<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarterly Period Ended JANUARY 31, 2000
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 1-8597
THE COOPER COMPANIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2657368
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6140 Stoneridge Mall Road, Suite 590, Pleasanton, CA 94588
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (925) 460-3600
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Common Stock, $.10 par value 14,108,714 Shares
- ---------------------------- --------------------------------
Class Outstanding at February 29, 2000
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income - Three Months
Ended January 31, 2000 and 1999 3
Consolidated Condensed Balance Sheets - January 31, 2000 and
October 31, 1999 4
Consolidated Condensed Statements of Cash Flows--
Three Months Ended January 31, 2000 and 1999 5
Consolidated Condensed Statements of Comprehensive Income--
Three Months Ended January 31, 2000 and 1999 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
Signature 23
Index of Exhibits 24
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
(In thousands, except for earnings per share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
------------------------------
2000 1999
-------- ---------
<S> <C> <C>
Net sales $40,404 $34,959
Cost of sales 13,772 13,416
------- -------
Gross profit 26,632 21,543
Selling, general and administrative expense 16,764 14,222
Research and development expense 648 461
Amortization of intangibles 980 957
------- -------
Income from operations 8,240 5,903
Interest expense 1,381 1,849
Other income, net 400 34
------- -------
Income from continuing operations before income taxes 7,259 4,088
Provision for income taxes 2,432 1,447
------- -------
Income from continuing operations 4,827 2,641
Discontinued operations -- 1,258
------- -------
Income before cumulative effect of change in accounting
principles 4,827 3,899
Cumulative effect of change in accounting principles (432) --
------- -------
Net income $ 4,395 $ 3,899
======= =======
Earnings per share:
Basic and Diluted:
Continuing operations $ 0.34 $ 0.18
Discontinued operations -- 0.09
Cumulative effect of change in accounting principle (0.03) --
------- -------
Earnings per share $ 0.31 $ 0.27
======= =======
Number of shares used to compute earnings per share:
Basic 14,069 14,427
======= =======
Diluted 14,359 14,668
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
---------- -----------
ASSETS (In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,682 $ 20,922
Trade receivables, net 28,513 26,792
Inventories 40,208 33,430
Deferred tax asset 14,301 11,638
Other current assets 6,970 7,679
-------- --------
Total current assets 92,674 100,461
-------- --------
Property, plant and equipment, net 42,211 40,319
Goodwill and other intangibles, net 95,056 80,518
Deferred tax asset 52,414 56,519
Other assets 7,579 8,056
-------- --------
$289,934 $285,873
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable $ 9,182 $ 8,846
Current portion of long-term debt 2,500 2,305
Accrued income taxes 11,991 11,351
Other current liabilities 20,841 19,394
-------- --------
Total current liabilities 44,514 41,896
Long-term debt 57,455 57,067
Other noncurrent liabilities 19,642 22,767
-------- --------
Total liabilities 121,611 121,730
-------- --------
Contingencies (Note 9)
Stockholders' equity:
Common stock, $.10 par value 1,502 1,497
Additional paid-in capital 251,843 251,345
Accumulated other comprehensive loss (988) (595)
Accumulated deficit (69,930) (74,044)
Other (44) --
Less, treasury stock at cost (14,060) (14,060)
-------- --------
Total stockholders' equity 168,323 164,143
-------- --------
$289,934 $285,873
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------------------
2000 1999
-------- ---------
<S> <C> <C>
Net cash provided (used) by operating activities $ 5,309 $ (3,430)
-------- --------
Cash flows from investing activities:
Sale of securities -- 5,419
Disposition of discontinued operation, net of (costs) (89) 1,705
Purchases of property, plant and equipment (3,290) (2,186)
Acquisitions of assets and businesses (21,637) (71)
-------- --------
Net cash provided (used) by investing activities (25,016) 4,867
-------- --------
Cash flows from financing activities:
Repayments of long-term debt (18,241) (6,659)
Proceeds from long-term debt 19,500 2,218
Dividends on common stock (281) --
Other 456 1,493
-------- --------
Net cash provided (used) by financing activities 1,434 (2,948)
-------- --------
Effect of exchange rate changes on cash and cash equivalents 33 (48)
-------- --------
Net decrease in cash and cash equivalents (18,240) (1,559)
Cash and cash equivalents - beginning of period 20,922 7,333
-------- --------
Cash and cash equivalents - end of period $ 2,682 $ 5,774
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------------------
2000 1999
---------- ---------
<S> <C> <C>
Net income $4,395 $3,899
Other comprehensive income (loss):
Foreign currency translation adjustment (393) (79)
------ ------
Comprehensive income $4,002 $3,820
====== ======
</TABLE>
See accompanying notes.
6
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1. General
The Cooper Companies, Inc. ("Cooper" or "we" and similar pronouns), through its
principal subsidiaries, develops, manufactures and markets healthcare products.
CooperVision ("CVI") markets a range of contact lenses to correct visual
defects, specializing in toric lenses that correct astigmatism. Its leading
products are disposable-planned replacement toric and spherical lenses. CVI also
markets conventional toric and spherical lenses and lenses for patients with
more complex vision disorders. CooperSurgical ("CSI") markets diagnostic
products, surgical instruments and accessories to the women's healthcare market.
During interim periods, we follow the accounting policies described in our most
recent Form 10-K. Please refer to this and to our Annual Report to Stockholders
for the fiscal year ended October 31, 1999, when reviewing this Form 10-Q. The
results in this report do not necessarily indicate future results.
The unaudited consolidated condensed financial statements presented in this
report contain all adjustments necessary to present fairly Cooper's consolidated
financial position as of January 31, 2000 and October 31, 1999, and the
consolidated results of its operations and its consolidated cash flows for the
three months ended January 31, 2000 and 1999. Adjustments consist only of normal
recurring items except for an adjustment recorded in the first quarter of 2000,
when we adopted statement of position ("SOP") 98-5, "Reporting on the Cost of
Start-up Activities." (See Note 4.)
Note 2. Inventories, at the Lower of Average Cost or Market
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
----------- ------------
(In thousands)
<S> <C> <C>
Raw materials $10,078 $ 8,151
Work-in-process 4,717 3,786
Finished goods 25,413 21,493
-------- --------
$40,208 $33,430
======= =======
</TABLE>
Amounts recorded for January 31, 2000 include approximately $4.9 million of
inventories of companies acquired in the first quarter.
7
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Note 3. Acquisitions
BEI ACQUISITION: On December 8, 1999, Cooper purchased a group of women's
healthcare products from BEI Medical Systems Company, Inc. ("BEI") for
approximately $10.5 million in cash. The payment was made from cash then on
hand. The products generate annual revenue of about $8 million.
The acquired products include well-known brands of uterine manipulators and
other products for the gynecological surgery market. Physicians use these
products both in their offices and in hospitals. The majority of them are
disposable.
The acquisition has been accounted for as a purchase. Excess of purchase price
over net assets acquired (goodwill) has initially been recorded at $8.2 million
(pending completion of the allocation of the purchase price) and is being
amortized over 20 years.
LEISEGANG ACQUISITION: On January 31, 2000, Cooper purchased a group of women's
healthcare products and certain businesses (the "Leisegang Business") from
NetOptix Corporation for approximately $10 million in cash and an additional
amount of approximately $500,000 to be paid in the near future. The Leisegang
Business currently generates annual revenue in excess of $11 million and
includes operations in the U.S., Germany and Canada.
Leisegang markets diagnostic and surgical instruments including colposcopes,
instruments to perform loop electrosurgical excision procedures, hand-held
gynecological instruments, disposable specula and cryosurgical systems. Many of
its products are disposable, including its Sani-Spec line of disposable plastic
specula, its largest product group.
The acquisition has been accounted for as a purchase. Goodwill has initially
been recorded at $6.7 million (pending completion of the allocation of the
purchase price) and is being amortized over 20 years.
Note 4. Change in Accounting Principles
In April 1998, The American Institute of Certified Public Accountants issued SOP
98-5, "Reporting on the Cost of Start-up Activities." The SOP broadly defines
start-up activities and requires companies to expense them as incurred,
effective for fiscal years beginning after December 15, 1998. Cooper has, as
required, adopted the SOP in the first quarter of fiscal year 2000 and reported
an after tax charge of $432,000 as a cumulative effect of a change in accounting
principles. Our previous policy had been to defer start-up activities as
appropriate and amortize them over 12 months on a straight line basis.
8
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Note 5. Long-Term Debt
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
---------- -----------
(In thousands)
<S> <C> <C>
Promissory notes - Aspect $23,015 $23,439
Midland Bank - 17,445
KeyBank line of credit 19,500 -
Aspect Vision bank loans 6,044 6,292
Promissory note - Wesley-Jessen Corporation - 100
County of Monroe Industrial Development
Agency ("COMIDA") Bond 2,635 2,695
Capitalized leases 8,761 9,401
------- -------
59,955 59,372
Less current installments 2,500 2,305
------- -------
$57,455 $57,067
======= =======
</TABLE>
MIDLAND BANK
Cooper repaid the Midland Bank loan using cash then on hand and $12.5 million of
its KeyBank line of credit. Since the Midland Bank loan was guaranteed with a
letter of credit against the KeyBank line of credit, at that time, we were able
to reduce overall interest expense and increase the amount available under the
KeyBank line of credit.
KEYBANK LINE OF CREDIT
At January 31, 2000, we had $23.3 million available under the KeyBank line of
credit.
PROMISSORY NOTE - WESLEY-JESSEN CORPORATION
The balance of the Wesley-Jessen promissory note was paid off in the first
quarter.
9
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Note 6. Earnings Per Share ("EPS")
<TABLE>
<CAPTION>
Three Months Ended
January 31,
-----------------------
2000 1999
-------- --------
(In thousands, except for
earnings per share)
<S> <C> <C>
Income from continuing operations $ 4,827 $ 2,641
Discontinued operations -- 1,258
Cumulative effect of change in accounting principles (432) --
-------- --------
Net income $ 4,395 $ 3,899
======== ========
Basic:
Weighted average common shares 14,069 14,427
======== ========
Basic earnings per share:
Continuing operations $ 0.34 $ 0.18
Discontinued operations -- 0.09
Cumulative effect of change in accounting principles (0.03) --
-------- --------
Basic earnings per share $ 0.31 $ 0.27
======== ========
Diluted:
Weighted average common shares 14,069 14,427
Add dilutive securities:
Warrants -- 38
Options 290 203
-------- --------
Denominator for diluted earnings per share 14,359 14,668
======== ========
Diluted earnings per share:
Continuing operations $ 0.34 $ 0.18
Discontinued operations -- 0.09
Cumulative effect of change in accounting principles (0.03) --
-------- --------
Diluted earnings per share $ 0.31 $ 0.27
======== ========
</TABLE>
10
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
We excluded the following options to purchase Cooper's common stock from the
computation of diluted EPS because their exercise prices were above the average
market price.
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------------------------------
2000 1999
--------------- ----------------
<S> <C> <C>
Number of shares excluded 798,250 1,177,500
=============== ================
Range of exercise prices $30.69 - $62.21 $23.44 - $62.21
=============== ===============
</TABLE>
Note 7. Income Taxes
The effective tax rate ("ETR") used to record the provision for income taxes of
$2.4 million for the three months ended January 31, 2000 was 33.5%. The ETR for
the three-month period ended January 31, 1999 was 35.4%. The decrease in
Cooper's ETR resulted from the August 1999 implementation of a new global
corporate structure that increased our foreign income that is taxed at lower
rates.
Note 8. Discontinued Operations
In the fourth quarter of 1998, Cooper declared Hospital Group of America
("HGA"), its psychiatric services business, a discontinued operation and
recorded a charge of $22.3 million reflecting Management's initial estimate of
the ultimate loss to be incurred upon disposition.
In January 1999, Cooper completed the sale of a portion of HGA for $5 million in
cash and trade receivables. First quarter 1999 results include a credit of $1.3
million, reflecting an adjustment to the estimated loss on the sale of this
facility. We sold the remainder of HGA to Universal Health Services, Inc. for
$27 million at closing in 1999's fiscal second quarter.
HGA's patient revenue was $12 million for the three months ended January 31,
1999.
Note 9. Contingencies -- Environmental
In 1997, environmental consultants engaged by Cooper identified a contained area
of groundwater contamination consisting of industrial solvents including
trichloroethane (also known as TCA) at one of CVI's sites. In the opinion of
counsel, the solvents were released into the ground before we acquired the
business at that site, and the area containing these chemicals is limited.
11
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
In April 1999, Cooper and the New York Department of Environmental Conservation
entered into a voluntary agreement covering the environmental investigation of
the site. The investigation has been completed, and we plan to begin a
state-approved remediation later this year. Cooper has accrued approximately
$400,000 for that purpose. In the opinion of Management, the cost of remediation
will not be material when considering amounts previously accrued.
Note 10. Cash Dividends
In fiscal 1999, Cooper announced that it intends to pay an annual cash dividend
on its common stock of 8 cents per share, payable in quarterly installments of 2
cents per share. The dividend payment in our first fiscal quarter of 2000 was
made on January 5, 2000.
Note 11. Business Segment Information
Cooper is organized by product line for management reporting with operating
income, as presented in our financial reports, being the primary measure of the
segment profitability. No costs from corporate functions are allocated to the
segments' operating income. Items below operating income are not considered when
measuring the profitability of a segment. The accounting policies used to
generate segment results are the same as our overall accounting policies.
Identifiable assets are those assets used in continuing operations exclusive of
cash and cash equivalents, which are included as corporate assets.
<TABLE>
<CAPTION>
Three Months Ended
January 31,
---------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Segment information (in thousands):
Revenue:
CVI $ 31,969 $ 27,779
CSI 8,435 7,180
---------- ---------
$ 40,404 $ 34,959
========= =========
Operating income:
CVI $ 8,332 $ 6,220
CSI 1,417 849
Corporate (1,509) (1,166)
--------- ---------
Total operating income 8,240 5,903
Interest expense (1,381) (1,849)
Other income, net 400 34
--------- ---------
Income from continuing operations before income taxes $ 7,259 $ 4,088
========= =========
</TABLE>
12
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Concluded
(Unaudited)
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
-------- --------
<S> <C> <C>
Identifiable assets (in thousands):
CVI $155,535 $153,759
CSI 64,219 41,491
Corporate 70,180 90,623
-------- --------
Total $289,934 $285,873
======== ========
<CAPTION>
Three Months Ended
January 31,
----------------------------------
2000 1999
-------- --------
Geographic information (in thousands):
Revenue:
United States $ 29,596 $ 23,730
Europe 7,974 8,945
Canada 2,834 2,284
-------- --------
$ 40,404 $ 34,959
======== ========
<CAPTION>
January 31, October 31,
2000 1999
-------- --------
Identifiable assets (in thousands):
United States $109,969 $ 86,367
Europe 93,604 92,025
Canada 8,305 4,434
Corporate and Other 78,056 103,047
-------- -------
Total $289,934 $285,873
======== ========
</TABLE>
Note 12. Subsequent Event
On February 29, 2000, Cooper announced that it intends to pay its quarterly cash
dividend of 2 cents per share on April 5, 2000 to stockholders of record on
March 15, 2000.
13
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Note numbers refer to "Notes to Consolidated Condensed Financial Statements"
beginning on page 7 of this report.
FORWARD-LOOKING STATEMENTS: This Form 10-Q contains "forward-looking statements"
as defined in the Private Securities Litigation Reform Act of 1995 including
statements about Cooper's capital resources, anticipated revenue growth,
operating results and market conditions. Since the outcome of forward-looking
statements is uncertain, risky and, indeed, may not occur, investors should not
rely on them to predict the future.
To identify forward-looking statements, look for words like "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "estimates" or "anticipates" and similar words or phrases. Discussions
of strategy, plans or intentions often contain forward-looking statements.
These, and all forward-looking statements, necessarily depend on assumptions,
data or methods that may be incorrect or imprecise.
Events, among others, that could cause actual results and future actions to
differ materially from those described by or contemplated in the forward-looking
statements include major changes in business conditions and the economy, loss of
key senior management, major disruptions in the operations of Cooper's
manufacturing facilities, new competitors or technologies, the impact of an
undetected virus on our computer systems, acquisition integration costs, foreign
currency exchange exposure, investments in research and development and other
start-up projects, dilution to earnings per share from acquisitions or issuing
stock, regulatory issues, significant environmental cleanup costs above those
already accrued, litigation costs, costs of business divestitures, and other
factors described in Cooper's Securities and Exchange Commission filings,
including the "Business" section in our Annual Report on Form 10-K for the year
ended October 31, 1999.
Cooper cautions investors not to rely unduly on forward-looking statements. They
reflect our analysis only on their stated date.
RESULTS OF OPERATIONS
In this section we discuss the results of our operations for the first quarter
of fiscal 2000 and compare them with those of 1999's first quarter. We discuss
our cash flows and current financial condition beginning on page 20 in the
"Capital Resources and Liquidity" section.
FIRST QUARTER HIGHLIGHTS
Sales up 16% to $40.4 million.
Gross profit improved to 66% of sales from 62%.
Income from operations up 40% to $8.2 million.
Diluted earnings per share from continuing operations up 89% to 34 cents
from 18 cents.
14
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
SELECTED STATISTICAL INFORMATION - PERCENTAGE OF SALES AND GROWTH
<TABLE>
<CAPTION>
Percent of Sales
Three Months Ended
January 31,
--------------------- %
2000 1999 Growth
----- ----- ------
<S> <C> <C> <C>
Net sales 100% 100% 16%
Cost of sales 34% 38% 3%
Gross profit 66% 62% 24%
Selling, general and administrative 41% 41% 18%
Research and development 2% 1% 41%
Amortization 2% 3% 2%
Income from operations 20% 17% 40%
</TABLE>
NET SALES: All of Cooper's revenue is generated by our two business units,
CooperVision ("CVI") and CooperSurgical ("CSI"):
CVI markets a broad range of contact lenses primarily in North America and
Europe.
CSI markets diagnostic products, surgical instruments and accessories to
the women's healthcare market primarily in the United States.
Our consolidated revenue grew $5.4 million:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
------------------------- %
2000 1999 Increase
------ ------ --------
(In millions)
<S> <C> <C> <C>
CVI $32.0 $27.8 15%
CSI 8.4 7.2 17%
----- -----
$40.4 $35.0 16%
===== =====
</TABLE>
15
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
CVI REVENUE: CVI's worldwide core business, which we define as all revenue
except our lower margin original equipment manufacturer ("OEM") sales to other
contact lens manufacturers, grew 18%:
<TABLE>
<CAPTION>
% Change from
Segment First Quarter 2000 % Total First Quarter 1999
- ------- ------------------- ------- ------------------
($ in millions)
<S> <C> <C> <C>
U.S. $20.2 63% 26%
International 10.5 33% 5%
----- ----
Core Business 30.7 96% 18%
OEM 1.3 4% (28%)
----- ----
Total $32.0 100% 15%
===== ====
</TABLE>
CVI's core product sales in the U.S. grew 26% in the first quarter, as the
disposable-planned replacement ("DPR") sphere and toric product lines together
grew 42%.
U.S. toric lens business grew 28% in the first fiscal quarter while the toric
market was growing about 5%. During the first fiscal quarter, sales of CVI's DPR
torics grew 36% in the U.S., driven by sales of Preference Toric and Frequency
55 Toric together.
Sales of spherical DPR products in the U.S., driven by sales of Frequency 55
spheres, grew about $1.7 million, or 56%.
During the first quarter, CVI continued to introduce Frequency Aspheric in the
U.S. The optical properties of this lens help improve visual acuity in low light
situations and correct low degrees of astigmatism without the need for a toric
lens.
CVI also recently introduced Encore, its cast-molded toric lens that will
compete in the disposable (two-week) toric segment.
International core revenue, sales in countries outside the United States plus
exports from the U.S., grew 5% during the quarter. Sales of lower-margin lenses
to other contact lens manufacturers declined as expected, down 28% from last
year's first quarter.
16
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
During the first quarter, the roll out of new products continued in Europe.
These include CVI's line of toric lenses, the Frequency Aspheric lens and
Frequency 55 UV, which contains an ultra violet light-blocking agent. In
November, CVI introduced its cast-molded toric product--called Frequency
XCEL--in Europe. XCEL is now available in every major European market except
France, where we anticipate an April introduction.
CSI REVENUE: Revenue at CSI grew 17% over the comparable 1999 quarter to $8.4
million.
In December, CSI acquired well-known brands of uterine manipulators and other
niche products for the gynecologist's office from BEI Medical Systems Company,
Inc.
At the end of January, CSI completed the acquisition of the Leisegang Business
(See Note 4). The products are diagnostic and surgical instruments including
colposcopes, instruments to perform loop electrosurgical excision procedures,
hand-held gynecological instruments, disposable specula and cryosurgical
systems. Many products are disposable, including the Sani-Spec line of
disposable plastic specula, which comprises its largest product group.
COST OF SALES/GROSS PROFIT: Gross profit as a percentage of sales ("margin") was
as follows:
<TABLE>
<CAPTION>
First Quarter Margin
--------------------
2000 1999
---- ----
<S> <C> <C>
CVI 69% 63%
CSI 56% 55%
Consolidated 66% 62%
</TABLE>
The gross profit improvement at CVI reflects cost reduction projects at both our
U.S. and U.K. manufacturing sites. We believe that continued cost reductions
will result in improving margins during the remainder of fiscal 2000 and beyond,
aside from any major changes in product mix.
17
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
CSI's margins improved over the first quarter of fiscal 1999, primarily
reflecting continued manufacturing efficiencies associated with Marlow and
Unimar products. As the products recently acquired from BEI and Leisegang
generate relatively lower margins, we anticipate that our overall margins at CSI
will be about 53% of sales for the full fiscal year.
SELLING, GENERAL AND ADMINISTRATIVE ("SGA") EXPENSE:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
-----------------------------------------------------------
2000 1999
----------------------- --------------------------
($ in millions)
% Rev. % Rev. % Increase
------ ------ ----------
<S> <C> <C> <C> <C> <C>
CVI $12.7 40% $10.6 38% 19%
CSI 2.6 31% 2.4 34% 6%
Headquarters 1.5 N/A 1.2 N/A 29%
------- -------
$16.8 41% $14.2 41% 18%
======= =======
</TABLE>
As a percentage of sales, SGA was flat vs. 1999's first quarter. CVI's 19%
increase in SGA was driven by marketing costs associated with new product
launches. CSI SGA grew by 6%, with revenues growing 17%. The lower increase in
SGA as related to sales growth is attributable to synergies with the acquisition
of BEI products. Corporate SGA grew by $300,000 in the first quarter of fiscal
2000 vs. the 1999 period. We expect that SGA growth at Headquarters will be
about 10% for the full fiscal year.
RESEARCH AND DEVELOPMENT ("R&D") EXPENSE: We expect that R&D spending will
remain at a low percentage of sales because we are focusing on acquiring
products that will not require large expenditures of time or money before
introduction.
INCOME FROM OPERATIONS: Operating income improved by $2.3 million or 40% in the
fiscal first quarter.
<TABLE>
<CAPTION>
Three Months Ended
January 31,
-----------------------------------------------------------
2000 1999
--------------------- -------------------------
($ in millions)
% Rev. % Rev. % Increase
------ ------ -----------
<S> <C> <C> <C> <C> <C>
CVI $ 8.3 26% $ 6.2 22% 34%
CSI 1.4 17% 0.9 12% 67%
Headquarters (1.5) N/A (1.2) N/A N/A
------- -------
$ 8.2 20% $ 5.9 17% 40%
======= =======
</TABLE>
18
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
INTEREST EXPENSE: Interest expense in the first quarter of 2000 of $1.4 million
was down 25% from 1999's first quarter, primarily reflecting debt payments we
made at the end of the second quarter of 1999 with proceeds from the sale of
HGA. (See "Risk Management.")
OTHER INCOME, NET: The primary components of other income are:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------
2000 1999
---- ------
(In thousands)
<S> <C> <C>
Interest income $211 $ 51
Foreign exchange (101) (140)
Gain on cancellation of interest rate swap 240 -
Other 50 123
---- -----
$400 $ 34
==== =====
</TABLE>
PROVISION FOR INCOME TAXES: We estimate that our effective tax rate ("ETR") for
the full fiscal year 2000 will be 33.5%. The effective tax rate in the first
quarter of fiscal 1999 was 35.4%.
We implemented a global tax plan in the fourth quarter of fiscal 1999 to
minimize both the taxes reported in our statement of income and the actual taxes
we will have to pay once the benefits of our net operating loss ("NOLs") are
fully utilized. Assuming no major acquisitions or large stock issuances, we
currently expect to reduce our ETR to approximately 30% over the next six years.
This plan could possibly extend the cash flow benefits of the NOLs through 2003.
We expect that actual cash payments of taxes will be about 10% of pretax profits
throughout this period.
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS: In January 1999, we completed the
sale of a portion of our discontinued operation, Hospital Group of America, Inc.
("HGA"), for $5 million in cash and trade receivables, and recorded a gain of
$1.3 million. We sold the remainder of HGA to Universal Health Services, Inc.
for $27 million at closing in April. (See Note 8.)
CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLES: In the first quarter of 2000, we
recorded a net of tax charge of $432,000 to implement a new accounting
principle. (See Note 4.)
19
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
CAPITAL RESOURCES & LIQUIDITY
FIRST QUARTER HIGHLIGHTS:
Operating cash flow positive $5.3 million vs. negative $3.4 million in
1999's first quarter.
Cash flow (pretax income from continuing operations plus depreciation and
amortization) per diluted share 65 cents vs. 40 cents in 1999's first
quarter.
Closed two acquisitions for cash payments of $21.6 million.
Refinanced approximately $18 million long-term debt, replacing it with less
expensive debt under our Revolving Credit Agreement.
COMPARATIVE STATISTICS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS):
<TABLE>
<CAPTION>
January 31, 2000 October 31, 1999
<S> <C> <C>
Cash and cash equivalents $2.7 $20.9
Total assets $289.9 $285.9
Total debt $62.6 $62.0
Ratio of debt to equity 0.4:1 0.4:1
Debt as a percentage of total capitalization 27% 27%
Operating cash flow - twelve months ended $36.4 $27.7
Cash flow per diluted share - twelve months ended $3.08 $2.82
</TABLE>
OPERATING CASH FLOWS: Our major source of liquidity is cash flow provided by
operating activities, which totaled $5.3 million in the first quarter of fiscal
2000 and $36.4 million over the twelve-month period ended January 31, 2000.
Until this year, we had typically experienced a net cash outflow from operating
activities in our first quarter, due to payments made to settle disputes,
inventory builds in anticipation of new product launches and increased sales in
subsequent quarters and bonus payments. In this year's first quarter, strong
operating results that helped to decrease our net inventory build (of the total
increase in inventory from October 31, 1999 of $6.8 million, approximately $4.9
million represented inventories of companies acquired in the first quarter)
drove the positive cash flow performance. Major uses of cash for operating
activities in the first quarter included payments of $3 million related to
settlements of disputes, $1.4 million to fund entitlements under Cooper's bonus
plans and $900,000 in interest payments.
INVESTING CASH FLOWS: The cash outflow of $25 million from investing activities
was driven by capital expenditures of $3.3 million and $21.6 million in total to
acquire BEI and Leisegang. (See note 3.)
20
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Concluded
FINANCING CASH FLOWS: Financing activities provided $1.4 million in positive
cash flows. In the quarter, we spent about $18 million to refinance a portion of
the debt raised to fund the acquisition of Aspect in December 1997. We funded
this by drawing down on our KeyBank line of credit, which carries a lower
effective interest rate. Because the debt we paid off was backed by a letter of
credit from KeyBank, and was, therefore, deducted from our total facility
amount, we lost no availability under our line of credit by effecting this
transaction.
OUTLOOK: We believe that cash on hand of $2.7 million plus cash from operating
activities will fund future operations, capital expenditures, cash dividends
(see Note 10) and smaller acquisitions. We may need additional funds for larger
acquisitions and other strategic alliances. At January 31, 2000, we had over $23
million available under the KeyBank line of credit and anticipate that
additional financing would be available as required.
RISK MANAGEMENT: Cooper is exposed to risks caused by changes in foreign
exchange, principally Pound Sterling denominated debt and from operations in
foreign currencies. We have hedged most of the debt by entering into contracts
to buy Sterling forward. Cooper is also exposed to risks associated with changes
in interest rates, as the interest rate on certain of its debt varies with the
London Interbank Offered Rate.
YEAR 2000 ("Y2K"): In 1999, we completed an in-depth compliance program to
minimize the effect of potential Y2K issues. To date, we have experienced no
difficulties related to Y2K.
TRADEMARKS: The following trademarks italicized in this report are owned by,
licensed to or distributed by The Cooper Companies, Inc., its subsidiaries or
affiliates: Cerveillance'r', FemExam'r' TestCard System'TM', Hyskon'r',
Marlow'TM', Frequency 55'r', Preference'r', Frequency'r' Aspheric, Encore'TM',
Frequency'r' XCEL, Sani-Spec'r' and Unimar'r'.
21
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------
<S> <C>
11* Calculation of Earnings Per Share.
27 Financial Data Schedule.
</TABLE>
* The information called for in this exhibit is provided in Footnote 6
to the Consolidated Condensed Financial Statements in this report.
(b) Cooper filed the following reports on Form 8-K during the period from
November 1, 1999 to January 31, 2000.
Date of Report Item Reported
December 8, 1999 Item 5. Other Events
January 31, 2000 Item 5. Other Events
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Cooper Companies, Inc.
------------------------------------------
(Registrant)
Date: March 10, 2000 /s/ Stephen C. Whiteford
------------------------------------------
Vice President and Corporate Controller
23
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as............................'TM'
The registered trademark symbol shall be expressed as.................'r'
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Index of Exhibits
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
11* Calculation of Earnings Per Share.
27 Financial Data Schedule.
</TABLE>
* The information called for in this exhibit is provided in Footnote 6 to the
Consolidated Condensed Financial Statements in this report.
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 2,682
<SECURITIES> 0
<RECEIVABLES> 29,943
<ALLOWANCES> 1,430
<INVENTORY> 40,208
<CURRENT-ASSETS> 92,674
<PP&E> 57,005
<DEPRECIATION> 14,794
<TOTAL-ASSETS> 289,934
<CURRENT-LIABILITIES> 44,514
<BONDS> 57,455
<COMMON> 1,502
0
0
<OTHER-SE> 166,821
<TOTAL-LIABILITY-AND-EQUITY> 289,934
<SALES> 40,404
<TOTAL-REVENUES> 40,404
<CGS> 13,772
<TOTAL-COSTS> 13,772
<OTHER-EXPENSES> 400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,381
<INCOME-PRETAX> 7,259
<INCOME-TAX> 2,432
<INCOME-CONTINUING> 4,827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (432)
<NET-INCOME> 4,395
<EPS-BASIC> .31
<EPS-DILUTED> .31
