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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996 COMMISSION FILE NO. 1-8597
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THE COOPER COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-2657368
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
6140 STONERIDGE MALL ROAD, SUITE 590 94588
PLEASANTON, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
510-460-3600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------------------------- ------------------------
<S> <C>
Common Stock, $.10 Par Value, and New York Stock Exchange
associated Rights Pacific Stock Exchange
10 5/8% Convertible Subordinated Reset New York Stock Exchange
Debentures due 2005 Pacific Stock Exchange
10% Senior Subordinated Secured Notes Pacific Stock Exchange
due 2003
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 31, 1996: Common Stock, $.10 Par
Value -- $153,755,167.
Number of shares outstanding of the registrant's common stock, as of
December 31, 1996: 11,675,940.
DOCUMENTS INCORPORATED BY REFERENCE:
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<CAPTION>
DOCUMENT PART OF FORM 10-K
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Portions of the Annual Report to Stockholders for the Parts I and II
fiscal year ended October 31, 1996
Portions of the Proxy Statement for the Annual Meeting of Part III
Stockholders to be held March 25, 1997
</TABLE>
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PART I
ITEM 1. BUSINESS.
FORWARD-LOOKING STATEMENTS
This report contains projections and other forward-looking statements of
the Company's results and prospects. Actual results could differ materially from
these projections. Factors that could cause or contribute to differences in
fiscal 1997 results include: major changes in business conditions and the
economy in general, new competitive inroads, regulatory and other delays on new
products and programs, unexpected changes in reimbursement rates and payer mix,
unforeseen litigation, decisions to divest businesses and the cost of
acquisition activity, particularly if a large acquisition is not completed.
Future results are also dependent on each business unit meeting specific
objectives.
INTRODUCTION
The Cooper Companies, Inc. ('TCC' or the 'Company'), through its primary
subsidiaries (CooperVision, Inc., CooperSurgical, Inc. and Hospital Group of
America, Inc.), develops, manufactures and markets healthcare products,
including a range of contact lenses and diagnostic and surgical instruments and
accessories, and provides healthcare services through the ownership and
operation of certain psychiatric facilities. TCC is a Delaware corporation which
was organized on March 4, 1980.
COOPERVISION
CooperVision, Inc., ('CooperVision' or 'CVI') develops, manufactures and
markets a range of contact lenses in the United States and Canada and through
distributors in approximately 40 overseas markets. Approximately 50% of the
lenses sold are conventional daily or flexible wear lenses and approximately 50%
constitute planned replacement lenses.
CooperVision's major brand name lenses are Hydrasoft'r', Preference'r',
Preference Toric'tm', Vantage'r', Permaflex'r', Permalens'r', and Cooper
Clear'tm'. These and other products enable CooperVision to fit the needs of a
diverse group of wearers by offering lenses formulated from a variety of
polymers containing varying amounts of water and different degrees of oxygen
permeability, and having different design parameters, diameters, base curves and
lens edges. Certain lenses offer special features such as protection against
ultraviolet light, color tint, astigmatic correction or aphakic correction.
Preference'r', which was introduced in fiscal 1992, is a planned
replacement product manufactured from the Tetrafilcon A polymer. Three clinical
studies, conducted at 31 investigative sites using 603 patients, have
demonstrated Preference's superior performance in connection with deposit
resistance, visual acuity and handling.
In April 1993, CooperVision acquired CoastVision, Inc. ('CoastVision'), a
contact lens company which designs, manufactures and markets high quality soft
toric lenses (the majority of which are custom made) designed to correct
astigmatism. The acquisition has enabled CooperVision to expand into an
additional niche in the contact lens market and to enlarge its customer base.
In October 1994, CooperVision introduced Preference Toric'tm', a toric
planned replacement product. Preference Toric'tm' combines the benefits of the
Tetrafilcon A polymer with the low cost 'FIPS'tm' manufacturing techniques and
design characteristics of the Hydrasoft'r' toric lens. During 1996, CooperVision
launched two major line extensions to Preference Toric'tm' resulting in the
broadest product line in toric planned replacement. As a result, practitioners
can fit Preference Toric'tm' on more patients than any other planned replacement
toric lens.
CooperVision continues to grow its international sales by focusing on key
alliances with optical distributors abroad. Strategic international sales
regions for CooperVision include Latin America, the Middle East and the Pacific
Rim; regions typically under-served by other contact lens manufacturers.
CooperVision is continuing to explore opportunities to expand and diversify
its business into additional niche markets and is pursuing strategic alliances
with European and Asian partners.
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COOPERSURGICAL
CooperSurgical, Inc. ('CooperSurgical' or 'CSI') was established in
November 1990 to compete in niche segments of the rapidly expanding worldwide
market for diagnostic and surgical instruments, accessories and disposable
devices. During the past few years, increasing emphasis has been given to
developing, manufacturing and distributing diagnostic and surgical instruments,
disposable devices and equipment used selectively in both traditional and
minimally invasive surgical procedures, especially those performed by
gynecologists. By the end of fiscal 1996, approximately 90% of CooperSurgical's
net revenue related to women's healthcare products.
CooperSurgical's Loop Electrosurgical Excision Procedure products, marketed
under the LEEP brand name, are primarily used for the removal of cervical and
vaginal pre-cancerous tissue and benign external lesions. Unlike laser ablation,
which tends to destroy tissue, the electrosurgical procedure removes affected
tissue with minimal charring. This allows the practitioner to obtain a viable
tissue specimen for biopsy purposes. In addition, the Loop Electrosurgical
Excision Procedure is less painful to the patient than laser ablation and is
easily learned by practitioners. Because this procedure enables a gynecologist
to both diagnose and treat a patient in one office visit, patients incur lower
costs.
CooperSurgical's LEEP System 1000'r' branded products include an
electrosurgical generator, sterile single application LEEP Electrodes, the
CooperSurgical Smoke Evacuation System 6080'tm', a single application LEEP
RediKit'r', a series of educational video tapes and a line of autoclavable
coated LEEP surgical instruments.
CooperSurgical's mail order catalog offers a broad line of products for use
in diagnostic and surgical gynecologic procedures. Many of these products are
exclusive to CooperSurgical including the newly introduced Prima Series'tm'
nonconductive specula, the Carter Tubal Assistant'tm' instrument designed to
reduce the operating time needed to perform post-partum tubal ligation, The RUMI
System'tm' uterine manipulator, the Cer-View'tm' Lateral Wall Retractor and the
Vu-Max'tm' Speculum incorporating a new design in LEEP procedure instruments.
The catalog includes CooperSurgical's Euro-Med'r' 'Signature' series cervical
biopsy punches and instrument care and sterilization systems. The CooperSurgical
catalog added the Unimar products including the Pipelle'r', Cervex-Brush'tm',
Kronner Manipujector'r' and the patented J-Neddle'tm' for use in closure of
trocar incisions.
In April 1996, the Company acquired Unimar, Inc., a leading provider of
specialized disposable medical devices for gynecology. Unimar offers products
for endometrial tissue sampling for infertility and the diagnosis of cancer and
its precursors, cytological sampling, uterine control during tubal ligation and
minimally invasive laparoscopy.
CooperSurgical's Frigitronics'r' instruments for cryosurgery are used
primarily in dermatologic procedures to treat skin cancers, in ophthalmic
procedures to treat retinal detachments and remove cataracts, and in certain
gynecologic, cardiovascular and general surgical procedures. The primary
products bearing the Frigitronics'r' brand name are the Model 310 Zoom
Colposcope, the CCS-200 Cardiac Cryosurgical System, the Model 2000 Ophthalmic
Cryosurgical System and the Cryo-Plus System for gynecologic office procedures.
In 1995, CooperSurgical acquired the RUMI'tm' uterine manipulator, a
patented system for controlling and positioning the uterus during surgery.
RUMI'tm' product line extensions include the KOH Colpotomizer System'tm' which
facilitates laparoscopic hysterectomy surgical procedures. This system, which
recently received FDA approval, will be introduced in the first quarter of 1997.
Compared to competing products, these new CooperSurgical products offer the
gynecologist substantially improved pelvic exposure, access and traction during
laparoscopic surgery and facilitate dye injection during fertility studies.
HOSPITAL GROUP OF AMERICA
Hospital Group of America, Inc. ('HGA'), owns and operates three
psychiatric facilities: Hartgrove Hospital in Chicago, Illinois (which currently
has 119 licensed beds), Hampton Hospital in Rancocas, New Jersey (which
currently has 100 licensed beds) and MeadowWood Hospital in New Castle, Delaware
(which currently has 50 licensed beds).
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HGA's psychiatric facilities provide intensive and structured treatment for
children, adolescents and adults suffering from a variety of mental illnesses
and/or chemical dependencies, including treatment for women, older adults,
survivors of psychological trauma and alcohol and substance abusers. Services
include comprehensive psychiatric and chemical dependency evaluations, inpatient
and outpatient treatment and partial hospitalization.
In response to market demands for an expanded continuum of care, HGA is
further developing its outpatient and partial hospitalization programs. Several
facilities offer ambulatory programs to children, adolescents and adults. During
1996, the number of ambulatory programs was increased to 11 at Hartgrove
Hospital, 5 at MeadowWood Hospital and 5 at Hampton Hospital. Additional
programs are expected to be initiated in 1997 that will emphasize a continuum of
care services.
In May 1996, the Company acquired land and an existing structure in Kouts,
Indiana, for development of a 50 bed residential treatment center. Construction
and renovations are underway with a projected opening in mid fiscal 1997.
Additionally, HGA continues to provide behavioral health management
services. In 1996, the Company was awarded several contracts for the management
of ambulatory programs. In 1997, HGA will pursue management contracts for
inpatient behavioral health units in medical/surgical hospitals.
The following is a comparison of certain statistical data relating to
inpatient treatment for fiscal years 1996, 1995 and 1994 for the psychiatric
facilities owned by HGA:
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FISCAL YEAR ENDED OCTOBER 31,
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1996 1995 1994
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Total patient days.......................................... 63,918 62,556 71,882
Admissions.................................................. 5,353 4,782 4,787
Average length of stay (in days)............................ 11.9 12.9 15.0
Average occupancy........................................... 64.9% 63.7% 73.2%
</TABLE>
Each psychiatric facility is accredited by the Joint Commission of
Accreditation of Healthcare Organizations (JCAHO), a national organization which
periodically undertakes a comprehensive review of a facility's staff, programs,
physical plant and policies and procedures for purposes of accreditation of such
healthcare facility. Accreditation generally is required for patients to receive
insurance company reimbursement and for participation by the facility in
government sponsored provider programs.
Until December 31, 1995, a medical group not affiliated with HGA was
responsible for providing both clinical and clinical administrative services at
Hampton Hospital. In December 1995, the Company announced the settlement of a
dispute with the management of that medical group. (See Note 4.)(1)
Patient and Third Party Payments. HGA receives payment for its psychiatric
services either from patients, from their health insurers or through the
Medicare, Medicaid and Civilian Health and Medical Program of Uniformed Services
('CHAMPUS') governmental programs. Medicare is a federal program which entitles
persons 65 and over to a lifetime benefit of up to 190 days as an inpatient in
an acute psychiatric facility. Persons defined as disabled, regardless of age,
also receive this benefit. Medicaid is a joint federal and state program
available to persons with limited financial resources. CHAMPUS is a federal
program which provides health insurance for active and retired military
personnel and their dependents.
While other programs may exist or be adopted in different jurisdictions,
the following four categories reflect the primary methods by which HGA's
facilities receive payment for services:
(a) Standard reimbursement, consisting of payment by patients and
their health insurers, is based on a facility's schedule of rates and is
not subject to negotiation with insurance companies, competitive bidding or
governmental limitation.
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(1) All references to Note numbers shall constitute the incorporation by
reference of the text of the specific Note contained in the Notes to
Consolidated Financial Statements of the Company and its subsidiaries contained
in the Company's 1996 Annual Report, which notes are incorporated herein by
reference to Item 8, into the Item number in which it appears.
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(b) Negotiated rate reimbursement is at prices established in advance
by negotiation or competitive bidding for contracts with insurers and other
payors such as managed care companies, health maintenance organizations
('HMO'), preferred provider organizations ('PPO') and similar organizations
which can provide a reasonable number of referrals.
(c) Cost-based reimbursement is predicated on the allowable cost of
services, plus, in certain cases, an incentive payment where costs fall
below a target rate. It is used by Medicare, Medicaid and certain Blue
Cross insurance programs to provide reimbursement in amounts lower than the
standard or negotiated schedule of rates in effect at an HGA facility.
(d) CHAMPUS reimbursement is at either (1) regionally set rates, (2) a
national rate adjusted upward periodically on the basis of the Medicare
Market Basket Index or (3) a fixed discount rate per day at certain
facilities where CHAMPUS contracts with a benefit administration group.
The Medicare, Medicaid and CHAMPUS programs are subject to statutory and
regulatory changes and interpretations, utilization reviews and governmental
funding restrictions, all of which may materially increase or decrease program
payments and the cost of providing services, as well as the timing of payments
to the facilities.
Limits on Reimbursement. Changes in government reimbursement programs have
resulted in limitations on increases in, and in some cases in reduced levels of,
reimbursement for healthcare services, and additional changes are anticipated.
Such changes are likely to result in further limitations on reimbursement
levels. In addition, private payors, including managed care payors, increasingly
are demanding discounted fee structures. Inpatient hospital utilization, average
lengths of stay and occupancy rates continue to be negatively affected by
payor-required pre-admission authorization and utilization review and by payor
pressure to maximize outpatient and alternative healthcare delivery services for
less acutely ill patients. In addition, efforts to impose reduced allowances,
greater discounts and more stringent cost controls by government and other
payors are expected to continue. Although the Company is unable to predict the
effect these changes will have on its operations, as the number of patients
covered by managed care payors increases, significant limits on the scope of
services reimbursed and on reimbursement rates and fees could have a further
adverse effect on HGA's business and earnings.
RESEARCH AND DEVELOPMENT
During the fiscal years ended October 31, 1996, 1995 and 1994, expenditures
for Company-sponsored research and development were $1,176,000, $2,914,000 and
$4,407,000, respectively. The Company decided to discontinue development and
outlicensing of its calcium channel blocker compound. During fiscal 1996,
CooperVision incurred approximately 67% and CooperSurgical incurred
approximately 33% of total research and development. No customer-sponsored
research and development has been conducted.
The Company employs 11 people in its research and development and
manufacturing engineering departments. Product development and clinical research
for CooperVision products are supported by outside specialists in lens design,
formulation science, polymer chemistry, microbiology and biochemistry. Product
research and development for CooperSurgical is conducted in-house and by outside
surgical specialists, including members of both the CooperSurgical and Euro-Med
surgical advisory boards.
GOVERNMENT REGULATION
Healthcare Products. The development, testing, production and marketing of
the Company's healthcare products are subject to the authority of the U.S. Food
and Drug Administration ('FDA') and other federal agencies as well as foreign
ministries of health. The Federal Food, Drug and Cosmetic Act and other statutes
and regulations govern the testing, manufacturing, labeling, storage,
advertising and promotion of such products. Noncompliance with applicable
regulations can result in fines, product recall or seizure, suspension of
production and criminal prosecution.
The Company is currently developing and marketing medical devices, which
are subject to different levels of FDA regulation depending upon the
classification of the device. Class III devices, such as
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flexible and extended wear contact lenses, require extensive premarket testing
and approval procedures, while Class I and II devices are subject to
substantially lower levels of regulation.
A multi-step procedure must be completed before a new contact lens can be
sold commercially. Data must be compiled on the chemistry and toxicology of the
lens, its microbiological profile and the proposed manufacturing process. All
data generated must be submitted to the FDA in support of an application for an
Investigational Device Exemption. Once granted, clinical trials may be initiated
subject to the review and approval of an Institutional Review Board and, where a
lens is determined to be a significant risk device, the FDA. Upon completion of
clinical trials, a Premarket Approval Application must be submitted and approved
by the FDA before commercialization may begin.
The Company, in connection with some of its new surgical products, can
submit premarket notification to the FDA under an expedited procedure known as a
510(k) application, which is available for any product that can be demonstrated
to be substantially equivalent to a device marketed prior to May 28, 1976. If
the new product is not substantially equivalent to a pre-existing device or if
the FDA were to reject a claim of substantial equivalence, extensive preclinical
and clinical testing would be required, additional costs would be incurred and a
substantial delay would occur before the product could be brought to market.
FDA and state regulations also require adherence to applicable 'good
manufacturing practices' ('GMP'), which mandate detailed quality assurance and
record-keeping procedures. In conjunction therewith, the Company is subject to
unscheduled periodic regulatory inspections. The Company believes it is in
substantial compliance with GMP regulations.
The Company also is subject to foreign regulatory authorities governing
human clinical trials and pharmaceutical/medical device sales that vary widely
from country to country. Whether or not FDA approval has been obtained, approval
of a product by comparable regulatory authorities of foreign countries must be
obtained before products may be marketed in those countries. The approval
process varies from country to country, and the time required may be longer or
shorter than that required for FDA approval.
The procedures described above involve the expenditure of considerable
resources and usually result in a substantial time lag between the development
of a new product and its introduction into the marketplace. There can be no
assurance that all necessary approvals will be obtained, or that they will be
obtained in a time frame that allows the product to be introduced for commercial
sale in a timely manner. Furthermore, product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
after marketing has begun.
Healthcare Services. The healthcare services industry is subject to
substantial federal, state and local regulation. Government regulation affects
the Company's business by controlling the use of its properties and controlling
reimbursement for services provided. Licensing, certification and other
applicable governmental regulations vary from jurisdiction to jurisdiction and
are revised periodically.
The Company's facilities must comply with the licensing requirements of
federal, state and local health agencies and with the requirements of municipal
building codes, health codes and local fire department codes. In granting and
renewing a facility's license, a state health agency considers, among other
things, the condition of the physical buildings and equipment, the
qualifications of the administrative personnel and professional staff, the
quality of professional and other services and the continuing compliance of such
facility with applicable laws and regulations.
The states in which the Company operates hospital facilities have in effect
certificate of need statutes. State certificate of need statutes provide,
generally, that prior to the construction of new healthcare facilities, the
addition of new beds or the introduction of a new service, a state agency must
determine that a need exists for those facilities, beds or services. A
certificate of need is generally issued for a specific maximum amount of
expenditures or number of beds or types of services to be provided, and the
holder is generally required to implement the approved project within a specific
time period. Certificate of need issuances for new facilities are extremely
competitive, often with several applicants for a single certificate of need.
All of HGA's facilities are certified or approved as providers under one or
more of the Medicaid or Medicare programs. In order to receive Medicare
reimbursement, each facility must meet the applicable
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conditions promulgated by the United States Department of Health and Human
Services relating to the type of facility, its equipment, its personnel and its
standards of patient care.
The Social Security Act contains a number of provisions designed to ensure
that services rendered to Medicare and Medicaid patients are medically necessary
and meet professionally recognized standards. Those provisions include a
requirement that admissions of Medicare and Medicaid patients to healthcare
facilities must be reviewed in a timely manner to determine the medical
necessity of the admissions. In addition, the Peer Review Improvement Act of
1982 provides that a healthcare facility may be required by the federal
government to reimburse the government for the cost of Medicare-paid services
determined by a peer review organization to have been medically unnecessary.
Various state and federal laws regulate the relationships between providers
of healthcare services and physicians. Among these laws are the Medicare and
Medicaid Anti-Fraud and Abuse Amendments to the Social Security Act, which
prohibit individuals or entities participating in the Medicare or Medicaid
programs from knowingly and willfully offering, paying, soliciting or receiving
'remuneration' (which includes anything of value) in order to induce referrals
for items or services reimbursed under those programs. Sanctions for violating
the Amendments include criminal penalties and civil sanctions, including fines
and possible exclusion from the Medicare and Medicaid programs. In addition,
Section 1877 of the Social Security Act was amended, effective January 1, 1995,
to significantly broaden the prohibitions against physicians making referrals
under Medicare and Medicaid programs to providers with which the physicians have
financial arrangements. Many states have adopted, or are considering, similar
legislative proposals, some of which (including statutes in effect in New Jersey
and Illinois) extend beyond the Medicare and Medicaid programs to all healthcare
services.
In addition, specific laws exist that regulate certain aspects of the
Company's business, such as the commitment of patients to psychiatric hospitals
and disclosure of information regarding patients being treated for chemical
dependency. Many states have adopted a 'patient's bill of rights' which sets
forth standards for dealing with issues such as use of the least restrictive
treatment, patient confidentiality, patient access to telephones, mail and legal
counsel and requiring the patient to be treated with dignity.
Healthcare Reform. In recent years, an increasing number of legislative
initiatives have been introduced or proposed in Congress and in state
legislatures that would effect major changes in the healthcare system, either
nationally or at the state level. Among the proposals under consideration are
price controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, requirements that
all businesses offer health insurance coverage to their employees and the
creation of a government health insurance plan or plans that would cover all
citizens. There continue to be efforts at the federal level to introduce various
insurance market reforms, expanded fraud and abuse and anti-referral legislation
and further reductions in Medicare and Medicaid reimbursement. A broad range of
both similar and more comprehensive healthcare reform initiatives is likely to
be considered at the state level. It is uncertain which, if any, of these or
other proposals will be adopted. The Company cannot predict the effect such
reforms or the prospect of their enactment may have on the business of the
Company and its subsidiaries.
RAW MATERIALS
In general, raw materials required by CooperVision consist of various
polymers and packaging materials. Alternative sources of all of these materials
are available. Raw materials used by CooperSurgical or its suppliers are
generally available from a variety of sources. Products manufactured for
CooperSurgical are generally available from more than one source. However,
because some products require specialized manufacturing procedures,
CooperSurgical could experience inventory shortages if an alternative
manufacturer had to be secured on short notice.
MARKETING AND DISTRIBUTION
Healthcare Products. In the United States and Canada, CooperVision markets
its products through its field sales representatives, who call on
ophthalmologists, optometrists, opticians and optical chains. In the United
States, field sales representatives also call on distributors.
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CooperSurgical's products are marketed worldwide by a network of
independent sales representatives and distributors, and additionally, in the
United States through a direct mail catalog program.
Healthcare Services. HGA's marketing concept aims to position each
psychiatric facility as the provider of the highest quality mental health
services in its marketplace. HGA employs a combination of general advertising,
toll-free 'help lines,' community education programs and facility-based
continuing education programs to underscore the facility's value as a mental
health resource center. HGA's marketing emphasizes discrete programs for select
illnesses or disorders because of its belief that marketing with program
differentiation will be valuable to a referral source seeking treatment for
specific disorders. Referral sources include psychiatrists, other physicians,
psychologists, social workers, school guidance counselors, police, courts,
clergy, care-provider organizations and former patients.
PATENTS, TRADEMARKS AND LICENSING AGREEMENTS
TCC owns or licenses a variety of domestic and foreign patents which, in
the aggregate, are material to its businesses. Unexpired terms of TCC's United
States patents range from less than one year to a maximum of 17 years.
As indicated in the references to such products in this Item 1, the names
of certain of TCC's products are protected by trademark registrations in the
United States Patent and Trademark Office and, in some instances, in foreign
trademark offices as well. Applications are pending for additional trademark
registrations. TCC considers these trademarks to be valuable because of their
contribution to the market identification of its various products.
DEPENDENCE UPON CUSTOMERS
No material portion of TCC's businesses is dependent upon any one customer
or upon any one affiliated group of customers. However, approximately 23% and
30%, respectively, of HGA's fiscal 1996 net patient revenue was generated by
Medicaid and Medicare.
GOVERNMENT CONTRACTS
No material portion of TCC's businesses is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
United States government.
COMPETITION
Each of TCC's businesses operates within a highly competitive environment.
Competition in the healthcare industry revolves around the search for
technological and therapeutic innovations in the prevention, diagnosis and
treatment of illness or disease. TCC competes primarily on the basis of product
quality, program differentiation, technological benefit, service and
reliability, as perceived by medical professionals.
Healthcare Products. Numerous companies are engaged in the development and
manufacture of contact lenses. CooperVision competes primarily on the basis of
product quality, service and reputation among medical professionals and by its
participation in specialty niche markets. It has been, and continues to be, the
sponsor of clinical lens studies intended to generate information leading to the
improvement of CooperVision's lenses from a medical point of view. Major
competitors have greater financial resources and larger research and development
and sales forces than CooperVision. Furthermore, many of these competitors offer
a greater range of contact lenses, plus a variety of other eyecare products,
including lens care products and ophthalmic pharmaceuticals, which may give them
a competitive advantage in marketing their lenses to high volume contract
accounts.
In the surgical segment, competitive factors are technological and
scientific advances, product quality, price and effective communication of
product information to physicians and hospitals. CooperSurgical believes that it
benefits, in part, from the technological advantages of certain of its products
and from the ongoing development of new medical procedures, which creates a
market for equipment and instruments specifically tailored for use in such new
procedures. CooperSurgical
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competes by focusing on distinct niche markets and supplying medical personnel
working in those markets with equipment, instruments and disposable products
that are high in quality and that, with respect to certain procedures, enable a
medical practitioner to obtain from one source all of the equipment, instruments
and disposable products required to perform such procedures. As CooperSurgical
develops products to be used in the performance of new medical procedures, it
offers training to medical professionals in the performance of such procedures.
CooperSurgical competes with a number of manufacturers in each of its niche
markets, including larger manufacturers that have greater financial and
personnel resources and sell a substantially larger number of product lines.
Healthcare Services. In most areas in which HGA operates, there are other
psychiatric facilities that provide services comparable to those offered by
HGA's facilities. Some of those facilities are owned by governmental
organizations, not-for-profit organizations or investor-owned companies having
substantially greater resources than HGA and, in some cases, tax-exempt status.
Psychiatric facilities frequently draw patients from areas outside their
immediate locale, therefore, HGA's psychiatric facilities compete with both
local and distant facilities. In addition, psychiatric facilities compete with
psychiatric units in acute care hospitals. HGA's strategy is to develop high
quality programs designed to target specific disorders and to retain a highly
qualified professional staff.
BACKLOG
TCC does not consider backlog to be a material factor in its businesses.
SEASONALITY
HGA's psychiatric facilities experience a decline in occupancy rates during
the summer months when school is not in session and during the year-end holiday
season. CVI's contact lens sales in the first fiscal quarter are generally lower
than subsequent quarters due to fewer patient visits during the holiday season.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Federal, state and local provisions regulating the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, do not currently have a material effect upon TCC's capital
expenditures, earnings or competitive position.
WORKING CAPITAL
TCC's businesses have not required any material working capital
arrangements in the past five years.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS, GEOGRAPHIC AREAS, FOREIGN
OPERATIONS AND EXPORT SALES
Note 13 sets forth financial information with respect to TCC's business
segments. Operations outside the United States are immaterial.
EMPLOYEES
On October 31, 1996, TCC and its subsidiaries employed approximately 1,100
persons. In addition, HGA's psychiatric facilities are staffed by licensed
physicians who have been admitted to the medical staff of an individual
facility. Certain of those physicians are not employees of HGA. TCC believes
that its relations with its employees are good.
8
<PAGE>
<PAGE>
ITEM 2. PROPERTIES.
The following are TCC's principal facilities as of December 31, 1996:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
FLOOR AREA ANNUAL LEASE
LOCATION OPERATIONS (SQ. FT.) RENT EXPIRATION
- -------------------------------- ---------------------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
United States
Pleasanton, CA Executive Offices 13,700 $212,000 Sept. 2000
Fort Lee, NJ Offices 11,200(1) $231,000(1) Mar. 2005
Chicago, IL Psychiatric Hospital 67,800 Owned in fee N/A(2)
New Castle, DE Psychiatric Hospital 45,000 Owned in fee N/A(2)
Mt. Holly, NJ Learning Facility 22,000 $193,000 Aug. 1997
Rancocas, NJ Psychiatric Hospital 65,000 Owned in fee N/A(2)
Kouts, IN Residential Treatment Center 13,300 Owned in fee N/A
Irvine, CA Executive Offices, CVI
Offices, distribution and
customer service 17,500 $120,000 Jan. 1998
Huntington Beach, CA CVI manufacturing &
technical offices 20,600 $190,000 April 1997
Fairport, NY CVI administrative offices &
marketing 15,300 $240,000(3) March 1997
Scottsville, NY CVI manufacturing,
distribution and warehouse
facilities 36,000 Owned in fee N/A
Shelton, CT CSI manufacturing, research
and development, marketing,
distribution and warehouse
facilities 25,000 $288,000 Dec. 2001
Canada
Markham, Ont. CVI Offices, manufacturing
distribution and warehouse
facilities 21,000 $75,000 Feb. 2000
</TABLE>
- ------------
(1) The Company entered into sublease agreements on December 9, 1994 and March
18, 1996, pursuant to which it has subleased to a third party all of its
Fort Lee, New Jersey, office space at a combined annual base rent of
$173,000 until March 31, 2000. The subtenant has an option to renew the
subleases for an additional five years.
(2) Outstanding loans, totaling $10,675,000 as of October 31, 1996, were secured
by these properties.
(3) Includes utilities, common area charges and taxes.
------------------------
The Company believes its properties are suitable and adequate for its
businesses.
ITEM 3. 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 or
results of operations.
In January 1994, the Company was found guilty on six counts of mail fraud
and one count of wire fraud based upon the conduct of a former Co-Chairman
relating to a 'trading scheme' to 'frontrun' high yield bond purchases, but was
acquitted of charges of conspiracy and aiding and abetting violations of the
Investment Advisers Act. 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, which was paid August 15,
9
<PAGE>
<PAGE>
1994. In addition, the Company was ordered to pay a noninterest bearing fine
over the next three years in the amount of $1,831,568. Payments of $350,000 each
were made in 1995 and 1996 with an additional payment of $1,131,568 payable on
July 15, 1997. These amounts were charged against net income in previous fiscal
years. Also the Company settled in December 1994 a related SEC action under
which the Company agreed to the disgorgement of $1,621,474 and the payment of a
civil penalty of $1,150,000. The Company had already disgorged $1,310,166 in
connection with the sentence imposed in a related criminal action involving the
'frontrunning' arrangement; the balance of the disgorgement was paid in January
1995. The civil penalty imposed by the SEC was offset by the larger fine to
which the Company was sentenced in the criminal action.
The Company was named as a nominal defendant in a stockholder 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. Lewis and Goldberg subsequently amended
their complaint, and the Delaware Chancery Court consolidated the amended
complaint with a similar complaint filed by another plaintiff as In re The
Cooper Companies, Inc. Litigation, Consolidated C.A. 12584. The Lewis and
Goldberg amended complaint was designated as the operative complaint (the
'Derivative Complaint'). The 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 Derivative Complaint also alleges that the defendants violated
their fiduciary duties to the Company by not vigorously investigating certain
allegations of securities fraud. The 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. The parties have been engaged in negotiations and had agreed upon the
terms of a settlement. Although the proposed settlement was submitted to the
Court for approval following notice to the Company's stockholders and a hearing,
Plaintiffs have decided not to proceed with the settlement in its present form,
and the parties have reopened settlement discussions. There can be no assurance
that the current discussions 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 Derivative Complaint.
The Company was also named as a nominal defendant in a stockholder
derivative action entitled Bruce D. Sturman v. Gary A. Singer, Steven G. Singer,
Brad C. Singer, Dorothy Singer as the Executrix of the Estate of Martin Singer,
Karen Sue Singer, Norma Singer Brandes, Normel Construction Corp., Brandes &
Singer, and Romulus Holdings, Inc., which was filed on June 6, 1995 in the Court
of Chancery of the State of Delaware, New Castle County. The complaint is
similar to a derivative complaint filed by Mr. Sturman in the Supreme Court of
the State of New York on May 26, 1992, which was dismissed under New York Civil
Practice Rule 327(a) on August 17, 1993. The dismissal of the New York case was
affirmed by the Appellate Division on March 28, 1995. The allegations in the
Delaware complaint filed by Mr. Sturman relate to substantially the same facts
and events at issue in In re The Cooper Companies, Inc. Litigation described
above, and similar relief is sought. The parties had agreed that Mr. Sturman's
Delaware action would be consolidated into and tentatively settled with In re
The Cooper Companies, Inc. Litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of fiscal 1996 to a
vote of the Company's security holders.
10
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on The New York Stock Exchange, Inc.
and the Pacific Stock Exchange Incorporated. No cash dividends were paid with
respect to the common stock in fiscal 1996 or 1995.
The indenture, dated as of March 1, 1985, governing the Company's 10 5/8%
Convertible Subordinated Reset Debentures Due 2005, as amended by the First
Supplemental Indenture dated as of June 29, 1989 and the Second Supplemental
Indenture dated as of January 6, 1994, and the indenture dated as of January 6,
1994 governing the Company's 10% Senior Subordinated Secured Notes due 2003
(collectively, the 'Indentures'), prohibit the payment of cash dividends on the
Company's common stock unless (i) no defaults exist or would exist under the
Indentures, (ii) the Company's Cash Flow Coverage Ratio (as defined in the
Indentures) for the most recently ended four full fiscal quarters has been at
least 1.5 to 1, and (iii) such cash dividend, together with the aggregate of all
other Restricted Payments (as defined in the Indentures), is less than the sum
of 50% of the Company's cumulative net income plus the proceeds of certain sales
of the Company's or its subsidiaries' capital stock subsequent to February 1,
1994. The Company does not anticipate, in the foreseeable future paying cash
dividends on its common stock.
Common stock price range:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
High $8.000 $11.125 $13.125 $15.125
Low $5.625 $ 6.375 $ 9.625 $10.750
<CAPTION>
1995
- ---------
<S> <C> <C> <C> <C>
High $8.625 $ 8.625 $ 9.750 $11.250
Low $6.000 $ 5.250 $ 5.250 $ 5.875
</TABLE>
At December 31, 1996 and 1995, there were 2,845 and 3,067 common
stockholders of record, respectively.
ITEM 6. SELECTED FINANCIAL DATA.
The information required for this item is contained under the caption 'Five
Year Financial Highlights,' in the Company's 1996 Annual Report to Stockholders
which is incorporated herein by reference and is included as Exhibit 13 to this
Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required for this item is contained under the caption
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' in the Company's 1996 Annual Report to Stockholders, which is
incorporated herein by reference and is included as Exhibit 13 to this Form
10-K.
ITEM 8. FINANCIAL STATEMENTS.
The information required for this item is included under the captions
'Consolidated Balance Sheets,' 'Consolidated Statements of Operations,'
'Consolidated Statements of Stockholders' Equity (Deficit),' 'Consolidated
Statements of Cash Flows,' 'Notes to Consolidated Financial Statements' and
'Independent Auditors' Report' in the Company's 1996 Annual Report to
Stockholders, which is incorporated herein by reference and is included as
Exhibit 13 to this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
11
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading 'Election of Directors' and
'Executive Officers of the Company,' in the Company's Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on March 25, 1997 is
incorporated herein by reference with respect to each of the Company's directors
and the executive officers who are not also directors of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the sub-heading 'Executive Compensation'
and 'Compensation of Directors,' of the 'Election of Directors' section of the
Company's Proxy Statement for the Annual Meeting of Stockholders scheduled to be
held on March 25, 1997 is incorporated herein by reference with respect to the
Company's chief executive officer and the four other most highly compensated
executive officers of the Company and the directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the sub-headings 'Securities Held by
Management' and 'Principal Securityholders' of the 'Election of Directors'
section of the Company's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on March 25, 1997 is incorporated herein by reference with
respect to certain beneficial owners, the directors and management.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the sub-heading 'Certain Relationships and
Related Transactions' of the 'Election of Directors' section of the Company's
Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on
March 25, 1997 is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements of the Company.
The Consolidated Financial Statements and the Notes thereto and the
Independent Auditors' Report on the foregoing, such items contained in
the Company's 1996 Annual Report to Stockholders which is incorporated
herein by reference and is included as Exhibit 13 to this Form 10-K.
2. Accountants' Consent and Report on Schedule.
3. Financial Statement Schedules of the Company.
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION
--------- -----------
<S> <C>
II. Valuation and Qualifying Accounts
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and,
therefore, have been omitted.
Also included herein are separate company financial statements and the
notes thereto, the Independent Auditors' Report thereon and required
financial statement schedules of:
Hospital Group of America, Inc. and Subsidiaries and CooperSurgical,
Inc.
12
<PAGE>
<PAGE>
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors
THE COOPER COMPANIES, INC.
The audits of the consolidated financial statements of The Cooper
Companies, Inc. and subsidiaries referred to in our report dated December 9,
1996, which is incorporated herein by reference, included the related financial
statement schedule for each of the years in the three-year period ended October
31, 1996 as listed in Item 14 of the Annual Report on Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to incorporation by reference in the Registration Statement Nos.
33-50016 and 33-11298 on Form S-3 and Registration Statement Nos. 333-10997,
33-27938, 33-36325 and 33-36326 on Form S-8 of The Cooper Companies, Inc. of our
reports dated December 9, 1996, relating to the consolidated balance sheets of
The Cooper Companies, Inc. and subsidiaries as of October 31, 1996 and 1995 and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
October 31, 1996, and related schedule, and of our reports dated December 3,
1996 relating to the consolidated balance sheets of Hospital Group of America,
Inc. and subsidiaries as of October 31, 1996 and 1995 and the related
consolidated statements of operations, stockholder's equity (deficiency) and
cash flows for each of the years in the three-year period ended October 31,
1996, and related schedule, and the balance sheets of CooperSurgical, Inc. as of
October 31, 1996 and 1995 and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended October 31, 1996, and related schedule, which reports
appear in or are incorporated by reference in the October 31, 1996 Annual Report
on Form 10-K of The Cooper Companies, Inc.
KPMG PEAT MARWICK LLP
San Francisco, California
January 24, 1997
13
<PAGE>
<PAGE>
SCHEDULE II
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS/ BALANCE
BEGINNING COSTS AND RECOVERIES/ AT END
OF YEAR EXPENSES OTHER (1) OF YEAR
---------- ---------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended October 31, 1996................................. $2,241 $1,849 $(2,121) $1,969
---------- ---------- ----------- -------
---------- ---------- ----------- -------
Year ended October 31, 1995................................. $2,647 $2,300 $(2,706) $2,241
---------- ---------- ----------- -------
---------- ---------- ----------- -------
Year ended October 31, 1994................................. $3,240 $2,431 $(3,024) $2,647
---------- ---------- ----------- -------
---------- ---------- ----------- -------
</TABLE>
- ------------
(1) Uncollectible accounts written off, recovered accounts receivable previously
written off and other items.
14
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
HOSPITAL GROUP OF AMERICA, INC.:
We have audited the accompanying consolidated balance sheets of Hospital
Group of America, Inc., (a wholly owned subsidiary of The Cooper Companies,
Inc.) and subsidiaries ('HGA') as of October 31, 1996 and 1995, and the related
consolidated statements of operations, stockholder's equity (deficiency) and
cash flows for each of the years in the three year period ended October 31,
1996. In connection with our audits of the consolidated financial statements, we
also audited financial statement Schedule II. These consolidated financial
statements and financial statement schedule are the responsibility of HGA's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hospital
Group of America, Inc. and subsidiaries at October 31, 1996 and 1995, and the
results of their operations, and their cash flows for each of the years in the
three year period ended October 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
December 3, 1996
15
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 1,464 $ 2,314
Accounts receivable, net of estimated uncollectibles of $1,253 in 1996 and $1,693 in
1995................................................................................. 13,108 11,176
Other receivables..................................................................... 2 64
Supplies.............................................................................. 253 238
Prepaid expenses and other current assets............................................. 792 1,135
-------- -------
Total current assets............................................................. 15,619 14,927
-------- -------
Property and equipment:
Land.................................................................................. 1,305 1,305
Buildings and improvements............................................................ 31,732 31,521
Equipment, furniture and fixtures..................................................... 2,347 1,988
Construction in progress.............................................................. 861 0
-------- -------
36,245 34,814
Less accumulated depreciation......................................................... (6,221) (4,726)
-------- -------
Total property and equipment, net................................................ 30,024 30,088
Goodwill, net of accumulated amortization of $906 in 1996 and $701 in 1995................. 4,604 5,032
Other assets............................................................................... 268 353
-------- -------
$ 50,515 $50,400
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable...................................................................... $ 1,149 $ 577
Accrued liabilities................................................................... 2,525 4,751
Accrued salaries and related expenses................................................. 2,009 2,565
Accrued interest payable.............................................................. 146 177
Net estimated third-party payor settlements........................................... 492 2,098
Current portion of long-term debt..................................................... 667 2,124
-------- -------
Total current liabilities........................................................ 6,988 12,292
Long-term debt, less current portion....................................................... 10,008 9,222
Other non-current liabilities.............................................................. 1,680 3,001
Due to parent.............................................................................. 44,011 33,340
Stockholder's deficiency:
Common stock, $.01 par value, 1000 shares authorized, issued and outstanding.......... 0 0
Additional paid-in capital............................................................ 12,324 12,324
Accumulated deficit................................................................... (24,496) (19,779)
-------- -------
Total stockholder's deficiency................................................... (12,172) (7,455)
-------- -------
$ 50,515 $50,400
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net patient service revenue..................................................... $40,676 $ 38,392 $40,365
Other operating revenue......................................................... 2,337 2,520 2,675
------- -------- -------
Net operating revenue........................................................... 43,013 40,912 43,040
------- -------- -------
Costs and expenses:
Salaries and benefits...................................................... 24,394 23,654 23,348
Purchased services......................................................... 1,998 1,865 2,044
Professional fees.......................................................... 3,116 3,312 3,177
Supplies expense........................................................... 2,162 1,938 1,929
Other operating expenses................................................... 7,214 7,832 8,620
Settlement of disputes, net................................................ (223) 5,213 1,508
Bad debt expense........................................................... 1,211 1,551 1,753
Depreciation and amortization.............................................. 1,871 1,790 1,735
Interest on long-term debt................................................. 1,737 1,377 1,365
Interest on due to Parent note............................................. 4,250 3,458 2,795
------- -------- -------
Total costs and expenses.............................................. 47,730 51,990 48,274
------- -------- -------
Net loss........................................................................ $(4,717) $(11,078) $(5,234)
------- -------- -------
------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY)
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDER'S
COMMON PAID-IN ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT (DEFICIENCY)
------ ---------- ----------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Balance, November 1, 1993.................................... $0 $ 12,324 $ (3,467) $ 8,857
Net loss................................................ 0 0 (5,234) (5,234)
-- ---------- ----------- -------------
Balance, October 31, 1994.................................... $0 $ 12,324 $ (8,701) $ 3,623
-- ---------- ----------- -------------
-- ---------- ----------- -------------
Balance, November 1, 1994.................................... $0 $ 12,324 $ (8,701) $ 3,623
Net loss................................................ 0 0 (11,078) (11,078)
-- ---------- ----------- -------------
Balance, October 31, 1995.................................... $0 $ 12,324 $ (19,779) $ (7,455)
-- ---------- ----------- -------------
-- ---------- ----------- -------------
Balance, November 1, 1995.................................... $0 $ 12,324 $ (19,779) $ (7,455)
Net loss................................................ 0 0 (4,717) (4,717)
-- ---------- ----------- -------------
Balance, October 31, 1996.................................... $0 $ 12,324 $ (24,496) $ (12,172)
-- ---------- ----------- -------------
-- ---------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................................... $(4,717) $(11,078) $(5,234)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization of goodwill and loan fees................ 1,871 1,790 1,735
Accrued interest, management fees and net expenses due to Parent....... 8,663 4,328 5,477
Change in operating assets and liabilities:
(Increase) in accounts receivable................................. (1,870) (174) (1,698)
(Increase) Decrease in supplies, other current assets and other
noncurrent assets............................................... 636 312 (570)
(Increase) Decrease in accounts payable, accrued expenses,
estimated third party payor settlements, and other noncurrent
liabilities..................................................... (5,168) 5,060 3,785
------- -------- -------
Net cash provided by (used in) operating activities.......... (585) 238 3,495
------- -------- -------
Cash flows from investing activities:
Proceeds from sale of property.............................................. 0 0 121
Capital expenditures........................................................ (1,431) (333) (375)
Proceeds from Progressions' settlement...................................... 235 421 0
Other....................................................................... 48 5 58
------- -------- -------
Net cash provided by (used in) investing activities.......... (1,148) 93 (196)
------- -------- -------
Cash flows from financing activities:
Principal payments on long-term debt........................................ (667) (1,210) (1,162)
Cash to Parent.............................................................. (250) (800) (400)
Cash advance from Parent.................................................... 1,800 400 1,400
------- -------- -------
Net cash provided by (used in) financing activities.......... 883 (1,610) (162)
------- -------- -------
Net (decrease) increase in cash and cash equivalents............................. (850) (1,279) 3,137
Cash and cash equivalents, beginning of period................................... 2,314 3,593 456
------- -------- -------
Cash and cash equivalents, end of period......................................... $ 1,464 $ 2,314 $ 3,593
------- -------- -------
------- -------- -------
Supplemental disclosure of cash flow information
Interest paid during the period............................................. $ 1,486 $ 1,452 $ 1,452
------- -------- -------
------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1996 , 1995 AND 1994
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- The accompanying consolidated financial statements include the
accounts of Hospital Group of America, Inc. (HGA) a wholly-owned subsidiary of
The Cooper Companies, Inc. ('Cooper' or 'Parent') and its wholly owned
subsidiaries (the 'Company'). All intercompany balances and transactions have
been eliminated. The Company owns and operates the following psychiatric
facilities (the 'Facilities'):
<TABLE>
<CAPTION>
NAME OF FACILITY LOCATION
- ---------------- --------
<S> <C>
Hartgrove Hospital............................ Chicago, Illinois
Hampton Hospital.............................. Rancocas, New Jersey
MeadowWood Hospital........................... New Castle, Delaware
</TABLE>
Net Patient Service Revenue -- Net patient service revenue is recorded at
the estimated net realizable amounts from patients, third party payors and
others for services rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Retroactive adjustments are
accrued on an estimated basis in the period the related services are rendered
and adjusted in the period as final settlements are determined. In 1996 and
1995, HGA received and recognized approximately $2,000,000 and $2,400,000,
respectively, associated with prior year cost report settlements.
With respect to net service revenue, receivables from government programs
represent the only concentrated group of potential credit risk to the Company.
Management does not believe that there are any credit risks associated with
these governmental agencies. Negotiated and private receivables consist of
receivables from various payors, including individuals involved in diverse
activities, subject to differing economic conditions, and do not represent any
concentrated credit risks to the Company. Furthermore, management continually
monitors and, where indicated, adjusts the allowances associated with these
receivables.
Charity Care -- The Company provides care to indigent patients who meet
certain criteria under its charity care policy without charge or at amounts less
than its established rates. Because the Company does not pursue collection of
amounts determined to qualify as charity care, they are not reported as revenue.
The Company maintains records to identify and monitor the level of charity care
it provides. These records include the amount of charges foregone for services
and supplies furnished under its charity care policy. Charges at the Company's
established rates foregone for charity care provided by the Company amounted to
$2,275,431, $2,142,000 and $2,498,000 for 1996, 1995 and 1994, respectively.
Hampton Hospital is required by its Certificate of Need to incur not less than
10% of total patient days as free care.
Health Insurance Coverage -- The Company is self-insured for the health
insurance coverage offered to its employees. The provision for estimated
self-insured health insurance costs includes management's estimates of the
ultimate costs for both reported claims and claims incurred but not reported.
Supplies -- Supplies consist principally of medical supplies and are stated
at the lower of cost (first-in, first-out method) or market.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed on the straight-line method over the estimated useful
lives of the respective assets, which range from 20 to 40 years for buildings
and improvements and 5 to 10 years for equipment, furniture and fixtures.
Goodwill -- Goodwill is amortized on a straight-line basis over thirty
years. Goodwill is reviewed for impairment whenever events or circumstances
provide evidence that suggest that the carrying amount of goodwill may not be
recoverable. The Company assesses the recoverability of goodwill by
20
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED OCTOBER 31, 1996 , 1995 AND 1994
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through reasonably expected undiscounted future results.
Other Assets -- Loan fees incurred in obtaining long-term financing are
deferred and recorded as other assets. Loan fees are amortized over the terms of
the related loans. The balance of unamortized loan fees amounted to $149,000 and
$258,000 respectively, at October 31, 1996 and 1995.
Income Taxes -- The Company is included in the consolidated income tax
returns of the Parent. The consolidated federal, state and local taxes are
subject to a tax sharing agreement under which the Company's liability is
computed on a non-consolidated basis using a combined rate of 40%.
Statement of Financial Standards No. 109 'Accounting for Income Taxes' (FAS
109) was adopted by the Company in 1994. FAS 109 required a change from the
deferred method to the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of 'temporary differences' by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. Under FAS 109, the effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
Provision is made for deferred income taxes applicable to temporary
differences between financial statement and taxable income.
Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash and cash equivalents include investments
in highly liquid debt instruments with a maturity of three months or less.
B. NET PATIENT SERVICE REVENUE
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
Commercial Insurance -- Most commercial insurance carriers reimburse the
Company on the basis of the Facilities' charges, subject to the rates and
limits specified in their policies. Patients covered by commercial
insurance generally remain responsible for any differences between
insurance proceeds and total charges.
Blue Cross -- Reimbursement under Blue Cross plans vary depending on the
areas in which the Facilities presently operate. Benefits paid to the
Company can be charge-based, cost based, negotiated per diem rates or
approved through a state rate setting process.
Medicare -- Services rendered to Medicare program beneficiaries are
reimbursed under a retrospectively determined reasonable cost system with
final settlement determined after submission of annual cost reports by the
Company and audits thereof by the Medicare fiscal intermediary.
Managed Care -- Services rendered to subscribers of health maintenance
organizations, preferred provider organizations and similar organizations
are reimbursed based on prospective negotiated rates.
Medicaid -- Services rendered to State Medicaid beneficiaries are
reimbursed based on rates established by each individual state program.
21
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED OCTOBER 31, 1996 , 1995 AND 1994
The Company's business activities are primarily with large insurance
companies and federal and state agencies or their intermediaries. Other than
adjustments arising from audits by certain of these agencies, the risk of loss
arising from the failure of these entities to perform according to the terms of
their respective contracts is considered remote.
C. RELATED PARTY TRANSACTIONS
The current portion of Due to Parent as of October 31, 1996 consists of
amounts due under a Demand Note (Demand Note) for costs incurred or paid by the
Parent in connection with the acquisition of the Company in 1992, cash advances
from the Parent, interest payable on the subordinated note in the amount of
$1,920,000 and an allocation of Cooper corporate services amounting to
$1,378,000, net of payments to the Parent.
All current and future borrowing under the terms of the Demand Note bear
interest, payable monthly, at the rate of 15% per annum (17% in the event
principal and interest is not paid when due), and all principal and all accrued
and unpaid interest under the Demand Note shall be completely due and payable on
demand. The Parent has indicated that a demand for payment will not be made
prior to November 1, 1997.
The non-current portion of Due to Parent consists of a $16,000,000
subordinated note. The annual interest rate on the Note is 12%. The principal
amount of this Note shall be due and payable on May 29, 2002 unless payable
sooner pursuant to the terms of the Note.
HGA performed management services on behalf of PSG Management, Inc. (PSG),
a sister company to HGA and a wholly-owned subsidiary of Cooper, in connection
with a management agreement, which ended in May, 1995, between PSG and the
former owner of HGA for which it earned a fee of 25% of certain of its corporate
headquarters' cost plus a 20% mark-up. Such fees earned by HGA from PSG amounted
to $269,000 and $428,000 for the years ended October 31, 1995 and 1994,
respectively.
HGA allocated interest expense to PSG primarily to reflect an estimate of
the interest cost on debt incurred by HGA in connection with the 1992
acquisition of the Company by Cooper, which relates to the PSG management
agreement described above. Such allocations amounted to $163,000 and $254,000
for 1995 and 1994, respectively, and are recorded as reductions of interest on
long-term debt and interest on Due to Parent Demand Note.
D. EMPLOYEE BENEFITS
The Company participates in Cooper's 401(k) plan (the 'Plan'), which covers
substantially all full-time employees with more than 60 days of service. The
Company matches employee contributions up to certain limits. These costs were
$49,000, $58,000 and $61,000 for 1996, 1995 and 1994, respectively.
22
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED OCTOBER 31, 1996 , 1995 AND 1994
E. LONG TERM DEBT
Long-term debt at October 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Bank term loan, interest at 2.5% above the bank's prime rate
(8.25% at October 31, 1996), subject to a minimum rate of 9%,
payable monthly, principal payable in installments through
August 2001.................................................. $10,675,000 $ 9,889,000
Industrial Revenue Bonds (IRB), interest at 85% of prime rate
(8.75% at October 31, 1995), paid in 1996.................... 0 1,457,000
----------- -----------
10,675,000 11,346,000
Less current portion........................................... (667,000) (2,124,000)
----------- -----------
$10,008,000 $ 9,222,000
----------- -----------
----------- -----------
</TABLE>
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
OCTOBER 31
- ------------
<S> <C>
1997......................................................................... $ 667,000
1998......................................................................... 667,000
1999......................................................................... 667,000
2000......................................................................... 667,000
2001......................................................................... 8,007,000
</TABLE>
Substantially all of the property and equipment and accounts receivable of
the Company collateralize the debt outstanding.
The long-term debt agreement contains several covenants, including the
maintenance by the Company of certain ratios and levels of net worth (as
defined), restrictions with respect to the payments of cash dividends on common
stock and on the levels of capital expenditures, interest and debt payments. On
December 29, 1995, the outstanding principal balance of $1,320,000 on the
Industrial Revenue Bond was reloaded into the bank term loan. The bank term loan
was renegotiated on September 17, 1996. Terms of the amended agreement reduced
the interest rate to two and one half percentage points above the bank's prime
rate and extended the loan maturity to August 1, 2001. Additionally, because HGA
achieved targeted operating results, the interest rate was further reduced
effective November 1, 1996 to a rate of two percentage points (2%) above the
bank's prime rate, subject to a minimum of nine percent (9%). The rates in
effect at October 31, 1996 and 1995 were 10.75% and 12.75%, respectively.
F. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in various
litigation cases. In the opinion of management, the disposition of such
litigation will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
23
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED OCTOBER 31, 1996 , 1995 AND 1994
The Company leases certain space and equipment under operating lease
agreements. The following is a schedule of estimated minimum payments due under
such leases with an initial term of more than one year as of October 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31 BUILDINGS EQUIPMENT TOTAL
- ---------------------- --------- --------- --------
<S> <C> <C> <C>
1997............................................... $ 287,000 $ 66,000 $353,000
1998............................................... 179,000 60,000 239,000
1999............................................... 30,000 32,000 62,000
2000-2001.......................................... 0 48,000 48,000
--------- --------- --------
$ 496,000 $206,000 $702,000
--------- --------- --------
--------- --------- --------
</TABLE>
Some of the operating leases contain provisions for renewal or increased
rental (based upon increases in the Consumer Price Index), none of which are
taken into account in the above table. Rental expense under all operating leases
amounted to $857,000, $706,000 and $736,000 for 1996, 1995 and 1994,
respectively.
On May 14, 1996, the Company acquired land and an existing structure in
Kouts, Indiana, for development of a 50 bed residential treatment center.
Renovations and additions to the existing structure are currently in progress
and an opening date of March 31, 1997 is anticipated.
G. INCOME TAXES
A reconciliation of the provision for (benefit of) income taxes included in
the Company's consolidated statements of operations and the amount computed by
applying the federal income tax rate to losses follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed expected benefit..................................... $(1,604) $(3,766) $(1,780)
Increase in taxes resulting from:
Amortization of intangibles.............................. 70 70 70
Net operating losses for which no benefit was
recognized............................................. 1,520 3,680 1,704
Other.................................................... 14 16 6
------- ------- -------
Actual provision for income taxes........................ $ 0 $ 0 $ 0
------- ------- -------
------- ------- -------
</TABLE>
24
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED OCTOBER 31, 1996 , 1995 AND 1994
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts.......................................................... $ 501 $ 677
Accrued liabilities, principally due to litigation reserves......... 1,194 2,830
Net operating loss carryforwards.................................... 9,705 6,341
------- -------
Total gross deferred tax assets................................ 11,400 9,848
Less valuation allowance....................................... (4,944) (3,250)
------- -------
Net deferred tax assets........................................ 6,456 6,598
------- -------
Deferred tax liabilities:
Plant and equipment, principally due to purchase accounting
requirements...................................................... (6,358) (6,303)
Other, principally due to differences in accounting methods for
financial and tax purposes........................................ (98) (295)
------- -------
Deferred tax liabilities............................................ (6,456) (6,598)
------- -------
Net deferred tax assets............................................. $ 0 $ 0
------- -------
------- -------
</TABLE>
The net change in the total valuation allowance for the year ended October
31, 1996, 1995 and 1994 was an increase of $1,694,000, $3,928,000 and a decrease
of $3,272,000, respectively.
At October 31, 1996 the Parent had consolidated net operating loss
carryforwards, of which approximately $10,000,000 related to the Company. The
tax benefit of an additional $14,000,000 of the Company's net operating loss
carryforwards, which have been utilized in the Parent's consolidated return, are
available in the future should the Company have sufficient taxable income during
the carryforward period. The net operating loss carryforwards expire commencing
in 2001.
H. PLEDGE AGREEMENT
Pursuant to a pledge agreement dated as of January 6, 1994, between the
Parent and the Trustee for the holders of a new class of debt issued by the
Parent (the 'Notes'), the Parent has pledged a first priority security interest
in all of its right, title and interest of its investment in the Company, all
additional shares of stock of, or other equity interest in the Company from time
to time acquired by the Parent, all additional intercompany indebtedness of the
Company from time to time held by the Parent and except as set forth in the
indenture to the Notes, the proceeds received from the sale or disposition of
any or all of the foregoing.
I. LEGAL PROCEEDINGS
Under an agreement dated July 11, 1985, as amended (the 'HMG Agreement'),
Hampton Medical Group, P.A. ('HMG'), which is not affiliated with HGA,
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. In late 1993
and early 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
25
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED OCTOBER 31, 1996 , 1995 AND 1994
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 December 30, 1994, Blue Cross and Blue Shield of New Jersey, Inc.
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').
On December 11, 1995, the Parent announced a settlement of all disputes
with HMG and Dr. Pottash, owner of HMG. Pursuant to the settlement, (i) the
parties released each other from, among other things, the claims underlying the
arbitration, (ii) HGA purchased HMG's interest in the HMG Agreement on December
31, 1995, and (iii) HGNJ agreed to make certain payments to Dr. Pottash in
respect of claims he had asserted. While only HMG and Dr. Pottash are parties to
the settlement with HGA, HGNJ and the Parent, HGA has not been notified of any
claims by other third party payors or others relating to the billing or other
practices at Hampton Hospital, although it continues to respond voluntarily to
requests for information from the State of New Jersey Department of Insurance
and other government agencies with respect to these matters. The settlement with
HMG and Dr. Pottash resulted in a one-time charge with a present value of
$5,551,000 to fourth quarter fiscal earnings. That charge reflects amounts paid
to Dr. Pottash in December 1995 of $3,100,000 included in other current
liabilities at October 31, 1995 as well as two payments scheduled to be made to
HMG in May 1997 and 1998, each in the amount of $1,537,000.
HGA and Progressions Health Systems, Inc. entered into the purchase price
agreement which settled cross claims between the parties related to purchase
price adjustments (which were credited to goodwill) and other disputes and
provided for a series of payments to be made to HGA. Pursuant to this agreement,
HGA received approximately $853,000 in 1995, $421,000 of which has been credited
to Settlement of Disputes, Net.
J. FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which include
cash and cash equivalents, trade receivables, accounts payable, and accrued
liabilities, approximate their fair values at October 31, 1996, because of the
short maturity of these instruments.
The fair value of the Company's bank term loan approximates the carrying
value as the debt was refinanced within the last fiscal year.
26
<PAGE>
<PAGE>
SCHEDULE II
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS/ BALANCE
BEGINNING COSTS AND RECOVERIES/ AT END
OF YEAR EXPENSES OTHER(1) OF YEAR
---------- ---------- ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended October 31, 1996................................ $1,693 $1,838 $ (2,278) $1,253
---------- ---------- ------------ -------
---------- ---------- ------------ -------
Year ended October 31, 1995................................ $1,834 $1,551 $ (1,692) $1,693
---------- ---------- ------------ -------
---------- ---------- ------------ -------
Year ended October 31, 1994................................ $2,067 $1,753 $ (1,986) $1,834
---------- ---------- ------------ -------
---------- ---------- ------------ -------
</TABLE>
- ------------
(1) Uncollectible accounts written off, recovered accounts receivable previously
written off and other items.
27
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
COOPERSURGICAL, INC.:
We have audited the accompanying balance sheets of CooperSurgical, Inc. as
of October 31, 1996 and 1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended October 31, 1996. In connection with our audits of the
financial statements, we also have audited the Company's financial statement
Schedule II. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CooperSurgical, Inc. as of
October 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended October 31, 1996, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
December 3, 1996
28
<PAGE>
<PAGE>
COOPERSURGICAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------------
1996 1995
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................. $ 309 $ 197
Receivables:
Trade, less allowance for doubtful accounts of $531 in 1996 and
$373 in 1995................................................................... 2,635 1,598
Other............................................................................ 66 13
------------ -------------
2,701 1,611
Inventories:
Raw materials.................................................................... 1,669 2,068
Work-in-process.................................................................. 278 260
Finished goods................................................................... 1,758 1,121
------------ -------------
3,705 3,449
------------ -------------
Prepaid expenses...................................................................... 259 246
------------ -------------
Total current assets........................................................ 6,974 5,503
------------ -------------
Furniture and equipment............................................................... 2,193 1,725
Less accumulated depreciation.................................................... (1,477) (1,242)
------------ -------------
716 483
------------ -------------
Intangibles, net of accumulated amortization:
Patents (note 2)................................................................. 941 1,005
Goodwill......................................................................... 1,389 1,486
Distribution rights.............................................................. 106 132
Non-compete agreements........................................................... -- 45
------------ -------------
2,436 2,668
------------ -------------
Other assets.......................................................................... 496 496
------------ -------------
$ 10,622 $ 9,150
------------ -------------
------------ -------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 7).................................. $ 17 $ --
Accounts payable (note 4)........................................................ 1,867 940
Accrued liabilities.............................................................. 2,439 1,617
------------ -------------
Total current liabilities................................................... 4,323 2,557
Long-term debt (note 7)............................................................... 102 153
Due to Parent (note 5)................................................................ 4,210 3,967
------------ -------------
Total liabilities........................................................... 8,635 6,677
------------ -------------
Commitments and contingencies (note 8):
Stockholders' equity:
Series A Convertible Preferred stock: 10,633,572 shares authorized, 10,436,660
issued and outstanding at October 31, 1996 and 1995, par value per share $.0001,
aggregate liquidation preference of $20,253 at October 31, 1996 and 1995 plus
cumulative dividend of $6,324 at October 31, 1996 ($4,299 in 1995) (note 10).... 1 1
Common stock: 12,000,000 shares authorized, 13,264 issued and outstanding, par
value per share $.0001 at October 31, 1996 and 1995............................. -- --
Additional paid-in capital....................................................... 20,252 20,252
Accumulated deficit.............................................................. (18,266) (17,780)
------------ -------------
Total stockholders' equity.................................................. 1,987 2,473
------------ -------------
$ 10,622 $ 9,150
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
<PAGE>
COOPERSURGICAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net sales (note 3)............................................................... $17,227 $12,824 $12,847
Cost of goods sold............................................................... 8,469 6,182 6,680
------- ------- -------
Gross profit........................................................... 8,758 6,642 6,167
------- ------- -------
Costs and expenses:
Research and development expense............................................ 386 804 673
Selling, general and administrative expense (note 5)........................ 8,112 5,909 6,513
Costs associated with restructuring operations.............................. -- 425 --
Other expense............................................................... 34 140 9
Amortization of intangibles................................................. 232 318 303
Interest:
Parent promissory notes..................................................... 474 429 1,062
Other....................................................................... 6 7 11
------- ------- -------
9,244 8,032 8,571
------- ------- -------
Net loss............................................................... $ (486) $(1,390) $(2,404)
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
<PAGE>
COOPERSURGICAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
RETAINED TOTAL
SERIES A ADDITIONAL EARNINGS STOCKHOLDERS
PREFERRED COMMON PAID-IN TRANSLATION (ACCUMULATED EQUITY
STOCK STOCK CAPITAL ADJUSTMENT DEFICIT) (DEFICIT)
--------- ------ ---------- ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1993......... $-- $-- $ 1,242 $ 33 $(13,986) $(12,711)
Issuance of 9,796,660 shares of
Series A convertible preferred
stock (note 5).................... 1 -- 19,010 -- -- 19,011
Net Loss............................ -- -- -- -- (2,404) (2,404)
Aggregate translation adjustment.... -- -- -- (100) -- (100)
--------- ------ ---------- ---------- ------------ ------------
Balance at October 31, 1994......... 1 -- 20,252 (67) (16,390) 3,796
Net Loss............................ -- -- -- -- (1,390) (1,390)
Aggregate translation adjustment.... -- -- -- 67 -- 67
--------- ------ ---------- ---------- ------------ ------------
Balance at October 31, 1995......... 1 -- 20,252 -- (17,780) 2,473
Net Loss............................ -- -- -- -- (486) (486)
--------- ------ ---------- ---------- ------------ ------------
Balance at October 31, 1996......... $ 1 $-- $ 20,252 $-- $(18,266) $ 1,987
--------- ------ ---------- ---------- ------------ ------------
--------- ------ ---------- ---------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
<PAGE>
COOPERSURGICAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------------
1996 1995 1994
----- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net loss................................................................. $(486) $(1,390) $(2,404)
Adjustments to reconcile net loss to cash provided (used) by operating
activities:
Depreciation and amortization............................................ 467 585 629
Bad debt expense......................................................... 40 18 70
Change in assets and liabilities:
(Increase) decrease in receivables....................................... (347) 73 487
Decrease in inventories.................................................. 92 913 1,579
Decrease in other current assets......................................... 41 7 113
(Increase) in other assets............................................... -- -- (3)
Increase (decrease) in accounts payable.................................. 493 (201) (109)
Increase (decrease) in accrued liabilities and other..................... 119 138 (187)
----- ------- -------
Net cash provided by operating activities................................ 419 143 175
----- ------- -------
Cash flows used by investing activities:
Capital expenditures..................................................... (404) (168) (30)
----- ------- -------
Net cash used by investing activities.................................... (404) (168) (30)
----- ------- -------
Cash flows provided (used) by financing activities:
Proceeds from (repayment of) Parent advances............................. 330 820 (167)
Repayment of long-term debt.............................................. (33) (24) (28)
Payment of final installment of purchased patent......................... (200) (821) --
----- ------- -------
Net cash provided (used) by financing activities......................... 97 (25) (195)
----- ------- -------
Net increase (decrease) in cash and cash equivalents.......................... 112 (50) (50)
Cash and cash equivalents, beginning of period................................ 197 247 297
----- ------- -------
Cash and cash equivalents, end of period...................................... $ 309 $ 197 $ 247
----- ------- -------
----- ------- -------
Cash paid for:
Interest................................................................. $ 474 $ 429 $ 1,062
----- ------- -------
----- ------- -------
Income taxes............................................................. $-- $ -- $ --
----- ------- -------
----- ------- -------
Non-cash investing and financing activities:
During fiscal 1996, CooperSurgical purchased certain assets ($1,654,000) and
liabilities ($1,336,000) of Unimar, Inc., an affiliate of the parent, via an
intercompany note bearing a 12% interest rate.
During fiscal 1995, CooperSurgical acquired the rights to certain patented
products for $1,000,000 of which $800,000 was paid prior to October 31,
1995. Additionally, in fiscal 1995, CooperSurgical acquired a new telephone
system under the terms of a capital lease for $72,000.
During fiscal 1994, CooperSurgical's Parent converted $19,011,000 of Parent
advances into 9,796,660 shares of CooperSurgical Series A convertible
preferred stock.
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
<PAGE>
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
CooperSurgical, Inc. ('CooperSurgical'), a Delaware corporation, develops,
manufactures and distributes electrosurgical, cryosurgical and general
application diagnostic surgical instruments and equipment. The Cooper Companies,
Inc. ('Parent'), a Delaware corporation, owns 100% of CooperSurgical's Series A
convertible preferred stock. CooperSurgical's outstanding common stock is 100%
owned by individuals on the CooperSurgical Advisory Board which provides counsel
and management of clinical trials in the area of minimally invasive surgery. The
accompanying financial statements have been prepared from the separate records
of CooperSurgical and may not be indicative of conditions which would have
existed or the results of its operations if CooperSurgical operated autonomously
(see note 5). Foreign exchange translation and transactions are immaterial.
NATURE OF OPERATIONS
CooperSurgical is a worldwide provider of practice enhancement products for
the gynecologist. The Company's principal products include the LEEP product line
(Loop Electrosurgical Excision Procedure), diagnostic and operative hysteroscopy
products, colposcopy products and every day instrumentation and disposable
products. Marketed principally to the domestic market through a variety of
independent marketing partnerships, global coverage is obtained through top
distributors of gynecology products for a given market arena.
INTERCOMPANY LIABILITY
CooperSurgical's liability to Parent matures on October 31, 2001, the
Parent is committed to funding the Company's cash requirements, as necessary,
until that date.
REVENUE RECOGNITION
CooperSurgical recognizes product revenue when risk of ownership has
transferred to the buyer, net of appropriate provisions for sales returns and
bad debts.
ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
For all financial instruments included in CooperSurgical's balance sheet,
the fair value of those financial instruments approximates their financial
statements carrying amounts.
INCOME TAXES
CooperSurgical is included in the consolidated income tax returns of the
Parent. The consolidated federal, state and local taxes are subject to a tax
sharing agreement under which CooperSurgical's liability is computed on a
non-consolidated basis using a combined rate of 40%.
Effective November 1, 1993, CooperSurgical adopted the liability method of
accounting for income taxes as prescribed by Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes' (FAS 109). The liability method
under FAS 109 measures the expected tax impact of future
33
<PAGE>
<PAGE>
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
taxable income or deductions resulting from temporary differences in the tax and
financial reporting bases of assets and liabilities reflected in the balance
sheet. Deferred tax assets and liabilities are determined using the enacted tax
rates in effect for the year in which these differences are expected to reverse.
Under FAS 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the period that the change is enacted.
POSTEMPLOYMENT BENEFITS
Effective November 1, 1994, CooperSurgical, Inc. adopted Statement of
Financial Accounting Standards No. 112, 'Employers Accounting for Postemployment
Benefits' ('FAS 112'). FAS 112 establishes accounting standards for employers
who provide benefits to former or inactive employees after employment but before
retirement ('postemployment benefits'). Postemployment benefits are all types of
benefits provided to former or inactive employees, their beneficiaries, and
covered dependents. Those benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits (including workers' compensation), job training and
counseling, and continuation of benefits such as healthcare benefits and life
insurance coverage.
The termination benefits portion of the restructuring charge incurred in
fiscal 1995, discussed in note 2, has been accounted for in accordance with the
provisions of FAS 112.
INVENTORIES
Inventories are carried at the lower of cost, determined on an average cost
basis, or market.
ADVERTISING
CooperSurgical expenses the production costs of advertising the first time
the advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefits.
Direct Response advertising consists primarily of catalog mailings that
include order forms for CooperSurgical's products. The capitalized costs of the
advertising are amortized over a three to four month period or until the next
catalog mailing is made.
At October 31, 1996 and 1995, direct response advertising costs of $89,000
and $136,000, respectively, were included in prepaid expenses. Advertising
expense was $993,000, $839,000 and $1,033,000 in fiscal 1996, 1995, and 1994,
respectively.
FURNITURE AND EQUIPMENT
Furniture and equipment is carried at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of depreciable assets.
AMORTIZATION OF INTANGIBLES
Amortization is currently provided on all intangible assets on a
straight-line basis over periods up to 20 years. Accumulated amortization at
October 31, 1996 and 1995 was $1,686,000 and $1,454,000, respectively. The
Company assesses the recoverability of goodwill and other long-lived assets by
determining whether the amortization of these assets over their remaining life
can be recovered through reasonably expected future cash flow.
34
<PAGE>
<PAGE>
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT EVENTS
RESTRUCTURING
During fiscal 1995, CooperSurgical closed their Redmond, Washington and
Belgium field offices whereby all employees at these locations and certain
support personnel at CooperSurgical's Shelton, Connecticut headquarters were
terminated, resulting in a $425,000 restructuring charge. The restructuring
charge includes termination benefits of $314,000 which covers eight employees.
As of October 31, 1996, all termination benefits had been paid and eight
employees had been officially terminated.
PATENT ACQUISITION
During fiscal 1995, CooperSurgical acquired the rights to certain patented
products for $1,000,000. $800,000 had been paid prior to October 31, 1995 with
the remaining $200,000 paid during fiscal 1996 which ended October 31, 1996.
LICENSE AGREEMENTS
On April 11, 1996, CooperSurgical obtained the worldwide license rights,
from an affiliate of the Parent, for the complete line of Unimar, Inc. products.
This agreement allows the Company to market and sell, through its existing sales
distribution channels, all products through April 11, 2006 with a 60 day
cancellation clause by either entity. A monthly Royalty fee of approximately
$100,000 will be incurred by CooperSurgical.
3. EXPORT SALES
CooperSurgical had export sales of $2,995,000, $2,118,000, and $2,441,000
for the years ended October 31, 1996, 1995 and 1994, respectively.
4. ACCOUNTS PAYABLE
CooperSurgical utilized a cash concentration account with the Parent
whereby approximately $713,000 and $180,000 of checks issued and outstanding at
October 31, 1996 and 1995, respectively, in excess of related bank cash balances
were reclassified to accounts payable. Sufficient funds were available from the
Parent to cover these checks.
5. RELATED PARTY TRANSACTIONS
Included in CooperSurgical's selling, general and administrative expense
are Parent allocations for technical service fees of $1,191,000, $389,000, and
$514,000 for the years ended October 31, 1996, 1995 and 1994, respectively.
These costs are charges from the Parent for accounting, legal, tax and other
services provided to CooperSurgical and are added to the balance Due to Parent.
On January 24, 1994, CooperSurgical's Parent converted $19,011,000 of
Parent advances into 9,796,660 shares of CooperSurgical Series A convertible
preferred stock and converted the remaining $3,313,000 balance of Parent
advances into a Term Note, with principal and interest due January 24, 1996,
bearing interest at 12%, compounded monthly (Parent advances in excess of
$4,000,000 bear interest at 15%, compounded monthly). The maturity date of this
Term Note for principal plus any accrued unpaid interest was extended to October
31, 2001.
Included in CooperSurgical's selling, general and administrative expenses
are Royalty payments of $675,000 made during fiscal 1996 in conjunction with
license agreements for Unimar, Inc. product line. This amount covers the period
from April 11, 1996 to October 31, 1996.
35
<PAGE>
<PAGE>
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
A reconciliation of the provision for (benefit of) income taxes included in
CooperSurgical's statement of operations and the amount computed by applying the
federal income tax rate to income (loss) from continuing operations before
extraordinary items and income taxes follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
1996 1995 1994
----- ----- -----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Computed expected provision for (benefit of) taxes............................ $(164) $(473) $(817)
Increase in taxes resulting from:
Amortization of intangibles.............................................. 33 33 33
Net operating losses for which no tax benefit was recognized............. 119 432 781
Other.................................................................... 12 8 3
----- ----- -----
Actual provision for income taxes............................................. $-- $-- $--
----- ----- -----
----- ----- -----
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------------
1996 1995
------------- --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred Tax Assets:
Accounts receivable, principally due to allowance for doubtful
accounts........................................................... $ 280 $ 230
Inventories, principally due to obsolescence reserves................ 743 697
Accrued liabilities, principally due to compensation accruals........ 401 327
Net operating loss carryforwards..................................... 5,744 5,731
Other................................................................ 136 98
------------- --------------
Total gross deferred tax assets................................. 7,304 7,083
Less valuation allowance............................................. (7,304) (7,083)
------------- --------------
Net deferred tax asset.......................................... $-- $--
------------- --------------
------------- --------------
</TABLE>
The net change in the total valuation allowance for the year ended October
31, 1996, 1995 and 1994 was an increase of $221,000, $503,000 and $1,250,000;
respectively.
At October 31, 1996, the Parent had consolidated net operating loss
carryforwards of which approximately $11,400,000 related to CooperSurgical. The
tax benefit of an additional $3,000,000 of CooperSurgical net operating loss
carryforwards which have been utilized in the Parent's consolidated return are
available in the future should CooperSurgical have sufficient taxable income
during the carryforward period. The net operating loss carryforwards expire
commencing in 2006.
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------------
1996 1995
---- ----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Note payable; interest at 9%, maturing 1998..................... $ 81 $ 105
Capitalized lease; interest at 8%, maturing 1999................ 38 48
------ ------
119 153
Less current portion............................................ (17) --
------ ------
$102 $ 153
------ ------
------ ------
</TABLE>
36
<PAGE>
<PAGE>
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1995, CooperSurgical acquired a new telephone system under
the terms of a capital lease for $72,000 whereby CooperSurgical can purchase the
system for $1 at the end of the 48 month lease term. As of October 31, 1995,
accumulated depreciation associated with the telephone system totaled $5,000.
Annual maturities of long-term debt, including current installments
thereof, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31, (IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------- -------------------------
<S> <C>
1997......................................................... 17
1998......................................................... 85
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
In the normal course of its business, CooperSurgical is involved in various
litigations. In the opinion of management, the disposition of such litigation
will not have a materially adverse effect on CooperSurgical's financial
condition.
CooperSurgical leases certain property and equipment under non-cancellable
operating lease agreements. The following is a schedule of the estimated minimum
payment due under such leases with an initial term of more than one year as of
October 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31, (IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------- -------------------------
<S> <C>
1997......................................................... 256
1998......................................................... 262
1999......................................................... 263
2000......................................................... 263
2001......................................................... 262
2002 and thereafter.......................................... --
</TABLE>
Rental expense for all leases amounted to approximately $300,000, $317,000,
and $311,000 for the years ended October 31, 1996, 1995 and 1994, respectively.
9. EMPLOYEE BENEFITS
CooperSurgical employees are eligible to participate in the Parent's 401(k)
Savings Plan, a defined contribution plan and the Parent's Retirement Income
Plan, a defined benefit plan. As of October 31, 1996, CooperSurgical has not
elected to participate in the Parent's Retirement Income Plan. Employer
contributions to the Parent's 401(k) Savings Plan, as well as costs and expenses
of administering the Plan, are allocated to CooperSurgical as appropriate. These
amounts were not significant for the years ended October 31, 1996, 1995 and
1994.
10. SERIES A CONVERTIBLE PREFERRED STOCK
The Series A Convertible Preferred Stock is convertible into Common Stock
on a one-to-one basis, subject to adjustment for stock splits, dividends and
certain other distributions of Common Stock and has voting rights equal to the
number of shares of Common Stock into which it is convertible. CooperSurgical is
required to reserve for issuance, shares of Common Stock equal to the shares of
Preferred Stock issued and outstanding at any given date. The Preferred Stock
has a liquidation preference of $1.940625 per share and accrues cumulative
dividends of $0.1940625 per share per annum. The aggregate liquidation
preference of the Preferred Stock at October 31, 1996 is $20,253,000, plus
cumulative dividends of $6,324,000. The Preferred Stock participates ratably
with the Common Stock in any additional dividends declared beyond the cumulative
dividends and in any remaining assets beyond the liquidation preference. The
Series A Convertible Preferred Stock represents 99.8% of the total voting rights
of all outstanding CooperSurgical stock.
37
<PAGE>
<PAGE>
SCHEDULE II
COOPERSURGICAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE END
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ------------------------------------------------ ---------- ---------- ---------- ---------- -----------
(AMOUNTS IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended October 31, 1996................ $373 $ 55 $103 $ -- $ 531
---------- --- ---------- ---- -----------
---------- --- ---------- ---- -----------
Year ended October 31, 1995................ $379 $ 18 $ -- $ 24 $ 373
---------- --- ---------- ---- -----------
---------- --- ---------- ---- -----------
Year ended October 31, 1994................ $309 $ 70 $ -- $ -- $ 379
---------- --- ---------- ---- -----------
---------- --- ---------- ---- -----------
</TABLE>
38
<PAGE>
<PAGE>
3. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ------ ----
<C> <S> <C>
3.1 --Restated Certificate of Incorporation, as partially amended, incorporated by reference to Exhibit
4(a) to the Company's Registration Statement on Form S-3 (No. 33-17330) and Exhibits 19(a) and
19(c) to the Company's Quarterly Report on Form 10-Q for the Fiscal Quarter ended April 30,
1988..............................................................................................
3.2 --Certificate of Amendment of Restated Certificate of Incorporation dated September 21, 1995
incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995................................................................
3.3 --Amended and Restated By-Laws, incorporated by reference to Exhibit 3.2 to the Company's Report on
Form 8-A dated January 18, 1994...................................................................
4.1 --Second Supplemental Indenture, dated as of January 6, 1994, between the Company and Bankers Trust
Company, as successor trustee, with respect to the 10 5/8% Convertible Subordinated Reset
Debentures due 2005, incorporated by reference to Exhibit 4.3 to the Company's Report on Form 8-A
dated January 18, 1994............................................................................
4.2 --Indenture, dated as of January 6, 1994, between the Company and IBJ Schroder Bank & Trust
Company, as trustee, with respect to the 10% Senior Subordinated Secured Notes due 2003,
incorporated by reference to Exhibit 4.8 to the Company's Report on Form 8-A dated January 18,
1994..............................................................................................
4.3 --Pledge Agreement, dated January 6, 1994, by the Company in favor of IBJ Schroder Bank & Trust
Company, as Trustee, incorporated by reference to Exhibit 4.9 to the Company's Report on Form 8-A
dated January 18, 1994............................................................................
4.4 --Rights Agreement, dated as of October 29, 1987, between the Company and The First National Bank
of Boston, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated October 29, 1987............................................................................
4.5 --Amendment No. 1 to Rights Agreement, dated as of June 14, 1993, between the Company and The First
National Bank of Boston, incorporated by reference to Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 30, 1993...................................
4.6 --Amendment No. 2 to Rights Agreement, dated as of January 16, 1995, between the Company and The
First National Bank of Boston, incorporated by reference to Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1994....................................
4.7 --Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred
Stock of The Cooper Companies, Inc., incorporated by reference to Exhibit 4.10 of the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1989.............................
10.1 --1988 Long Term Incentive Plan, Amended and Restated as of January 16, 1995, incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1994..................................................................................
10.2 --Amendment No. 1 to 1988 Long-Term Incentive Plan, as Amended and Restated, dated October 10,
1996..............................................................................................
10.3 --Turn-Around Incentive Plan, incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1994....................................
10.4 --Severance Agreement entered into as of June 10, 1991, by and between CooperVision, Inc. and A.
Thomas Bender, incorporated by reference to Exhibit 10.26 to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1992.............................
10.5 --Letter dated March 25, 1994, to A. Thomas Bender from the Chairman of the Compensation Committee
of the Company's Board of Directors, incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1994.............................
10.6 --Severance Agreement entered into as of April 26, 1990, by and between Nicholas J. Pichotta and
the Company incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K
for fiscal year ended October 31, 1995............................................................
</TABLE>
39
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ------ ----
<C> <S> <C>
10.7 --Letter Agreement dated November 1, 1992, by and between Nicholas J. Pichotta and the Company
incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995................................................................
10.8 --Employment Agreement entered into as of May 27, 1992, by and between Mark R. Russell and Hospital
Group of America, Inc., incorporated by reference to Exhibit 10.20 to Form 10-K-A dated February
27, 1995..........................................................................................
10.9 --Letter Agreement dated June 18, 1993, by and between Mark R. Russell and Hospital Group of
America, Inc., incorporated by reference to Exhibit 10.21 to Form 10-K-A dated February 27,
1995..............................................................................................
10.10 --Letter Agreement dated January 11, 1995, by and between Mark R. Russell and Hospital Group of
America, Inc., incorporated by reference to Exhibit 10.22 to Form 10-K-A dated February 27,
1995..............................................................................................
10.11 --Letter Agreement dated April 15, 1996, by and between Mark R. Russell and Hospital Group of
America, Inc. ....................................................................................
10.12 --Severance Agreement entered into as of August 21, 1989, by and between Robert S. Weiss and the
Company, incorporated by reference to Exhibit 10.28 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1992....................................
10.13 --1996 Long Term Incentive Plan for Non-Employee Directors of The Cooper Companies, Inc.,
incorporated by reference to the Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders......................................................................................
10.14 --Amendment No. 1 to 1996 Long-Term Incentive Plan for Non-Employee Directors of The Cooper
Companies, Inc., dated October 10, 1996...........................................................
10.15 --Registration Rights Agreement, dated June 14, 1993, between the Company and Cooper Life Sciences,
Inc., incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 30, 1993...........................................................
10.16 --Settlement Agreement, dated June 14, 1993, between the Company and Cooper Life Sciences, Inc.,
incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 30, 1993...............................................................
10.17 --Amendment No. 1 to Settlement Agreement of June 14, 1993, dated as of January 16, 1995, between
the Company and Cooper Life Sciences, Inc., incorporated by reference to exhibit 10.14 to the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994...................
10.18 --Agreement dated as of September 28, 1993, among Medical Engineering Corporation, Bristol-Myers
Squibb Company and the Company, incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated October 1, 1993..........................................................
11 --Calculation of Earnings (loss) per share.........................................................
13 --Five Year Financial Highlights, Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Consolidated Financial Statements and the Notes thereto, and the
Independent Auditors' Report in the 1996 Annual Report to Stockholders are incorporated by
reference in this document and are deemed 'filed'.................................................
21 --Subsidiaries......................................................................................
27 --Financial Data Schedule..........................................................................
</TABLE>
(B) REPORTS ON FORM 8-K.
August 8, 1996 -- Item 5. Other Events.
August 27, 1996 -- Item 5. Other Events.
October 29, 1996 -- Item 5. Other Events.
40
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on January 27, 1997.
THE COOPER COMPANIES, INC.
By: /s/ A. THOMAS BENDER
...................................
A. THOMAS BENDER
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the dates set forth opposite their
respective names.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ ALLAN E. RUBENSTEIN Chairman of the Board of Directors January 27, 1997
.........................................
(ALLAN E. RUBENSTEIN)
/s/ A. THOMAS BENDER President, Chief Executive Officer and January 27, 1997
......................................... Director
(A. THOMAS BENDER)
/s/ ROBERT S. WEISS Executive Vice President, Treasurer, Chief January 27, 1997
......................................... Financial Officer and Director
(ROBERT S. WEISS)
/s/ STEPHEN C. WHITEFORD Vice President and Corporate Controller January 27, 1997
.........................................
(STEPHEN C. WHITEFORD)
/s/ MARK A. FILLER Director January 27, 1997
.........................................
(MARK A. FILLER)
/s/ MICHAEL H. KALKSTEIN Director January 27, 1997
.........................................
(MICHAEL H. KALKSTEIN)
/s/ MOSES MARX Director January 27, 1997
.........................................
(MOSES MARX)
/s/ DONALD PRESS Director January 27, 1997
.........................................
(DONALD PRESS)
/s/ STEVEN ROSENBERG Director January 27, 1997
.........................................
(STEVEN ROSENBERG)
</TABLE>
41
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBER
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ------ --------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
3.1 --Restated Certificate of Incorporation, as partially amended, incorporated by reference to
Exhibit 4(a) to the Company's Registration Statement on Form S-3 (No. 33-17330) and
Exhibits 19(a) and 19(c) to the Company's Quarterly Report on Form 10-Q for the Fiscal
Quarter ended April 30, 1988...............................................................
3.2 --Certificate of Amendment of Restated Certificate of Incorporation dated September 21, 1995
incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1995.....................................................
3.3 --Amended and Restated By-Laws, incorporated by reference to Exhibit 3.2 to the Company's
Report on Form 8-A dated January 18, 1994..................................................
4.1 --Second Supplemental Indenture, dated as of January 6, 1994, between the Company and
Bankers Trust Company, as successor trustee, with respect to the 10 5/8% Convertible
Subordinated Reset Debentures due 2005, incorporated by reference to Exhibit 4.3 to the
Company's Report on Form 8-A dated January 18, 1994........................................
4.2 --Indenture, dated as of January 6, 1994, between the Company and IBJ Schroder Bank & Trust
Company, as trustee, with respect to the 10% Senior Subordinated Secured Notes due 2003,
incorporated by reference to Exhibit 4.8 to the Company's Report on Form 8-A dated January
18, 1994...................................................................................
4.3 --Pledge Agreement, dated January 6, 1994, by the Company in favor of IBJ Schroder Bank &
Trust Company, as Trustee, incorporated by reference to Exhibit 4.9 to the Company's Report
on Form 8-A dated January 18, 1994.........................................................
4.4 --Rights Agreement, dated as of October 29, 1987, between the Company and The First National
Bank of Boston, incorporated by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated October 29, 1987............................................................
4.5 --Amendment No. 1 to Rights Agreement, dated as of June 14, 1993, between the Company and
The First National Bank of Boston, incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1993........
4.6 --Amendment No. 2 to Rights Agreement, dated as of January 16, 1995, between the Company and
The First National Bank of Boston, incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994............
4.7 --Certificate of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock of The Cooper Companies, Inc., incorporated by reference to Exhibit 4.10 of
the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1989........
10.1 --1988 Long Term Incentive Plan, Amended and Restated as of January 16, 1995, incorporated
by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1994................................................................
10.2 --Amendment No. 1 to 1988 Long-Term Incentive Plan, as Amended and Restated, dated October
10, 1996...................................................................................
10.3 --Turn-Around Incentive Plan, incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1994......................
10.4 --Severance Agreement entered into as of June 10, 1991, by and between CooperVision, Inc.
and A. Thomas Bender, incorporated by reference to Exhibit 10.26 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992............
10.5 --Letter dated March 25, 1994, to A. Thomas Bender from the Chairman of the Compensation
Committee of the Company's Board of Directors, incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994........
</TABLE>
42
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBER
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ------ --------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
10.6 --Severance Agreement entered into as of April 26, 1990, by and between Nicholas J. Pichotta
and the Company incorporated by reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-K for fiscal year ended October 31, 1995...........................................
10.7 --Letter Agreement dated November 1, 1992, by and between Nicholas J. Pichotta and the
Company incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1995............................................
10.8 --Employment Agreement entered into as of May 27, 1992, by and between Mark R. Russell and
Hospital Group of America, Inc., incorporated by reference to Exhibit 10.20 to Form 10-K-A
dated February 27, 1995....................................................................
10.9 --Letter Agreement dated June 18, 1993, by and between Mark R. Russell and Hospital Group of
America, Inc., incorporated by reference to Exhibit 10.21 to Form 10-K-A dated February 27,
1995.......................................................................................
10.10 --Letter Agreement dated January 11, 1995, by and between Mark R. Russell and Hospital Group
of America, Inc., incorporated by reference to Exhibit 10.22 to Form 10-K-A dated February
27, 1995...................................................................................
10.11 --Letter Agreement dated April 15, 1996, by and between Mark R. Russell and Hospital Group
of America, Inc............................................................................
10.12 --Severance Agreement entered into as of August 21, 1989, by and between Robert S. Weiss and
the Company, incorporated by reference to Exhibit 10.28 to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1992......................
10.13 --1996 Long Term Incentive Plan for Non-Employee Directors of The Cooper Companies, Inc.,
incorporated by reference to the Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders...............................................................................
10.14 --Amendment No. 1 to 1996 Long-Term Incentive Plan for Non-Employee Directors of The Cooper
Companies, Inc., dated October 10, 1996....................................................
10.15 --Registration Rights Agreement, dated June 14, 1993, between the Company and Cooper Life
Sciences, Inc., incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended April 30, 1993...................................
10.16 --Settlement Agreement, dated June 14, 1993, between the Company and Cooper Life Sciences,
Inc., incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended April 30, 1993...........................................
10.17 --Amendment No. 1 to Settlement Agreement of June 14, 1993, dated as of January 16, 1995,
between the Company and Cooper Life Sciences, Inc., incorporated by reference to exhibit
10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1994.......................................................................................
10.18 --Agreement dated as of September 28, 1993, among Medical Engineering Corporation,
Bristol-Myers Squibb Company and the Company, incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K dated October 1, 1993.............................
11 --Calculation of Earnings (loss) per share..................................................
13 --Five Year Financial Highlights, Management's Discussion and Analysis of Financial
Condition and Results of Operations, the Consolidated Financial Statements and the Notes
thereto, and the Independent Auditors' Report in the 1996 Annual Report to Stockholders are
incorporated by reference in this document and are deemed 'filed'..........................
21 --Subsidiaries...............................................................................
27 --Financial Data Schedule....................................................................
</TABLE>
(B) REPORTS ON FORM 8-K.
August 8, 1996 -- Item 5. Other Events.
August 27, 1996 -- Item 5. Other Events.
October 29, 1996 -- Item 5. Other Events.
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as 'r'
The trademark symbol shall be expressed as 'tm'
The British pound sterling sign shall be expressed as 'L'
43
<PAGE>
<PAGE>
FIRST AMENDMENT TO THE COOPER COMPANIES, INC.
1988 LONG TERM INCENTIVE PLAN AS AMENDED AND RESTATED
WHEREAS, the Board of Directors approved and adopted and The Cooper
Companies, Inc. 1988 Long Term Incentive Plan (the "1988 Plan"), effective
September 15, 1988, and amended the 1988 Plan on April 26, 1990 and February 12,
1991 and amended and restated the 1988 Plan on January 16, 1996 (together, the
"Restated Plan").
WHEREAS, as permitted by Section 13 of the Restated Plan, this First
Amendment to the Restated Plan was approved by a resolution of the Board of
Directors of the Company on September 9, 1996, effective immediately. This First
Amendment, together with Restated Plan, constitutes the entire 1988 Long Term
Incentive Plan as amended to date.
NOW, THEREFORE, the Restated Plan is amended as set forth herein.
Section 1(e). of the Restated Plan is hereby amended to read in
its entirety as follows:
(e) "Committee" shall mean the Board or, if, after September 9,
1996, the Board delegates its power and authority to administer this
Plan to a committee of the Board described in this Section 2 of the
Plan, such committee.
The first unnumbered paragraph of Section 2 of the Restated Plan
is hereby amended to read in its entirety as follows:
The Plan shall be administered by the Board or, if, after
September 9, 1996, the Board delegates its power and authority to
administer this Plan to a committee of the Board, such committee. Any
such committee shall consist solely of two or more directors appointed
by and holding office at the pleasure of the Board, each of whom is a
"non-employee director" as defined by Rule 16b-3. If the Board delegates
its power and authority to administer this Plan to a committee, the
members of such committee shall serve at the pleasure of the Board, such
committee members may resign at any time by delivering written notice to
the Board and vacancies in the committee may be filled by the Board.
Executed at Pleasanton, California, this 10th day of October,
1996.
By: /s/ Robert S. Weiss
------------------------
Robert S. Weiss
Executive Vice President
By: /s/ Carol R. Kaufman
------------------------
Carol R. Kaufman
Secretary
<PAGE>
<PAGE>
HOSPITAL GROUP OF AMERICA, INC.
PSG MANAGEMENT, INC.
1265 Drummers Lane, Suite 107
Wayne, PA 19807
April 15, 1996
Mr. Mark Russell
c/o Hospital Group of America, Inc.
1265 Drummers Lane, Suite 107
Wayne, PA 19087
Re: Employment Agreement
Dear Mark:
Reference is made to the Employment Agreement ("Employment Agreement")
dated as of May 27, 1992 between you and Hospital Group of America, Inc.
("HGA"), as amended by the letter agreement effective as of June, 15, 1993 among
you, HGA and PSG Management, Inc. ("PSG") and as further amended by Steven G.
Singer's memorandum to you dated November 12, 1993 and by the letter agreement
effective as of January 11, 1995 among you, HGA and PSG.
HGA and PSG each hereby ratifies and confirms the Employment Agreement
in all respects, except that, effective as of the date hereof, clause (a) of
Section 1 of the Employment Agreement shall be amended to read in its entirety
as follows: (a) July 1, 1998; and".
The provisions of Sections 9, 10 and 11(c) of the Employment Agreement
shall be deemed incorporated in this Agreement as if fully set forth herein.
Kindly evidence your agreement with the foregoing amendments to the
Employment Agreement by signing in the space provided below for your signature.
Very truly yours,
HOSPITAL GROUP OF AMERICA, INC.
By: /s/ Carol R. Kaufman
--------------------
PSG MANAGEMENT, INC.
By: /s/ Carol R. Kaufman
--------------------
Agreed to and accepted this
17th day of April, 1996, to
be effective as of the date
set forth above.
/s/ Mark R. Russell
- -------------------
Mark R. Russell
<PAGE>
<PAGE>
FIRST AMENDMENT TO THE 1996 LONG TERM
INCENTIVE PLAN OF THE COOPER COMPANIES, INC.
FOR NON-EMPLOYEE DIRECTORS
WHEREAS, the Board of Directors approved and adopted The 1996 Long Term
Incentive Plan for Non-Employee Directors of The Cooper Companies, Inc. (the
"Plan"), effective November 1, 1995.
WHEREAS, as permitted by Section 11 of the Plan, this First Amendment to
the Plan was approved by a resolution of the Board of Directors of the Company
on September 9, 1996, effective immediately. This First Amendment, together with
the Plan, constitutes the entire Plan as amended to date.
NOW, THEREFORE, the Plan is amended as set forth herein.
Section 2f. of the Plan is hereby amended to read in its entirety
as follows:
"Committee" shall mean the Board or, if, after September 9, 1996,
the Board delegates its power and authority to administer this Plan to a
committee of the Board described in this Section 4, such committee.
Section 4 of the Plan is hereby amended to read in its entirety
as follows:
4. COMMITTEE. The Plan shall be administered by the Board or, if,
after September 9, 1996, the Board delegates its power and authority to
administer this Plan to a committee of the Board described in this
Section 4, such committee. Any such committee shall consist solely of
two or more directors appointed by and holding office at the pleasure of
the Board, each of whom is a "non-employee director" as defined by Rule
16b-3. If the Board delegates its power and authority to administer this
Plan to a committee, the members of such committee shall serve at the
pleasure of the Board, such committee members may resign at any time by
delivering written notice to the Board and vacancies in the committee
may be filled by the Board. At all meetings of the Committee, the
presence of a majority of the members of the Committee at the time of
such meeting shall be necessary to constitute a quorum. Any act of a
majority of the quorum present at the meeting shall be the act of the
Committee.
Executed at Pleasanton, California, this 10th day of October, 1996.
By: /s/ Robert S. Weiss
--------------------
Robert S. Weiss
Executive Vice President
By: /s/ Carol R. Kaufman
---------------------
Carol R. Kaufman
Secretary
<PAGE>
<PAGE>
EXHIBIT 11
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Years Ended October 31,
-------------------------------------------------
1996 1995 1994
(In thousands, except per share figures)
<S> <C> <C> <C>
Primary:
Net income (loss) ..................................................... $ 16,603 $ 115 $ (4,786)
======== ======== ========
Weighted average number of common shares
outstanding ........................................................... 11,645 11,416 10,193
Number of common equivalent shares using the
treasury stock method ................................................. 116 160 --
-------- -------- --------
Average number of common shares used to
compute earnings per share ............................................ 11,761 11,576 10,193
======== ======== ========
Earnings (loss) per share ............................................. $ 1.41 $ 0.01 $ (0.47)
======== ======== ========
Fully diluted:
Net income (loss) ..................................................... $ 16,603 $ 115 $ (4,786)
======== ======== ========
Weighted average number of common shares
outstanding ........................................................... 11,645 11,416 10,193
Number of common equivalent shares using the
treasury stock method ................................................. 169 207 --
-------- -------- --------
Average number of common shares used to
compute earnings per share ............................................ 11,814 11,623 10,193
======== ======== ========
Earnings (loss) per share ............................................. $ 1.41 $ 0.01 $ (0.47)
======== ======== ========
</TABLE>
<PAGE>
<PAGE>
Five Year Financial Highlights
The Cooper Companies, Inc. and Subsidiaries
Consolidated Operations
<TABLE>
<CAPTION>
Years Ended October 31,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share figures)
<S> <C> <C> <C> <C> <C>
Net operating revenue $109,131 $ 97,090 $ 95,645 $ 92,652 $ 63,279
======== ======== ======== ======== ========
Income (loss) from continuing
operations before extraordinary items $ 16,603 $ 115 $ (4,697) $(34,072) $(16,158)
Loss on sale of discontinued
operations, net of taxes -- -- -- (13,657) (9,300)
-------- -------- -------- -------- --------
Income (loss) before extraordinary items 16,603 115 (4,697) (47,729) (25,458)
Extraordinary items -- -- -- 924 640
-------- -------- -------- -------- --------
Net income (loss) 16,603 115 (4,697) (46,805) (24,818)
Less, preferred stock dividends -- -- 89 320 1,804
-------- -------- -------- -------- --------
Net income (loss) applicable to
common stock $ 16,603 $ 115 $ (4,786) $(47,125) $(26,622)
======== ======== ======== ======== ========
Earnings (loss) per share:
Continuing operations $ 1.41 $ .01 $ (.47) $ (3.43) $ (1.96)
Loss on sale of discontinued operations -- -- -- (1.36) (1.01)
-------- -------- -------- -------- --------
Income (loss) before extraordinary items 1.41 .01 (.47) (4.79) (2.97)
Extraordinary items -- -- -- .09 .07
-------- -------- -------- -------- --------
Earnings (loss) per share $ 1.41 $ .01 $ (.47) $ (4.70) $ (2.90)
======== ======== ======== ======== ========
Average number of common shares used
to compute earnings per share 11,761 11,576 10,193 10,035 9,167
======== ======== ======== ======== ========
</TABLE>
Consolidated Financial Position
<TABLE>
<CAPTION>
October 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Current assets $ 42,495 $ 41,228 $ 43,505 $ 51,875 $119,282
Property, plant and equipment, net 34,674 34,062 34,787 39,895 39,732
Intangible assets, net 21,468 14,933 15,327 16,285 10,083
Other assets 4,272 1,769 1,439 1,469 3,910
-------- -------- -------- -------- --------
Total assets $102,909 $ 91,992 $ 95,058 $109,524 $173,007
======== ======== ======== ======== ========
Current liabilities $ 33,308 $ 39,613 $ 42,256 $ 51,995 $ 68,119
Long-term debt 47,920 43,490 46,184 48,077 58,591
Other long-term liabilities 6,351 10,638 10,272 9,000 --
-------- -------- -------- -------- --------
Total liabilities 87,579 93,741 98,712 109,072 126,710
-------- -------- -------- -------- --------
Stockholders' equity (deficit) 15,330 (1,749) (3,654) 452 46,297
-------- -------- -------- -------- --------
Total liabilities and stockholders' equity $102,909 $ 91,992 $ 95,058 $109,524 $173,007
======== ======== ======== ======== ========
</TABLE>
15
<PAGE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
References to Note numbers are references to the "Notes to Consolidated
Financial Statements" of the Company beginning on page 27 of this report. The
following products that appear in this exhibit are protected by trademarks or
service marks that are owned by, licensed to or distributed by The Cooper
Companies, Inc., its subsidiaries or affiliates: Hydrasoft'r', J-Needle'tm', KOH
Colpotomizer System'tm', Preference Toric'tm', Preference'r', Pipelle'r',
RUMI'tm', The RUMI System'tm' and Unimer'r'.
Results of Operations
Comparison of each of the fiscal years in the three-year period ended
October 31, 1996:
Net Sales of Products
The following table summarizes the increases and decreases in net sales of
products of the Company's CooperVision ("CVI") and CooperSurgical ("CSI")
business units over the three-year period. Sales generated by the Company's
CooperVision Pharmaceuticals ("CVP") unit were zero in 1996, $16 thousand in
1995 and $394 thousand in 1994.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Increase (Decrease)
- --------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
(Dollars in thousands)
----------------------------------------------
<S> <C> <C> <C> <C>
Business Unit
CVI $6,436 15% $ 4,663 12%
====== == ======= ====
CSI $4,402 34% $ (23) --- %
====== == ======= ====
</TABLE>
Consolidated net sales of products grew 20% in 1996 and 8% in 1995.
1996 vs. 1995
Net sales of CVI grew by 15%. The primary contributors to the growth were
increased sales of the Preference spherical and Preference Toric product lines,
which together grew approximately 70%. Sales of toric lenses to correct
astigmatism, CVI's leading product group, grew by 35% year to year and now
account for approximately one-half of its sales. The Company expects this trend
to continue and considers itself to be well positioned to compete successfully
in specialty niches of the contact lens market, particularly with its Preference
line of planned replacement lenses and its line of custom toric lenses. CVI
recently announced plans to double the capacity of its Scottsville, New York,
facility where Preference Toric lenses are manufactured. These increases were
partially offset by anticipated decreases in sales of more mature product lines.
Net sales of CSI increased 34%. Its gynecology product line grew by
approximately 50%, primarily due to sales of Unimar and Blairden products which
were acquired in April 1996 and June 1995, respectively. The effect of increased
sales of gynecology products was partially offset by reduced sales of
nonstrategic or nongynecologic products. CSI's sales mix continued to shift
toward its gynecology product line, which now accounts for approximately 90% of
its sales.
1995 vs. 1994
The primary contributors to CVI's growth in 1995 were increased sales of
the Preference spherical product line and the Hydrasoft toric and Preference
Toric product lines (the latter of which was launched in the fourth quarter of
fiscal 1994). Sales of CVI's toric lenses in the United States grew by
approximately 50% in 1995. Toric and other specialty lenses accounted for
approximately two-thirds of CVI's total sales. The 1995 increases were partially
offset by anticipated decreases in sales of more mature product lines. CVI's
sales mix shifted toward daily wear, planned replacement and other specialty
products and away from extended wear products.
Net sales of CSI products were essentially flat in 1995 as compared to
1994. Nearly 75% of CSI's net sales related to womens' healthcare products, as
the unit continued to direct its sales efforts toward the gynecology market to
take advantage of the lower cost to service a highly focused market niche.
Net Service Revenue
Net service revenue consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
(In thousands)
-------------------------------------
<S> <C> <C> <C>
Net patient revenue $43,013 $40,643 $42,611
Management fees -- 1,151 2,000
------- ------- -------
$43,013 $41,794 $44,611
======= ======= =======
</TABLE>
Net patient revenue by major providers was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1996 1995 1994
(Dollars in thousands)
Amount % Total Amount % Total Amount % Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 3,989 9% $ 5,055 13% $ 9,170 21%
Medicare 13,034 30 11,767 29 9,225 22
Medicaid 9,884 23 8,566 21 7,254 17
Blue Cross 3,617 9 4,015 10 4,729 11
HMOs 8,896 21 8,714 21 7,722 18
Other 3,593 8 2,526 6 4,511 11
------- --- ------- --- ------- ---
$43,013 100% $40,643 100% $42,611 100%
======= === ======= === ======= ===
- -----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<PAGE>
Net Patient Revenue
(See Note 1 "Net Service Revenue")
Net patient revenue grew 6% to $43 million in fiscal 1996. In each of the
last three quarters of 1996, following the transition of the physician group at
Hampton Hospital, Hospital Group of America Inc.'s ("HGA") revenue showed
improving growth rates compared with the comparable quarter in 1995. Increased
patient visits to outpatient and day treatment programs have helped offset
pressure on revenue resulting from declining average length of stay. Outpatient
revenue increased to approximately 12% of net patient revenue in 1996 from
approximately 9% in 1995, and approximately 5% in 1994.
Net patient revenue decreased by $2.0 million or 5% in 1995. Revenue has
been pressured by the current industry trend toward 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, management estimates that the dispute with the Hampton
Medical Group, P.A. ("HMG"), which was settled in 1995 (See Note 4.), reduced
revenue during 1995 at Hampton Hospital by approximately $2 million compared
with 1994.
Management Fees
On May 29, 1992, PSG Management, Inc. ("PSG Management"), a subsidiary of
the Company, entered into a three-year management agreement with Progressions
Health Systems, Inc. ("Progressions"), under which PSG Management managed three
hospitals owned by Progressions, having a total of 220 licensed beds. PSG
Management received a management fee of $166,667 per month under the agreement,
which expired by its terms in May 1995.
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
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
CVI 77% 73% 71%
CSI 51% 52% 48%
Consolidated 70% 68% 65%
- --------------------------------------------------------------------------------
</TABLE>
CVI's margin has increased from 1994 through 1996 due to efficiencies
associated with higher production levels, as well as a favorable product mix,
reflecting the growth in sales of toric contact lenses, which have higher
margins. CSI's 1996 margin decreased compared to 1995 due to the acquisition of
Unimar products, which have slightly lower margins as compared to the Company's
previous year's product mix. Cost reductions are underway, which management
anticipates will improve future Unimar product line margins. CSI's 1995 margin
increased compared to 1994 due to a favorable product mix in the United States.
Internationally, a margin increase was primarily due to cost reductions
accomplished within the LEEP product line. Also, 1994 CSI margins were impacted
by a $200 thousand write-down of endoscopy inventory, which reduced margins by
2%.
Cost of Services Provided
Cost of services provided represents all normal operating costs (other than
financing costs and amortization of intangibles) incurred by HGA in generating
net service revenue. The results of subtracting cost of services provided from
net service revenue is an operating profit of $2.8 million or 6% of net service
revenue in 1996, $1.3 million or 3% of net service revenue in 1995 and $3.6
million or 8% of net service revenue in 1994. The 1996 increased percentage of
operating profits as compared to 1995 is attributable to increased revenue, as
described above, while cost of services were about the same as 1995. The
decreased percentage of operating profits in 1995 compared with 1994 was
primarily attributable to lower revenue as described above, partially offset by
lower cost of services.
Research and Development Expense
Research and development expense was $1.2 million or 2% of net sales of
products in 1996 compared to $2.9 million or 5% in 1995 and $4.4 million or 9%
in 1994.
The decreases in 1996 and 1995 are primarily attributable to the Company's
decision to discontinue development of its calcium channel blocker compound.
This project accounted for 43% and 63% of consolidated research and development
expense in 1995 and 1994, respectively. A 1996 vs. 1995 decrease of $418
thousand in CSI research and development reflected primarily the May 1995
discontinuance of the development of Innerdyne Inc.'s thermal endometrial
ablation technology, begun in 1994, and on which CSI had spent approximately
$600 thousand by mid 1995.
17
<PAGE>
<PAGE>
The Company currently anticipates that the level of spending on research
and development has stabilized. The Company is focusing on acquiring products
which will be marketable immediately or in the short-term, rather than on
funding longer-term, higher risk research and development projects.
Selling, General and Administrative Expense
The Company's selling, general and administrative expense ("SGA") by
business unit and corporate was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
(In thousands)
-----------------------------------
<S> <C> <C> <C>
CVI $17,281 $15,949 $13,621
CSI 6,243 5,520 6,125
Corporate/Other 6,193 4,357 11,281
------- ------- -------
$29,717 $25,826 $31,027
======= ======= =======
</TABLE>
The increase in 1996 vs. 1995 Corporate/Other SGA is primarily due to the
$1.3 million credits reflected in 1995 SGA as noted below. The 61% decrease in
1995 vs. 1994 Corporate/Other SGA reflects the resolution of various legal
matters, a reduction in the level of corporate staffing, a credit of $648
thousand for the recovery of the Company's claim against the Cooper
Laboratories, Inc. Liquidating Trust, representing the recovery of previously
rendered administrative services, the reversal of a $649 thousand receivable
reserve and certain other accruals no longer required and a significant
reduction in the cost of the Company's Directors and Officers insurance.
SGA for CVI increased by 8% and 17% in 1996 vs. 1995 and 1995 vs. 1994,
respectively. The increase in 1996 vs. 1995 relates to increased sales, and the
increase in 1995 vs. 1994 was due primarily to costs associated with the
successful launch of the Preference Toric line of contact lenses and the cost of
programs associated with the launch of additional new products. As a percentage
of sales, CVI's SGA was 35% in 1996, 38% in 1995 and 36% in 1994.
The 1996 increase in CSI SGA resulted primarily from the acquisition of
Unimar. (See Note 2.) The 1995 decrease at CSI reflects savings generated by the
consolidation of CSI facilities with attendant efficiencies.
Costs Associated With Restructuring Operations
(See Note 5.)
In 1995, the Company recorded $1.5 million of restructuring costs to
provide for costs primarily associated with the closure of facilities in the
Company's CVP, CSI and corporate operations and downsizing HGA headquarters.
Amortization of Intangibles
Amortization of intangibles was $1.2 million in 1996, $859 thousand in 1995
and $843 thousand in 1994. In 1996, the Company accelerated $246 thousand of
amortization for a use patent as a result of its decision to discontinue the
development and outlicensing of its calcium channel blocker compound. The
Company stopped funding this project in 1995. The balance of the changes in each
year reflect acquisition activity during the three-year period. (See Note 2.)
Income From Operations
As a result of the variances discussed above, income from operations has
improved by $16.4 million over the three-year period. Income from operations by
business unit and Corporate/Other was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
October 31,
- --------------------------------------------------------------------------------
1996 1995 1994
(In thousands)
-------------------------------------------
<S> <C> <C> <C>
CVI $ 19,065 $ 13,959 $ 11,963
CSI 1,667 (425) (932)
HGA 2,573 878 3,321
Corporate/Other (6,462) (6,404) (13,929)
-------- -------- --------
$ 16,843 $ 8,008 $ 423
======== ======== ========
- --------------------------------------------------------------------------------
</TABLE>
Settlement of Disputes, Net (See Note 4.)
In fiscal 1996, the Company recorded a credit to income of $223 thousand
related to the agreement which settled cross claims between HGA and Progressions
related to purchase price adjustments (which were credited to goodwill) and
other disputes. Pursuant to this agreement, HGA received $447 thousand in fiscal
1996 of which $223 thousand has been credited to settlement of disputes.
In 1995, the Company recorded a charge of $5.6 million for the settlement
of the HMG dispute. This charge was partially offset by net credits to income of
$2.0 million, which primarily represented cash received by the Company in
connection with the settlement of other litigation matters.
In 1994, the Company recorded the following items related to settlement of
disputes:
A credit of $850 thousand following receipt of funds by the Company to
settle certain of the Company's claims associated with a real estate
transaction.
A charge of $5.8 million which represented the Company's estimate of costs
required to settle certain disputes and other litigation matters, including
$3.5 million associated with the Company's criminal conviction and the
related SEC enforcement action against the Company.
18
<PAGE>
<PAGE>
Investment Income (Loss), Net
Investment income (loss), net includes interest income of $250 thousand,
$394 thousand and $377 thousand in 1996, 1995 and 1994, respectively. The
decrease in interest income in 1996 reflects lower investment balances primarily
as a result of the Company's use of cash for the acquisition of Unimar in April
1996. (See Note 2.) Also included in investment income, net for 1994 is a $530
thousand loss on the sale of marketable securities.
Interest Expense
Interest expense was $5.3 million in 1996, $4.7 million in 1995 and $4.5
million in 1994. The increase in interest expense for 1996 over 1995 is
primarily related to the interest on $4,000,000 principal amount of notes issued
in April 1996 in connection with the acquisition of Unimar, bearing interest at
a rate of 12% per annum (See Note 8.) and accreted interest in 1996 related to
the settlement of the HMG dispute. The increase in interest expense in 1995 was
primarily a result of the increased borrowing related to a line of credit,
partially offset by reduced interest expense due to an exchange offer and
consent solicitation which occurred in the first quarter of fiscal 1994.
Provision for (Benefit of) Income Taxes
Details with regard to the Company's provision for (benefit of) income
taxes for each of the years in the three-year period ended October 31, 1996 are
set forth in Note 7. The 1996 provision for federal and state taxes of $275
thousand was offset by a reversal of $615 thousand of tax accruals no longer
required and the recognition of an income tax benefit of $4.1 million from
reducing the valuation allowance against net deferred tax assets. The 1995
provision for state income and franchise taxes of $315 thousand was partially
offset by a reversal of $200 thousand of tax accruals no longer required. The
1994 provision for state income and franchise taxes of $400 thousand was offset
by a reversal of $5.0 million of tax accruals no longer required following the
successful resolution of certain tax issues.
Capital Resources & Liquidity
The financial condition of the Company continued to improve in fiscal 1996
and, in the opinion of management, is now reflective of an effectively competing
commercial enterprise, unhampered by an inordinate level of litigation and other
distractions. In 1996, the Company generated $16.8 million of income from
operations, which was more than twice the amount generated in 1995. In addition,
stockholders' equity improved by $17 million to $15.3 million vs. the deficit of
over $1.7 million that existed at the end of fiscal 1995. As a result of the
Company's improved financial strength and prospects, it was able, effective at
the beginning of fiscal 1997, to decrease by two percentage points the interest
rate on its $11 million HGA debt. The Company was also able to reduce by one
percentage point the interest rate on CVI's $8 million line of credit.
Cash provided by the Company's operating activities rebounded from a
negative $7.8 million in the traditionally lower first quarter to $11.3 million
in the succeeding nine months. As a result, operating cash flow for fiscal 1996,
at $3.5 million, achieved virtually the same level as in 1995. Higher operating
cash flow levels in 1996 were precluded due to approximately $2 million in
increased payments for certain settlements as well as additional investments in
receivables and inventory reflective of growth in sales and ongoing launches of
new products. Operating cash flow was negative $2 million in fiscal 1994.
Cash used by investing activities in 1996 was $6.5 million, driven by $3.2
million in capital expenditures and the acquisition of Unimar, Inc. in April for
$3.9 million in cash and $4 million in 12% notes due in three years. The cash
portion of the acquisition was funded primarily by cash on hand.
Cash used by financing activities in 1996 of $1.3 million reflected
repayment of the HGA Industrial Revenue Bond. (See Note 8.) Financing activities
were virtually neutral in 1995. The cash use of $6.9 million in fiscal 1994
related primarily to payments associated with a debt restructuring completed by
the Company in January 1994.
19
<PAGE>
<PAGE>
Management believes that the Company is positioned to generate sufficient
operating cash flow to fund its day-to-day needs and expects that operating cash
flow will increase in the future. The Company further expects that operating
cash flow for the first quarter of 1997 will continue to be below the other
three quarters of 1997, but will compare favorably with the negative $7.8
million used in the first quarter of 1996, when the Company paid $3.1 million to
Dr. Pottash. (See Note 4.) The balance of an additional $3.1 million due to HMG
will be paid in two equal installments in the third quarters of fiscal 1997 and
1998. Items which continue to pressure first quarter operating cash flow include
ongoing payments to Medical Engineering Corporation (See Note 11.) and employee
incentive payments made in the first quarter.
The Company expects to spend approximately $7 million for purchases of
property, plant and equipment in fiscal 1997, including approximately $1 million
to be spent by CVI to expand its manufacturing facilities and $1.7 million to be
spent by HGA to construct a residential treatment center in Indiana. The Company
expects to finance the CVI expansion with credit facilities currently being
negotiated, whereas the residential treatment center will be funded by cash on
hand and credit facilities now in place, with a plan to refinance when
construction is completed.
The Company regularly evaluates acquisition opportunities which, if
pursued, it would intend to fund by a combination of cash then on hand,
financing vehicles now in place and, where appropriate, other methods of raising
capital as needed.
Inflation and Changing Prices
Inflation has had little effect on the Company's operations in the last
three years.
Impact of Statements of Financial Accounting
Standards Issued But Not Adopted
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 applies to all transactions in which an entity
acquires goods or services by issuing equity instruments such as common stock,
except for employee stock ownership plans. SFAS No. 123 establishes a new method
of accounting for stock-based compensation arrangements with employees which is
fair value based. The statement encourages (but does not require) employers to
adopt the new method in place of the provisions of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Companies may
continue to apply the accounting provisions of APB No. 25 in determining net
income, however, they must apply the disclosure requirements of SFAS No. 123.
Companies that adopt the fair value based method of SFAS No. 123 would typically
incur a higher compensation cost for fixed stock option plans and a different
compensation cost for contingent or variable stock option plans. The recognition
provisions and disclosure requirements of SFAS No. 123 are effective for fiscal
years beginning after December 15, 1995. The Company will adopt the disclosure
requirements in its 1997 fiscal year. Such adoption will have no impact on
reported results.
20
<PAGE>
<PAGE>
Management's
Statement
The financial statements and other financial information in this report are
management's responsibility and were prepared according to generally accepted
accounting principles. They include amounts based on management's informed
estimates and judgments. Other financial information in this report is
consistent with that in the financial statements.
The Company's accounting systems include controls to reasonably assure that
assets are safeguarded and financial statements conform to generally accepted
accounting principles. These systems are supplemented by selecting and training
qualified personnel and by an organizational structure that provides for
appropriate separation of duties.
The Board of Directors, through its Audit and Finance Committee of three
outside directors, is responsible to determine that management fulfills its
responsibilities regarding preparation of financial statements and maintenance
of financial control over operations. The Audit and Finance Committee recommends
to the Board of Directors appointment of the Company's independent certified
public accountants subject to ratification by the stockholders. It meets
regularly with management and the independent accountants. The independent
accountants have complete access to the Audit and Finance Committee, without
management present, to discuss auditing and financial reporting.
KPMG Peat Marwick LLP ("KPMG") has been the Company's independent certified
public accountants since 1980 when the Company incorporated. KPMG provides an
objective, independent review of management's discharge of its responsibilities
relating to the fair presentation of the consolidated financial statements.
Their report follows.
/s/ A. Thomas Bender /s/ Robert S. Weiss
----------------------- ---------------------------
A. Thomas Bender Robert S. Weiss
President and Executive Vice President
Chief Executive Officer and Chief Financial Officer
Independent
Auditors' Report
The Board of Directors and Stockholders
The Cooper Companies, Inc.:
We have audited the accompanying consolidated balance sheets of The Cooper
Companies, Inc. and subsidiaries as of October 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the three-year period ended October 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Cooper
Companies, Inc. and subsidiaries as of October 31, 1996 and 1995 and the results
of their operations and their cash flows for each of the years in the three-year
period ended October 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
-------------------------
San Francisco, California
December 9, 1996
21
<PAGE>
<PAGE>
Consolidated Statements of Operations
The Cooper Companies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended October 31,
- -------------------------------------------------------------------------------------------------------------
1996 1995 1994
(In thousands, except per share figures)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales of products $ 66,118 $ 55,296 $ 51,034
Net service revenue 43,013 41,794 44,611
--------- --------- ---------
Net operating revenue 109,131 97,090 95,645
--------- --------- ---------
Cost of products sold 19,911 17,549 17,906
Cost of services provided 40,235 40,454 41,039
Research and development expense 1,176 2,914 4,407
Selling, general and administrative expense 29,717 25,826 31,027
Amortization of intangibles 1,249 859 843
Costs associated with restructuring operations -- 1,480 --
--------- --------- ---------
Income from operations 16,843 8,008 423
--------- --------- ---------
Provision for (benefit of) settlements of disputes (223) 3,532 4,950
Investment income (loss), net 281 444 (153)
Other income, net 80 51 256
Interest expense 5,312 4,741 4,533
Debt restructuring costs -- -- 340
--------- --------- ---------
Income (loss) before income taxes 12,115 230 (9,297)
Provision for (benefit of) income taxes (4,488) 115 (4,600)
--------- --------- ---------
Net income (loss) 16,603 115 (4,697)
Less preferred stock dividends -- -- 89
--------- --------- ---------
Net income (loss) applicable to common stock $ 16,603 $ 115 $ (4,786)
========= ========= =========
Earnings (loss) per share $ 1.41 $ .01 $ (.47)
========= ========= =========
Average number of common shares
used to compute earnings per share 11,761 11,576 10,193
========= ========= =========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
<PAGE>
Consolidated Balance Sheets
The Cooper Companies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Assets
- -----------------------------------------------------------------------------------------
October 31,
- -----------------------------------------------------------------------------------------
1996 1995
(In thousands)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,837 $ 11,207
Trade and patient accounts receivable, less allowances
of $1,969,000 in 1996, $2,241,000 in 1995 21,650 17,717
Inventories 10,363 9,570
Deferred tax asset 953 --
Prepaid expenses and other current assets 2,692 2,734
-------- --------
Total current assets 42,495 41,228
-------- --------
Property, plant and equipment at cost 49,306 46,597
Less accumulated depreciation and amortization 14,632 12,535
-------- --------
34,674 34,062
-------- --------
Goodwill and other intangibles, net 21,468 14,933
Deferred tax asset 3,195 --
Other assets 1,077 1,769
-------- --------
$102,909 $ 91,992
======== ========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity (Deficit)
- ----------------------------------------------------------------------------------------------------
October 31,
- ----------------------------------------------------------------------------------------------------
1996 1995
(In thousands)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 844 $ 2,288
Borrowings under line of credit -- 1,025
Accounts payable 9,206 5,730
Employee compensation, benefits and severance 6,418 6,978
Other accrued liabilities 7,303 13,596
Accrued income taxes 9,537 9,996
--------- ---------
Total current liabilities 33,308 39,613
--------- ---------
Long-term debt 47,920 43,490
Other noncurrent liabilities 6,351 10,638
--------- ---------
Total liabilities 87,579 93,741
--------- ---------
Commitments and Contingencies (See Note 11)
Stockholders' equity (deficit):
Preferred stock, $.10 par value, shares authorized: 1,000,000;
zero shares issued or outstanding -- --
Common stock, $.10 par value, shares
authorized: 20,000,000; issued and outstanding: 11,670,898
and 11,576,482 at October 31, 1996 and 1995, respectively 1,167 1,158
Additional paid-in capital 184,300 183,840
Translation adjustments (326) (333)
Accumulated deficit (169,811) (186,414)
--------- ---------
Total stockholders' equity (deficit) 15,330 (1,749)
--------- ---------
$ 102,909 $ 91,992
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
<PAGE>
Consolidated Statements of Stockholders' Equity (Deficit)
The Cooper Companies, Inc. and Subsidiaries
Years Ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Series B Additional
Preferred Common Paid-In
Stock Stock Capital
- ------------------------------------------------------------------------------------------------------------
Par Par
Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------
(In thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance October 31, 1993 345 $-- 10,043 $1,004 $181,819
---- --- ------ ------ --------
Net loss -- -- -- -- --
Aggregate translation adjustment -- -- -- -- --
Restricted stock amortization
and share issuance, forfeiture
and lifting of restrictions -- -- 99 10 436
Exercise of stock options -- -- 1 -- 2
Dividend requirements on
Series-B Preferred Stock -- -- -- -- --
Conversion of Series B
Preferred to Common (345) -- 1,150 115 (115)
---- --- ------ ------ --------
Balance October 31, 1994 -- $-- 11,293 $1,129 $182,142
---- --- ------ ------ --------
Net income -- -- -- -- --
Aggregate translation adjustment -- -- -- -- --
Restricted stock amortization
and share issuance, forfeiture
and lifting of restrictions -- -- 176 18 1,526
Exercise of stock options -- -- 5 1 9
Exercise of warrants and
warrant valuation -- -- 102 10 163
---- --- ------ ------ --------
Balance October 31, 1995 -- $-- 11,576 $1,158 $183,840
---- --- ------ ------ --------
Net income -- -- -- -- --
Aggregate translation adjustment -- -- -- -- --
Restricted stock amortization
and share issuance, forfeiture
and lifting of restrictions -- -- 7 1 46
Exercise of stock options -- -- 22 2 117
Exercise of warrants and
warrant valuation -- -- 66 6 297
---- --- ------ ------ --------
Balance October 31, 1996 -- $-- 11,671 $1,167 $184,300
==== === ====== ====== ========
<CAPTION>
Unamortized
Restricted
Translation Accumulated Stock Award
Adjustments Deficit Compensation Total
- -------------------------------------------------------------------------------------------------------
(In thousands)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance October 31, 1993 $(223) $(181,743) $(405) $ 452
----- --------- ----- -------
Net loss -- (4,697) -- (4,697)
Aggregate translation adjustment (173) -- -- (173)
Restricted stock amortization
and share issuance, forfeiture
and lifting of restrictions -- -- 405 851
Exercise of stock options -- -- -- 2
Dividend requirements on
Series-B Preferred Stock -- (89) -- (89)
Conversion of Series B
Preferred to Common -- -- -- --
----- --------- ----- -------
Balance October 31, 1994 $(396) $(186,529) $ -- $(3,654)
----- --------- ----- -------
Net income -- 115 -- 115
Aggregate translation adjustment 63 -- -- 63
Restricted stock amortization
and share issuance, forfeiture
and lifting of restrictions -- -- -- 1,544
Exercise of stock options -- -- -- 10
Exercise of warrants and
warrant valuation -- -- -- 173
----- --------- ----- -------
Balance October 31, 1995 $(333) $(186,414) $ -- $(1,749)
----- --------- ----- -------
Net income -- 16,603 -- 16,603
Aggregate translation adjustment 7 -- -- 7
Restricted stock amortization
and share issuance, forfeiture
and lifting of restrictions -- -- -- 47
Exercise of stock options -- -- -- 119
Exercise of warrants and
warrant valuation -- -- -- 303
----- --------- ----- -------
Balance October 31, 1996 $(326) $(169,811) $ -- $15,330
===== ========= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
<PAGE>
Consolidated Statements of Cash Flows
The Cooper Companies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended October 31,
- -----------------------------------------------------------------------------------------------------
1996 1995 1994
(In thousands)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 16,603 $ 115 $ (4,786)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Deferred income taxes (4,148) -- --
Depreciation expense 2,629 2,704 2,870
Provision for doubtful accounts 1,849 2,300 2,431
Amortization expenses:
Intangible assets 1,249 992 975
Debt discount (526) (443) (499)
Stock compensation expense 46 -- 853
Net (gain) loss from:
Sales of assets and businesses -- -- (214)
Investments -- -- 530
Debt restructuring costs -- -- 340
Change in operating assets and liabilities excluding
effects from acquisitions and sales of assets and
businesses:
Receivables (4,998) (1,918) (5,373)
Inventories (445) 2,126 3,291
Other assets 266 275 405
Accounts payable 166 (1,050) 2,311
Accrued liabilities (4,488) (2,000) (925)
Income taxes payable (459) (109) (4,732)
Other long-term liabilities (4,287) 429 524
-------- -------- --------
Net cash provided (used) by operating activities 3,457 3,421 (1,999)
-------- -------- --------
Cash flows from investing activities:
Sales of assets and businesses 532 173 2,720
Cash received from Progressions for purchase
price adjustment 224 421 --
Purchases of assets and businesses (4,080) (821) --
Purchases of property, plant and equipment (3,182) (2,185) (938)
Sales of temporary investments -- -- 7,302
-------- -------- --------
Net cash provided (used) by investing activities $ (6,506) $ (2,412) $ 9,084
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
<PAGE>
Consolidated Statements of Cash Flows-Concluded
The Cooper Companies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended October 31,
- ------------------------------------------------------------------------------------------------
1996 1995 1994
(In thousands)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Payments associated with the Exchange
Offer and Consent Solicitation including debt
restructuring costs $ -- $ -- $ (5,416)
Proceeds from (repayment of) line of credit, net (1,025) 1,025 --
Proceeds from long-term note 1,320 -- --
Net payments of notes payable and current
long-term debt (1,808) (1,270) (1,462)
Proceeds from exercise of warrants and options 192 123 --
-------- -------- --------
Net cash used by financing activities (1,321) (122) (6,878)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (4,370) 887 207
Cash and cash equivalents at beginning of year 11,207 10,320 10,113
-------- -------- --------
Cash and cash equivalents at end of year $ 6,837 $ 11,207 $ 10,320
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amounts capitalized) $ 4,880 $ 4,755 $ 4,791
======== ======== ========
Dividends on preferred stock $ -- $ -- $ 89
======== ======== ========
Income taxes $ 119 $ 224 $ 132
======== ======== ========
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
In April 1996, the Company purchased certain assets and assumed certain
liabilities of Unimar, Inc., by paying $3.9 million in cash and issuing $4
million of notes. (See Note 2.)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Acquisition of Unimar, Inc.
Fair value of assets acquired $ 9,661
Less cash acquired (404)
Less cash paid (3,880)
-------
Liabilities assumed, notes issued
and acquisition costs accrued $ 5,377
=======
- --------------------------------------------------------------------------------
</TABLE>
In January 1994, the Company completed an exchange offer and consent
solicitation by issuing $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 Note 8.)
See accompanying notes to consolidated financial statements.
26
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements
The Cooper Companies, Inc. and Subsidiaries
NOTE 1.
Summary of Significant Accounting Policies
General
The Cooper Companies, Inc., (together with its subsidiaries, the "Company")
develops, manufactures and markets healthcare products, including a range of
hard and soft daily, flexible and extended wear contact lenses, and diagnostic
and surgical instruments. The Company also provides healthcare services through
the ownership of psychiatric facilities, and through May 1995, the management of
three other such facilities. Intercompany transactions and accounts are
eliminated in consolidation.
Foreign Currency Translation
Assets and liabilities of the Company's operations located outside the
United States (primarily Canada) are translated at prevailing year-end rates of
exchange. Related income and expense accounts are translated at weighted average
rates for each year. Gains and losses resulting from the translation of
financial statements in foreign currencies into U. S. dollars are recorded in
the equity section of the consolidated balance sheets. Gains and losses
resulting from the impact of changes in exchange rates on transactions
denominated in foreign currencies are included in the determination of net
income or loss for each period. Foreign exchange gains (losses) included in the
Company's consolidated statement of operations for each of the years ended
October 31, 1996, 1995 and 1994 were ($13,000), ($130,000) and $53,000,
respectively.
Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during each of the
reporting periods. Actual results could differ from those estimates.
Net Service Revenue
Net service revenue consists primarily of net patient revenue, which is
based on the Hospital Group of America, Inc. ("HGA") hospitals' established
billing rates less allowances and discounts for contractual programs. Payments
under these programs are based on either predetermined rates or the cost of
services. Settlements for retrospectively determined rates are estimated in the
period the related services are rendered and are adjusted in future periods as
final settlements are determined. Management believes that adequate provision
has been made for adjustments that may result from the final determination of
amounts earned under these programs. In 1996 and 1995, the Company received and
recognized revenue of approximately $2,000,000 and $2,400,000, respectively,
associated with prior year cost report settlements. Approximately 53%, 50% and
39%, respectively, of 1996, 1995 and 1994 net service revenue is from
participation by hospitals in Medicare and Medicaid programs.
The Company provides care to indigent patients who meet certain criteria
under its charity care policy without charge or at amounts less than its
established rates. Because the Company does not pursue collection of amounts
determined to qualify as charity care, they are not reported as revenue. The
Company maintains records to identify and monitor the level of charity care it
provides. These records include the amount of charges foregone for services and
supplies furnished under its charity care policy. Charges at the Company's
established rates foregone for charity care provided by the Company amounted to
$2,275,000, $2,142,000 and $2,498,000 for fiscal 1996, 1995 and 1994,
respectively. Hampton Hospital is required by its Certificate of Need to incur
not less than 10% of total patient days as free care.
With respect to net service revenue, receivables from government programs
represent the only concentrated group of potential credit risk to the Company.
Management does not believe that there are any credit risks associated with
these governmental agencies. Negotiated and private receivables consist of
receivables from various payors, including individuals involved in diverse
activities, subject to differing economic conditions, and do not represent any
concentrated credit risks to the Company. Furthermore, management continually
monitors and, where indicated, adjusts the allowances associated with these
receivables.
27
<PAGE>
<PAGE>
Net Sales of Products
Net sales of products consist of sales generated by the Company's
CooperVision ("CVI") and CooperSurgical ("CSI") businesses. The Company
recognizes revenue net of appropriate provisions for returns when risk of
ownership has transferred to the buyer.
With respect to net sales of products, management believes trade
receivables do not include any concentrated groups of credit risk.
Cash and Cash Equivalents
Cash and cash equivalents include commercial paper and other short-term
income producing securities with a maturity date at purchase of three months or
less. These investments are readily convertible to cash and are carried at cost
which approximates market.
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>
- --------------------------------------------------------------------------------
October 31,
- --------------------------------------------------------------------------------
1996 1995
(In thousands)
-------------------------------------
<S> <C> <C>
Raw materials $ 2,318 $ 2,212
Work-in-process 1,028 1,114
Finished goods 7,017 6,244
------- -------
$10,363 $ 9,570
======= =======
</TABLE>
- --------------------------------------------------------------------------------
Property, Plant and Equipment at Cost
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
October 31,
- --------------------------------------------------------------------------------
1996 1995
(In thousands)
-------------------------------------
<S> <C> <C>
Land and
improvements $ 1,360 $ 1,360
Buildings and
improvements 35,191 34,005
Machinery and
equipment 12,755 11,232
------- -------
$49,306 $46,597
======= =======
</TABLE>
- --------------------------------------------------------------------------------
Depreciation is computed on the straight-line method in amounts sufficient
to write-off depreciable assets over their estimated useful lives. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the period of the related lease. Building depreciation is based on estimated
useful lives of 35 to 40 years, and all machinery and equipment are depreciated
over 5 to 10 years.
Expenditures for maintenance and repairs are expensed; major replacements,
renewals and betterments are capitalized. The cost and accumulated depreciation
of depreciable assets retired or otherwise disposed of are eliminated from the
asset and accumulated depreciation accounts, and any gains or losses are
reflected in operations for the period.
Amortization of Intangibles
Amortization is provided for on all intangible assets (primarily goodwill,
which represents the excess of purchase price over fair value of net assets
acquired) on a straight-line basis over periods of up to 30 years. Accumulated
amortization at October 31, 1996 and 1995 was $4,447,000 and $3,909,000,
respectively. The Company assesses the recoverability of goodwill and other
long-lived assets by determining whether the amortization of the related balance
over its remaining life can be recovered through reasonably expected
undiscounted future cash flows. Management evaluates the amortization periods of
intangibles to determine whether later events and circumstances warrant revised
estimates of useful lives.
Earnings (Loss) Per Share
Earnings (loss) per share is determined by using the weighted average
number of common shares and common share equivalents (stock warrants and stock
options) outstanding during each year (except where antidilutive). Fully diluted
earnings (loss) per share is not materially different from primary earnings
(loss) per share.
28
<PAGE>
<PAGE>
Note 2.
Acquisitions
In April 1996, the Company acquired the stock of Unimar, Inc., a leading
provider of specialized disposable medical devices for gynecology, for
$8,000,000 in cash and notes. Sales of Unimar products of $3,600,000 were
included in the Company's results for fiscal 1996. Goodwill from the purchase
has been recorded in the amount of $7,800,000, which is being amortized over 20
years. As part of the acquisition, the Company granted a warrant to purchase
83,333 shares of the Company's common stock for $11.375 per share. The warrant
is valued at $231,000. The exercise period of the warrant is from April 11, 1999
to June 10, 1999. The number of shares and the exercise price per share are
subject to adjustment as provided in the warrant.
In June 1995, CSI acquired from Blairden Precision Instruments the exclusive
worldwide rights to The RUMI System uterine manipulator injector and related
products for $1,000,000. No goodwill arose from the recording of this
acquisition.
Note 3.
Stockholders Rights Plan
In October 1987, the Board of Directors of the Company declared a dividend
distribution of one right for each outstanding share of the Company's common
stock (a "Right"). Following the effectiveness of the one-for-three reverse
stock split in September 1995, the number of Rights per share increased from one
to three. Each Right entitles the holder to initially purchase from the Company
a fraction of a share of participating preferred stock at an exercise price of
$60.00, subject to adjustment. The Rights are exercisable only if a person or
group acquires (an "Acquiring Person"), or generally obtains the right to
acquire beneficial ownership of 20% or more of the Company's common stock, or
commences a tender or exchange offer which would result in such person or group
beneficially owning 30% or more of the Company's common stock. Once the Rights
are exercisable, then under certain circumstances, including certain
acquisitions of beneficial ownership of 30% or more of the Company's outstanding
common stock and certain mergers or other business combinations, each holder of
a Right, other than an Acquiring Person, will have the right to receive, upon
exercise, shares of common stock of the Company, or of the acquiring company in
such merger or other business combination or asset sale, having a value equal to
two times the exercise price of the Right.
The Rights expire on October 29, 1997 and may generally be redeemed by the
Company at a price of five cents per Right, at any time until the close of
business on the tenth day following a public announcement that an Acquiring
Person has acquired, or generally obtained the right to acquire, beneficial
ownership of 20% or more of the Company's common stock. After the redemption
period has expired, the Company's right of redemption may be reinstated if an
Acquiring Person reduces his beneficial ownership to 10% or less of the
outstanding shares of common stock in a transaction or series of transactions
not involving the Company.
In June 1993, the Board of Directors amended the Rights Agreement, so that
Cooper Life Sciences, Inc. ("CLS") and its affiliates and associates would not
be Acquiring Persons thereunder as a result of CLS's beneficial ownership of
more than 20% of the outstanding common stock of the Company by reason of its
ownership of Series B Preferred Stock or common stock issued upon conversion
thereof. In January 1995, the Rights Agreement was further amended to provide
that any person who becomes the beneficial owner of 10% or more, but not more
than 30%, of the outstanding common stock of CLS, would not be an Acquiring
Person, provided that such person is not otherwise, and does not thereafter
become, the beneficial owner of more than 1% of the Company's outstanding common
stock. (See "Agreements With CLS" in Note 12.)
Note 4.
Settlement of Disputes, Net
In 1996 and 1995, the Company recorded the following items related to
settlement of disputes:
HGA and Progressions Health Systems, Inc. ("Progressions") agreed to settle
certain purchase price adjustments (credited to goodwill) and other
disputes in return for a series of payments to be made to HGA. Pursuant to
this agreement, HGA received $853,000 of which $421,000 was credited to
settlement of disputes in 1995 and $447,000 of which $223,000 was similarly
credited in 1996.
Under a 1985 agreement (the "HMG Agreement"), Hampton Medical Group
("HMG"), which is owned by Dr. A. L. C. Pottash, 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 the Company's
psychiatric hospital holding company, HGA. Subsequently, 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.
29
<PAGE>
<PAGE>
The Company recorded a charge of $5,551,000 for the settlement of disputes
with HMG and Dr. Pottash. Pursuant to the settlement, (i) the parties
released each other from, among other things, claims underlying related
arbitration, (ii) HGA purchased HMG's interest in the HMG Agreeme on
December 31, 1995, and (iii) HGNJ agreed to make certain payments to Dr.
Pottash in respect of claims he had asserted. While only HMG and Dr.
Pottash are parties to the settlement with HGA, HGNJ and the Company, the
Company has not been notified of any claims by other third party payors or
others relating to billing or other practices at Hampton Hospital. The
settlement with HMG and Dr. Pottash resulted in a one-time charge with a
present value of $5,551,000 to fourth quarter fiscal 1995 earnings. That
charge reflects amounts paid to Dr. Pottash in December 1995 of $3,100,000
included in other current liabilities at October 31, 1995, as well as two
payments scheduled to be made to HMG in May 1997 and 1998, each in the
amount of $1,537,500.
1995 charges were partially offset by the receipt of a $915,000 refund for
directors and officers insurance and a disgorgement of $648,000 from a
former officer of the Company.
In 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 represented the Company's estimate of costs
required to settle certain disputes and other litigation matters including
$3,450,000 associated with the criminal conviction and related SEC
enforcement action, summarized below.
In January 1994, the Company was found guilty on six counts of mail fraud
and one count of wire fraud based upon the conduct of a former Co-Chairman but
was acquitted of charges of conspiracy and aiding and abetting violations of the
Investment Advisers Act. The Company was senten and was ordered to make
restitution of $1,310,166 which was paid in 1994. In addition, the Company was
ordered to pay a noninterest bearing fine over three years in the amount of
$1,831,568. Payments of $350,000 each were made in 1995 and 1996 with an
additional payment of $1,131,568 payable on July 15, 1997. Also the Company
settled in December 1994 a related SEC action under which the Company agreed to
the disgorgement of $1,621,474 and the payment of a civil penalty of $1,150,000.
A significant portion of the amounts imposed by the SEC were offset by
disgorgement and fines in the related criminal action.
Note 5.
Costs Associated with Restructuring Operations
In the fourth quarter of 1995, the Company recorded $1,480,000 to provide
for costs primarily associated with the closure of facilities, with attendant
reductions in personnel, in the Company's CooperVision Pharmaceutical, Inc.
("CVP"), CSI and corporate operations and downsizing HGA headquarters.
Approximately 85% of this provision related to severance benefits accrued for 16
employees, substantially all of which was paid by October 1996. The balance
primarily reflected provisions for unproductive assets.
Note 6.
Financial Instruments
The fair values of the Company's financial instruments, including cash and
cash equivalents, trade receivables, lines of credit, accounts payable, and
accrued liabilities, approximated their carrying values as of October 31, 1996
because of the short maturity of these instruments.
The carrying amounts and fair values of the Company's 10% Notes and 10 5/8%
Debentures follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
October 31, 1996
Carrying Fair
Amount Value
(In thousands)
---------------------------------------
<S> <C> <C>
10 5/8% Convertible
Subordinated Reset
Debentures Due 2005 $ 9,220 $10,591
10% Senior Subordinated
Secured Notes Due 2003 24,285 21,065
- --------------------------------------------------------------------------------
</TABLE>
The fair values of the 10% Notes and 10 5/8% Debentures, which are not
regularly traded, are based on applicable quoted market prices.
The fair value of the Company's other long-term debt approximated the
carrying value at October 31, 1996, as the debt was refinanced or entered into
within the current fiscal year.
30
<PAGE>
<PAGE>
Note 7.
Income Taxes
The income tax provision (benefit) in the consolidated statements of
operations consists of:
<TABLE>
<CAPTION>
Years Ended October 31,
- --------------------------------------------------------------------------------
1996 1995 1994
(In thousands)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 146 $ -- $ --
State (486) 115 (4,600)
------- ------- -------
(340) 115 (4,600)
------- ------- -------
Deferred
Federal (4,148) -- --
State -- -- --
------- ------- -------
(4,148) -- --
------- ------- -------
$(4,488) $ 115 $(4,600)
======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
A reconciliation of the provision for (benefit of) income taxes included in the
Company's consolidated statements of operations and the amount computed by
applying the federal income tax rate to income (loss) before income taxes
follows:
<TABLE>
<CAPTION>
Years Ended October 31,
- --------------------------------------------------------------------------------------------------
1996 1995 1994
(In thousands)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected provision for (benefit of) taxes $ 4,119 $ 78 $(3,161)
Increase (decrease) in taxes resulting from:
Income outside the United States subject to
different tax rates 132 132 (65)
Amortization of intangibles 256 185 185
State taxes, net of federal income tax benefit 70 76 264
Reversal of prior years' estimated tax liabilities
no longer required (615) (200) (5,000)
Amortization of restricted stock compensation -- -- (31)
Net operating losses for which no tax benefit
was recognized -- -- 3,293
Interest expense related to original issue discount (116) (100) (100)
Utilization of net operating loss carryforwards
for which no tax benefit had been previously
recognized (4,406) -- --
Change in valuation allowance (4,148) -- --
Other, net 220 (56) 15
------- ------- -------
Actual provision for (benefit of) income taxes $(4,488) $ 115 $(4,600)
======= ======= =======
</TABLE>
31
<PAGE>
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
October 31,
- -----------------------------------------------------------------------------------------------
1996 1995
(In thousands)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowances for
doubtful accounts $ 1,030 $ 1,138
Inventories, principally due to obsolescence reserves 830 871
Investments, principally due to unrealized losses and
other reserves 73 73
Accrued liabilities, principally due to litigation reserves
and compensation accruals 2,507 4,868
Deferred income, principally due to the debenture exchange 1,066 1,258
Net operating loss carryforwards 79,681 81,871
Capital loss carryforwards 2,523 2,428
Tax credit carryforwards 2,705 2,560
Other 596 490
-------- --------
Total gross deferred tax assets 91,011 95,557
Less valuation allowance (80,304) (88,755)
-------- --------
Deferred tax assets 10,707 6,802
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to purchase accounting
requirements (6,461) (6,507)
Other, principally due to differences in accounting methods
for financial and tax purposes (98) (295)
-------- --------
Deferred tax liabilities (6,559) (6,802)
-------- --------
Net deferred tax assets $ 4,148 $ --
======== ========
- -----------------------------------------------------------------------------------------------
</TABLE>
The net change in the total valuation allowance for the years ended October
31, 1996, 1995 and 1994 was a decrease of $8,451,000, an increase of $1,580,000
and an increase of $2,327,000, respectively. In the fourth quarter of 1996, the
Company recognized an income tax benefit of $4,148,000 from reducing the
valuation allowance based primarily on the significant improvements in the
Company's 1996 operating results.
Subsequently recognized tax benefits relating to the valuation allowance as
of October 31, 1996 will be allocated as follows to:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
----------------------------------
<S> <C>
Consolidated statement
of operations $78,604
Goodwill and other
intangible assets 1,700
-------
$80,304
=======
- --------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<PAGE>
At October 31, 1996 the Company had capital loss, net operating loss, and tax
credit carryforwards for federal tax purposes expiring as follows:
<TABLE>
<CAPTION>
Year of Capital Operating Tax
Expiration Losses Losses Credits
(In thousands)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 5,925 $ -- $ --
1999 1,216 147 867
2000 280 56 1,132
2001 -- 70,473 202
2002 -- 27,326 29
2003 -- 1,378 330
2004 -- 22,241 --
2005 -- 11,006 --
2006 -- 22,265 --
2007 -- 22,058 --
2008 -- 49,535 --
2009 -- 6,553 --
2010 -- 1,318 --
Indefinite life -- -- 145
-------- -------- --------
$ 7,421 $234,356 $ 2,705
======== ======== ========
- --------------------------------------------------------------------------------
</TABLE>
Note 8.
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
October 31,
- ---------------------------------------------------------------------------------------
1996 1995
(In thousands)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
10% Senior Subordinated Secured Notes due 2003 ("Notes") $24,285 $24,816
10 5/8% Convertible Subordinated Reset Debentures due
2005 ("Debentures") 9,220 9,215
12% promissory notes ("Promissory Notes") due April 11, 1999 4,000 --
Bank term loan ("HGA Term Loan") 10,675 9,889
Industrial Revenue Bonds ("HGA IRB") -- 1,458
Capitalized leases, interest rates from 8% to 13% maturing 1999 584 400
------- -------
48,764 45,778
Less current installments 844 2,288
------- -------
$47,920 $43,490
======= =======
- ---------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<PAGE>
Aggregate annual maturities for each of the five years subsequent to
October 31, 1996 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
----------------
<S> <C>
1997 $ 844
1998 $ 1,013
1999 $ 4,728
2000 $ 667
2001 $ 8,007
- --------------------------------------------------------------------------------
</TABLE>
The aggregate principal amount of $21,943,000 of Notes matures on June 1,
2003 and interest is payable quarterly. The Notes are redeemable solely at the
option of the Company, in whole or in part, at any time, at a redemption price
of 100% of principal plus accrued and unpaid interest 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
rights, title and interest in stock of its subsidiaries HGA and CSI, all
additional shares of stock of, or other equity interests in HGA and CSI from
time to time acquired by the Company, all intercompany indebtedness of HGA and
CSI from time to time held by the Company, except as set forth in the indenture
governing the Notes, and the proceeds received from the sale or disposition of
any or all of the foregoing. In accordance with a debt restructuring completed
in January 1994, which was accounted for as a troubled debt restructuring, the
Company recorded a deferred premium of $4,005,000. The Company is recognizing
the benefit of the deferred premium as a reduction to the effective interest
rate on the Notes over the remaining life of the Notes. The effective interest
rate which includes the impact of the amortization of the deferred premium is
6.69%. As of October 31, 1996, the amount of the unamortized deferred premium
was $2,342,000.
The aggregate principal amount of $9,290,000 of Debentures matures March 1,
2005. Interest at 10 5/8% per annum is paid semi-annually. The Debenture holders
may convert Debentures into shares of the Company's common stock at $15.00 per
share, subject to adjustments under certain conditions to prevent dilution to
the holders. The difference between the carrying amount and the principal amount
of the Company's Debentures represents unamortized discount which is being
charged to expense over the life of the issue. The effective interest rate is
10.77%. As of October 31, 1996, the amount of unamortized discount was
approximately $70,000.
The Debentures and the Notes each contain various covenants, including
limitations on investments, incurrence and ranking of indebtedness, payment of
cash dividends, acquisition of the Company's common stock and transactions with
affiliates.
HGA Debt
Substantially all of the property and equipment and accounts receivable of
HGA collateralize its outstanding debt. The HGA Term Loan was renegotiated on
September 17, 1996. Terms of the amended agreement reduced the interest rate to
two and one-half percentage points above the bank's prime rate and extended the
loan maturity to August 1, 2001. Additionally, because HGA achieved targeted
operating results, the interest rate was further reduced effective November 1,
1996 to a rate of two percentage points (2%) above the bank's prime rate,
subject to a minimum of nine percent (9%). The rate in effect at October 31,
1996 and 1995 was 10.75% and 12.75%, respectively. Interest and principal
payments on the HGA Term Loan are due monthly through August 2001. The HGA Term
Loan contains covenants including the maintenance by HGA of certain ratios and
levels of net worth (as defined), capital expenditures, interest and debt
payments, as well as restrictions on payment of cash dividends. The HGA IRB
carried interest at 85% of prime. The HGA IRB holders elected their right to
accelerate all payments of outstanding principal at December 31, 1995. The
outstanding balance of the HGA IRB totaling $1,320,000 at December 31, 1995 was
paid, and the amount was rolled into the HGA Term Loan.
Loan and Security Agreement
In September 1994, CVI entered into a Loan and Security Agreement ("Line of
Credit") with a commercial lender providing for revolving advances of up to
$8,000,000, which was amended on April 18, 1996. On October 31, 1996 there were
no amounts outstanding. Advances under the Line of Credit bear interest at one
and one-half percentage points above the highest most recently announced prime
rate of the three financial institutions of national repute named in the
agreement, with a floor of 8.5% per annum. The rate in effect at October 31,
1996 was 9.75% per annum. The weighted average interest rate for 1995 was
11.38%. CVI agreed to the payment of various fees and minimum annual interest of
$115,000. The amount of advances allowed under the agreement is capped at the
lesser of $8,000,000, or a percentage of CVI's levels of eligible receivables
and inventory as defined in the agreement (approximately $7,000,000 in total
line availability at October 31, 1996) and is collateralized by virtually all of
the assets of CVI.
34
<PAGE>
<PAGE>
The Line of Credit provides that CVI (provided that no Event of Default, as
defined, has occurred and is continuing) may make loans, advances, investments,
capital contributions and distributions to the Company, and pay management fees
to the Company, so long as the total amount of all such amounts does not cause
Tangible Net Worth (as defined in the Line of Credit) to be less than
$3,000,000. At October 31, 1996, CVI had Tangible Net Worth of $12,534,000, of
which $9,534,000 was unrestricted under the terms of the Loan and Security
Agreement.
The Line of Credit contains various covenants, including the maintenance of
certain ratios and levels of net worth (as defined), limitations on capital
expenditures and incurrence of indebtedness as well as limitations regarding
change in control and transactions with affiliates.
In connection with the Line of Credit, the Company guaranteed all of the
obligations under the HGA Term Loan and CVI's obligations under the Line of
Credit, and the Company pledged all of the outstanding stock of CVI as
collateral for the HGA Term Loan guaranty.
In October 1996, CVI obtained a lease line of credit providing for
borrowings of up to $500,000 from a commercial leasing company. Proceeds under
the lease line are to be used to finance the purchase of equipment from the
leasing company. The interest rate on each lease will be determined by the
lender. At October 31, 1996, the Company had not drawn on the lease line.
Promissory Notes
In April 1996, Cooper Healthcare Group, Inc. (a subsidiary of the Company)
acquired Unimar, Inc. (See Note 2.) and issued Promissory Notes for $4,000,000
principal amount, bearing an interest rate of 12% per annum, maturing April
1999. Interest is paid annually. The Promissory Notes are collatera lized by a
security interest in the shares of the common stock of Unimar, Inc., and payment
is guaranteed by the Company.
Note 9.
Employee Stock Plans
1988 Long-Term Incentive Plan ("LTIP")
The LTIP is a vehicle for the Company to attract, retain and motivate its
key employees and consultants, who are directly linked to the profitability of
the Company and to increasing stockholder value.
The LTIP authorizes a committee consisting of three or more individuals not
eligible to participate in the LTIP or the Company's Board of Directors, to
grant to eligible individuals during a period of ten years from September 15,
1988, stock options, stock appreciation rights, restricted stock, def erred
stock, stock purchase rights, phantom stock units and long-term performance
awards for up to 2,125,570 shares of common stock, subject to adjustment for
future stock splits, stock dividends, expirations, forfeitures and similar
events. Options generally vest based on the Company's stock price, however, in
some cases, both stock price and time are used as criteria. In July 1996, two
officers of the Company were granted special options totaling 280,000 shares.
These shares will vest in four tranches upon the achievement of specific prices
of the Company's common stock within prescribed periods. As of October 31, 1996,
502,727 shares remained available under the LTIP for future grants. Restricted
shares of zero, 176,196 and 99,259 were granted under the plan in fiscal 1996,
1995 and 1994, respectively. Restricted shares with restrictions in place were
16,529, 91,659 and 54,444 on October 31, 1996, 1995 and 1994, respectively.
1996 Long-Term Incentive Plan for Non-Employee
Directors ("1996 NEDRSP")
In March 1996, the Company's stockholders approved a proposal to reduce the
annual cash stipend paid to Non-Employee Directors and to award grants of
restricted stock and options which are to be awarded annually at the start of
each fiscal year. Specifically, each Non-Employee Director will be awa rded the
right to purchase restricted stock worth $7,500 for $0.10 per share (or $9,375
in the case of the Chairman of the Board who is a Non-Employee Director) by
January 15 of the year following the date the grant was made. Grants of
restricted stock that are not exercised by such date will expi re. The
restrictions on the restricted stock will lapse on the earlier to occur of the
stock reaching certain target values or by the fifth anniversary of the date of
grant. In addition, each Non-Employee Director was granted an option to purchase
5,000 shares of the Company's common stock in fis cal 1996 and will be granted
3,333 shares in each subsequent fiscal year (or, in the case of the Chairman of
the Board who is a Non-Employee Director, 6,250 shares in fiscal 1996 and 4,167
shares in each subsequent fiscal year) through fiscal 2000. A total of 215,000
shares of the Company's authori zed but unissued common stock have been reserved
for issuance under the plan. As of October 31, 1996, 176,357 shares remained
available under the 1996 NEDRSP for future grants. Restricted shares of 7,393
were granted under the 1996 NEDRSP in fiscal 1996, and there were no shares with
restrictions in place outstanding October 31, 1996.
1990 Non-Employee Directors Restricted Stock Plan
("1990 NEDRSP")
Under the terms of the 1990 NEDRSP, a total of 33,333 shares of common
stock were authorized and reserved for issuance. A total of 18,333 shares of
restricted stock with restrictions removed were awarded under this plan. Upon
approval by the Company's stockholders of the 1996 NEDRSP, the 1990 NED RSP
terminated.
35
<PAGE>
<PAGE>
Transactions involving the granting of options of the Company's common stock in
connection with the LTIP and the 1996 NEDRSP are summarized below.
<TABLE>
<CAPTION>
Number of Shares
- -----------------------------------------------------------------------------------------------------------------------------------
LTIP 1996 NEDRSP
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1993 178,075 --
Options granted 136,667 --
Options exercised at $1.68 per share (1,073) --
Options forfeited (48,113) --
------- ------
Outstanding at October 31, 1994 265,556 --
Options granted 131,121 --
Options exercised at $1.68 to $2.07 per share (5,153) --
Options forfeited (62,683) --
------- ------
Outstanding at October 31, 1995 328,841 --
Options granted 441,111 31,250
Options exercised at $1.68 to $7.68 per share (15,505) (6,250)
Options forfeited (39,785) --
------- ------
Outstanding at October 31, 1996 (219,164 and 25,000
shares exercisable, respectively) 714,662 25,000
======= ======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Options issued and outstanding at October 31, 1996 have option prices
ranging from $1.68 to $34.00 per share.
The excess of market value over $.10 per share of LTIP, 1990 NEDRSP and
1996 NEDRSP restricted shares on respective dates of grant is initially recorded
as unamortized restricted stock award compensation, a separate component of
stockholders' equity and charged to operations as earned. Restricted shares and
other stock compensation charged against income from operations for the years
ended October 31, 1996, 1995 and 1994 was $46,000, zero and $55,000,
respectively.
Old Stock Option Plans
On October 31, 1996, there were 7,483 shares outstanding with option prices
ranging from $48.39 - $59.25 per share under old stock option plans.
Note 10.
Employee Benefits
The Company's Retirement Income Plan
The Company's Retirement Income Plan (the "Plan") covers substantially all
full-time United States employees of CVI and the Company's corporate
headquarters. The Company's contributions are designed to fund normal cost on a
current basis and to fund over thirty years the estimated prior service cost of
benefit improvements (fifteen years for annual gains and losses). The unit
credit actuarial cost method is used to determine the annual cost. The Company
pays the entire cost of the Plan and funds such costs as they accrue. Virtually
all of the assets of the Plan are comprised of participations in equity and
fixed income funds. The measurement date for assumptions used in developing the
projected benefit obligation was changed to August 31 during fiscal 1996.
Net periodic pension cost of the Plan was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended October 31,
- --------------------------------------------------------------------------------
1996 1995 1994
(In thousands)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 256 $ 188 $ 173
Interest cost 598 521 479
Actual return on
assets (1,047) (982) (531)
Net amortization
and deferral 488 491 2
------- ------- -------
Net periodic
pension cost $ 295 $ 218 $ 123
======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<PAGE>
The actuarial present value of benefit obligations and funded status for the
Plan was as follows:
<TABLE>
<CAPTION>
October 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ 7,049 $ 7,250
Non-vested benefit obligation 24 77
------- -------
Accumulated benefit obligation 7,073 7,327
Projected compensation increases 887 825
------- -------
Projected benefit obligation 7,960 8,152
Fair value of plan assets 7,204 6,545
------- -------
Projected benefit obligation in excess of assets 756 1,607
Add (Deduct):
Unrecognized net gain (loss) 538 (386)
Contributions made 8/31/96 to 10/31/96 (335) ---
Prior service cost remaining to be amortized, including
unrecognized net asset (382) (439)
------- -------
Pension liability recognized $ 577 $ 782
======= =======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Assumptions used in developing the projected benefit obligation were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
August 31, October 31,
-----------------------------------
1996 1995
<S> <C> <C>
Discount rate on
plan liabilities 8.0% 7.5%
Long-range rate of
return on plan assets 9.0% 9.0%
Salary increase rate 6.0% 6.0%
- --------------------------------------------------------------------------------
</TABLE>
The Company's 401(k) Savings Plan
The Company's 401(k) Savings Plan provides for the deferral of compensation
as described in the Internal Revenue Code and is available to substantially all
full-time United States employees of the Company. Employees who participate in
the 401(k) Plan may elect to have from 2% to 10% (1% to 16%, beginning October
1, 1996 for employees whose salary is less than $66,000 annually) of their
pre-tax salary or wages, (but not more than $5,000 for employees whose salary is
more than $66,000 annually) for the calendar year ended December 31, 1996,
deferred and contributed to the trust established under the Plan. The Company's
contribution on account of participating employees, net of forfeiture credits,
was $102,000, $95,000 and $80,000 for the years ended October 31, 1996, 1995 and
1994, respectively.
The Company's Incentive Payment Plan
The Company's Incentive Payment Plan is available to officers and other key
executives. Participants may, in certain years, receive bonuses based
on performance. Total payments earned for the years ended October 31, 1996,
1995 and 1994, were approximately $1,753,000, $1,504,000 and $1,296,000,
respectively.
The Company's Turn Around Incentive Plan
The Turn Around Incentive Plan ("TIP") was adopted in 1993 to recognize the
special efforts of certain individuals in guiding the Company through certain
difficulties that existed at that time related to the Company's then capital
structure and its former ownership of companies that manufactured and
distributed breast implants. All provisions of the TIP have been met, and all
required payments have been made to participants as follows:
In May 1994 participants received an aggregate payment of approximately
$247,000 cash and approximately 99,000 shares of restricted stock from which all
restrictions were removed in May 1996.
In August 1995 participants received an aggregate payment of approximately
$476,000 cash and approximately 97,000 shares of restricted stock. Restrictions
from one-half of these shares were removed in August 1996, and the restrictions
on the balance of the shares will be removed in August 1997.
37
<PAGE>
<PAGE>
Note 11.
Commitments, Contingencies and Pending Litigation
Total minimum annual rental obligations (net of sublease revenue of
approximately $173,000 per year through March 2000) under noncancelable
operating leases (substantially all real property or equipment) in force at
October 31, 1996 are payable in subsequent years as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
--------------
<S> <C>
1997 $1,473
1998 1,051
1999 808
2000 766
2001 597
2002 and thereafter 913
---- ------
$5,608
======
- --------------------------------------------------------------------------------
</TABLE>
Aggregate rental expense for both cancelable and noncancelable contracts
amounted to $2,508,000, $2,354,000 and $2,438,000 in 1996, 1995 and 1994,
respectively.
An agreement was reached in September 1993 with Medical Engineering
Corporation ("MEC"), a subsidiary of Bristol-Myers Squibb Company, which limited
the Company's contingent liabilities associated with breast implant litigation
involving a former division of the Company (the "MEC Agreement"). The remaining
liability recorded for payments to be made to MEC under the MEC Agreement become
due as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, (In thousands)
- --------------------------------------------------------------------------------
<S> <C>
1996 $1,750
1997 2,000
1998 2,500
------
$6,250
======
- --------------------------------------------------------------------------------
</TABLE>
Additional payments to be made to MEC beginning December 31, 1999 are
contingent upon the Company's earning net income before taxes in each fiscal
year beginning with fiscal 1999, and are, therefore, not recorded in the
Company's financial statements. Such payments are limited to the smaller of 50%
of the Company's net income before taxes in each such fiscal year on a
noncumulative basis or the amounts shown below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, (In thousands)
- --------------------------------------------------------------------------------
<S> <C>
1999 $3,000
2000 $3,500
2001 $4,000
2002 $4,500
2003 $3,000
- --------------------------------------------------------------------------------
</TABLE>
Under the terms of a supply agreement most recently modified in 1993, the
Company agreed to purchase by December 31, 1997, certain contact lenses from
Pilkington plc, with an aggregate cost of approximately 'L'4,063,000. Lenses
with an aggregate value of approximately 'L'520,000, 'L'477,000 and 'L'400,000
were purchased under the terms of the supply agreement in fiscal 1996, 1995 and
1994, respectively. As of December 31, 1996, there remained a commitment of
approximately 'L'2,354,000.
Payments amounting to $3,100,000 were made related to a settlement with HMG
(See Note 4.) in December 1995. Two additional payments which are accreting
imputed interest are scheduled to be made to HMG in May 1997 and 1998, each in
the amount of $1,537,500. The October 31, 1996 classifications and carrying
values are $1,399,000 in accounts payable and $1,331,000 in other noncurrent
liabilities. These amounts were charged against net income in fiscal 1995.
Warrants
The Company issued a warrant to Foothill Capital Corporation ("Foothill")
to purchase 26,666 shares of the Company's common stock at $5.625 per share in
connection with the loan and security agreement among Foothill, CVI, and
CooperVision Canada. (See Note 8 "Loan and Security Agreement.") The warrant
becomes exercisable on September 21, 1997 and expires on May 26, 1999. Both the
number of shares under the warrant and the exercise price per share are
adjustable under certain circumstances to avoid dilution.
38
<PAGE>
<PAGE>
The Company granted a warrant to purchase 83,333 shares of the Company's
common stock at $11.375 per share, as part of the acquisition of Unimar, Inc.
(See Note 2.) The exercise period of the warrant is from April 11, 1999 to June
10, 1999. The number of shares and the exercise price per share ar e subject to
adjustment as provided in the warrant.
Pending Litigation
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 or
results of operations.
The Company was named as a nominal defendant in a stockholder 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 Ch ancery,
State of Delaware, New Castle County. Lewis and Goldberg subsequently amended
their complaint, and the Delaware Chancery Court consolidated the amended
complaint with a similar complaint filed by another plaintiff as In re The
Cooper Companies, Inc. Litigation, Consolidated C.A. 12584. The Lewis and
Goldberg amended complaint was designated as the operative complaint (the
"Derivative Complaint").
The 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 fund s. The
Derivative Complaint also alleges that the defendants violated their fiduciary
duties to the Company by not vigorously investigating certain allegations of
securities fraud. The Derivative Complaint requests that the Court order the
defendants (other than the Company) to pay damages and ex penses to the Company
and certain of the defendants to disgorge their profits to the Company.
The parties have been engaged in negotiations and had agreed upon the terms
of a settlement. Although the proposed settlement was submitted to the Court for
approval following notice to the Company's stockholders and a hearing,
Plaintiffs have decided not to proceed with the settlement in its present form,
and the parties have reopened settlement discussions. There can be no assurance
that the current discussions 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 Derivative Complaint.
The Company was also named as a nominal defendant in a stockholder
derivative action entitled Bruce D. Sturman v. Gary A. Singer, Steven G. Singer,
Brad C. Singer, Dorothy Singer as the Executrix of the Estate of Martin Singer,
Karen Sue Singer, Norma Singer Brandes, Normel Construction Corp., Bran des &
Singer, and Romulus Holdings, Inc., which was filed on June 6, 1995 in the Court
of Chancery of the State of Delaware, New Castle County. The complaint is
similar to a derivative complaint filed by Mr. Sturman in the Supreme Court of
the State of New York on May 26, 1992, which was dismissed under New York Civil
Practice Rule 327(a) on August 17, 1993. The dismissal of the New York case was
affirmed by the Appellate Division on March 28, 1995. The allegations in the
Delaware complaint filed by Mr. Sturman relate to substantially the same facts
and events at issue in In re The Cooper C ompanies, Inc. Litigation described
above, and similar relief is sought. The parties had agreed that Mr. Sturman's
Delaware action would be consolidated into and tentatively settled with In re
The Cooper Companies, Inc. Litigation.
Note 12.
Relationships and Transactions between the
Company and CLS
Agreements with CLS
On June 14, 1993, the Company entered into a Settlement Agreement with CLS
(the "Settlement Agreement") in order to resolve all then pending disputes with
CLS and to avoid a costly and disruptive proxy fight, while continuing to
maintain a Board of Directors, the majority of whose members are indep endent.
Pursuant to the Settlement Agreement, among other things, the Company agreed to
nominate and use its reasonable best efforts to cause, and CLS agreed to vote
all shares of Common Stock of the Company owned by it in favor of, the election
of a Board of Directors of the Company consisting of eight members, five of whom
were designated by the Company (of which a majority would not be employees of
the Company or employees, affiliates or significant stockholders of CLS), and
three by CLS. Such agreements were to terminate on June 14, 1995, subject to
earlier termination or extension und er certain circumstances, and were later
extended to, and expired on, October 31, 1996. Following such termination and
through June 12, 2022, pursuant to the Settlement Agreement, CLS continues to
have the right that it had pursuant to a 1992 settlement agreement with the
Company to designate two directors of the Company, so long as CLS continues to
own at least 800,000 shares of Common Stock, or one director, so long as it
continues to own at least 333,333 shares of Common Stock.
39
<PAGE>
<PAGE>
Pursuant to this provision, Donald Press and Steven Rosenberg continue to
serve as directors designated by CLS. In addition, the Board of Directors, other
than the CLS designees, determined to continue Moses Marx as a non CLS
designated director of the Company.
Prior to September 1994, CLS had an investment in the Company's Series B
Preferred Stock having an aggregate liquidation preference of $3,450,000 and a
par value of $.10 per share (the "1993 Exchange Agreement"). Such shares, and
any shares of Series B Preferred Stock issued as dividends, were convertible
into one share of common stock of the Company for each $3.00 of liquidation
preference, subject to customary antidilution adjustments.
The Company also had the right to compel conversion of Series B Preferred
Stock at any time after the market price of the common stock on its principal
trading market averaged at least $4.125 for 90 consecutive calendar days and
closed at not less than $4.125 on at least 80% of the trading days during such
period. On September 26, 1994, the Company's common stock met the above
requirements, and the Series B Preferred Stock was converted into 1,150,000
shares of the Company's common stock.
Other
CLS was formerly an 89.5% owned subsidiary of the Company's former parent,
Cooper Laboratories, Inc.
As of December 31, 1996, CLS owned 1,963,233 shares (or approximately
16.83%) of common stock of the Company.
Two members of the Company's Board of Directors are also directors and/or
officers of CLS. Moses Marx is a Director of CLS (and is the controlling
stockholder of CLS). Steven Rosenberg is serving as Acting President, Vice
President and Chief Financial Officer of CLS and he is also a Director of CLS.
In addition to shares purchased on the open market, Mr. Marx owns 3,037 shares
and Mr. Rosenberg owns 3,371 shares of the Company's common stock, obtained
through the NEDRSP. (See Note 9.)
Note 13.
Business Segment Information
The Company's operations are attributable to three business segments:
HGA, which provides healthcare services for inpatient and outpatient
treatment and partial hospitalization programs through the ownership
and operation of certain psychiatric facilities, and through May 1995
also managed three other such facilities,
CVI, which develops, manufactures and markets a range of contact
lenses, and
CSI, which develops, manufactures and distributes diagnostic and
surgical equipment instruments and disposables, primarily for
gynecology.
Total net revenue by business segment represents service and sales revenue
as reported in the Company's consolidated statements of operations. Operating
income (loss) is total net revenue less cost of products sold (or services
provided, in the case of HGA revenue), research and development expenses,
selling, general and administrative expenses, costs of restructuring and
amortization of intangible assets. Corporate operating loss is principally
corporate headquarters expense. Investment income, net, settlement of disputes,
net, debt restructuring costs, gain on sales of assets and businesses, net,
other income (expense), net, and interest expense were not allocated to
individual business.
Identifiable assets are those assets used in continuing operations
(exclusive of cash and cash equivalents). Corporate assets include cash and cash
equivalents and temporary investments.
40
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements
------------------------------------------
The Cooper Companies, Inc. and Subsidiaries
Information by business segment for each of the years in the three year period
ended October 31, 1996 follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HGA CVI CSI Corporate & Consolidated
Eliminations
- ------------------------------------------------------------------------------------------------------------------------------------
1996 (In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue from non affiliates $ 43,013 $ 48,892 $ 17,226 $ --- $ 109,131
========= ========= ========= ========= =========
Operating income (loss) $ 2,573 $ 19,065 $ 1,667 $ (6,462) $ 16,843
========= ========= ========= =========
Investment income, net 281
Settlement of disputes, net 223
Other income (expense), net 80
Interest expense (5,312)
----------
Income before income taxes $ 12,115
=========
Identifiable assets $ 49,051 $ 23,756 $ 18,089 $ 12,013 $ 102,909
========= ========= ========= ========= =========
Depreciation Expense $ 1,511 $ 800 $ 236 $ 82 $ 2,629
========= ========= ========= ========= =========
Amortization Expense $ 205 $ 314 $ 461 $ 269 $ 1,249
========= ========= ========= ========= =========
Capital Expenditures $ 1,431 $ 1,293 $ 404 $ 54 $ 3,182
========= ========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenue from non affiliates $ 41,794 $ 42,456 $ 12,824 $ 16 $ 97,090
========= ========= ========= ========= =========
Operating income (loss) $ 878 $ 13,959 $ (425) $ (6,404) $ 8,008
========= ========= ========= =========
Investment income, net 444
Settlement of disputes, net (3,532)
Other income (expense), net 51
Interest expense (4,741)
---------
Income before income taxes $ 230
=========
Identifiable assets $ 48,086 $ 21,965 $ 8,953 $ 12,988 $ 91,992
========= ========= ========= ========= =========
Depreciation Expense $ 1,443 $ 863 $ 288 $ 110 $ 2,704
========= ========= ========= ========= =========
Amortization Expense $ 205 $ 448 $ 317 $ 22 $ 992
========= ========= ========= ========= =========
Capital Expenditures $ 335 $ 1,449 $ 267 $ 134 $ 2,185
========= ========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
1994
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenue from non affiliates $ 44,611 $ 37,793 $ 12,847 $ 394 $ 95,645
========= ========= ========= ========= =========
Operating income (loss) $ 3,321 $ 11,963 $ (932) $ (13,929) $ 423
========= ========= ========= =========
Investment income (loss), net (153)
Settlement of disputes, net (4,950)
Debt restructuring costs (340)
Gain on sale of assets and
businesses, net 214
Other income (expense), net 42
Interest expense (4,533)
---------
Loss before income taxes $ (9,297)
=========
Identifiable assets $ 50,522 $ 22,814 $ 9,289 $ 12,433 $ 95,058
========= ========= ========= ========= =========
Depreciation expense $ 1,387 $ 1,025 $ 339 $ 119 $ 2,870
========= ========= ========= ========= =========
Amortization expense $ 205 $ 448 $ 302 $ 22 $ 977
========= ========= ========= ========= =========
Capital expenditures $ 338 $ 524 $ 58 $ 18 $ 938
========= ========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
<PAGE>
SUBSIDIARIES OF
THE COOPER COMPANIES, INC.
A DELAWARE CORPORATION
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
- ---------------------------------------------------------------------------------------
<S> <C>
The Cooper Healthcare Group, Inc. Delaware
Unimar, Inc. California
CooperVision Pharmaceuticals, Inc. Delaware
CooperVision, Inc. New York
CooperVision, Inc. Canada
Hospital Group of America, Inc. Delaware
Hospital Group, Inc. Delaware
Hospital Group of Delaware, Inc. Delaware
Hospital Group of Illinois, Inc. Illinois
Hospital Group of Louisiana, Inc. Louisiana
Hospital Group of New Jersey, Inc. New Jersey
Hampton Learning Center, Inc. New Jersey
HGNJ, Inc. New Jersey
Residential Centers of Indiana, Inc. Delaware
MeadowWood Health Service, L.L.C. Delaware
CooperSurgical, Inc. Delaware
HBH Medizintechnik GmbH Germany
</TABLE>
NOTE: Except for CooperSurgical and its 52% owned subsidiary, HBH Medizintechnik
GmbH, each subsidiary is wholly-owned either by The Cooper Companies, Inc. or by
the wholly-owned subsidiary under which it is indented in the list above. In the
case of CooperSurgical, Inc., 99.8% of the company is owned by The Cooper
Companies, Inc. and the remaining .2% is owned by members of CooperSurgical's
Medical Advisory Board.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 6,837
<SECURITIES> 0
<RECEIVABLES> 23,619
<ALLOWANCES> 1,969
<INVENTORY> 10,363
<CURRENT-ASSETS> 42,495
<PP&E> 49,306
<DEPRECIATION> 14,632
<TOTAL-ASSETS> 102,909
<CURRENT-LIABILITIES> 33,308
<BONDS> 47,920
<COMMON> 1,167
0
0
<OTHER-SE> 14,163
<TOTAL-LIABILITY-AND-EQUITY> 102,909
<SALES> 66,118
<TOTAL-REVENUES> 109,131
<CGS> 19,911
<TOTAL-COSTS> 60,146
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,847
<INTEREST-EXPENSE> 5,312
<INCOME-PRETAX> 12,115
<INCOME-TAX> (4,488)
<INCOME-CONTINUING> 16,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,603
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
</TABLE>
