<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarterly Period Ended APRIL 30, 2000
-------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from ___________________ to _______________
Commission File Number 1-8597
------
THE COOPER COMPANIES, INC.
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2657368
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6140 Stoneridge Mall Road, Suite 590, Pleasanton, CA 94588
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (925) 460-3600
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Common Stock, $.10 Par Value 14,192,612 Shares
------------------------------ ---------------------------
Class Outstanding at May 31, 2000
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Condensed Statements of Income -- Three
and Six Months Ended April 30, 2000 and 1999 3
Consolidated Condensed Balance Sheets -- April 30, 2000
and October 31, 1999 4
Consolidated Condensed Statements of Cash Flows -- Six
Months Ended April 30, 2000 and 1999 5
Consolidated Condensed Statements of Comprehensive
Income -- Three and Six Months Ended
April 30, 2000 and 1999 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
Signature 23
Index of Exhibits 24
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
(In thousands, except per share figures)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------------ ----------------------
2000 1999 2000 1999
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Net sales $50,769 $41,743 $91,173 $76,702
Cost of sales 18,285 15,174 32,057 28,590
------- ------- ------- -------
Gross profit 32,484 26,569 59,116 48,112
Selling, general and administrative expense 19,320 15,549 36,084 29,771
Research and development expense 676 442 1,324 903
Amortization of intangibles 1,111 955 2,091 1,912
------- ------- ------- -------
Income from operations 11,377 9,623 19,617 15,526
------- ------- ------- -------
Interest expense 1,268 1,762 2,649 3,611
Other income, net 60 37 460 71
------- ------- ------- -------
Income from continuing operations before
income taxes 10,169 7,898 17,428 11,986
Provision for income taxes 3,406 2,604 5,838 4,051
------- ------- ------- -------
Income from continuing operations 6,763 5,294 11,590 7,935
Discontinued operations -- 1,841 -- 3,099
Cumulative effect of change in accounting
principles -- -- (432) --
------- ------- ------- -------
Net income $ 6,763 $ 7,135 $11,158 $11,034
======= ======= ======= =======
Earnings per share:
Basic:
Continuing operations $ 0.48 $ 0.38 $ 0.82 $ 0.56
Discontinued operations -- 0.13 -- 0.22
Cumulative effect of change in accounting
principles -- -- (0.03) --
------- ------- ------- -------
Earnings per share $ 0.48 $ 0.51 $ 0.79 $ 0.78
======= ======= ======= =======
Diluted:
Continuing operations $ 0.47 $ 0.38 $ 0.80 $ 0.55
Discontinued operations -- 0.13 -- 0.22
Cumulative effect of change in accounting
principles -- -- (0.03) --
------- ------- ------- -------
Earnings per share $ 0.47 $ 0.51 $ 0.77 $ 0.77
======= ======= ======= =======
Number of shares used to compute earnings per share:
Basic 14,130 13,946 14,099 14,191
======= ======= ======= =======
Diluted 14,438 14,071 14,399 14,378
======= ======= ======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
April 30, October 31,
2000 1999
-------- -----------
ASSETS (In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,747 $ 20,922
Trade receivables, net 31,476 26,792
Inventories 38,283 33,430
Deferred tax assets 17,541 11,638
Other current assets 7,568 7,679
-------- --------
Total current assets 99,615 100,461
-------- --------
Property, plant and equipment, net 43,913 40,319
Goodwill and other intangibles, net 94,583 80,518
Deferred tax assets 47,641 56,519
Other assets 7,662 8,056
-------- --------
$293,414 $285,873
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable $ 10,946 $ 8,846
Current portion of long-term debt 2,295 2,305
Accrued income taxes 10,726 11,351
Other current liabilities 23,980 19,394
-------- --------
Total current liabilities 47,947 41,896
Long-term debt 52,209 57,067
Other noncurrent liabilities 18,909 22,767
-------- --------
Total liabilities 119,065 121,730
-------- --------
Contingencies (Note 9)
Stockholders' equity:
Common stock, $.10 par value 1,506 1,497
Additional paid-in capital 251,903 251,345
Accumulated other comprehensive loss (1,927) (595)
Accumulated deficit (63,450) (74,044)
Less, treasury stock at cost (13,683) (14,060)
-------- --------
Total stockholders' equity 174,349 164,143
-------- --------
$293,414 $285,873
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
--------------------------------------
2000 1999
---------- -------
<S> <C> <C>
Net cash provided by operating activities $ 15,915 $ 5,793
-------- -------
Cash flows from investing activities:
Disposition of discontinued operations, net of (costs) (69) 26,460
Purchases of property, plant and equipment (6,194) (5,433)
Acquisitions of businesses (23,477) (71)
Sale of securities -- 5,419
-------- -------
Net cash provided (used) by investing activities (29,740) 26,375
-------- -------
Cash flows from financing activities:
Net proceeds from long-term line of credit 16,000 8,532
Repayment of long-term debt (18,830) (33,355)
Dividend on common stock (564) --
Purchase of treasury stock -- (7,345)
Other 944 (2,044)
-------- -------
Net cash used by financing activities (2,450) (34,212)
-------- -------
Effect of exchange rate changes on cash and cash equivalents 100 152
Net decrease in cash and cash equivalents (16,175) (1,892)
Cash and cash equivalents -- beginning of period 20,922 7,333
-------- -------
Cash and cash equivalents -- end of period $ 4,747 $ 5,441
======== =======
</TABLE>
See accompanying notes.
5
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net income $6,763 $7,135 $11,158 $11,034
Other comprehensive income (loss):
Foreign currency translation adjustment (939) (351) (1,332) (430)
------ ------ ------- -------
Comprehensive income $5,824 $6,784 $ 9,826 $10,604
====== ====== ======= =======
</TABLE>
See accompanying notes.
6
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1. General
The Cooper Companies, Inc. ("Cooper" or "we" and similar pronouns), through its
principal subsidiaries, develops, manufactures and markets healthcare products.
CooperVision ("CVI") markets a range of contact lenses to correct visual
defects, specializing in toric lenses that correct astigmatism. Its leading
products are disposable-planned replacement toric and spherical lenses. CVI also
markets conventional toric and spherical lenses and lenses for patients with
more complex vision disorders. CooperSurgical ("CSI") markets diagnostic
products and surgical instruments and accessories to the women's healthcare
market.
During interim periods, we follow the accounting policies described in our most
recent Form 10-K. Please refer to this and to our Annual Report to Stockholders
for the fiscal year ended October 31, 1999, when reviewing this Form 10-Q.
Current results are not a guarantee of future performance.
The financial statements presented in this report, although unaudited, contain
all adjustments necessary to present fairly Cooper's consolidated financial
position as of April 30, 2000 and October 31, 1999, the consolidated results of
its operations for the three and six months ended April 30, 2000 and 1999, and
its consolidated cash flows for the six months ended April 30, 2000 and 1999.
Adjustments consist only of normal recurring items except for the adjustment
recorded in the first quarter of fiscal 2000, when we adopted Statement of
Position 98-5, "Reporting on the Cost of Start-up Activities." (See Note 4.)
Note 2. Inventories, at the Lower of Average Cost or Market
<TABLE>
<CAPTION>
April 30, October 31,
2000 1999
------------- ----------
(In thousands)
<S> <C> <C>
Raw materials $10,406 $ 8,151
Work-in-process 5,849 3,786
Finished goods 22,028 21,493
------- -------
$38,283 $33,430
======= =======
</TABLE>
Note 3. Acquisitions
BEI ACQUISITION: On December 8, 1999, Cooper purchased a group of women's
healthcare products from BEI Medical Systems Company, Inc. for approximately
$10.3 million in cash. The payment was made from cash then on hand.
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.
7
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
The acquisition has been accounted for as a purchase. Excess of purchase price
over net assets acquired (goodwill) initially has been recorded at $8.4 million
and is being amortized over 20 years.
LEISEGANG ACQUISITION: On January 31, 2000, Cooper purchased a group of women's
healthcare products (the "Leisegang Business") from NetOptix Corporation for
approximately $10 million in cash and an additional amount of approximately
$250,000 paid in May 2000. Prior to our acquisition, the Leisegang Business
generated annual revenue in excess of $11 million from operations in the U.S.,
Germany and Canada.
The Leisegang Business includes diagnostic and surgical instruments including
colposcopes, instruments to perform loop electrosurgical excision procedures,
hand-held gynecological instruments, disposable specula and cryosurgical
systems. Many of its products are disposable, including its Sani-Spec line of
disposable plastic specula, its largest product group.
The acquisition has been accounted for as a purchase. Goodwill initially has
been recorded at $5.4 million and is being amortized over 20 years.
Note 4. New Accounting Pronouncements
In April 1998, The American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Cost of Start-up
Activities." The SOP broadly defines start-up activities and requires companies
to expense them as incurred, effective for fiscal years beginning after December
15, 1998. We adopted the SOP in the first quarter of this year and reported an
after tax charge of $432,000 as a cumulative effect of a change in accounting
principles. Our previous policy had been to defer the cost of start-up
activities as appropriate and amortize them over future periods.
In June 1998 the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the FASB issued SFAS 137,
which amended the effective date of SFAS 133 to the first quarter of fiscal
years beginning after June 15, 2000. SFAS 133 requires recognition of all
derivatives on the balance sheet at fair value. Changes in fair value must be
recognized currently in earnings unless specific hedge accounting criteria are
met. We will adopt SFAS 133 in the first quarter of fiscal 2001 and do not
anticipate that this adoption will have a material effect on our financial
statements.
8
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Note 5. Long-Term Debt
<TABLE>
<CAPTION>
April 30, October 31,
2000 1999
-------------- ----------
(In thousands)
<S> <C> <C>
Promissory notes -- Aspect $22,130 $23,439
Midland Bank -- 17,445
KeyBank line of credit 16,000 --
Aspect Vision bank loans 5,708 6,292
Promissory note -- Wesley-Jessen Corporation -- 100
County of Monroe Industrial Development
Agency ("COMIDA") Bond 2,575 2,695
Capitalized leases 8,048 9,401
Other 43 --
------- -------
54,504 59,372
Less current installments 2,295 2,305
------- -------
$52,209 $57,067
======= =======
</TABLE>
MIDLAND BANK
Cooper repaid the Midland Bank loan using cash then on hand and $12.5 million of
its KeyBank line of credit. Since the Midland Bank loan was covered by a letter
of credit against the KeyBank line of credit, we were able to reduce overall
interest expense and increase the amount available under the KeyBank line of
credit.
KEYBANK LINE OF CREDIT
At April 30, 2000, we had $26.8 million available under the KeyBank line of
credit.
Line of credit summary:
(in millions)
Amount of line $ 50.0
Loans (16.0)
Letters of credit backing other debt (7.2)
------
Available credit $ 26.8
======
PROMISSORY NOTE -- WESLEY-JESSEN CORPORATION
The balance of the Wesley-Jessen promissory note was paid off in the first
quarter.
9
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Note 6. Earnings Per Share ("EPS")
(In thousands, except per share figures)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------------------- -----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from continuing operations $6,763 $5,294 $11,590 $ 7,935
Discontinued operations -- 1,841 -- 3,099
Cumulative effect of change in
accounting principles -- -- (432) --
------ ------ ------- -------
Net income $6,763 $7,135 $11,158 $11,034
====== ====== ======= =======
Basic:
Weighted average common shares 14,130 13,946 14,099 14,191
====== ====== ======= =======
Basic earnings per share:
Continuing operations $ 0.48 $ 0.38 $ 0.82 $ 0.56
Discontinued operations -- 0.13 -- 0.22
Cumulative effect of change in
accounting principles -- -- (0.03) --
------ ------ ------- -------
Basic earnings per share $ 0.48 $ 0.51 $ 0.79 $ 0.78
====== ====== ======= =======
Diluted:
Weighted average common shares 14,130 13,946 14,099 14,191
Add dilutive securities:
Warrants -- 18 -- 30
Options 308 107 300 157
------ ------ ------- -------
Denominator for diluted earnings
per share 14,438 14,071 14,399 14,378
====== ====== ======= =======
Diluted earnings per share:
Continuing operations $ 0.47 $ 0.38 $ 0.80 $ 0.55
Discontinued operations -- 0.13 -- 0.22
Cumulative effect of change in
accounting principles -- -- (0.03) --
------ ------ ------- -------
Diluted earnings per share $ 0.47 $ 0.51 $ 0.77 $ 0.77
====== ====== ======= =======
</TABLE>
10
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
We excluded the following options to purchase Cooper's common stock from the
computation of diluted EPS because their exercise prices were above the average
market price.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------------------------ ---------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Number of shares excluded 784,250 1,299,833 784,250 1,249,833
============= ============= ============== =============
Range of exercise prices $30.69-$62.21 $16.00-$62.21 $30.69-$62.21 $20.00-$62.21
============= ============= ============= =============
</TABLE>
Note 7. Income Taxes
The effective tax rate ("ETR") used to record the provision for income taxes of
$3.4 million and $5.8 million for the three and six months ended April 30, 2000
was 33.5%. The ETR used to record the provision for income taxes of $4.1 million
for the six months ended April 30, 1999 was approximately 34%. In the second
quarter of 1999, updated projections indicated that the full year ETR would be
about 34%, down one percentage point from the first quarter's estimate. As a
result, the ETR for the three-month period ended April 30, 1999 was
approximately 33%.
Note 8. Discontinued Operations
In the fourth quarter of 1998, Cooper declared Hospital Group of America
("HGA"), its former psychiatric services business, a discontinued operation and
recorded a charge of $22.3 million reflecting Management's initial estimate of
the ultimate loss to be incurred upon disposition.
In January 1999, we completed the sale of a portion of HGA for $5 million in
cash and trade receivables and in April 1999 sold the remainder to Universal
Health Services, Inc. for $27 million at closing. Cooper recorded gains on
disposal of $1.3 million in the first quarter and $1.7 million in the second
quarter, reflecting adjustments to the loss estimated in 1998. HGA's patient
revenue was $8.9 million and $20.8 million for the three and six months ended
April 30, 1999, respectively.
Note 9. Contingencies -- Environmental
In 1997, environmental consultants engaged by Cooper identified a contained area
of groundwater contamination consisting of industrial solvents including
trichloroethane (also known as TCA) at one of CVI's sites. In the opinion of
counsel, the solvents were released into the ground before we acquired the
business at that site, and the area containing these chemicals is limited.
11
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
In April 1999, Cooper and the New York Department of Environmental Conservation
entered into a voluntary agreement covering the environmental investigation of
the site. The investigation has been completed, and we plan to begin a
state-approved remediation later this year. Cooper has accrued approximately
$400,000 for that purpose. In the opinion of Management, the cost of remediation
will not be material when considering amounts previously accrued.
Note 10. Business Segment Information
Cooper is organized by product line for management reporting with operating
income being the primary measure of segment profitability. No costs from
corporate functions are allocated to the segments' operating income. Items below
operating income are not considered when measuring the profitability of a
segment. The accounting policies used to generate segment results are the same
as our overall accounting policies.
Identifiable assets are those assets used in continuing operations exclusive of
cash and cash equivalents, which are included as corporate assets.
Segment information (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------------- ------------------------
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
CVI $38,259 $34,702 $70,228 $62,481
CSI 12,510 7,041 20,945 14,221
------- ------- ------- -------
$50,769 $41,743 $91,173 $76,702
======= ======= ======= =======
Operating income:
CVI $11,434 $10,276 $19,766 $16,496
CSI 1,674 907 3,091 1,756
Corporate (1,731) (1,560) (3,240) (2,726)
------- ------- ------- -------
Total operating income 11,377 9,623 19,617 15,526
Interest expense (1,268) (1,762) (2,649) (3,611)
Other income, net 60 37 460 71
------- -------- ------- -------
Income from continuing
operations before income taxes $10,169 $ 7,898 $17,428 $11,986
======= ======== ======= =======
</TABLE>
12
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Concluded
(Unaudited)
<TABLE>
<CAPTION>
April 30, October 31,
2000 1999
---------- -----------
<S> <C> <C>
Identifiable assets:
CVI $160,426 $153,759
CSI 64,377 41,491
Corporate 68,611 90,623
-------- --------
Total $293,414 $285,873
======== ========
</TABLE>
Geographic information (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
---------------------------- ----------------------------
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
United States $37,749 $28,475 $67,345 $52,205
Europe 9,052 10,519 17,026 19,464
Canada 3,968 2,749 6,802 5,033
------- ------- ------- -------
$50,769 $41,743 $91,173 $76,702
======= ======= ======= =======
April 30, October 31,
2000 1999
--------- -----------
Identifiable assets:
United States $113,390 $ 86,367
Europe 95,574 92,025
Canada 7,342 4,434
Corporate and Other 77,108 103,047
-------- --------
Total $293,414 $285,873
======== ========
</TABLE>
13
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Note numbers refer to "Notes to Consolidated Condensed Financial Statements"
beginning on page 7 of this report.
FORWARD-LOOKING STATEMENTS: This Form 10-Q contains "forward-looking statements"
as defined in the Private Securities Litigation Reform Act of 1995. To identify
forward-looking statements, look for words like "believes," "expects," "may,"
"will," "should," "seeks," "approximately," "intends," "plans," "estimates" or
"anticipates" and similar words or phrases. Discussions of strategy, plans or
intentions often contain forward-looking statements. These, and all
forward-looking statements, necessarily depend on assumptions, data or methods
that may be incorrect or imprecise.
Events, among others, that could cause actual results and future actions to
differ materially from those described by or contemplated in the forward-looking
statements include major changes in business conditions and the economy, loss of
key senior management, major disruptions in the operations of Cooper's
manufacturing facilities, new competitors or technologies, the impact of an
undetected virus on our computer systems, acquisition integration costs, foreign
currency exchange exposure, investments in research and development and other
start-up projects, dilution to earnings per share from acquisitions or issuing
stock, regulatory issues, significant environmental cleanup costs above those
already accrued, litigation costs, costs of business divestitures, and other
factors described in Cooper's Securities and Exchange Commission filings,
including the "Business" section in our Annual Report on Form 10-K for the year
ended October 31, 1999. Cooper cautions investors not to rely unduly on
forward-looking statements. They reflect our analysis only on their stated date.
RESULTS OF OPERATIONS
In this section we discuss the results of our operations for the first three and
six months of fiscal 2000 and compare them with the same periods of fiscal 1999.
We discuss our cash flows and current financial condition beginning on page 20
in the "Capital Resources and Liquidity" section.
SECOND QUARTER HIGHLIGHTS VS. 1999'S SECOND QUARTER:
Sales up 22% to $50.8 million.
Gross profit up 22% on consistent margins.
Income from operations up 18% to $11.4 million.
Diluted earnings per share from continuing operations up 24% to 47 cents
from 38 cents.
14
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
SIX-MONTH HIGHLIGHTS:
Sales up 19% to $91.2 million.
Gross profit up 23%; margin improved by two percentage points to 65% of
revenue.
Income from operations up 26% to $19.6 million.
Diluted earnings per share from continuing operations up 45% to 80 cents
from 55 cents.
SELECTED STATISTICAL INFORMATION -- PERCENTAGE OF SALES AND GROWTH
<TABLE>
<CAPTION>
Percent of Sales Percent of Sales
Three Months Ended Six Months Ended
April 30, April 30,
---------------------- % ------------------- %
2000 1999 Growth 2000 1999 Growth
------ ------ ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100% 100% 22% 100% 100% 19%
Cost of sales 36% 36% 21% 35% 37% 12%
Gross profit 64% 64% 22% 65% 63% 23%
Selling, general and administrative 38% 37% 24% 40% 39% 21%
Research and development 1% 1% 53% 1% 1% 47%
Amortization 2% 2% 16% 2% 2% 9%
Income from operations 22% 23% 18% 22% 20% 26%
</TABLE>
NET SALES: All revenue is generated by our two business units, CooperVision
("CVI") and CooperSurgical ("CSI"):
CVI markets a broad range of contact lenses primarily in North America and
Europe.
CSI markets diagnostic products, surgical instruments and accessories to the
women's healthcare market.
Our consolidated revenue grew $9 million (22%) and $14.5 million (19%),
respectively, in the three- and six-month periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
--------------------------------------- ---------------------------------------
2000 1999 % Incr. 2000 1999 % Incr.
------ ------ ------- ------ ------ -------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
CVI $38.3 $34.7 10% $70.2 $62.5 12%
CSI 12.5 7.0 78% 21.0 14.2 47%
----- ----- ----- -----
$50.8 $41.7 22% $91.2 $76.7 19%
===== ===== ===== =====
</TABLE>
15
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
CVI REVENUE: CVI's worldwide core business, which we define as all revenue
except our lower margin original equipment manufacturer ("OEM") sales to other
contact lens manufacturers, grew 16% and 17% for the three- and six-month
period, respectively.
<TABLE>
<CAPTION>
Second % Change % Change
Quarter % from Second Six Months % from Six
Segment 2000 Total Quarter 1999 2000 Total Months 1999
------- -------- ----- ------------ ------------ ----- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. $24.9 65% 21% $45.0 64% 23%
International 11.6 30% 7% 22.1 32% 6%
----- ---- ----- ----
Core business 36.5 95% 16% 67.1 96% 17%
OEM 1.8 5% (46%) 3.1 4% (40%)
----- ---- ----- ----
Total $38.3 100% 10% $70.2 100% 12%
===== ==== ===== ====
</TABLE>
CVI's core product sales in the U.S. grew 21% and 23% in the three- and
six-month period, as the disposable-planned replacement ("DPR") sphere and toric
product lines together grew 42% in both periods.
Our U.S. toric lens business grew 22% in the second fiscal quarter (25% for the
six-month period) while the toric market was growing about 12% for the first
calendar quarter. During the second fiscal quarter, sales of CVI's DPR torics
grew 36% in the U.S., driven by sales of Preference Toric and Frequency 55
Toric.
Sales of spherical DPR products in the U.S., driven by sales of Frequency 55
spheres and Frequency Aspheric, grew about $2.4 million, or 54% in the second
quarter and about $4.1 million, or 55% for the six-month period. Together, CVI's
DPR spheres and torics now account for nearly 75% of its U.S. business.
During the second quarter, CVI continued to introduce Frequency Aspheric in the
U.S. The optical properties of this lens can help improve visual acuity in low
light situations and correct low degrees of astigmatism. CVI also introduced
Encore Toric, its two-week disposable cast molded toric lens.
International core revenue, sales in countries outside the United States plus
exports from the U.S., grew 7% during the quarter, 12% when adjusted for
currency fluctuations. OEM sales declined as expected, down 46% from last year's
second quarter, 40% for the six-month period.
16
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
During the second quarter, the roll out of new products continued in Europe.
These include CVI's line of toric lenses, the Frequency Aspheric lens and
Frequency 55 UV, which contains an ultra violet light-blocking agent. In
November, CVI introduced its cast-molded toric product--called Frequency
XCEL--in Europe. XCEL is now available in every major European market.
CSI REVENUE: CSI revenue grew 78% and 47% in the three- and six-month periods,
due primarily to the recent acquisitions of products from BEI Medical Systems,
Inc. and Leisegang Medical, Inc. Absent the revenue provided by these
acquisitions, revenue of our women's healthcare products grew 9% and 7%,
respectively, reflecting the continued growth of FemExam pH and Amines TestCard
System and the Cerveillance Digital Colposcope line.
In December, CSI acquired well-known brands of uterine manipulators and other
niche products for the gynecologist's office from BEI Medical Systems Company,
Inc.
At the end of January, CSI completed the acquisition of the Leisegang Business
(See Note 3). The products are diagnostic and surgical instruments including
colposcopes, instruments to perform loop electrosurgical excision procedures,
hand-held gynecological instruments, disposable specula and cryosurgical
systems. Many products are disposable, including the Sani-Spec line of
disposable plastic specula, which comprises its largest product group.
COST OF SALES/GROSS PROFIT: Gross profit as a percentage of sales ("margin") was
as follows:
<TABLE>
<CAPTION>
Margin % Margin %
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
CVI 68% 65% 68% 64%
CSI 53% 56% 54% 56%
Consolidated 64% 64% 65% 63%
</TABLE>
The gross margin improvement at CVI reflects cost reduction projects at both our
U.S. and U.K. manufacturing sites. Aside from any major changes in product mix,
we believe that continued cost reductions will result in improving margins
during the remainder of fiscal 2000 and beyond.
17
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
CSI's margins declined in both periods, primarily reflecting the products
recently acquired from BEI and Leisegang, which generate relatively lower
margins. We anticipate that our overall margins at CSI will be about 53% of
sales for the full fiscal year.
SELLING, GENERAL AND ADMINISTRATIVE ("SGA") EXPENSE:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------------------------- --------------------------------------
2000 1999 % Incr. 2000 1999 % Incr.
-------- -------- ------- -------- -------- -------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
CVI $13.5 $11.6 17% $26.2 $22.2 18%
CSI 4.1 2.4 68% 6.7 4.9 37%
HQ/Other 1.7 1.5 11% 3.2 2.7 19%
----- ----- ----- -----
$19.3 $15.5 24% $36.1 $29.8 21%
===== ===== ===== =====
</TABLE>
As a percentage of sales, SGA was 1% above 1999's second quarter and six-month
period. Increases of 17% and 18% at CVI for the respective periods was driven by
marketing costs associated with new product launches. CSI SGA grew by 68% and
37%, with revenues growing 78% and 47% for the respective periods. The lower
increase in SGA as related to sales growth is attributable to synergies with the
acquisitions of BEI products and Leisegang. Corporate SGA grew by $171,000 and
$514,000 in the second quarter and first six months reflecting primarily timing
and amounts of bonus payments and normal business growth.
RESEARCH AND DEVELOPMENT ("R&D") EXPENSE: We expect that R&D spending will
remain at a low percentage of sales because we are focusing on acquiring
products that will not require large expenditures of time or money before
introduction.
INCOME FROM OPERATIONS: Income from operations improved by $1.8 million or 18%
and $4.1 million or 26% for the three- and six-month periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------------------- --------------------------------------
2000 1999 Incr. 2000 1999 Incr.
------ ------ ----- ------ ------ -----
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
CVI $11.4 $10.3 $ 1.1 $19.8 $16.5 $3.3
CSI 1.7 0.9 0.8 3.1 1.7 1.4
Headquarters (1.7) (1.6) (0.1) (3.3) (2.7) (0.6)
----- ----- ----- ----- ----- ----
$11.4 $ 9.6 $ 1.8 $19.6 $15.5 $4.1
===== ===== ===== ===== ===== ====
</TABLE>
18
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
INTEREST EXPENSE: Interest expense in the first six months of $2.6 million was
down 27% from the same period of fiscal 1999, primarily reflecting debt payments
we made at the end of the second quarter of 1999 with proceeds from the sale of
HGA and the replacement in the first quarter of $17.4 million Midland Bank Loan
with lower cost debt.
OTHER INCOME, NET:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- ------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $ 67 $ 86 $ 278 $ 137
Foreign exchange (138) (134) (239) (274)
Gain on cancellation of
interest rate swap -- -- 240 --
Other 131 85 181 208
----- ----- ---- -----
$ 60 $ 37 $ 460 $ 71
===== ===== ===== =====
</TABLE>
PROVISION FOR INCOME TAXES: We estimate that our effective tax rate ("ETR") for
the full fiscal year 2000 will be 33.5%.
We implemented a global tax plan in the fourth quarter of fiscal 1999 to
minimize both the taxes reported in our statement of income and the actual taxes
we will have to pay once the benefits of our net operating loss ("NOLs") are
fully utilized. Assuming no major acquisitions or large stock issuances, we
currently expect to reduce our ETR to approximately 30% over the next six years.
This plan could possibly extend the cash flow benefits of the NOLs through 2003.
We expect that actual cash payments for taxes will be about 10% of pretax
profits throughout this period.
DISCONTINUED OPERATIONS: In January 1999, Cooper completed the sale of a portion
of Hospital Group of America, Inc. ("HGA") for $5 million in cash and trade
receivables. In April 1999, Cooper sold the remainder of HGA to Universal Health
Services, Inc. for $27 million at closing. Cooper recorded gains on disposal of
$1.3 million in the first quarter and $1.7 million in the second quarter,
reflecting adjustments to the loss estimated in 1998. (See Note 8.)
CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLES: In the first quarter of fiscal 2000,
we recorded a net of tax charge of $432,000 to implement a new accounting
principle. (See Note 4.)
19
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
CAPITAL RESOURCES & LIQUIDITY
SECOND QUARTER HIGHLIGHTS:
Operating cash flow $10.6 million vs. $9.2 million in 1999's second
quarter.
"Cash Flow" (pretax income from continuing operations plus depreciation and
amortization) per diluted share 86 cents vs. 70 cents in 1999's second
quarter.
Closed one small acquisition for cash payment of $1.7 million.
Expenditures for purchases of property, plant and equipment (PP&E) $2.9
million vs. $3.2 million in 1999's second quarter.
SIX-MONTH HIGHLIGHTS:
Operating cash flow $15.9 million vs. $5.8 million in the first half of
1999.
Cash Flow per diluted share $1.50 vs. $1.09 in the first half of 1999.
Closed three acquisitions for cash payments of $23.5 million.
Refinanced approximately $18 million long-term debt, replacing it with less
expensive debt under our Revolving Credit Agreement.
Expenditures for purchases of PP&E $6.2 million vs. $5.4 million in the
first half of 1999.
COMPARATIVE STATISTICS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS):
<TABLE>
<CAPTION>
April 30, 2000 October 31, 1999
-------------- ----------------
<S> <C> <C>
Cash and cash equivalents $4.7 $20.9
Total assets $293.4 $285.9
Working capital $51.7 $58.6
Total debt $57.1 $62.0
Ratio of debt to equity 0.3:1 0.4:1
Debt as a percentage of total capitalization 25% 27%
April 30, 2000 April 30, 1999
-------------- --------------
Operating cash flow -- twelve months ended $37.8 $20.9
Cash Flow per diluted share -- twelve months ended $3.23 $2.06
</TABLE>
OPERATING CASH FLOWS: Our major source of liquidity continues to be cash flow
provided by operating activities. Operating cash flow for the first half of
fiscal 2000 was $15.9 million, nearly trebling the $5.8 generated in the
comparable period last year. We now expect to generate positive operating cash
flow each quarter. In prior years, we would typically experience a net cash
outflow from operating activities in our first quarter, reflecting payments made
to settle disputes, bonus payments and inventory builds in anticipation of new
product launches and increased sales in subsequent quarters. In the first half
of this year, strong operating results (operating income of $19.6 million) and a
reduced inventory build (of the total increase in inventory from October 31,
1999 of $4.9 million, approximately $4.2 million represented inventories of
companies acquired in the first quarter) drove operating cash flow to $15.9
million.
20
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Concluded
Major uses of cash for operating activities in the first half of 2000 included
payments of $3 million related to settlements of disputes, $1.4 million to fund
entitlements under Cooper's bonus plans and approximately $1.3 million in
interest payments.
INVESTING CASH FLOWS: The cash outflow of $29.7 million from investing
activities was driven by capital expenditures of $6.2 million and payments of
$23.5 million to fund acquisitions. (See note 3.)
FINANCING CASH FLOWS: For the first half of 2000, financing activities resulted
in a cash outflow of $2.5 million. In the first quarter, we spent about $18
million to refinance a portion of the debt raised to fund the acquisition of
Aspect in December 1997. We funded most of this by drawing down on our KeyBank
line of credit, which carries a lower effective interest rate. Because the debt
we paid off was backed by a letter of credit from KeyBank, and was, therefore,
deducted from our total facility amount, we lost no availability under our line
of credit by effecting this transaction. In the second quarter we made
additional net debt repayments of approximately $3.5 million, to further reduce
our interest expense.
OUTLOOK: We believe that cash on hand of $4.7 million plus cash from operating
activities will fund future operations, capital expenditures, cash dividends and
smaller acquisitions. We may need additional funds for larger acquisitions and
other strategic alliances. At April 30, 2000, we had about $27 million available
under the KeyBank line of credit and, based on conversations with KeyBank,
anticipate that additional financing would be available as required.
RISK MANAGEMENT: Cooper is exposed to risks caused by changes in foreign
exchange, principally Pound Sterling denominated debt and from operations in
foreign currencies. We have hedged most of the debt by entering into contracts
to buy Sterling forward. Cooper is also exposed to risks associated with changes
in interest rates, as the interest rate on certain of its debt varies with the
London Interbank Offered Rate.
YEAR 2000 ("Y2K"): In 1999, we completed an in-depth compliance program to
minimize the effect of potential Y2K issues. To date, we have experienced no
difficulties related to Y2K.
TRADEMARKS: The following trademarks italicized in this report are owned by,
licensed to or distributed by The Cooper Companies, Inc., its subsidiaries or
affiliates: Cerveillance'r', FemExam'r'TestCard System, Hyskon'r', Marlow'TM',
Frequency 55'r', Preference'r', Frequency'r'Aspheric, Encore'TM',
Frequency'r'XCEL, Sani-Spec'r'and Unimar'r'.
21
<PAGE>
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The 2000 Annual Meeting of Stockholders was held on March 28, 2000.
Each of the eight individuals nominated to serve as directors of the Company was
elected:
<TABLE>
<CAPTION>
Director Shares For Shares Against
-------- ---------- --------------
<S> <C> <C>
A. Thomas Bender 12,898,019 42,147
Michael H. Kalkstein 12,897,953 42,213
Moses Marx 12,897,586 42,580
Donald Press 12,898,019 42,147
Steven Rosenberg 12,897,664 42,502
Allan E. Rubenstein, M.D. 12,898,007 42,159
Robert S. Weiss 12,898,006 42,160
Stanley Zinberg, M.D. 12,898,019 42,147
</TABLE>
Stockholders ratified the appointment of KPMG LLP as Cooper's independent
certified public accountants for the fiscal year ending October 31, 2000. A
total of 12,903,288 shares were voted in favor of the ratification, 22,124
shares were voted against it and 14,752 shares abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
11* Calculation of Earnings Per Share.
27 Financial Data Schedule.
</TABLE>
* The information called for in this exhibit is provided in Footnote 6
to the Consolidated Condensed Financial Statements in this report.
(b) Cooper filed the following reports on Form 8-K during the period from
February 1, 2000 to April 30, 2000.
Date of Report Item Reported
-------------- --------------
February 23, 2000 Item 5. Other Events
March 28, 2000 Item 5. Other Events
22
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Cooper Companies, Inc.
----------------------------------------------
(Registrant)
Date: June 9, 2000 /s/ Stephen C. Whiteford
---------------------------------------------
Vice President and Corporate Controller
23
<PAGE>
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Index of Exhibits
-----------------
<TABLE>
<CAPTION>
Exhibit No. Page No.
---------- --------
<S> <C> <C>
11* Calculation of Earnings Per Share.
27 Financial Data Schedule.
</TABLE>
* The information called for in this exhibit is provided in Footnote 6
to the Consolidated Condensed Financial Statements in this report.
24
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as...............................'TM'
The registered trademark symbol shall be expressed as....................'r'
