<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 January 31, 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 34,116,722 Shares
Class Outstanding at
February 28, 1995
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet -
January 31, 1995 and October 31, 1994 3
Consolidated Condensed Statement of
Operations - Three Months Ended
January 31, 1995 and 1994 4
Consolidated Condensed Statement
of Cash Flows-
Three Months Ended January
31, 1995 and 1994 5
Notes to Consolidated Condensed
Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15 - 16
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
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>
January 31, October 31,
1995 1994
----------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,670 $ 10,320
Receivables:
Trade and patient accounts, net 18,782 17,240
Other 1,168 1,012
------- -------
19,950 18,252
------- -------
Inventories 11,420 11,696
Other current assets 2,314 3,237
------- -------
Total current assets 38,354 43,505
------- -------
Property, plant and equipment at cost 45,051 45,470
Less, accumulated depreciation and
amortization 10,790 10,683
------- -------
34,261 34,787
------- -------
Intangibles, net:
Excess of cost over net assets acquired 13,997 14,133
Other 1,084 1,194
------- -------
15,081 15,327
------- -------
Other assets 1,345 1,439
------- -------
$ 89,041 $ 95,058
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt $ 2,707 $ 1,453
Accounts payable 5,257 6,580
Employee compensation, benefits and
severance 5,621 6,390
Other accrued liabilities 15,037 17,728
Income taxes payable 10,120 10,105
------- -------
Total current liabilities 38,742 42,256
------- -------
Long-term debt 44,189 45,989
Other noncurrent liabilities 8,944 10,467
------- -------
Total liabilities 91,875 98,712
------- -------
Stockholders' deficit:
Common stock, $.10 par value 3,412 3,388
Additional paid-in capital 180,466 179,883
Translation adjustments (458) (396)
Accumulated deficit (186,254) (186,529)
------- -------
Total stockholders' deficit (2,834) (3,654)
------- -------
$ 89,041 $ 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
January 31,
1995 1994
<S> <C> <C>
-------- -------
Net service revenue $ 10,492 $ 11,031
Net sales of products 12,718 11,876
-------- --------
Net operating revenue 23,210 22,907
-------- --------
Cost of services provided 10,104 9,839
Cost of products sold 4,232 4,125
Research and development expense 1,067 1,156
Selling, general and administrative
expense 6,615 8,764
Provision for settlement of disputes
(credit) (328) 1,950
Debt restructuring costs - 429
Amortization of intangibles 212 210
Investment income (loss), net 124 (351)
Gain on sales of assets and businesses,
net - 214
Other income, net 1 35
Interest expense 1,090 1,402
-------- --------
Income (loss) before income taxes 343 (5,070)
Provision for income taxes 68 80
-------- --------
Net income (loss) $ 275 $ (5,150)
======== ========
Net income (loss) per common share $ 0.01 $ (0.17)
======== ========
Average number of common shares outstanding 34,757 30,410
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1995 1994
--------- -------
<S> <C> <C>
Net cash used by operating activities $ (5,008) $ (3,375)
-------- --------
Cash flows from investing activities:
Cash from sales of assets and
businesses (including releases of
cash from escrow) 78 2,622
Sales of temporary investments 37 2,051
Purchases of property, plant and
equipment (341) (144)
-------- --------
Net cash provided (used) by investing
activities (226) 4,529
-------- --------
Cash flows from financing activities:
Payments associated with the Exchange
Offer and Consent Solicitation including
debt restructuring costs - (5,043)
Payments of current installments of
long-term debt (416) (363)
-------- --------
Net cash used by financing activities (416) (5,406)
-------- --------
Net decrease in cash and cash equivalents (5,650) (4,252)
Cash and cash equivalents - beginning of
period 10,320 10,113
-------- --------
Cash and cash equivalents - end of period $ 4,670 $ 5,861
======== ========
Cash paid for:
Interest $ 916 $ 407
======== ========
Income taxes $ 53 $ 25
======== ========
</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 the 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 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 January 31, 1995 and October 31,
1994 and the consolidated results of its operations and its consolidated cash
flows for the three months ended January 31, 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 prior period financial statements
to conform such statements to the current period's presentation. None of such
reclassifications had any impact on the prior period's net loss.
Note 2. Legal Proceedings
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").
6
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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. 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 parties have engaged in preliminary settlement
negotiations; however, there can be no assurances that these discussions will be
concluded successfully.
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 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 the defendants
(other than the Company) to pay damages and expenses to the Company, including
reimbursement of payments made by the Company to the co-conspirators, 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 was heard by the Appellate Division of the Supreme Court in early
January 1995; no decision has been rendered by the Appellate Division to date.
7
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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 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 for April 7, 1995 to consider possible
8
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
objections to the settlement. 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 complaint.
See Part II, Item 1 herein for a discussion of certain other litigation matters.
Note 3. 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>
January 31, October 31,
1995 1994
---------- ----------
(In thousands)
<S> <C> <C>
Raw materials $ 3,144 $ 3,197
Work-in-process 901 973
Finished goods 7,375 7,526
------ ------
$11,420 $11,696
====== ======
</TABLE>
Note 4. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1995 1994
---------- ----------
(In thousands)
<S> <C> <C>
10% Senior Subordinated
Secured Notes due 2003 $25,255 $25,410
10-5/8% Convertible Sub-
ordinated Reset Debentures
due 2005 9,212 9,210
Bank term loan 10,389 10,556
Industrial Revenue Bonds 1,870 2,000
Capitalized leases 170 266
------ ------
46,896 47,442
Less current installments 2,707 1,453
------ ------
$44,189 $45,989
====== ======
</TABLE>
9
<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
Although the Company reported a profit in the first quarter of 1995, previously
anticipated requirements to make payments, principally related to the settlement
of disputes and legal fees, resulted in a decrease to cash and cash equivalents
of $5,650,000. The Company currently anticipates that, at least for the
remainder of fiscal 1995, it is likely to continue experiencing negative cash
flows, since payments required pursuant to certain litigation settlement
agreements (other than those already settled in the first quarter) and other
costs related to disputes which could be incurred (see Part II, Item 1 Legal
Proceedings), together with funds to be used for strategic research projects,
are likely to exceed the positive cash flows generated by the Company's
established operating businesses. The foregoing notwithstanding, management
believes that the successful settlement of certain disputes and litigation, the
implementation of cost-cutting programs and the performance of its established
businesses, in concert with the financing discussed below, should result in the
Company being in a position to satisfy its short to mid-term cash requirements.
In September 1994, the Company's CooperVision, Inc. subsidiary ("CVI") entered
into a credit agreement with a commercial lender providing for advances of up to
$8,000,000. On February 27, 1995, CVI initiated the use of the agreement by
drawing down $3,000,000. This credit agreement, together with the approximate
$4,700,000 in cash the Company had on hand as of January 31, 1995, affords the
Company flexibility in planning future cash requirements and assures short to
mid-term financing of its strategic research projects. The Company is also
exploring other potential sources of cash, including sales and leasebacks,
factoring, out-licensing rights to one or more of its strategic research
projects and new issuances of stock.
RESULTS OF OPERATIONS
Three Months Ended January 31, 1995 Compared with Three Months Ended January 31,
1994.
10
<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>
Three Months Ended %
January 31, Increase
1995 1994 (Decrease)
------ ------ --------
(In Thousands)
<S> <C> <C> <C>
Net patient revenue $ 9,992 $10,531 ( 5%)
Management fees 500 500 -
------ ------
$10,492 $11,031 ( 5%)
====== ======
</TABLE>
Net patient revenue decreased by $539,000 or 5% vs. the first quarter of 1994.
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. In addition,
the current dispute with the Hampton Medical Group (see Part II, Item 1 "Legal
Proceedings") has resulted in reduced revenues at Hampton Hospital by $300,000
compared with the fiscal 1994 first quarter. Management fees result from a
contract to manage three psychiatric facilities, which contract will expire by
its terms in May 1995, unless extended by mutual agreement.
NET SALES OF PRODUCTS: Net sales of products increased by $842,000 or
approximately 7%.
<TABLE>
<CAPTION>
Three Months Ended %
January 31, Increase
1995 1994 (Decrease)
------ ------ ----------
(In Thousands)
<S> <C> <C> <C>
CVI $ 9,322 $ 8,560 9%
CooperSurgical, Inc. ("CSI") 3,380 3,249 4%
CooperVision Pharmaceuticals,
Inc. ("CVP") 16 67 (76%)
------ ------
$12,718 $11,876 7%
====== ======
</TABLE>
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. These
increases were partially offset by anticipated decreases in sales of more mature
product lines.
11
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Net sales of CSI increased in its gynecology product lines (which include
LEEP'tm' instruments) by 2% and its cryosurgical products by 29% (principally
international); the increases were offset by reduced sales of endoscopy
products.
COST OF SERVICES PROVIDED: Cost of services provided represents all of the costs
(other than financing costs) incurred by HGA in generating its net service
revenues. The results of subtracting cost of services provided from net service
revenue is a profit of $388,000 or 3.7% of net service revenue in the first
quarter of 1995 and $1,192,000 or 10.8% of net service revenue in the first
quarter of 1994. 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.
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>
First Quarter Margin %
---------------------
1995 1994
---- ----
<S> <C> <C>
CVI 73 71
CSI 50 51
Consolidated 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 expenses were
$1,067,000 and $1,156,000 in the three-month periods ended January 31, 1995 and
1994, respectively. The decrease is primarily attributable to decreased
development activity related to CVP's calcium channel blocker, CalOptic'tm',
partially offset by an increase in research and development project expenses in
CSI related to the development and evaluation of a proprietary thermal ablation
technology. CVP research and development expenditures were $520,000 for the
first quarter of 1995. These expenditures were $223,000 lower than last year's
first quarter due to a lower number of patients currently enrolled in its
ongoing clinical trials.
12
<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:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended %
January 31, Increase
1995 1994 (Decrease)
------ ------ ----------
(In Thousands)
<S> <C> <C> <C>
CVI $ 3,877 $ 3,403 14%
CSI 1,343 1,477 ( 9%)
CVP 13 118 (89%)
Corporate/Other 1,382 3,766 (63%)
------- -------
$ 6,615 $ 8,764 (25%)
======= =======
</TABLE>
SG&A expenses have decreased 25% for the comparable three month periods largely
as a result of the disposition of various legal matters. CVP's SG&A expenses
have decreased as a result of a decision to focus its efforts on the development
of topical applications of calcium channel blocking drugs and to discontinue
sales of its branded generic line of ophthalmic pharmaceuticals. Offsetting
these decreases are increased SG&A expenses of CVI primarily related to the
launch of Preference Toric'tm'.
SETTLEMENT OF DISPUTES: In the first quarter of 1995, the Company recorded a
credit of $328,000 resulting from adjustments to certain estimated accruals for
disputes which are now resolved. In the first quarter of 1994, the Company
recorded the following items related to settlement of disputes:
o 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.
o A charge of $2,800,000, which represented the Company's estimate, at that
time, of costs required to settle certain disputes and litigation.
13
<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 quarter of 1994, the Company recorded a
charge of $429,000 to refine the estimate for Debt Restructuring costs related
to the 1993 Exchange Offer and Consent Solicitation.
INVESTMENT INCOME, NET: Included in investment income, net is interest income of
$87,000 and $121,000 for the three months ended January 31, 1995 and 1994,
respectively. The decrease primarily reflects lower average cash balances over
the respective periods.
Also included in investment income, net are net gains (losses) on temporary
investments of $37,000 and ($472,000) for the three months ended
January 31, 1995 and 1994, respectively.
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.
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
three month periods is due to the reduction of debt.
PROVISION FOR INCOME TAXES: The provision for income taxes in both the
three months ended January 31, 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, if dilutive, common equivalent shares outstanding during the
respective periods.
14
<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.
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. The first notice was based upon the
failure of HMG to provide to HGNJ records needed to analyze information HGNJ had
received indicating that HMG allegedly had engaged in fraudulent billing
practices. The second notice was based upon information uncovered in the review
of those records, when they were ultimately produced, and other available
information. 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 Association). In the arbitration, HMG
contests its alleged default under the HMG Agreement and HGNJ's allegations
regarding HMG's fraudulent conduct. In addition, HMG made a claim against HGNJ
that HMG has the right to provide clinical and clinical administrative 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. HMG maintains that it is entitled to an
unspecified amount of damages for professional fees it would have received for
clinical services had HMG's physicians performed services at the New Jersey
outpatient facilities. 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.
15
<PAGE>
PART II - OTHER INFORMATION
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. HGNJ is cooperating with Blue Cross in Blue Cross'
investigation of HMG. HGNJ has also received a request 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 sent out 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 February 16, 1995, the
arbitrators ruled that the substance of the Additional Notice was not within its
jurisdiction and that HMG would have to seek judicial intervention should they
attempt to enjoin HGNJ from terminating the HMG Agreement based upon the
Additional Notice. In addition, the panel ruled that it would be a "matter for
the courts to determine if the [Additional] Notice should be the subject of
arbitration."
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. In addition, HGA is seeking to recover damages from Progressions
Health Systems, Inc., the successor to the former owner of HGA, based upon
breaches of representations and warranties in the purchase agreement or other
rights of indemnification thereunder. 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 or Progressions Health Systems, Inc.
See Note 2 to the Notes to Consolidated Condensed Financial Statements located
in Part I, Item I for a discussion of certain other litigation matters.
16
<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.
99.1 News Release -- Cooper Subsidiary Reports Results
of Clinical Studies on Glaucoma Drug.
</TABLE>
(b) The Company filed no reports of Form 8-K during the period from November
1, 1994 to January 31, 1995.
17
<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: March 10, 1995 /s/ Robert S. Weiss
-------------------------------------
Senior Vice President, Treasurer and
Chief Financial Officer
18
<PAGE>
STATEMENT OF DIFFERENCES
<TABLE>
<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) 20
Per Common Share.
27 Financial Data Schedule. 21
99.1 News Release -- Cooper Subsidiary
Reports Results of Clinical Studies
on Glaucoma Drug. 22 - 23
</TABLE>
<PAGE>
<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
January 31,
1995 1994
-------- ------
<S> <C> <C>
Net income (loss) $ 275 $( 5,150)
====== ======
Weighted average number of common
shares outstanding 34,117 30,410
Contingently issuable shares 640 -
------ ------
Weighted average number of common
and common equivalent shares
outstanding for earnings per share 34,757 30,410
====== ======
Earnings (loss) per common share $ .01 $( .17)
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 4,670
<SECURITIES> 0
<RECEIVABLES> 21,099
<ALLOWANCES> 2,317
<INVENTORY> 11,420
<CURRENT-ASSETS> 38,354
<PP&E> 45,051
<DEPRECIATION> 10,790
<TOTAL-ASSETS> 89,041
<CURRENT-LIABILITIES> 38,742
<BONDS> 44,189
<COMMON> 3,412
0
0
<OTHER-SE> (6,246)
<TOTAL-LIABILITY-AND-EQUITY> 89,041
<SALES> 12,718
<TOTAL-REVENUES> 23,210
<CGS> 4,232
<TOTAL-COSTS> 14,336
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,090
<INCOME-PRETAX> 343
<INCOME-TAX> 68
<INCOME-CONTINUING> 275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 275
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<PAGE>
EXHIBIT 99.1
NEWS RELEASE
[Letterhead of Cooper Companies]
CONTACTS:
Jeffrey D. Bogart
Marisa A. Heine
D. F. King & Co., Inc.
(212) 269-5550
FOR IMMEDIATE RELEASE
COOPER SUBSIDIARY REPORTS RESULTS OF
CLINICAL STUDIES ON GLAUCOMA DRUG
IRVINE, CALIFORNIA, February 23, 1995 -- CooperVision Pharmaceuticals, Inc.
(CVP), a subsidiary of The Cooper Companies, Inc. (NYSE:COO), reported today
that the results of two controlled multicenter clinical trials of CalOptic'tm'
ophthalmic solution for glaucoma, involving a total of 273 subjects, have
demonstrated both safety and effectiveness in reducing elevated intraocular
pressure (IOP). CalOptic demonstrated an exceptionally good safety profile. Its
effectiveness in reducing IOP was less pronounced than that produced by the
marketed 'beta blocking' drug used as a control in one of the studies. Other
studies are currently ongoing to further define CalOptic's IOP lowering
capabilities. The completion of those studies, in addition to other studies
attempting to demonstrate additional benefits resulting from the topical use of
CalOptic alone and in conjunction with other glaucoma drugs, will cause a
postponement in the filing of a new drug application with the United States Food
and Drug Administration. The Company had previously expected to file that
application late in 1995 or early in 1996.
CalOptic is CVP's patented topical, ophthalmic formulation of Verapamil
HCl, which is a Class I calcium channel blocking agent. Calcium channel blockers
have been used systemically for two decades in the treatment of cardiovascular
disorders. The beneficial effect of these agents is thought to be, in part,
attributable to their generalized ability to dilate blood vessels and reduce
vasospasm, thereby lowering vascular resistance. CVP's studies document that the
topical administration of CalOptic resulted in undetectable or sub-therapeutic
concentrations in the
<PAGE>
bloodstream, indicating that its activity is primarily confined within the eye
and is therefore unlikely to lead to serious side effects or to complications
if taken along with other medications. As a result, CVP anticipates that the
favorable safety profile of CalOptic will be a pivotal consideration in its role
for the treatment of glaucoma.
As reported at the 1994 Association of Research in Vision and Ophthalmology
(ARVO) meeting, CalOptic's mechanism of action in reducing IOP appears to be, in
part, related to increasing the rate of intraocular fluid drainage from the eye.
This mechanism of action is different from that of the currently leading
glaucoma drugs, which restrict the production of intraocular fluids. That fact,
coupled with its favorable safety profile, suggests that CalOptic could be
compatible for use with currently available, topical ophthalmic medications,
such as beta blockers. To date, human clinical studies utilizing a combination
of CalOptic and currently available glaucoma drugs have not been conducted.
Additional studies completed by CVP using subjects that did not have
elevated IOP indicate, in addition to decreasing IOP, CalOptic also increases
blood flow in the central retinal artery, thereby enhancing blood perfusion to
the surrounding tissue in the retina. Many ophthalmologists believe that
increased blood flow to those ocular sites could have a beneficial effect on
limiting the visual field loss associated with both hypertensive and
normotensive glaucoma patients. Studies supporting these bloodflow measurements
using both laser and color Doppler techniques are expected to be presented at
the ARVO meeting being held in May of this year.
CVP is pursuing licensing arrangements with selected global ophthalmic
pharmaceutical companies to obtain assistance in the worldwide development and
commercialization of CalOptic. In commenting on the results, Gregory A. Fryling,
President of CVP, said, 'After completing extensive clinical trials, we believe
that CalOptic has an IOP lowering effect by facilitating aqueous humor outflow
and has a safety profile with fewer side effects than those associated with many
of the current therapies. Also, we will continue our efforts to demonstrate that
CalOptic enhances blood flow to the retina and will seek to demonstrate the
related benefit on visual field functions.'
