<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------
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, 1999 COMMISSION FILE NO. 1-8597
----------------------
THE COOPER COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------------
DELAWARE 94-2657368
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
6140 STONERIDGE MALL ROAD, SUITE 590 94588
PLEASANTON, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
925-460-3600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.10 Par Value, and New York Stock Exchange
associated Rights Pacific Exchange
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. [X]
Aggregate market value of the voting stock held by non-affiliates of
the registrant as of December 31, 1999: Common Stock, $.10 Par Value --
$413,012,274.
Number of shares outstanding of the registrant's common stock, as of
December 31, 1999: 14,063,223.
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT PART OF FORM 10-K
Portions of the Annual Report to Stockholders for the Parts I and II
fiscal year ended October 31, 1999
Portions of the Proxy Statement for the Annual Part III
Meeting of Stockholders to be held March 28, 2000
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS.
INTRODUCTION
The Cooper Companies, Inc. (the "Company," "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.
FORWARD-LOOKING STATEMENTS
This report 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, significant
disruptions caused by third parties failing to address the year 2000 issue, or
by problems with our year 2000 compliance program, 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 clean-up 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 this Form 10-K for the year ended October 31, 1999 and the
related portions of the Company's 1999 Annual Report to Stockholders ("1999
Annual Report") incorporated here by reference. The 1999 Annual Report is
included as Exhibit 13 to this Form 10-K.
GENERAL DESCRIPTION AND DEVELOPMENT OF BUSINESSES
The information required for this item is incorporated here by
reference to the caption "Letter to Shareholders" and the additional
"CooperVision" section in the 1999 Annual Report.
RESEARCH AND DEVELOPMENT
Company-sponsored research and development expenditures during the
fiscal years ended October 31, 1999, 1998 and 1997 were $2 million, $1.9 million
and $1.7 million, respectively. During fiscal 1999, CooperVision spent about 52%
and CooperSurgical spent about 48% of the total. Cooper did not conduct any
customer-sponsored research and development programs.
2
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Cooper employs 28 people in its research and development and
manufacturing engineering departments. Outside specialists in lens design
formulation science, polymer chemistry, microbiology and biochemistry support
product development and clinical research for CooperVision products.
CooperSurgical conducts research and development in-house and also employs
outside surgical specialists, including members of its surgical advisory board.
GOVERNMENT REGULATION
The U.S. Food and Drug Administration ("FDA"), other federal agencies
and foreign ministries of health regulate the development, testing, production
and marketing of the Company's products. The Federal Food, Drug and Cosmetic Act
and other statutes and regulations govern the testing, manufacturing, labeling,
storage, advertising and promotion of such products. If applicable regulations
are not followed, companies are subject to fines, product recall or seizure,
suspension of production and criminal prosecution.
Cooper develops and markets medical devices under different levels of
FDA regulation depending upon the classification of the device. Class III
devices, such as flexible and extended wear contact lenses, require extensive
premarket testing and approval, while Class I and II devices require
substantially lower levels of regulation.
Before a new contact lens can be sold commercially, CooperVision
("CVI") must complete these steps: (1) compile data on its chemistry and
toxicology, (2) determine its microbiological profile and (3) define the
proposed manufacturing process. This data must be submitted to the FDA to
support an application for an Investigational Device Exemption. Once this is
granted, clinical trials can begin. These are subject to review and approval by
an Institutional Review Board and, where a lens is determined to have a
significant risk, the FDA. After the clinical trials are completed, a Premarket
Approval Application must be submitted and approved by the FDA.
In connection with some of Cooper's new products, it can submit an
expedited procedure known as a 510(k) application for premarket notification to
the FDA. Any product that can demonstrate that it is substantially equivalent to
another device marketed before May 28, 1976 can use this procedure. If the new
product is not substantially equivalent to a preexisting device or if the FDA
rejected a claim of substantial equivalence, FDA approval to market would
require extensive preclinical and clinical testing. This would increase the cost
and would delay product marketing substantially.
FDA and state regulations also require the Company to adhere to
applicable "good manufacturing practices" ("GMP"). They require detailed quality
assurance and record keeping and periodic unscheduled regulatory inspections.
The Company believes it is in substantial compliance with GMP regulations.
Health authorities in foreign countries regulate Cooper's human device
clinical trials and medical device sales. The regulations vary widely from
country to country. Even if the FDA has approved a product, the regulatory
agencies in each country must approve new products before they are marketed.
These regulatory procedures require considerable resources and usually
result in a substantial time lag between new product development and marketing.
Cooper cannot assure that all necessary approvals will be obtained, or obtained
in a timely manner. If the Company does not maintain compliance with regulatory
standards or if problems occur after marketing, product approval may be
withdrawn.
ISO 9000 CERTIFICATION AND CE MARK APPROVAL
In addition to the FDA regulatory requirements, the Company also
maintains ISO 9000 certification and CE Mark approvals for all lens products.
These quality programs and approvals are required by the European Medical Device
Directive and must be maintained for all products intended to be sold in the
3
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European market. In order to maintain these prestigious quality benchmarks, the
Company is subjected to rigorous biannual reassessment audits of their quality
systems and procedures by globally recognized notified bodies and agencies.
RAW MATERIALS
In general, CVI's raw materials consist of various polymers and
packaging materials. There are alternative supply sources of all of these
materials. Raw materials used by CSI or its suppliers are generally available
from more than one source. However, because some products require specialized
manufacturing procedures, CSI could experience inventory shortages if it needed
an alternative manufacturer on short notice.
MARKETING AND DISTRIBUTION
In the United States, Canada and certain European countries, CVI
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. In Japan and
certain European counties, CVI uses distributors and has given them the
exclusive right to market our products.
CSI's products are marketed worldwide by a network of field sales
representatives and distributors. In the United States, Cooper augments its
sales and marketing activities by employing telemarketing, direct mail,
advertising in professional journals, and CSI uses a direct mail catalog.
PATENTS, TRADEMARKS AND LICENSING AGREEMENTS
Cooper owns or licenses a variety of domestic and foreign patents
which, in total, are material to its businesses. The names of certain of
Cooper's products are protected by trademark registrations in the United States
Patent and Trademark Office and, in some cases, also in foreign trademark
offices. Applications are pending for additional trademark registrations. Cooper
aggressively enforces and defends its patents and other proprietary technology.
DEPENDENCE ON CUSTOMERS
Cooper's business does not materially depend on any one customer or any
one affiliated group of customers.
GOVERNMENT CONTRACTS
Cooper's business is not materially subject to profit renegotiation or
termination of contracts or subcontracts at the election of the United States
government.
COMPETITION
Each of Cooper's businesses operates in 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. Cooper competes primarily on the basis of
product quality, program differentiation, technological benefit, service and
reliability.
4
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Many companies develop and manufacture contact lenses. CVI competes
primarily on its product quality, service and reputation among medical
professionals and by participating in specialty niche markets. It sponsors
clinical studies to generate medical information to improve its lenses. Major
competitors have greater financial resources and larger research and development
and sales forces than CVI. Many of these competitors offer a greater range of
contact lenses and 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 include technological and
scientific advances, product quality, price and effective communication of
product information to physicians and hospitals. CSI believes that it benefits,
in part, from the technological advantages of certain of its products and from
developing new medical procedures that can create new markets for equipment and
instruments. CSI competes by focusing on distinct niche markets and by supplying
these with high quality equipment, instruments and disposable products. For
certain procedures, medical practitioners can obtain all of the equipment,
instruments and disposable products from CSI. As CSI develops products for new
medical procedures, it offers to train medical professionals to perform them.
CSI competes with a number of manufacturers in each of its niche markets,
including larger manufacturers with greater financial and personnel resources
who sell a substantially larger number of product lines.
BACKLOG
Backlog is not a material factor in Cooper's businesses.
SEASONALITY
CVI's contact lens sales in the first fiscal quarter are generally
lower than subsequent quarters, as fewer patients visit practitioners during the
holiday season.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Federal, state and local provisions that regulate the discharge of
materials into the environment, or relate to the protecting of the environment,
do not currently materially effect Cooper's capital expenditures, earnings or
competitive position. See "Environmental" in Note 11 of Notes to Consolidated
Financial Statements of the Company included in the 1999 Annual Report,
regarding certain anticipated remediation costs, which is incorporated here by
reference.
WORKING CAPITAL
Cooper'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
The information required for this item is incorporated here by
reference to Note 12 "Business Segment Information" of Notes to Consolidated
Financial Statements of the Company included in the 1999 Annual Report.
5
<PAGE>
EMPLOYEES
On October 31, 1999, Cooper employed approximately 1,750 persons. The
Company believes that its relations with its employees are good.
ITEM 2. PROPERTIES.
The following are the principal facilities of Cooper as of October 31,
1999:
<TABLE>
<CAPTION>
APPROXIMATE OWNED
FLOOR AREA OR LEASE
LOCATION OPERATIONS (SQ. FT.) LEASED EXPIRATION
-------- ---------- ------------ ------ ----------
<S> <C> <C> <C> <C>
United States
Pleasanton, CA Executive Offices 13,700 Leased Sept. 2000
Irvine, CA Executive Offices, CVI
Offices, Distribution
and Customer Service 17,500 Leased Jan. 2000
Huntington Beach, CA CVI Manufacturing &
Technical Offices 20,600 Leased March 2002
Fairport, NY CVI Administrative
Offices & Marketing 23,500 Leased April 2003
Scottsville, NY CVI Manufacturing
and Research 49,500 Owned N/A
Henrietta, NY CVI Distribution
and Warehouse Facility 56,000 Leased Feb. 2003
Shelton, CT CSI Manufacturing,
Research and
Development, Marketing,
Distribution and
Warehouse Facilities 35,000 Leased April 2002
Canada
Markham, Ont. CVI Offices,
Manufacturing
Distribution and
Warehouse Facilities 21,000 Leased Feb. 2000
United Kingdom
Hamble, Hampshire, Aspect Manufacturing,
England Research and Development,
Marketing and Admin.
Offices 93,800 Owned N/A
Fareham, Hampshire, Distribution and Customer
England Service 30,800 Leased Jan. 2018
Fareham, Hampshire, Manufacturing and
England Warehouse 27,100 Leased June 2018
</TABLE>
The Company believes its properties are suitable and adequate for its
businesses.
6
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ITEM 3. LEGAL PROCEEDINGS.
The information required for this item is incorporated here by
reference to "GT Labs" in Note 11 of Notes to Consolidated Financial Statements
of the Company included in the 1999 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of fiscal 1999, the Company did not submit
any matters to a vote of the Company's security holders.
7
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required for this item is incorporated here by
reference to the caption "Quarterly Common Stock Price Range" in the 1999 Annual
Report.
ITEM 6. SELECTED FINANCIAL DATA.
The information required for this item is incorporated here by
reference to the caption "Five Year Financial Highlights" in the 1999 Annual
Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required for this item is incorporated here by
reference to the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 1999 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is primarily exposed to market risks that relate to changes
in interest rates, foreign currency fluctuations and in the market value of its
long-term debt obligations. The Company's policy is to minimize, to the extent
reasonable and practical, its exposure to the impact of changing interest rates
and foreign currency fluctuations by entering into interest rate swaps and
foreign currency forward exchange contracts, respectively. In general, the
Company does not enter into derivative financial instrument transactions for
speculative purposes. Additional information for this item is included under the
caption "Derivatives" in Note 1 "Summary of Significant Accounting Policies" and
in Note 7 "Financial Instruments" in the 1999 Annual Report, which is
incorporated here by reference.
LONG-TERM DEBT
Proceeds from the sale of HGA were used to pay down debt carrying an
average interest rate of approximately 7%. Total debt was reduced to $62 million
at October 31, 1999 from $90.2 million at October 31, 1998:
<TABLE>
<CAPTION>
October 31, 1999 October 31, 1998
---------------- ----------------
(In millions)
<S> <C> <C>
Short term $ 4.9 $11.5
Long term 57.1 78.7
----- -----
Total $62.0 $90.2
===== =====
</TABLE>
On an annualized basis the debt reduction would result in a decrease in
interest expense of approximately $2 million, assuming we do not raise debt for
other purposes.
The following table sets forth as of October 31, 1999, the Company's
long-term debt obligations, excluding capitalized leases, principal cash flows
by scheduled maturity, weighted average interest rates and estimated fair market
value.
8
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<TABLE>
<CAPTION>
Expected Maturity Date - Fiscal Year
----------------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
($ in Millions)
Long-term Debt
Fixed interest rate ($US) $ -- $ -- $ -- $23.4 $ -- $ -- $ 23.4 $ 23.4
Average interest rate 8.00% 8.00% 8.00% 8.00% --% --
Variable interest rate ($US) $ 0.5 $ 0.6 $ 0.5 $22.1 $ 0.6 $ 2.3 $ 26.6 $ 26.6
Average interest rate 6.32% 6.34% 6.36% 6.12% 5.72% 5.66%
</TABLE>
INTEREST RATE EXPOSURES
The Company enters into interest rate swap agreements to minimize the
impact of changes in interest rates on its variable rate long-term debt
obligations. The Company currently has three interest rate swap agreements on a
total of $24.3 million of its outstanding variable rate debt obligations. These
instruments have the effect of converting variable rate instruments to fixed
rate instruments. The interest rate swap agreements assure that the Company will
pay 6.19%, 4.88% and 7.13% on the aforementioned $24.3 million long-term debt
obligations for the periods ending November 2002 (principal amount $17.4
million), January 2012 (principal amount $2.7 million) and April 2003 (principal
amount $4.2 million), respectively. The table below shows the notional amount
and weighted average interest rates of each of the Company's interest rate swaps
by maturity. The receive rate is based on October 31, 1999 rates, and projected
based on the consumer price index. Notional amounts are used to calculate the
contractual payments to be made under the contracts.
<TABLE>
<CAPTION>
Notional Amounts Maturing in Fiscal Year
--------------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
($ in Millions)
Interest rate swaps
Variable to fixed ($US) $ -- $ -- $ -- $17.4 $ -- $ -- $17.4 $17.2
Average pay rate 6.19% 6.19% 6.19% 6.19% 6.19%
Average receive rate 5.48% 5.62% 5.77% 5.92% 5.70%
Variable to fixed ($US) $ 0.2 $ 0.2 $ 0.3 $ 0.3 $ 0.3 $ 1.4 $ 2.7 $ 2.7
Average pay rate 4.88% 4.88% 4.88% 4.88% 4.88% 4.88% 4.88%
Average receive rate 4.82% 4.95% 5.08% 5.21% 5.35% 6.01% 5.65%
Variable to fixed ($US) $ -- $ -- $ -- $ 4.2 $ -- $ -- $ 4.2 $ 4.3
Average pay rate 7.13% 7.13% 7.13% 7.13% 7.13%
Average receive rate 5.92% 6.07% 6.23% 6.39% 6.15%
</TABLE>
FOREIGN CURRENCY EXPOSURES
The Company uses forward exchange contracts to minimize the effect of
foreign currency fluctuations on its long-term debt obligations denominated in
Great Britain Pounds ("GBP"), incurred to fund a portion of the Company's
acquisition of Aspect Vision Care Ltd. (see caption "Aspect Acquisition" in Note
2 "Acquisitions" in the 1999 Annual Report, which is incorporated here by
reference). The following table provides information on the Company's foreign
currency forward exchange contracts. The information is provided in U.S. Dollar
equivalent amounts, which is the way it is presented in the Company's financial
statements. The table shows the notional amounts at the contract exchange rates
and the weighted average contractual foreign currency exchange rates by expected
maturity dates.
9
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<TABLE>
<CAPTION>
Notional Amounts Maturing in Fiscal Year
-------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Contracts to Buy GBP:
Notional amount (in millions) $ 1.8 $ 3.5 $ 8.4 $23.4 $ -- $ -- $37.1 $37.0
Average contractual exchange rate $1.61 $1.62 $1.63 $1.63 $ -- $ -- $1.63
Foreign contracts to sell GBP:
Notional amount (in millions) $ 1.8 $ -- $ -- $ -- $ -- $ -- $ 1.8 $ 1.8
Average contractual exchange rates $1.64 $ -- $ -- $ -- $ -- $ -- $1.64
Foreign contracts to sell Canadian $:
Notional amount (in millions) $ 0.9 $ -- $ -- $ -- $ -- $ -- $ 0.9 $ 0.9
Average contractual exchange rate: $0.68 $ -- $ -- $ -- $ -- $ -- $0.68
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required for this item is incorporated here by
reference to the captions "Consolidated Balance Sheets," "Consolidated
Statements of Income," "Consolidated Statements of Cash Flows," "Consolidated
Statements of Comprehensive Income," "Notes to Consolidated Financial
Statements," "Independent Auditors' Report" and "Two Year Quarterly Financial
Data" in the 1999 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
10
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information included under the heading "Election of Directors" and
"Executive Officers of the Company" in the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held on March 28, 2000 (the "2000 Proxy
Statement") is incorporated 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 included under the subheadings "Executive Compensation"
and "Compensation of Directors" of the "Election of Directors" section of the
2000 Proxy Statement is incorporated by reference with respect to the Company's
chief executive officer, the four other most highly compensated executive
officers of the Company and the Company's directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information included under the subheadings "Securities Held by
Management" and "Principal Security Holders" of the "Election of Directors"
section of the 2000 Proxy Statement is incorporated by reference with respect to
certain beneficial owners, the directors and management.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required for this item is incorporated here by
reference to the heading "Aspect Acquisition" in Note 2 "Acquisitions" in the
1999 Annual Report.
11
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Accountants' Consent and Report on Schedule.
2. Financial Statement Schedule of the Company.
SCHEDULE
NUMBER DESCRIPTION
-------- -----------
Schedule II Valuation and Qualifying Accounts
3. Exhibits
The exhibits listed on the accompanying Exhibit Index are
filed as part of this report.
All other schedules which are included in the applicable
accounting regulations of the Securities and Exchange Commission
are not required here because they are not applicable.
(b) Reports filed on form 8-K at end of Exhibit List:
Cooper filed the following reports on Form 8-K during the period
August 1, 1999 through October 31, 1999.
August 9, 1999--Item 5. Other Events.
August 26, 1999--Item 5. Other Events.
October 4, 1999--Item 5. Other Events.
12
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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,
1999, 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, 1999 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 Registration Statement Nos.
33-50016, 33-11298, 333-22417, 333-25051, 333-27639 and 333-80795 on Forms S-3
and Registration Statement Nos. 333-10997, 33-27938, 33-36325, 33-36326 and
333-58839 on Forms S-8 of The Cooper Companies, Inc. of our reports dated
December 9, 1999, relating to the consolidated balance sheets of The Cooper
Companies, Inc. and subsidiaries as of October 31, 1999 and 1998 and the related
consolidated statements of income, comprehensive income and cash flows for each
of the years in the three-year period ended October 31, 1999, and related
schedule, which reports appear in or are incorporated by reference to the
October 31, 1999 Annual Report on Form 10-K of The Cooper Companies, Inc.
KPMG LLP
San Francisco, California
January 27, 2000
13
<PAGE>
SCHEDULE II
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED OCTOBER 31, 1999
<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, 1999......................$ 1,087 $ 321 $ (272) $ 1,136
======== ======== ======= ========
Year ended October 31, 1998......................$ 721 $ 283 $ 83 $ 1,087
======== ======== ======= ========
Year ended October 31, 1997......................$ 716 $ 155 $ (150) $ 72
======== ======== ======= ========
</TABLE>
(1) Principally uncollectible accounts written off, net of amounts recovered
that were previously written off.
14
<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 28, 2000.
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
--------- -------- ----
<S> <C> <C>
/s/ ALLAN E. RUBENSTEIN Chairman of the Board of Directors January 28, 2000
- -----------------------------------
(ALLAN E. RUBENSTEIN)
/s/ A. THOMAS BENDER President, Chief Executive Officer January 28, 2000
- ----------------------------------- and Director
(A. THOMAS BENDER)
/s/ ROBERT S. WEISS Executive Vice President, Treasurer, January 28, 2000
- ----------------------------------- Chief Financial Officer and Director
(ROBERT S. WEISS)
/s/ STEPHEN C. WHITEFORD Vice President and Corporate January 28, 2000
- ----------------------------------- Controller
(STEPHEN C. WHITEFORD)
/s/ MICHAEL H. KALKSTEIN Director January 28, 2000
- -----------------------------------
(MICHAEL H. KALKSTEIN)
/s/ MOSES MARX Director January 28, 2000
- -----------------------------------
(MOSES MARX)
/s/ DONALD PRESS Director January 28, 2000
- -----------------------------------
(DONALD PRESS)
/s/ STEVEN ROSENBERG Director January 28, 2000
- -----------------------------------
(STEVEN ROSENBERG)
/s/ STANLEY ZINBERG Director January 28, 2000
- -----------------------------------
(STANLEY ZINBERG)
</TABLE>
15
<PAGE>
EXHIBIT INDEX
LOCATION OF
EXHIBIT IN
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBER SYSTEM
- ------ ----------------------- -------------
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 dated December 16, 1999....
4.1 -- Certificate of Elimination of Series A Junior
Participating Preferred Stock of The Cooper Companies,
Inc. filed with the Delaware Secretary of State on
October 30, 1997, incorporated by reference to Exhibit
4.1 on Form 10-K for fiscal year ended October 31, 1997.
4.2 -- Rights Agreement, dated as of October 29, 1997, between
the Company and American Stock Transfer & Trust Company,
incorporated by reference to Exhibit 4.0 to the
Company's Current Report on Form 8-K dated October 29,
1997....................................................
4.3 -- Amendment No. 1 to Rights Agreement dated September 26,
1998, incorporated by reference to Exhibit 99.1 of the
Company's Current Report on Form 8-K dated September 25,
1998....................................................
4.4 -- Certificate of Designations of Series A Junior
Participating Preferred Stock of The Cooper Companies,
Inc., incorporated by reference to Exhibit 4.0 of the
Company's Current Report on Form 8-K dated October 29,
1997....................................................
10.1 -- 1998 Long-term Incentive Plan, incorporated by reference
to Exhibit A of the Company's Proxy Statement for its
1998 Annual Meeting of Shareholders held on April 2,
1998....................................................
10.2 -- Amendment No. 1 to 1998 Long-term Incentive Plan of The
Cooper Companies, Inc. dated April 2, 1998, incorporated
by reference to Exhibit 4.7 to the Company's
post-effective Amendment No. 1 to Form S-8 Registration
Statement filed on January 20, 1999.....................
10.3 -- 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..................
10.4 -- 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.........
10.5 -- 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..................................
10.6 -- 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.
10.7 -- 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..................
16
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LOCATION OF
EXHIBIT IN
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBER SYSTEM
- ------ ----------------------- -------------
10.8 -- 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.................................
10.9 -- Amendment No. 1 to 1996 Long-term Incentive Plan for
Non-Employee Directors of The Cooper Companies, Inc.,
dated October 10, 1996, incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1996.........
10.10 -- Amendment No. 2 to 1996 Long-term Incentive Plan for
Non-Employee Directors of The Cooper Companies, Inc.,
dated October 29, 1997, incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1997.........
10.11 -- 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.........................................
10.12 -- Amendment No. 3 to 1996 Long-term Incentive Plan for
Non-Employee Directors of The Cooper Companies, Inc.,
dated October 29, 1999..................................
10.13 -- Change in Control Agreement dated as of October 14, 1999
between The Cooper Companies, Inc., and Carol R. Kaufman
11* -- Calculation of Earnings per share.......................
13 -- 1999 Annual Report to Stockholders. The following
portions of such report are incorporated by reference in
this document and are deemed "filed." Letter to
Shareholders, the additional "CooperVision" section and
Financial Section which includes: Five Year Financial
Highlights, Two Year Quarterly Information, Quarterly
Common Stock Price Range, 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.
21 -- Subsidiaries............................................
27 -- Financial Data Schedule.................................
* The information required in this exhibit is incorporated here by
reference to Note 4, "Earnings Per Share," in the 1999 Annual
Report.
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Exhibit 3.3
THE COOPER COMPANIES, INC.
AMENDED AND RESTATED BY-LAWS
DECEMBER 16, 1999
ARTICLE I.
OFFICES
SECTION 1. REGISTERED OFFICE
The registered office shall be in the City of Dover, County of Kent,
State of Delaware.
SECTION 2. OTHER OFFICES
The Corporation may also have offices at such other places both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 1. MEETING LOCATION
All meetings of the stockholders shall be held at any place within or
outside the State of Delaware as shall be designated by the Board of Directors.
SECTION 2. ANNUAL MEETING
The annual meeting of stockholders shall be held each year on such
date, and at such hour, as shall be fixed in each year by the Board of Directors
or the Chairman. The purposes for which the annual meeting is to be held, in
addition to those prescribed by law, by the Certificate of Incorporation or by
these By-laws, may be specified by the Board of Directors or the Chairman. If no
annual meeting has been held as specified above, a special meeting in lieu
thereof may be held or there may be action by written consent of the
stockholders on matters to be voted on at the annual meeting, and such special
meeting or written consent shall have for the purposes of these By-laws or
otherwise all the force and effect of an annual meeting.
<PAGE>
SECTION 3. NOTICE OF ANNUAL MEETING
Written notice of the annual meeting stating the place, date and hour
of the meeting, shall be given by the Secretary, in accordance with Article IV,
Section 1 of these By-laws, to each stockholder entitled to vote at such meeting
not less than ten (10) nor more than sixty (60) days before the date of the
meeting.
SECTION 4. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the Certificate of Incorporation,
may be called by the Chairman and shall be called by the Chairman or the
Secretary at the request in writing of a majority of the Board of Directors, or
at the request in writing of stockholders owning a majority in amount of the
entire capital stock of the Corporation issued and outstanding and entitled to
vote. A written request by stockholders to hold a special meeting shall be
signed, dated and delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the Secretary, and shall set
forth the information required by Section 13 (for the business to be conducted
at such special meeting to be properly brought before an annual meeting) or 14
of this Article II, as applicable, and shall state the purpose or purposes of
the proposed meeting. The Board of Directors shall have the sole power to
determine the date, time and place of any special meeting of stockholders. If a
special meeting has been called in response to a written request by
stockholders, the Board of Directors shall set the date of the special meeting
not less than sixty (60) days nor more than seventy-five (75) days after the
stockholders' request is delivered to the corporation. Nothing contained in this
Section 4 shall be construed as limiting, fixing, or affecting the time when a
meeting of stockholders called by the Board of Directors may be held.
SECTION 5. NOTICE OF SPECIAL MEETING
Written notice of any special meeting, stating the place, date and hour
of the meeting and the purpose or purposes for which the meeting is called,
shall be given by the Secretary, in accordance with Article IV, Section 1 of
these By-laws, to each stockholder entitled to vote at such special meeting,
provided, however, that if the special meeting has been called in response to a
written request by stockholders, and such notice is not given by the Secretary
within twenty (20) days after the date of the receipt of the request, the person
or persons requesting the meeting may give the notice.
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SECTION 6. SPECIAL MEETING BUSINESS
Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
SECTION 7. LIST OF STOCKHOLDERS
The officer who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 8. QUORUM AND ADJOURNMENT
A majority of the shares issued and outstanding and entitled to vote at
any meeting of stockholders, the holders of which are present in person or
represented by proxy, shall constitute a quorum for the transaction of business,
except as otherwise provided by statute, by the Certificate of Incorporation or
by these By-laws. A quorum, once established, shall not be broken by the
withdrawal of enough votes to leave less than a quorum, and the votes present
may continue to transact business until adjournment.
Any meeting of stockholders, annual or special, may be adjourned from
time to time by the chair of the meeting, or by the stockholders entitled to
vote at the meeting and present in person or represented by proxy, to reconvene
at the same or other time, date and place. Except as otherwise expressly
required by statute or these By-laws, notice need not be given of any such
adjourned meeting if the time, date and place thereof are announced at the
meeting at which the adjournment is taken. If the time, date and place of the
adjourned meeting are not announced at the meeting at which the adjournment is
taken, then the Secretary shall give written notice of the time, date and place
of the adjourned meeting not less than ten (10) days
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prior to the date of the adjourned meeting. The provisions of Article IV,
Section 1 of these By-laws shall govern the delivery of such notice.
At any adjourned meeting at which a quorum is present, the stockholders
may transact any business which might have been transacted at the original
meeting. Once a share is represented for any purpose at a meeting, it shall be
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is set for the adjourned
meeting. If after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the adjourned meeting consistent with the new record
date.
SECTION 9. VOTING
In all matters other than the election of directors, the affirmative
vote of the majority of shares entitled to vote on the subject matter, present
in person or represented by proxy at a meeting at which a quorum is present,
shall decide any matter brought before such meeting, unless the matter is one
upon which, by express provision of statute, the Certificate of Incorporation or
these By-laws, a different vote is required, in which case such express
provision shall govern and control the decision of such matter. Directors shall
be elected by a plurality of the votes of the shares entitled to vote on the
election of directors, present in person or represented by proxy, at a meeting
at which a quorum is present.
SECTION 10. PROXY VOTING
At each meeting of the stockholders, each stockholder having the right
to vote may vote in person or may authorize another person or persons to act for
him by proxy appointed by an instrument in writing subscribed by such
stockholder (or by such other means as expressly set forth in the Delaware
General Corporation Law) and bearing a date not more than three (3) years prior
to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the Corporation at the beginning of
each meeting in order to be counted in any vote at the meeting. Unless otherwise
provided in the Certificate of Incorporation, each stockholder shall have one
vote for each share of stock having voting power, registered in his name on the
books of the Corporation on the record date set by the Board of Directors as
provided in Article VI, Section 4 of these By-laws.
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SECTION 11. CONDUCT OF MEETINGS
Meetings of the stockholders shall be presided over by (a) the Chairman
of the Board, (b) in his absence, the Vice Chairman, if any, (c) in the absence
of a Vice Chairman, the Chief Executive Officer or, (d) in his absence, another
chair designated by the Board of Directors. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be determined by the chair of the meeting and announced at the
meeting. The Board of Directors may adopt by resolution such rules and
regulations for the conduct of any meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and regulations
as adopted by the Board of Directors, the chair of any meeting of stockholders
shall have the exclusive right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chair, are appropriate for the conduct of the meeting. Such rules, regulations
or procedures, whether adopted by the Board or prescribed by the chair of the
meeting, may include, without limitation, the following (a) the establishment of
an agenda or order of business for the meeting; (b) rules and procedures for
maintaining order at the meeting and the safety of those present; (c)
limitations on attendance at or participation in the meeting to stockholders of
record of the Corporation, their duly authorized and constituted proxies or such
other persons as the chair of the meeting shall determine; (d) restrictions on
entry to the meeting after the time fixed for the commencement thereof; and (e)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chair of
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
SECTION 12. POSTPONEMENT AND CANCELLATION OF STOCKHOLDER MEETING
Any previously scheduled annual or special meeting of the stockholders
may be postponed, and any previously scheduled annual or special meeting of the
stockholders called by the Board may be canceled, by resolution of the Board
upon public notice given prior to the time previously scheduled for such meeting
of stockholders.
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SECTION 13. BUSINESS OF MEETING
At any annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before a meeting, business (other than the election of directors, the
procedures for which are detailed in Section 14 of this Article II) must be
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder. In addition to
any other applicable requirements, for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to and received at the principal
executive offices of the Corporation, (a) with respect to an annual meeting
after the 2000 annual meeting of stockholders, not later than the close of
business on the ninetieth (90) day nor earlier than the close of business on the
one hundred twentieth (120) day prior to the first anniversary of the preceding
year's annual meeting (provided, however, that in the event that the date of the
annual meeting is more than thirty (30) days before or more than seventy (70)
days after such anniversary date, notice by the stockholder must be so delivered
not earlier than the close of business on the one hundred twentieth (120) day
prior to such annual meeting and not later than the close of business on the
later of the ninetieth (90) day prior to such annual meeting or the tenth (10)
day following the date on which public disclosure of the date of such meeting is
first made by the Corporation), and (b) with respect to the 2000 annual meeting
of stockholders, not less than sixty (60) nor more than ninety (90) days prior
to the meeting (provided, however, that in the event that less than seventy-five
(75) days' notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the fifteenth (15) day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs). In no event shall the
public disclosure of any adjournment or postponement of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. As used herein, the term "public disclosure" shall include any disclosure
made by press release issued by the Corporation or any notice of record date and
meeting date for the meeting delivered to any
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national securities exchange on which the Corporation's securities are listed or
to the National Association of Securities Dealers if the Corporation's
securities are then quoted on such Association's interdealer quotation system.
Such stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting, the text of the proposal or
business (including the text of any resolutions proposed for consideration and,
if such business includes a proposal to amend the By-laws of the Corporation,
the language of the proposed amendment) the reasons for conducting such business
at the meeting, and any material interest in such business of such stockholder
and the beneficial owner, if any, on whose behalf the proposal is made; and (c)
as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the proposal is made (i) the name and address of such stockholder,
as they appear on the Corporation's books, and of such beneficial owner, (ii)
the class and number of shares of capital stock of the Corporation which are
owned beneficially and of record by such stockholder and such beneficial owner,
(iii) a representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to propose such business and (iv) a representation
whether the stockholder or the beneficial owner, if any, intends or is part of a
group which intends to (A) deliver a proxy statement and/or form of proxy to
holders of at least the percentage of the Corporation's outstanding capital
stock required to approve or adopt the proposal and/or (B) otherwise solicit
proxies from stockholders in support of such proposal.
Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 13, provided, however, that nothing in this Section 13
shall be deemed to preclude discussion by any stockholder of any business
properly brought before the meeting in accordance with such procedures or to
affect any right of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8, or any successor rule or
regulation, under the Exchange Act of 1934, as amended (the "Exchange Act").
The chair of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 13,
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and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
SECTION 14. ELECTION OF DIRECTORS
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of stockholders by or at the direction of the Board of Directors by any
nominating committee or person appointed by the Board or by any stockholder of
the Corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Section 14. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or and received at the principal executive offices of the Corporation (a) with
respect to an annual meeting after the 2000 annual meeting of stockholders, not
later than the close of business on the ninetieth (90) day nor earlier than the
close of business on the one hundred twentieth (120) day prior to the first
anniversary of the preceding year's annual meeting (provided, however, that in
the event that the date of the annual meeting is more than thirty (30) days
before or more than seventy (70) days after such anniversary date, notice by the
stockholder must be so delivered not earlier than the close of business on the
one hundred twentieth (120) day prior to such annual meeting and not later than
the close of business on the later of the ninetieth (90) day prior to such
annual meeting or the tenth (10) day following the date on which public
disclosure of the date of such meeting is first made by the Corporation), (b)
with respect to the 2000 annual meeting of stockholders, not less than sixty
(60) nor more than ninety (90) days prior to the meeting (provided, however,
that in the event that less than seventy-five (75) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the fifteenth (15) day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made, whichever
first occurs), and (c) with respect to any special meeting, not earlier than the
close of business on the one hundred twentieth (120) day prior to such special
meeting and not later than the close of business on the later of the ninetieth
(90) day prior to such special meeting or the tenth (10) day following the date
on which public
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disclosure of the date of such meeting and of the nominees proposed by the Board
of Directors to be elected at such meeting is first made by the Corporation. In
no event shall the public disclosure of any adjournment or postponement of a
meeting commence a new time period for the giving of a stockholder's notice as
described above. As used herein, the term "public disclosure" shall include any
disclosure made by press release issued by the Corporation or any notice of
record date and meeting date for the meeting delivered to any national
securities exchange on which the Corporation's securities are listed or to the
National Association of Securities Dealers if the Corporation's securities are
then quoted on such Association's interdealer quotation system. Such
stockholder's notice to the Secretary shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director,
(i) the name, age, business address or residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person and (iv) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors in an
election contest pursuant to Regulation 14A under the Exchange Act, or any
successor rule or regulation (and such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
(b) as to the stockholder giving notice and the beneficial owner, if any, on
whose behalf the nomination is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, (ii) the class and number of shares of capital stock of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, (iii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to propose such nomination and
(iv) a representation whether the stockholder or the beneficial owner, if any,
intends or is part of a group which intends to (A) deliver a proxy statement
and/or form of proxy to holders of at least the percentage of the Corporation's
outstanding capital stock required to elect the nominee and/or (B) otherwise
solicit proxies from stockholders in support of such nomination. The Corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of such
proposed nominee to serve as a director of
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the Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
Notwithstanding anything in the fourth sentence of the preceding
paragraph of this Section 14 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation at an
annual meeting after the 2000 annual meeting of stockholders is increased and
there is no public announcement by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
one hundred (100) days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required by this Section 14 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth (10) day following the day on which such public
announcement is first made by the Corporation.
The chair of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 15. ACTION WITHOUT A MEETING
Subject to the provisions of this Section 15, unless otherwise provided
in the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding capital stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. The record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting shall be as fixed by the Board of Directors or as
otherwise established under Article VI, Section 5 of these By-laws.
Every written consent purporting to take or authorizing the taking of
corporate action (each such written consent a "Consent"), and any revocation of
a Consent, shall bear the date of signature of each stockholder who signs the
Consent or revocation, and no Consent shall be effective to take the corporate
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action referred to therein unless, within sixty (60) days of the earliest dated
Consent delivered to the Corporation in the manner required by Article VI,
Section 5 of these By-laws, valid and unrevoked Consents signed by a sufficient
number of stockholders to take such action are so delivered to the Corporation.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing and who, if the action had been taken at a meeting, would
have been entitled to notice of the meeting if the record date for such meeting
had been the date that valid and unrevoked Consents signed by a sufficient
number of stockholders to take the action were delivered to the Corporation as
provided in Article VI, Section 5 of these By-laws.
Consents shall be valid for a maximum of sixty (60) days after the date
of the earliest dated Consent delivered to the Corporation in the manner
provided in Article VI, Section 5 of these By-laws or as otherwise provided in
Section 228(c) of the General Corporation Law of the State of Delaware. Consents
may be revoked by written notice (a) to the Corporation, to the attention of the
Secretary, (b) to the stockholder or stockholders soliciting Consents or
soliciting revocations in opposition to action by consent (the "Soliciting
Stockholders"), or (c) to a proxy solicitor or other agent designated by the
Corporation or the Soliciting Stockholders.
Within ten (10) business days after receipt of the earliest dated
Consent delivered to the Corporation in the manner provided in Article VI,
Section 5 of these By-laws or as otherwise provided in Section 228(c) of the
General Corporation Law of the State of Delaware or the determination by the
Board of Directors of the Corporation that the Corporation should seek corporate
action by written consent, as the case may be, the Secretary of the Corporation
shall engage nationally recognized independent inspectors of elections for the
purpose of performing a ministerial review of the validity of the Consents and
revocations. The cost of retaining inspectors of election shall be borne by the
Corporation. For the purpose of permitting the inspectors to perform such
review, no action by written consent without a meeting shall be effective until
such date as the independent inspectors certify to the Corporation that the
valid and unrevoked Consents delivered to the Corporation in the manner provided
in Article VI, Section 5 of these By-laws or as otherwise provided in Section
228(c) of the General Corporation Law of the State of Delaware represent at
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least the minimum number of votes that would be necessary to take the corporate
action. Nothing contained in this Section 15 shall be construed in any way to
suggest or imply that the Board or any stockholder shall not be entitled to
contest the validity of any Consent or revocation thereof, whether before or
after such certification by the independent inspectors, or to take any other
action (including, without limitation, the commencement, prosecution or defense
of any litigation with respect thereto, and the seeking of injunctive relief in
such litigation).
Following appointment of the inspectors, Consents and revocations shall
be delivered to the inspectors upon receipt by the Corporation, the Soliciting
Stockholder or their proxy solicitors or other designated agents. As soon as
practicable following the earlier of (a) the receipt by the inspectors, a copy
of which shall be delivered to the Corporation, of any written demand by the
Soliciting Stockholders of the Corporation, or (b) sixty (60) days after the
date of the earliest dated Consent delivered to the Corporation in the manner
provided in Article VI, Section 5 of these By-laws or as otherwise provided in
Section 228(c) of the General Corporation Law of the State of Delaware, the
inspectors shall issue a preliminary report to the Corporation and the
Soliciting Stockholders stating the number of valid and unrevoked Consents
received and whether, based on the preliminary count, the requisite number of
valid and unrevoked Consents has been obtained to authorize or take the action
specified in the Consents.
Unless the Corporation and the Soliciting Stockholders shall agree to a
shorter or longer period, the Corporation and the Soliciting Stockholders shall
have forty-eight (48) hours to review the Consents and revocations and to advise
the inspectors and the opposing party in writing as to whether they intend to
challenge the preliminary report of the inspectors. If no written notice of an
intention to challenge the preliminary report is received within forty-eight
(48) hours after the inspectors' issuance of the preliminary report, the
inspectors shall issue to the Corporation and the Soliciting Stockholders their
final report containing the information from the inspectors' determination with
respect to whether the requisite number of valid and unrevoked Consents was
obtained to authorize or take the action specified in the Consents. If the
Corporation or the Soliciting Stockholders issue written notice of an intention
to challenge the inspectors' preliminary report within forty-eight (48) hours
after the issuance of that report, a challenge session shall be scheduled by the
inspectors as promptly as practicable. Following completion of the
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challenge session, the inspectors shall as promptly as practicable issue their
final report to the Soliciting Stockholders and the Corporation, which report
shall contain the information included in the preliminary report, plus any
change in the vote total as a result of the challenge and a certification of
whether the requisite number of valid and unrevoked Consents was obtained to
authorize or take the action specified in the Consents.
ARTICLE III.
DIRECTORS
SECTION 1. NUMBER
The number of directors which shall constitute the whole Board shall be
not less than six (6) nor more than eleven (11), until changed by amendment of
this By-law. The exact number of directors shall be fixed, from time to time,
within the limits above specified, by resolution of the Board of Directors or by
the stockholders at the annual meeting. The number of directors as of the date
of these By-laws is eight (8). The directors shall be elected at the annual
meeting of stockholders, except as provided in Section 2 of this Article III,
and each director elected shall hold office until his successor is duly elected
and qualified until changed by amendment of this By-law. Directors need not be
stockholders.
SECTION 2. VACANCIES
Vacancies on the Board of Directors by reason of death, resignation,
retirement, disqualification, removal from office or otherwise, and newly
created directorships resulting from any increase in the authorized number of
directors, may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and each director so chosen
shall hold office until the next annual election and until his successor is duly
elected and qualified, or until his earlier death, resignation or removal. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten (10) percent of the total number of the shares
at the time outstanding having the right to vote for such
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directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office.
SECTION 3. POWERS
The business of the Corporation shall be managed by or under the
direction of its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these By-laws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. GENERALLY
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
SECTION 5. FIRST MEETING
The first meeting of each newly elected Board of Directors shall be
held immediately following the annual meeting of stockholders at the place of
such annual meeting, and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event such meeting is not held at the time and
place specified above, the meeting may be held at such time and place as shall
be specified in a notice given as hereinafter provided for special meetings of
the Board of Directors, or as shall be specified in a written waiver signed by
all of the directors.
SECTION 6. REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board.
SECTION 7. SPECIAL MEETINGS
Special meetings of the Board of Directors or any committee of the
Board may be called by the Chairman on not less than two (2) days' notice to
each director, either personally or by telephone, mail (including overnight
courier services), telegram, telex, or facsimile; special meetings shall be
called by the Chairman or Secretary or any Assistant Secretary in like manner
and on like notice on the written request of two directors or committee members,
as the case may be, unless the Board or committee consists of only
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one director, in which case special meetings shall be called by the Chairman,
Secretary or any Assistant Secretary in like manner and on like notice on the
written request of the sole director or member. The notice of any regular or
special meeting need not specify the purpose of such meeting, except as required
by Article IX of the By-laws.
SECTION 8. QUORUM
At all meetings of the Board of Directors or of any committee of the
Board a majority of the directors or committee members, as the case may be,
shall constitute a quorum for the transaction of business, and the act of a
majority of the directors or members present at any meeting at which there is a
quorum shall be the act of the Board or of such committee, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board or
of any committee of the Board, the directors or committee members, as the case
may be, present at the meeting may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
SECTION 9. ACTION WITHOUT A MEETING
Unless otherwise restricted by the Certificate of Incorporation or
these By-laws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee of the Board may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
SECTION 10. MEETINGS BY TELEPHONE
Unless otherwise restricted by the Certificate of Incorporation or
these By-laws, members of the Board of Directors, or any committee of the Board,
may participate in a meeting of the Board, or such committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at the meeting.
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COMMITTEES OF DIRECTORS
SECTION 11. DESIGNATION
The Board of Directors may, by resolution adopted by a majority of the
whole Board, designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to (a) approving or adopting, or recommending to the stockholders, any action or
matter expressly required by the General Corporation Law of the State of
Delaware to be submitted to stockholders for approval or (b) adopting, amending
or repealing any By-law of the Corporation. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board.
SECTION 12. MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
SECTION 13. COMPENSATION
Unless otherwise restricted by the Certificate of Incorporation or
these By-laws, the Board of Directors shall have the authority to fix the
compensation of directors. As fixed from time to time by resolution of the
Board, the directors may receive directors' fees and compensation and
reimbursement of their expenses, if any, of attendance at each meeting of the
Board of Directors, for serving on any committee
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of the Board and for discharging their duties. No such payment shall preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
SECTION 14. REMOVAL
Unless otherwise restricted by the Certificate of Incorporation or
these By-laws, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of shares entitled to vote
at an election of directors.
ARTICLE IV.
NOTICES
SECTION 1. DEFINITION
Whenever, under any provision of statute or of the Certificate of
Incorporation or of these By-laws, notice is required to be given to any
director or stockholder, it shall not be construed to mean personal notice, but
notice to such director or stockholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail or with an overnight courier service. Notice to directors may also
be given personally or by telephone, telegram, telex or facsimile.
SECTION 2. WAIVER
Whenever any notice is required to be given under any provision of
statute or of the Certificate of Incorporation or of these By-laws, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V.
OFFICERS
SECTION 1. GENERALLY
The officers of the Corporation shall be chosen by the Board of
Directors and shall be a Chairman, a Chief Executive Officer, a President, one
or more Vice Presidents, a Secretary and a Treasurer. The Corporation may also
have, at the discretion of the Board, one or more Vice-Chairmen, additional Vice
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Presidents, and one or more Assistant Secretaries and Assistant Treasurers. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-laws otherwise provide.
SECTION 2. TIME OF APPOINTMENT
The Board of Directors at its first meeting after each annual meeting
of stockholders shall choose a Chairman, a Chief Executive Officer, a President,
one or more Vice Presidents, a Secretary and a Treasurer, and each shall hold
his office until he shall resign or shall be removed or otherwise disqualified
to serve, or until his successor shall be elected and qualified.
SECTION 3. OTHER APPOINTMENTS
The Board of Directors may appoint, or may authorize the Chief
Executive Officer to appoint, such other officers and agents as the business of
the Corporation may require, each of whom shall have such authority and perform
such duties as are provided in these By-laws or as the Board or the Chief
Executive Officer from time to time may specify, and who shall hold office until
he shall resign or shall be removed or otherwise disqualified to serve.
SECTION 4. SALARIES
The salaries of all officers and agents of the Corporation shall be
fixed by the Board of Directors.
SECTION 5. REMOVAL
Any officer may be removed, with or without cause, at any time by the
affirmative vote of the directors at the time in office or, except in the case
of an officer chosen by the Board, by the Chief Executive Officer upon whom such
power of removal may be conferred by the Board. Any officer may resign at any
time by giving written notice to the Board, the Chairman of the Board, the Chief
Executive Officer or the Secretary of the Corporation. Any such resignation
shall take effect at the date of the receipt of such notice or at any later time
specified therein, and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 6. VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these By-laws for the regular appointments to such office.
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THE CHAIRMAN OF THE BOARD
SECTION 7. ELECTION, POWERS AND DUTIES
The Chairman of the Board shall, if present, preside at meetings of the
stockholders and the Board of Directors and have such other powers and perform
such other duties as may from time to time be assigned to him by the Board of
Directors or as may be prescribed by these By-laws.
THE VICE CHAIRMAN OF THE BOARD
SECTION 8. POWERS AND DUTIES
The Vice Chairman of the Board, if any, shall preside at meetings of
the stockholders and the Board of Directors in the absence of the Chairman and
have such other powers and perform such other duties as may from time to time be
assigned to him by the Board of Directors or the Chairman of the Board.
THE CHIEF EXECUTIVE OFFICER
SECTION 9. DUTIES
The Chief Executive Officer of the Corporation shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and affairs of the Corporation. He shall, in the absence
of the Chairman or Vice Chairman, if any, preside at all meetings of
stockholders and the Board. He shall have the general powers and duties of
management usually vested in the chief executive officer of a corporation, and
shall have such other powers and duties with respect to the administration of
the business and affairs of the Corporation as may from time to time be assigned
to him by the Board or as prescribed by these By-laws. In the absence or
disability of the President, the Chief Executive Officer, in addition to his
assigned duties and powers, shall perform all the duties of the President and
when so acting shall have all the powers and be subject to all restrictions upon
the President.
THE PRESIDENT
SECTION 10. DUTIES
The President shall exercise and perform such powers and duties with
respect to the administration of the business and affairs of the Corporation as
may from time to time be assigned to him by the Chief Executive Officer (unless
the President is also the Chief Executive Officer) or by the Board or as
prescribed by these By-laws. In the absence or disability of the Chief Executive
Officer, unless otherwise resolved by
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the Board of Directors, the President shall perform all of the duties of the
Chief Executive Officer and when so acting shall have all the powers and be
subject to all the restrictions upon the Chief Executive Officer.
THE VICE PRESIDENTS
SECTION 11. DUTIES
In the absence of the President or in the event of his inability or
refusal to act, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order of their rank as fixed by the Board,
or if not ranked, then as designated by the Board or, if not so designated, in
the order of their election) shall perform the duties of the President and when
so acting shall have all the powers of and be subject to all the restrictions
upon the President. The Vice Presidents shall perform such other duties and have
such other powers as from time to time may be assigned to each of them by the
President, by the Chief Executive Officer, by the Board or as prescribed by
these By-laws.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 12. DUTIES
The Secretary shall keep, or cause to be kept, the minutes of meetings
of stockholders or directors of the Corporation and shall keep, or cause to be
kept, a book of the minutes of meetings of the Corporation and of the Board of
Directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of stockholders and special meetings of the Board of
Directors (provided, however, that if for any reason the Secretary shall fail to
give, or cause to be given, notice of any special meeting of the Board called by
one or more of the persons identified in Article III, Section 7 of these
By-laws, or if he shall fail to give notice of any special meeting of the
stockholders called by one or more of the persons identified in Article II,
Section 4 of these By-laws, then any such person or persons may give notice of
any such special meeting) and shall perform such other duties as may be
prescribed by the Chief Executive Officer, President or Board of Directors. He
shall have custody of the corporate seal of the Corporation and he, or an
Assistant Secretary, shall have the authority to affix the same to any
instrument requiring it and, when so affixed, it may be attested by his
signature or such Assistant Secretary's. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his signature.
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SECTION 13. ASSISTANT SECRETARY
The Assistant Secretary or, if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or, if there be
no such determination, then in the order of their election) shall, in the
absence of the Secretary or in the event of his inability or refusal to act or
at the request of the Chief Executive Officer or the President, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties as may be prescribed by the Chief Executive Officer, President or Board
of Directors.
THE TREASURER AND ASSISTANT TREASURERS
SECTION 14. DUTIES
The Treasurer shall have the custody of the corporate funds and
securities and shall keep and maintain, or cause to be kept and maintained, full
and accurate accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.
He shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chief Executive Officer, the President and to the directors, at
the regular meetings of the Board or when the directors so request, an account
of all his transactions as Treasurer and of the financial condition of the
Corporation and shall have such other powers and perform such other duties as
may be prescribed by the Board or these By-laws.
If required by the Board of Directors, he shall give the Corporation a
bond (which shall be renewed every six years) in such sum and with such surety
or sureties as shall be satisfactory to the Board, for the faithful performance
of the duties of his office and for the restoration to the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation.
SECTION 15. ASSISTANT TREASURER
The Assistant Treasurer or, if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or, if
there be no such determination, then in the order of their
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election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE VI.
SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR STOCK
Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of the Corporation by, the Chairman or
Vice Chairman of the Board of Directors, the President or a Vice President and
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor and the amount
paid thereon shall be specified.
LOST CERTIFICATES
SECTION 2. REPLACEMENT
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates previously issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate(s) to be lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any
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claim that may be made against the Corporation with respect to the
certificate(s) alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 3. TRANSFER
Upon compliance with provisions restricting the transfer or
registration of transfer of shares of stock, if any, upon surrender to the
Corporation or the transfer agent for the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer and the payment of all taxes due thereon,
it shall be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transactions upon
its books.
FIXING THE RECORD DATE
SECTION 4. RECORD DATE FOR VOTING AND DIVIDEND RIGHTS
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, except as specified in Section 5 of this Article VI, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 5. RECORD DATE FOR SHAREHOLDER ACTION WITHOUT A MEETING
The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting shall be as fixed by
the Board of Directors or as otherwise established in this Section 5. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent shall, by written notice to the Secretary,
request the Board of Directors to fix a record date. Such notice shall contain
the information that would be required by Article II, Section 13 or 14, as
applicable, if the corporate action were to be considered at a meeting of
stockholders. The Board of
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Directors shall have ten (10) days following the date of receipt of the notice
to determine the validity of the request. During such ten (10) day period
following the receipt of such notice, the Corporation may require the
stockholder of record requesting a record date for proposed stockholder action
by consent, and/or the beneficial owner, if any, on whose behalf the request is
being made, to furnish such other information as it may reasonably require to
determine the validity of the request for a record date. Following the
determination of the validity of the request, and subject to Article II, Section
13 or 14, as applicable, the Board of Directors may adopt a resolution fixing
the record date for such purpose which shall be no more than ten (10) days after
the date upon which the resolution fixing the record date is adopted by the
Board and shall not precede the date such resolution is adopted. If no record
date has been fixed by the Board of Directors within ten (10) days after the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered officer in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded, to the attention of the Secretary of the Corporation. Delivery shall
be by hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by applicable law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
REGISTERED STOCKHOLDERS
SECTION 6. RIGHTS
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VII.
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. DECLARATION AND PAYMENT
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation.
SECTION 2. RESERVES
Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property at the Corporation, or for such other purpose as the
directors shall think conducive to the interest of the Corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
ANNUAL STATEMENT
SECTION 3. PRESENTATION
The Board of Directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the Corporation.
CHECKS
SECTION 4. SIGNATURE
All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
FISCAL YEAR
SECTION 5. DESIGNATION
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
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SEAL
SECTION 6. SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise
ARTICLE VIII.
INDEMNIFICATION
SECTION 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION
Except as provided in Section 3 of this Article VIII, the Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including any appeal therefrom (a "Proceeding") (other than a
Proceeding by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer or employee of the Corporation or any predecessor
corporation or entity, or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal Proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, with respect to any criminal Proceeding, that he had reasonable cause to
believe that his conduct was unlawful.
SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
Except as provided in Section 3 of this Article VIII, the Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
Proceeding by or in the right of the Corporation to procure a judgment in its
favor by
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reason of the fact that he is or was a director, officer or employee of the
Corporation or any predecessor corporation or entity, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such Proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the extent
that the Court of Chancery or the court in which such Proceeding was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
SECTION 3. EXCEPTIONS TO AND LIMITATIONS ON RIGHT OF
INDEMNIFICATION
Notwithstanding anything to the contrary in this Article VIII, (a)
except as provided in Section 7 with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any officer, director or
employee in connection with any Proceeding (or part thereof) initiated by such
person only if such Proceeding (or part thereof) was authorized by the Board of
Directors and (b) any indemnification by reason of the fact that such person is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall be reduced by the amount of any such expenses, judgments,
fines and amounts paid in settlement for which such person has otherwise
received payment (under any insurance policy, charter or by-law provision or
otherwise). In the event of any payment by the Company to any person pursuant to
this Article VIII by reason of the fact that such person was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of such person, who shall, as a condition to payment under
this Article VIII, execute all papers required and do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the Corporation effectively to bring suit to enforce such
rights.
27
<PAGE>
SECTION 4. DETERMINATION OF RIGHT OF INDEMNIFICATION
Any indemnification under Section 1 or 2 of this Article VIII (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such Section 1 or 2, as
applicable. Such determination shall be made, with respect to a person who is a
director or officer at the time of such determination (a) by a majority vote of
directors who were not parties to such Proceeding, even though less than a
quorum, or (b) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (c) by the stockholders.
SECTION 5. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY
Notwithstanding the other provisions of this Article VIII, to the
extent that a present or former director, officer or employee of the Corporation
has been successful on the merits or otherwise in defense of any Proceeding
referred to in Section 1 or 2 of this Article VIII, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
SECTION 6. ADVANCEMENT OF EXPENSES
Expenses (including attorneys' fees) incurred by a present or former
director, officer or employee in defending a Proceeding shall be paid by the
Corporation in advance of the final disposition of such Proceeding; provided,
however, that if the Delaware General Corporation Law so requires, an advance of
expenses incurred by any such person in his capacity as a present director or
officer (and not in any other capacity in which service was or is rendered by
such person, including without limitation any employee benefit plan) shall be
made only upon receipt by the Corporation of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article VIII.
SECTION 7. ENFORCEMENT OF RIGHTS TO INDEMNIFICATION
If a claim for indemnification under Section 1, 2 or 5 or for
advancement of expenses under Section 6 is not paid in full by the Corporation
within sixty (60) days after a written claim has been received by the
28
<PAGE>
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty (20) days, the present or
former director, officer or employee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
present or former director, officer or employee shall also be entitled to be
paid the expense of prosecuting or defending such suit. In any suit brought by
such person to enforce a right to indemnification hereunder (but not in a suit
brought by such person to enforce a right to an advancement of expenses) it
shall be a defense that such person has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law. Neither the failure
of the Corporation (including its Board of Directors, independent legal counsel
or stockholders) to have made a determination prior to the commencement of such
suit that indemnification of such person is proper in the circumstances because
such person has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or stockholders)
that such person has not met such applicable standard of conduct, shall create a
presumption that such person has not met the applicable standard of conduct or,
in the case of such a suit brought by such person, be a defense to such suit. In
any suit brought by such person to enforce a right hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that such person is not entitled to be
indemnified or to such advancement of expenses under this Article VIII or
otherwise shall be on the Corporation.
SECTION 8. RIGHTS NOT EXCLUSIVE
The rights to indemnification and to the advancement of expenses
conferred in this Article VIII shall not be exclusive of, and shall be in
addition to, any other right which any person may have or hereafter acquire
under these By-laws, the Certificate of Incorporation, any statute, agreement,
vote of stockholders or disinterested directors or otherwise.
SECTION 9. AGENTS
The Corporation may, to the extent authorized from time to time by the
Board of Directors (and, with respect to advancement of expenses, upon such
terms and conditions, if any, as the Board deems
29
<PAGE>
appropriate), grant rights to indemnification, and to the advancement of
expenses, to any present or former agent of the Corporation to the fullest
extent of the provisions hereof with respect to the indemnification and
advancement of expense of present and former directors, officers and employees
of the Corporation.
SECTION 10. INSURANCE
Upon resolution passed by the Board, the Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of the Certificate of
Incorporation, this Article VIII or the Delaware General Corporation Law.
SECTION 11. OTHER ENTERPRISES
For the purposes of this Article VIII, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VIII.
SECTION 12. SEVERABILITY
If any part of this Article VIII shall be found, in any action, suit or
proceeding or appeal therefrom or in any other circumstances or as to any
particular officer, director, employee or agent to be unenforceable, ineffective
or invalid for any reason, the enforceability, effect and validity of the
remaining parts or of such parts in other circumstances shall not be affected,
except as otherwise required by applicable law.
30
<PAGE>
SECTION 13. AMENDMENTS
The foregoing provisions of this Article VIII shall be deemed to
constitute an agreement between the Corporation and each of the persons entitled
to indemnification hereunder, for as long as such provisions remain in effect.
Any amendment to the foregoing provisions of this Article VIII which limits or
otherwise adversely affects the scope of indemnification or rights of any such
persons hereunder shall, as to such persons, apply only to claims arising, or
causes of action based on actions or events occurring, after such amendment and
delivery of notice of such amendment is given to the person or persons whose
rights hereunder are adversely affected, such amendment shall have no effect on
such rights of such persons hereunder. Any person entitled to indemnification
under the foregoing provisions of this Article VIII shall, as to any act or
omission occurring prior to the date of receipt of such notice, be entitled to
indemnification to the same extent as had such provisions continued as By-laws
of the Corporation without such amendment.
ARTICLE IX.
AMENDMENTS
SECTION 1. AMENDMENTS
These By-laws may be altered, amended or repealed or new By-laws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new By-laws is contained in
the notice of such special meeting. If the power to adopt, amend or repeal
By-laws is conferred upon the Board of Directors by the Certificate of
Incorporation, it shall not divest or limit the power of the stockholders to
adopt, amend or repeal By-laws.
31
<PAGE>
Exhibit 10.12
AMENDMENT NO. 3 TO
THE 1996 LONG TERM INCENTIVE PLAN FOR NON-EMPLOYEE DIRECTORS
OF THE COOPER COMPANIES, INC.
WHEREAS, The Cooper Companies, Inc. (the "Company") has
adopted The 1996 Long Term Incentive Plan for Non-Employee Directors of The
Cooper Companies, Inc. (the "Plan"); and
WHEREAS, Section 11 of the Plan permits the Board of Directors
of the Company to amend the Plan, subject to certain limitations; and
WHEREAS, the Board of Directors of the Company desires to
amend the Plan in certain respects;
NOW THEREFORE, the Plan is hereby amended as follows:
FIRST: The first two paragraphs of Section 7 of the Plan are
hereby amended by deleting the number "5,000" wherever it appears, and by
inserting the number "10,000" in its stead, and by deleting the number "6,250"
wherever it appears, and by inserting the number "11,250" in its stead.
SECOND: The provision of Paragraph First hereof shall be
effective as of October 26th, 1999.
THIRD: Except to the extent herein above set forth, the Plan
shall remain in full force and effect.
IN WITNESS WHEREOF, the Board of Directors of the Company has
caused this Amendment No. 3 to the Plan to be executed by a duly authorized
officer of the Company as of October 29th, 1999.
THE COOPER COMPANIES, INC.
By: /s/ Carol R. Kaufman
----------------------------
Title: V.P. Legal Affairs
----------------------------
<PAGE>
Exhibit 10.13
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (this "Agreement"), dated as of
October 14, 1999, is made by and between The Cooper Companies, Inc., a Delaware
corporation (the "Company"), and Carol R. Kaufman ("Executive").
WITNESSETH:
WHEREAS, Executive is a senior executive of the Company and has made
and is expected to continue to make major contributions to the short- and
long-term profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined below)
exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that Executive is not practically
disabled from discharging her duties in respect of a proposed or actual
transaction involving a Change in Control;
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the employ of the Company; and
WHEREAS, on May 19, 1999 the Compensation Committee of the Board (as
defined below) authorized the Company to enter into this Agreement.
NOW, THEREFORE, the Company and Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means Executive's annual base salary rate as in effect
from time to time.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means gross misconduct injurious to the Company, as
determined in a written opinion rendered to the Board by the Company's outside
counsel, and which has not been remedied (to the fullest extent possible) by the
Executive within ten days after written notice thereof to Executive by the
Board.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the Board then in office at a
meeting of the Board called and held for such purpose, after reasonable notice
to the Executive and an opportunity for the Executive, together with the
Executive's counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith opinion
of the Board, the Executive had committed an act constituting "Cause" and
specifying the particulars thereof in detail. Nothing herein will limit the
right of the Executive or his beneficiaries to contest the validity or propriety
of any such determination.
<PAGE>
(d) "Change in Control" means the occurrence during the Term of any of
the following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of the combined
voting power of the then outstanding Voting Stock of the Company; or
(ii) consummation of a reorganization, merger or consolidation, a
sale or other disposition of all or substantially all of the assets of
the Company, or other transaction (each, a "Business Combination"),
unless, in each case, immediately following such Business Combination,
(A) all or substantially all of the individuals and entities who were
the beneficial owners of Voting Stock of the Company immediately prior
to such Business Combination beneficially own, directly or indirectly,
more than 50% of the combined voting power of the then outstanding
shares of Voting Stock of the entity resulting from such Business
Combination (including, without limitation, an entity which as a result
of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions relative to each other as their
ownership, immediately prior to such Business Combination, of the
Voting Stock of the Company and (B) no Person beneficially owns,
directly or indirectly, 50% or more of the combined voting power of the
then outstanding shares of Voting Stock of the entity resulting from
such Business Combination.
(e) "Employee Benefits" means any life, disability, group health and
dental benefit plans; provided, however, that Employee Benefits shall not
include contributions made by the Company to any retirement plan, pension plan
or profit sharing plan for the benefit of the Executive in connection with
amounts earned by the Executive.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(g) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(h) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. Termination Following a Change in Control.
In the event that in the 90 day period following the consummation of a
Change in Control, the employment of Executive is terminated by the Company for
any reason other than Cause or by Executive for any reason then the Company
shall,
(a) on the first day of each of the twelve months following the date of
such termination, pay to Executive one-twelfth of the amount of Executive's
annual Base Pay as in effect immediately prior to such termination (less
applicable withholding), and
(b) for the one year period following such termination, continue to
provide to Executive all Employee Benefits which were received by, or with
respect to, Executive as of the date of such termination, at no additional
expense to Executive.
3. Successors and Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, reorganization or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance reasonably satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any
2
<PAGE>
persons acquiring directly or indirectly all or substantially all of the
business or assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be deemed the
"Company" for the purposes of this Agreement), but will not otherwise be
assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 3(a) and 3(b). Without limiting the generality or effect of
the foregoing, the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or by the
laws of descent and distribution and, in the event of any attempted assignment
or transfer contrary to this Section 3(c), the Company shall have no liability
to pay any amount so attempted to be assigned, transferred or delegated.
4. Notices. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
DHL, addressed to the Company (to the attention of the Secretary of the Company)
at its principal executive office and to the Executive at her principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
5. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
6. Arbitration; Governing Law. Any dispute between the parties under
this Agreement shall be resolved (except as provided below) in Pleasanton,
California through informal arbitration by an arbitrator selected under the
rules of the American Arbitration Association and the arbitration shall be
conducted in that location under the rules of said Association. The arbitrator
shall have the right only to interpret and apply the provisions of this
Agreement and may not change its provisions. The arbitrator shall permit
reasonable pre-hearing discovery of facts, to the extent necessary to establish
a claim or a defense to a claim, subject to supervision by the arbitrator. The
determination of the arbitrator shall be conclusive and binding upon the parties
and judgment upon the same may be entered in any court having jurisdiction
thereof. The arbitrator shall give written notice to the parties stating his or
their determination and shall furnish to each party a signed copy of such
determination. The expense of arbitration shall be borne equally by the
Executive and the Company or as the arbitrator shall otherwise equitably
determine.
3
<PAGE>
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes any and all prior agreements of the parties with respect to such
subject matter. No agreements or representations, oral or otherwise, expressed
or implied with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. References to
Sections are to references to Sections of this Agreement.
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
THE COOPER COMPANIES, INC.
/s/ Robert S. Weiss
-------------------------------------
By: Robert S. Weiss
Title: Executive Vice President & CFO
Executive:
/s/ Carol R. Kaufman
- ------------------------------
Carol R. Kaufman
4
<PAGE>
1999
ANNUAL REPORT
COOPER COMPANIES, INC.
[GRAPHIC OMITTED]
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. 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
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,
significant disruptions caused by the failure of third parties to address the
year 2000 issue, or problems with our year 2000 compliance program, 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 report.
CONTENTS
Fiscal 1999 Financial Highlights 2
Letter to Shareholders 3
Quarterly Common Stock
Price Range 13
Financial Section 13
Corporate Information 46
COMPANY PROFILE
The Cooper Companies, Inc. is a rapidly growing specialty healthcare company
serving the vision care and women's health-care markets around the world with
high quality products and services. CooperVision markets a broad range of
contact lenses. CooperSurgical offers diagnostic products, surgical instruments
and accessories primarily to the physician's in-office segment of the women's
healthcare market.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
---------------------------------------------
1999 % CHANGE 1998 % CHANGE
(IN MILLIONS EXCEPT PER SHARE AMOUNTS) VS. 1998 VS. 1997
- ---------------------------------------------------------------------------------------
REVENUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CooperVision $ 136.0 14% $ 119.2 86%
CooperSurgical $ 29.3 5% $ 28.0 13%
Total $ 165.3 12% $ 147.2 66%
- ---------------------------------------------------------------------------------------
OPERATING INCOME
- ---------------------------------------------------------------------------------------
CooperVision $ 40.8 18% $ 34.6 50%
CooperSurgical $ 4.3 103% $ 2.1 (14%)
Corporate expenses $ (6.3) n/m $ (7.0) n/m
Total $ 38.8 31% $ 29.7 50%
As a percent of revenue 23% -- 20% --
- ---------------------------------------------------------------------------------------
EARNINGS
- ---------------------------------------------------------------------------------------
Net income $ 25.1 (37%) $ 39.8 27%
As a percent of revenue 15% -- 27% --
From continuing operations $ 22.0 (62%) $ 57.8 32%
As a percent of revenue 13% -- 39% --
- ---------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
- ---------------------------------------------------------------------------------------
Continuing operations $ 1.54 69% $ .91(1) 18%
Discontinued operations $ .21 n/m ($ 1.18) n/m
Net income $ 1.75 (33%) $ 2.61 9%
- ---------------------------------------------------------------------------------------
OTHER FINANCIAL INFORMATION
- ---------------------------------------------------------------------------------------
Depreciation and amortization $ 8.4 -- $ 8.4 97%
Cash flow from operating activities $ 27.7 144% $ 11.4 (3%)
Cash flow(2) per diluted share $ 2.82 46% $ 1.93 28%
Cash and cash equivalents $ 20.9 185% $ 7.3 (60%)
Working capital $ 58.6 (16%) $ 69.4 (3%)
Total assets $ 285.9 (3%) $ 296.0 74%
Total liabilities $ 121.7 (19%) $ 150.8 155%
Stockholders' equity $ 164.1 13% $ 145.2 30%
Average shares used for EPS calculation 14.3 (6%) 15.3 16%
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Proforma, assuming 40% tax rate
(2) Pretax income from continuing operations plus depreciation and
amortization
2
<PAGE>
================================================================================
COOPERVISION
AND COOPERSURGICAL
REVENUE TRENDS
[The following was represented as a bar chart]
CSI CVI CONSOLIDATED
--- --- ------------
1994 12.8 37.9 50.6
1995 12.8 42.5 55.3
1996 17.2 46.9 66.1
1997 24.8 64.0 88.8
1998 28.0 119.2 147.2
1999 29.3 136.0 165.3
To Our Shareholders:
IN ITS FIRST YEAR AS A "PURE PLAY" MEDICAL DEVICE COMPANY, THE COOPER COMPANIES
REPORTED SOLID SALES, EARNINGS AND CASH FLOW GROWTH.
In April, we completed the divestiture of Hospital Group of America, our
former mental health services business. We used some of the net proceeds to pay
down debt to about $59 million--27% of total capitalization.
Revenue from CooperVision (CVI), our specialty contact lens business, and
CooperSurgical (CSI), our women's health care franchise, together grew 12%, with
CooperVision up 14% and CooperSurgical rising 5%. Since 1994, Cooper's total
medical device revenue has grown at a compounded rate of 27%.
Earnings per share from continuing operations in fiscal 1999 grew 69% to
$1.54 versus the fully taxed proforma 91 cents for the previous year. Our global
tax-planning strategy, begun in 1999, helped to reduce our effective tax rate to
32.7%. This strategy will
3
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================================================================================
extend the life of our $163 million in net operating loss carryforwards to
approximately 2003. Reflecting improved operating results, cash flow per share
(pretax income from continuing operations plus depreciation and amortization)
grew 46% to $2.82 in 1999 from $1.93 per share in the previous year.
A share repurchase program that concluded during fiscal 1999 reduced our
shares outstanding by 1 million to 14.1 million at fiscal year end. Cooper paid
an average price of $15.34 for these shares. In May, we announced our intention
to pay a regular quarterly dividend of 2 cents per share.
In fiscal 2000, we expect revenue and operating income from our combined
medical device business to grow by 20% to 25%.
4
<PAGE>
================================================================================
CooperVision
WE ESTIMATE THAT THE WORLD MARKET FOR SOFT CONTACT LENSES GREW APPROXIMATELY 6%
TO $2.6 BILLION DURING 1999.
Specialty contact lenses, where CVI concentrates the majority of its
marketing efforts, grew significantly faster than spherical lenses, continuing
the trend of the past several years in the major markets around the world.
Specialty products include toric lenses for astigmatism, multifocal lenses
for presbyopia, aspheric lenses that can improve visual acuity in selected
nearsighted patients and opaque lenses that can modify the natural color of the
eye. Our 1999 figures indicate that U.S. specialty lens revenue grew 15%
compared with a decline of almost 2% in spherical lens sales. These products
currently account for about $430 million of the $1.2 billion U.S. market, up
from $375 million last year. Outside the U.S., we estimate that the specialty
lens market is growing about four times faster than the spherical lens market.
(Please see the insert in this report, "CooperVision: Sustainable Competitive
Advantage in an Increasingly Attractive Market" for more details about the
contact lens market.)
CVI's worldwide core business--all revenue other than sales to other
contact lens suppliers--grew 16% in
5
<PAGE>
APRIL
---------------------------
1996
ACQUIRES UNIMAR,
manufacturer of women's
healthcare products
---------------------------
|
================================================================================
| |
- ------------------ -----------------------------
BOARD APPOINTS DOUBLES
Tom Bender CEO CONTACT LENS
1994 manufacturing capacity at
- ------------------ Scottsville, NY, facility
MARCH 1996
-----------------------------
AUGUST
fiscal 1999. Core revenue grew by 18% in the United States and 11% overseas. The
U.S. accounted for 65% of our core revenue.
The U.S. market for toric lenses, CVI's leading product group, grew 4% in
value through September 1999, while CVI's toric lens sales grew 25% during the
same period. Improved toric technology and the continued popularity of more
frequently replaced toric lenses drive this increased demand. Sales of
disposable-planned replacement toric lenses, the market's fastest growing
segment, grew 19% through September, and now represents 56% of the toric market.
CVI's disposable-planned replacement toric brands, led by Preference Toric and
the recently introduced Frequency 55 Toric, grew 38% during the nine months and
41% for the fiscal year. With this strong performance, we believe that we are
now the leading manufacturer of toric contact lenses in the United States.
During 1999, CVI strengthened its market position around the world.
Important new product launches included:
The full range of parameters of Frequency 55 Toric, a planned replacement
lens for two-week or monthly use. In the U.S., Frequency 55 Toric aims at
the lower priced segment of the toric market offering practitioners more
fitting choices at comparable prices than competitive products. Market
acceptance has exceeded expectations.
A new member of the Frequency family, Frequency Aspheric, a new optical
design that has demonstrated enhanced visual acuity in selected patients.
6
<PAGE>
APRIL
-------------------------
1997
REDEEMS
$9.3 MILLION
of convertible debt
-------------------------
|
================================================================================
|
--------------------------------
ACQUIRES
NATURAL TOUCH
line of cosmetic lenses from
Wesley Jessen Vision Care
1997
--------------------------------
FEBRUARY
Preference Toric XR, new parameters that extend the range of Preference
Toric.
A new low cost, cast-molded toric lens called Frequency EXCEL in Europe
and Encore in the U.S. that is recommended for two-week (disposable) wear.
The toric lens segment of the worldwide contact lens market continues to
grow and evolve with planned replacement toric lenses continuing to supplant
conventional products. CVI has led these market changes. In fiscal 1999, toric
lenses accounted for 43% of CVI's worldwide business, growing 28% over 1998. CVI
has targeted the year 2000 to become the world's leading manufacturer of toric
contact lenses.
In the U.S. spherical lens market, Frequency 55 Sphere, introduced in 1998
to take advantage of newly acquired manufacturing technology, enjoyed a
successful first year. Disposable-planned replacement lenses--spheres and torics
together--now comprise 75% of our total worldwide business.
In Japan, the world's second largest contact lens market, CVI's marketing
7
<PAGE>
JULY
----------------------------------
1997
COMPLETES
public offering of 2 million
shares at $23.50 per share
----------------------------------
|
================================================================================
| |
- --------------------------- -------------------------------------
ACQUIRES ACQUIRES
MARLOW, INC. ASPECT VISION CARE, LTD.,
manufacturer of women's British contact lens manufacturer
healthcare products 1997
1997 -------------------------------------
- --------------------------- DECEMBER
APRIL
partner, Rohto Pharmaceuticals, Inc., received regulatory clearance to market
CVI's spherical and toric products. Rohto has purchased initial product
inventory from CVI and has introduced the products in Japan under the Rohto i.Q.
brand name using national television advertising.
In Europe, CVI added Frequency UV to its spherical product line, continued
the rollout of its toric products and acquired a Swedish contact lens
distributor to service Scandinavia.
In other marketing initiatives, we formed a joint venture to market lenses
in Australia and launched a major new marketing program by adding, beginning in
2000, consumer and practitioner e-commerce capabilities to CVI's Internet
website, www.coopervision.com.
CVI's gross margins improved in each quarter during fiscal 1999 after a
temporary decline during 1998's manufacturing transition. In the fourth quarter,
gross margin reached 68%. Reduced capital spending contributed to the year's
improved cash flow.
In the next several years, we expect CVI's revenue growth to continue in
the "mid-teens." Areas of opportunity include sustained toric lens growth in
both North America and markets abroad, especially Japan, and new value added
products targeted to niche markets around the world, such as our Frequency
aspheric products.
8
<PAGE>
DECEMBER
------------------------------------
1997
SIGNS
MARKETING AGREEMENT
with Rohto Pharmaceuticals, Ltd.
to enter Japanese market
------------------------------------
|
================================================================================
COOPERSURGICAL:
CONSOLIDATING THE IN-OFFICE
WOMEN'S HEALTHCARE MARKET
In 1990, CSI acquired Frigitronics, a technology company with a range of
gynecological and ophthalmic products, giving it a starting point in women's
healthcare.
In 1991 it purchased Euro-Med, a direct mail-order business that sells
premium gynecological instruments.
In 1992, CSI introduced a line of electrical instruments and disposable
products to perform LEEP (Loop Electro-surgical Excision Procedure), a surgical
intervention that allows physicians to diagnose and treat diseases of the cervix
concurrently. Because of the procedure's dual role, managed care quickly adopted
the product line, noting its economic benefits.
In 1996, the Company bought Unimar, a company with $6 million in annual
sales and several well-established disposable diagnostic products. CSI moved
much of its product manufacturing in-house and improved margins.
In 1997, CSI bought Marlow, which added an additional $6 million in annual
revenue, and became the exclusive distributor of an embryonic transfer catheter
used in fertility clinics in the U.S. The in vitro fertilization market is
primarily private pay and growing rapidly.
In 1998, CSI developed and introduced Cerveillance, a digital colposcopy
system with proprietary software, developed in house. Cerveillance allows a
doctor to examine the cervix and then document, store and recall digital images
of the findings, a valuable feature in today's cost conscious healthcare
environment.
CSI also entered the diagnostic segment of the women's healthcare market
in 1998 with the introduction of the first in a planned series of innovative
tests: its FemExam pH and Amines TestCard, a rapid, economical, point of care
product used in the diagnosis of vaginitis, the most common vaginal infection.
CooperSurgical
WOMEN'S HEALTHCARE IS A LARGE AND GROWING MARKET WITH THREE MAJOR
SEGMENTS--PHARMACEUTICALS, CAPITAL EQUIPMENT FOR HOSPITALS AND LARGE CLINICS AND
INSTRUMENTS AND DISPOSABLES DESIGNED FOR IN-OFFICE TREATMENT.
Each year, about 34,000 gynecologists in the United States record
approximately 60 million office visits, assist in 4.6 million births and perform
over two million surgical procedures. They treat conditions such as vaginitis,
excessive menstrual bleeding, cancer and its precursors, non-malignant fibroid
tumors and endometritis (an inflammation of the uterine lining). With the
continuing emphasis on preventive care, many managed care organizations now
routinely reimburse common screening services such as PAP smears, osteoporosis
evaluations and mammography. The cost pressures of managed care continue to move
procedures from the hospital to the physician's office, and many women now use
their gynecologist as their general practitioner.
CooperSurgical primarily targets the in-office women's healthcare market
where physicians screen, diagnose and treat commonly occurring gynecological
conditions. CSI also provides products for hospitals and clinics (including
products for minimally invasive procedures) and reproductive medicine. In each
of these markets, CSI identifies high volume procedures and provides the
products used to perform them. Historically, CSI's business approach has been to
9
<PAGE>
MARCH
------------------------
1999
REGULATORY
clearance to market
lenses in Japan
------------------------
|
================================================================================
| |
- --------------------------------------- ----------------------------------
ANNOUNCES PLAN DIVESTS
to buy back up to 1 million shares; Hospital Group of America
completed in 1999 psychiatric services business
1998 1999
- --------------------------------------- ----------------------------------
SEPTEMBER APRIL
consolidate the market for in-office gynecology products through acquisition.
The market is highly fragmented, served by small manufacturers that generally
offer limited product lines and lack the resources for expansion and
acquisition. Since 1990, CSI has acquired nine companies or product lines, and
the majority of its 1999 revenue came primarily from these acquisitions. CSI
typically merges an acquired company's operations into its Connecticut facility
within sixty days. This generates significant economies of scale, gradually
improving margins.
During 1999, CSI's revenue increased 5% to $29.3 million. With lower new
product marketing expenses than last year, operating income more than doubled to
$4.3 million. CSI continues to consolidate the market by acquiring companies and
product lines serving in-office women's healthcare while concurrently developing
its own proprietary products.
Recently, CSI announced plans to acquire two additional lines of
gynecological products. In December, it acquired a group of women's health-care
products with current annual revenue of about $8 million from BEI Medical
Systems Company, Inc. The products include established brands of uterine
manipulators and other products for the gynecological surgery market. Physicians
use these products both in their offices and in hospitals, and the majority of
them are disposable.
CSI has also agreed to acquire Leisegang Medical, Inc. from NetOptix
Corporation. Founded in Germany in 1889, Leisegang is a well-known and highly
regarded women's healthcare company. It markets diagnostic and surgical
instruments for the women's healthcare market including colposcopes, instruments
to perform loop electrosurgical excision procedures, hand held gynecological
instruments, disposable specula and cryosurgical systems. This product group
should add about $11 million in annual revenue and will expand CSI's global
presence, as it plans to market its line of gynecological products in Europe
through Leisegang's German subsidiary. The transaction is scheduled to close in
January 2000.
With the addition of the BEI and Leisegang product lines, CSI expects
10
<PAGE>
================================================================================
|
---------------------------------
ANNOUNCES
marketing agreements for
FemExam product line with 3m,
Matria and BioStar
1999
---------------------------------
JULY
annual revenue of approximately $50 million for calendar 2000. Cooper's
objective is to grow CSI to the $100 million revenue level with operating income
of 20% in the next three to five years through continued market consolidation,
new product development and manufacturing efficiencies.
CSI's acquisitions over the years have given it the financial "critical
mass" to allow the introduction of its own proprietary new products such as its
advanced digital colposcope, Cerveillance and the CooperSurgical Infrared
Coagulator. Cerveillance is the first device to combine digital imaging and
proprietary software in a fully integrated compact colposcope, an instrument
used in examining the cervix. It can track cervical lesions over time,
documenting changes in tissue color within the cervix. The Infrared Coagulator
is used in the practitioner's office to remove genital warts rapidly and safely.
Sales, marketing and business development programs for CSI's line of
FemExam diagnostic testing cards, licensed from Litmus Concepts, Inc., was a
major emphasis during 1999. These credit card sized tests are rapid, economical,
point of care products used in the diagnosis of vaginitis, the most common
vaginal infection. The bacterial form of vaginitis (BV) affects as many as 25%
of women in the United States, accounts for 13 million physician office visits
annually in the U.S. and represents half of all vaginal infections. It is
associated with serious complications including premature and low birth weight
babies, post-partum infections, pelvic inflammatory disease, post-gynecological
surgery
11
<PAGE>
DECEMBER
- -----------------------------------
1999
ACQUIRES
women's healthcare products
from BEI Medical Systems,Inc.
- -----------------------------------
|
================================================================================
|
--------------------------------
ANNOUNCES PLANS
to acquire Leisegang women's
healthcare products from
NetOptix Corporation,Inc.
1999
--------------------------------
DECEMBER
infections, abnormal PAP smears and increased risk of HIV.
In July, CSI announced that it had agreed with 3M Pharmaceuticals, which
markets an anti-infective pharmaceutical to treat vaginitis, and separately with
Matria Healthcare Inc., which manages high-risk pregnancy patients, to co-market
its FemExam pH and Amines Test Card in the United States. Each partner will use
the FemExam card to augment their own marketing activities.
Adding to improved prospects for the success of FemExam, The American
Medical Association has awarded the FemExam card an additional third party
reimbursement code. Both tests on the card will now be covered by third party
insurance, allowing physicians to electronically bill for them. The Health Care
Financing Administration (HCFA) has recently set a reimbursement fee that will
range from $10 to $13 per test card. Third party insurers will benchmark their
payments to the HCFA amount. In August, CSI and BioStar, Inc., a Thermo Electron
Corporation subsidiary, agreed to co-market three additional in-office tests for
vaginitis. With these developments, we hope to accelerate acceptance of the
FemExam product line by gynecologists and family practitioners during 2000.
LOOKING AHEAD
In the new century, we anticipate advances in treating eye and women's
health disorders eclipsing those of the past hundred years. There is no more
precious sense than sight. Women's healthcare has, until recently, been
underserved. Cooper looks forward to continuing to develop and deliver high
quality products for the patients who will benefit from them and caregivers who
will administer them in the year 2000 and beyond.
Our deepest thanks, as always, to our employees, who made 1999's
achievements possible.
/s/ Allan E. Rubenstein, M.D.
Allan E. Rubenstein, M.D.
Chairman of the Board
/s/ A. Thomas Bender
A. Thomas Bender
President and Chief Executive Officer
January 24, 2000
<PAGE>
QUARTERLY
COMMON STOCK PRICE RANGE
[The following table was depicted as a bar chart in the printed material]
1999 LOW 1999 HIGH 1998 LOW 1998 HIGH
-------- --------- -------- ---------
January 31 12.38 28 34.69 50
April 30 11.75 16.33 34 51.69
July 31 15.38 25.12 30.38 40.63
October 31 19.63 31.88 14 31.81
At December 31, 1999 and 1998, there were 1,902 and 2,150 common
stockholders of record, respectively. On May 20, 1999, the Company announced it
intended to pay an annual dividend on its common stock of 8 cents per
share, payable quarterly.
INDEX TO
FINANCIAL
INFORMATION
Five Year Financial Highlights 14
Two Year Quarterly Information 15
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 16
Management's Statement Regarding Financial Reporting 21
Independent Auditors' Report 21
Consolidated Statements of Income 22
Consolidated Balance Sheets 23
Consolidated Statements of Cash Flow 24
Consolidated Statements of Comprehensive Income 25
Notes to Consolidated Financial Statements 26
13
<PAGE>
FIVE YEAR FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 165,328 $ 147,192 $ 88,769 $ 66,118 $ 55,296
=============================================================
Gross profit $ 106,319 $ 91,428 $ 61,444 $ 46,207 $ 37,747
=============================================================
Income from continuing operations
before income taxes 32,712 23,087 16,936 11,167 6,121
Provision for (benefit of) income taxes 10,711 (34,723) (26,735) (4,438) 43
-------------------------------------------------------------
Income from continuing operations before
extraordinary item 22,001 57,810 43,671 15,605 6,078
Discontinued operations, net of taxes:
Income (loss) before extraordinary item 129 4,336 4,719 998 (5,963)
Gain (loss) from disposal 2,970 (22,300) (18,000) -- --
Extraordinary item -- -- (469) -- --
-------------------------------------------------------------
3,099 (17,964) (13,750) 998 (5,963)
-------------------------------------------------------------
Income before extraordinary item 25,100 39,846 29,921 16,603 115
Extraordinary item, net -- -- 1,461 -- --
-------------------------------------------------------------
Net income $ 25,100 $ 39,846 $ 31,382 $ 16,603 $ 115
=============================================================
Diluted earnings (loss) per share:
Continuing operations $ 1.54 $ 3.79 $ 3.33 $ 1.32 $ 0.52
Discontinued operations 0.21 (1.18) (1.05) 0.09 (0.51)
Extraordinary item, net -- -- 0.11 -- --
-------------------------------------------------------------
Earnings per share $ 1.75 $ 2.61 $ 2.39 $ 1.41 $ 0.01
=============================================================
Average number of shares used to compute
diluted earnings per share 14,312 15,269 13,120 11,794 11,667
Memo diluted earnings per share data:
Income from continuing operations
before income taxes $ 2.29 $ 1.51 $ 1.29 $ 0.95 $ 0.52
</TABLE>
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL POSITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------------------------------------
(IN THOUSANDS) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets* $100,461 $116,077 $100,574 $ 58,712 $ 52,185
Property, plant and equipment,net 40,319 34,234 7,634 4,650 3,974
Intangible assets, net 80,518 84,308 32,274 16,864 9,901
Other assets 64,575 61,422 30,142 4,004 1,417
----------------------------------------------------
Total assets $285,873 $296,041 $170,624 $ 84,230 $ 67,477
====================================================
Current liabilities** $ 41,896 $ 46,701 $ 29,118 $ 26,318 $ 27,321
Long-term debt 57,067 78,677 9,125 37,912 34,268
Other long-term liabilities 22,767 25,410 20,848 4,670 7,637
----------------------------------------------------
Total liabilities 121,730 150,788 59,091 68,900 69,226
Stockholders' equity (deficit) 164,143 145,253 111,533 15,330 (1,749)
----------------------------------------------------
Total liabilities and stockholders' equity $285,873 $296,041 $170,624 $ 84,230 $ 67,477
====================================================
</TABLE>
================================================================================
* Includes net assets of discontinued operations in 1995-1998
** Includes current installments of long-term debt
The Cooper Companies, Inc. and Subsidiaries 14
<PAGE>
TWO YEAR QUARTERLY FINANCIAL DATA
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 34,959 $ 41,743 $ 43,404 $ 45,222
==========================================================
Gross profit $ 21,543 $ 26,569 $ 28,288 $ 29,919
==========================================================
Income from continuing operations before
income taxes $ 4,088 $ 7,898 $ 9,627 $ 11,099
Provision for income taxes 1,447 2,604 3,081 3,579
----------------------------------------------------------
Income from continuing operations 2,641 5,294 6,546 7,520
Discontinued operations, net of taxes:
Income (loss) (21) 150 -- --
Gain on disposal 1,279 1,691 -- --
----------------------------------------------------------
Income from discontinued operations 1,258 1,841 -- --
----------------------------------------------------------
Net income $ 3,899 $ 7,135 $ 6,546 $ 7,520
==========================================================
Diluted earnings per share*:
Continuing operations $ 0.18 $ 0.38 $ 0.46 $ 0.53
Discontinued operations 0.09 0.13 -- --
----------------------------------------------------------
Net income $ 0.27 $ 0.51 $ 0.46 $ 0.53
==========================================================
Number of shares used to compute diluted
earnings per share 14,668 14,071 14,194 14,299
==========================================================
Memo diluted earnings per share data:
Income from continuing operations,
before income taxes $ 0.28 $ 0.56 $ 0.68 $ 0.78
==========================================================
</TABLE>
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 29,384 $ 37,450 $ 39,709 $ 40,649
==============================================================
Gross profit $ 18,107 $ 24,423 $ 24,836 $ 24,062
==============================================================
Income from continuing operations before
income taxes $ 4,894 $ 6,873 $ 7,429 $ 3,891
Benefit of income taxes** (449) (505) (910) (32,859)
--------------------------------------------------------------
Income from continuing operations 5,343 7,378 8,339 36,750
Discontinued operations, net of taxes:
Income 650 1,105 1,835 746
Loss from disposal -- -- -- (22,300)
--------------------------------------------------------------
Loss from discontinued operations 650 1,105 1,835 (21,554)
--------------------------------------------------------------
Net income $ 5,993 $ 8,483 $ 10,174 $ 15,196
==============================================================
Diluted earnings per share*:
Continuing operations $ 0.35 $ 0.48 $ 0.54 $ 2.45
Discontinued operations 0.04 0.07 0.12 (1.44)
--------------------------------------------------------------
Net income $ 0.39 $ 0.55 $ 0.66 $ 1.01
==============================================================
Number of shares used to compute diluted
earnings per share 15,354 15,443 15,342 14,978
==============================================================
Memo diluted earnings per share data:
Income from continuing operations, $ 0.32 $ 0.45 $ 0.48 $ 0.26
before income taxes ==============================================================
</TABLE>
================================================================================
* The sum of earnings per share for the four quarters is different from the
full year amount as a result of computing the quarterly and full year
amounts on the weighted average number of common shares outstanding in the
respective periods.
** Includes a tax benefit of $33.3 million for the reduction of the valuation
allowance against the deferred tax assets in the fourth quarter of fiscal
1998.
15 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note numbers refer to the "Notes to Consolidated Financial Statements"
beginning on page 26 of this report.
RESULTS OF OPERATIONS
This section focuses on our income statement and compares our operating
results from continuing operations over the three year period ended October
31, 1999. We discuss our cash flows and current financial condition beginning on
page 19 in the "Capital Resources and Liquidity" section.
NET SALES
Our consolidated net sales grew by 12% in 1999 and 66% in 1998. Our
Cooper Vision ("CVI") and Cooper Surgical ("CSI") business units have generated
consistent net sales growth over the three-year period.
GROWTH
---------------------------------
($ IN MILLIONS) 1999 vs. 1998 1998 vs. 1997
- --------------------------------------------------------------------------------
CVI $16.8 14% $55.2 86%
=================================
CSI $ 1.3 5% $ 3.2 13%
=================================
- --------------------------------------------------------------------------------
1999 vs.1998
CVI
CVI's worldwide core business, defined as all revenue other than original
equipment manufacturer ("OEM") sales to other contact lens suppliers, grew 16%
in fiscal 1999:
% % %
($ IN MILLIONS) 1999 TOTAL 1998 TOTAL GROWTH
- --------------------------------------------------------------------------------
U.S. $ 82.9 61% $ 70.3 59% 18%
International 44.3 33% 39.8 33% 11%
================================
Core Business 127.2 94% 110.1 92% 16%
OEM 8.8 6% 9.1 8% (4%)
--------------------------------
Total $136.0 100% $119.2 100% 14%
================================
- --------------------------------------------------------------------------------
CVI's core product sales grew 18% in the U.S. and 11% internationally
(sales in countries outside the United States plus exports from the United
States). The U.S. contact lens market grew 4% during the first nine months of
the calendar year as indicated by a contact lens industry market research audit
("CLI" data) for the third calendar quarter. CVI believes that through fiscal
1999, it gained one market share point in the U.S. to 8%.
In the United States, sales of toric lenses to correct astigmatism
continued to drive CVI's sales gains, growing 26% in a market segment growing
about 4% annually. We believe that CVI is now the revenue leader in the
U.S. toric lens market.
The disposable-planned replacement ("DPR") toric market grew about 20%
through September 1999 and continues to be the fastest growing category in the
U.S. contact lens market. It now accounts for 61% of the toric category's
revenue, up from 52% at the same time last year. Of the $32 million total
revenue growth in the U.S. contact lens market through September, DPR torics
account for about $13 million, of which CVI's toric products account for about
$8 million.
For the fiscal year, CVI's DPR torics sales grew 41% in the U.S. as
Preference Toric, CVI's premium toric brand, and Frequency 55 Toric both showed
strong results. CVI believes that it leads the U.S. DPR toric sector with about
34% of the revenue generated, up from 29% a year ago.
U.S. sales of all DPR lenses -- torics and spheres together -- grew about
9% through the first nine calendar months, according to the latest market
research audit. Sales of CVI's DPR lenses in the U.S. were 38% ahead for the
fiscal year. DPR lenses represent 66% of CVI's U.S. revenue and 75% of its
worldwide revenue.
Internationally, our Canadian and Italian businesses generated strong
sales, and new product introductions continue in Europe, including toric and
other specialty lenses. In Japan, CVI's partner, Rohto Pharmaceuticals, Inc.,
launched CVI spherical and toric lenses under the Rohto i.Q trade name. Except
in the United Kingdom, where we have initiated new market strategies to offset
competitive inroads, CVI believes that it is gaining market share in each of the
world's top ten contact lens markets.
OEM sales decreased 4% in 1999, and we expect this trend to continue as
our product mix shifts toward higher margin branded products.
We believe that CVI is well positioned to compete successfully in the
worldwide contact lens market, particularly with its Preference and Frequency 55
line of DRP lenses and its line of custom toric lenses.
CSI
CSI's revenue grew 5% in fiscal 1999.CSI's sales of gynecology ("GYN")
products grew 6%, led by its FemExam, infrared coagulator, Marlow and
Cerveillance Scope product lines. The growth in these product lines was
partially offset by lower sales of more mature product lines. GYN product sales
The Cooper Companies, Inc. & Subsidiaries 16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED
accounted for over 90% of CSI's sales in fiscal 1999. In July, CSI announced
that it had agreed with 3M Pharmaceuticals (NYSE: MMM) and Matria Healthcare
Inc. (NASDAQ: MATR) to co-market its FemExam pH and Amines Test Card in the
United States, and that the American Medical Association had awarded the FemExam
Card an additional third party reimbursement code. The FemExam Card is an
accurate, convenient point of care diagnostic test used to help determine if a
vaginal infection is bacterial or fungal. In August, CSI and BioStar, Inc., a
Thermo Electron Corporation (NYSE: TMO) subsidiary, agreed to co-market three
additional in-office tests for vaginitis. All four tests are being developed
under CSI's licensing agreement with Litmus Concepts, Inc. In the United States,
vaginitis accounts for about 13 million physician office visits and about 10
million clinic visits, annually.
1998 vs. 1997
CVI
Net sales of CVI products increased primarily due to the acquisition of
Aspect Vision Care Limited ("Aspect") (see Note 2) and sales growth achieved in
planned replacement contact lenses in North America. The Aspect acquisition
accounted for 63% of the sales growth and represented approximately 29% of CVI's
1998 sales. In North America, CVI's sales of DPR toric lenses grew approximately
74%,and sales of DPR spherical lenses grew approximately 79%. Sales of toric
lenses grew 38% for the year and accounted for 38% of CVI's sales. In March
1997,we acquired Natural Touch, a line of opaque, cosmetic contact lenses that
contributed $5.4 million to 1998 sales. These increases were partially offset by
anticipated declines in sales of mature product lines.
In February 1998, CVI introduced the Frequency 55 DPR spherical lens in
the United States. The worldwide market for DPR spherical lenses represents
about 60% of the total worldwide contact lens market.
In May 1998, CVI introduced two new toric products: Hydrasoft Toric
Options, a custom planned replacement toric lens for astigmatic patients with
complex corrections, and Frequency 55 Toric, a planned replacement lens designed
for two-week or monthly replacement, positioned in the lower-priced segment of
the DPR toric market.
CSI
CSI's net sales increased by 13% principally due to sales of Marlow
Surgical Technologies, Inc. ("Marlow") products, acquired in April 1997 and
Hyskon, a fluid used by gynecologists in certain surgical procedures, acquired
in December 1997.
CSI introduced three new product lines in 1998.
The Cerveillance Scope, an instrument that uses digital imaging and
proprietary software to provide enhanced visualization and documentation
in examinations of the cervix.
The Cooper Surgical Infrared Coagulator, an instrument to perform a
nonsurgical, noninvasive procedure to treat genital lesions in the
physician's office.
The FemExam pH and Amines Test Card the first in a planned series of
patented diagnostic tests in the FemExam Test Card System that CSI
licensed. These tests are used, primarily in the physician's office, to
rapidly and economically screen and diagnose common vaginal infections
such as bacterial vaginosis, yeast and trichomonasis.
COST OF SALES/GROSS PROFIT
Gross profit as a percentage of net sales ("margin") was:
1999 1998 1997
- --------------------------------------------------------------------------------
CVI 66% 64% 76%
CSI 56% 55% 52%
Consolidated 64% 62% 69%
- --------------------------------------------------------------------------------
In fiscal 1999, CVI's margin improved each quarter from the atypically low
60% reported in the fourth quarter of 1998, when it spent about $1.7 million to
improve efficiency, rationalize manufacturing, expand capacity and fill back
orders. The gross profit improvement reflects cost reduction projects begun last
year at our U.K. and Rochester manufacturing sites In addition, we have
eliminated capacity constraints, improved production yields and customer service
levels and normalized staffing levels. We believe that continued cost reductions
will result in improving margins in the future, aside from any major changes in
product mix.
Compared with 1997,CVI's margin declined in 1998 due to the acquisition of
Aspect, whose spherical products have lower margins, and increased sales of
lower margin Natural Touch products. Also, in the fourth quarter of 1998, CVI
spent an estimated $1.7 million for rationalizing contact lens manufacturing,
filling backorders and new product start-up inefficiencies. Despite the margin
decrease and the additional fourth quarter costs, CVI's gross profit grew by 57%
from additional 1998 revenue.
17 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED
Successful programs to more efficiently manufacture acquired products have
improved CSI's margins over the three-year period. In the absence of a material
acquisition of lower margin products, Management expects that new and future
proprietary products, after initial start-up, will command higher margins and
that CSI's margins will continue to improve.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ("SGA")
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------
CVI $45.8 $38.5 $23.7
CSI 9.6 10.7 8.8
Corporate/other 6.3 7.0 5.8
---------------------------
$61.7 $56.2 $38.3
===========================
- --------------------------------------------------------------------------------
Consolidated SGA increased by 10% in 1999 and 47% in 1998. Over the same
periods, consolidated revenue grew 12% and 66%, respectively, resulting in
consistent improvement in the ratio of SGA to sales from 43% of sales in 1997 to
38% in 1998 and 37% in 1999.
SGA at CVI increased by 19% in 1999 and 62% in 1998. The increase in 1999
resulted primarily from ongoing spending in selling, promotion and distribution
to launch new products. The increase in 1998 was primarily due to the Aspect
acquisition. Also in the fourth quarter of 1998, CVI spent an estimated $1
million in SGA to launch products, some of which experienced delays. CVI's SGA
was 34% of sales in 1999, 32% in 1998 and 37% in 1997.
CSI's 1999 SGA decreased vs. 1998 because its new product launches
occurred primarily in 1998. The 1998 SGA increase at CSI was due primarily to
the 1997 acquisition of Marlow (see Note 2) and new product launch costs.
Corporate/other SGA decreased in 1999 compared with 1998 primarily because
we resolved legal issues in 1998. Additional legal costs incurred to settle
certain litigations and higher headquarter's operating costs from expanded
international responsibilities caused most of the 1998 increase.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense was $2 million or 1% of net sales in
1999, $1.9 million or 1% in 1998 and $1.7 million or 2% in 1997.
We expect the current level of research and development spending to remain
stable as a percentage of sales, as we focus on acquiring products that can be
marketed immediately or in the short-term, rather than on longer-term,
higher-risk research and development projects.
AMORTIZATION OF INTANGIBLES
Amortization of intangibles was $3.8 million in 1999, $3.6 million in 1998
and $1.6 million in 1997. The increase in each year reflects the effect of
acquisition activity during the three-year period (see Note 2).
INCOME FROM OPERATIONS
As a result of the activities discussed above, income from operations has
more than doubled since 1997.
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------
CVI $40.8 $34.6 $23.1
CSI 4.3 2.1 2.5
Corporate/other (6.3) (7.0) (5.8)
--------------------------------
$38.8 $29.7 $19.8
================================
Percent growth 31% 50%
===================
- --------------------------------------------------------------------------------
SETTLEMENT OF DISPUTES, NET
In 1998, we recorded a charge to income of $1.3 million ($1.1 million in
the fourth quarter) to settle our dispute with GT Laboratories and for other
smaller matters. In 1997, we reversed a $104,000 accrual no longer required.
OTHER INCOME, NET
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------
Interest income $ 375 $ 311 $ 344
Foreign exchange gain
(loss) (325) 591(1) (142)
Other 181 (12) 1
------------------------------------
$ 231 $ 890 $ 203
====================================
- --------------------------------------------------------------------------------
(1) The foreign exchange gain of $591,000 includes a one-time gain of $850,000
reflecting weakness in the Pound Sterling occurring before we implemented
our hedging program, partially offset by losses over the period.
Interest income increased in 1999 because of higher investment balances
primarily from cash received from our sale of HGA, net of debt repayments and
positive cash flow from operations. Lower interest income in 1998 reflects cash
spent to partially fund the Aspect acquisition.
The Cooper Companies, Inc. & Subsidiaries 18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED
INTEREST EXPENSE
Interest expense was $6.3 million in each of fiscal 1999 and 1998, and
$3.2 million in 1997. The increase in interest expense in 1999 and 1998 compared
with 1997 reflects debt used to finance a portion of the Aspect acquisition (see
Note 2).
PROVISION FOR (BENEFIT OF) INCOME TAXES
In the fourth quarter of fiscal 1998, we recorded a large tax benefit, for
the remaining anticipated value of our $184 million net operating loss
carryforwards ("NOLs"). As a result, in fiscal 1999, we report our provision for
income taxes as if we were a taxpayer with no NOLs, based on our estimate of the
effective tax rate ("ETR") for the full fiscal year.
We implemented a global tax plan in 1999 to minimize both the taxes
reported in our income statement and the actual taxes we will have to pay once
we fully use the benefits of our NOLs. Our full year ETR was 32.7%, which
includes the impact of the global tax plan and a reversal of $1.1 million of tax
reserves no longer required.
Based on a preliminary assessment, we expect to reduce our ETR to
approximately 30% over the next several years. This plan could also extend the
cash flow benefits of our NOLs through 2003, assuming no major acquisitions or
large stock issuance. We expect that actual payments for taxes will be about 10%
of pretax profits throughout this period.
Details of our income tax provision/benefit for each year in the
three-year period ended October 31, 1999 appear in Note 5.
INCOME FROM DISCONTINUED OPERATIONS
Income from discontinued operations is income derived from our Hospital
Group of America, Inc. ("HGA") business unit, which we declared a discontinued
operation in October 1998 (see Note 3). The reported income of $129,000, $4.3
million and $4.7 million for fiscal years ended 1999, 1998 and 1997,
respectively, is net of income tax expense of $66,000, $130,000 and
$129,000,respectively.
LOSS FROM DISPOSAL OF DISCONTINUED OPERATIONS
In 1998, we wrote down the net assets of HGA by $22.3 million to the then
estimated fair market value in anticipation of the sale of the business. In
1999, we revised our estimated loss by $3 million to $19.3 million (see Note 3).
In 1997, we charged $18 million to discontinued operations for a 1993
settlement with Medical Engineering Corporation (see Note 11).
EXTRAORDINARY ITEM, NET
Continuing Operations
In 1997, we recorded a net extraordinary gain of $1.5 million on the early
extinguishment of a portion of our long-term debt.
Discontinued Operations
The $500,000 charge in 1997 reflected early extinguishment of HGA debt.
CAPITAL RESOURCES & LIQUIDITY
We continue to grow our business and strengthen our balance sheet:
Cash and cash equivalents have increased 185% to $20.9 million since the
end of fiscal 1998.
Our ratio of debt to equity has decreased to 0.4 to 1 from 0.6 to 1 at the
end of fiscal 1998.
Debt now represents 27% of our total capitalization, down from 38% at
October 31, 1998.
Our "Net Debt" (debt minus cash and cash equivalents), at $41 million, is
less than half the $82.9 million at October 31, 1998.
Our diluted cash flow per share, which is pretax income from continuing
operations plus depreciation and amortization, increased by 89 cents or
46% to $2.82.
Operating cash flows improved to 45% of debt in 1999 from 13% in 1998.
In fiscal 1998 and in the first half of 1999, we expanded our U.K. and
U.S. manufacturing capacity. This spending slowed in the second half of 1999,
and as a result, 1999 capital expenditures of $10.1 million declined sharply
from $19.6 million in 1998. In both 1998 and 1999, we invested heavily in sales
and marketing to launch new products. We expect sales to grow and the rate of
new product inventory build to level and then decrease. We also anticipate a
continued lower level of investment in manufacturing capacity during 2000.
19 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED
OPERATING CASH FLOWS
Operating activities generated cash of $27.7 million in 1999, 144% over
1998. Each quarter was solidly ahead of last year's:
(IN MILLIONS) 1999 1998
- --------------------------------------------------------------------------------
Q1 $(3.4) $(7.0)
Q2 9.2 3.2
Q3 9.5 6.3
Q4 12.4 8.9
----------------------
Fiscal year $27.7 $11.4
======================
- --------------------------------------------------------------------------------
The increase primarily reflects improved operating results, slower growth
in inventory and receivables and lower payments for taxes and other liabilities.
Unless a large acquisition or similar transaction temporarily skews our results,
we expect positive cash flow from operations each quarter of 2000 except,
perhaps, the first quarter. Historically, we have had negative operating cash
flow in the first quarter when we have built inventory, paid bonuses and made an
annual payment on a settled dispute.
INVESTING CASH FLOWS
From an outflow of $59.3 million in 1998, our investing cash flows swung
dramatically to an inflow of $20.2 million in 1999. Approximately $9.5 million
of this reflects lower capital spending, as we are no longer capacity
constrained. One-time transactions account for the rest of the difference: In
1998, we spent $34.3 million to acquire Aspect and two smaller businesses. This
year, we received cash of $25.3 million, net of costs, from the disposition of
HGA.
FINANCING CASH FLOWS
In 1998, we used debt to fund the Aspect acquisition. In 1999 we repaid a
large portion of debt when we disposed of HGA. Cash flows from financing
activities, therefore, were negative by $34.6 million this year and positive by
$37.3 million last year. In 1998 and 1999, we spent $8 million and $7.3 million,
respectively, to purchase shares of Cooper common stock on the open market. We
completed this program in 1999 (see Note 8) and currently have no plans to
acquire additional shares.
RISK MANAGEMENT (SEE NOTE 7)
We are exposed to risks caused by changes in foreign exchange, principally
debt denominated in Pounds Sterling. We have hedged most of this risk by
entering into contracts to buy Sterling forward. We are also exposed to risk
associated with changes in interest rates, as the interest rate on certain of
our debt varies with the London Interbank Offered Rate. We have offset this risk
by entering into agreements to swap most of our variable rate debt for fixed
rate debt.
OUTLOOK
We believe that cash on hand of $20.9 million plus cash from operating
activities will fund future operations, capital expenditures, cash dividends
(see Note 8) and smaller acquisitions. We may need additional funds for larger
acquisitions and other strategic alliances. At October 31, 1999, we had over $25
million available under the KeyBank line of credit and anticipate that
additional financing would be available as required.
YEAR 2000 ("Y2K")
We have completed an in-depth year 2000 review of the financial and
operational systems at each of our business units and have implemented a Y2K
compliance program to confirm that all critical business systems, software and
equipment that consider and process date-related information will continue to
function properly after December 31, 1999. We have worked to ensure Y2K
compliance of all business systems and have not experienced any material Y2K
problems. We also have communicated with vendors to determine their Y2K
compliance, and to date, are not aware of any third-party Y2K issues that could
materially affect operations. We spent approximately $450,000 to become Y2K
compliant.
We cannot assure that systems and products do not contain undetected Y2K
problems or that we will not experience operating difficulties because of Y2K
issues. Further, we cannot assure that our assessment of suppliers and vendors
will be accurate or that all suppliers and vendors will provide sufficient
information to allow this assessment. To date, we have experienced no
difficulties related to Y2K.
IMPACT OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ISSUED BUT NOT ADOPTED
(SEE NOTE 1)
The Cooper Companies, Inc. & Subsidiaries 20
<PAGE>
MANAGEMENT'S STATEMENT
We prepared the financial statements in this report according to generally
accepted accounting principles and we are responsible for them. They include
estimates based on our informed judgment. The other financial information in the
report is consistent with that in the financial statements.
Our accounting systems include controls to reasonably assure the
safeguarding of Cooper's assets and the production of financial statements that
conform to generally accepted accounting principles. We supplement these with
qualified personnel and provide for appropriate separation of duties.
The Board of Directors, through its Audit and Finance Committee of three
outside directors, determines that we fulfill our responsibilities to prepare
financial statements and maintain financial controls. 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 access to the Audit and Finance
Committee without Management present, to discuss auditing and financial
reporting.
KPMG LLP has been the Company's independent certified public accountants
since 1980, when the Company incorporated. KPMG provides an objective,
independent review of the fairness of reported operating results and financial
position.
/s/ A. Thomas Bender
A. Thomas Bender
President and Chief Executive Officer
/s/ Robert S. Weiss
Robert S. Weiss
Executive Vice President,
Treasurer 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, 1999 and 1998 and the related
consolidated statements of income, comprehensive income and cash flows for each
of the years in the three-year period ended October 31, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended October 31, 1999,in conformity with generally accepted
accounting principles.
KPMG LLP
San Francisco, California
December 9, 1999
21 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 165,328 $ 147,192 $ 88,769
Cost of sales 59,009 55,764 27,325
-----------------------------------------
Gross profit 106,319 91,428 61,444
Selling, general and administrative expense 61,734 56,226 38,337
Research and development expense 1,977 1,944 1,739
Amortization of intangibles 3,797 3,558 1,565
-----------------------------------------
Income from operations 38,811 29,700 19,803
=========================================
Settlement of disputes, net -- 1,250 (104)
Other income, net 231 890 203
Interest expense 6,330 6,253 3,174
-----------------------------------------
Income from continuing operations before
income taxes 32,712 23,087 16,936
Provision for (benefit of) income taxes 10,711 (34,723) (26,735)
-----------------------------------------
Income from continuing operations before
extraordinary item 22,001 57,810 43,671
Discontinued operations, net of taxes:
Income before extraordinary item 129 4,336 4,719
Gain (loss) from disposal 2,970 (22,300) (18,000)
Extraordinary item -- -- (469)
-----------------------------------------
3,099 (17,964) (13,750)
-----------------------------------------
Income before extraordinary item 25,100 39,846 29,921
Extraordinary item, net -- -- 1,461
-----------------------------------------
Net income $ 25,100 $ 39,846 $ 31,382
=========================================
Basic earnings per share:
Continuing operations before extraordinary item $ 1.56 $ 3.90 $ 3.42
Discontinued operations 0.22 (1.21) (1.07)
Extraordinary item, net -- -- 0.11
-----------------------------------------
Earnings per share $ 1.78 $ 2.69 $ 2.46
=========================================
Diluted earnings per share:
Continuing operations before extraordinary item $ 1.54 $ 3.79 $ 3.33
Discontinued operations 0.21 (1.18) (1.05)
Extraordinary item, net -- -- 0.11
-----------------------------------------
Earnings per share $ 1.75 $ 2.61 $ 2.39
=========================================
Number of shares used to compute
earnings per share:
Basic 14,098 14,828 12,759
=========================================
Diluted 14,312 15,269 13,120
=========================================
</TABLE>
================================================================================
See accompanying notes to consolidated financial statements.
The Cooper Companies, Inc. & Subsidiaries 22
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,922 $ 7,333
Accounts receivable, less allowances of $1,136 in 1999 and $1,087 in 1998 26,792 24,426
Inventories 33,430 30,349
Deferred tax asset 11,638 15,057
Net assets of discontinued operations -- 29,206
Prepaid expenses and other current assets 7,679 9,706
-------------------
Total current assets 100,461 116,077
-------------------
Property, plant and equipment at cost 54,211 45,079
Less accumulated depreciation and amortization 13,892 10,845
-------------------
40,319 34,234
-------------------
Goodwill and other intangibles, net 80,518 84,308
Deferred tax asset 56,519 52,754
Other assets 8,056 8,668
-------------------
$285,873 $296,041
===================
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
Current liabilities:
Notes payable $ 2,583 $ 4,612
Current installments of long-term debt 2,305 6,958
Accounts payable 6,263 8,393
Employee compensation and benefits 5,885 5,087
Accrued divestiture costs 3,231 --
Other accrued liabilities 10,278 12,664
Accrued income taxes 11,351 8,987
-------------------
Total current liabilities 41,896 46,701
-------------------
Long-term debt 57,067 78,677
Other noncurrent liabilities 22,767 25,410
-------------------
Total liabilities 121,730 150,788
===================
Commitments and contingencies (see Note 11)
Stockholders' equity:
Preferred stock,10 cents par value, shares authorized:
1,000: zero shares issued or outstanding
Common stock,10 cents par value, shares authorized: -- --
40,000: issued: 14,975 and 14,912 at October 31,1999 and 1998, respectively 1,497 1,491
Additional paid-in capital 251,345 251,167
Accumulated other comprehensive loss (595) (666)
Deferred compensation -- (163)
Accumulated deficit (74,044) (98,583)
Less, treasury stock at cost:
917 and 486 shares at October 31,1999 and 1998, respectively (14,060) (7,993)
-------------------
Stockholders' equity 164,143 145,253
-------------------
$ 285,873 $296,041
===================
</TABLE>
================================================================================
See accompanying notes to consolidated financial statements.
23 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------
(IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 25,100 $ 39,846 $ 31,382
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 6,790 (35,787) (27,065)
Depreciation expense 4,561 4,678 2,922
Provision for doubtful accounts 1,273 1,813 2,336
Amortization expense 3,879 3,738 1,345
(Gain) loss from disposal of discontinued operations (2,970) 22,300 18,000
Extraordinary item -- -- (992)
Change in operating assets and liabilities excluding
effects from acquisitions:
Receivables (3,086) (3,910) (7,521)
Inventories (3,116) (6,933) (3,855)
Other assets 1,703 (952) (356)
Accounts payable (2,657) 1,130 2,916
Accrued liabilities (864) (5,949) (4,021)
Income taxes payable (619) (5,104) (423)
Other long-term liabilities (2,500) (3,973) (3,044)
Other 204 471 107
--------------------------------
Cash provided by operating activities 27,698 11,368 11,731
--------------------------------
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -----------------------------------------------------------------------------------------
Purchases of assets and businesses -- (34,298) (7,145)
Disposition of discontinued operations 28,685 -- --
Disposition costs paid (3,412) -- --
Purchases of property, plant and equipment (10,121) (19,573) (7,735)
Investment in escrow fund -- -- (2,216)
Sale of (investment in) marketable securities 5,419 (5,419) --
Other (415) -- (357)
--------------------------------
Cash provided (used) by investing activities 20,156 (59,290) (17,453)
--------------------------------
</TABLE>
================================================================================
See accompanying notes to consolidated financial statements.
The Cooper Companies, Inc. & Subsidiaries 24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONCLUDED
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------
(IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from long-term line of credit $ 8,568 $ 36,500 $ --
Repayment of long-term line of credit (30,368) (14,700) --
Principal payments on long-term obligations (7,145) (7,603) --
Proceeds from long-term borrowings 2,965 29,682 3,000
Net borrowings under short-term agreements -- 1,011 --
Purchase of Treasury Stock (7,345) (7,993) --
Exercise of warrant 948 -- --
Dividends on common stock (561) -- --
Short-term debt payment (2,142) -- --
Net proceeds from follow-on offering -- -- 50,388
Early retirement of debt -- -- (35,740)
Other 514 430 (514)
--------------------------------
Cash provided (used) by financing activities (34,566) 37,327 17,134
--------------------------------
Effect of exchange rate changes on cash and cash equivalents 301 (321) --
Net increase (decrease) in cash and cash equivalents 13,589 (10,916) 11,412
Cash and cash equivalents at beginning of year 7,333 18,249 6,837
--------------------------------
Cash and cash equivalents at end of year $ 20,922 $ 7,333 $ 18,249
================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amounts capitalized) $ 7,248 $ 4,536 $ 4,783
--------------------------------
Income taxes $ 2,116 $ 5,846 $ 742
================================
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Acquisitions (see Note 2):
Fair value of assets acquired $ 93,406 $ 18,574
Less:
Cash acquired -- (45)
Cash paid (34,298) (7,145)
Company stock issued (1,492) (4,662)
Notes issued (28,009) (4,500)
--------------------
Liabilities assumed and acquisition costs accrued $ 29,607 $ 2,222
====================
================================================================================
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED OCTOBER 31,
-------------------------------
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------
Net income $ 25,100 $ 39,846 $ 31,382
Other comprehensive income (loss):
Foreign currency translation adjustment 71 (311) (29)
-------------------------------
Comprehensive income $ 25,171 $ 39,535 $ 31,353
===============================
================================================================================
See accompanying notes to consolidated financial statements.
25 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The Cooper Companies, Inc. (the "Company," "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 to 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.
Consolidation
The financial statements in this report include the accounts of the
Company and its consolidated subsidiaries. Inter-company transactions and
balances are eliminated in consolidation.
Foreign Currency Translation
We translate assets and liabilities of our operations located outside the
United States into U.S. dollars at prevailing year-end exchange rates. We
translate income and expense accounts at weighted average rates for each year.
We record gains and losses from the translation of financial statements in
foreign currencies into U.S. dollars in the equity section of the consolidated
balance sheet. We record gains and losses from changes in exchange rates on
transactions denominated in currencies other than each reporting locations'
functional currency in net income for each period. Net foreign exchange income
(loss) included in net income for the years ended October 31, 1999, 1998 and
1997 was ($325,000), $591,000 and ($142,000), respectively.
Derivatives
We use derivatives to reduce market risk from changes in foreign exchange
and interest rates. We generally do not use derivative financial instruments for
trading or speculative purposes. We believe that each of the counterparties with
whom we enter into forward exchange contracts and interest rate swap agreements
is financially sound and that the credit risk of these contracts is low. We
continually monitor our underlying market risk exposure and believe that we can
modify or adapt our hedging strategies if necessary (see Note 7).
Estimates in the Preparation of Financial Statements
We prepare our financial statements in conformity with generally accepted
accounting principles, which requires us to make informed estimates and
judgments about certain amounts appearing in them. The actual results could
differ from the estimated figures included in our financial statements.
Revenue Recognition
We recognize revenue net of appropriate provisions for returns when risk
of ownership has transferred to the buyer.
Cash and Cash Equivalents
Cash and cash equivalents include commercial paper and other short-term
income producing securities with maturity dates of three months or less. These
investments are readily convertible to cash and are carried at cost, which
approximates market value.
Inventories, at the Lower of Average Cost or Market
OCTOBER 31,
---------------------------
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------
Raw materials $ 8,151 $ 7,038
Work-in-process 3,786 2,964
Finished goods 21,493 20,347
---------------------------
$33,430 $30,349
---------------------------
- --------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost
OCTOBER 31,
---------------------------
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------
Land and improvements $ 1,500 $ 1,508
Buildings and improvements 11,036 10,662
Machinery and equipment 41,675 32,909
---------------------------
$54,211 $45,079
---------------------------
- --------------------------------------------------------------------------------
We compute depreciation using the straight-line method in amounts
sufficient to write off depreciable assets over their estimated useful lives. We
amortize leasehold improvements over the estimated useful life or the period of
the related lease, whichever is shorter. We depreciate buildings over 35 to 40
years, machinery and equipment over 3 to 15 years, and software over 3 years.
We expense costs for maintenance and repairs, and we capitalize major
replacements, renewals and betterments. We eliminate the cost and accumulated
depreciation of deprecia-
The Cooper Companies, Inc. & Subsidiaries 26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
ble assets retired or otherwise disposed of from the asset and accumulated
depreciation accounts and reflect any gains or losses in operations for the
period.
Amortization of Intangibles
We amortize all intangible assets (primarily goodwill of $65.4 million and
$68.2 million at October 31, 1999 and 1998, which represents the excess of
purchase price over fair value of net assets acquired) on a straight-line basis
over periods of up to 40 years. Accumulated amortization at October 31, 1999 and
1998 was $12.7 million and $8.6 million, respectively. We assess 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. We also evaluate
amortization periods of intangibles to determine whether later events and
circumstances warrant revised estimates of useful lives. To date, no such
adjustments have been required.
Earnings Per Share ("EPS")
We determine basic EPS by using the weighted average number of shares
outstanding and then add outstanding dilutive stock warrants and options to
determine diluted EPS.
Stock-Based Compensation
We account for stock-based compensation in accordance with Statement of
Financial Accounting Standards ("SFAS") 123, Accounting for Stock-Based
Compensation. This statement establishes financial accounting and reporting
standards for stock-based compensation, including employee stock option plans.
As allowed by SFAS 123, we continue to measure compensation expense under
Accounting Principles Board ("APB") No. 25, Accounting For Stock Issued to
Employees, and related interpretations (see Note 9).
Statements of Financial Accounting Standards Adopted or Issued and to be Adopted
In June 1998 and June 1999, the Financial Accounting Standards Board
("FASB") issued SFAS 133 and 137, both titled "Accounting for Derivative
Instruments and Hedging Activities." SFAS 137 amended the effective date of SFAS
133 to the first quarter of fiscal years beginning after June 15, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS 133 requires an entity to recognize all derivatives as
either assets or liabilities on its balance sheet and measure those instruments
at fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met, in which case gains and losses on the hedging instrument can offset related
results on the hedged item in the income statement. We will adopt SFAS 133 as
amended by SFAS 137 in the first quarter of fiscal 2001. Under SFAS 133, forward
exchange contracts will not qualify for hedge accounting. We will be required,
beginning in fiscal 2001, to include both the receivable and the payable on our
balance sheet, possibly increasing our assets and liabilities materially.
In April 1998, The American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities." The SOP broadly defines start-up activities and requires
that they be expensed as incurred. It is effective for financial statements for
fiscal years beginning after December 15, 1998. Any deferred start-up activities
on the balance sheet when we adopt the SOP must be expensed as a cumulative
effect of a change in accounting principle. We will adopt the SOP as required in
the first quarter of fiscal year 2000. We expect to record a one-time charge
against net income of about $400,000. Our current policy is to defer start-up
activities as appropriate and amortize them over 12 months on a straight-line
basis.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," effective for fiscal
years beginning after December 15, 1998. We will adopt the SOP as required in
the first quarter of fiscal year 2000. We do not expect it to materially effect
results of operations.
We adopted the following in 1999:
SFAS 130 "Reporting Comprehensive Income."
SFAS 131 "Disclosure About Segments of an Enterprise and Related
Information."
SFAS 132 "Employers' Disclosures About Pension and Other Post Retirement
Benefits."
Where required, we have restated prior period financial statements to
conform with the current year's presentation.
27 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2
ACQUISITIONS
Investment in Litmus
In February 1998, we purchased, for approximately $10 million cash, a 10%
equity position in Litmus Concepts Inc. and received an exclusive license to
distribute Litmus' FemExam TestCard System of diagnostic tests in North America
in the women's professional healthcare market. Of the $10 million purchase
price, we allocated $5 million to the equity investment and $5 million to the
exclusive license. We are accounting for our investment in Litmus on the cost
basis and amortizing the license over 17 years. We agreed to annual minimum
purchases, which end when we have purchased 10 million units of the products or
on the sixth anniversary of the agreement, whichever occurs first. If we do not
meet the required minimum purchases, Litmus' only remedy is to cancel the
exclusivity of the license.
Aspect Acquisition
In December 1997, we acquired Aspect Vision Care Ltd. ("Aspect"), a
privately held manufacturer of high quality contact lenses sold primarily in the
United Kingdom and other European countries. Aspect is an English company with
the Pound Sterling as its functional currency. We include Aspect in CVI's
results from the date of its acquisition.
We paid approximately $51 million at closing ($20 million in cash, 38,000
shares of Cooper's common stock with a value of $1.5 million and $28 million in
8% five-year notes to the selling shareholders) and will pay an additional
amount after approximately three years based on Aspect's performance over that
period. The minimum amount of the additional payment of (pound)5 million
(approximately $8 million at acquisition) has been discounted at a rate of 8%
and will accrete over approximately three years (included in other long-term
liabilities). The $20 million cash paid at acquisition was partially financed
under our $50 million line of credit (see "Midland Bank" Note 6) and cash then
on hand. The acquisition has been accounted for as a purchase. Based on an
independent valuation report, the excess of purchase price over net assets
acquired has been recorded at $44.9 million and is being amortized over 40
years, and other intangibles of $3.5 million are being amortized over periods of
from 10 to 30 years.
Following the acquisition, certain of the selling shareholders became
employees of Cooper. As of October 31, 1999 and 1998 approximately $23.4 million
and $27.6 million, respectively, of the five-year notes and minimum contingent
payments owed by Cooper in connection with the acquisition are payable to these
employees or members of their immediate family. None of these employees are an
officer of Cooper. For the years ended October 31, 1999 and 1998, our
consolidated income statement included $1.9 million and $2 million of interest
expense and $2.4 million and $2.3 million of royalty expense paid or payable to
these individuals.
In connection with the Aspect acquisition, Cooper agreed to make quarterly
royalty payments of from 5% to 7 1/2% on sales of certain Aspect-manufactured
products, with a minimum royalty for five years of (pound)1 million a year. The
balance of royalties payable under the agreement was $586,000 and $656,000 at
October 31, 1999 and 1998, respectively.
The following unaudited pro forma statements present consolidated
condensed results of operations for the years ended October 31, 1998, and 1997,
as if Aspect had been acquired at the beginning of each period. The unaudited
pro forma information is not indicative of either the results of operations that
would have occurred if Aspect had been purchased during the periods presented or
of future results of the combined operations.
YEARS ENDED OCTOBER 31,
(IN THOUSANDS, -----------------------
EXCEPT PER SHARE AMOUNTS) 1998 1997
- --------------------------------------------------------------------------------
PRO FORMA PRO FORMA
-----------------------
Net operating revenue $150,493 $126,637
-----------------------
Net income $ 40,114 $ 31,278
-----------------------
EPS:
Basic $ 2.70 $ 2.44
-----------------------
Diluted $ 2.62 $ 2.38
-----------------------
Shares outstanding for:
Basic EPS 14,845 12,797
-----------------------
Diluted EPS 15,286 13,158
-----------------------
- --------------------------------------------------------------------------------
The Cooper Companies, Inc. & Subsidiaries 28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Natural Touch Acquisition
In March 1997, we acquired the United States rights to Natural Touch, a
line of opaque, cosmetic contact lenses, from Wesley-Jessen Corporation ("W-J")
for $7.5 million ($3 million in cash and a $4.5 million promissory note, $4.4
million of which was repaid) plus an ongoing royalty ranging from 3% to 8% per
annum on sales of Natural Touch products other than those supplied by W-J.
Cooper recorded intangible assets of $8 million for the patents, trademarks and
distribution rights, which we are amortizing over 7 to 15 years.
A subsidiary of W-J currently manufactures and supplies us with Natural
Touch products. A divestiture order issued by the Federal Trade Commission (the
"FTC") in connection with the Natural Touch acquisition requires us either to
develop our own manufacturing capabilities or to find a suitable third-party
manufacturer. The FTC could require Cooper to divest the Natural Touch line if
it has not either developed manufacturing capabilities that meet United States
Food and Drug Administration ("FDA") approval or found a suitable third-party
manufacturer meeting FDA approval within 42 months from the acquisition date.
Marlow Acquisition
In April 1997, Cooper acquired Marlow Surgical Technologies, Inc.
("Marlow"), a women's healthcare products company, for approximately $3.2
million in cash, liquidation of $900,000 of Marlow debt and 144,800 shares of
Cooper's common stock valued at $2.9 million at closing. As part of the
acquisition, we agreed to issue an additional $500,000 of our common stock
(valued as of the closing) on the third anniversary of the closing, subject to
reduction by the amount of any obligations of the seller to indemnify Cooper in
connection with the acquisition. Also, we guaranteed that the total value of the
shares issued in the acquisition (valued at $3.4 million in total at closing)
would appreciate by $1.3 million by the third anniversary of the acquisition.
The guaranteed appreciation in stock took place. This guarantee has been
included in the purchase price, with a corresponding credit to additional
paid-in capital. We accounted for the acquisition as a purchase, with $8.4
million of goodwill, which is being amortized over 20 years.
NOTE 3
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 on disposition. We restated prior period financial statements.
In January 1999, Cooper completed the sale of a portion of HGA for $5
million in cash and trade receivables. On April 15, 1999, Cooper sold the
remainder of HGA to Universal Health Services, Inc. for $27 million. 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 revenues were $20.8 million, $55.5 million and $52.7 million
for fiscal years ended October 31, 1999, 1998 and 1997, respectively. Net assets
of discontinued operations at October 31, 1998 consisted primarily of patient
receivables, net property, plant and equipment, net of accounts payable and
accrued liabilities, including a $22.3 million reserve for the estimate of the
divestiture loss.
29 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4
EARNINGS PER SHARE
YEARS ENDED OCTOBER 31,
-------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- -------------------------------------------------------------------------------
Income from continuing operations before
extraordinary item $ 22,001 $ 57,810 $ 43,671
Discontinued operations, net of income taxes 3,099 (17,964) (13,750)
-------------------------------
Income before extraordinary item 25,100 39,846 29,921
Extraordinary item, net of income taxes -- -- 1,461
-------------------------------
Net income $ 25,100 $ 39,846 $ 31,382
-------------------------------
Basic:
Weighted average common shares 14,098 14,828 12,759
Basic earnings per common share:
Continuing operations before extraordinary
item $ 1.56 $ 3.90 $ 3.42
Discontinued operations 0.22 (1.21) (1.07)
Extraordinary item -- -- 0.11
-------------------------------
Basic earnings per share: $ 1.78 $ 2.69 $ 2.46
-------------------------------
Diluted:
Weighted average common shares 14,098 14,828 12,759
Add:
Dilutive warrants 23 56 62
Dilutive options 191 385 299
-------------------------------
Effect of dilutive securities 214 441 361
-------------------------------
Diluted weighted average common shares 14,312 15,269 13,120
-------------------------------
Diluted earnings per share:
Continuing operations before extraordinary
item $ 1.54 $ 3.79 $ 3.33
Discontinued operations 0.21 (1.18) (1.05)
Extraordinary item -- -- 0.11
-------------------------------
Diluted earnings per share: $ 1.75 $ 2.61 $ 2.39
-------------------------------
================================================================================
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.
OCTOBER 31,
-----------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
Number of shares excluded 1,321,083 571,250 340,000
-----------------------------------------
Range of exercise prices $21 - $62.21 $36 - $62.21 $26 - $35.09
-----------------------------------------
================================================================================
The Cooper Companies, Inc. & Subsidiaries 30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5
INCOME TAXES
The income tax provision (benefit) related to income from all operations in the
consolidated statements of income consists of:
YEARS ENDED OCTOBER 31,
--------------------------------------
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------
From continuing operations $ 10,711 $(34,723) $(26,735)
From discontinued operations (6,425) 130 129
--------------------------------------
$ 4,286 $(34,593) $(26,606)
--------------------------------------
================================================================================
The income tax provision (benefit) related to income from continuing
operations in the consolidated statements of income consists of:
YEARS ENDED OCTOBER 31,
--------------------------------------
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------
Current
Federal $ 445 $ 462 $ 309
State (641) 471 21
Outside the United States 2,222 131 --
--------------------------------------
2,026 1,064 330
--------------------------------------
Deferred
Federal 8,730 (35,955) (27,065)
State (45) -- --
Outside the United States -- 168 --
--------------------------------------
8,685 (35,787) (27,065)
--------------------------------------
$ 10,711 $(34,723) $(26,735)
--------------------------------------
================================================================================
31 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
We reconcile the provision for (benefit of) income taxes attributable to
income from continuing operations and the amount computed by applying the
statutory federal income tax rate of 35% to income from continuing operations
before income taxes as follows:
YEARS ENDED OCTOBER 31,
--------------------------------
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------
Computed expected provision for taxes from
continuing operations $ 11,449 $ 8,080 $ 7,407
Increase (decrease) in taxes resulting from:
Income (loss) outside the United States
subject to different tax rates (325) 431 193
Amortization of intangibles 392 477 394
State taxes, net of federal income tax
benefit 312 306 229
Reversal of prior years' estimated state
tax liabilities no longer required (1,121) -- (215)
Utilization of net operating loss
carryforwards -- (10,359) (7,102)
Change in valuation allowance 331 (35,787) (27,065)
Other, net (327) 2,129 (576)
--------------------------------
Actual provision (benefit) of income taxes $ 10,711 $(34,723) $(26,735)
--------------------------------
================================================================================
The tax effects of temporary differences that give rise to most of the deferred
tax assets and liabilities are:
OCTOBER 31,
--------------------
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------
Deferred tax assets:
Accounts receivable, principally due to allowances for
doubtful accounts $ 559 $ 1,492
Inventories, principally due to obsolescence reserves 1,329 1,215
Accrued liabilities, principally due to litigation
settlements and reserves,
and compensation accruals 8,896 9,327
Net operating loss carryforwards 56,957 64,355
Capital loss carryforwards 2,991 --
Tax credit carryforwards 4,138 3,715
Other 1,933 1,225
--------------------
Total gross deferred tax assets 76,803 81,329
Less valuation allowance (7,996) (7,073)
--------------------
Deferred tax assets 68,807 74,256
--------------------
Deferred tax liabilities:
Plant and equipment (650) (6,445)
--------------------
Net deferred tax assets $ 68,157 $ 67,811
--------------------
================================================================================
The Cooper Companies, Inc. & Subsidiaries 32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The net (increase)/decrease in the total valuation allowance for the years
ended October 31, 1999, 1998 and 1997 was ($923,000), $45.4 million and $27.6
million, respectively. In 1998 and 1997, we recognized an income tax benefit of
$35.8 million and $27.1 million, respectively, ($23.3 million and $25 million in
the fourth quarters of fiscal 1998 and 1997, respectively) from reducing the
valuation allowance based primarily on the continued improvement in Cooper's
operating results and future prospects. The recognition of the net deferred tax
assets is based upon the expected utilization of net operating loss
carryforwards that we believe are more likely than not to be realized.
Tax benefits relating to the valuation allowance as of October 31, 1999
are allocated as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
Consolidated statements
of income $6,462
Goodwill and other
intangible assets 1,534
------
$7,996
------
- --------------------------------------------------------------------------------
At October 31, 1999 Cooper had net operating loss and tax credit
carryforwards for federal tax purposes that expire as follows:
YEAR OF NET TAX
EXPIRATION OPERATING LOSSES CREDITS
- --------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------
1999 $ -- $ 847
2000 -- 1,132
2001 -- 202
2002 26,380 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 -- 1,598
----------------------------
$162,734 $ 4,138
----------------------------
- --------------------------------------------------------------------------------
NOTE 6
LONG-TERM DEBT
OCTOBER 31,
-----------------------
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------
Aspect promissory notes due
December 2, 2002
(see Note 2) $23,439 $27,563
KeyBank line of credit -- 21,800
Midland Bank Debt 17,445 17,444
Aspect Vision bank loans 6,292 6,754
County of Monroe Industrial
Development Agency
("COMIDA") Bond 2,695 2,880
Capitalized leases, interest
rates from 8% to 15%
maturing 1999 to 2007 9,401 8,620
Wesley-Jessen Corporation
("W-J") promissory note 100 574
-----------------------
59,372 85,635
Less current installments 2,305 6,958
-----------------------
$57,067 $78,677
-----------------------
- --------------------------------------------------------------------------------
Annual maturities of long-term debt, including capital leases, for each of
the five years subsequent to October 31, 1999:
(IN THOUSANDS) LONG-TERM DEBT
- --------------------------------------------------------------------------------
2000 $ 2,305
2001 $ 2,181
2002 $ 1,835
2003 $46,842
2004 $ 1,666
- --------------------------------------------------------------------------------
KeyBank Line of Credit
We have a $50 million senior secured revolving credit facility with
KeyBank National Association ("KeyBank"). KeyBank syndicated a portion of the
facility to other lenders and acts as agent for the lenders. The facility
matures September 11, 2002, with interest rates ranging from 50 to 200 basis
points over the London Interbank Offered Rate ("LIBOR") depending on certain
financial ratios. The interest rate may be floating or fixed at our option. On
October 31, 1999, we had no borrowings from the credit facility. On October 31,
1998, the effective rates ranged from 6.5% to 6.7%. Cooper pays an annual
commitment fee of 0.375% on the unused portion of the revolving credit facility.
We pay interest monthly.
33 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Terms include a first security interest in all Cooper assets. During the
term of the facility, Cooper may borrow, repay and re-borrow up to the $50
million, subject to voluntary reductions. Cooper has used the KeyBank line of
credit to guarantee other foreign borrowings by issuing $24.6 million of letters
of credit against the line of credit, which reduced its unused portion. At
October 31, 1999, Cooper had $25.4 million available. Cooper subsidiaries
guarantee this line of credit.
Under certain circumstances when we obtain additional debt or equity,
mandatory prepayments will be required to repay outstanding amounts and
permanently reduce the total commitment amount available.
The KeyBank Line of Credit contains various covenants, including
maintenance of certain ratios and transaction limitations requiring approval of
the lenders. Certain prepayments are subject to penalties. One covenant requires
us to achieve the following ratios of EBITDA (as defined) to interest
expense, capital expenditures and certain other fixed charges. Cooper achieved
this covenant for all periods except the 12 months ended October 31, 1998. We
received a waiver for this period from KeyBank. In addition, KeyBank amended the
Credit Agreement by reducing the required ratio and the method of calculating
it:
FOR THE 12 MONTHS ENDED RATIO
- --------------------------------------------------------------------------------
April 30, 1999 1.1:1
July 31, 1999 1.2:1
Thereafter 1.3:1
- --------------------------------------------------------------------------------
We have achieved the amended covenants in fiscal 1999 and anticipate that
we will continue to achieve them going forward.
Midland Bank
We partially funded the Aspect acquisition by a (pound)10.5 million loan
from Midland Bank plc, due November 27, 2002. In March 1998, Cooper converted
the denomination of the loan to U.S. dollars and entered into an interest rate
swap to fix the interest rate at 6.19% per annum (see Note 7). KeyBank issued a
letter of credit to secure the Midland loan. Interest on the Midland loan is 20
basis points (0.2%) over Sterling LIBOR, adjusted monthly, and Cooper pays an
annual letter of credit fee of 1% of the balance to KeyBank.
Aspect Bank Loans
The balance of the loans at October 31, 1999, was $6.3 million and is
secured by certain assets of Aspect and a $4.2 million letter of credit in favor
of National Westminster Bank ("NWB") from KeyBank National Association. Loan
maturity dates range from February 1, 2000, to September 1, 2006.The interest
rate on (pound)2.5 million borrowed March 30, 1998 is 0.2625% above Sterling
LIBOR. Sterling LIBOR ranged between 4.9% and 6.3% for the period of the loan.
The interest rate on other NWB loans is 1.5% above the Base Rate. The Base Rate
ranged between 5.0% and 7.5% for the reporting period. In 1998, the proceeds
were used to repay a loan of (pound)827,000 ($1.4 million), included in acquired
debt, and to fund capital expenditures.
Capitalized Leases
The capitalized lease balance at October 31, 1999, was $9.4 million. The
leases primarily relate to purchases of manufacturing equipment in the U.S. and
the United Kingdom. The amount of our capitalized leases increased for the
period because we expanded our manufacturing capacity.
COMIDA Bond
The COMIDA bond is a $3 million Industrial Revenue Bond ("IRB") to finance
the cost of plant expansion, building improvements and the purchase of equipment
related to CVI's Scottsville, New York, facility. The interest rate has been
fixed at 4.88%, per a Rate Swap Transaction (see Note 7). Principal is repaid
quarterly, from July 1997 to October 2012. The IRB is secured by substantially
all of CVI's rights to the facility.
KeyBank issued a letter of credit to support certain obligations under the
COMIDA bond. CVI is obligated to repay KeyBank for draws under and expenses
incurred in connection with the letter of credit, under a reimbursement
agreement, which Cooper guarantees. The agreement contains customary provisions
and covenants, including certain required ratios and levels of net worth. CVI
and COMIDA have granted a mortgage lien on the building and real estate located
in Scottsville and a first lien security interest on the equipment purchased
under the bond proceeds to KeyBank to secure payment under the reimbursement
agreement.
W-J
The W-J promissory note was issued for $4.5 million, due March 17, 2001,
in connection with the acquisition of the NaturalTouch product line. The
$100,000 balance at October 31, 1999 was repaid in early fiscal 2000.
The Cooper Companies, Inc. & Subsidiaries 34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7
FINANCIAL INSTRUMENTS
The fair values of our 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, 1999 and 1998
because of the short maturity of these instruments. We believe that there are no
significant concentrations of credit risk in trade receivables.
The fair value of our other long-term debt approximated the carrying value
at October 31, 1999 and 1998 because we believe that we could obtain similar
financing with similar terms.
Derivatives
Foreign Exchange Instruments
Cooper enters into forward exchange contracts to hedge the currency
exposure of liabilities and firm commitments denominated in foreign currencies.
We defer gains and losses on hedged commitments and recognize them in our
results of operations in the same period as the gain or loss from the underlying
transactions. As of October 31, 1999 and 1998, we had outstanding forward
exchange contracts of $37 million and $44.6 million to purchase 22.8 million and
27.4 million British Pounds Sterling which are to be purchased from time to time
from November 1998 through November 2002. We obtained the fair value of the
forward exchange contracts through KeyBank's foreign exchange department. The
fair value indicated that termination of the forward exchange contracts at
October 31, 1999 and 1998 would have resulted in a $72,000 loss and a $740,000
loss, respectively.
We also enter into forward exchange contracts to minimize the net currency
exposure of intercompany liabilities and commitments denominated in foreign
currencies. We record gains and losses on these forward contracts in our
results, and they offset the gains and losses from the remeasurement of our
intercompany accounts. At October 31, 1999, we had outstanding forward exchange
contracts against our intercompany accounts of $2.6 million primarily to sell
1.1 million British Pounds Sterling and 1.3 million Canadian Dollars. We
obtained the fair value of the forward exchange contracts through KeyBank's
Foreign Exchange department. The fair value indicated that termination of these
forward exchange contracts at October 31, 1999 would have resulted in an $11,000
loss.
Interest Rate and Other Derivative Instruments
On a selective basis, Cooper enters into interest rate swap agreements to
reduce the potential negative impact of increases in interest rates on our
outstanding variable-rate debt under the Midland Bank Loan and the Industrial
Revenue Bond. We recognize in our results of operations over the life of the
contract, as interest expense, the amortization of contract premiums incurred
from buying interest rate swaps. We record net payments or receipts resulting
from these agreements as adjustments to interest expense. The effect of interest
rate instruments on our results of operations in fiscal years ended October 31,
1999 and 1998 was not significant. As of October 31, 1999 and 1998, Cooper had
interest rate swap agreements with notional amounts totaling $24.3 million and
$20.5 million, respectively. As of October 31, 1999, we had a $17.4 million
interest rate swap that matures on November 27, 2002, a $2.7 million interest
rate swap that matures on January 1, 2012 and a $4.2 million interest rate swap
that matures on April 1, 2003. We obtain the fair value of the swap agreements
through KeyBank's derivative department. The fair value indicated that
termination of the swap agreements at October 31, 1999 and 1998 would have
resulted in an $84,000 gain and a $914,000 loss, respectively.
In the fourth quarter of fiscal 1998, we simultaneously purchased and sold
call options in the Semiconductor Index which expired in December 1998. The
index options were purchased with temporary surplus funds of approximately $5.4
million for trading purposes. Before the end of fiscal 1998, we traded
substantially all of the purchase option position and a small portion of the
sell option position and entered into a similar purchase option position and a
similar sell option position having the same December 1998 expiration date. As
of October 31, 1998, the investments in the purchased and sold call option
contracts are netted because the terms of the index option contracts provide for
a right of off-set. The net investments as of October 31, 1998 in the amount of
$5.4 million are recorded at fair market value as represented by the net cash
proceeds realized when the option contracts expired in December 1998 and
included in other current assets. The transaction did not result in any material
gain or loss on our financial statements.
35 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON PAID-IN ACCUMULATED TREASURY
(IN THOUSANDS) SHARES STOCK CAPITAL DEFICIT STOCK
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1996 11,671 $ 1,167 $ 184,300 $(169,811) $ --
Exercise of stock options 36 4 260 -- --
Exercise of warrant 27 3 147 -- --
Restricted stock amortization
and share issuance 3 -- 483 -- --
Stock issued for acquisition
(see Note 2) 145 14 4,648 -- --
Stock issued for 10 5/8%
debenture redemption 616 62 9,217 -- --
Follow-on offering 2,300 230 50,158 -- --
Net income -- -- -- 31,382 --
----------------------------------------------------------------
Balance at October 31,1997 14,798 1,480 249,213 (138,429) --
Exercise of stock options 75 7 419 -- --
Treasury stock purchased -- -- -- -- (7,993)
Restricted stock amortization
and share issuance 1 -- 47 -- --
Stock issued for acquisition
(see Note 2) 38 4 1,488 -- --
Net income -- -- -- 39,846 --
----------------------------------------------------------------
Balance at October 31,1998 14,912 1,491 251,167 (98,583) (7,993)
Exercise of stock options 61 6 461 -- --
Treasury stock purchased -- -- -- -- (7,345)
Exercise of warrants and
treasury stock used -- -- (330) -- 1,278
Restricted stock amortization
and share issuance 2 -- 47 -- --
Dividends on common stock -- -- -- (561) --
Net income -- -- -- 25,100 --
----------------------------------------------------------------
Balance at October 31,1999 14,975 $ 1,497 $ 251,345 $ (74,044) $ (14,060)
----------------------------------------------------------------
</TABLE>
================================================================================
The Cooper Companies, Inc. & Subsidiaries 36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Cash Dividends
On May 20, 1999, Cooper announced an annual cash dividend on its common
stock of 8 cents per share, payable in quarterly installments of 2 cents per
share. We made two payments in fiscal 1999 and one in January 2000.
Treasury Stock
In September 1998, our Board of Directors authorized us to purchase up to
one million shares of our common stock. All of these shares have been purchased.
(IN THOUSANDS) SHARES PURCHASE PRICE
- --------------------------------------------------------------------------------
Purchased and paid for
in fiscal 1998 486 $ 7,993
Purchased and paid for
in fiscal 1999 514 7,345
-----------------------------
1,000 15,338
Reissued in fiscal 1999* (83) (1,278)
-----------------------------
917 $ 14,060
=============================
- --------------------------------------------------------------------------------
* Cooper issued 83,333 shares of treasury stock for the exercise of a
warrant related to a prior acquisition. We received $948,000 cash upon the
exercise of the warrant, crediting treasury stock for $1.3 million for the
average cost of the treasury stock and charging the balance of $330,000
against additional paid in capital.
Common Stock Offering
In 1997, in an underwritten follow-on stock offering, we sold 2.3 million
shares of our common stock at $23.50 per share. The proceeds from the offering
of $50.4 million, net of underwriters discount and transaction costs of $3.7
million, were primarily used to repay outstanding debt.
Stockholders' Rights Plan
Under our stockholders' rights plan, each outstanding share of our common
stock carries one preferred share purchase right (a "Right"). The Rights will
become exercisable only under certain circumstances involving acquisition of
beneficial ownership of 20% or more of the our common stock by a person or group
(an "Acquiring Person") without the prior consent of Cooper's Board of
Directors. If a person or group becomes an Acquiring Person, each Right would
then entitle the holder (other than an Acquiring Person) to purchase, for the
then purchase price of the Right (currently $145, subject to adjustment), shares
of Cooper's common stock, or shares of common stock of any person into which we
are thereafter merged or to which 50% or more of our assets or earning power is
sold, with a market value of twice the purchase price. The Rights will expire in
October 2007 unless earlier exercised or redeemed. The Board of Directors may
redeem the Rights for $.01 per Right prior to any person or group becoming an
Acquiring Person.
NOTE 9
EMPLOYEE STOCK PLANS
At October 31, 1999 Cooper had two stock-based compensation plans:
1998 Long-Term Incentive Plans ("1998 LTIP")
We designed the 1998 LTIP to increase Cooper's stockholder value by
attracting, retaining and motivating key employees and consultants who directly
influence our profitability. Stockholders approved the 1998 LTIP in April 1998.
The 1998 LTIP authorized either a committee of three or more individuals
not eligible to participate in the 1998 LTIP or Cooper's Board of Directors to
grant to eligible individuals during a five-year period, stock options, stock
appreciation rights, restricted stock, deferred stock, stock purchase rights,
phantom stock units and long-term performance awards for up to 1 million shares
of common stock, subject to adjustment for future stock splits, stock dividends,
expirations, forfeitures and similar events. Options generally vest based on
Cooper's stock price, however, in some cases, both stock price and time are the
criteria. As of October 31, 1999, 260,000 shares remained available under the
1998 LTIP for future grants. No restricted shares have been granted under the
1998 LTIP. Approximately 2 million shares of restricted stock and stock options
were granted under a predecessor plan.
1996 Long-Term Incentive Plan for Non-Employee Directors ("1996 NEDRSP")
The 1996 NEDRSP provides for annual grants of restricted stock and options
to non-employee directors at the start of each fiscal year. Specifically, each
non-employee director will be awarded 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 of the grant. Grants of restricted stock not exercised by then will expire.
The restrictions on the restricted stock will lapse when the stock reaches
certain target values or by the fifth anniversary of the date of grants. In
addition, each non-employee director was granted an option to purchase 10,000
shares of Cooper's common stock in fiscal 1999 (or, in the case of the Chairman
of the Board who is a non-employee director, 11,250 shares). In fiscal
37 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1998 and 1997, each non-employee director was granted 5,000 shares (or, in the
case of the Chairman of the Board who is a non-employee director, 6,250).
215,000 shares of Cooper's authorized but unissued common stock have been
reserved for this. As of October 31, 1999, 83,996 shares remained available
under the 1996 NEDRSP for future grants. Restricted shares of 1,994, 1,312 and
3,501 were granted under the 1996 NEDRSP in fiscal 1999, 1998 and 1997,
respectively, and there were no restricted shares with restrictions in place
outstanding at October 31, 1999.
Common stock activity under these plans was:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,660,797 $ 29.12 929,564 $ 19.39 459,662 $ 8.90
Granted 231,250 27.29 806,250 38.16 514,165 27.69
Exercised (60,269) 7.76 (75,017) 5.68 (36,454) 7.25
Forfeited (35,000) 39.85 -- -- (7,809) 5.74
---------------------------------------------------------------------------------------
Outstanding at end of year 1,796,778 $ 29.39 1,660,797 $ 29.12 929,564 $ 19.39
=======================================================================================
Options exercisable at year end 1,080,478 23.17 605,797 $ 19.99 449,564 $ 9.71
Weighted-avg. fair value of
options granted during the year $ 11.33 $ 8.57 $ 12.32
</TABLE>
================================================================================
The options outstanding at October 31, 1999 for the stock option plans are:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE OUTSTANDING EXERCISE
EXERCISE PRICES AT 10/31/99 LIFE PRICE AT 10/31/99 PRICE
- ---------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
$ 5.91-8.75 153,613 5.71 $ 7.08 153,613 $ 7.08
$14.31-16.00 200,832 6.45 14.86 200,832 14.86
$20.00-21.00 103,333 6.78 20.13 103,333 20.13
$23.44-25.53 230,250 8.99 23.74 197,325 23.45
$26.00-30.69 322,500 8.95 27.44 100,075 26.47
$34.00-35.09 250,000 7.13 34.87 250,000 34.87
$36.00-40.38 298,250 8.36 37.93 75,300 38.32
$43.20-62.21 238,000 8.91 51.72 -- --
------------------------------------------------ -----------------------------
$ 5.91-62.21 1,796,778 7.92 $ 29.39 1,080,478 $ 23.17
================================================ =============================
</TABLE>
================================================================================
The Cooper Companies, Inc. & Subsidiaries 38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The excess of market value over $.10 per share of restricted shares on
respective dates of grant is initially recorded as deferred compensation and
charged to operations as earned. Restricted shares and other stock compensation
charged against income from operations for the years ended October 31, 1999,
1998 and 1997 was $210,000, $260,000 and $107,000, respectively.
Pro Forma Information
As permitted by FASB 123, Cooper applies APB Opinion No. 25 and related
interpretations to account for its plans for stock options issued to employees.
Accordingly, no compensation cost has been recognized for its employee stock
option plans. Had compensation cost for our stock-based compensation plans been
determined under the fair value method included in SFAS 123, our net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS) 1999 1998 1997
- --------------------------------------------------------------------------------
Net Income As reported $ 25,100 $ 39,846 $ 31,382
Pro forma $ 21,721 $ 34,512 $ 29,704
Basic earnings As reported $ 1.78 $ 2.69 $ 2.46
per share Pro forma $ 1.54 $ 2.33 $ 2.33
Diluted As reported $ 1.75 $ 2.61 $ 2.39
earnings per Pro forma $ 1.54 $ 2.28 $ 2.29
share
- --------------------------------------------------------------------------------
The above pro forma amounts include compensation expense for options
granted since November 1, 1995, and may not represent that expected in future
years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in fiscal 1999, 1998, and 1997: dividend yield:
0.382%, 0% and 0%; expected volatility: 50%, 48% and 48%; expected option lives
of 3.5 years for all three years and risk-free interest rates of 5.8%, 4.8% and
6.5%, respectively.
NOTE 10
EMPLOYEE BENEFITS
Cooper's Retirement Income Plan
Cooper's Retirement Income Plan (the "Plan") covers substantially all
full-time United States employees. Cooper's contributions are designed to fund
normal cost on a current basis and to fund over 30 years the estimated prior
service cost of benefit improvements (15 years for annual gains and losses). The
unit credit actuarial cost method is used to determine the annual cost. Cooper
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 participation in equity and fixed
income funds.
39 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Financial data with regard to the Plan follow:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION NOVEMBER 1 TO OCTOBER 31
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Projected benefit obligation at beginning of year $ 10,465 $ 8,957 $ 7,958
Service cost 649 398 236
Interest cost 763 664 622
Benefits paid (410) (381) (369)
Actuarial (gain)/loss (186) 827 510
------------------------------------
Projected benefit obligation at end of year $ 11,281 $ 10,465 $ 8,957
====================================
- -------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS NOVEMBER 1 TO OCTOBER 31
- -------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 8,824 $ 9,012 $ 7,710
Actual return on plan assets 1,214 142 1,558
Employer contributions -- 51 113
Benefits paid (410) (381) (369)
------------------------------------
Fair value of plan assets at end of year $ 9,628 $ 8,824 $ 9,012
====================================
Funded status $ (1,653) $ (1,641) $ 55
Unrecognized transition amount 336 362 387
Unrecognized prior service cost 458 (26) 19
Unrecognized net (gain)/loss (675) 401 (1,124)
------------------------------------
Accrued pension liability $ (1,534) $ (904) $ (663)
====================================
- -------------------------------------------------------------------------------------------
RECONCILIATION OF ACCRUED PENSION LIABILITY
- -------------------------------------------------------------------------------------------
Accrued cost at beginning of year $ (904) $ (663) $ (577)
Net periodic pension cost for year 630 292 198
Contributions made during year -- 51 112
------------------------------------
Accrued cost at end of year $ (1,534) $ (904) $ (663)
====================================
- -------------------------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS
- -------------------------------------------------------------------------------------------
Discount rate 7.5% 7.0% 7.5%
Expected return on assets 9.0% 9.0% 9.0%
Average compensation increase 4.0% 4.0% 4.0%
Cost of living 3.5% 3.5% 3.5%
- -------------------------------------------------------------------------------------------
NET PERIODIC PENSION COSTS
- -------------------------------------------------------------------------------------------
Service cost $ 649 $ 398 $ 236
Interest cost 763 664 622
Asset return (1,214) (142) (1,558)
Amortization
Net transition obligations 26 26 26
Prior service cost 30 (3) (3)
Gain/(loss) 376 (651) 875
------------------------------------
Net periodic pension cost total $ 630 $ 292 $ 198
====================================
</TABLE>
================================================================================
The Cooper Companies, Inc. & Subsidiaries 40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Cooper's 401(k) Savings Plan
Cooper'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 Cooper. Employees who participate in the
401(k) Plan may elect to have from 1% to 16% of their pre-tax salary or wages
deferred and contributed to the trust established under the Plan. Cooper's
contribution on account of participating employees, net of forfeiture credits,
was $333,000, $396,000 and $218,000 for the years ended October 31, 1999, 1998
and 1997, respectively.
Cooper's Incentive Payment Plan
Cooper'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, 1999, 1998
and 1997, were approximately $1.4 million, $851,000 and $1.8 million,
respectively. The 1997 payment included payments made to HGA executives of
$414,000.
NOTE 11
COMMITMENTS AND CONTINGENCIES
Lease Commitments
Total minimum annual rental obligations (net of sublease revenue of
approximately $306,000 in fiscal 2000 and $195,000 per year thereafter through
March 2005) under noncancelable operating leases (substantially all real
property or equipment) in force at October 31, 1999 are payable in subsequent
years as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
2000 $ 3,773
2001 3,171
2002 2,536
2003 2,127
2004 1,929
2005 and thereafter 9,523
-------
$23,059
=======
- --------------------------------------------------------------------------------
Aggregate rental expense for both cancelable and non-cancelable contracts
amounted to $5.7 million, $3.2 million and $3 million in 1999, 1998 and 1997,
respectively.
MEC
An agreement was reached in September 1993 with Medical Engineering
Corporation ("MEC"), a subsidiary of Bristol-Myers Squibb Company, which limited
our contingent liabilities associated with breast implant litigation involving a
former division of ours (the "MEC Agreement"). The remaining liability recorded
for payments to be made to MEC under the MEC Agreement is due on:
OTHER ACCRUED OTHER NONCURRENT
DECEMBER 31, LIABILITIES LIABILITIES
- --------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------
1999 $ 3,000 $ --
2000 -- 3,500
2001 -- 4,000
2002 -- 4,500
2003 -- 3,000
------------------------------------
$ 3,000 $ 15,000
====================================
- --------------------------------------------------------------------------------
Payments to MEC of $15 million beginning December 31, 2000 are contingent
upon our earning net income before taxes in each fiscal year. They were recorded
in Cooper's financial statements in fiscal 1997 as loss from sale of
discontinued operations as Management concluded that the maximum payments would
be required. They are reflected on the balance sheet in "Other accrued
liabilities" for the amount due within one year and "Other noncurrent
liabilities" for the amounts due in two or more years. These payments are
limited to the lesser of 50% of our net income before taxes in each fiscal year
on a noncumulative basis, or the amounts shown above.
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. On April 6, 1999, Cooper and the New York Department of Environmental
Conservation entered into a voluntary agreement covering the environmental
investigation of the site. The investigation is currently underway and will
ultimately result in a state-approved mediation. We have accrued approximately
$500,000 for that purpose. In our opinion, the cost of remediation will not be
material when considering amounts previously accrued.
41 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
GT Labs
On October 1, 1992, GT Laboratories, Inc. filed a complaint against Cooper
in the United States District Court for the Northern District of Illinois
alleging that we had breached a supply agreement by failing to purchase the
requisite number of contact lens blanks used in the manufacture of rigid gas
permeable contact lenses. We denied that we had breached the contract and
asserted our right to terminate the agreement. In the interest of avoiding
further litigation costs, the parties have agreed to resolve their dispute by
way of settlement. On December 22, 1998, the parties entered into a Settlement
Agreement and Release whereby Cooper agreed to pay GT Laboratories $1.3 million,
$1.1 million of which was accrued in the fourth quarter of 1998, in return for
the plaintiff's release of all claims against us. In January 1999, the
litigation was dismissed with prejudice.
NOTE 12
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 the 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.
Our operations are attributable to two product line business segments:
CVI, which develops, manufactures and markets a range of contact lenses,
and
CSI, which develops, manufactures and distributes diagnostic products and
surgical equipment, instruments and disposables, primarily for obstetrics
and women's healthcare.
Total net sales include sales to customers as reported in our consolidated
statements of income and sales between geographic areas which are priced at
terms that allow for a reasonable profit for the seller. Operating income (loss)
is total net sales less cost of sales, research and development expenses,
selling, general and administrative expenses and amortization of intangible
assets. Corporate operating loss is principally corporate headquarters expense.
Investment income, net, settlement of disputes, net, other income (expense),
net, and interest expense were not allocated to individual businesses. Our
business segments do not rely on any one major customer.
Identifiable assets are those assets used in continuing operations
exclusive of cash and cash equivalents, which are included as corporate assets.
The Cooper Companies, Inc. & Subsidiaries 42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Information by business segment for each of the years in the three-year period
ended October 31, 1999 follows:
<TABLE>
<CAPTION>
CORPORATE &
(IN THOUSANDS) CVI CSI ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue from non-affiliates $ 135,978 $ 29,350 $ -- $ 165,328
========================================================================
Operating income (loss) $ 40,802 $ 4,336 $ (6,327) $ 38,811
===================================================
Investment income, net 419
Other income (expense), net (188)
Interest expense (6,330)
---------
Income before income taxes $ 32,712
=========
Identifiable assets $ 153,759 $ 41,491 $ 90,623 $ 285,873
========================================================================
Depreciation expense $ 3,224 $ 515 $ 75 $ 3,814
========================================================================
Amortization expense $ 2,209 $ 1,588 $ -- $ 3,797
========================================================================
Capital expenditures $ 9,837 $ 290 $ 15 $ 10,142
========================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenue from non-affiliates $ 119,210 $ 27,982 $ -- $ 147,192
========================================================================
Operating income (loss) $ 34,574 $ 2,136 $ (7,010) $ 29,700
===================================================
Investment income, net 329
Settlement of disputes, net (1,250)
Other income (expense), net 561
Interest expense (6,253)
---------
Income before income taxes $ 23,087
=========
Identifiable assets $ 143,888 $ 41,887 $ 110,266 $ 296,041
========================================================================
Depreciation expense $ 2,307 $ 484 $ 81 $ 2,872
========================================================================
Amortization expense $ 2,090 $ 1,468 $ -- $ 3,558
========================================================================
Capital expenditures $ 16,941 $ 746 $ 45 $ 17,732
========================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenue from non-affiliates $ 64,007 $ 24,762 $ -- $ 88,769
========================================================================
Operating income (loss) $ 23,101 $ 2,476 $ (5,774) $ 19,803
===================================================
Investment income, net 344
Other income (expense), net (37)
Interest expense (3,174)
---------
Income before income taxes $ 16,936
=========
Identifiable assets $ 43,380 $ 29,543 $ 97,701 $ 170,624
========================================================================
Depreciation expense $ 803 $ 349 $ 79 $ 1,231
========================================================================
Amortization expense $ 674 $ 891 $ -- $ 1,565
========================================================================
Capital expenditures $ 3,551 $ 507 $ 74 $ 4,132
========================================================================
</TABLE>
================================================================================
43 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Supplemental CVI product line revenue:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Torics:
Planned replacement $ 41,640 $ 28,893 $ 16,664
Conventional 16,813 16,749 16,535
--------------------------------------------------------
Total torics 58,453 45,642 33,199
--------------------------------------------------------
Spherical:
Planned replacement 59,791 52,811 8,859
Conventional & Other 17,734 20,757 21,949
--------------------------------------------------------
Total spherical 77,525 73,568 30,808
--------------------------------------------------------
Net revenue from non-affiliates $135,978 $119,210 $ 64,007
========================================================
</TABLE>
================================================================================
Information by geographical area attributed to our country of domicile for
each of the years in the three-year period ended October 31, 1999 follows:
<TABLE>
<CAPTION>
OTHER,
UNITED ELIMINATIONS
(IN THOUSANDS) STATES EUROPE CANADA & CORPORATE CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 115,754 $ 37,648 $ 11,441 $ 485 $ 165,328
Sales between geographic areas 3,410 19,232 -- (22,642) --
-----------------------------------------------------------------------------------
Net sales $ 119,164 $ 56,880 $ 11,441 $ (22,157) $ 165,328
===================================================================================
Operating income (loss) $ 32,215 $ 11,829 $ (366) $ (4,867) $ 38,811
===================================================================================
Identifiable assets $ 86,367 $ 92,025 $ 4,434 $ 103,047 $ 285,873
===================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 102,181 $ 34,952 $ 10,059 $ -- $ 147,192
Sales between geographic areas 3,403 5,858 -- (9,261) --
-----------------------------------------------------------------------------------
Net sales $ 105,584 $ 40,810 $ 10,059 $ (9,261) $ 147,192
===================================================================================
Operating income (loss) $ 34,134 $ 2,081 $ 495 $ (7,010) $ 29,700
===================================================================================
Identifiable assets $ 105,095 $ 78,042 $ 2,638 $ 110,266 $ 296,041
===================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 79,620 $ -- $ 9,149 $ -- $ 88,769
Sales between geographic areas 3,866 -- -- (3,866) --
-----------------------------------------------------------------------------------
Net sales $ 83,486 $ -- $ 9,149 $ (3,866) $ 88,769
===================================================================================
Operating income (loss) $ 25,981 $ -- $ (404) $ (5,774) $ 19,803
===================================================================================
Identifiable assets $ 69,909 $ -- $ 3,014 $ 97,701 $ 170,624
===================================================================================
</TABLE>
================================================================================
The Cooper Companies, Inc. & Subsidiaries 44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13
SUBSEQUENT EVENTS (UNAUDITED)
On December 8, 1999, our CSI unit completed the purchase of a group of
women's healthcare products from BEI Medical Systems Company, Inc. for
approximately $10.5 million. Goodwill has initially been recorded at $8 million
and is being amortized over 20 years. 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.
On December 14, 1999, we agreed to purchase certain assets of Leisegang
Medical, Inc. for approximately $10 million in cash. Leisegang is a manufacturer
of precision instrumentation for the women's healthcare market. We expect to
close this transaction by the end of January 2000.
45 The Cooper Companies, Inc. & Subsidiaries
<PAGE>
- ------------
CORPORATE
INFORMATION
- ------------
BOARD OF DIRECTORS:
Allan E. Rubenstein, M.D.
(Chairman)
Chairman of the Board of Directors
University Heart Scan
A. Thomas Bender
President and Chief Executive Officer
Michael H. Kalkstein
Partner, Oppenheimer, Wolff & Donnelly, LLP
Moses Marx
General Partner, United Equities
Donald Press
Executive Vice President
Broadway Management Co., Inc.
Steven Rosenberg
President and Chief Executive Officer
Berkshire Bankcorp Inc.
Robert S. Weiss
Executive Vice President,
Treasurer and Chief Financial Officer
Stanley Zinberg, M.D.
Director of Practice Activities
American College of Obstetricians and Gynecologists
COMMITTEES OF THE BOARD:
Management Committee
Allan E. Rubenstein, M.D. (Chairman)
Donald Press
Audit and Finance Committee
Steven Rosenberg (Chairman)
Michael H. Kalkstein
Stanley Zinberg, M.D.
Compensation Committee
Michael H. Kalkstein (Chairman)
Donald Press
Allan E. Rubenstein, M.D.
Nominating Committee
Allan E. Rubenstein, M.D. (Chairman)
Moses Marx
A. Thomas Bender
Stanley Zinberg, M.D.
OFFICERS:
A. Thomas Bender
President and Chief Executive Officer
and President CooperVision, Inc.
Robert S. Weiss
Executive Vice President,
Treasurer and Chief Financial Officer
B. Norris Battin
Vice President Investor Relations
and Communications
Gregory A. Fryling
Vice President Corporate Development
Carol R. Kaufman
Vice President of Legal Affairs, Secretary
and Chief Administrative Officer
Nicholas J. Pichotta
President CooperSurgical, Inc.
Stephen C. Whiteford
Vice President and Corporate Controller
PRINCIPAL SUBSIDIARIES:
CooperVision, Inc.
21062 Bake Parkway, Suite 200
Lake Forest, CA 92630
Voice: (949) 597-4700
Fax: (949) 597-0662
CooperSurgical, Inc.
15 Forest Parkway, Shelton, CT 06484
Voice: (203) 929-6321
Fax: (203) 925-0135
CORPORATE OFFICES:
The Cooper Companies,Inc.
21062 Bake Parkway, Suite 200
Lake Forest, CA 92630
Voice: (949) 597-4700
or toll free 1-888-822-2660
Fax: (949) 597-0662
The Cooper Companies, Inc.
6140 Stoneridge Mall Road, Suite 590
Pleasanton, CA 94588
Voice: (925) 460-3600
Fax: (925) 460-3648
INVESTOR INFORMATION:
Corporate information, including the current share price, recent news releases
and the Company's annual report on Securities and Exchange Commission Form 10-K
without exhibits, is available free of charge through the Company's interactive
stockholder communication system. Call 1-800-334-1986, seven days a week, 24
hours a day. Visit The Cooper Companies, Inc. on the World Wide Web at
www.coopercos.com.
INVESTOR RELATIONS CONTACT:
B. Norris Battin
21062 Bake Parkway, Suite 200
Lake Forest, CA 92630
Voice: (949) 597-4700
Fax: (949) 768-3688
email:[email protected]
ANNUAL MEETING:
The Cooper Companies, Inc. will hold its annual shareholder's meeting on March
28, 2000 at the New York Marriott East Side, New York, NY at 10:00 A.M.
TRANSFER AGENT:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
TRADEMARKS:
The Cooper Companies, Inc., its subsidiaries or affiliates owns, licenses or
distributes the following trademarks and they are italicized in this
report: Cerveillance(R), CooperSurgical Infrared Coagulator(TM), Encore(TM),
Excel(TM), FemExam(R) pH and Amines Test Card(TM), Frequency(R), Hydrasoft(R),
Preference(R), Unimar(R), Natural Touch(R) and CooperVision Total Toric(R) .
CERTIFIED PUBLIC ACCOUNTANT:
KPMG LLP
STOCK EXCHANGE LISTINGS:
The New York Stock Exchange
The Pacific Exchange
Ticker Symbol "COO"
<PAGE>
CONTACT LENS MARKET GUIDE
COOPERVISION
COMPETITIVE
ADVANTAGE IN AN INCREASINGLY
ATTRACTIVE MARKET
<PAGE>
FAVORABLE OUTLOOK FOR
THE WORLDWIDE
CONTACT LENS MARKET
TODAY'S CONTACT LENS MARKET
Toward the end of the 1970's, the contact lens market began to grow
rapidly as new soft lens materials replaced conventional hard contact lenses. In
the late 1980's, new disposable and planned replacement wearing regimens
revitalized a market that had begun to slow.
During the 1990's, disposable lenses continued to spur strong growth first
in the spherical lens market and now today in the specialty lens markets. Today,
however, spherical lenses show signs of becoming commodities in many markets
around the world. Their market value growth has again begun to slow as the
switch to planned replacement has sharply declined. The specialty lens segment,
however--where CooperVision is a major force--shows great promise.
1999 WORLDWIDE
SOFT CONTACT LENS MARKET
(Millions of Dollars)
Country Revenue % Of Total % (DELTA) vs 1998
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U.S. $1,130 44 +5
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Canada 80 3 +3
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North America 1,210 47 +5
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U.K 122 5 +3
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France 113 4 +11
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Italy 81 3 +10
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Germany 74 3 +4
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Spain 43 2 +5
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Rest of Europe 106 4 +5
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Europe 539 21 +6
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Japan 600 23 +25
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Brazil 48 2 flat
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Rest of World 180 7 +9
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Total $2,577 100 +6
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Source: Industry statistics, CVI estimates
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THREE TRENDS SUGGEST A POSITIVE
FUTURE FOR SPECIALTY LENSES
1 DEMOGRAPHICS
Teenagers drive the contact lens market. About ninety-five percent of all
first time contact lens wearers are under the age of 20. They are mostly female,
highly appearance conscious and have significant purchasing power. During the
"baby boomlet" of 1989 to 1994, births in the U.S. totaled more than four
million annually for the first time since 1960. Known as "Generation Y", these
are the children of the "baby boomers," born between 1946 and 1964, and
"Generation X" of the late 1960's. Today, they are poised to enter the contact
lens market. There will be two million more teenagers in high school in 2007
than there were in 1997 and 450,000 more high school graduates bound for
college. They will have $100 billion-plus in annual buying power. These
demographic trends translate to a significant increase in the number of new
contact lens wearers, one that will be sustained throughout the coming decade.
TEENAGED POPULATION TRENDS 1996-2010
(U.S.CENSUS DATA -- MILLIONS OF PEOPLE)
[GRAPHIC OMITTED]
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2 INTERNATIONAL EXPANSION
In the North America, 20% of the population that requires vision
correction wears contact lenses, but the other major markets around the world
fall well below this rate and offer great promise. In Japan, the world's second
largest market, only about 12% of people with visual defects wear contacts. In
Western Europe, it's only 8%. Today, contact lens wear is beginning to
accelerate in both areas. The emerging markets in Latin America and Asia offer
additional potential, although these will take longer to develop.
CONTACT LENS PENETRATION IN PATIENTS
REQUIRING VISION CORRECTION
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
North America 20%
Japan 12%
Western Europe 8%
Rest of World 5%
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3 SPECIALTY LENSES
During the last three years, toric lenses to correct astigmatism, bifocal
lenses for presbyopia, aspheric lenses for crisper vision and colored lenses for
cosmetic enhancement have generated most of the growth in the contact lens
market. Contact lens patients today have greater choice than ever before, and
practitioners have learned the value of specialty lenses in their practices;
they help attract new patients, generate foot traffic through the fitter's
office and yield greater profit per patient than conventional lenses. In 1999,
these specialty categories together grew an estimated 15% over 1998 versus a
decline of nearly 2% for the commodity spherical lens category. They have
improved their share of the U.S. contact lens market from 29% in 1995 to 38%
today. This trend to specialty lenses, first begun in the U.S., is now beginning
to expand contact lens markets abroad.
U.S. SOFT LENS SALES
CLEAR SPHERES VS. SPECIALTY LENSES
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
YEAR PREMIUM SPECIALTY COMMODITY CLEAR TOTAL MARKET
- ---- ----------------- --------------- ------------
1995 $271 $633 $904
1996 $306 $697 $1,003
1997 $337 $705 $1,042
1998 $376 $706 $1,082
1999 $434 $694 $1,128
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WELL POSITIONED AGAINST
NEW TECHNOLOGY
AND COMPETITIVE PRODUCTS
Q: LASER VISION CORRECTION IS GROWING IN POPULARITY. WILL IT HURT THE GROWTH
OF CONTACT LENSES?
A: No. Most practitioners and manufacturers in the vision correction market
agree that the two modalities are essentially complementary, not
competitive, primarily because the contact lens population and the Laser
Vision Correction (LVC) population have markedly different demographic
profiles:
Contact lens wearers are predominantly nearsighted young women. Their
myopia will not stabilize until they reach their late twenties, and they
will not be appropriate candidates for LVC until then. At least 70% of
lens wearers are under the age of 30, and most are not candidates for LVC.
Recent data indicates that the median age of LVC patients is 40 years of
age and trending higher. Most contact lens wearers have left the market by
this age.
Only a third of contact lens wearers are men compared with 50% of LVC
patients. Females, two-thirds of the contact lens wearers, are less likely
to undergo LVC.
WHO WEARS CONTACT LENSES?
An estimated 33 million Americans wear contacts
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Most contact lens wearers are myopic (nearsighted)
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An estimated 67% of all contact lens wearers are women
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10% of lens wearers are 16 years of age or younger
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30% of lens wearers are between 17 and 24
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50% of lens wearers are between 24 and 44
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10% of all wearers are over the age of 44
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Source: American Optometric Association
LVC patients tend to be contact lens dropouts who hope that LVC can give
them vision correction without
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the limitations of contacts. As they have already left the market, they do not
reduce the number of contact lens wearers when they have the surgery.
Some former lens wearers who review the potential risks associated with
LVC decide to return to contact lenses. They find that lenses have improved
since they first wore them. Toric lens technology, in particular, has greatly
improved in recent years.
To be sure, a small group of contact lens wearers in their mid to late
thirties will undergo LVC and leave the market. However, they will most likely
wear clear spherical lenses, not specialty toric or cosmetic products. To date,
analysts estimate that about five hundred thousand patients have undergone LVC
in the U.S. Even if all of them had converted from contact lenses, the impact on
the 33-million wearer market would be negligible. CooperVision does not see LVC
as an immediate threat.
LVC HAS A LIMITED IMPACT
ON THE CONTACT LENS MARKET
CONTACT LENS CVI COMMENTS
MARKET STATISTIC ESTIMATE
- --------------------------------------------------------------------------------
Estimated number of contact 33 million Even if all LVC patients came
lens wearers in the U.S. today from this group, the impact on
the contact lens market would
be minimal.
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Estimated cumulative number 20 million Most LVC patients come from
of contact lens drop outs this group.
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Estimated number of new 3 million Most are teenagers; LVC patients
contact lens patients per year average 40 years of age.
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Estimated number of contact 2.5 million Many are LVC candidates.
lens dropouts each year
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Estimated number of LVC 1 million 500 thousand patients.
procedures in 1999
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Source: Industry Statistics, CVI estimates
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THE WORLD'S SIX LEADING
SOFT CONTACT LENS MANUFACTURERS(1)
(Millions of Dollars)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
INTERNATIONAL TOTAL % GROWTH OR
U.S. REVENUE REVENUE REVENUE DECLINE IN 1999
------------ ------- ------- ---------------
Johnson & Johnson 450 450 900 10%
Bausch & Lomb 125 310 435 5%
Ciba Vision 105 335 340 -5%
Wesley Jessen 180 125 305 9%
Ocular Sciences 130 40 170 12%
CooperVision 83 53 136 14%
(1) CVI Estimates
Q: COMPETITORS WITH GREATER RESOURCES THAN COOPERVISION ARE VERY INTERESTED
IN THE DISPOSABLE TORIC LENS MARKET. TWO HAVE ALREADY ENTERED AND MANY
EXPECT A THIRD IN EARLY 2000. WILL THIS SIGNIFICANTLY HURT YOUR BUSINESS?
A: No. We feel that our complete line of specialty toric products--the
CooperVision Total Toric Solution--gives us a sustainable competitive
advantage. Here's why:
TECHNOLOGY BACKGROUND
To satisfy the complicated visual requirements of astigmatic patients,
manufacturers must produce toric lenses in many different parameter combinations
of 1.) "Power" -- the correction for near- and farsightedness, 2.) "Cylinder" --
the correction for the astigmatism and 3.) "Axis," -- the exact position on the
toric lens that will match the location of astigmatic defect on the cornea.
Historically, toric lenses are produced with either high cost, labor-intensive
precision lathing, or
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low cost, volume oriented molding. The former offers wide parameter variety but
high cost; the latter, to be profitable, yields only a limited number of the
most frequently prescribed parameter combinations compromising, in some cases,
the patient's corrected visual acuity.
CVI lathes and molds toric lenses and uses a third process called FIPS
(finished inside polymerization system), a patented process that cost
effectively combines lathing and molding. Together, these three technologies
offer the most complete line of toric lenses available today. For patients with
complex prescriptions, CVI supplies up to 13 million fitting parameters of its
custom lathed products. Its low cost molding process offers superior,
comfortable edge design and more parameter combinations than most cast-molded
products. The FIPS process combines the benefits of both of these--it molds the
inside surface and lathes the front surface--yielding, at reasonable cost, the
most mass produced toric parameters currently available. A CVI lens is available
today for any astigmatic patient.
MARKET DYNAMICS
Because of these different manufacturing technologies, the U.S. toric lens
market, the world's largest, has segmented into two price points. CVI offers
products with competitive benefits in each.
IN THE LOWER PRICED SEGMENT
Lower cost cast-molded planned replacement lenses allow practitioners to
trade-off performance and lens cost. Several different low cost brands are
available for two week or a monthly wear, but only in a limited number of
correction parameters. This limitation can compromise the quality of the result
causing some practitioners to select higher priced products.
The lower cost planned replacement toric lenses now command about 55% of
the U.S. toric market as sales of conventional toric lenses (those replaced
annually) have recently declined. Over the past 24 months, two of CVI's major
competitors have introduced two-week disposable toric lenses. Through September
of 1999, we estimate that together, these two product lines
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now hold about 12% of the disposable-planned replacement toric market, about $15
million. Despite this new competition, CVI's share of the disposable planned
replacement segment continues to grow and is now about 34% of the category, up
from 29% a year ago. Frequency 55 Toric, CVI's recent monthly replacement entry
into this lower priced segment, contributed to this gain in market share.
Market analysts anticipate that Vistakon, Johnson and Johnson's contact
lens subsidiary, will introduce a low cost cast-molded toric product during the
first quarter of 2000. In November, CVI introduced its own competitively priced
cast-molded toric lens called Encore in the U.S. and Excel in Europe. We
manufacture this product using the patented, low cost technology we acquired in
the 1998 purchase of Aspect Vision Care, Inc. We are confident that it will
compete effectively against any new low priced disposable products.
IN THE HIGHER PRICED SEGMENT
In fitting higher priced lenses, practitioners decide in favor of superior
lens performance rather than low price. This segment is growing at the expense
of the lower price segment, as fitters begin to recognize the clinical and
financial benefits of these lenses: they can fit more patients correctly in less
time than with lower cost lenses that offer fewer choices. CVI's Preference
Toric, recommended for quarterly replacement, is the market leader. It offers
15,500 parameters using CVI's FIPS manufacturing process versus a maximum of
3,000 parameters for competitive lenses. FIPS combines the flexibility of
lathing with the cost advantage of molding to economically generate a wide
variety of toric parameters.
STOCKING VERSUS PRESCRIBING
Unlike spherical lenses, practitioners do not fit toric lenses from an
inventory in their offices. Instead, because
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of the unique combination of power, axis and cylinder required for each patient,
the practitioner first determines each eye's prescription and then orders the
lenses from the manufacturer or distributor. This means that new entrants into
the toric market will build their share slowly as they compete with others for
the new fits that will eventually build a stream of repeat business. Those
already in the market enjoy the benefit of continued repeat business from each
patient already fit with their lenses--usually for as long as the patient
remains in the market. Practitioners simply do not switch lens brands on
successfully fit patients, especially astigmatic patients, who are more
difficult to fit.
A STRONG, DEFENSIBLE POSITION
In summary, CVI's strategy is to provide superior, well-priced products in
the four most popular segments of the toric market: low-priced disposable
cast-molded products, mid- and high- priced frequently replaced products made
with the FIPS technology and precision lathed products. By providing the "Total
Toric Solution", CVI is well positioned to continue its revenue and market share
growth.
INVESTOR RELATIONS CONTACT:
B. Norris Battin
21062 Bake Parkway o Suite 200
Lake Forest o CA 92630
Voice: (949) 597-4700
Fax: (949) 768-3688
email: [email protected]
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CONTACT LENS MARKET GUIDE
[LOGO] The Cooper Companies COO
------
Listed
------
NYSE
<PAGE>
Exhibit 21
SUBSIDIARIES OF
THE COOPER COMPANIES, INC.
A DELAWARE CORPORATION
JURISDICTION OF
NAME INCORPORATION
- --------------------------------------------------------------------------------
The Cooper Healthcare Group, Inc. Delaware
Unimar, Inc. California
CVP, Inc. Delaware
CooperVision International Holding Company, L.P.(1) England
The Cooper Real Estate Group, Inc. Delaware
CooperSurgical Acquisition Corp. Delaware
CooperSurgical, Inc. Delaware
CooperSurgical, Inc. Canada
HBH Medizintechnik GmbH Germany
CooperVision, Inc. New York
CooperVision, LLC Delaware
CooperVision Technology, Inc. Delaware
CooperVision Inc. Canada
Marlow Surgical Acquisition (dormant) Delaware
CooperVision GB Finance, Inc. (dormant) Delaware
CooperVision GB Services, Inc. (dormant) Delaware
Hospital Group of America, Inc. Delaware
HGA Management Services, Inc. Delaware
Hospital Group of Delaware, Inc. Delaware
Hospital Group of Illinois, Inc. Illinois
Residential Centers of Indiana, Inc. Delaware
Hospital Group of New Jersey, Inc. New Jersey
Hampton Learning Center, Inc. New Jersey
HGNJ, Inc. New Jersey
Arlington Center for Recovery, L.L.C. Illinois
MeadowWood Health Services, L.L.C. Delaware
Aspect Vision Holdings, Limited England-Wales
Aspect Vision Care Limited England-Wales
CooperVision Limited England-Wales
Contact Lens Technologies Limited England-Wales
Aspect Specialty Limited England-Wales
New Focus HealthCare Limited England-Wales
Aspect Vision Italia s.r.l. Italy
Focus Solutions Limited England-Wales
Averlan Company Limited England-Wales
Aspect Contact Lenses Limited England-Wales
CooperVision Australia Pty Ltd Australia
(1) CVP, Inc. general partner (12.34%) and CooperVision, LLC
limited partner (87.66%)
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., 99.9% of the company is owned by The Cooper
Companies, Inc. and the remaining .1% is owned by members of CooperSurgical's
Medical Advisory Board.
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<FISCAL-YEAR-END> OCT-31-1999
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