<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarterly Period Ended JULY 31, 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 14,296,996 Shares
---------------------------- ------------------------------
Class Outstanding at August 31, 2000
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income - Three
and Nine Months Ended July 31, 2000 and 1999 3
Consolidated Condensed Balance Sheets - July 31, 2000
and October 31, 1999 4
Consolidated Condensed Statements of Cash Flows - Nine
Months Ended July 31, 2000 and 1999 5
Consolidated Condensed Statements of Comprehensive
Income - Three and Nine Months Ended
July 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 15
Item 3. Quantitative and Qualitative Disclosure About Market Risk 23
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 24
Signature 25
Index of Exhibits 26
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
-------------------------------------------
(In thousands, except per share figures)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------ ----------------------
2000 1999 2000 1999
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Net sales $ 50,908 $ 43,404 $ 142,081 $ 120,106
Cost of sales 17,408 15,116 49,465 43,706
--------- ---------- ---------- ----------
Gross profit 33,500 28,288 92,616 76,400
Selling, general and administrative expense 18,717 16,041 54,801 45,812
Research and development expense 703 398 2,027 1,301
Amortization of intangibles 1,031 954 3,122 2,866
--------- ---------- ---------- ----------
Income from operations 13,049 10,895 32,666 26,421
Interest expense 1,164 1,322 3,813 4,933
Settlement of dispute 653 - 653 -
Other income, net 13 54 473 125
--------- ---------- ---------- ----------
Income from continuing operations before
income taxes 11,245 9,627 28,673 21,613
Provision for income taxes 2,584 3,081 8,422 7,132
--------- ---------- ---------- ----------
Income from continuing operations 8,661 6,546 20,251 14,481
Discontinued operations - - - 3,099
Cumulative effect of change in accounting
principle - - (432) -
--------- ---------- ---------- ----------
Net income $ 8,661 $ 6,546 $ 19,819 $ 17,580
========= ========== ========== ==========
Earnings per share:
Basic:
Continuing operations $ 0.61 $ 0.47 $ 1.43 $ 1.03
Discontinued operations - - - 0.22
Cumulative effect of change in accounting
principle - - (0.03) -
--------- ---------- ---------- ----------
Earnings per share $ 0.61 $ 0.47 $ 1.40 $ 1.25
========= ========== ========== ==========
Diluted:
Continuing operations $ 0.59 $ 0.46 $ 1.40 $ 1.01
Discontinued operations - - - 0.22
Cumulative effect of change in accounting
principle - - (0.03) -
--------- ---------- ---------- ----------
Earnings per share $ 0.59 $ 0.46 $ 1.37 $ 1.23
========= ========== ========== ==========
Number of shares used to compute earnings
per share:
Basic 14,231 13,973 14,143 14,118
========= ========== ========== ==========
Diluted 14,596 14,194 14,471 14,318
========= ========== ========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
-------- -----------
(In thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,428 $ 20,922
Trade receivables, net 30,628 26,792
Inventories 38,098 33,430
Deferred tax asset 17,798 11,638
Other current assets 8,807 7,679
-------- --------
Total current assets 104,759 100,461
-------- --------
Property, plant and equipment, net 46,655 40,319
Goodwill and other intangibles, net 93,320 80,518
Deferred tax asset 44,203 56,519
Other assets 7,580 8,056
-------- --------
$296,517 $285,873
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable $ 13,021 $ 8,846
Current portion of long-term debt 2,124 2,305
Accrued income taxes 6,645 11,351
Other current liabilities 24,400 19,394
-------- --------
Total current liabilities 46,190 41,896
Long-term debt 46,193 57,067
Other noncurrent liabilities 19,960 22,767
-------- --------
Total liabilities 112,343 121,730
-------- --------
Contingency (see Note 10)
Stockholders' equity:
Common stock, $.10 par value 1,519 1,497
Additional paid-in capital 254,249 251,345
Accumulated other comprehensive loss (2,688) (595)
Accumulated deficit (55,073) (74,044)
Other (150) -
Treasury stock at cost (13,683) (14,060)
-------- --------
Total stockholders' equity 184,174 164,143
-------- --------
$296,517 $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>
Nine Months Ended
July 31,
---------------------------------
2000 1999
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 19,819 $ 17,580
Depreciation and amortization 6,394 6,451
Deferred income taxes 8,351 (4,519)
Net (increase) in working capital (1,856) (1,717)
Net increase in non-current (assets) liabilities (4,387) (2,601)
Other 86 95
---------- ---------
Net cash provided by operating activities 28,407 15,289
---------- ---------
Cash flows from investing activities:
Disposition of discontinued operations, net of (costs) (1,455) 25,396
Purchases of property, plant and equipment (11,182) (7,547)
Acquisitions of businesses (24,423) -
Sale of securities - 5,419
Other - (386)
---------- ---------
Net cash provided (used) by investing activities (37,060) 22,882
---------- ---------
Cash flows from financing activities:
Net proceeds from KeyBank line of credit 11,498 8,532
Repayment of long-term debt (19,317) (33,989)
Dividends on common stock (848) (280)
Exercises of stock options/warrant 3,020 1,087
Net proceeds from (repayment of) short-term debt 2,509 (2,142)
Purchase of treasury stock - (7,345)
Other 47 47
---------- ---------
Net cash used by financing activities (3,091) (34,090)
---------- ---------
Effect of exchange rate changes on cash and cash equivalents 250 312
Net increase (decrease) in cash and cash equivalents (11,494) 4,393
Cash and cash equivalents - beginning of period 20,922 7,333
---------- ---------
Cash and cash equivalents - end of period $ 9,428 $ 11,726
========== =========
</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 Nine Months Ended
July 31, July 31,
------------------------ -------------------------
2000 1999 2000 1999
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Net income $ 8,661 $ 6,546 $19,819 $17,580
Other comprehensive income (loss):
Foreign currency translation adjustment (761) 136 (2,093) (294)
-------- -------- ------- -------
Comprehensive income $ 7,900 $ 6,682 $17,726 $17,286
======== ======== ======= =======
</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 specialty contact lenses to correct
visual defects, including toric lenses that correct astigmatism, cosmetic lenses
that change or enhance appearance of the eyes' natural color and aspheric lenses
that improve vision in low light conditions. 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 and
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.
Current results are not a guarantee of future performance.
The financial statements presented in this report, although unaudited, contain
all adjustments necessary to present fairly Cooper's consolidated financial
position as of July 31, 2000 and October 31, 1999, the consolidated results of
its operations for the three and nine months ended July 31, 2000 and 1999 and
its consolidated cash flows for the nine months ended July 31, 2000 and 1999. We
only adjusted for normal recurring items except for the following, all of which
occurred in fiscal 2000:
1. In the first quarter, we adopted Statement of Position 98-5, "Reporting on
the Cost of Start-up Activities" (see Note 4).
2. In the third quarter, we changed our tax reserves because of a settlement
of an income tax dispute (see Note 7).
3. In the third quarter, we recorded write-offs principally due to a
terminated joint venture (see Note 9).
Note 2. Inventories
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
------- ---------
(In thousands)
<S> <C> <C>
Raw materials $ 9,976 $ 8,151
Work-in-process 5,495 3,786
Finished goods 22,627 21,493
------- -------
$38,098 $33,430
======= =======
</TABLE>
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. for approximately
$10.3 million in cash.
These included uterine manipulators and other products for the gynecological
surgery market. Most of these products are disposable. Physicians use these
products both in their offices and in hospitals.
The acquisition has been accounted for as a purchase. The excess of the purchase
price over the fair value of the net assets acquired (goodwill) initially has
been recorded at $8.4 million and is being amortized over 20 years.
LEISEGANG ACQUISITION: On January 31, 2000, Cooper purchased a group of women's
healthcare products (the "Leisegang Business") from NetOptix Corporation for
approximately $10 million in cash and, and in May 2000, an additional $250,000.
Before the acquisition, the Leisegang Business had annual revenue of more than
$11 million from operations in the U.S., Germany and Canada.
The Leisegang Business includes diagnostic and surgical instruments including
colposcopes, instruments to perform loop electrosurgical excision procedures,
hand-held gynecological instruments, disposable specula and cryosurgical
systems. Many of these products are disposable, including the Sani-Spec line of
disposable plastic specula, its largest product group.
The acquisition has been accounted for as a purchase. Goodwill initially has
been recorded at $5.4 million and is being amortized over 20 years.
Note 4. New Accounting Pronouncements
In April 1998, The American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Cost of Start-up
Activities." The SOP broadly defines start-up activities and requires that we
expense them as incurred, effective for fiscal years beginning after December
15, 1998. We adopted the SOP in the first quarter of this year and reported an
after tax charge of $432,000 as the cumulative effect of a change in accounting
principle. Our previous policy had been to defer the cost of start-up activities
as appropriate and amortize them over future periods.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB issued SFAS 137,
which delayed the effective date of SFAS 133 to the first quarter of fiscal
years beginning after June 15, 2000. SFAS 133 requires us to recognize all
derivatives at fair value on the balance sheet. Changes in fair value must be
recognized currently in earnings unless we meet specific hedge accounting
criteria. We will adopt SFAS 133 in the first quarter of fiscal 2001 and do not
anticipate that it will have a material effect on our financial statements.
8
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
---------------------------------------------------------------
(Unaudited)
Note 5. Long-Term Debt
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
-------- ----------
(In thousands)
<S> <C> <C>
Promissory notes - Aspect $21,355 $23,439
Midland Bank - 17,445
KeyBank line of credit 11,498 -
Aspect Vision bank loans 5,461 6,292
Promissory note - Wesley-Jessen
Corporation ("W-J") - 100
County of Monroe Industrial
Development Agency ("COMIDA")
Bond 2,515 2,695
Capitalized leases 7,431 9,401
Other 57 -
------- -------
48,317 59,372
Less current installments 2,124 2,305
------- -------
$46,193 $57,067
======= =======
</TABLE>
MIDLAND BANK
Cooper repaid the Midland Bank loan with cash and $12.5 million of its KeyBank
line of credit. Since the Midland Bank loan was covered by a letter of credit
against the KeyBank line of credit, we reduced overall interest expense and
increased the amount of credit available under the KeyBank line.
KEYBANK LINE OF CREDIT
At July 31, 2000, we had $31.3 million available under the KeyBank line of
credit.
<TABLE>
<CAPTION>
Line of credit summary:
(in millions)
<S> <C>
Amount of line $ 50.0
Loans (11.5)
Letters of credit backing other debt (7.2)
------
Available credit $ 31.3
======
</TABLE>
9
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
---------------------------------------------------------------
(Unaudited)
Note 6. Earnings Per Share ("EPS")
(In thousands, except per share figures)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------------- ----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from continuing operations $ 8,661 $ 6,546 $ 20,251 $ 14,481
Discontinued operations - - - 3,099
Cumulative effect of change in
accounting principles - - (432) -
--------- --------- --------- ---------
Net income $ 8,661 $ 6,546 $ 19,819 $ 17,580
========= ========= ========= =========
Basic:
Weighted average common shares 14,231 13,973 14,143 14,118
========= ========= ========= =========
Basic earnings per share:
Continuing operations $ 0.61 $ 0.47 $ 1.43 $ 1.03
Discontinued operations - - - 0.22
Cumulative effect of change in
accounting principles - - (0.03) -
--------- --------- --------- ---------
Basic earnings per share $ 0.61 $ 0.47 $ 1.40 $ 1.25
========= ========= ========= =========
Diluted:
Weighted average common shares 14,231 13,973 14,143 14,118
Add dilutive securities:
Warrants - 16 - 27
Options 365 205 328 173
--------- --------- --------- ---------
Denominator for diluted earnings
per share 14,596 14,194 14,471 14,318
========= ========= ========= =========
Diluted earnings per share:
Continuing operations $ 0.59 $ 0.46 $ 1.40 $ 1.01
Discontinued operations - - - 0.22
Cumulative effect of change in
accounting principles - - (0.03) -
--------- --------- --------- ---------
Diluted earnings per share $ 0.59 $ 0.46 $ 1.37 $ 1.23
========= ========= ========= =========
</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 Nine Months Ended
July 31, July 31,
----------------------------------- ------------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Number of shares excluded 511,250 1,142,500 754,250 1,245,833
=============== =============== =============== ===============
Range of exercise prices $36.00 - $62.21 $23.44 - $62.21 $34.00 - $62.21 $20.00 - $62.21
=============== =============== =============== ===============
</TABLE>
Note 7. Income Taxes
The effective tax rates ("ETR") for the provision for income taxes of $2.6
million and $8.4 million for the three and nine months ended July 31, 2000 were
23% and 29.4%, respectively. In the third quarter of fiscal 2000, we paid $3
million to settle a long-standing dispute with the California Franchise Tax
Board ("FTB"). Our payment was lower than the provision for the FTB claim in our
financial statements, which was based on amounts claimed by the FTB and our
assessment of the risk at that time, and we reversed the amount no longer
required. In the third quarter, we also recorded one-time charges for a
settlement of dispute with a German distributor, and a charge related to a
terminated acquisition, totaling about $800,000. Excluding these unusual items,
our ETR for the nine-month period is about 33%, which is below the 33.5% used
for the first six months of this year, lowering the ETR on operations to 31.7%
for the third quarter.
The ETR used to record the provision for income taxes of $7.1 million for the
nine-month period ended July 31, 1999 was approximately 33%. In the third
quarter of 1999, updated projections indicated that the full year ETR would be
about 33%, down one percentage point from the second quarter's estimate. As a
result, the ETR for the three-month period ended July 31, 1999 was approximately
32%.
Note 8. Discontinued Operations
In the fourth quarter of 1998, Cooper declared Hospital Group of America
("HGA"), its former psychiatric services business, a discontinued operation and
recorded a charge of $22.3 million reflecting our estimate of the ultimate loss
to be incurred upon disposition.
In January 1999, we completed the sale of a portion of HGA for $5 million in
cash and trade receivables and in April 1999 sold the remainder to Universal
Health Services, Inc. for $27 million in cash. Cooper recorded gains on disposal
of $1.3 million in the first quarter and $1.7 million in the second quarter,
reflecting adjustments to the loss estimated in 1998. HGA's patient revenue was
$20.8 million for the nine months ended July 31, 1999.
11
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
---------------------------------------------------------------
(Unaudited)
Note 9. Settlement of Dispute
In the third quarter, we recorded $653,000 for a settlement of a dispute with a
German distributor that included the write-off of our investment in a related
joint venture.
Note 10. Contingency -- 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.
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 11. Business Segment Information
Cooper is organized by product line for management reporting with operating
income the primary measure of segment profitability. Corporate expenses are not
allocated to the segments' operating income. Items accounted for below operating
income are not considered when measuring segment profitability. 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 excluding
cash and cash equivalents, which we deem to be corporate assets. Long-lived
assets are primarily property, plant and equipment and goodwill and other
intangibles.
Segment information:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------- --------------------------
2000 1999 2000 1999
--------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Revenue from external customers
(no inter-segment sales):
CVI $ 39,260 $ 35,916 $109,488 $ 98,397
CSI 11,648 7,488 32,593 21,709
--------- --------- -------- ---------
$ 50,908 $ 43,404 $142,081 $ 120,106
========= ========= ======== =========
</TABLE>
12
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
---------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------------- ------------------------
2000 1999 2000 1999
---------- ---------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C>
Operating income:
CVI $ 13,344 $ 11,370 $ 33,110 $ 27,866
CSI 1,560 1,301 4,651 3,057
Corporate (1,855) (1,776) (5,095) (4,502)
--------- --------- --------- ---------
Total operating income 13,049 10,895 32,666 26,421
Interest expense (1,164) (1,322) (3,813) (4,933)
Other income (expense), net (640) 54 (180) 125
--------- --------- --------- ---------
Income from continuing
operations before income taxes $ 11,245 $ 9,627 $ 28,673 $ 21,613
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
---------- ---------
<S> <C> <C>
Identifiable assets:
CVI $163,159 $153,759
CSI 61,487 41,491
Corporate and other 71,871 90,623
-------- --------
Total $296,517 $285,873
======== ========
</TABLE>
Geographic information:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------------- --------------------------
2000 1999 2000 1999
--------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Revenue: Sales to external customers:
United States (country of domicile) $ 37,252 $ 31,101 $104,597 $ 83,306
Europe 9,371 9,251 26,397 28,715
Canada 4,285 3,052 11,087 8,085
--------- --------- -------- --------
$ 50,908 $ 43,404 $142,081 $120,106
========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
-------- ---------
<S> <C> <C>
Long-lived assets by country of domicile:
United States $ 61,676 $ 48,427
Europe 75,916 72,221
Canada 2,383 189
-------- --------
Total $139,975 $120,837
======== ========
</TABLE>
13
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Concluded
---------------------------------------------------------------
(Unaudited)
Note 12. Subsequent Event - Common Stock Repurchase Program
On August 30, 2000, our Board of Directors authorized the repurchase of up to
one million shares of our common stock, none of which had been purchased as of
September 6, 2000.
14
<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. 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
or the date of this Form 10-Q. We disclaim any intent or obligation to update
these forward looking statements.
RESULTS OF OPERATIONS
In this section we discuss the results of our operations for the three- and
nine-month periods ended July 31, 2000 and compare them with the same periods of
fiscal 1999. We discuss our cash flows and current financial condition beginning
on page 21 in the "Capital Resources and Liquidity" section.
THIRD QUARTER HIGHLIGHTS VS. 1999'S THIRD QUARTER:
Sales up 17% to $50.9 million.
Gross profit up 18%; margin improved by one percentage point to 66% of
revenue.
Income from operations up 20% to $13 million.
Diluted earnings per share from continuing operations up 28% to 59 cents
from 46 cents.
15
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations, Continued
----------------------------------------------
NINE-MONTH HIGHLIGHTS:
Sales up 18% to $142.1 million.
Gross profit up 21%; margin improved by one percentage point to 65% of
revenue.
Income from operations up 24% to $32.7 million.
Diluted earnings per share from continuing operations up 39% to $1.40 from
$1.01.
SELECTED STATISTICAL INFORMATION - PERCENTAGE OF SALES AND GROWTH
<TABLE>
<CAPTION>
Percent of Sales Percent of Sales
Three Months Ended Nine Months Ended
July 31, July 31,
------------------- % ----------------- %
2000 1999 Growth 2000 1999 Growth
------ ------ ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100% 100% 17% 100% 100% 18%
Cost of sales 34% 35% 15% 35% 36% 13%
Gross profit 66% 65% 18% 65% 64% 21%
Selling, general and administrative 37% 37% 17% 39% 38% 20%
Research and development 1% 1% 77% 1% 1% 56%
Amortization 2% 2% 8% 2% 2% 9%
Income from operations 26% 25% 20% 23% 22% 24%
</TABLE>
NET SALES: All 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.
Our consolidated revenue grew $7.5 million (17%) and $22 million (18%),
respectively, in the three- and nine-month periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------------------------- ---------------------------------------
2000 1999 % Incr. 2000 1999 % Incr.
------ ------ ------- ------ ------ -------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
CVI $ 39.3 $ 35.9 9% $109.5 $ 98.4 11%
CSI 11.6 7.5 56% 32.6 21.7 50%
------- ------- ------ ------
$ 50.9 $ 43.4 17% $142.1 $120.1 18%
======= ======= ====== ======
</TABLE>
16
<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 sales to other contact lens manufacturers ("OEM"), grew
13% and 15% for the three- and nine-month periods, respectively.
<TABLE>
<CAPTION>
Third % Change % Change
Quarter % from Third Nine Months % from Nine
Segment 2000 Total Quarter 1999 2000 Total Months 1999
------- -------- ----- ------------ -------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. $ 25.4 65% 15% $ 70.5 65% 20%
International 13.2 33% 9% 35.3 32% 7%
------- --- ------ ---
Core business 38.6 98% 13% 105.8 97% 15%
OEM 0.7 2% (62%) 3.7 3% (45%)
------- --- ------ ---
Total $ 39.3 100% 9% $109.5 100% 11%
======= === ====== ===
</TABLE>
CVI's core product sales in the U.S. grew 15% in the three-month period and 20%
through nine months, as the disposable-planned replacement ("DPR") sphere and
toric product lines together grew 30% and 37% in the respective periods.
Our U.S. toric lens business grew 17% in the third quarter (22% for the
nine-month period) while industry statistics indicate the toric market grew
about 6% in the second calendar quarter. During the third fiscal quarter, sales
of CVI's DPR torics grew 32% in the U.S., led by sales of Frequency 55 Toric.
Sales of spherical DPR products in the U.S., driven by sales of Frequency 55
spheres and Frequency Aspheric, grew about $1.3 million or 26% in the third
quarter and about $5.4 million or 43% for the nine-month period. Together, CVI's
DPR spheres and torics now account for over 75% of its U.S. business.
During the third 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. CVI also introduced Encore
Toric, its two-week disposable cast molded toric lens.
International core revenue, sales in countries outside the United States plus
exports from the U.S., grew 9% during the quarter, 15% when adjusted for
currency fluctuations. OEM sales declined as expected, down 62% from last year's
third quarter, 45% for the nine-month period.
17
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations, Continued
----------------------------------------------
During the third quarter, CVI continued the introduction of new products in
Europe, including its line of toric lenses, the Frequency Aspheric lens and
Frequency 55 UV, which contains an ultra violet light-blocking agent and
Frequency Colors, a new line of disposable cosmetic lenses. In November, CVI
introduced its cast-molded toric product--called Frequency XCEL--in Europe. XCEL
is now available in every major European market.
CSI REVENUE: CSI revenue grew 56% and 50% in the three- and nine-month periods,
due primarily to the recent acquisitions of products from BEI Medical Systems,
Inc. and Leisegang Medical, Inc. Both the FemExam pH and Amines TestCard System
as well as the Cerveillance Digital Colposcope line continue their strong
performance.
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 3). The products acquired 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>
Margin % Margin %
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
CVI 69% 67% 68% 65%
CSI 55% 56% 54% 56%
Consolidated 66% 65% 65% 64%
</TABLE>
The gross margin improvement at CVI reflects cost reduction projects at both our
U.S. and U.K. manufacturing sites. Absent any major changes in product mix, we
believe that continued cost reductions will result in improving margins during
the remainder of fiscal 2000 and beyond.
18
<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 declined in both periods, primarily reflecting the relatively
lower margins of the recently acquired BEI and Leisegang products. 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 Nine Months Ended
July 31, July 31,
------------------------------------------ --------------------------------------
2000 1999 % Incr. 2000 1999 % Incr.
-------- -------- ------- -------- -------- -------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
CVI $12.8 $11.9 7% $39.0 $34.2 14%
CSI 4.0 2.3 77% 10.7 7.1 50%
HQ/Other 1.9 1.8 4% 5.1 4.5 13%
----- ----- ----- -----
$18.7 $16.0 17% $54.8 $45.8 20%
===== ===== ===== =====
</TABLE>
SGA as a percentage of sales equaled 1999's third quarter and was one percentage
point above 1999's nine-month period. Increases of 7% and 14% at CVI for the
respective periods were driven by marketing costs associated with new product
launches. CSI SGA grew by 77% and 50%, with revenues growing 56% and 50% for the
respective periods. The higher increase in SGA as related to sales growth in the
third quarter is primarily attributable to expenses for the American College of
Obstetrics and Gynecology meeting and the cost related to a terminated
acquisition totaling $485,000. Corporate SGA grew by $79,000 and $593,000 in the
third quarter and first nine months reflecting primarily timing and amounts of
bonus payments and normal business growth.
RESEARCH AND DEVELOPMENT ("R&D") EXPENSE: We expect that R&D spending will
remain at consistent levels as a percentage of sales because Cooper focuses on
acquiring products that will not require large expenditures of time or money
before introduction.
INCOME FROM OPERATIONS: Income from operations improved by $2.1 million or
20% and $6.3 million or 24% for the three- and nine-month periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------------------ --------------------------------------
2000 1999 Incr. 2000 1999 Incr.
------ ------ ----- ------ ------ -----
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
CVI $13.3 $11.4 $ 1.9 $33.1 $27.9 $ 5.2
CSI 1.6 1.3 0.3 4.7 3.0 1.7
Headquarters (1.9) (1.8) (0.1) (5.1) (4.5) (0.6)
----- ----- ------ ----- ----- ------
$13.0 $10.9 $ 2.1 $32.7 $26.4 $ 6.3
===== ===== ====== ===== ===== ======
</TABLE>
19
<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 decreased $158,000 or 12% and $1.1 million or
23% in the three- and nine-month periods, respectively. We used operating cash
flows and proceeds from the sale of HGA to reduce our debt from $90.2 million at
October 31, 1998 to $53.4 million at July 31, 2000. We also reduced our
effective interest rate by refinancing certain of our debt.
SETTLEMENT OF DISPUTE: In the third quarter, we recorded $653,000 for a
settlement of a dispute with a German distributor that included the write-off of
a related investment in a joint venture.
OTHER INCOME, NET:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------------- ------------------------
2000 1999 2000 1999
-------- -------- -------- ------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $ 92 $ 65 $ 370 $ 202
Foreign exchange (89) (10) (328) (284)
Gain on cancellation of
interest rate swap - - 240 -
Other $ 10 (1) 191 207
----- ----- ----- -----
$ 13 $ 54 $ 473 $ 125
===== ===== ===== =====
</TABLE>
PROVISION FOR INCOME TAXES: We estimate that our effective tax rate ("ETR")
excluding unusual items for the full fiscal year 2000 will be 33%.
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 for taxes will be about 10% of pretax
profits throughout this period.
DISCONTINUED OPERATIONS: In January 1999, Cooper completed the sale of a portion
of Hospital Group of America, Inc. ("HGA") for $5 million in cash and trade
receivables. In April 1999, Cooper sold the remainder of HGA to Universal Health
Services, Inc. for $27 million at closing. Cooper recorded gains on disposal of
$1.3 million in the first quarter and $1.7 million in the second quarter,
reflecting adjustments to the loss estimated in 1998.
CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE: In the first quarter of fiscal 2000,
we recorded a net of tax charge of $432,000 to implement a new accounting
principle.
20
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations, Continued
----------------------------------------------
CAPITAL RESOURCES AND LIQUIDITY
THIRD QUARTER HIGHLIGHTS:
Operating cash flow $12.5 million vs. $9.5 million in 1999's third quarter.
"Cash Flow" (pretax income from continuing operations plus depreciation and
amortization) per diluted share 92 cents vs. 81 cents in 1999's third
quarter.
Expenditures for purchases of property, plant and equipment (PP&E) $5
million vs. $2.1 million in 1999's third quarter.
NINE-MONTH HIGHLIGHTS:
Operating cash flow $28.4 million vs. $15.3 million in the first nine
months of 1999.
Cash Flow per diluted share $2.42 vs. $1.90 in the first nine months of
1999.
Closed three acquisitions for cash payments of $24.4 million.
Refinanced approximately $18 million long-term debt, replacing it with less
expensive debt under our Revolving Credit Agreement.
Expenditures for purchases of PP&E $11.2 million vs. $7.5 million in the
first nine months of 1999.
COMPARATIVE STATISTICS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS):
<TABLE>
<CAPTION>
July 31, 2000 October 31, 1999
------------- ----------------
<S> <C> <C>
Cash and cash equivalents $9.4 $20.9
Total assets $296.5 $285.9
Working capital $58.6 $58.6
Total debt $53.4 $62.0
Ratio of debt to equity 0.3:1 0.4:1
Debt as a percentage of total capitalization 22% 27%
</TABLE>
<TABLE>
<CAPTION>
July 31, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
Operating cash flow - twelve months ended $40.8 $24.1
Cash Flow per diluted share - twelve months ended $3.34 $2.30
</TABLE>
OPERATING CASH FLOWS: Our major source of liquidity continues to be cash flow
provided by operating activities. Operating cash flow for the first nine months
of fiscal 2000 was $28.4 million, a growth of 86% from the $15.3 million
generated in the comparable period last year. We now expect to generate positive
operating cash flow each quarter. In prior years, we would typically experience
a net cash outflow from operating activities in our first quarter, reflecting
payments to settle disputes, bonus payments and inventory builds in anticipation
of new product launches and increased sales in subsequent quarters. Through July
31 of this year, strong operating results (operating income of $32.7 million)
and a reduced inventory build (of the total increase in inventory from October
31, 1999 of $4.7 million, approximately $4.2 million represented inventories of
companies acquired in the first quarter) drove operating cash flow to $28.4
million.
21
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations, Concluded
----------------------------------------------
Major uses of cash for operating activities in the first nine months of 2000
included payments of $6 million related to various settlements, $1.4 million to
fund entitlements under Cooper's bonus plans and approximately $1.7 million in
interest payments.
INVESTING CASH FLOWS: The cash outflow of $37.1 million from investing
activities was driven by capital expenditures of $11.2 million and payments of
approximately $24 million to fund acquisitions.
FINANCING CASH FLOWS: For the first nine months of 2000, financing activities
resulted in a cash outflow of $3.1 million. In the first 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 most of this by drawing 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. In the second and third quarters, we
also repaid approximately $6 million of debt, which further reduced our interest
expense.
COMMON STOCK REPURCHASE PROGRAM: On August 30, 2000 our Board of Directors
approved the repurchase of up to one million shares of our common stock. These
repurchases will be funded by cash on hand, supplemented by our KeyBank line of
credit, as required. We expect that any repurchases will be accretive to future
earnings per share.
OUTLOOK: We believe that cash and cash equivalents on hand of $9.4 million plus
cash from operating activities will fund future operations, capital
expenditures, cash dividends and smaller acquisitions. We may need additional
funds for repurchases of our stock, larger acquisitions and other strategic
alliances. At July 31, 2000, we had about $31 million available under the
KeyBank line of credit and, based on conversations with KeyBank, 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"): Last year, 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' pH and Amines TestCard System, Frequency
55'r', Preference'r', Frequency'r' Aspheric, Encore Toric'TM', Frequency'r'
XCEL, Frequency'r' Colors and Sani-Spec'r'.
22
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosure About Market Risk
-----------------------------------------------------------------
See "Risk Management" under Capital Resources and Liquidity in Item 2 of this
report for a discussion of debt paid down in fiscal 1999 and 2000.
23
<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 for the nine months ended July 31, 2000.
</TABLE>
* The information called for in this Exhibit is provided in Footnote 6 to
the Consolidated Condensed Financial Statements in this report.
(b) The Company filed the following reports on Form 8-K during the period
May 1, 2000 to July 31, 2000.
<TABLE>
<CAPTION>
Date of Report Item Reported
-------------- -------------
<S> <C>
May 3, 2000 Item 5. Other Events.
May 25, 2000 Item 5. Other Events.
</TABLE>
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Cooper Companies, Inc.
---------------------------------------------
(Registrant)
Date: September 8, 2000 /s/ Robert S. Weiss
---------------------------------------------
Executive Vice President, Treasurer and Chief
Financial Officer
25
<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.
26
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as ........................... 'TM'
The registered trademark symbol shall be expressed as ................ 'r'
