interim periods, the Company follows the accounting policies set
forth in its Annual Report on Form 10-K filed with the Securities and Exchange
Commission (the 'SEC'). Readers are encouraged to refer to the Company's 1993
Form 10-K when reviewing interim financial results.
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly the Company's consolidated financial position as of July 31, 1994 and
October 31, 1993 and the consolidated results of its operations for the three
and nine-month periods ended July 31, 1994 and 1993, and its consolidated cash
flows for the nine months ended July 31, 1994 and 1993. With the exception of
certain adjustments discussed in Part I, Item 2 under 'Settlement of Disputes'
and certain adjustments to the Company's tax liability, such adjustments consist
of only normal and recurring adjustments. Certain reclassifications have been
applied to prior period financial statements to conform such statements to the
current periods' presentation. None of such reclassifications had any impact on
net loss.
Note 2. Exchange Offer and Consent Solicitation
On January 6, 1994, the Company consummated an Exchange Offer and Consent
Solicitation in which it issued approximately $22,000,000 of 10% Senior
Subordinated Secured Notes due 2003 (the 'Notes') and paid approximately
$4,350,000 in cash ($725 principal amount of Notes and $145 in cash for each
$1,000 principal amount of 10-5/8% Convertible Subordinated Reset Debentures due
2005 (the 'Debentures') in exchange for approximately $30,000,000 aggregate
principal amount of Debentures (out of $39,384,000 aggregate principal amount
then outstanding). The Company also obtained, pursuant to the Exchange Offer and
Consent Solicitation, consents of the holders of Debentures to (i) certain
proposed amendments governing the indenture to the Debentures (the 'Indenture')
and (ii) a waiver of any defaults under the Indenture. Following the exchange,
$9,280,000 aggregate principal amount of Debentures remains outstanding.
On January 6, 1994, after receiving consents from holders of a majority of
the outstanding principal amount of Debentures not owned by the Company or its
affiliates, the Company and the Trustee under the Indenture executed the Second
Supplemental Indenture effecting the proposed amendments, which eliminated or
modified various covenants in the Indenture.
The consummation of the Exchange Offer and Consent Solicitation also
satisfied a condition of an agreement reached in September 1993 between the
Company and Medical Engineering Corporation ('MEC') limiting the Company's
liability with respect to breast implant litigation. Such condition would have
allowed MEC to terminate the agreement if the Exchange Offer and Consent
Solicitation (or an alternative restructuring of the Debentures) was not
completed by February 1, 1994.
6
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The Notes bear interest at a rate equal to 10% per annum, which is payable
quarterly on each March 1, June 1, September 1 and December 1. The Notes are
redeemable solely at the option of the Company, in whole or in part, at any
time, at a redemption price equal to 100% of their principal amount, together
with accrued and unpaid interest thereon to the redemption date. The Company is
not required to effect any mandatory redemptions or make any sinking fund
payments with respect to the Notes, except in connection with certain sales or
other dispositions of, or certain financings secured by, the collateral securing
the Notes. Pursuant to a pledge agreement dated as of January 6, 1994, between
the Company and the trustee for the holders of the Notes, the Company has
pledged a first priority security interest in all of its right, title and
interest in stock of its subsidiaries Hospital Group of America, Inc. ('HGA')
and CooperSurgical, Inc. ('CooperSurgical'), all additional shares of stock of,
or other equity interests in HGA and CooperSurgical from time to time acquired
by the Company, all intercompany indebtedness of HGA and CooperSurgical from
time to time held by the Company, and except as set forth in the indenture
governing the Notes, the proceeds received from the sale or disposition of any
or all of the foregoing. A full description of the pledge agreement and terms of
the indenture governing the Notes is included in the Company's Amended and
Restated Offer to Exchange and Consent Solicitation filed with the SEC on
December 15, 1993.
The Exchange Offer and Consent Solicitation has been accounted for in
accordance with Statement of Financial Accounting Standards No. 15 'Accounting
by Debtors and Creditors for Troubled Debt Restructurings.' Consequently, the
difference between the carrying value of the Debentures exchanged less the face
value of the Notes issued and the aggregate cash payment for the Debentures was
recorded as a deferred premium aggregating approximately $4,000,000 as of the
date of the Exchange. The Company is recognizing the benefit of the deferred
premium as a reduction to the effective interest rate on the Notes over the life
of the issue. In addition, the Company recorded a charge of $2,131,000 in the
fourth quarter of fiscal 1993 and an additional charge of $429,000 in the first
quarter of fiscal 1994 for costs related to the Exchange Offer and Consent
Solicitation.
Note 3. Legal Proceedings
On November 10, 1992, the Company was charged in an indictment (the
'Indictment'), filed in the United States District Court for the Southern
District of New York, with violating federal criminal laws relating to a
'trading scheme' by Gary A. Singer, a former Co-Chairman of the Company (who
went on a leave of absence on May 28, 1992, begun at the Company's request, and
who subsequently resigned on January 20, 1994), and others, including G. Albert
Griggs, Jr., a former analyst of The Keystone Group, Inc., and John D. Collins
II, to 'frontrun' high yield bond purchases by the Keystone Custodian Funds,
Inc., a group of mutual funds. The Company was named as a defendant in 10
counts. Gary Singer was named as a defendant in 24 counts, including violations
of the Racketeer Influenced and Corrupt Organizations Act and the mail and wire
fraud statutes (including defrauding the Company by virtue of the 'trading
scheme,' by, among other things, transferring profits on trades on DR Holdings,
Inc. 15.5% bonds (the 'DR Holdings Bonds') from the Company to members of his
family during fiscal 1991), money laundering, conspiracy, and aiding and
abetting violations of the Investment Advisers Act of 1940, as amended (the
'Investment Advisers Act'), by an investment advisor. On January 13, 1994, the
Company was found guilty on six counts of mail fraud and one count of wire fraud
based upon Mr. Singer's conduct, but was acquitted of charges of conspiracy and
aiding and abetting violations of the Investment Advisers Act. Mr. Singer was
found guilty on 21 counts. One count against Mr. Singer and the Company was
dismissed at trial and two counts against Mr. Singer relating to forfeiture
penalties were resolved by stipulation between the
7
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
government and Mr. Singer. Mr. Singer's attorney has advised the Company that
Mr. Singer intends to appeal his conviction. Although the Company may be
obligated under its Certificate of Incorporation to advance the costs of such
appeal, the Company and Mr. Singer have agreed that Mr. Singer will not request
such advances, but that he will reserve his rights to indemnification in the
event of a successful appeal. The Company was sentenced on July 15, 1994, at
which time it was ordered to make restitution to Keystone Custodian Funds, Inc.
of $1,310,166 within 30 days of such date. Such restitution has been made. In
addition, the Company was ordered to pay a non-interest bearing fine over the
next three years in the amount of $1,831,568.
Also on November 10, 1992, the SEC filed a civil Complaint for Permanent
Injunction and Other Equitable Relief (the 'SEC Complaint') in the United States
District Court for the Southern District of New York against the Company, Gary
A. Singer, Steven G. Singer (a former Executive Vice President of the Company
and Gary Singer's brother), and, as relief defendants, certain persons related
to Gary and Steven Singer and certain entities in which they and/or those
related persons have an interest. The SEC Complaint alleged that the Company and
Gary and Steven Singer violated various provisions of the Exchange Act,
including certain of its antifraud and periodic reporting provisions, and aided
and abetted violations of the Investment Company Act and the Investment Advisers
Act, in connection with the trading scheme described in the immediately
preceding paragraph. The SEC Complaint further alleged, among other things,
federal securities law violations (i) by the Company and Gary Singer, in
connection with an alleged manipulation of the trading price of the Company's
Debentures to avoid an interest rate reset allegedly required on June 15, 1991
under the terms of the indenture governing the Debentures, (ii) by Gary Singer
in allegedly transferring profits on trades of high yield bonds (including those
trades in the DR Holdings Bonds which were the subject of certain counts of the
Indictment of which Mr. Singer was found guilty) from the Company to members of
his family and failing to disclose such transactions to the Company, and (iii)
by the Company in failing to disclose publicly on a timely basis such
transactions by Gary Singer. The SEC Complaint asked that the Company and Gary
and Steven Singer be enjoined permanently from violating the antifraud, periodic
reporting and other provisions of the federal securities laws, that they
disgorge the amounts of the alleged profits received by them pursuant to the
alleged frauds (stated in the SEC's Litigation Release No. 13432 announcing the
filing of the SEC Complaint as being $1,296,406, $2,323,180 and $174,705,
respectively), plus interest, and that they each pay appropriate civil monetary
damages. The SEC Complaint also sought orders permanently prohibiting Gary and
Steven Singer from serving as officers or directors of any public company and
disgorgement from certain Singer family members and entities of amounts
representing the alleged profits received by such defendants pursuant to the
alleged frauds.
On July 15, 1994, the Company announced that it had completed negotiating a
settlement agreement with the enforcement staff of the SEC and that the staff
would recommend to the Commission that it approve the settlement. The principal
terms of the settlement involve the Company's agreement to a permanent
injunction against violation of the antifraud, periodic reporting and other
provisions of the federal securities laws and against employing any member of
the Singer family, to the disgorgement of $1,621,474 (which amount is reduced by
the $1,310,166 paid to Keystone Custodian Funds) and to the payment of a civil
penalty in the amount of $1,150,000. The agreement further provides, however,
that the civil penalty will be reduced by the amount of any fine imposed in the
criminal proceeding. As a result of such offsets, the Company will be required
to pay to the SEC $311,308 following final approval of the settlement agreement.
8
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
On September 8, 1994, the Company and Steven Singer finalized a separation
agreement in accordance with which Mr. Singer's employment with the Company was
terminated as of June 30, 1994.
The Company is named as a nominal defendant in a shareholder derivative
action entitled Harry Lewis and Gary Goldberg v. Gary A. Singer, Steven G.
Singer, Arthur C. Bass, Joseph C. Feghali, Warren J. Keegan, Robert S. Holcombe
and Robert S. Weiss, which was filed on May 27, 1992 in the Court of Chancery,
State of Delaware, New Castle County. On May 29, 1992, another plaintiff, Alfred
Schecter, separately filed a derivative complaint in Delaware Chancery Court
that was essentially identical to the Lewis and Goldberg complaint. Lewis and
Goldberg later amended their complaint, and the Delaware Chancery Court
thereafter consolidated the Lewis and Goldberg and Schecter actions as In re The
Cooper Companies, Inc. Litigation, Consolidated C.A. 12584, and designated Lewis
and Goldberg's amended complaint as the operative complaint (the 'First Amended
Derivative Complaint'). The First Amended Derivative Complaint alleges that
certain directors of the Company and Gary A. Singer, as Co-Chairman of the Board
of Directors, caused or allowed the Company to be a party to the 'trading
scheme' that was the subject of the Indictment. The First Amended Derivative
Complaint also alleges that the defendants violated their fiduciary duties to
the Company by not vigorously investigating the allegations of securities fraud.
The First Amended Derivative Complaint requests that the Court order the
defendants (other than the Company) to pay damages and expenses to the Company
and certain of the defendants to disgorge their profits to the Company. On
October 16, 1992, the defendants moved to dismiss the First Amended Derivative
Complaint on grounds that such Complaint fails to comply with Delaware Chancery
Court Rule 23.1 and that Count III of the First Amended Derivative Complaint
fails to state a claim. The Company has been advised by the individual directors
named as defendants that they believe they have meritorious defenses to this
lawsuit and intend vigorously to defend against the allegations in the First
Amended Derivative Complaint.
The Company was named as a nominal defendant in a purported shareholder
derivative action entitled Bruce D. Sturman v. Gary A. Singer, Steven G. Singer,
Brad C. Singer, Martin Singer, John D. Collins II, Back Bay Capital, Inc., G.
Albert Griggs, Jr., John and Jane Does 1-10 and The Cooper Companies, Inc.,
which was filed on May 26, 1992 in the Supreme Court of the State of New York,
County of New York. The plaintiff, Bruce D. Sturman, a former officer and
director of the Company, alleged that Gary A. Singer, as Co-Chairman of the
Board of Directors, and various members of the Singer family caused the Company
to make improper payments to alleged third-party co-conspirators, Messrs. Griggs
and Collins, as part of the 'trading scheme' that was the subject of the
Indictment. The complaint requested that the Court order the defendants (other
than the Company) to pay damages and expenses to the Company, including
reimbursement of payments made by the Company to Messrs. Collins and Griggs, and
to disgorge their profits to the Company. Pursuant to its decision and order,
filed August 17, 1993, the Court dismissed this action under New York Civil
Practice Rule 327(a). On September 22, 1993, the plaintiff filed a Notice of
Appeal, and the appeal currently is scheduled to be included in the Appellate
Division's December 1994 term.
9
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
On September 2, 1993, a patent infringement complaint was filed against the
Company in the United States District Court for the District of Nevada captioned
Steven P. Shearing v. The Cooper Companies, Inc. On or about that same day, the
plaintiff filed twelve additional complaints, accusing at least fourteen other
defendants of infringing the same patent. The patent in these suits covers a
specific method of implanting an intraocular lens into the eye. Until February
1989, the Company manufactured intraocular lenses and ophthalmic instruments,
but did not engage in the implantation of such lenses. Subsequent to February
1989, the Company was not involved in the manufacture, marketing or sale of
intraocular lenses. On April 4, 1994 all of Shearing's complaints were
dismissed; thereafter, Schearing successfully moved for leave to file an amended
complaint. The case now is in the early discovery phase. The Company denies the
material allegations of Shearing's complaint and should the case proceed to
trial, it will vigorously defend itself.
In two virtually identical actions, Frank H. Cobb, Inc. v. The Cooper
Companies, Inc., et al and Arthur J. Korf v. The Cooper Companies, Inc., et al,
class action complaints were filed in the United States District Court for the
Southern District of New York in August 1989, against the Company and certain
individuals who served as officers and/or directors of the Company after June
1987. In their fourth amended complaint filed in September 1992, the plaintiffs
allege that they are bringing the actions on their own behalf and as class
actions on behalf of a class consisting of all persons who purchased or
otherwise acquired shares of the Company's common stock during the period May
26, 1988 through February 13, 1989. The amended complaints seek an undetermined
amount of compensatory damages jointly and severally against all defendants. The
complaints, as amended, allege that the defendants knew or recklessly
disregarded and failed to disclose to the investing public material adverse
information about the Company. Defendants are accused of having allegedly failed
to disclose, or delayed in disclosing, among other things: (a) that the
allegedly real reason the Company announced on May 26, 1988 that it was dropping
a proposed merger with Cooper Development Company, Inc. was because the
Company's banks were opposed to the merger; (b) that the proposed sale of Cooper
Technicon, Inc., a former subsidiary of the Company, was not pursuant to a
definitive sales agreement but merely an option; (c) that such option required
the approval of the Company's debentureholders and preferred stockholders; (d)
that the approval of such sale by the Company's debentureholders and preferred
stockholders would not have been forthcoming absent extraordinary expenditures
by the Company; and (e) that the purchase agreement between the Company and
Miles, Inc. for the sale of Cooper Technicon, Inc. included substantial
penalties to be paid by the Company if the sale was not consummated within
certain time limits and that the sale could not be consummated within those time
limits. The amended complaints further allege that the defendants are liable for
having violated Section 10(b) of the Securities Exchange Act and Rule 10(b)-5
thereunder and having engaged in common law fraud. Based on management's current
knowledge of the facts and circumstances surrounding the events alleged by
plaintiffs as giving rise to their claims, the Company believes that it has
meritorious defenses to these lawsuits. The Company has reached a tentative
settlement with counsel for the class plaintiffs. However, no definitive
settlement agreement has been signed with plaintiffs' class counsel and, if
signed, the settlement agreement will be subject to Court approval after notice
to class members and a hearing; therefore, there can be no assurance that the
proposed settlement will ultimately end the litigation. In the event the case
proceeds to trial, the Company intends to vigorously defend itself against the
allegations in the amended complaints.
See Part II, Item 1 herein for a discussion of certain other litigations.
10
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 4. Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out or average cost basis, or market.
The components of inventories are as follows:
<TABLE>
<CAPTION>
July 31, October 31,
1994 1993
-------- -----------
(In thousands)
<S> <C> <C>
Raw materials................................................................... $ 3,014 $ 3,958
Work-in-process................................................................. 1,074 865
Finished goods.................................................................. 8,038 10,164
-------- -----------
$12,126 $14,987
-------- -----------
-------- -----------
</TABLE>
Note 5. The Company's Turn-Around Incentive Plan
The Company's Turn-Around Incentive Plan ('TIP') was adopted by the
Compensation Committee of the Board and the 1988 Long Term Incentive Plan
Administrative Committee of the Board on May 18, 1993. The plan was adopted,
upon the recommendation of the Company's independent compensation consultants,
to recognize the special efforts of certain individuals in guiding the Company
through a resolution of its difficulties arising from its then current capital
structure and its former ownership of companies that manufactured and
distributed breast implants.
The TIP provided for awards in varying amounts to be made to designated
participants. Before any awards could become payable, however, the Company had
to significantly reduce its liabilities relating to the former breast implant
business to levels approved by the Board of Directors. Upon satisfaction of such
condition, one-third of the award was payable when the average per share price
of the Company's common stock over a period of thirty days equaled or exceeded
$1.50 per share, and the remaining two-thirds of the allocated TIP awards will
be payable at such time as the 30-day average of the price of the Company's
common stock equals or exceeds $3.00 per share. The maximum value of the awards
that could be made (whether paid in stock or cash), assuming both targets are
satisfied, is $2,250,000, which was accrued in 1993.
On September 28, 1993 the Company entered into an agreement under which the
purchaser of its breast implant business assumed responsibilities for the legal
fees, costs, judgments and settlements relating to breast implants sold by the
Company's formerly owned subsidiaries prior to the disposition of those
subsidiaries. On January 6, 1994, upon completion of the Exchange Offer and
Consent Solicitation relating to its Debentures, the Company satisfied the last
condition required to be met before such agreement became final.
Since that time, the price of the Company's common stock has increased and,
on May 25, 1994, the average per share price of the Company's common stock over
the preceding thirty (30) day period rose above $1.50 per share. Participants in
the TIP were, therefore, awarded one-third of the total award for which they are
eligible under the TIP. The payments were made in cash ($246,667) and by means
of the issuance of 297,777 shares of restricted stock under the Company's 1988
Long Term Incentive Plan. That stock generally will remain restricted and
non-transferable for a period of two years.
11
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
References to Note numbers below are references to the Notes to Consolidated
Condensed Financial Statements of the Company located in Item 1 herein.
CAPITAL RESOURCES & LIQUIDITY
On January 6, 1994, the Company completed an Exchange Offer and Consent
Solicitation, the terms of which are described in Note 2, pursuant to which the
Company issued approximately $22,000,000 aggregate principal amount of 10%
Senior Subordinated Secured Notes due 2003 (the 'Notes') and paid approximately
$4,350,000 in cash in exchange for approximately $30,000,000 aggregate principal
amount of its Debentures.
In connection with the Exchange Offer and Consent Solicitation, the Company
amended the indenture governing the Debentures (the 'Indenture') to, among other
things, eliminate a covenant, with which the Company was not in compliance,
requiring the Company to repurchase Debentures. The Company also obtained a
waiver (the 'Waiver') of any and all Defaults and Events of Default (as such
terms are defined in the Indenture) that occurred or may have occurred prior to
the expiration of the Exchange Offer and Consent Solicitation at 5:00 p.m.,
Eastern Standard Time, on January 6, 1994 (the 'Expiration Date'), to ensure
that the Debentures could not be accelerated based upon any actions, omissions
or events, whether known or unknown, that occurred or that may have occurred on
or prior to the Expiration Date and that could have been construed to be
Defaults or Events of Default (as defined in the Indenture).
As a result of the consummation of the Exchange Offer and Consent Solicitation,
the Company has increased its operating and financial flexibility by rendering
less onerous or eliminating various restrictions and obligations previously
imposed by the Indenture. The Exchange Offer and Consent Solicitation further
benefited the Company by reducing the Company's total indebtedness and by
decreasing the Company's future interest expense. However, the amendments to the
terms of the Debentures also reduced the conversion price at which holders may
convert Debentures into shares of the Company's common stock from $27.45 to
$5.00 per share (which amount is still substantially in excess of the current
price of the Company's common stock).
As described in Note 3, the Company was convicted of six counts of mail fraud
and one count of wire fraud based upon the conduct of its former Co-Chairman,
Gary Singer. The Company was sentenced on July 15, 1994, at which time it was
ordered to make restitution to Keystone Custodian Funds, Inc. of $1,310,166
within 30 days of such date. In addition, the Company was ordered to pay a
non-interest bearing fine over the next three years in the amount of $1,831,568.
Also on July 15, 1994, the Company announced that it had completed negotiating a
settlement agreement with the enforcement staff of the SEC and that the staff
would recommend to the Commission that it approve the settlement. The principal
terms of the settlement involve the Company's agreement to a permanent
injunction against violation of the antifraud, periodic reporting and other
provisions of the federal securities laws and against employing any member of
the Singer family, to the disgorgement of $1,621,474 (which amount is reduced by
the $1,310,166 paid to Keystone Custodian Funds) and to the payment of a civil
penalty in the amount of $1,150,000. The agreement further provides, however,
that the civil penalty will be reduced by the amount of any fine imposed in the
criminal proceeding. As a result of such offsets, the Company will be required
to pay to the SEC $311,308 following final approval of the settlement agreement,
as described in Note 3.
12
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Independent Auditors' report on the Company's consolidated financial
statements as of and for the fiscal year ended October 31, 1993 contains the
following statement:
'The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. During the past
three fiscal years, the Company has suffered significant losses and
negative cash flows. In addition, as discussed in Note 18 to the
financial statements the Company is exposed to contingent liabilities
related to a criminal conviction and a Securities and Exchange
Commission action. Such losses, negative cash flows, and contingent
liabilities raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements and
financial statement schedules do not include any adjustments that
might result from the outcome of these uncertainties.'
During the first nine months of 1994, the Company experienced a net loss of
$6,000,000, which resulted in the Company's stockholders' equity moving into a
deficit position. These losses, a large portion of which reflect legal fees and
other costs related to the recent criminal trial and SEC matters (see Note 3),
together with costs associated with the above-mentioned Exchange Offer and
Consent Solicitation, resulted in a decrease of $6,804,000 in the Company's
cash, cash equivalents and temporary investments. The Company currently
anticipates that, at least during the remainder of fiscal 1994 and for fiscal
1995, it is likely to continue experiencing net cash outflows primarily as a
result of continued legal and other costs associated with pending litigation,
the restitution, fines, and penalties imposed upon the Company, as discussed
above and in Note 3, and research and development costs of CooperVision
Pharmaceuticals, Inc. and, as discussed below, CooperSurgical, Inc. As a result,
the Company may need to raise funds through borrowings or other financings or
sales of assets.
The Company's CooperSurgical, Inc. subsidiary recently reported the signing of
an agreement with InnerDyne, Inc. covering the development and commercialization
of InnerDyne's proprietary thermal ablation technology for gynecological
applications, such as the control of excessive uterine bleeding. Cash payments
to be made by CooperSurgical, Inc. through the end of fiscal 1994 are expected
to be approximately $400,000. Additional funds will be advanced on a monthly
basis, assuming the Company believes the continued development of the project is
warranted.
The Company's CooperVision, Inc. subsidiary has signed a commitment letter with
a potential lender to obtain a secured loan/credit line, which would provide up
to $8,000,000 in operating funds for the intermediate term. The Company is also
exploring other alternatives for raising cash, including sales and leasebacks,
factoring and out-licensing rights to Verapamil, outside of North America.
(Verapamil, which is presently undergoing Phase III testing with the U.S. Food
and Drug Administration is CooperVision Pharmaceuticals' compound patented for
the treatment of ocular hypertension and other symptoms of glaucoma.) However,
as noted above, the Company needs to resolve a number of issues concerning
pending litigation and the consummation of its scheduled financing before
liquidity is no longer an issue.
13
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Three and Nine Months Ended July 31, 1994 Compared with Three and Nine Months
Ended July 31, 1993.
NET SERVICE REVENUE: Net service revenue consists of the following:
<TABLE>
<CAPTION>
(Dollars in 000'S)
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------------- ---------------------------
% %
Incr/ Incr/
1994 1993 (decr) 1994 1993 (decr)
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Net patient revenue.................................. $10,391 $10,843 (4%) $32,205 $34,516 (7%)
Management fees...................................... 500 501 -- 1,500 1,501 --
------- ------- ------- -------
Total service revenue................................ $10,891 $11,344 (4%) $33,705 $36,017 (6%)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
NET PATIENT REVENUE: Net patient revenue decreased by $452,000 or 4% and
$2,311,000 or 7% vs. the third quarter and first nine months of 1993,
respectively. Revenues have been pressured by the current industry trend towards
increased managed care, which results in decreased daily rates and declines in
average lengths of stay. Management is endeavoring to mitigate those pressures
by increasing the number of admissions to its hospitals, and by providing
outpatient and other ancillary services outside of its hospitals.
MANAGEMENT FEES: On May 29, 1992, PSG Management, Inc. ('PSG Management'), a
subsidiary of the Company, entered into a management agreement with three
indirectly owned subsidiaries of Nu-Med, Inc. ('Nu-Med'), under which PSG
Management is managing three additional hospitals owned by those subsidiaries,
having a total of 220 licensed beds. PSG Management is receiving a management
fee of $6,000,000 payable in equal monthly installments over the three-year term
of the agreement. The management agreement is jointly and severally guaranteed
by Nu-Med and its wholly-owned subsidiary PsychGroup, Inc., the parent of the
contracting subsidiaries. On January 6, 1993, Nu-Med (but not any of its direct
or indirect subsidiaries) filed a voluntary petition under Chapter 11 of the
United States Bankruptcy Code. Neither the Company nor any of its affiliates
filed a proof of claim in the Nu-Med Chapter 11 proceeding, and the bar date
(the time for filing proofs of claims) has passed. On June 1, 1994, Nu-Med
issued a press release announcing its emergence from bankruptcy. It appears
that, following the satisfaction of administrative claims by Nu-Med, liens on
the shares of PsychGroup, Inc. will be removed and those shares will be
distributed to creditors so that PsychGroup, Inc. will cease to be a
wholly-owned subsidiary of Nu-Med. The guarantees given by Nu-Med and PsychGroup
remain in place.
The Nu-Med subsidiaries continue to pay the management fee on a timely basis,
although representatives of Nu-Med and its subsidiaries have alleged in writing
that PSG Management has breached the management services agreement (which
contention PSG Management vigorously disputes). Moreover, documents filed by
Nu-Med with the United States Bankruptcy Court indicate that PsychGroup is
commencing performance of certain administrative functions performed by PSG
Management on a parallel basis.
14
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Net sales of products: Net sales of products decreased by $141,000 or 1% and
increased by $3,061,000 or 9% vs. the third quarter and nine months ended July
31, 1993, respectively:
<TABLE>
<CAPTION>
(Dollars in 000's)
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------------- --------------------------
% %
Incr/ Incr/
1994 1993 (decr) 1994 1993 (decr)
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
CooperVision $ 9,740 $ 9,358 4% $27,712 $22,803 22%
CooperSurgical 3,178 3,761 (16%) 9,523 11,275 (16%)
CooperVision Pharmaceuticals 92 32 188% 323 419 (23%)
------- ------- ------- -------
Net Sales of Products $13,010 $13,151 (1%) $37,558 $34,497 9%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Net sales of CooperVision for the nine months increased primarily due to the
April 1, 1993 acquisition of CoastVision, Inc. ('CoastVision'), a manufacturer
of custom toric contact lenses for use by patients with astigmatic vision. As
anticipated, CooperVision's sales mix has continued to shift towards daily wear
and frequent replacement products, as well as specialty products, and away from
extended wear products. The Company considers itself to be well positioned to
compete successfully in specialty niches of the contact lens market,
particularly with its Preference'r' line of frequent replacement lenses and its
line of custom toric lenses.
Net sales of CooperSurgical ('CSI') have declined in both periods primarily due
to slower sales of capital equipment, including surgical systems used in the
Loop Electrosurgical Excision Procedure ('LEEP'), partially offset by increased
sales in the international arena. CSI is continuing to direct its sales efforts
towards the in-office gynecology market, which is growing faster than the
hospital market. Sales of CSI's LEEP disposable products, diagnostic and
cryosurgical products, and its EuroMed gynecology catalog remain stable. CSI's
products are subject to substantial government regulation and to competition
from a large number of competitors.
Net sales of CooperVision Pharmaceuticals for the nine months have declined
primarily as a result of the sale of the EYEscrub'tm' product line on February
12, 1993.
COST OF SERVICES PROVIDED: Cost of services provided represents all of the
operating costs (other than allocations from the Company's headquarters)
incurred by HGA in generating its net patient revenues and management fee
revenue. The results of subtracting cost of services provided from net service
revenue is a profit of $716,000 or 6.6% and $3,104,000 or 9.2% of net service
revenue in the third quarter and nine months of 1994, respectively. The
corresponding profit for 1993 was $714,000 or 6.3% and $3,449,000 or 9.6% of net
service revenue in the third quarter and nine months ended, respectively. The
decreased percentage of profit for the nine months is primarily attributable to
a lower than expected number of patient days at one of the hospitals operated by
HGA, exacerbated by lower daily rates.
15
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
COST OF PRODUCTS SOLD: Gross profit (net sales of products less cost of products
sold) as a percentage of net sales of products ('margin') was as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
July 31, July 31,
-------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
CooperVision 71% 71% 71% 69%
CooperSurgical 40% 50% 48% 53%
Consolidated 64% 66% 65% 64%
</TABLE>
Margin generated by CooperVision has increased due to the realization of
efficiencies in manufacturing as well as the impact of cost reduction measures
associated with downsizing. Also, the inclusion of higher margin CoastVision
products has resulted in a favorable product mix. The margin decrease at
CooperSurgical reflects increased sales to international distributors, which
generate lower margins than domestic sales and an additional reserve required on
endoscopy inventories.
RESEARCH AND DEVELOPMENT EXPENSE: Research and development expense was $904,000
and $3,232,000 for the third quarter and nine months ended July 31, 1994,
respectively. The respective prior year research and development expense was
$753,000 and $2,083,000. The increase is primarily attributable to increased
development activity related to Verapamil, CooperVision Pharmaceuticals' calcium
channel blocker now undergoing Phase III clinical studies, partially offset by
reduced research and development project expenses in the CooperSurgical business
unit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: Selling, general and administrative
(SG&A) expense by business unit and corporate was as follows:
<TABLE>
<CAPTION>
(Dollars in 000's)
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------------- --------------------------
% %
Incr/ Incr/
1994 1993 (decr) 1994 1993 (decr)
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
CooperVision $ 3,366 $ 3,777 (11%) $10,311 $ 9,676 7%
CooperSurgical 1,643 2,815 (42%) 4,588 7,498 (39%)
CooperVision Pharmaceuticals 97 282 (66%) 327 795 (59%)
Corporate/Other 1,938 8,915 (78%) 9,010 21,489 (58%)
------- ------- ------- -------
Consolidated $ 7,044 $15,789 (55%) $24,236 $39,458 (39%)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
16
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated SG&A expense has decreased 55% for the comparable three month
period largely as a result of the significant decrease in legal fees, costs
related to the Company's settlement of breast implant litigation (see Note 2)
and from savings generated by the consolidation of CooperSurgical facilities.
CooperVision Pharmaceuticals' SG&A expense has decreased as a result of the sale
of the EYEscrub'tm' product line on February 12, 1993. As a result of the
acquisition of CoastVision in April 1993, SG&A expense at CVI increased by 7%
for the nine months ended July 31, 1994 vs. 1993. Ongoing cost reduction
programs, however, have resulted in an 11% reduction in CVI's SG&A for the
comparable three-month periods.
COST OF RESTRUCTURING OPERATIONS: Results for the first nine months of 1993
included $451,000 of restructuring costs for the consolidation of two
CooperSurgical facilities and related reorganization and relocation costs.
SETTLEMENT OF DISPUTES: In the first nine months of 1994, the Company recorded
the following items related to settlement of disputes:
A credit of $850,000 following receipt of funds by the Company to
settle certain claims made by the Company associated with a real
estate transaction.
A charge of $5,800,000 which represents the Company's estimate of
costs which may be required to settle certain disputes and other
litigations now pending.
The $4,850,000 charge in the third quarter of 1993 relates to a settlement
reached between the Company and Cooper Life Sciences, Inc. ('CLS'). Pursuant to
the terms of the settlement agreement, CLS delivered a general release of claims
against the Company, subject to exceptions for specified on-going contractual
obligations, and agreed to certain restrictions on its acquisition, voting and
transfer of securities of the Company, in exchange for the Company's payment of
$4,000,000 in cash and delivery of 200,000 shares of common stock of CLS owned
by the Company (which had a fair market value at the time of $850,000) and a
general release of claims against CLS, subject to similar exceptions.
DEBT RESTRUCTURING COSTS: In the fourth quarter of 1993, the Company recorded a
charge of $2,131,000 for debt restructuring costs which reflected the Company's
estimate of transaction costs associated with the Exchange Offer and Consent
Solicitation. See Note 2. These costs included amounts paid or to be paid to the
Company's attorneys, accountants and financial advisor, printer's fees, fees of
the financial advisor to the informal committee of holders of Debentures and its
attorneys, and fees of the Information Agent and the Exchange Agent. In the
first quarter of 1994, the Company incurred additional charges of $429,000.
INVESTMENT INCOME, NET: Investment income, net is comprised of interest income
and gains (losses) on temporary investments. Interest income for the three and
nine month periods ended July 31, 1994 was $104,000 and $276,000, respectively,
vs. $416,000 and $2,160,000, respectively, for the comparable 1993 periods. The
decrease primarily reflects the Company's use of cash for operating purposes,
the acquisition of CoastVision on April 1, 1993, and a shift in investment
strategy toward instruments with lower risk and correspondingly lower returns.
Gain (loss) on temporary investments was $105,000 for the three months and
$(547,000) for the nine months ended July 31, 1994 vs. $(613,000) and
$1,069,000, respectively, in the comparable prior year periods. At July 31,
1994, the Company has no items classified as temporary investments on its
balance sheet.
17
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
GAIN ON SALES OF ASSETS AND BUSINESSES, NET: In the first quarter of 1994, the
Company sold two parcels of land for cash and notes, for a net gain of $134,000,
and its EYEscrub'tm' trademark in Canada, for a net gain of $80,000. In the
second quarter of 1993, the Company sold its domestic EYEscrub'tm' product line,
which resulted in a gain of $620,000.
OTHER INCOME, NET: Other income, net was $59,000 and $291,000 for the three
months ended July 31, 1994 and 1993, respectively, and was $1,000 and $477,000
for the nine months ended July 31, 1994 and 1993, respectively. Other income in
1993 primarily consists of consent fees, extension fees and collection fees
related to the Company's temporary investment activity and also rental income
from realty investments.
INTEREST EXPENSE: The decrease in interest expense for the comparable three and
nine-month periods is due to the reduction of debt of HGA and the effect of the
Exchange Offer and Consent Solicitation described in Note 2.
PROVISION FOR INCOME TAXES: Provision for income taxes reflects state income and
franchise taxes. Tax accruals of $4,000,000, which were no longer required, were
reversed in the third quarter of 1994.
LOSS ON SALE OF DISCONTINUED OPERATIONS, NET OF TAXES: Results for the first
nine months of 1993 include a charge of $14,000,000 to increase the Company's
accrual for contingent liabilities associated with breast implant litigation
involving the plastic and reconstructive surgical division of the Company's
former CooperSurgical business segment which was sold in fiscal 1989. The
Company also recorded a reversal of $343,000 of accruals no longer necessary
related to another discontinued business.
EXTRAORDINARY ITEM: The extraordinary item in 1993 reflects an extraordinary
gain of $924,000, or $.03 per common share, on the purchase by the Company of
$4,846,000 principal amount of its Debentures in November 1992.
EARNINGS PER SHARE: The calculation of earnings per share is based on the
weighted average number of common and common equivalent shares outstanding
during the respective periods, after deducting preferred dividends from
earnings.
18
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in a number of legal actions relating to its
past or present business in which plaintiffs are seeking damages.
For a description of the Indictment and the SEC Complaint as well as
certain other legal proceedings, see Note 3 of Notes to Consolidated Condensed
Financial Statements in Part I, Item 1 of this report.
The Company was named in an action entitled Bruce D. Sturman v. The Cooper
Companies, Inc. and Does 1-100, Inclusive, first brought on July 24, 1992 in the
Superior Court in the State of California, Los Angeles, County. On May 14, 1993,
Mr. Sturman filed a First Amended Complaint in the Superior Court of the State
of California, County of Alameda, Eastern Division, the jurisdiction to which
the original case had been transferred. In the Amended Complaint, Mr. Sturman
alleged that by first suspending and then terminating him from his position as
Co-Chairman, the Company breached his employment agreement, violated provisions
of the California Labor Code, wrongfully terminated him in violation of public
policy, breached its implied covenant of good faith and fair dealing, defamed
him, invaded his privacy and intentionally inflicted emotional distress, and was
otherwise fraudulent, deceitful and negligent. The Amended Complaint seeks
declaratory relief, damages in the amount of $5,000, treble and punitive damages
in an unspecified amount, and general, special and consequential damages in the
amount of at least $5,000,000. In March 1993, the Court ordered a stay of all
discovery in this action until further order of the Court. On September 24,
1993, Mr. Sturman filed a Second Amended Complaint, setting forth the same
material allegations and seeking the same relief and damages as set forth in the
First Amended Complaint. The Company filed an Answer, generally denying all of
the allegations in the Second Amended Complaint. In February 1994, the stay on
discovery was lifted and trial was set for October 21, 1994. In July 1994, Mr.
Sturman filed a Third Amended Complaint, adding as defendants Joseph C. Feghali,
a director, and Robert S. Holcombe and Robert S. Weiss, officers of the Company
who were also directors at the time Mr. Sturman was terminated. The Judge then
imposed a stay on all discovery through September 19, 1994 and postponed the
trial date to December 16, 1994. While the Company and Mr. Sturman have engaged
in discussions intended to settle their dispute, there can be no assurances that
these negotiations will be successfully concluded. Based on management's current
knowledge of the facts and circumstances surrounding Mr. Sturman's termination,
the Company believes that it has meritorious defenses to this lawsuit and
intends to defend vigorously against the allegations in the Second Amended
Complaint.
On March 30, 1994, Envirodyne Industries, Inc. filed a lawsuit in the
Circuit Court of Cook County, Illinois against the Company, Connecticut Mutual
Life Insurance Company, Presidential Life Insurance Company, M D Sass
Re/Enterprise Partners L.P. and Gruss Partners. The complaint alleges that
defendants, former holders of Envirodyne subordinated promissory notes (the
'13 1/2% Notes'), filed an involuntary bankruptcy petition against Envirodyne
without complying with the indenture issued in connection with the 13 1/2% Notes
and that the allegedly improvident filing of the involuntary bankruptcy petition
allegedly damaged Envirodyne in an amount in excess of $100 million. Defendants
removed the case to the United States Bankruptcy Court for the Northern District
of Illinois and, on May 20, 1994, moved to dismiss the complaint. The Company
believes it has meritorious defenses to Envirodyne's complaint and, if the
pending motion to dismiss is not successful, it will vigorously defend the case.
19
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
11 Calculation of Net Income (Loss) Per Common Share
27 Financial Data Schedule
</TABLE>
(b) The Company filed no reports on Form 8-K during the period May 1, 1994
to July 31, 1994. The Company did, however, file the following report on Form
8-K on August 1, 1994:
<TABLE>
<CAPTION>
Date of
Report Item Reported
<S> <C>
August 1, 1994 Item 5. Other Events and Item 7. Financial Statements and Exhibits.
</TABLE>
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Cooper Companies, Inc.
..................................................
(Registrant)
Date: September 9, 1994
/s/ Robert S. Weiss
..................................................
Robert S. Weiss
Senior Vice President, Treasurer and
Chief Financial Officer
21
STATEMENT OF DIFFERENCES
<TABLE>
<S> <C>
The registered trademark symbol
shall be expressed as................ 'r'
The trademark symbol shall be
expressed as.........................'tm'
</TABLE>
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Index of Exhibits
<TABLE>
<CAPTION>
Exhibit No. Page No.
<S> <C> <C>
11 Calculation of Net Income (Loss) Per Common Share 24
27 Financial Data Schedule 25
</TABLE>
<PAGE>
EXHIBIT 11
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Calculation of Net Income (Loss) Per Common Share
(In thousands, except per share figures)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ --------------------
1994 1993 1994 1993
------ -------- -------- --------
<S> <C> <C> <C> <C>
Primary:
Income (loss) from continuing operations before extraordinary
item......................................................... $ 3,054 $(13,705) $(5,946) $(22,572)
Less, dividend requirements on Preferred Stock................. 54 -- 54 320
------ -------- -------- --------
Income (loss) from continuing operations before extraordinary
item......................................................... 3,000 (13,705) (6,000) (22,892)
Loss on sale of discontinued operations, net of taxes.......... -- -- -- (13,657)
------ -------- -------- --------
Income (loss) before extraordinary item........................ 3,000 (13,705) (6,000) (36,549)
Extraordinary item............................................. -- -- -- 924
------ -------- -------- --------
Income (loss) per common share................................. $ 3,000 $(13,705) $(6,000) $(35,625)
------ -------- -------- --------
------ -------- -------- --------
Weighted average number of common shares outstanding........... 30,360 30,065 30,206 30,055
Contingently issuable shares outstanding....................... 1,561 -- 409 --
------ -------- -------- --------
Weighted average number of common and common equivalent shares
outstanding for primary earnings per share................... 31,921 30,065 30,615 30,055
------ -------- -------- --------
------ -------- -------- --------
Earnings (loss) per common share:
Continuing operations..................................... $ .09 $ (.46) $ (.20) $ (.77)
Discontinued operations................................... -- -- -- (.45)
------ -------- -------- --------
Loss before extraordinary item............................ .09 (.46) (.20) (1.22)
Extraordinary item........................................ -- -- -- .03
------ -------- -------- --------
Earnings (loss) per common share............................... $ .09 $ (.46) $ (.20) $ (1.19)
------ -------- -------- --------
------ -------- -------- --------
</TABLE>
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