<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 April 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to
-------- ----------
Commission File Number 1-8597
The Cooper Companies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-2657368
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
One Bridge Plaza, Fort Lee, New Jersey 07024
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(201) 585-5100
Indicate by check mark whether the registrant (1) has filled all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Common Stock, $.10 par value 34,126,722 Shares
Class Outstanding at
May 31, 1995
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet -
April 30, 1995 and October 31, 1994 3
Consolidated Condensed Statement of
Operations - Three and Six Months
Ended April 30, 1995 and 1994 4
Consolidated Condensed Statement
of Cash Flows - Six Months Ended
April 30, 1995 and 1994 5
Notes to Consolidated Condensed
Financial Statements 6 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12 - 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
Index of Exhibits
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
April 30, October 31,
1995 1994
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,502 $ 10,320
Receivables:
Trade and patient accounts, net 20,291 17,240
Other 1,273 1,012
------- -------
21,564 18,252
------- -------
Inventories 11,180 11,696
Other current assets 1,844 3,237
------- -------
Total current assets 39,090 43,505
------- -------
Property, plant and equipment at cost 45,422 45,470
Less, accumulated depreciation and
amortization 11,328 10,683
------- -------
34,094 34,787
------- -------
Intangibles, net:
Excess of cost over net assets acquired 13,721 14,133
Other 977 1,194
------- -------
14,698 15,327
------- -------
Other assets 1,350 1,439
------- -------
$ 89,232 $ 95,058
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Borrowings under line of credit $ 1,395 $ -
Current installments of long-term debt 2,528 1,453
Accounts payable 4,541 6,580
Employee compensation, benefits and
severance 5,722 6,390
Other accrued liabilities 14,209 17,728
Income taxes payable 10,081 10,105
------- -------
Total current liabilities 38,476 42,256
------- -------
Long-term debt 43,873 45,989
Other noncurrent liabilities 9,040 10,467
------- -------
Total liabilities 91,389 98,712
------- -------
Commitments and Contingencies (see Note 2)
Stockholders' deficit:
Common stock, $.10 par value 3,413 3,388
Additional paid-in capital 180,532 179,883
Translation adjustments (453) (396)
Accumulated deficit (185,649) (186,529)
------- -------
Total stockholders' deficit ( 2,157) (3,654)
------- -------
$ 89,232 $ 95,058
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
(In thousands, except per share figures)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------------------ -----------------------
1995 1994 1995 1994
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales of products $12,854 $12,672 $25,572 $24,548
Net service revenue 10,940 11,783 21,432 22,814
------ ------ ------ ------
Net operating revenue 23,794 24,455 47,004 47,362
------ ------ ------ ------
Cost of services provided 10,263 10,587 20,367 20,426
Cost of products sold 4,079 4,582 8,311 8,707
Research and development
expense 808 1,172 1,875 2,328
Selling, general and admin-
istrative expense 6,916 8,428 13,531 17,192
Provision (credit) for
settlement of disputes (140) 2,000 (468) 3,950
Debt restructuring costs - - - 429
Amortization of intangibles 210 212 422 422
Investment income (loss), net 76 (129) 200 (480)
Gain on sales of assets and
businesses, net - - - 214
Other income (expense), net 99 (93) 100 (58)
Interest expense 1,190 1,024 2,280 2,426
------ ------ ------ ------
Income (loss) before income
taxes 643 (3,772) 986 (8,842)
Provision for income taxes 38 78 106 158
------ ------ ------ ------
Net income (loss) $ 605 $(3,850) $ 880 $(9,000)
====== ====== ====== ======
Net income (loss) per
common share $ 0.02 $ (0.13) $ 0.03 $ (0.30)
====== ====== ====== ======
Average number of common
shares outstanding 34,756 30,129 34,766 30,129
====== ====== ====== ======
</TABLE>
See accompanying notes.
4
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
1995 1994
-------- -------
<S> <C> <C>
Net cash used by operating activities $(5,958) $(4,372)
------- -------
Cash flows from investing activities:
Cash from sales of assets and
businesses (including releases of
cash from escrow) 121 2,622
Sales of temporary investments 37 7,188
Purchases of property, plant and
equipment (840) (307)
------- -------
Net cash provided (used) by investing
activities (682) 9,503
------- -------
Cash flows from financing activities:
Proceeds from line of credit, net 1,395 -
Payments associated with the Exchange
Offer and Consent Solicitation including
debt restructuring costs - (5,402)
Payments of current installments of
long-term debt (573) (750)
------- -------
Net cash provided (used) by financing
activities 822 (6,152)
------- -------
Net decrease in cash and cash equivalents (5,818) (1,021)
Cash and cash equivalents - beginning of
period 10,320 10,113
------- -------
Cash and cash equivalents - end of
period $ 4,502 $ 9,092
======= =======
Cash paid for:
Interest $ 2,300 $ 2,266
======= =======
Income taxes $ 129 $ 49
======= =======
</TABLE>
In January 1994 the Company issued $22,000,000 of 10% Senior Subordinated
Secured Notes due 2003 and paid approximately $4,350,000 in cash (exclusive of
transaction costs) in exchange for approximately $30,000,000 of 10-5/8%
Convertible Subordinated Reset Debentures due 2005.
See accompanying notes.
5
<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 contact lenses
and diagnostic and surgical instruments and accessories. The Company also
provides healthcare services through the ownership and operation of certain
psychiatric facilities and, through May 1995, managed 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 1994 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 April 30, 1995 and October 31,
1994 and the consolidated results of its operations for the three and six month
periods ended April 30, 1995 and 1994, and its consolidated cash flows for the
six months ended April 30, 1995 and 1994. With the exception of certain
adjustments discussed in Part I, Item 2 under "Settlement of Disputes," such
adjustments consist only of normal and recurring adjustments. Certain
reclassifications have been applied to the prior periods' financial statements
to conform such statements to the current periods' presentation. None of such
reclassifications had any impact on the prior periods' losses.
Note 2. Legal Proceedings
The Company is a defendant in a number of legal actions relating to its past or
present businesses in which plaintiffs are seeking damages. In the opinion of
management, after consultation with counsel, the ultimate disposition of those
actions will not materially affect the Company's financial position.
The Company is named as a nominal defendant in a shareholder derivative action
entitled Harry Lewis and Gary Goldberg v. Gary A. Singer, Steven G. Singer,
Arthur C. Bass, Joseph C. Feghali, Warren J. Keegan, Robert S. Holcombe and
Robert S. Weiss, which was filed on May 27, 1992 in the Court of Chancery, State
of Delaware, New Castle County. On May 29, 1992, another plaintiff 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
6
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Goldberg action and the other plaintiff's action 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 a "trading scheme" to "frontrun" high yield
bond purchases by the Keystone Custodian Fund, Inc., a group of mutual funds.
The First Amended Derivative Complaint also alleges that the defendants violated
their fiduciary duties to the Company by not vigorously investigating certain
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. No further proceedings have taken
place; however, discovery is underway. The parties have been engaged in
negotiations and have agreed upon the terms of a settlement, which will have no
material impact on the Company. The settlement is in the process of being
documented. Upon completion of discovery and the settlement documentation, the
proposed settlement will be submitted to the Court for approval following notice
to the Company's shareholders and a hearing. Accordingly, there can be no
assurance that the proposed settlement will ultimately end the litigation. The
individual defendants have advised the Company that they believe they have
meritorious defenses to the lawsuit and that, in the event the case proceeds to
trial, they intend to defend vigorously against the allegations in the 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 coconspirators as part of the
"trading scheme" that was the subject of the First Amended Derivative Complaint
referred to above. The complaint requested that the Court order
7
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
the defendants (other than the Company) to pay damages and expenses to the
Company, including reimbursement of payments made by the Company to the
coconspirators, and certain of the defendants 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. The appeal was heard by the
Appellate Division of the Supreme Court in early January 1995. On March 28,
1995, the Appellate Division confirmed the dismissal. The deadline for any
further appeal has passed.
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. 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. The amended complaints also 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.
The Company has reached a settlement with counsel for the class plaintiffs,
which settlement will have no material impact on the Company's financial
condition. In December 1994, the Court gave preliminary approval to the
settlement, ordered notice to be given to putative class members, and set a
hearing to consider possible objections to the settlement. The hearing took
place on May 5, 1995, at which time the settlement was approved.
Under an agreement dated July 11, 1985, as amended (the "HMG Agreement"),
Hampton Medical Group, P.A. ("HMG"), which is not affiliated with the Company,
contracted to provide clinical and clinical administrative services at Hampton
Psychiatric Institute ("Hampton Hospital"), the primary facility operated by
Hospital Group of New Jersey, Inc. ("HGNJ"), a subsidiary of HGA. On November
29, 1993 and February 1, 1994, HGNJ delivered notices to HMG asserting that HMG
had defaulted under the HMG Agreement based upon billing practices by HMG that
HGNJ believed to be fraudulent. At the request of HMG, a New York state court
enjoined HGNJ from terminating the HMG Agreement based upon the initial notice
and ordered the parties to arbitrate whether HMG had defaulted.
On February 2, 1994, HMG commenced an arbitration in New York, New York (the
"Arbitration"), entitled Hampton Medical Group, P.A. and Hospital Group of
New Jersey, P.A. (American Arbitration
8
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Association), in which it contests the alleged default. In addition, HMG made a
claim against HGNJ for unspecified damages based on allegedly foregone fees on
the contention that HMG has the right to provide services at all HGNJ-owned
facilities in New Jersey, including outpatient clinics in Marlton and Toms
River, New Jersey, and the Hampton Academy, at which certain non-HMG physicians
have been employed. HGNJ has responded by asserting, among other things, that
(1) HMG has no contractual right to provide services at those facilities, (2)
HMG has waived or lost any such right, if such right ever existed, and (3)
HGNJ's assertions of billing fraud are a defense to any such right.
As HGNJ's knowledge of HMG's billing practices developed, HGNJ notified the
authorities and, subsequently, Blue Cross and Blue Shield of New Jersey, Inc.
("Blue Cross"), the largest of the third party payors from which HGNJ received
payment for its hospital services from 1988 through 1994.
During December 1994, Blue Cross informed HGNJ that it had investigated matters
at Hampton Hospital and concluded that it had been overcharged as a result of
those matters, including fraudulent practices of HMG which resulted in increased
hospital bills to Blue Cross subscribers. On December 30, 1994, Blue Cross and
HGNJ entered into an agreement to settle all claims against Hampton Hospital on
behalf of Blue Cross subscribers and certain other subscribers for whom Blue
Cross administers claims. The settlement includes a cash payment, over time, by
HGNJ, offset by certain amounts owed by Blue Cross to HGNJ.
On the same day, Blue Cross commenced a lawsuit in the Superior Court of New
Jersey entitled Blue Cross and Blue Shield of New Jersey, Inc. v. Hampton
Medical Group, et al. against HMG and certain related entities and individuals
unrelated to HGNJ or its affiliates alleging, among other things, fraudulent
billing practices (the "Blue Cross Action"). HGNJ is cooperating with Blue Cross
in Blue Cross' investigation of HMG. HGNJ has also received certain requests for
information from the State of New Jersey Department of Insurance with respect to
a related investigation, with which HGNJ is also cooperating.
On January 25, 1995, HGNJ delivered a Notice of Additional Material Breach and
Default (the "Additional Notice") based on the results of Blue Cross'
investigation into the billing practices of HMG. On March 20, 1995, a hearing
was held before the arbitrators, who ruled that they would admit testimony by a
Blue Cross witness. At that hearing, the parties agreed (1) to admit into
evidence testimony regarding certain alleged incidents of conduct by HMG
physicians regardless of the date on which such conduct occurred, and (2) to
defer action on the Additional Notice until the conclusion of the Arbitration.
9
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
HGNJ intends to seek recovery from HMG for any losses, expenses or other damages
HGNJ incurs by reason of HMG's conduct, including amounts paid or offset
pursuant to the Blue Cross settlement and any damages that may result from any
future claims by other third party payors or others arising out of the billing
practices at Hampton Hospital, which claims could, in the aggregate, be
material. Management of the Company, however, after consultation with counsel,
does not believe that the outcome of such claims (should any be brought) would,
in the aggregate, have a material adverse effect on the Company's financial
condition. There can be no assurance, however, that HGA will be able to recover
the amount of any or all such losses, expenses or damages from HMG.
In addition, HGA sought to recover damages from Progressions Health Systems,
Inc. ("Progressions"), the successor, as a result of a Chapter 11 proceeding, to
Nu-Med, Inc., the former owner of HGA, based upon breaches of representations
and warranties in the purchase agreement and other rights of indemnification
thereunder. Those and other claims between the Company and Progressions have
been settled pursuant to an agreement dated as of April 30, 1995, providing,
among other things, for payments to be made by Progressions to the Company over
the next eleven months, and for the parties to release one another and certain
related parties.
On or about April 12, 1995, an individual defendant in the Blue Cross Action who
was formerly employed by HMG, Dr. Charles Dackis, commenced a third party claim
in the Blue Cross Action against HGNJ, HGA and the Company, alleging a right
under the HMG Agreement to indemnity in an unspecified amount for fees, expenses
and damages that he might incur in that action. In a letter brief filed on or
about April 17, 1995, HMG indicated an intention to bring a similar claim at a
later date. On or about May 16, 1995, HGNJ, HGA and the Company filed an answer
to the complaint, and HGNJ and HGA brought counter-claims against Dr. Dackis and
cross-claims against HMG and Dr. A.L.C. Pottash, another individual defendant
and the owner of HMG, in an amount to be determined, based on allegations of
fraudulent and improper billing practices.
Note 3. Inventories
Inventories are stated at the lower of cost, determined on a first in, first out
or average cost basis, or market.
10
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The components of inventories are as follows:
<TABLE>
<CAPTION>
April 30, October 31,
1995 1994
---------- ------------
(In thousands)
<S> <C> <C>
Raw materials $ 3,135 $ 3,197
Work-in-process 1,033 973
Finished goods 7,012 7,526
------ ------
$11,180 $11,696
====== ======
</TABLE>
Note 4. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1995 1994
--------- -----------
(In thousands)
<S> <C> <C>
10% Senior Subordinated
Secured Notes due 2003 $25,104 $25,410
10-5/8% Convertible Sub-
ordinated Reset Debentures
due 2005 9,213 9,210
Bank term loan 10,223 10,556
Industrial Revenue Bonds 1,732 2,000
Capitalized leases 129 266
------ ------
46,401 47,442
Less current installments 2,528 1,453
------ ------
$43,873 $45,989
====== ======
</TABLE>
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
The Company's financial condition stabilized significantly in the second quarter
of 1995. Although previously anticipated payments, largely related to the
settlement of disputes and legal fees, resulted in net cash used by operating
activities of $5,958,000 in the first half of 1995, the usage in the second
quarter was held to $950,000. Primary contributors to this stabilization include
continued strong performance by CooperVision Inc. ("CVI"), the Company's contact
lens business, in combination with decreased headquarters expenses (including
legal fees) and the successful settlement of certain disputes and litigation. In
addition, the Company recently adjusted its corporate focus to favor acquiring
products ready for market and/or already in the market, rather than funding
longer-term higher risk research and development projects. Management expects
that this will result in improved profitability and, together with the financing
activities discussed below, greater availability of cash to fund strategic
acquisitions.
Management believes that, absent extraordinary events, the Company is now in a
position to generate sufficient cash to fund its internal operating needs. Also,
management now anticipates that the consummation of certain legal matters
currently reaching resolution will improve further the Company's cash flow and
short-term results.
In 1994, CVI entered into a credit agreement with a commercial lender providing
for advances of up to $8,000,000. To date, CVI has drawn down on this agreement
only to the extent required to generate interest expense equal to minimum
interest requirements included in the agreement. At April 30, 1995, there was
$1,395,000 owing under the credit agreement. The Company is evaluating various
acquisition opportunities and, should it consummate any of those transactions,
funds available under the credit agreement would be used. The Company is also
exploring various methods of raising additional capital.
12
<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 Six Months Ended April 30, 1995 Compared with Three and Six Months
Ended April 30, 1994.
NET SALES OF PRODUCTS: Net sales of products increased by $182,000 or 1% and
$1,024,000 or 4% for the three and six months ended April 30, 1995,
respectively, over the corresponding 1994 periods.
<TABLE>
<CAPTION>
(Dollars in 000's)
Three Months Ended Six Months Ended
April 30, April 30,
---------------------------- ---------------------------
% Incr. % Incr.
1995 1994 (Decrease) 1995 1994 (Decrease)
------ ------ -------- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
CVI* ....... $10,030 $ 9,412 7% $19,352 $17,972 8%
CSI** ...... 2,824 3,096 (9%) 6,204 6,345 (2%)
CVP*** ..... -- 164 N/A 16 231 N/A
------ ------ ------- -------
$12,854 $12,672 1% $25,572 $24,548 4%
====== ====== ====== ======
</TABLE>
* CVI = CooperVision, Inc.
** CSI = CooperSurgical, Inc.
*** CVP = CooperVision Pharmaceuticals, Inc.
Net sales of CVI increased both domestically and in Canada. The primary
contributors to the growth included increased sales of the Preference spherical
product line, the Hydrasoft'r' toric and Preference Toric'tm' product lines (the
latter of which was launched in the fourth quarter of fiscal 1994), which grew
38% in the aggregate over the comparable six month periods. These increases were
partially offset by anticipated decreases in sales of more mature product lines.
Net sales of CSI increased in its gynecology product lines (which include
LEEP'tm' instruments) by 2%; the increase was offset by reduced sales of
endoscopy products.
13
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NET SERVICE REVENUE: Hospital Group of America, Inc.'s ("HGA") net service
revenue consists of the following:
<TABLE>
<CAPTION>
(Dollars in 000's)
Three Months Ended Six Months Ended
April 30, April 30,
----------------------------- -----------------------------
% Incr./ % Incr./
1995 1994 (Decrease) 1995 1994 (Decrease)
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net patient
revenue .. $10,440 $11,283 (7%) $20,432 $21,814 (6%)
Management
fees 500 500 - 1,000 1,000 -
------ ------ ------ ------
$10,940 $11,783 (7%) $21,432 $22,814 (6%)
====== ====== ====== ======
</TABLE>
Net patient revenue decreased by $843,000, or 7%, and $1,382,000, or 6%, vs. the
second quarter and first half of 1994, 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. In addition, the dispute with the Hampton Medical Group has reduced
revenues during the first half of 1995 at Hampton Hospital by approximately
$600,000 compared with the first half of 1994 (see Note 2). Management fees
resulted from a contract to manage three psychiatric facilities. The contract
expired by its terms in May 1995.
COST OF SERVICES PROVIDED: Cost of services provided represents all of the costs
(other than financing costs) incurred by HGA in generating net service revenue.
The result of subtracting cost of services provided from net service revenue is
a profit of $677,000, or 6.2%, of net service revenue in the second quarter of
1995 and $1,065,000, or 5.0%, in the first half of 1995. The corresponding
profits were $1,196,000, or 10.2% of net service revenue, and $2,388,000, or
10.5%, in the three and six month periods ended April 30, 1994, respectively.
The decreased percentage of profit is primarily attributable to a reduction in
patient days at the hospitals operated by HGA, exacerbated by lower average
billing rates and the cost of the previously mentioned dispute with the Hampton
Medical Group.
14
<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>
Margin % Margin %
Three Months Ended Six Months Ended
April 30, April 30,
------------------ ---------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
CVI 73 70 73 71
CSI 52 52 51 51
Consolidated 68 64 67 65
</TABLE>
Margin for CVI has increased due to efficiencies associated with higher
production volumes, as well as a favorable product mix.
RESEARCH AND DEVELOPMENT EXPENSE: Research and development expense was $808,000
and $1,875,000 for the three and six months ended April 30, 1995, respectively.
The respective prior year research and development expense was $1,172,000 and
$2,328,000. The decrease is primarily attributable to reduced development
activity related to CVP's calcium channel blocker, CalOptic'tm', partially
offset by an increase in CSI's research and development expenses related to the
development and evaluation of a proprietary thermal endometrial ablation
technology. In May 1995, CSI announced that it had discontinued funding of this
project. CVP's research and development expenditures were $350,000 and $870,000
for the second quarter and first six months of 1995, respectively. These
expenditures were $474,000 and $697,000 less than 1994's second quarter and
first half, respectively. The Company is continuing to discuss ways to maximize
the value of CalOptic'tm' with prospective strategic partners.
The Company currently anticipates a continued downtrend in the level of spending
on research and development. Following a recent shift in corporate focus, the
Company now favors acquiring products which will be marketable immediately or in
the short-term rather than funding longer-term, higher risk research and
development projects.
15
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: Selling, general and administrative
(SG&A) expenses by business unit and corporate were as follows:
<TABLE>
<CAPTION>
(Dollars in 000's)
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------- ---------------------------
% Incr. % Incr.
1995 1994 (Decr.) 1995 1994 (Decr.)
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
CVI ........ $3,941 $3,542 11% $7,818 $6,945 13%
CSI ........ 1,336 1,468 (9%) 2,679 2,945 (9%)
CVP ........ 24 112 (79%) 37 230 (84%)
Corporate/
Other ...... 1,615 3,306 (51%) 2,997 7,072 (57%)
------ ------ ------ ------
$ 6,916 $ 8,428 (18%) $13,531 $17,192 (21%)
====== ====== ====== ======
</TABLE>
SG&A expenses for the three and six month periods have decreased 18% and 21%
from the prior year's three and six month periods, respectively, largely as a
result of the resolution of various legal matters and the continued reduction in
corporate staffing. CVP's SG&A expenses decreased as it discontinued sales of
its branded generic line of ophthalmic pharmaceuticals. Continued cost cutting
measures at CSI resulted in a reduction of 9% in the six month period ended
April 30, 1995 vs. the comparable 1994 period. These decreases were partially
offset by increased SG&A expenses of CVI, primarily related to the successful
launch of Preference Toric'tm'.
SETTLEMENT OF DISPUTES: In the first six months of 1995, the Company recorded a
credit of $468,000 resulting from 1) adjustments to certain estimated accruals
for disputes which are now resolved and 2) the recording of a portion of the
settlement of certain disputed claims with Progressions Health Systems, Inc.,
the successor to the previous owner of HGA (see Note 2).
In the first six 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 $4,800,000, which represented the Company's estimate, at
that time, of costs required to settle certain disputes and
litigation, including U.S. Attorney/SEC, employee related and patent
related matters.
16
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DEBT RESTRUCTURING COSTS: In the first six months of 1994, the Company recorded
a charge of $429,000 to refine the estimate for debt restructuring costs related
to its 1993 Exchange Offer and Consent Solicitation.
INVESTMENT INCOME, NET: Included in investment income, net is interest income of
$76,000 and $51,000 for the three months ended April 30, 1995 and 1994,
respectively, and $163,000 and $172,000 for the six months ended April 30, 1995
and 1994, respectively. The decrease for the six month period primarily reflects
lower average cash balances over the respective periods.
Also included in investment income, net are net gains (losses) on temporary
investments of ($180,000) for the three months ended April 30, 1994, and $37,000
and ($652,000) for the six months ended April 30, 1995 and 1994, respectively.
GAIN ON SALES OF ASSETS AND BUSINESSES, NET: In the first six months of 1994,
the Company sold two parcels of land for cash and notes for a net gain of
$134,000. The Company also sold its EYEscrub'tm' trademark in Canada for a net
gain of $80,000.
INTEREST EXPENSE: The decrease in interest expense for the comparable six month
periods is primarily due to the reduction of debt.
PROVISION FOR INCOME TAXES: The provision for income taxes in the three and six
months ended April 30, 1995 and 1994 reflect state income and franchise taxes.
EARNINGS PER SHARE: Earnings per share are based on the weighted average number
of common and common equivalent shares outstanding during the respective
periods.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Note 2. Legal Proceedings" in Part I Item 1 above for a description of
certain legal proceedings.
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 from February 1,
1995 to April 30, 1995.
18
<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: June 9, 1995 /s/ Robert S. Weiss
---------------------------------------
Senior Vice President, Treasurer and
Chief Financial Officer
19
STATEMENT OF DIFFERENCES
<TABLE>
<CAPTION>
<S> <C>
The trademark symbol shall be expressed as .................... 'tm'
The registered trademark symbol shall be expressed as ......... 'r'
</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) 21
Per Common Share.
27 Financial Data Schedule. 22
</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 Six Months Ended
April 30, April 30,
------------------ ------------------
1995 1994 1995 1994
------- ------- ------- ------
<S> <C> <C> <C> <C>
Net income (loss) ............ $ 605 $ (3,850) $ 880 $ (9,000)
======== ======== ======== ========
Weighted average
number of common
shares outstanding ........ 34,120 30,129 34,118 30,129
Contingently issuable
shares 636 - 648 -
------ ------ ------ ------
Weighted average
number of common and
common equivalent
shares outstanding for
earnings per share 34,756 30,129 34,766 30,129
====== ====== ====== ======
Earnings (loss) per
common share $ .02 $( .13) $ .03 $( .30)
====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<CASH> 4,502
<SECURITIES> 0
<RECEIVABLES> 22,563
<ALLOWANCES> 2,272
<INVENTORY> 11,180
<CURRENT-ASSETS> 39,090
<PP&E> 45,422
<DEPRECIATION> 11,328
<TOTAL-ASSETS> 89,232
<CURRENT-LIABILITIES> 38,476
<BONDS> 43,873
<COMMON> 3,413
0
0
<OTHER-SE> (5,570)
<TOTAL-LIABILITY-AND-EQUITY> 89,232
<SALES> 25,572
<TOTAL-REVENUES> 47,004
<CGS> 8,311
<TOTAL-COSTS> 28,678
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,280
<INCOME-PRETAX> 986
<INCOME-TAX> 106
<INCOME-CONTINUING> 880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 880
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
