________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 19941996 COMMISSION FILE NO. 1-8597
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THE COOPER COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-2657368
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
1 BRIDGE PLAZA, FORT LEE, NEW JERSEY 070246140 STONERIDGE MALL ROAD, SUITE 590 94588
PLEASANTON, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
201-585-5100510-460-3600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.10 Par Value, and associated Rights New York Stock Exchange
associated Rights Pacific Stock Exchange
10 5/8% Convertible Subordinated Reset Debentures due 2005 New York Stock Exchange
Debentures due 2005 Pacific Stock Exchange
10% Senior Subordinated Secured Notes due 2003 Pacific Stock Exchange
due 2003
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 ][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, 1994:1996: Common Stock, $.10 Par
Value -- $58,791,677$153,755,167.
Number of shares outstanding of the registrant's common stock, as of
December 31, 1994: 34,116,7221996: 11,675,940.
DOCUMENTS INCORPORATED BY REFERENCE:
None
DOCUMENT PART OF FORM 10-K
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Portions of the Annual Report to Stockholders for the Parts I and II
fiscal year ended October 31, 1996
Portions of the Proxy Statement for the Annual Meeting of Part III
Stockholders to be held March 25, 1997
________________________________________________________________________________
PART I
ITEM 1. BUSINESS.
FORWARD-LOOKING STATEMENTS
This report contains projections and other forward-looking statements of
the Company's results and prospects. Actual results could differ materially from
these projections. Factors that could cause or contribute to differences in
fiscal 1997 results include: major changes in business conditions and the
economy in general, new competitive inroads, regulatory and other delays on new
products and programs, unexpected changes in reimbursement rates and payer mix,
unforeseen litigation, decisions to divest businesses and the cost of
acquisition activity, particularly if a large acquisition is not completed.
Future results are also dependent on each business unit meeting specific
objectives.
INTRODUCTION
The Cooper Companies, Inc. ('TCC' or the 'Company'), through its primary
subsidiaries (CooperVision, Inc., CooperSurgical, Inc. and Hospital Group of
America, Inc.), develops, manufactures and markets healthcare products,
including a range of contact lenses and diagnostic and surgical instruments and
accessories, and provides healthcare services through the ownership and
operation of certain psychiatric facilities and the management of other such
facilities. TCC is a Delaware corporation which
was organized on March 4, 1980.
COOPERVISION
CooperVision, Inc., ('CooperVision' or 'CVI'), develops, manufactures and
markets a range of contact lenses in the United States and Canada.Canada and through
distributors in approximately 40 overseas markets. Approximately 75%50% of the
lenses sold are conventional daily or flexible wear lenses and approximately 25%50%
constitute frequentplanned replacement lenses.
CooperVision's major brand name lenses are Hydrasoft'r', Preference'r',
Preference Toric'tm', Vantage'r', Permaflex'r', Permalens'r', and Cooper
Clear'tm'. These and other products enable CooperVision to fit the needs of a
diverse group of wearers by offering lenses formulated from a variety of
polymers containing varying amounts of water and different degrees of oxygen
permeability, and having different design parameters, diameters, base curves and
lens edges. Certain lenses offer special features such as protection against
ultraviolet light, color tint, astigmatic correction or aphakic correction.
Lenses are availablePreference'r', which was introduced in a wide
range of prices.
Preference'r'fiscal 1992, is a frequentplanned
replacement product manufactured from the Tetrafilcon A polymer. Preference'r' was test marketed during the fourth quarter
of fiscal 1991 and introduced in fiscal 1992. Three clinical
studies, conducted at 31 investigative sites using 603 patients, have
demonstrated Preference's superior performance in connection with deposit
resistance, visual acuity and handling.
In April 1993, CooperVision acquired CoastVision, Inc. ('CoastVision'), a
contact lens company which designs, manufactures and markets high quality soft
toric lenses (the majority of which are custom made) designed to correct
astigmatism. The acquisition has enabled CooperVision to expand into an
additional niche in the contact lens market and to enlarge its customer base.
In October 1994, CooperVision introduced Preference Toric'tm', a toric
frequentplanned replacement product. Preference Toric'tm' combines the benefits of the
Tetrafilcon A polymer andwith the low cost toric'FIPS'tm' manufacturing techniques and
design characteristics of CoastVision'sthe Hydrasoft'r'. This new product enables toric lens. During 1996, CooperVision
launched two major line extensions to competePreference Toric'tm' resulting in the
fast-growingbroadest product line in toric planned replacement. As a result, practitioners
can fit Preference Toric'tm' on more patients than any other planned replacement
market
segment.toric lens.
CooperVision continues to grow its international sales by focusing on key
alliances with optical distributors abroad. Strategic international sales
regions for CooperVision include Latin America, the Middle East and the Pacific
Rim; regions typically under-served by other contact lens manufacturers.
CooperVision is continuing to explore opportunities to expand and diversify
its business into additional niche markets.
COOPERVISION PHARMACEUTICALS
CooperVision Pharmaceuticals, Inc. ('CVP')markets and is a researchpursuing strategic alliances
with European and development
company engaged in developing proprietary ophthalmic pharmaceuticals. Its
current focus is on topical applications of calcium channel blocking drugs, a
class of compounds traditionally used systemically to treat hypertension and
selected cardiac disorders. CVP is also developing, on a smaller scale, a group
of proprietary ophthalmic formulations for a number of ophthalmic diagnostic
products.
Prior to February 1993, CVP marketed the EYEscrub'tm' product line. By
December 1994, CVP had discontinued sales of EYEscrub'tm' and its branded
generic line of ophthalmic pharmaceuticals.
CVP's efforts currently are being focused primarily on CalOptic'tm', CVP's
brand of Verapamil HCl, a Class I calcium channel blocker. Studies sponsored by
unrelated third parties have demonstrated the ability of some calcium channel
blocking drugs to lower intraocular pressure after oral administration. In
fiscal 1991, CVP obtained an exclusive license to the U.S. patent for the
topical use of Class I calcium channel blockers as potential anti-glaucoma
compounds. CVP has filed additional U.S. and internationalAsian partners.
1
patent applications. CVP received U.S. Food and Drug Administration ('FDA')
clearance to begin human clinical trials in June 1991.
Studies conducted by CVP to date indicate that the topical administration
of CalOptic'tm' may offer a novel approach to treating elevated intraocular
pressure, one of the leading risk indicators of glaucoma. Elevated intraocular
pressure appears to be caused, in part, by a decrease of acqueous humor outflow
from the eye. CalOptic'tm' has demonstrated the ability to increase the outflow
of acqueous humor. While leading glaucoma medications suppress the production of
aqueous humor in the eye, they do not address the underlying cause of elevated
intraocular pressure.
Calcium channel blocking drugs are also known to enhance blood flow in
certain blood vessels following oral administration. Based on a number of
medical publications, enhanced bloodflow to certain regions of the eye is
believed to be of benefit in treating ocular diseases associated with the
posterior segments of the eye. CVP's recently completed studies may provide
information regarding the effect of the topical administration of CalOptic'tm'
on ocular bloodflow.
During 1994, CVP expanded its Phase II and III clinical studies of
CalOptic'tm'. These studies were designed to enable CVP to assess the extent of
intraocular pressure reduction and side effects from CalOptic'tm' in a larger
patient population over a longer time period than in previous trials.
The analysis of clinical data from certain of those studies is anticipated
to be completed during the first quarter of calendar 1995. At that time, CVP
will be in a better position to determine the protocol for its future studies
and whether to continue with its exclusive development of CalOptic'tm' or to
seek one or more partners to assist in its further development.
COOPERSURGICAL
CooperSurgical, Inc. ('CooperSurgical' or 'CSI') was established in
November 1990 to compete in niche segments of the rapidly expanding worldwide
market for diagnostic and surgical instruments, accessories and disposable
devices. Its business isDuring the past few years, increasing emphasis has been given to
developing, manufacturing and distributing
electrosurgical, cryosurgical and general application diagnostic and surgical instruments,
disposable devices and equipment used selectively in both traditional and
minimally invasive surgical procedures, especially those performed by
gynecologists. Unlike traditional surgical devices, electrosurgical
instruments, which operate by meansBy the end of high radio frequency, dissect and cause
coagulation, making them useful in surgical proceduresfiscal 1996, approximately 90% of CooperSurgical's
net revenue related to minimize blood loss.
Cryosurgical equipment is differentiated by its ability to apply cold or
sub-zero temperatures to the body in order to cause adhesion, provoke an
inflammatory response or destroy diseased tissue.women's healthcare products.
CooperSurgical's loop electrosurgical excision procedureLoop Electrosurgical Excision Procedure products, marketed
under the LEEP'tm'LEEP brand name, are viewed as an improvement over existing laser
treatmentsprimarily used for primary use in the removal of cervical and
vaginal pre-cancerous tissue and benign external lesions. Unlike laser ablation,
which tends to destroy tissue, the electrosurgeryelectrosurgical procedure removes affected
tissue with minimal charring, thereby improvingcharring. This allows the opportunitypractitioner to obtain an accurate
histological analysis of the patient's condition by producing a viable
tissue specimen for biopsy purposes. In addition, the loop electrosurgical excision
procedureLoop Electrosurgical
Excision Procedure is less painful to the patient than laser ablation and is
easily learned by practitioners. Because this procedure enables a gynecologist
to both diagnose and treat a patient in one office visit, patients incur lower
costs.
CooperSurgical's LEEP System 6000'r'1000'r' branded products include an
electrosurgical generator, sterile single application LEEP Electrodes'tm',Electrodes, the
CooperSurgical Smoke Evacuation System 6080'tm', a single application LEEP
RediKit'r', a series of educational video tapes and a line of autoclavable
coated LEEP'tm'LEEP surgical instruments.
LEEP System 1000'tm' branded products have
been introduced for use abroad.
CooperSurgical's Euro-Med mail order businesscatalog offers over 400a broad line of products for use
in diagnostic and surgical gynecologic and general surgical procedures. Over 60%Many of these products are
exclusive to Euro-Med,CooperSurgical including its 'signature'the newly introduced Prima Series'tm'
nonconductive specula, the Carter Tubal Assistant'tm' instrument designed to
reduce the operating time needed to perform post-partum tubal ligation, The RUMI
System'tm' uterine manipulator, the Cer-View'tm' Lateral Wall Retractor and the
Vu-Max'tm' Speculum incorporating a new design in LEEP procedure instruments.
The catalog includes CooperSurgical's Euro-Med'r' 'Signature' series cervical
biopsy punches clear plastic instruments used for unobstructed viewing,
titanium instruments used in laser surgeries, colposcopy procedure kits and instrument care and sterilization systems. The CooperSurgical
catalog added the Unimar products including the Pipelle'r', Cervex-Brush'tm',
Kronner Manipujector'r' and the patented J-Neddle'tm' for use in closure of
trocar incisions.
In September 1994, CooperSurgical
introducedApril 1996, the Company acquired Unimar, Inc., a leading provider of
specialized disposable medical devices for gynecology. Unimar offers products
for endometrial tissue sampling for infertility and the diagnosis of cancer and
its Euro-Med catalog abroad.
2
The catalog, which was printed in Frenchprecursors, cytological sampling, uterine control during tubal ligation and
German, was mailed to physicians
practicing in Belgium, France and Germany.minimally invasive laparoscopy.
CooperSurgical's Frigitronics'r' instruments for cryosurgery are used
primarily in dermatologic procedures to treat skin cancers, in ophthalmic
procedures to treat retinal detachments and remove cataracts, and in certain
gynecologic, cardiovascular and general surgical procedures. The primary
products bearing the FrigitronicsFrigitronics'r' brand name are the Model 310 Zoom
Colposcope, the CCS-200 Cardiac Cryosurgical System, the Model 2000 Ophthalmic
Cryosurgical System and the Cryo-Plus System for gynecologic office procedures.
In August 1994,1995, CooperSurgical entered into an agreement with InnerDyne,
Inc. relating to InnerDyne's proprietary thermal ablation technologyacquired the RUMI'tm' uterine manipulator, a
patented system for gynecological applications such ascontrolling and positioning the control of excessive uterine bleeding.
Safety and efficacy studies are currently underway abroad. Upon completion of
those studies, CooperSurgicaluterus during surgery.
RUMI'tm' product line extensions include the KOH Colpotomizer System'tm' which
facilitates laparoscopic hysterectomy surgical procedures. This system, which
recently received FDA approval, will decide whether to exercise its option to
acquire exclusive worldwide commercialization rights in exchange for an initial
payment of $4 million plus royalties on future sales of the system. If it elects
to exercise its option, CooperSurgical and InnerDyne will continue to work
together to develop and commercialize the proprietary technology. While the
project is stillbe introduced in the exploratory stage,first quarter of 1997.
Compared to competing products, these new CooperSurgical hasproducts offer the
right to
terminate the agreement at any time with 30 days notice.gynecologist substantially improved pelvic exposure, access and traction during
laparoscopic surgery and facilitate dye injection during fertility studies.
HOSPITAL GROUP OF AMERICA
In May 1992, a newly-formed subsidiary of the Company acquired all of the
issued and outstanding stock of Hospital Group of America, Inc., a corporation
indirectly owned by Nu-Med, Inc. ('Nu-Med'). In June 1992, that company was
merged with TCC's subsidiary, with that subsidiary surviving the merger and
changing its name to
Hospital Group of America, Inc. ('HGA'). As a result, HGA
acquired, owns and operates three
psychiatric facilities: Hartgrove Hospital in Chicago, Illinois (which currently
has 119 licensed beds), Hampton Hospital in Rancocas, New Jersey (which
currently has 100 licensed beds) and MeadowWood Hospital in New Castle, Delaware
(which currently has 50 licensed beds).
In addition, the
Company, through its subsidiary, PSG Management, Inc. ('PSG Management'),
entered into a management services agreement (the 'Management Services
Agreement') with three indirectly owned subsidiaries of Nu-Med under which it
assumed the management of three psychiatric facilities owned by such
subsidiaries: Northwestern Institute of Psychiatry in Fort Washington,
Pennsylvania (which currently has 146 licensed beds), Malvern Institute for
Psychiatric and Alcohol Studies in Malvern, Pennsylvania (which currently has 36
licensed beds), and Pinelands Hospital in Nacogdoches, Texas (which currently
has 40 licensed beds). The Management Services Agreement, which provides for
monthly payments to PSG Management of $166,667, will expire by its terms in May
1995.2
HGA's three owned and three managed psychiatric facilities provide intensive and structured treatment for
children, adolescents and adults suffering from a variety of mental illnesses
and/or chemical dependencies, including treatment for women, older adults,
survivors of psychological trauma and alcohol and substance abusers. Services
include comprehensive psychiatric and chemical dependency evaluations, inpatient
and outpatient treatment and partial hospitalization.
In response to market demands for an expanded continuum of care, HGA is
in
the process of expandingfurther developing its outpatient and partial hospitalization programs. SixSeveral
facilities affiliated with eitheroffer ambulatory programs to children, adolescents and adults. During
1996, the number of ambulatory programs was increased to 11 at Hartgrove
Hospital, or5 at MeadowWood Hospital have been opened since January 1994. Several of those facilities offer
day treatment to children and adolescents, others offer treatment to chronically
mentally ill adults and others offer outpatient counseling.5 at Hampton Hospital. Additional
programs are expected to commence operationsbe initiated in 1995.
3
1997 that will emphasize a continuum of
care services.
In May 1996, the Company acquired land and an existing structure in Kouts,
Indiana, for development of a 50 bed residential treatment center. Construction
and renovations are underway with a projected opening in mid fiscal 1997.
Additionally, HGA continues to provide behavioral health management
services. In 1996, the Company was awarded several contracts for the management
of ambulatory programs. In 1997, HGA will pursue management contracts for
inpatient behavioral health units in medical/surgical hospitals.
The following is a comparison of certain statistical data relating to
inpatient treatment for fiscal years 1992, 19931996, 1995 and 1994 for the psychiatric
facilities owned by HGA:
FISCAL YEAR ENDED OCTOBER 31,
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1996 1995 1994 1993 1992(1)
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Total patient days............................................days.......................................... 63,918 62,556 71,882
72,054 78,119
Admissions....................................................Admissions.................................................. 5,353 4,782 4,787 4,310 3,726
Average length of stay (in days).......................................................... 11.9 12.9 15.0
16.8 21.0
Average occupancy.............................................occupancy........................................... 64.9% 63.7% 73.2% 76.2% 82.6%
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(1) Reflects operations of HGA when owned by Nu-Med and, after May 29, 1992, by
TCC.
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During the three-year period for which information is provided, both total
patient days and average length of stay have declined. This trend is due, in
part, to pressure from managed care groups to limit the length of hospital
stays.
Each psychiatric facility is accredited by the Joint Commission of
Accreditation of Healthcare Organizations (JCAHO), a voluntary national organization which
periodically undertakes a comprehensive review of a facility's staff, programs,
physical plant and policies and procedures for purposes of accreditation of such
healthcare facility. Accreditation generally is required for patients to receive
insurance company reimbursement and for participation by the facility in
government sponsored provider programs.
AUntil December 31, 1995, a medical group which is not affiliated with the Company, isHGA was
responsible for providing both clinical and clinical administrative services at
Hampton Psychiatric Institute ('Hampton Hospital'),Hospital. In December 1995, the primary facility operated by
Hospital GroupCompany announced the settlement of New Jersey, Inc. ('HGNJ'), a
subsidiarydispute with the management of HGA. HGNJ is
seeking to terminate its agreement with HMG based upon allegations that HMG has
engaged in billing fraud with respect to the provision of such services. See
Item 3, 'Legal Proceedings.'
On October 9, 1992, HGA filed a complaint against Nu-Med and several of its
subsidiaries asserting claims in excess of $4 million and asserted additional
claims against the same defendants in excess of an additional $6 million that
are to be resolved by an independent auditor. In both instances, HGA's claims
arose from the defendants' alleged breaches of certain provisions in the
acquisition agreement pursuant to which the HGA facilities were acquired. Nu-Med
has since been reorganized under bankruptcy, and the claims against Nu-Med are
barred; however, the relevant subsidiaries of Nu-Med (including those that
directly or indirectly own the three psychiatric facilities managed by PSG
Management) were not part of Nu-Med's bankruptcy filing, and HGA's claims are
still pending against those subsidiaries.medical group. (See Note 4.)(1)
Patient and Third Party Payments. HGA receives payment for its psychiatric
services either from patients, from their health insurers or through the
Medicare, Medicaid and Civilian Health and Medical Program of Uniformed Services
('CHAMPUS') governmental programs. Medicare is a federal program which entitles
persons 65 and over to a lifetime benefit of up to 190 days as an inpatient in
an acute psychiatric facility. Persons defined as disabled, regardless of age,
also receive this benefit. Medicaid is a joint federal and state program
available to persons with limited financial resources. CHAMPUS is a federal
program which provides health insurance for active and retired military
personnel and their dependents.
While other programs may exist or be adopted in different jurisdictions,
the following four categories reflect the primary methods by which HGA's
three
owned facilities receive payment for services:
(a) Standard reimbursement, consisting of payment by patients and
their health insurers, is based on a facility's schedule of rates and is
not subject to negotiation with insurance companies, competitive bidding or
governmental limitation.
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(1) All references to Note numbers shall constitute the incorporation by
reference of the text of the specific Note contained in the Notes to
Consolidated Financial Statements of the Company and its subsidiaries contained
in the Company's 1996 Annual Report, which notes are incorporated herein by
reference to Item 8, into the Item number in which it appears.
3
(b) Negotiated rate reimbursement is at prices established in advance
by negotiation or competitive bidding for contracts with insurers and other
payors such as managed care companies,
4
health maintenance organizations
('HMO'), preferred provider organizations ('PPO') and similar organizations
which can provide a reasonable number of referrals.
(c) Cost-based reimbursement is predicated on the allowable cost of
services, plus, in certain cases, an incentive payment where costs fall
below a target rate. It is used by Medicare, Medicaid and certain Blue
Cross insurance programs to provide reimbursement in amounts lower than the
standard or negotiated schedule of rates in effect at an HGA facility.
(d) CHAMPUS reimbursement is at either (1) regionally set rates, (2) a
national rate adjusted upward periodically on the basis of the Medicare
Market Basket Index or (3) a fixed discount rate per day at certain
facilities where CHAMPUS contracts with a benefit administration group.
The Medicare, Medicaid and CHAMPUS programs are subject to statutory and
regulatory changes and interpretations, utilization reviews and governmental
funding restrictions, all of which may materially increase or decrease program
payments and the cost of providing services, as well as the timing of payments
to the facilities.
Limits on Reimbursement. Changes in government reimbursement programs have
resulted in limitations on increases in, and in some cases in reduced levels of,
reimbursement for healthcare services, and additional changes are anticipated.
Such changes are likely to result in further limitations on reimbursement
levels. In addition, private payors, including managed care payors, increasingly
are demanding discounted fee structures. Inpatient hospital utilization, average
lengths of stay and occupancy rates continue to be negatively affected by
payor-required pre-admission authorization and utilization review and by payor
pressure to maximize outpatient and alternative healthcare delivery services for
less acutely ill patients. In addition, efforts to impose reduced allowances,
greater discounts and more stringent cost controls by government and other
payors are expected to continue. Although itthe Company is unable to predict the
effect these changes will have on its operations, as the number of patients
covered by managed care payors increases, significant limits on the scope of
services reimbursed and on reimbursement rates and fees could have ana further
adverse effect on HGA's business and earnings.
RESEARCH AND DEVELOPMENT
During the fiscal years ended October 31, 1994, 19931996, 1995 and 1992,1994, expenditures
for Company-sponsored research and development were $1,176,000, $2,914,000 and
$4,407,000, $3,209,000respectively. The Company decided to discontinue development and
$3,267,000, respectively.outlicensing of its calcium channel blocker compound. During fiscal 1994,1996,
CooperVision incurred approximately 63%67% and CooperSurgical incurred
approximately 33% of those
expenditures was incurred by CVP, 21% was incurred by CooperVisiontotal research and the
balance was incurred by CooperSurgical.development. No customer-sponsored
research and development has been conducted.
The Company employs 2011 people in its research and development and
manufacturing engineering departments. Product development and clinical research
for CooperVision products are supported by outside specialists in lens design,
formulation science, polymer chemistry, microbiology and biochemistry. At CVP,
employees work with outside consultants. Product
research and development for CooperSurgical is conducted in-house and by outside
surgical specialists, including members of both the CooperSurgical and Euro-Med
surgical advisory boards.
Research involving endometrial ablation technology is performed by
experts in fluidics and heat transfer at InnerDyne.
GOVERNMENT REGULATION
Healthcare Products. The development, testing, production and marketing of
the Company's healthcare products isare subject to the authority of the FDAU.S. Food
and Drug Administration ('FDA') and other federal agencies as well as foreign
ministries of health. The Federal Food, Drug and Cosmetic Act and other statutes
and regulations govern the testing, manufacturing, labeling, storage,
advertising and promotion of such products. Noncompliance with applicable
regulations can result in fines, product recall or seizure, suspension of
production and criminal prosecution.
The Company is currently developing and marketing both medical devices, and
drug products. Medical deviceswhich
are subject to different levels of FDA regulation depending upon the
classification of the device. Class III devices, such as
4
flexible and extended wear contact lenses, require extensive
5
premarket testing
and approval procedures, while Class I and II devices are subject to
substantially lower levels of regulation.
A multi-step procedure must be completed before a new contact lens can be
sold commercially. Data must be compiled on the chemistry and toxicology of the
lens, its microbiological profile and the proposed manufacturing process. All
data generated must be submitted to the FDA in support of an application for an
Investigational Device Exemption. Once granted, clinical trials may be initiated
subject to the review and approval of an Institutional Review Board and, where a
lens is determined to be a significant risk device, the FDA. Upon completion of
clinical trials, a Premarket Approval Application must be submitted and approved
by the FDA before commercialization may begin.
A similar procedure will be
followed in the United States in connection with the development of the
InnerDyne thermal ablation technology should the Company determine to continue
its development beyond the initial safety and efficacy trials being performed
abroad.
The ophthalmic pharmaceutical products under development by the Company
require extensive testing before marketing approval may be obtained. Preclinical
laboratory studies are conducted to determine the safety and efficacy of a new
drug. The results of these studies are submitted to the FDA in an
Investigational New Drug Application under which the Company seeks clearance to
commence human clinical trials. The initial clinical evaluation, Phase I,
consists of administering the drug and evaluating its safety and tolerance
levels. Phase II involves studies to evaluate the effectiveness of the drug for
a particular indication, to determine optimal dosage and to identify possible
side effects. If the new drug is found to be potentially effective, Phase III
studies, which consist of additional testing for safety and efficacy with an
expanded patient group, are undertaken. If results of the studies demonstrate
safety and efficacy, marketing approval is sought from the FDA by means of
filing a New Drug Application.
The Company, in connection with some of its new surgical products, can
submit premarket notification to the FDA under an expedited procedure known as a
510(k) application, which is available for any product that iscan be demonstrated
to be substantially equivalent to a device marketed prior to May 28, 1976. If
the new product is not substantially equivalent to a pre-existing device or if
the FDA were to reject a claim of substantial equivalence, extensive preclinical
and clinical testing would be required, additional costs would be incurred and a
substantial delay would occur before the product could be brought to market.
FDA and state regulations also require adherence to applicable 'good
manufacturing practices' ('GMP'), which mandate detailed quality assurance and
record-keeping procedures. In conjunction therewith, the Company is subject to
unscheduled periodic regulatory inspections. The Company believes it is in
substantial compliance with GMP regulations.
The Company also is subject to foreign regulatory authorities governing
human clinical trials and pharmaceutical/medical device sales that vary widely
from country to country. Whether or not FDA approval has been obtained, approval
of a product by comparable regulatory authorities of foreign countries must be
obtained before products may be marketed in those countries. The approval
process varies from country to country, and the time required may be longer or
shorter than that required for FDA approval.
The procedures described above involve expendituresthe expenditure of considerable
resources and usually result in a substantial time lag between the development
of a new product and its introduction into the marketplace. There can be no
assurance that all necessary approvals will be obtained, or that they will be
obtained in a time frame that allows the product to be introduced for commercial
sale in a timely manner. Furthermore, product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
after marketing has begun.
Healthcare Services. The healthcare services industry is subject to
substantial federal, state and local regulation. Government regulation affects
the Company's business by controlling the use of its properties and controlling
reimbursement for services provided. Licensing, certification and other
applicable governmental regulations vary from jurisdiction to jurisdiction and
are revised periodically.
The Company's facilities must comply with the licensing requirements of
federal, state and local health agencies and with the requirements of municipal
building codes, health codes and local fire department codes. In granting and
renewing a facility's license, a state health agency considers, among 6
other
things, the condition of the physical buildings and equipment, the
qualifications of the administrative personnel and professional staff, the
quality of professional and other services and the continuing compliance of such
facility with applicable laws and regulations.
MostThe states in which the Company operates or manages hospital facilities have in effect
certificate of need statutes. State certificate of need statutes provide,
generally, that prior to the construction of new healthcare facilities, the
addition of new beds or the introduction of a new service, a state agency must
determine that a need exists for those facilities, beds or services. A
certificate of need is generally issued for a specific maximum amount of
expenditures or number of beds or types of services to be provided, and the
holder is generally required to implement the approved project within a specific
time period. Certificate of need issuances for new facilities are extremely
competitive, often with several applicants for a single certificate of need.
FiveAll of the six Company-owned or managedHGA's facilities are certified or approved as providers under one or
more of the Medicaid or Medicare programs. In order to receive Medicare
reimbursement, each facility must meet the applicable
5
conditions promulgated by the United States Department of Health and Human
Services relating to the type of facility, its equipment, its personnel and its
standards of patient care. The sixth facility treats only substance abuse
conditions and is not eligible for certification.
The Social Security Act contains a number of provisions designed to ensure
that services rendered to Medicare and Medicaid patients are medically necessary
and meet professionally recognized standards. Those provisions include a
requirement that admissions of Medicare and Medicaid patients to healthcare
facilities must be reviewed in a timely manner to determine the medical
necessity of the admissions. In addition, the Peer Review Improvement Act of
1982 provides that a healthcare facility may be required by the federal
government to reimburse the government for the cost of Medicare-paid services
determined by a peer review organization to have been medically unnecessary.
Various state and federal laws regulate the relationships between providers
of healthcare services and physicians. Among these laws are the Medicare and
Medicaid Anti-Fraud and Abuse Amendments to the Social Security Act, which
prohibit individuals or entities participating in the Medicare or Medicaid
programs from knowingly and willfully offering, paying, soliciting or receiving
'remuneration' (which includes anything of value) in order to induce referrals
for items or services reimbursed under those programs. Sanctions for violating
the Amendments include criminal penalties and civil sanctions, including fines
and possible exclusion from the Medicare and Medicaid programs. In addition,
Section 1877 of the Social Security Act was amended, effective January 1, 1995,
to significantly broaden the prohibitions against physicians making referrals
under Medicare and Medicaid programs to providers with which the physicians have
financial arrangements. Many states have adopted, or are considering, similar
legislative proposals, some of which (including statutes in effect in New Jersey
and Illinois) extend beyond the Medicare and Medicaid programs to all healthcare
services.
In addition, specific laws exist that regulate certain aspects of the
Company's business, such as the commitment of patients to psychiatric hospitals
and disclosure of information regarding patients being treated for chemical
dependency. Many states have adopted a 'patient's bill of rights' which sets
forth standards for dealing with issues such as use of the least restrictive
treatment, patient confidentiality, patient access to telephones, mail and legal
counsel and requiring the patient to be treated with dignity.
Healthcare Reform. In recent years, an increasing number of legislative
initiatives have been introduced or proposed in Congress and in state
legislatures that would effect major changes in the healthcare system, either
nationally or at the state level. Among the proposals under consideration are
price controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, requirements that
all businesses offer health insurance coverage to their employees and the
creation of a government health insurance plan or plans that would cover all
citizens. In 1993, President Clinton introduced a healthcare reform bill that
included a number of measures that were broadly viewed as increasing the scope
of government regulation of the healthcare industry. Key elements in the
President's proposal and other healthcare reform proposals included various
insurance market reforms, the requirement that businesses provide health
insurance coverage for their employees, reductions or lesser increases in future
Medicare and Medicaid reimbursement to providers and more stringent government
cost controls. None of these proposals has been adopted. There continue to be efforts at the federal level to introduce various
insurance market reforms, expanded fraud and abuse
7
and anti-referral legislation
and further reductions in Medicare and Medicaid reimbursement. A broad range of
both similar and more comprehensive healthcare reform initiatives is likely to
be considered at the state level. It is uncertain which, if any, of these or
other proposals will be adopted. The Company cannot yet predict the effect such
reforms or the prospect of their enactment may have on the business of the
Company and its subsidiaries.
Accordingly, no assurance can be given that the same will not have a material
adverse effect on the Company's revenues, earnings or cash flows.
RAW MATERIALS
In general, raw materials required by CooperVision consist of various
polymers as well asand packaging materials. Alternative sources of all of these materials
are available. Raw materials used by CooperSurgical or its suppliers are
generally available from a variety of sources. Products manufactured for
CooperSurgical are generally available from more than one source. However,
because some products require specialized manufacturing procedures,
CooperSurgical could experience inventory shortages if an alternative
manufacturer had to be secured on short notice.
CVP currently acquires its
Verapamil compound pursuant to the terms of a long-term supply agreement.
MANUFACTURING
CooperVision manufactures products in the United States and Canada.
CooperSurgical manufactures products in the United States and Europe.
Pursuant to a supply agreement entered into in May 1989 and subsequently
amended between the Company and Pilkington plc, the buyer of the Company's
contact lens business outside of the United States and Canada, CooperVision
purchases certain of its lenses from Pilkington plc (see Note 12)1. These
purchased lenses represented approximately 13%, 28% and 31% of the total number
of lenses sold by the Company in fiscal 1994, 1993 and 1992, respectively.
MARKETING AND DISTRIBUTION
Healthcare Products. In the United States and Canada, CooperVision markets
its products through its field sales representatives, who call on
ophthalmologists, optometrists, opticians and optical chains. In the United
States, field sales representatives also call on distributors.
6
CooperSurgical's LEEP'tm', Frigitronics'r', hysteroscopy and endoscopy products are marketed worldwide by a network of
independent sales representatives and distributors. In the United States, CooperSurgical, as a
principal method of increasing physician awareness of its products, conducts
teaching seminars. Euro-Med instruments, as well as certain LEEP'tm' disposable
products, are marketeddistributors, and additionally, in the
United States and abroad through a direct mail catalog programs.program.
Healthcare Services. HGA's marketing concept aims to position each
psychiatric facility as the provider of the highest quality mental health
services in its marketplace. HGA employs a combination of general advertising,
toll-free 'help lines,' community education programs and facility-based
continuing education programs to underscore the facility's value as a mental
health resource center. HGA's marketing emphasizes discrete programs for select
illnesses or disorders because of its belief that marketing a generic product
withoutwith program
differentiation will not generate the interest of, or be of
valuevaluable to a referral source seeking treatment for
specific disorders. Referral sources include psychiatrists, other physicians,
psychologists, social workers, school guidance counselors, police, courts,
clergy, care-provider organizations and former patients.
PATENTS, TRADEMARKS AND LICENSING AGREEMENTS
TCC owns or licenses a variety of domestic and foreign patents which, in
the aggregate, are material to its businesses. Unexpired terms of TCC's United
States patents range from less than one - ------------
1 All references to Note numbers shall constitute the incorporation by reference
of the text of the specific Note, contained in the Notes to Consolidated
Financial Statements of the Company and its subsidiaries located in Item 8,
into the Item number in which it appears.
8
year to a maximum of 17 years. CVP has the exclusive license to the U.S. patent
for the topical use of Class I calcium channel blockers as agents to reduce
intraocular pressure in ocular hypertensive conditions including glaucoma. In
addition, CVP has filed and/or is in the process of filing additional U.S. and
international patent applications. CooperVision holds a patent on certain
manufacturing technologies employed in the production of certain of its contact
lenses.
As indicated in the references to such products in this Item 1, the names
of certain of TCC's products are protected by trademark registrations in the
United States Patent and Trademark Office and, in some instances, in foreign
trademark offices as well. Applications are pending for additional trademark
registrations. TCC considers these trademarks to be valuable because of their
contribution to the market identification of its various products.
DEPENDENCE UPON CUSTOMERS
At this time, noNo material portion of TCC's businesses is dependent upon any one customer
or upon any one affiliated group of customers. However, approximately 17%23% and
22%30%, respectively, of HGA's fiscal 19941996 net patient revenue was generated by
Medicaid and Medicare, respectively.Medicare.
GOVERNMENT CONTRACTS
No material portion of TCC's businesses is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
United States government.
COMPETITION
Each of TCC's business segmentsbusinesses operates within a highly competitive environment.
Competition in the healthcare industry revolves around the search for
technological and therapeutic innovations in the prevention, diagnosis and
treatment of illness or disease. TCC competes primarily on the basis of product
quality, program differentiation, technological benefit, service and
reliability, as perceived by medical professionals.
Healthcare Products. Numerous companies are engaged in the development and
manufacture of contact lenses and ophthalmic pharmaceuticals.lenses. CooperVision competes primarily on the basis of
product quality, service and reputation among medical professionals and by its
participation in specialty niche markets. It has been, and continues to be, the
sponsor of clinical lens studies intended to generate information leading to the
improvement of CooperVision's lenses from a medical point of view. Major
competitors have greater financial resources and larger research and development
and sales forces than CooperVision. Furthermore, many of these competitors offer
a greater range of contact lenses, plus a variety of other eyecare products,
including lens care products and ophthalmic pharmaceuticals, which givesmay give them
a competitive advantage in marketing their lenses.lenses to high volume contract
accounts.
In the surgical segment, competitive factors are technological and
scientific advances, product quality, price and effective communication of
product information to physicians and hospitals. CooperSurgical believes that it
benefits, in part, from the technological advantages of certain of its products
and from the ongoing development of new medical procedures, which creates a
market for equipment and instruments specifically tailored for use in such new
procedures. CooperSurgical
7
competes by focusing on distinct niche markets and supplying medical personnel
working in those markets with equipment, instruments and disposable products
that are high in quality and that, with respect to certain procedures, enable a
medical practitioner to obtain from one source all of the equipment, instruments
and disposable products required to perform such procedure.procedures. As CooperSurgical
develops products to be used in the performance of new medical procedures, it
offers training to medical professionals in the performance of such procedures.
CooperSurgical competes with a number of manufacturers in each of its niche
markets, including larger manufacturers that have greater financial and
personnel resources and sell a substantially larger number of product lines.
Healthcare Services. In most areas in which HGA operates, there are other
psychiatric facilities that provide services comparable to those offered by
HGA's facilities. Some of those facilities are owned by governmental
organizations, not-for-profit organizations or investor-owned companies having
substantially greater resources than HGA and, in some cases, tax-exempt status.
Psychiatric facilities frequently draw patients from areas outside their
immediate locale, therefore, HGA's psychiatric facilities compete with both
local and distant facilities. In addition, psychiatric facilities also compete with
psychiatric units
9
in acute care hospitals. HGA's strategy is to develop high
quality programs designed to target specific disorders and to retain a highly
qualified professional staff.
BACKLOG
TCC does not consider backlog to be a material factor in its businesses.
SEASONALITY
HGA's psychiatric facilities experience a decline in occupancy rates during
the summer months when school is not in session and during the year-end holiday
season. No other material portion of TCC's businesses is seasonal.CVI's contact lens sales in the first fiscal quarter are generally lower
than subsequent quarters due to fewer patient visits during the holiday season.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Federal, state and local provisions regulating the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, do not currently have a material effect upon TCC's capital
expenditures, earnings or competitive position.
WORKING CAPITAL
TCC's businesses have not required any material working capital
arrangements in the past five years.
In light of the substantial reduction in
TCC's current asset base and the net cash outflow anticipated in connection with
the development of certain new products, the Company has obtained a line of
credit from a commercial lender and is pursuing a variety of other alternatives
to obtain funds. See Item 7 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Capital Resources and Liquidity.'
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS, GEOGRAPHIC AREAS, FOREIGN
OPERATIONS AND EXPORT SALES
Note 1413 sets forth financial information with respect to TCC's business
segments and sales in different geographic areas.segments. Operations outside the United States are immaterial.
EMPLOYEES
On October 31, 1994,1996, TCC and its subsidiaries employed approximately 9701,100
persons. In addition, HGA's psychiatric facilities are staffed by licensed
physicians who have been admitted to the medical staff of an individual
facility. Certain of those physicians are not employees of HGA. TCC believes
that its relations with its employees are good.
8
ITEM 2. PROPERTIES.
The following are TCC's principal facilities as of December 31, 1994:1996:
APPROXIMATE APPROXIMATE
FLOOR AREA ANNUAL LEASE
LOCATION OPERATIONS (SQ. FT.) RENT EXPIRATION
- ----------------------------- ------------------------------------------------------------- ---------------------------- ----------- ------------ ----------------------- -----------
United States
Pleasanton, CA Executive Offices 13,700 $212,000 Sept. 2000
Fort Lee, NJ............ ExecutiveNJ Offices 11,000(1) $230,000(1) Feb.11,200(1) $231,000(1) Mar. 2005
Pleasanton, CA.......... Offices 14,000 $198,000 Sept. 1995
Chicago, IL.............IL Psychiatric Hospital 74,00067,800 Owned in fee N/A(2)
New Castle, DE..........DE Psychiatric Hospital 45,000 Owned in fee N/A(2)
Mt. Holly, NJ...........NJ Learning Facility 22,000 $235,000$193,000 Aug. 19961997
Rancocas, NJ............NJ Psychiatric Hospital 65,000 Owned in fee N/A(2)
Wayne, PA...............Kouts, IN Residential Treatment Center 13,300 Owned in fee N/A
Irvine, CA Executive Offices, 4,000 $ 61,000 Jan. 1996
(table continued on next page)
10
(table continued from previous page)
APPROXIMATE APPROXIMATE
FLOOR AREA ANNUAL LEASE
LOCATION OPERATIONS (SQ. FT.) RENT EXPIRATION
- ----------------------------- ----------------------------- ----------- ------------ ----------
Irvine, CA..............CVI
Offices, distribution and
customer service 17,500 $120,000 Jan. 1998
Huntington Beach, CA.... Manufacturing andCA CVI manufacturing &
technical offices 21,000 $180,00020,600 $190,000 April 1997
Fairport, NY............ AdministrativeNY CVI administrative offices and&
marketing 15,000 $237,000(3)15,300 $240,000(3) March 1997
Scottsville, NY......... Manufacturing,NY CVI manufacturing,
distribution and warehouse
facilities 20,00036,000 Owned in fee N/A
Shelton, CT............. Manufacturing,CT CSI manufacturing, research
and development, marketing,
distribution and warehouse
facilities 25,000 $225,000$288,000 Dec. 2001
Canada
Markham, Ont............Ont. CVI Offices, manufacturing
distribution and warehouse
facilities 23,000 $ 75,00021,000 $75,000 Feb. 2000
- ------------
(1) OnThe Company entered into sublease agreements on December 9, 1994 the Company entered into a subleaseand March
18, 1996, pursuant to which it has subleased to a third party approximately 6,000 square feetall of its
Fort Lee, NJNew Jersey, office space at ana combined annual base rent commencing at $113,924 in
year one and increasing to $125,916 in years two through five, the last year
of
the sublease.$173,000 until March 31, 2000. The subtenant has an option to renew the
subleasesubleases for an additional five years.
(2) Outstanding loans, totaling $12,556,000$10,675,000 as of October 31, 1994,1996, were secured
by these properties.
(3) Includes utilities, common area charges and taxes.
- ----------------------------------------------------------------------------------
The Company believes its properties are suitable and adequate for its
businesses.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in a number of legal actions relating to its
past or present businesses in which plaintiffs are seeking damages. In the
opinion of management, after consultation with counsel, the ultimate disposition
of those actions will not materially affect the Company's financial condition.position or
results of operations.
In January 1994, the Company was found guilty on six counts of mail fraud
and one count of wire fraud based upon the conduct of a former Co-Chairman
relating to a 'trading scheme' to 'frontrun' high yield bond purchases, but was
acquitted of charges of conspiracy and aiding and abetting violations of the
Investment Advisers Act. The Company iswas sentenced on July 15, 1994, at which
time it was ordered to make restitution to Keystone Custodian Funds, Inc. of
$1,310,166, which was paid August 15,
9
1994. In addition, the Company was ordered to pay a noninterest bearing fine
over the next three years in the amount of $1,831,568. Payments of $350,000 each
were made in 1995 and 1996 with an additional payment of $1,131,568 payable on
July 15, 1997. These amounts were charged against net income in previous fiscal
years. Also the Company settled in December 1994 a related SEC action under
which the Company agreed to the disgorgement of $1,621,474 and the payment of a
civil penalty of $1,150,000. The Company had already disgorged $1,310,166 in
connection with the sentence imposed in a related criminal action involving the
'frontrunning' arrangement; the balance of the disgorgement was paid in January
1995. The civil penalty imposed by the SEC was offset by the larger fine to
which the Company was sentenced in the criminal action.
The Company was named as a nominal defendant in a shareholderstockholder derivative
action entitled Harry Lewis and Gary Goldberg v. Gary A. Singer, Steven G.
Singer, Arthur C. Bass, Joseph C. Feghali, Warren J. Keegan, Robert S. Holcombe
and Robert S. Weiss, which was filed on May 27, 1992 in the Court of Chancery,
State of Delaware, New Castle County. On May 29, 1992, another plaintiff, Alfred
Schecter, separately filed a derivative complaint in Delaware Chancery Court
that was essentially identical to the Lewis and Goldberg complaint. Lewis and
Goldberg latersubsequently amended
their complaint, and the Delaware Chancery Court thereafter consolidated the Lewis and Goldberg and Schecter actionsamended
complaint with a similar complaint filed by another plaintiff as In re The
Cooper Companies, Inc. Litigation, Consolidated C.A. 12584, and designated12584. The Lewis and
Goldberg'sGoldberg amended complaint was designated as the operative complaint (the
'First Amended
Derivative'Derivative Complaint'). The First Amended Derivative Complaint alleges that certain directors
of the Company and Gary A. Singer, as Co-Chairman of the Board of Directors,
caused or allowed the Company to be a party to thea 'trading scheme' referenced into 'frontrun'
high yield bond purchases by the SEC Complaint described below.Keystone Custodian Fund, Inc., a group of
mutual funds. The First Amended Derivative Complaint also alleges that the defendants violated
their fiduciary duties to the Company by not vigorously investigating thecertain
allegations of securities fraud. The First Amended Derivative Complaint requests that the
Court order the defendants (other than the Company) to pay damages and expenses
to the Company and certain of the defendants to disgorge their profits to the
Company. On October 16, 1992,The parties have been engaged in negotiations and had agreed upon the
terms of a settlement. Although the proposed settlement was submitted to the
Court for approval following notice to the Company's stockholders and a hearing,
Plaintiffs have decided not to proceed with the settlement in its present form,
and the parties have reopened settlement discussions. There can be no assurance
that the current discussions will ultimately end the litigation. The individual
defendants moved to dismisshave advised the First Amended
Derivative Complaint on grounds that such
11
Complaint fails to comply with Delaware Chancery Court Rule 23.1 and that Count
III of the First Amended Derivative Complaint fails to state a claim. No further
proceedings have taken place. The Company has been advised by the individual
directors named as defendants that they believe they have meritorious
defenses to thisthe lawsuit and that, in the event the case proceeds to trial, they
intend vigorously to defend vigorously against the allegations in the First Amended Derivative Complaint.
The parties have engaged in preliminary
settlement negotiations; however, there can be no assurances that these
discussions will be concluded successfully.
The Company was also named as a nominal defendant in a purported shareholderstockholder
derivative action entitled Bruce D. Sturman v. Gary A. Singer, Steven G. Singer,
Brad C. Singer, Dorothy Singer as the Executrix of the Estate of Martin Singer,
John D. Collins II, Back Bay Capital, Inc.Karen Sue Singer, Norma Singer Brandes, Normel Construction Corp., G.
Albert Griggs, Jr., JohnBrandes &
Singer, and Jane Does 1-10 and The Cooper Companies,Romulus Holdings, Inc., which was filed on May 26, 1992June 6, 1995 in the Court
of Chancery of the State of Delaware, New Castle County. The complaint is
similar to a derivative complaint filed by Mr. Sturman in the Supreme Court of
the State of New York County of New York. The plaintiff, Bruce D. Sturman, a former officer and
director of the Company, alleged that Gary A. Singer, as Co-Chairman of the
Board of Directors, and various members of the Singer family caused the Company
to make improper payments to alleged third-party co-conspirators as part of the
'trading scheme' thaton May 26, 1992, which was the subject of the SEC Complaint. The complaint
requested that the Court order the defendants (other than the Company) to pay
damages and expenses to the Company, including reimbursement of payments made by
the Company to the co-conspirators, and to disgorge their profits to the
Company. Pursuant to its decision and order, filed August 17, 1993, the Court
dismissed this action under New York Civil
Practice Rule 327(a). On September
22, 1993, on August 17, 1993. The dismissal of the plaintiff filed a Notice of Appeal, and the appealNew York case was
heardaffirmed by the Appellate Division in early January 1995; no decision has been rendered by
the Appellate Court to date.
On November 10, 1992, the SEC filed a civil Complaint for Permanent
Injunction and Other Equitable Relief (the 'SEC Complaint')on March 28, 1995. The allegations in the
United States
District Court forDelaware complaint filed by Mr. Sturman relate to substantially the Southern District of New York against the Company, Gary
A. Singer (a former Co-Chairman of the Board of the Company), Steven G. Singer
(the Company's former Executive Vice Presidentsame facts
and Chief Operating Officer and
Gary Singer's brother), and, as relief defendants, certain persons related to
Gary and Steven Singer and certain entitiesevents at issue in which they and/or those related
persons have an interest. The SEC Complaint alleged that the Company and Gary
and Steven Singer violated various provisions of the Securities Exchange Act of
1934, as amended (the 'Securities Exchange Act'), including certain of its
antifraud and periodic reporting provisions, and aided and abetted violations of
the Investment Company Act, and the Investment Advisers Act, in connection with
a 'trading scheme' to 'frontrun' high yield bond purchases by the Keystone
Custodian Funds, Inc., a group of mutual funds. The SEC Complaint further
alleged, among other things, federal securities law violations (i) by the
Company and Gary Singer in connection with an alleged manipulation of the
trading price of the Company's 10 5/8% Convertible Subordinated Reset Debentures
due 2005 (the 'Debentures') to avoid an interest rate reset allegedly required
on June 15, 1991 under the terms of the Indenture governing the Debentures, (ii)
by Gary Singer in allegedly transferring profits on trades of high yield bonds
from the Company to members of his family and failing to disclose such
transactions to the Company and (iii) by the Company in failing to disclose
publicly on a timely basis such transactions by Gary Singer. The SEC Complaint
asked that the Company and Gary and Steven Singer be enjoined permanently from
violating the antifraud, periodic reporting and other provisions of the federal
securities laws, that they disgorge the amounts of the alleged profits received
by them pursuant to the alleged frauds (stated in the SEC's Litigation Release
No. 13432 announcing the filing of the SEC Complaint as being $1,296,406,
$2,323,180 and $174,705, respectively), plus interest, and that they each pay
appropriate civil monetary penalties. The SEC Complaint also sought orders
permanently prohibiting Gary and Steven Singer from serving as officers or
directors of any public company and disgorgement from certain Singer family
members and entities of amounts representing the alleged profits received by
such defendants pursuant to the alleged frauds. On December 20, 1994, a Final
Judgment (on Consent) of Permanent Injunction and Other Relief was entered
settling the SEC Complaint with respect to the Company. The principal terms of
the settlement involve the Company's agreement to permanent injunctions against
violation of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the
Securities Exchange Act from aiding and abetting violations of Section 204 of
the Investment Advisers Act of 1940, and from employing Gary Singer, Steven
Singer and/or any of their relatives. The Company agreed to the disgorgement of
$1,621,474 and the payment of a civil penalty of $1,150,000. The Company had
already disgorged $1,310,166 in connection with the sentence imposed in a
related criminal action involving the
12
'frontrunning' arrangement; the balance of the disgorgement was paid in January,
1995. The civil penalty imposed by the SEC is offset by the larger fine to which
the Company was sentenced in the criminal action.
In two virtually identical actions, Frank H. Cobb, Inc. v.re The Cooper Companies, Inc., et al., Litigation described
above, and Arthur J. Korf v.similar relief is sought. The parties had agreed that Mr. Sturman's
Delaware action would be consolidated into and tentatively settled with In re
The Cooper Companies, Inc., et
al., class action complaints were filed in the United States District Court for
the Southern District of New York in August 1989, against the Company and
certain individuals who served as officers and/or directors of the Company after
June 1987. In their Fourth Amended Complaint filed in September 1992, the
plaintiffs allege that they are bringing the actions on their own behalf and as
class actions on behalf of a class consisting of all persons who purchased or
otherwise acquired shares of the Company's common stock during the period May
26, 1988 through February 13, 1989. The amended complaints seek an undetermined
amount of compensatory damages jointly and severally against all defendants. The
complaints, as amended, allege that the defendants knew or recklessly
disregarded and failed to disclose to the investing public material adverse
information about the Company. Defendants are accused of having allegedly failed
to disclose, or delayed in disclosing, among other things: (a) that the
allegedly real reason the Company announced on May 26, 1988 that it was dropping
a proposed merger with Cooper Development Company, Inc. was because the
Company's banks were opposed to the merger; (b) that the proposed sale of Cooper
Technicon, Inc., a former subsidiary of the Company, was not pursuant to a
definitive sales agreement but merely an option; (c) that such option required
the approval of the Company's debentureholders and preferred stockholders; (d)
that the approval of such sale by the Company's debentureholders and preferred
stockholders would not have been forthcoming absent extraordinary expenditures
by the Company; and (e) that the purchase agreement between the Company and
Miles, Inc. for the sale of Cooper Technicon, Inc. included substantial
penalties to be paid by the Company if the sale was not consummated within
certain time limits and that the sale could not be consummated within those time
limits. The amended complaints further allege that the defendants are liable for
having violated Section 10(b) of the Securities Exchange Act and Rule 10(b)-5
thereunder and having engaged in common law fraud. Based on management's current
knowledge of the facts and circumstances surrounding the events alleged by
plaintiffs as giving rise to their claims, the Company believes that it has
meritorious defenses to these lawsuits. The Company has reached a settlement
with counsel for the class plaintiffs, which settlement will have no material
impact on the Company's financial condition. In December 1994, the Court gave
preliminary approval to the settlement, ordered notice to be given to putative
class members, and set a hearing for April 7, 1995 to consider possible
objections to the settlement. Therefore, there can be no assurance that the
proposed settlement will ultimately end the litigation. In the event the case
proceeds to trial, the Company intends to vigorously defend itself against the
allegations in the amended complaint.
Under an agreement dated July 11, 1985, as amended (the 'HMG Agreement'),
Hampton Medical Group, P.A. ('HMG'), which is not affiliated with the Company,
contracted to provide clinical and clinical administrative services at Hampton
Hospital, the primary facility operated by HGNJ, a subsidiary of HGA. On
November 29, 1993 and February 1, 1994, HGNJ delivered notices to HMG asserting
that HMG had defaulted under the HMG Agreement. The first notice was based upon
the failure of HMG to provide to HGNJ records needed to analyze information HGNJ
had received indicating that HMG allegedly had engaged in fraudulent billing
practices; the second was based upon information uncovered in the review of
those records, when they were ultimately produced, and other available
information. At the request of HMG, a New York state court enjoined HGNJ from
terminating the HMG Agreement based upon the initial notice and ordered the
parties (on consent) to arbitrate whether HMG had defaulted. On February 2,
1994, HMG commenced an arbitration in New York, New York, entitled Hampton
Medical Group, P.A. and Hospital Group of New Jersey, P.A. (American Arbitration
Association). In the arbitration, HMG contests the alleged default under the HMG
Agreement and HGNJ's allegations regarding fraudulent conduct, and advances a
claim against HGNJ that HMG has the right to provide clinical and clinical
administrative services at all HGNJ-owned facilities in New Jersey (which would
include, HMG contends, the outpatient clinics in Marlton and Toms River, New
Jersey, and the Hampton Academy, at which certain non-HMG physicians have been
employed at various times since the HMG Agreement was executed), regardless of
whether these facilities are connected to Hampton Hospital. HMG maintains that
it is entitled to an unspecified
13
amount of damages for professional fees it would have received for the clinical
services that were provided by non-HMG physicians at the outpatient facilities.
HGNJ has responded to this claim asserting, among other things, (1) that HMG has
no contractual right to provide services at those facilities, (2) that HMG has
waived or lost any such right, if it ever had one, and (3) that the assertions
of billing fraud are a defense to any such right.
As HGNJ's knowledge of HMG's billing practices developed, HGNJ notified the
authorities and, subsequently, Blue Cross and Blue Shield of New Jersey, Inc.
('Blue Cross'), the largest of the third party payors from which HGNJ received
payment for its hospital services from 1988 through 1994.
During December 1994, Blue Cross informed HGNJ that it had investigated
matters at Hampton Hospital, that it had formed the view that it had been
overcharged as a result of those matters, including fraudulent practices of HMG
which resulted in increased hospital bills to Blue Cross subscribers, and that
it intended promptly to commence a lawsuit to recover amounts inappropriately
charged. On December 30, 1994, Blue Cross and HGNJ entered into an agreement to
settle all claims against Hampton Hospital on behalf of Blue Cross subscribers
and certain other subscribers for whom Blue Cross administers claims. The
settlement includes a cash payment, over time, by HGNJ, offset by certain
amounts owed by Blue Cross to HGNJ. On the same day, Blue Cross commenced a
lawsuit against HMG and certain related entities and individuals unrelated to
HGNJ or its affiliates alleging, among other things, fraudulent billing
practices. HGNJ is cooperating with Blue Cross in Blue Cross' investigation of
HMG. HGNJ has also received a request for information from the State of New
Jersey Department of Insurance with respect to a related investigation, with
which HGNJ is also cooperating.
HGNJ is continuing to seek the termination of the HMG Agreement and intends
to seek recovery from HMG for any losses, expenses or other damages HGNJ incurs
by reason of HMG's conduct, including amounts paid or offset pursuant to the
Blue Cross settlement and any damages that may result from any future claims by
other third party payors or others arising out of the billing practices at
Hampton Hospital, which claims could, in the aggregate, be material; however,
management of the Company, after consultation with counsel, does not believe
that the outcome of such claims (should any be brought) would, in the aggregate,
have a material adverse effect on the Company's financial condition. In
addition, HGA is seeking to recover damages from Progressions Health Systems,
Inc., the successor to the former owner of HGA, based upon breaches of
representations and warranties in the purchase agreement or other rights of
indemnification thereunder. There can be no assurance, however, that HGA will be
able to recover the amount of any or all such losses, expenses or damages from
HMG or Progressions Health Systems, Inc.
On September 2, 1993, a patent infringement complaint was filed against the
Company in the United States District Court for the District of Nevada captioned
Steven P. Shearing v. The Cooper Companies, Inc. On or about that same day, the
plaintiff filed twelve additional complaints, accusing at least fourteen other
defendants of infringing the same patent. The patent in these suits covers a
specific method of implanting an intraocular lens into the eye. Until February
1989, the Company manufactured intraocular lenses and ophthalmic instruments,
but did not engage in the implantation of such lenses. Subsequent to February
1989, the Company was not involved in the manufacture, marketing or sale of
intraocular lenses. On April 4, 1994, all of Shearing's complaints were
dismissed; thereafter, Shearing successfully moved for leave to file an amended
complaint. The Company denies the material allegations of Shearing's amended
complaint. The parties have executed a settlement agreement effective January
24, 1995, pursuant to which the litigation will be dismissed. The settlement has
no material impact on the Company's financial condition.
On March 30, 1994, Envirodyne Industries, Inc. filed a lawsuit entitled
Envirodyne Industries, Inc. v. Connecticut Mutual Life Insurance Company, The
Cooper Companies, Inc., Presidential Life Insurance Company, M D Sass
re/Enterprise Partners L.P. and Gruss Partners, in the Circuit Court of Cook
County, Illinois against the Company, Connecticut Mutual Life Insurance Company,
Presidential Life Insurance Company, M D Sass Re/Enterprise Partners L.P. and
Gruss Partners. The complaint alleged that defendants, former holders of
Envirodyne subordinated promissory notes (the '13 1/2% Notes'), filed an
involuntary bankruptcy petition against Envirodyne without complying with the
indenture issued in connection with the 13 1/2% Notes and that the improvident
filing of the involuntary bankruptcy petition allegedly damaged Envirodyne in an
amount in excess of $100 million. Defendants removed the
14
case to the United States Bankruptcy Court for the Northern District of Illinois
and, on May 20, 1994, moved to dismiss the complaint, which motion was granted
and the case was dismissed in December 1994. No appeal has been taken and the
time to file a notice of appeal has expired.
The Company was named in an action entitled Bruce D. Sturman v. The Cooper
Companies, Inc. and Does 1-100, Inclusive, first brought on July 24, 1992 in the
Superior Court of the State of California, Los Angeles County. Mr. Sturman
alleged that his suspension from his position as Co-Chairman of the Board of
Directors constituted, among other things, an anticipatory breach of his
employment agreement. On May 14, 1993, Mr. Sturman filed a First Amended
Complaint in the Superior Court of the State of California, County of Alameda,
Eastern Division, the jurisdiction to which the original case had been
transferred. In the Amended Complaint, Mr. Sturman alleged that by first
suspending and then terminating him from his position as Co-Chairman, the
Company breached his employment agreement, violated provisions of the California
Labor Code, wrongfully terminated him in violation of public policy, breached
its implied covenant of good faith and fair dealing, defamed him, invaded his
privacy and intentionally inflicted emotional distress, and was otherwise
fraudulent, deceitful and negligent. After engaging in prolonged settlement
negotiations, a settlement was reached, and on December 2, 1994, the case was
dismissed with prejudice. The settlement has no material impact on the Company's
financial condition. Litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1994 Annual MeetingNo matters were submitted during the fourth quarter of Stockholders was held on September 13, 1994.
Seven individuals were nominatedfiscal 1996 to serve as directorsa
vote of the Company.
Information with respect to votes cast for or withheld from such nominees is set
forth below:
DIRECTOR VOTES FOR VOTES WITHHELD
- ------------------------------------------------------------------------- ---------- --------------
A. Thomas Bender......................................................... 24,308,523 3,860,973
Mark A. Filler........................................................... 24,181,083 3,988,413
Michael H. Kalkstein..................................................... 24,179,541 3,989,955
Donald Press............................................................. 24,299,105 3,870,391
Steven Rosenberg......................................................... 24,298,726 3,870,770
Allan E. Rubenstein...................................................... 24,193,306 3,976,190
Mel Schnell.............................................................. 24,295,511 3,873,985
Stockholders were also asked to ratify the appointment of KPMG Peat Marwick
LLP as independent certified public accountants for the Company for the fiscal
year which ended October 31, 1994. A total of 27,913,850 shares were voted in
favor of the ratification, 99,152 shares were voted against it and 156,497
shares abstained.Company's security holders.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on The New York Stock Exchange, Inc.
and the Pacific Stock Exchange Incorporated. No cash dividends were paid with
respect to the common stock in fiscal 19941996 or 1993.1995.
The Indenture,indenture, dated as of March 1, 1985, governing the Company's 10 5/8%
Convertible Subordinated Reset Debentures Due 2005, as amended by the First
Supplemental Indenture dated as of June 29, 1989 and the Second Supplemental
Indenture dated as of January 6, 1994, and the Indentureindenture dated as of January 6,
1994 governing the Company's 10% Senior Subordinated Secured Notes due 2003
(collectively, the 'Indentures'), prohibit the payment of cash dividends on the
Company's common stock unless (i) no defaults exist or would exist under the
Indentures, (ii) the Company's Cash Flow Coverage Ratio (as defined in the
Indentures) for the most recently ended four full fiscal quarters has been at
least 1.5 to 1, and (iii) such cash dividend, together with the aggregate of all
other Restricted Payments (as defined in the Indentures), is less than the sum
of 50% of the Company's cumulative net income plus the proceeds of certain sales
of the Company's or its subsidiaries' capital stock subsequent to February 1,
1994. The Company does not 15
anticipate, in the foreseeable future being able to satisfy the foregoing test
and, therefore, does not anticipate being able to paypaying cash
dividends on its common stock.
Common stock in the foreseeable future.
The abilityprice range:
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- --------- ------- ------- ------- -------
High $8.000 $11.125 $13.125 $15.125
Low $5.625 $ 6.375 $ 9.625 $10.750
1995
- ---------
High $8.625 $ 8.625 $ 9.750 $11.250
Low $6.000 $ 5.250 $ 5.250 $ 5.875
At December 31, 1996 and 1995, there were 2,845 and 3,067 common
stockholders of the Company to declare and pay dividends is also subject to
restrictions set forth in the Delaware General Corporation Law (the 'Delaware
GCL'). As a general rule, a Delaware corporation may pay dividends under the
Delaware GCL either out of its 'surplus,' as defined in the Delaware GCL, or,
subject to certain exceptions, out of its net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. Even if the
Company were to satisfy the requirements in the Indentures for the payment of
cash dividends on the Company's common stock, the Company's ability to pay cash
dividends will depend upon whether the Company satisfies the requirements of the
Delaware GCL at the time any such proposed dividend is declared.
Other information called for by this Item is set forth in Note 15.
16
record, respectively.
ITEM 6. SELECTED FINANCIAL DATA.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
FIVE YEAR FINANCIAL HIGHLIGHTS
SUMMARY CONSOLIDATED OPERATIONS
YEARS ENDED OCTOBER 31,
------------------------------------------------------
1994 1993 1992 1991 1990
------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
Net service revenue..................................... $44,611 $ 45,283 $ 19,406 $ -- $ --
Net sales of products................................... 51,034 47,369 43,873 35,524 48,206
------- -------- -------- -------- -------
Net operating revenue................................... 95,645 92,652 63,279 35,524 48,206
------- -------- -------- -------- -------
Cost of services provided............................... 41,039 42,754 17,353 -- --
Cost of products sold................................... 17,906 17,538 18,236 16,979 18,476
Research and development expense........................ 4,407 3,209 3,267 2,268 1,000
Selling, general and administrative expense............. 31,027 49,382 44,600 45,627 41,663
Settlement of disputes.................................. 4,950 6,350 4,498 -- --
Debt restructuring costs................................ 340 2,131 -- -- --
Costs associated with restructuring operations.......... -- 451 -- -- 70
Amortization of intangibles............................. 843 772 742 946 341
Investment income (loss), net........................... (153) 1,615 14,254 12,268 16,152
Gain on sales of assets and businesses, net............. 214 620 1,030 -- 1,076
Other income, net....................................... 42 174 772 574 1,226
Interest expense........................................ 4,533 6,129 6,697 7,148 8,999
------- -------- -------- -------- -------
Loss from continuing operations before income taxes and
extraordinary items................................... (9,297) (33,655) (16,058) (24,602) (3,889)
Provision for (benefit of) income taxes................. (4,600) 417 100 201 (2,907)
------- -------- -------- -------- -------
Loss from continuing operations before extraordinary
items................................................. (4,697) (34,072) (16,158) (24,803) (982)
Loss on sale of discontinued operations, net of taxes... -- (13,657) (9,300) -- (734)
------- -------- -------- -------- -------
Loss before extraordinary items......................... (4,697) (47,729) (25,458) (24,803) (1,716)
Extraordinary items..................................... -- 924 640 5,428 10,167
------- -------- -------- -------- -------
Net income (loss)....................................... (4,697) (46,805) (24,818) (19,375) 8,451
Less, dividend requirements on preferred stock.......... 89 320 1,804 2,325 5,451
------- -------- -------- -------- -------
Net income (loss) applicable to common
stock....................................... $(4,786) $(47,125) $(26,622) $(21,700) $ 3,000
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Net income (loss) per common share:
Continuing operations.............................. $ (.15) $ (1.13) $ (.64) $ (1.05) $ (.26)
Loss on sale of discontinued operations............ -- (.45) (.34) -- (.03)
------- -------- -------- -------- -------
Loss before extraordinary items.................... (.15) (1.58) (.98) (1.05) (.29)
Extraordinary items................................ -- .03 .02 .21 .41
------- -------- -------- -------- -------
Net income (loss) per common share............ $ (.15) $ (1.55) $ (.96) $ (.84) $ .12
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Cash dividends per common share............... $ -- $ -- $ -- $ -- $ --
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Average number of common shares outstanding... 31,082 30,377 27,669 25,878 24,895
------- -------- -------- -------- -------
------- -------- -------- -------- -------
17
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
FIVE YEAR FINANCIAL HIGHLIGHTS
FINANCIAL POSITION
OCTOBER 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
------- -------- -------- -------- --------
(IN THOUSANDS)
Current assets........................................ $43,505 $ 51,875 $119,282 $173,857 $197,061
Property, plant and equipment, net.................... 34,787 39,895 39,732 3,593 3,083
Intangible assets, net................................ 15,327 16,285 10,083 8,843 6,177
Other assets.......................................... 1,439 1,469 3,910 1,340 11,107
------- -------- -------- -------- --------
Total assets..................................... $95,058 $109,524 $173,007 $187,633 $217,428
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Current liabilities................................... $42,956 $ 51,995 $ 68,119 $ 67,274 $ 60,982
Senior and subordinated debt.......................... 34,620 34,647 43,581 48,012 70,557
Other long-term debt.................................. 11,564 13,430 15,010 645 306
Other long-term liabilities........................... 9,572 9,000 -- -- --
------- -------- -------- -------- --------
Total liabilities..................................... 98,712 109,072 126,710 115,931 131,845
------- -------- -------- -------- --------
Stockholders' equity (deficit)........................ (3,654) 452 46,297 71,702 85,583
------- -------- -------- -------- --------
Total liabilities and stockholders' equity
(deficit)...................................... $95,058 $109,524 $173,007 $187,633 $217,428
------- -------- -------- -------- --------
------- -------- -------- -------- --------
18
The information required for this item is contained under the caption 'Five
Year Financial Highlights,' in the Company's 1996 Annual Report to Stockholders
which is incorporated herein by reference and is included as Exhibit 13 to this
Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ReferencesThe information required for this item is contained under the caption
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' in the Company's 1996 Annual Report to Note numbersStockholders, which is
incorporated herein are referencesby reference and is included as Exhibit 13 to this Form
10-K.
ITEM 8. FINANCIAL STATEMENTS.
The information required for this item is included under the captions
'Consolidated Balance Sheets,' 'Consolidated Statements of Operations,'
'Consolidated Statements of Stockholders' Equity (Deficit),' 'Consolidated
Statements of Cash Flows,' 'Notes to Consolidated Financial Statements' of the Company located in Item 8 herein.
Reference is also made to Part I, Item 1 'Business' herein.
CAPITAL RESOURCES & LIQUIDITY
On January 6, 1994, the Company completed an Exchange Offer and
Consent
Solicitation, the terms of which are described in Note 9, pursuant to which the
Company issued approximately $22,000,000 aggregate principal amount of 10%
Senior Subordinated Secured Notes due 2003 (the 'Notes') and paid approximately
$4,350,000 in cash in exchange for approximately $30,000,000 aggregate principal
amount of its 10 5/8% Convertible Subordinated Reset Debentures due 2005 (the
'Debentures'). Pursuant to the Exchange Offer and Consent Solicitation, the
Company amended the indenture to the Debentures (the 'Indenture') and obtained a
waiver of any defaults occurring under the Indenture through January 6, 1994.
As previously reported, the Company was convicted of six counts of mail
fraud and one count of wire fraud based upon the conduct of its former
Co-Chairman, Gary Singer. The Company was sentenced on July 15, 1994, at which
time it was ordered to make restitution to Keystone Custodian Funds, Inc. of
$1,310,166, which restitution was made in August 1994. In addition, the Company
was ordered to pay a noninterest bearing fine over the next three years in the
amount of $1,831,568. On December 12, 1994, the Company and the SEC entered into
a settlement with respect to the SEC enforcement action described in Note 16,
which became effective upon entry of the Order of Dismissal on December 20,
1994. The principal financial terms of the settlement involved the disgorgement
of $1,621,474 (which amount was reduced by the $1,310,166 paid to Keystone
Custodian Funds) and the payment of a civil penalty in the amount of $1,150,000.
The Company paid $311,308 to the SEC on January 19, 1995, representing payment
in full of the balance of the disgorgement. The civil penalty, which is smaller
than the criminal fine, is offset by the fine to which the Company was sentenced
in the criminal action.
The Company reported a net loss of $4,786,000 in fiscal 1994, due, in large
part, to the incurrence of legal fees and other costs associated with the issues
discussed in the preceding two paragraphs. This net loss, together with
attendant requirements to disburse cash, resulted in a $6,231,000 reduction in
liquid assets and moved the Company's stockholders' equity into a deficit
position. The Company currently anticipates that, at least for fiscal 1995, it
is likely to continue experiencing negative cash flows, since fiscal 1995
payments required pursuant to certain litigation settlement agreements and other
costs related to disputes which could be incurred (see Note 16 and Part I, Item
3 'Legal Proceedings'), together with funds to be used for strategic research
projects, are likely to exceed the positive cash flows generated by the
Company's established operating businesses. The foregoing notwithstanding,
management believes that the successful settlement of certain disputes and
litigations, the successful completion of the Exchange Offer and Consent
Solicitation, the implementation of other cost-cutting programs, the performance
of its established businesses, in concert with the financing discussed below,
should result in the Company being in a position to satisfy its short to
mid-term cash requirements.
At present, the Company's two most important strategic research projects
are CVP's CalOptic'tm' (see 'Business, CooperVision Pharmaceuticals' in Item 1
above) and CSI's thermal endometrial ablation technology. In 1994, CSI signed an
agreement with InnerDyne, Inc. covering the development and commercialization of
InnerDyne's proprietary thermal ablation technology for gynecological
applications such as the control of excessive uterine bleeding. Cash payments
made by CSI in fiscal 1994 were approximately $214,000. Additional funds in the
amount of approximately $70,000 per month on average are being advanced on a
monthly basis. Pursuant to the terms of the agreement, CSI also has an option,
in its sole discretion, to purchase for $4,000,000 plus future royalties the
exclusive world-wide rights to commercialize this technology. In addition, given
that the project is still in the exploratory stage, CSI negotiated the right to
terminate the agreement at any time with 30 days notice.
To augment the Company's internal cash flows, in September 1994, CVI
entered into a credit agreement with a commercial lender providing for advances
of up to $8,000,000 (see Note 9). This credit
19
agreement, together with the approximate $10,000,000 in cash the Company had on
hand as of October 31, 1994, affords the Company flexibility in planning future
cash requirements, and assures short to mid-term financing of its strategic
research projects. The Company is also exploring other potential sources of
cash, including sales and leasebacks, factoring, out-licensing rights to one or
more of its strategic research projects outside of North America and new
issuances of stock.
RESULTS OF OPERATIONS
Comparison of each of the years in the three-year period ended October 31,
1994:
NET SERVICE REVENUE
Net service revenue consists of the following:
1994 1993 1992*
------- ------- -------
(IN THOUSANDS)
Net patient revenue.......................................... $42,611 $43,283 $18,558
Management fees.............................................. 2,000 2,000 848
------- ------- -------
$44,611 $45,283 $19,406
------- ------- -------
------- ------- -------
Net patient revenue by major providers was as follows:
1994 1993 1992*
------------------ ------------------ ------------------
AMOUNT % TOTAL AMOUNT % TOTAL AMOUNT % TOTAL
------- ------- ------- ------- ------- -------
Commercial Insurance................. $ 9,170 21% $15,081 35% $ 7,153 38%
Medicare............................. 9,225 22 6,654 15 3,360 18
Medicaid............................. 7,254 17 4,353 10 532 3
Blue Cross........................... 4,729 11 5,821 13 3,677 20
HMOs................................. 7,722 18 8,408 20 2,275 12
Other................................ 4,511 11 2,966 7 1,561 9
------- ------- ------- ------- ------- -------
$42,611 100% $43,283 100% $18,558 100%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
- ------------
* From May 29, 1992
NET PATIENT REVENUE
Net patient revenue decreased by $672,000 or 2% in 1994. Revenues have been
pressured by the current industry trend towards increased managed care, which
results in decreased daily rates and declines in average lengths of stay.
Management is endeavoring to mitigate those pressures by increasing the number
of admissions to its hospitals, and by providing outpatient and other ancillary
services outside of its hospitals.
MANAGEMENT FEES
On May 29, 1992, PSG Management, Inc. ('PSG Management'), a subsidiary of
the Company, entered into a three-year management agreement with three
indirectly owned subsidiaries of Nu-Med, Inc. ('Nu-Med'), under which PSG
Management is managing three additional hospitals owned by those subsidiaries,
having a total of 220 licensed beds. PSG Management is receiving a management
fee of $166,667 per month under the agreement, which expires by its terms in May
1995.
20
NET SALES OF PRODUCTS
The following table summarizes the increases and decreases in net sales of
products of the Company's CVI and CSI business units over the three-year period.
Sales generated by the Company's CVP unit, a start-up business, were $394,000 in
1994, $570,000 in 1993 and $46,000 in 1992.
INCREASE (DECREASE)
---------------------------------
1994 VS. 1993 1993 VS. 1992
------------- -------------
(Dollars in thousands)
Business Unit
CVI................................................. $ 5,673 18% $ 4,303 15%
------- --- ------- ---
------- --- ------- ---
CSI................................................. $(1,832) (12)% $(1,331) (8)%
------- --- ------- ---
------- --- ------- ---
1994 vs. 1993
The increase in CVI net sales is primarily due to CoastVision, a
manufacturer of custom toric contact lenses for use by patients with astigmatic
vision, being included in fiscal 1993 results for only seven months, as this
company was acquired on April 1, 1993. Also the trend established in 1992 and
1993 continued in 1994, which reflects CVI's sales mix shifting towards daily
wear and frequent replacement products, as well as specialty products, and away
from extended wear products. The Company expects this trend to continue and
considers itself to be well positioned to compete successfully in specialty
niches of the contact lens market, particularly with its Preference'r' line of
frequent replacement lenses and its line of custom toric lenses.
Net sales of CSI continued to decline primarily due to slower domestic
sales of its capital equipment, including surgical systems launched in 1992 for
use in the loop electrosurgical excision procedure, which is used diagnostically
and operatively in the treatment of cervical cancer and other indications in
gynecology. This decline was partially offset by increased sales in the
international arena. CSI is continuing to direct its sales efforts towards the
gynecology market to take advantage of the lower cost to service a highly
focused market niche. CSI's products are subject to substantial government
regulation and to competition from a large number of competitors.
1993 vs. 1992
Net sales of CVI increased primarily due to the April 1, 1993 acquisition
of CoastVision.
The decline in net sales of CSI was primarily due to slower sales of its
capital equipment, as noted above.
Consolidated net sales have grown 8% per year for both 1994 v. 1993 v.
1992.
COST OF SERVICES PROVIDED
Cost of services provided represents all of the costs (other than financing
costs) incurred by HGA in generating net service revenue. The results of
subtracting cost of services provided from net service revenue is an operating
profit of $3,572,000 or 8% of net service revenue in 1994, $2,529,000 or 6% of
net service revenue in 1993 and $2,053,000 or 11% of net service revenue in
1992. The 1994 increased percentage of operating profit over 1993 is primarily
attributable to reduced service costs. The 1993 decreased percentage of
operating profit is primarily attributable to a lower number of patient days at
the hospitals owned by HGA, exacerbated by a deterioration of payor mix. Also in
1993, HGA incurred non-recurring charges of approximately $360,000 associated
with severance and approximately $400,000 to write down certain receivables.
21
COST OF PRODUCTS SOLD
Gross profit (net sales of products less cost of products sold) as a
percentage of net sales of products ('margin') was as follows:
MARGIN %
--------------------
1994 1993 1992
---- ---- ----
CVI...................................................................... 71 69 61
CSI...................................................................... 48 49 54
Consolidated............................................................. 65 63 58
1994 vs. 1993
Margin for CVI has increased due to the inclusion of higher margin
CoastVision products for a full year and also reduced cost on manufactured
products as a result of higher production volumes. The margin decrease at CSI
primarily relates to increased volume of lower margin international sales.
1993 vs. 1992
Margin for CVI increased due to the realization of efficiencies in
manufacturing as well as the impact of cost reduction measures associated with
downsizing. Also, the inclusion of higher margin CoastVision products resulted
in a favorable product mix. The margin decrease at CSI reflected increased sales
of endoscopic products used in laparoscopic surgical procedures and sales to
international distributors, each of which generated lower margins than CSI's
other products. CSI also incurred an inventory writedown of approximately
$450,000 in 1993.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense was $4,407,000 or 9% of net sales of
products in 1994 compared to $3,209,000 or 7% in 1993 and $3,267,000 or 7% in
1992.
The increase in 1994 is primarily attributable to the increased development
activity related to CalOptic'tm'. The decrease in 1993 was attributable to
certain declines in research and development project expenses in the CVI and CSI
business units, net of increased development activity at CVP.
CVP accounted for 63%, 51% and 40% of consolidated research and development
expense in 1994, 1993 and 1992, respectively.
On August 25, 1994, CSI reported the signing of an agreement with
InnerDyne, Inc. covering the development and commercialization of InnerDyne's
proprietary thermal ablation technology for gynecological applications, such as
the control of excessive uterine bleeding. The Company presently intends to
continue to fund the ongoing development of strategic projects in ophthalmology
and gynecology.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
The Company's selling, general and administrative expense ('SGA') by
business unit and corporate was as follows:
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
CVI.......................................................... $13,621 $13,386 $12,299
CSI.......................................................... 6,125 10,305 9,871
CVP.......................................................... 369 598 333
Corporate/Other.............................................. 10,912 25,093 22,097
------- ------- -------
$31,027 $49,382 $44,600
------- ------- -------
------- ------- -------
The decrease in 1994 vs. 1993 in Corporate/Other SGA reflects the impact on
legal costs of an agreement reached on September 30, 1993 with Medical
Engineering Corporation and its parent,
22
Bristol-Myers Squibb Company (the 'MEC Agreement'), which limited the Company's
liability for breast implant litigation. This reduction, coupled with reductions
in other areas, resulted in a 57% reduction in Corporate/Other SGA. The 1993 vs.
1992 increase in Corporate/Other SGA reflects increases in legal expenses
associated with then ongoing litigation, which have outweighed reductions in
other areas:
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Legal........................................................ $ 4,715 $16,498 $ 9,581
Other........................................................ 6,197 8,595 12,516
------- ------- -------
$10,912 $25,093 $22,097
------- ------- -------
------- ------- -------
SGA for CVI increased by 2% and 9% in 1994 vs. 1993 and 1993 vs. 1992,
respectively, due to the inclusion of SGA of CoastVision, which the Company
acquired on April 1, 1993. As a percent of sales, however, CVI's SGA decreased
in 1994 to 36% from 42% in 1993, and from 44% in 1992, reflecting cost synergies
effected as a result of merging CoastVision's operations into CVI.
The 1994 decrease at CSI reflects savings generated by the consolidation of
CSI facilities, and reductions in personnel. The 1993 increases at CSI reflected
expanding CSI business, both by internal growth and acquisition, much of which
reflected the Company's expansion into various laparoscopic procedures.
SETTLEMENT OF DISPUTES
In 1994, the Company recorded the following items related to settlement of
disputes:
A credit of $850,000 following receipt of funds by the Company to
settle certain claims made by the Company associated with a real
estate transaction.
A charge of $5,800,000 which represents the Company's estimate of
costs required to settle certain disputes and other litigations,
including $3,450,000 associated with the criminal conviction and SEC
enforcement action described in Note 16.
The charge of $6,350,000 in 1993 is comprised of $4,850,000 paid in
connection with the settlement reached between the Company and Cooper Life
Sciences, Inc. ('CLS') (see Note 13), and $1,500,000 for certain other disputes.
In 1992 the Company recorded a charge for settlement of disputes comprised
of: 1) a $650,000 charge related to a transaction with CLS, 2) a payment to Mr.
Frederick R. Adler, a former director of the Company and 3) a provision to
settle several other lawsuits and disputes.
DEBT RESTRUCTURING COSTS
The $2,131,000 charge for debt restructuring costs in 1993 reflected the
Company's estimate of transaction costs associated with the Exchange Offer and
Solicitation (see Note 9). An additional charge of $340,000 was required in
1994. These costs include amounts paid to the Company's attorneys, accountants,
financial advisor, printer's fees, fees of the financial advisor to the informal
committee of holders of Debentures and its attorneys, and fees of the
Information Agent and the Exchange Agent.
COSTS ASSOCIATED WITH RESTRUCTURING OPERATIONS
In 1993, the Company recorded $451,000 of restructuring costs for
consolidation of CSI facilities and related reorganization and relocation costs.
AMORTIZATION OF INTANGIBLES
Amortization of intangibles was $843,000 in 1994, $772,000 in 1993 and
$742,000 in 1992. The changes in each year reflect acquisitions and divestitures
during the three-year period (see Note 2).
23
INVESTMENT INCOME (LOSS), NET
Investment income, net includes interest income of $377,000 in 1994,
$2,439,000 in 1993 and $6,960,000 in 1992. The decrease in interest income for
each year reflects the Company's use of cash for the acquisition of CoastVision
on April 1, 1993 and HGA on May 29, 1992 (see Note 2), to purchase a portion of
its Debentures, operating cash use, declining interest rates during 1992 and
1993 and a shift in investment strategy towards more conservative instruments
with lower risk and correspondingly lower returns. Also included in investment
income, net are net realized and unrealized gains (losses) in marketable
securities and investments of ($530,000) in 1994, ($824,000) in 1993 and
$7,294,000 in 1992.
GAIN ON SALE OF ASSETS AND BUSINESSES, NET
In 1994, the Company sold two parcels of land for cash and notes, for a net
gain of $134,000, and its EYEscrub'tm' trademark in Canada, for a net gain of
$80,000. In 1993, the Company sold its EYEscrub'tm' product line for $1,400,000,
which sale resulted in a $620,000 gain. In 1992, the Company assigned its
license to manufacture, have manufactured, sell, distribute and market certain
intraocular lens products and disposed of certain other related rights and
assets. Total cash consideration received by the Company for such assignment was
approximately $5,200,000 which resulted in a gain of $1,030,000.
OTHER INCOME, NET
Other income, net was $42,000 in 1994, $174,000 in 1993 and $772,000 in
1992. Other income, net in 1994 includes foreign exchange gains of $53,000 on
transactions denominated in currencies other than the local currency of the
business unit. Other income in 1993 primarily included consent fees, extension
fees and collection fees related to the Company's temporary investment activity
and rental income from the Company's real estate ventures, all of which were
partially offset by a foreign exchange loss realized on the sale of an
investment denominated in other than U.S. dollars. Other income, net in 1992
primarily reflected the receipt by the Company of $1,500,000 for business
interruption insurance related to a fire at a CVI facility in 1991 offset by a
foreign exchange loss resulting from an unhedged liability.
INTEREST EXPENSE
Interest expense was $4,533,000 in 1994, $6,129,000 in 1993 and $6,697,000
in 1992. The decrease in interest expense in 1994 v. 1993 relates to: 1)
reduction of outstanding debt, 2) reduced interest rate on approximately
$22,000,000 of outstanding debt and 3) amortization of deferred premium, all as
a result of the Exchange Offer and Consent Solicitation (see Note 9) and reduced
HGA debt. The 1993 v. 1992 decline was primarily due to the Company's purchases
of its Debentures (see Note 9). Partially offsetting the reduction of Debenture
interest expense was additional interest expense related to the assumed debt of
HGA. (See Note 2.)
PROVISION FOR INCOME TAXES
Details with regard to the Company's provision for income taxes for each of
the years in the three-year period ended October 31, 1994 are set out in Note 8.
The 1994 provision for state income and franchise taxes of $400,000 was offset
by a reversal of $5,000,000 of tax accruals no longer required following the
successful resolution of certain tax issues. The 1993 provision of $417,000
related entirely to state income and franchise taxes. The 1992 provision of
$100,000 related to state income and franchise taxes, a federal assessment and
an offsetting reduction of liabilities for estimated income taxes relating to
international operations which were no longer necessary.
LOSS ON SALE OF DISCONTINUED OPERATIONS, NET OF TAXES
A charge of $14,000,000 in 1993 represented an increase to the Company's
accrual for contingent liabilities associated with breast implant litigation
involving the plastic and reconstructive surgical division of the Company's
former Cooper Surgical business segment ('Surgical') which was sold in fiscal
1989 (the 'Breast Implant Accrual'). (See Note 3.) In 1993, the Company also
recorded a reversal of $343,000 of accruals no longer necessary related to
another discontinued business.
24
In 1992 the Company recorded a charge of $9,300,000 to discontinued
operations, of which $7,000,000 represented an increase to the Company's Breast
Implant Accrual. The balance of the charge reflected a $2,000,000 settlement of
a dispute involving the Company's former Surgical business segment, and a
$300,000 adjustment to the loss on the sale of the Company's former Cooper
Technicon business segment.
No tax benefit has been applied against the above figures, as the Company
was not profitable in either year.
EXTRAORDINARY ITEMS
Extraordinary items represent extraordinary gains on the Company's
purchases of a portion of its Debentures:
PRINCIPAL
AMOUNT EXTRAORDINARY
PURCHASED GAIN
---------- -------------
1993............................................................. $4,846,000 $ 924,000
1992............................................................. $5,031,000 $ 640,000
INFLATION AND CHANGING PRICES
Inflation has had little effect on the Company's operations in the last
three years.
IMPACT OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ISSUED BUT NOT ADOPTED
In December 1992, the Financial Accounting Standards Board (the 'FASB')
issued Statement of Financial Accounting Standards (a 'FAS') No. 112,
'Employers' Accounting for Postemployment Benefits' ('FAS 112'). FAS 112
establishes accounting standards for employers who provide benefits to former or
inactive employees after employment but before retirement ('postemployment
benefits'). Postemployment benefits include those benefits provided to former or
inactive employees, their beneficiaries, and covered dependents. Those benefits
include, but are not limited to, salary continuation, supplemental unemployment
benefits, severance benefits, disability-related benefits (including workers'
compensation), job training and counseling, and continuation of benefits such as
healthcare benefits and life insurance coverage.
FAS 112 is effective for fiscal years beginning after December 15, 1993.
Earlier application is encouraged. Previously issued financial statements shall
not be restated. The Company intends to adopt FAS 112 when required, and does
not believe that such adoption will have a material impact on its consolidated
financial statements.
25
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, 1994 and 1993 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the three-year period ended October 31, 1994. In
connection with our audits of the consolidated financial statements, we also
have audited financial statement schedules III and VIII. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules 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 at October 31, 1994 and 1993 and the results of
their operations and their cash flows for each of the years in the three-year
period ended October 31, 1994, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
San Francisco, California
January 11, 1995
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
OCTOBER 31,
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 10,320 $ 10,113
Temporary investments................................................................ -- 6,438
Receivables:
Trade and patient accounts, less allowance for doubtful accounts of $2,647,000
in 1994 and $3,240,000 in 1993................................................. 17,240 14,298
Other........................................................................... 1,012 2,821
-------- --------
18,252 17,119
-------- --------
Inventories.......................................................................... 11,696 14,987
Prepaid expenses and other........................................................... 3,237 3,218
-------- --------
Total current assets................................................................. 43,505 51,875
-------- --------
Property, plant and equipment at cost..................................................... 45,470 48,294
Less accumulated depreciation and amortization....................................... 10,683 8,399
-------- --------
34,787 39,895
-------- --------
Intangibles, net of accumulated amortization.............................................. 15,327 16,285
Other assets.............................................................................. 1,439 1,469
-------- --------
$ 95,058 $109,524
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt............................................... $ 1,453 $ 5,849
Accounts payable..................................................................... 6,580 4,269
Employee compensation, benefits and severance........................................ 6,390 5,961
Other accrued liabilities............................................................ 17,728 21,079
Income taxes payable................................................................. 10,105 14,837
-------- --------
Total current liabilities....................................................... 42,256 51,995
-------- --------
Long-term debt............................................................................ 46,184 48,077
Other noncurrent liabilities.............................................................. 10,272 9,000
-------- --------
Total liabilities............................................................... 98,712 109,072
-------- --------
Commitments and contingencies (See Notes 12 and 16)
Stockholders' equity (deficit):
Series B Preferred Stock, $.10 par value, shares authorized 1,000 plus additional
shares as required for dividends; aggregate liquidation preference value and shares
issued and outstanding of $3,450,000 and 345, respectively, at October 31, 1993.
Zero outstanding at October 31, 1994................................................ -- --
Common stock, $.10 par value, shares authorized: 100,000,000; issued and outstanding:
33,880,111 and 30,129,125 at October 31, 1994 and 1993, respectively................ 3,388 3,013
Additional paid-in capital........................................................... 179,883 179,810
Translation adjustments.............................................................. (396) (223)
Accumulated deficit.................................................................. (186,529) (181,743)
Unamortized restricted stock award compensation...................................... -- (405)
-------- --------
Total stockholders' equity (deficit)............................................ (3,654) 452
-------- --------
$ 95,058 $109,524
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
27
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
YEARS ENDED OCTOBER 31,
-----------------------------------
1994 1993 1992
------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
FIGURES)
Net service revenue................................................... $44,611 $ 45,283 $ 19,406
Net sales of products................................................. 51,034 47,369 43,873
------- -------- --------
Net operating revenues................................................ 95,645 92,652 63,279
------- -------- --------
Cost of services provided............................................. 41,039 42,754 17,353
Cost of products sold................................................. 17,906 17,538 18,236
Research and development expense...................................... 4,407 3,209 3,267
Selling, general and administrative expense........................... 31,027 49,382 44,600
Settlement of disputes................................................ 4,950 6,350 4,498
Debt restructuring costs.............................................. 340 2,131 --
Costs associated with restructuring operations........................ -- 451 --
Amortization of intangibles........................................... 843 772 742
Investment income (loss), net......................................... (153) 1,615 14,254
Gain on sales of assets and businesses, net........................... 214 620 1,030
Other income, net..................................................... 42 174 772
Interest expense...................................................... 4,533 6,129 6,697
------- -------- --------
Loss from continuing operations before income taxes................... (9,297) (33,655) (16,058)
Provision for (benefit of) income taxes............................... (4,600) 417 100
------- -------- --------
Loss from continuing operations before extraordinary items............ (4,697) (34,072) (16,158)
Loss on sale of discontinued operations, net of taxes................. -- (13,657) (9,300)
------- -------- --------
Loss before extraordinary items....................................... (4,697) (47,729) (25,458)
Extraordinary items................................................... -- 924 640
------- -------- --------
Net loss.............................................................. (4,697) (46,805) (24,818)
Less, dividend requirements on preferred stock........................ 89 320 1,804
------- -------- --------
Net loss applicable to common stock................................... $(4,786) $(47,125) $(26,622)
------- -------- --------
------- -------- --------
Net loss per common share:
Continuing operations............................................ $ (.15) $ (1.13) $ (.64)
Discontinued operations.......................................... -- (.45) (.34)
------- -------- --------
Loss before extraordinary items.................................. (.15) (1.58) (.98)
Extraordinary items.............................................. -- .03 .02
------- -------- --------
Net loss per common share............................................. $ (.15) $ (1.55) $ (.96)
------- -------- --------
------- -------- --------
Cash dividends per common share....................................... $ -- $ -- $ --
------- -------- --------
------- -------- --------
Average number of common shares outstanding........................... 31,082 30,377 27,669
------- -------- --------
------- -------- --------
See accompanying notes to consolidated financial statements.
28
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED OCTOBER 31, 1994, 1993 AND 1992
SENIOR
EXCHANGEABLE
REDEEMABLE
RESTRICTED VOTING SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------- ------------------ ------------------
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE
------ --------- ------ --------- ------ ---------
(IN THOUSANDS)
Balance October 31, 1991................ 595 $ 60 0 $ 0 25,694 $ 2,569
------ ----- ----- ----- ------- -------
Net loss............................ -- -- -- -- -- --
Aggregate translation adjustment.... -- -- -- -- -- --
Unamortized stock compensation
related to restricted stock
grants............................ -- -- -- -- -- --
Restricted stock amortization and
share issuance, forfeiture and
lifting of restrictions........... -- -- -- -- (363 ) (36)
Dividend requirements on Senior
Preferred Stock................... -- -- -- -- -- --
Issuance of Senior Preferred
Stock............................. 44 4 -- -- -- --
CLS Transaction -- June 12, 1992
(see Note 13)..................... (488) (49) -- -- 4,850 485
------ ----- ----- ----- ------- -------
Balance October 31, 1992................ 151 $ 15 0 $ 0 30,181 $ 3,018
------ ----- ----- ----- ------- -------
Net loss............................ -- -- -- -- -- --
Aggregate translation adjustment.... -- -- -- -- -- --
Unamortized stock compensation
related to restricted stock
grants............................ -- -- -- -- 145 15
Restricted stock amortization and
share issuance, forfeiture and
lifting of restrictions........... -- -- -- -- (197 ) (20)
Dividend requirements on Senior
Preferred Stock................... -- -- -- -- -- --
Issuance of Senior Preferred
Stock............................. 10 1 -- -- -- --
CLS Exchange Agreement -- June 14,
1993 (see Note 13)................ (161) (16) 345 -- -- --
------ ----- ----- ----- ------- -------
Balance October 31, 1993................ 0 $ 0 345 $ 0 30,129 $ 3,013
------ ----- ----- ----- ------- -------
Net loss............................ -- -- -- -- -- --
Aggregate translation adjustment.... -- -- -- -- -- --
Restricted stock amortization and
share issuance, forfeiture,
lifting of restrictions and
exercise of stock options......... -- -- -- -- 301 30
Dividend requirements on Series B
Preferred Stock................... -- -- -- -- -- --
Conversion of Series B Preferred to
Common (see Note 13).............. -- -- (345) -- 3,450 345
------ ----- ----- ----- ------- -------
Balance October 31, 1994................ 0 $ 0 0 $ 0 33,880 $ 3,388
------ ----- ----- ----- ------- -------
------ ----- ----- ----- ------- -------
UNAMORTIZED
RESTRICTED
STOCK
PAID-IN TRANSLATION ACCUMULATED AWARD
CAPITAL ADJUSTMENTS DEFICIT COMPENSATION TOTAL
--------- ----------- ----------- ------------ --------
Balance October 31, 1991................ $ 182,567 $ 202 $(110,120) $ (3,576) $ 71,702
--------- ----- ----------- ------------ --------
Net loss............................ -- -- (24,818) -- (24,818)
Aggregate translation adjustment.... -- (268) -- -- (268)
Unamortized stock compensation
related to restricted stock
grants............................ 874 -- -- (874) 0
Restricted stock amortization and
share issuance, forfeiture and
lifting of restrictions........... (2,254) -- -- 2,221 (69)
Dividend requirements on Senior
Preferred Stock................... (1,804) -- -- -- (1,804)
Issuance of Senior Preferred
Stock............................. 1,800 -- -- -- 1,804
CLS Transaction -- June 12, 1992
(see Note 13)..................... (686) -- -- -- (250)
--------- ----- ----------- ------------ --------
Balance October 31, 1992................ $ 180,497 $ (66) $(134,938) $ (2,229) $ 46,297
--------- ----- ----------- ------------ --------
Net loss............................ -- -- (46,805) -- (46,805)
Aggregate translation adjustment.... -- (157) -- -- (157)
Unamortized stock compensation
related to restricted stock
grants............................ 75 -- -- (88) 2
Restricted stock amortization and
share issuance, forfeiture and
lifting of restrictions........... (778) -- -- 1,912 1,114
Dividend requirements on Senior
Preferred Stock................... (320) -- -- -- (320)
Issuance of Senior Preferred
Stock............................. 320 -- -- -- 321
CLS Exchange Agreement -- June 14,
1993 (see Note 13)................ 16 -- -- -- 0
--------- ----- ----------- ------------ --------
Balance October 31, 1993................ $ 179,810 $(223) $(181,743) $ (405) $ 452
--------- ----- ----------- ------------ --------
Net loss............................ -- -- (4,697) -- (4,697)
Aggregate translation adjustment.... -- (173) -- -- (173)
Restricted stock amortization and
share issuance, forfeiture,
lifting of restrictions and
exercise of stock options......... 418 -- -- 405 853
Dividend requirements on Series B
Preferred Stock................... -- -- (89) -- (89)
Conversion of Series B Preferred to
Common (see Note 13).............. (345) -- -- -- 0
--------- ----- ----------- ------------ --------
Balance October 31, 1994................ $ 179,883 $(396) $(186,529) $ 0 $ (3,654)
--------- ----- ----------- ------------ --------
--------- ----- ----------- ------------ --------
See accompanying notes to consolidated financial statements.
29
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED OCTOBER 31,
------------------------------
1994 1993 1992
------- ------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net loss................................................................. $(4,786) $(46,805) $(24,818)
Adjustments to reconcile net loss to net cash used by operating activities:
Current and deferred income taxes........................................ (132) 417 (498)
Depreciation expense..................................................... 2,870 2,624 1,537
Provision for doubtful accounts.......................................... 2,431 3,202 363
Restructuring charge..................................................... -- 451 --
Amortization expenses:
Intangible assets................................................... 975 904 877
Debt discount....................................................... 39 201 208
Restricted stock.................................................... 853 1,084 (33)
Accretion of premium..................................................... (538) -- --
Net (gain) loss from:
Sales of assets and businesses...................................... (214) (620) (1,030)
Investments......................................................... 530 824 (7,294)
Debt restructuring costs............................................ 340 -- --
Extraordinary items................................................. -- (924) (640)
Change in assets and liabilities net of effects from acquisitions and
sales of assets and businesses:
Net (increases) decreases in assets:
Restricted cash..................................................... (8) 441 8,838
Receivables......................................................... (5,373) 5,101 (817)
Inventories......................................................... 3,291 1,150 (3,728)
Other current assets................................................ (423) (383) (631)
Other assets........................................................ 836 287 393
Net increases (decreases) in liabilities:
Accounts payable.................................................... 2,311 (10,055) 6,900
Accrued liabilities................................................. (925) (11,155) (1,084)
Income taxes payable................................................ (4,600) (581) (1,264)
Other long-term liabilities......................................... 524 9,000 --
------- ------- --------
Total adjustments.............................................. 2,787 1,968 2,097
------- ------- --------
Net cash used by operating activities.................................... (1,999) (44,837) (22,721)
Cash flows from investing activities:
Sales of assets and businesses (including releases of cash from
escrow)........................................................... 2,720 9,700 5,959
Purchases of assets and businesses, net of cash acquired............ -- (9,794) (14,452)
Purchases of property, plant and equipment.......................... (938) (1,749) (3,746)
Sales of temporary investments...................................... 7,302 32,088 265,352
Purchases of temporary investments.................................. -- (3,689) (263,464)
Collection of note receivable....................................... -- -- 2,183
Purchase of Cooper Life Sciences, Inc. common stock................. -- -- (1,500)
------- ------- --------
Net cash provided (used) by investing activities......................... $ 9,084 $26,556 $ (9,668)
------- ------- --------
------- ------- --------
See accompanying notes to consolidated financial statements.
30
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED OCTOBER 31,
----------------------------------
1994 1993 1992
--------- ---------- -----------
(IN THOUSANDS)
Cash flows from financing activities:
Payments associated with the Exchange Offer and Consent Solicitation
including debt restructuring costs..................................... (5,416) -- --
Purchase of the Company's 10 5/8% Debentures............................. -- (3,861) (4,325)
Net payments of notes payable and current long-term debt................. (1,462) (5,818) (1,839)
--------- ---------- -----------
Net cash used by financing activities............................... (6,878) (9,679) (6,164)
Other, net.................................................................... -- (5) (21)
--------- ---------- -----------
Net increase (decrease) in cash and cash equivalents.......................... 207 (27,965) (38,574)
Cash and cash equivalents at beginning of year................................ 10,113 38,078 76,652
--------- ---------- -----------
Cash and cash equivalents at end of year...................................... $ 10,320 $ 10,113 $ 38,078
--------- ---------- -----------
--------- ---------- -----------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amounts capitalized)............................... $ 4,791 $ 6,275 $ 6,688
--------- ---------- -----------
--------- ---------- -----------
Dividends on Preferred Stock........................................ $ 89 $ -- $ --
--------- ---------- -----------
--------- ---------- -----------
Income taxes........................................................ $ 132 $ 90 $ 511
--------- ---------- -----------
--------- ---------- -----------
Supplemental schedule of non-cash investing and financing activities:
Pay-in-kind Senior Preferred Stock dividends........................ $ -- $ 320 $ 1,804
--------- ---------- -----------
--------- ---------- -----------
In January 1994 the Company issued $22,000,000 of Notes and paid
approximately $4,350,000 in cash (exclusive of transaction costs) in exchange
for approximately $30,000,000 of Debentures. See Note 9.
During 1993 and 1992, the Company acquired businesses and entered into
certain licensing and distribution agreements. In connection with these
acquisitions and agreements the Company assumed liabilities as follows:
YEARS ENDED OCTOBER
31,
--------------------
1993 1992
--------- ---------
(IN THOUSANDS)
Fair value of assets and businesses acquired including capitalized costs....... $ 10,517 $ 56,504
Investment in debt securities exchanged................................... -- (12,322)
Cash paid................................................................. (9,794) (16,687)
--------- ---------
Liabilities assumed....................................................... $ 723 $ 27,495
--------- ---------
--------- ---------
On June 12, 1992, the Company consummated a transaction with Cooper Life
Sciences, Inc. ('CLS') which eliminated approximately 80% of the Company's $100
per share liquidation preference Senior Exchangeable Redeemable Restricted
Voting Preferred Stock ('Senior Preferred Stock') and resulted in the issuance
of 4,850,000 shares of the Company's common stock. On June 14, 1993, the Company
acquired from CLS all of the remaining outstanding Senior Preferred Stock of the
Company in exchange for newly created series of preferred stock of the Company
('Series B Preferred Stock'). On September 26, 1994, the Series B Preferred
Stock was converted into 3,450,000 shares of the Company's common stock. See
Note 13, 'Agreements with CLS,' for a further discussion of these transactions.
See accompanying notes to consolidated financial statements.
31
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The Cooper Companies, Inc. and its subsidiaries (the 'Company') develops,
manufactures and markets healthcare products, including a range of hard and soft
daily, flexible and extended wear contact lenses, ophthalmic pharmaceutical
products and diagnostic and surgical instruments. The Company also provides
healthcare services through the ownership and operation of certain psychiatric
facilities and management of other such facilities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company.
Intercompany transactions and accounts are eliminated in consolidation. Certain
reclassifications have been applied to prior years' financial statements to
conform such statements to the current year's presentation. None of these
reclassifications had any impact on net loss.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's operations located outside the
United States (primarily Canada) are translated at prevailing year-end rates of
exchange. Related income and expense accounts are translated at weighted average
rates for each year. Gains and losses resulting from the translation of
financial statements in foreign currencies into U. S. dollars are recorded in
the equity section of the consolidated balance sheet. Gains and losses resulting
from the impact of changes in exchange rates on transactions denominated in
foreign currencies are included in the determination of net income or loss for
each period. Foreign exchange gains (losses) included'Independent Auditors' Report' in the Company's consolidated statement of operations for each of the years ended October 31,
1994, 1993 and 1992 were $53,000, ($550,000) and ($769,000), respectively.
NET SERVICE REVENUE
Net service revenue consists primarily of net patient service revenue,1996 Annual Report to
Stockholders, which is based on the Hospital Group of America, Inc. ('HGA') hospitals'
established billing rates less allowances and discounts principally for patients
coveredincorporated herein by Medicare, Medicaid, Blue Cross, HMO and other contractual programs.
Payments under these programs are based on either predetermined rates or the
cost of services. Settlements for retrospectively determined rates are estimated
in the period the related services are rendered and are adjusted in future
periods as final settlements are determined. Management believes that adequate
provision has been made for adjustments that may result from the final
determination of amounts earned under these programs. Approximately 39%, 25% and
21%, respectively, of 1994, 1993 and 1992 net service revenues are from
participation of hospitals in Medicare and Medicaid programs.
With respect to net service revenue, receivables from government programs
represent the only concentrated group of potential credit risk to the Company.
Management does not believe that there are any credit risks associated with
these governmental agencies. Negotiated and private receivables consist of
receivables from various payors, including individuals involved in diverse
activities, subject to differing economic conditions, and do not represent any
concentrated credit risks to the Company. Furthermore, management continually
monitors and adjusts its reserves and allowances associated with these
receivables.
The Company provides care to indigent patients who meet certain criteria
under its charity care policy without charge or at amounts less than its
established rates. Because the Company does not pursue collection of amounts
determined to qualify as charity care, they are not reported as revenue. The
Company maintains records to identify and monitor the level of charity care it
provides. These
32
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
records include the amount of charges foregone for services and supplies
furnished under its charity care policy. Charges at the Company's established
rates forgone for charity care provided by the Company amounted to $2,498,000
during the year ended October 31, 1994, $3,220,000 during the year ended October
31, 1993 and $1,597,000 during the period from May 29, 1992 to October 31, 1992.
Hampton Hospital is required by its Certificate of Need to incur not less than
10% of total patient days as free care.
NET SALES OF PRODUCTS
Net sales of products consists primarily of sales generated by the
Company's CooperVision, Inc. ('CVI') and CooperSurgical, Inc. ('CSI')
businesses. The Company recognizes revenue when risk of ownership has
transferred to the buyer, with appropriate provisions for sales returns.
With respect to net sales of products, management believes trade
receivables do not include any concentrated groups of credit risk.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes commercial paper and other short-term
income producing securities with a maturity date at purchase of three months or
less. These investments are readily convertible to cash, and are carried at cost
which approximates market.
TEMPORARY INVESTMENTS
The Company had no temporary investments on its consolidated balance sheet
as of October 31, 1994. At October 31, 1993, temporary investments were
primarily current marketable equity and debt securities carried at the lower of
aggregate cost or market, with unrealized losses included in investment income,
net in the statement of consolidated operations. Gains or losses realized upon
sale (based on the first-in, first-out method) and write-downs necessitated by
other than temporary declines in value for all securities and investments are
also reflected in investment income, net.
As of October 31, 1993, aggregate cost and market value, and gross
unrealized gains and losses for current marketable securities were as follows:
EQUITY DEBT
SECURITIES SECURITIES
---------- ----------
(IN THOUSANDS)
Aggregate cost.................................................................... $4,937 $ 2,651
Aggregate market value............................................................ 4,428 2,010
Gross unrealized gains............................................................ -- 163
Gross unrealized losses........................................................... 509 804
Unrealized gains and losses on marketable securities included in the table
above compare the market value of the Company's investment in securities as of
October 31, 1993 versus the cost of such securities. The unrealized gains and
losses do not indicate the actual gains or losses that were realized by the
Company upon their disposition.
Included in the statement of consolidated operations in investment income,
net for each of the years ended October 31, 1994, 1993 and 1992 are unrealized
gains (losses) of zero, $6,532,000 and ($6,244,000), respectively, on current
marketable securities. Also included in investment income, net for the years
ended October 31, 1994, 1993, and 1992 are net realized gains (losses) of
($530,000), ($7,356,000) and $13,538,000, respectively, on marketable equity and
debt securities. The combined impact of the aforementioned net unrealized and
realized gains (losses) for each of the years ended October 31, 1994, 1993 and
1992 was a net gain (loss) of ($530,000), ($824,000) and $7,294,000,
respectively.
33
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest income for each of the years ended October 31, 1994, 1993 and 1992
was $377,000, $2,439,000 and $6,960,000, respectively,reference and is included in
investment income, net.
LOANS AND ADVANCES
Loans and advances were made by the Company to certain of its officers and
employees at interest rates ranging from 7.0% to 9.5% per annum. The principal
amount of loans and advances outstanding at October 31, 1994 and 1993 was
$29,000 and $65,000, respectively.
INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in,
first-out or average cost basis, or market.
The components of inventories are as
follows:
OCTOBER 31, OCTOBER 31,
1994 1993
----------- -----------
(IN THOUSANDS)
Raw materials................................................................ $ 3,197 $ 3,958
Work-in-process.............................................................. 973 865
Finished goods............................................................... 7,526 10,164
----------- -----------
$11,696 $14,987
----------- -----------
----------- -----------
DEPRECIABLE ASSETS
Property, Plant and Equipment
1994 1993
----------- -----------
(IN THOUSANDS)
Land and improvements........................................................ $ 1,360 $ 4,482
Buildings and improvements................................................... 33,391 33,828
Machinery and equipment...................................................... 10,719 9,984
----------- -----------
$45,470 $48,294
----------- -----------
----------- -----------
Depreciation is computed on the straight-line method in amounts sufficient
to write-off depreciable assets over their estimated useful lives. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the period of the related lease.
Depreciation and leasehold amortization expense amounted to $2,870,000,
$2,624,000 and $1,537,000 for the years ended October 31, 1994, 1993 and 1992,
respectively.
Expenditures for maintenance and repairs are expensed; major replacements,
renewals and betterments are capitalized. The cost and accumulated depreciation
of depreciable assets retired or otherwise disposed of are eliminated from the
asset and accumulated depreciation accounts, and any gains or losses are
reflected in operations for the period.
AMORTIZATION OF INTANGIBLES
Amortization is provided for on all intangible assets (primarily goodwill,
which represents the excess of purchase price over fair value of net assets
acquired) on a straight-line basis over periods of up to thirty years.
Accumulated amortization at October 31, 1994 and 1993 was $3,919,186 and
$2,940,117, respectively. The Company assesses the recoverability of goodwill by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through reasonably expected future results.
34
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESTRICTED STOCK AND COMPENSATION EXPENSE
Under the Company's 1988 Long Term Incentive Plan, its 1990 Non-Employee
Directors' Restricted Stock Plan and its predecessor Restricted Stock Plans (see
Note 10), certain officers and key employees designated by the Board of
Directors or a committee thereof have purchased, for par value, shares of the
Company's common stock restricted as to resale ('Restricted Shares') unless or
until certain prescribed objectives are met or certain events occur. The
difference between market value and par value of the Restricted Shares on the
date of grant is recorded as unamortized restricted stock award compensation, an
equity account, and charged to operations as earned.
INCOME TAXES
Effective November 1, 1993, the Company adopted the liability method of
accounting for income taxes as prescribed by Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes' ('FAS 109'). The liability
method under FAS 109 measures the expected tax impact of future taxable income
or deductions resulting from temporary differences in the tax and financial
reporting bases of assets and liabilities reflected in the consolidated balance
sheet. Deferred tax assets and liabilities are determined using the enacted tax
rates in effect for the year in which these differences are expected to reverse.
Under FAS 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the period that the change was enacted. In 1993 and
prior years, the Company accounted for income taxes under APB Opinion 11.
EARNINGS PER COMMON SHARE
Net income (loss) per common share is determined by using the weighted
average number of common shares and common share equivalents (stock warrants)
outstanding during each year. Stock options have not been included in the
determination of earnings per common share for any period as they are
anti-dilutive or resulted in dilution of less than 3%.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
On April 1, 1993, CVI acquired via a purchase transaction the stock of
CoastVision for approximately $9,800,000 cash. CoastVision manufactures and
markets a range of contact lens products, primarily custom soft toric contact
lenses, which are designed to correct astigmatism. The purchase of CoastVision
expanded CooperVision's customer base for its existing product lines.
CoastVision had net sales of $9,600,000 in its fiscal year ended October 31,
1992. Excess cost over net assets acquired recorded on the purchase was
$7,279,000, which is being amortized over 30 years.
On May 29, 1992, the Company acquired all of the common stock of HGA from
its ultimate parent, Nu-Med Inc. ('Nu-Med'), for a total consideration of
approximately $50,000,000, including $15,898,000 in cash, the assumption of
approximately $22,000,000 of third party debt of HGA and the delivery of
$21,685,000 principal amount of Nu-Med debentures owned by the Company
(including $3,525,000 principal amount of 'Affiliate debentures,' defined and
described below), in which the Company had a cost basis of approximately
$12,322,000. The Company used available cash to purchase the Nu-Med debentures
and to make the $15,898,000 payment at closing.
Except for the 'Affiliate debentures' defined and described below, the
Company acquired the Nu-Med debentures in open market transactions for a total
cost of approximately $10,374,000. On AprilExhibit 13 1992, the Company acquired, for
a total cost of approximately $1,948,000, an additional $3,525,000 principal
amount of Nu-Med debentures (the 'Affiliate debentures') from an individual and
a corporation (together, the 'Affiliates') related to or affiliated with Messrs.
Gary, Steven and Brad Singer. The Affiliate debentures were tendered to Nu-Med
at the same price paid by the Company. At
35
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the time of the transaction, Gary and Steven Singer were each officers and
directors of the Company, and Brad Singer was a director of the Company. The
Affiliate debentures were purchased by the Company at the cost paid by the
Affiliates plus accrued interest thereon, following the approval of the majority
of the disinterested members of the Board of Directors of the Company. To
protect the Company against any potential loss, it acquired the Affiliate
debentures pursuant to an agreement that would have allowed the Company to 'put'
the Affiliate debentures back to the Affiliates at the Company's cost if the
acquisition of HGA had not occurred.
HGA provides psychiatric and substance abuse treatment through three
hospitals with a total of 269 beds.
Concurrently, PSG Management, Inc. ('PSG Management'), a subsidiary of the
Company, entered into a three-year management agreement with three indirect
subsidiaries of Nu-Med under which PSG Management is managing three additional
hospitals owned by such subsidiaries which have a total of 220 licensed beds.
Under the management agreement, which expires by its terms in May 1995, PSG
Management is entitled to receive a monthly management fee of $166,667.
The acquisition of HGA was accounted for as a purchase. Accordingly, the
results of HGA's operations were included in the Company's consolidated results
from the acquisition date. The excess of cost over net assets acquired was
initially estimated to be $6,155,000, subject to purchase price adjustments per
the sales agreement, and is being amortized over 30 years.
Had the acquisition of HGA occurred on November 1, 1991, the Company's
unaudited pro forma combined net revenue, loss from continuing operations and
loss from continuing operations per share would have been $95,320,000,
($15,586,000) and ($.56), respectively, for the twelve months ended October 31,
1992.
During 1992, the Company acquired two parcels of land having an aggregate
cost of $3,149,000. The land was carried at cost in property, plant and
equipment. Concurrently, the Company entered into two lease agreements under
which the Company was entitled to receive rental payments. The subject parcels
of land were sold in November 1993 for cash and notes aggregating the
approximate original purchase price.
DISPOSITIONS
In January 1994, the Company's Canadian subsidiary, CooperVision Inc.
('CooperVision Canada'), sold its EYEscrub'tm' trademark for $110,000 cash,
resulting in an $80,000 gain.
On February 12, 1993, the Company sold its EYEscrub'tm' product line for
$1,400,000 cash, which resulted in a $620,000 gain. The Company retained the
right to market certain ophthalmic pharmaceutical surgical kits containing
EYEscrub'tm'. Sales of such products were discontinued by December 1994.
On January 31, 1992, the Company assigned its license to manufacture, have
manufactured, sell, distribute and market certain intraocular lens products and
disposed of certain other related rights and assets. Total cash consideration
received by the Company for such assignment was approximately $5,200,000, which
resulted in a pretax gain of $1,030,000.
NOTE 3. DISCONTINUED OPERATIONS
In 1993, the Company recorded a charge of $14,000,000 to increase the
Company's accrual (the 'Breast Implant Accrual') for contingent liabilities
associated with breast implant litigation involving the plastic and
reconstructive surgical division of the Company's former Cooper Surgical
business segment ('Surgical') which was sold in fiscal 1989 to Medical
Engineering Corporation ('MEC'), a subsidiary of Bristol-Myers Squibb Company
('Bristol-Myers'). The Breast Implant Accrual will be charged for payments made
and to be made to MEC under the agreement reached in September 1993
36
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with MEC and Bristol-Myers, which limited the Company's liability for breast
implant litigation (the 'MEC Agreement') (see Note 12 for the schedule of
payments), as well as certain related charges. In October 1993 the Company made
the initial payment of $3,000,000 to MEC. At October 31, 1994, the Company's
balance sheet included $7,750,000 of the Breast Implant Accrual in 'other
noncurrent liabilities' and $1,250,000 in Accounts Payable (which was paid to
MEC on December 31, 1994) for future payments to MEC. The Company also recorded,
in 1993, a reversal of $343,000 of accruals no longer necessary related to
another discontinued business.
In 1992, the Company recorded a charge of $9,300,000 to discontinued
operations, of which $7,000,000 represented an increase to the Company's Breast
Implant Accrual. The balance of the charge reflected a $2,000,000 settlement of
a dispute involving the former Surgical business segment, and a $300,000
adjustment to the loss on the sale of the Company's former business segment,
Cooper Technicon, Inc. ('CTI').
No tax benefit has been applied against the above figures, as the Company
was not profitable in either year.
NOTE 4. EXTRAORDINARY ITEMS
The extraordinary gain of $924,000, or $.03 per share, in 1993 represented
gains on the Company's purchases of $4,846,000 principal amount of its
Debentures. The purchases were privately negotiated and executed at prevailing
market prices.
The extraordinary gain of $640,000, or $.02 per share, in 1992 represented
gains on the Company's purchases of $5,031,000 principal amount of its
Debentures. Substantially all of the purchases were privately negotiated and
executed at prevailing market prices.
NOTE 5. STOCKHOLDERS RIGHTS PLAN
On October 29, 1987, the Board of Directors of the Company declared a
dividend distribution of one right for each outstanding share of the Company's
common stock, par value $.10 per share (a 'Right'). Each Right entitles the
registered holder of an outstanding share of the Company's common stock to
initially purchase from the Company a unit consisting of one one-hundredth of a
share of Series A Junior Participating Preferred Stock (a 'Unit'), par value
$.10 per share, at a purchase price of $60.00 per Unit, subject to adjustment.
The Rights are exercisable only if a person or group acquires (an 'Acquiring
Person'), or generally obtains the right to acquire beneficial ownership of 20%
or more of the Company's common stock, or commences a tender or exchange offer
which would result in such person or group beneficially owning 30% or more of
the Company's common stock.
If, following the acquisition of 20% or more of the Company's common stock,
(i) the Company is the surviving corporation in a merger with an Acquiring
Person and its common stock is not changed, (ii) a person or entity becomes the
beneficial owner of more than 30% of the Company's common stock, except in
certain circumstances such as through a tender or exchange offer for all the
Company's common stock which the Board of Directors determines to be fair and
otherwise in the best interests of the Company and its stockholders, (iii) an
Acquiring Person engages in certain self-dealing transactions or (iv) an event
occurs which results in such Acquiring Person's ownership interest being
increased by more than 1%, each holder of a Right, other than an Acquiring
Person, will thereafter have the right to receive, upon exercise, the Company's
common stock (or, in certain circumstances, cash, property or other securities
of the Company) having a value equal to two times the exercise price of the
Right.
Under certain circumstances, if (i) the Company is acquired in a merger or
other business combination transaction in which the Company is not the surviving
corporation, unless (a) the transaction occurs pursuant to a transaction which
the Board of Directors determines to be fair and in the best interests of the
Company and its stockholders (b) the price per share of common stock offered in
the transaction is not less than the price per share of common stock paid to all
holders pursuant to
37
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the tender or exchange offer, and (c) the consideration used in the transaction
is the same as that paid pursuant to the offer, or (ii) 50% or more of the
Company's assets or earning power is sold or transferred, each holder of a
Right, other than an Acquiring Person, shall thereafter have the right to
receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the Right.
At any time until the close of business on the tenth day following a public
announcement that an Acquiring Person has acquired, or generally obtained the
right to acquire, beneficial ownership of 20% or more of the Company's common
stock, the Company will generally be entitled to redeem the Rights in whole, but
not in part, at a price of $.05 per Right. After the redemption period has
expired, the Company's right of redemption may be reinstated if an Acquiring
Person reduces his beneficial ownership to 10% or less of the outstanding shares
of common stock in a transaction or series of transactions not involving the
Company.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. The Rights expire on October 29, 1997.
In June 1993, the Board of Directors amended the Rights Agreement dated as
of October 29, 1987, between the Company and The First National Bank of Boston,
as Rights Agent, so that Cooper Life Sciences, Inc. ('CLS') and its affiliates
and associates as of the amendment date would not be Acquiring Persons
thereunder as a result of CLS's beneficial ownership of more than 20% of the
outstanding common stock of the Company by reason of its ownership of Series B
Preferred Stock or common stock issued upon conversion thereof. In January 1995,
the Rights Agreement was further amended to provide that any person who becomes
the beneficial owner of 10% or more, but not more than 30%, of the outstanding
common stock of CLS, and is, therefore, deemed to be the beneficial owner of the
shares of common stock of the Company held by CLS would not be an Acquiring
Person, provided that such person is not otherwise, and does not thereafter
become, the beneficial owner of more than 1% of the Company's outstanding common
stock. (See 'Agreements With CLS' in Note 13.)
NOTE 6. SETTLEMENT OF DISPUTES
In 1994, the Company recorded the following items related to settlement of
disputes:
A credit of $850,000 following receipt of funds by the Company to
settle certain claims made by the Company associated with a real
estate transaction.
A charge of $5,800,000, which represents the Company's estimate of
costs required to settle certain disputes and other litigations
including $3,450,000 associated with the criminal conviction and SEC
enforcement action described in Note 16.
The Company and CLS entered into a settlement agreement, dated June 14,
1993, pursuant to which CLS delivered a general release of claims against the
Company, subject to exceptions for specified ongoing contractual obligations,
and agreed to certain restrictions on its acquisitions, voting and transfer of
securities of the Company, in exchange for the Company's payment of $4,000,000
in cash and delivery of 200,000 shares of common stock of CLS owned by the
Company and a general release of claims against CLS, subject to similar
exceptions. See Note 13 for a discussion of the settlement terms. The cash paid
and fair value of CLS shares returned to CLS were charged to the Company's
statement of operations for 1993 as settlement of disputes. In addition, the
Company charged another $1,500,000 for certain other disputes.
Included in fiscal 1992 is a charge for settlement of disputes which
includes 1) a $650,000 charge related to a transaction with CLS, 2) a payment to
Mr. Frederick R. Adler and 3) a provision to settle several other lawsuits and
disputes.
In April 1992, Frederick R. Adler, a former director of the Company at that
time, notified the Company that he would solicit proxies to elect his own slate
of nominees at the 1992 Annual Meeting of
38
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shareholders (the 'Annual Meeting'), in opposition to the Board's nominees to
the Board of Directors (the 'Proxy Contest'). On June 15, 1992, Mr. Adler and
the Company entered into a settlement agreement with respect to the Proxy
Contest pursuant to which the Board of Directors set the size of the Board at
nine members, effective as of the Annual Meeting, and nominated Mr. Adler and
Louis A. Craco, a partner in the law firm of Willkie, Farr & Gallagher, for
election to the Board together with the Board's seven other nominees, Arthur C.
Bass, Allen H. Collins, M.D., Joseph C. Feghali, Mark A. Filler, Michael H.
Kalkstein, Allan E. Rubenstein, M.D., and Robert S. Weiss. The settlement
agreement provided for the replacement of Mr. Adler by one of three designated
persons if he was unable or unwilling to serve as a director following his
election at the Annual Meeting. In December 1992, Mr. Adler resigned from the
Company's Board of Directors and designated Michael R. Golding, M.D., as his
replacement. As part of the settlement, in which the parties exchanged mutual
releases of claims arising out of the Proxy Contest and litigation brought in
connection therewith, Mr. Adler agreed, among other things, not to solicit
proxies in opposition to the election of the Board's nine nominees at the Annual
Meeting and not to take any action to call a special meeting of stockholders or
solicit stockholder consents with respect to the election or removal of
directors prior to the 1993 annual meeting of stockholders of the Company. The
Company also reimbursed Mr. Adler for $348,000 of expenses actually incurred by
him in connection with the Proxy Contest and negotiation of the settlement
agreement.
In 1992 the Company reached an agreement involving the settlement of
Guenther v. Cooper Life Sciences, et al., a class and shareholder derivative
action filed against CLS, the Company, Cooper Development Company, a Delaware
corporation ('CDC'), Parker G. Montgomery, A. Kenneth Nilsson, Charles Crocker,
Robert W. Jamplis, Barbara Foster as executrix of the Estate of Hugh K. Foster,
Michael Mitzmacher, Joseph A. Dornig, Martin M. Koffel, Richard W. Turner, John
Vuko, Randolph Stockwell, Hambrecht & Quist, Incorporated, Peat Marwick Main &
Co., Gryphon Associates, L.P. and The Gryphon Management Group, Ltd. in June
1988 in the United States District Court for the District of Minnesota and
transferred in December 1988 to the District Court for the Northern District of
California. As amended, the action alleged various securities law violations and
shareholder derivative claims in connection with the public disclosures by, and
management of, CLS from 1985 to 1988. The Company formerly shared certain
officers and directors with CLS and is alleged to have controlled CLS. The
settlement resolved all claims asserted against the Company and its former
officers and directors. On April 30, 1993, the court approved the settlement
after notice to the plaintiff class and a court hearing. In accordance with the
settlement, the case has been dismissed as to the Company and all other
defendants. The settlement provided for a payment by Optics Cayman Islands
Insurance Ltd., a subsidiary of the Company (which provided directors' and
officers' liability insurance to some of the above-named individuals), in the
amount of $2,200,000 on behalf of the directors and officers of CLS, as well as
a payment of $1,800,000 by the Company. The settlement amount was fully reserved
in the books of the Company at July 31, 1992 and paid into escrow by October 31,
1992.
NOTE 7. PREFERRED STOCK
On June 14, 1993, the Company acquired from CLS, all of the remaining
outstanding shares of the Company's Senior Exchangeable Redeemable Restricted
Voting Preferred Stock ('SERPS'), having an aggregate liquidation preference of
$16,060,000, together with all rights to any dividends or distributions thereon,
in exchange for shares of Series B Preferred Stock having an aggregate
liquidation preference of $3,450,000 and a par value of $.10 per share. The 345
shares of the Series B Preferred Stock, and any shares of the Series B Preferred
Stock issued as dividends, were convertible into one share of common stock of
the Company for each $1.00 of liquidation preference, subject to customary
antidilution adjustments. The Company also had the right to compel conversion of
the Series B Preferred Stock at any time after the market price of the common
stock on its principal trading market averaged at least $1.375 for 90
consecutive calendar days and closed at not less than $1.375 on at least 80% of
the trading days during such period.
39
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 26, 1994 the Company's common stock met the above
requirements, and the Series B Preferred Stock was converted into 3,450,000
shares of the Company's common stock. In a Form 4 dated October 4, 1994 filed by
CLS with the Securities and Exchange Commission, CLS reported that as of
September 30, 1994, it owned 7,467,000 shares (or approximately 22%) of the
Company's outstanding common stock.
During 1994 the Company paid $89,000 or $258.90 per share in dividends on
the Series B Preferred Stock.
NOTE 8. INCOME TAXES
As discussed in Note 1, the Company adopted FAS 109 as of November 1, 1993.
The adoption had no impact on the statement of consolidated operations for the
year ended October 31, 1994. The tax benefit for net operating loss and tax
credit carryforwards has not been recognized since the related tax assets were
fully offset by a valuation allowance.
The provision for (benefit of) income taxes consists of the following
components, all of which related to current taxes:
YEAR ENDED OCTOBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
Federal............................................................ $ -- $-- $ 354
State.............................................................. (4,600) 417 420
Outside the United States.......................................... -- -- (674)
--------- --------- ---------
$(4,600) $417 $ 100
--------- --------- ---------
--------- --------- ---------
40
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the provision for (benefit of) income taxes included in
the Company's statement of consolidated operations and the amount computed by
applying the federal income tax rate to income (loss) from continuing operations
before extraordinary items and income taxes follows:
YEAR ENDED OCTOBER 31,
--------------------------------
1994 1993 1992
--------- ---------- ---------
(IN THOUSANDS)
Computed expected provision for (benefit of) taxes............................... $(3,161) $(11,443) $(5,460)
Increase (decrease) in taxes resulting from:
Income outside the United States operations, subject to lower rates......... (65) (186) (376)
Amortization of intangibles................................................. 185 148 65
State taxes, net of federal income tax benefit.............................. 264 275 277
Reversal of prior years' estimated tax liabilities no longer required....... (5,000) -- (674)
Dividends from subsidiaries outside the United States....................... -- 11 1,358
Amortization of restricted stock compensation............................... (31) 335 (14)
Net operating losses for which no tax benefit was recognized................ 3,293 11,546 4,552
Prior year federal assessment............................................... -- -- 354
Interest expense related to original issue discount......................... (100) -- --
Other....................................................................... 15 (269) 18
--------- ---------- ---------
Actual provision for (benefit of) income taxes................................... $(4,600) $ 417 $ 100
--------- ---------- ---------
--------- ---------- ---------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October 31,
1994 are as follows:
(IN THOUSANDS)
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts............ $ 886
Inventories, principally due to obsolescence reserves.............................. 675
Investments, principally due to unrealized losses.................................. 112
Accrued liabilities, principally due to litigation reserves........................ 4,571
Deferred income, principally due to the debenture exchange......................... 1,199
Net operating loss carryforwards................................................... 83,417
Tax credits carryforwards.......................................................... 2,455
Other.............................................................................. 259
--------------
Total gross deferred tax assets............................................... 93,574
Less valuation allowance...................................................... (87,175)
--------------
Net deferred tax assets....................................................... 6,399
--------------
Deferred tax liabilities:
Plant and equipment, principally due to purchase accounting requirements........... (6,037)
Other, principally due to differences in accounting methods for financial and tax
purposes.......................................................................... (362)
--------------
Total gross deferred tax liabilities.......................................... (6,399)
--------------
Net deferred tax assets....................................................... $ 0
--------------
--------------
The valuation allowance for deferred tax assets as of November 1, 1993 was
$84,848,000. The net change in the total valuation allowance for the year ended
October 31, 1994 was an increase of $2,327,000.
41
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of October 31, 1994 will be allocated as follows:
(IN THOUSANDS)
Income tax benefit that would be reported in the consolidated statement of earnings..... $85,684
Goodwill and other noncurrent intangible assets......................................... 1,491
--------------
$87,175
--------------
--------------
At October 31, 1994 the Company had net operating loss carryforwards of
approximately $245,000,000 available to offset future taxable income. The
Company also has tax credit carryforwards of $2,455,000 available to reduce
future tax liabilities. The net operating loss and credit carryforwards expire
commencing in 1999.
NOTE 9. LONG-TERM DEBT
Long-term debt consists of the following:
OCTOBER 31,
--------------------
1994 1993
--------- ---------
(IN THOUSANDS)
10% Senior Subordinated Secured Notes due 2003 ('Notes') $ 25,410 $ --
10 5/8% Convertible Subordinated Reset Debentures due 2005 ('Debentures')......... 9,210 38,997
Bank term loan ('HGA Term Loan').................................................. 10,556 11,222
Industrial Revenue Bonds ('HGA IRB').............................................. 2,000 2,495
Mortgage Note; interest at 9.5%................................................... -- 450
Capitalized leases, interest from 11.5% to 13.0% maturing 1997.................... $ 461 $ 762
--------- ---------
47,637 53,926
Less current installments......................................................... 1,453 5,849
--------- ---------
$ 46,184 $ 48,077
--------- ---------
--------- ---------
Aggregate annual maturities, including current installments, for each of
the five years subsequent to October 31, 1994 are as follows:
(IN THOUSANDS)
1995...................................................... $1,453
1996...................................................... $2,237
1997...................................................... $9,222
1998...................................................... $ 105
1999...................................................... $--
On January 6, 1994, the Company completed an Exchange Offer and Consent
Solicitation, pursuant to which the Company issued approximately $22,000,000
aggregate principal amount of Notes and paid approximately $4,350,000 in cash
($725 principal amount of Notes and $145 in cash for each $1,000 principal
amount of Debentures) in exchange for approximately $30,000,000 aggregate
principal amount of its Debentures (out of $39,384,000 aggregate principal
amount then outstanding). Following the exchange, $9,290,000 aggregate principal
amount of Debentures remains outstanding.
In connection with the Exchange Offer and Consent Solicitation, the Company
amended the indenture governing the Debentures (the 'Indenture') to, among other
things, eliminate a covenant, with which the Company was not in compliance,
requiring the Company to repurchase Debentures. The amendment also reduced the
conversion price at which holders may convert Debentures into shares of the
Company's common stock from $27.45 to $5.00 per share, subject to adjustment
under certain
42
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
conditions to prevent dilution to the holders. The Company also obtained a
waiver (the 'Waiver') of any and all Defaults and Events of Default (as such
terms are defined in the Indenture) that occurred or may have occurred prior to
the expiration of the Exchange Offer and Consent Solicitation on January 6,
1994.
The consummation of the Exchange Offer and Consent Solicitation also
satisfied a condition of the MEC Agreement. Such condition would have allowed
MEC to terminate the agreement if the Exchange Offer and Consent Solicitation
(or an alternative restructuring of the Debentures) was not completed by
February 1, 1994.
The Exchange Offer and Consent Solicitation has been accounted for in
accordance with Statement of Financial Accounting Standards No. 15 'Accounting
by Debtors and Creditors for Troubled Debt Restructurings.' Consequently, the
difference between the carrying value of the Debentures exchanged less the face
value of the Notes issued and the aggregate cash payment for the Debentures was
recorded as a deferred premium aggregating approximately $4,000,000 as of the
date of the Exchange. The Company is recognizing the benefit of the deferred
premium as a reduction to the effective interest rate on the Notes over the life
of the issue. In addition, the Company recorded a charge of $2,131,000 in the
fourth quarter of fiscal 1993 and an additional charge of $340,000 in fiscal
1994 for costs related to the Exchange Offer and Consent Solicitation.
The Debentures mature on March 1, 2005, with interest payments due
semi-annually each March 1 and September 1. During 1993 and 1992, the Company
purchased $4,846,000 and $5,031,000, respectively, principal amount of
Debentures, all of which were retired. The extraordinary gains which resulted
from these purchases were $924,000 and $640,000, respectively.
The Notes mature on June 1, 2003, and bear interest at a rate equal to 10%
per annum, which is payable quarterly on each March 1, June 1, September 1 and
December 1. The Notes are redeemable solely at the option of the Company, in
whole or in part, at any time, at a redemption price equal to 100% of their
principal amount, together with accrued and unpaid interest thereon to the
redemption date. The Company is not required to effect any mandatory redemptions
or make any sinking fund payments with respect to the Notes, except in
connection with certain sales or other dispositions of, or certain financings
secured by, the collateral securing the Notes. Pursuant to a pledge agreement
dated as of January 6, 1994, between the Company and the trustee for the holders
of the Notes, the Company has pledged a first priority security interest in all
of its right, title and interest in stock of its subsidiaries HGA and CSI, all
additional shares of stock of, or other equity interests in HGA and
CooperSurgical from time to time acquired by the Company, all intercompany
indebtedness of HGA and CooperSurgical from time to time held by the Company,
except as set forth in the indenture governing the Notes, and the proceeds
received from the sale or disposition of any or all of the foregoing.
The Debentures and the Notes each contain various covenants, including
limitations on incurrence and ranking of indebtedness, payment of cash
dividends, acquisition of the Company's common stock and transactions with
affiliates.
Substantially all of the property and equipment and accounts receivable of
HGA collateralize its outstanding debt. The HGA Term Loan carries interest at 4
percentage points over the prime interest rate, with a floor of 12% per annum,
which rate was in effect at October 31, 1994. Interest and principal payments on
the HGA Term Loan are due monthly through August 1997. The HGA IRB carries
interest at 85% of prime, or approximately 6.6% per annum at October 31, 1994.
Interest and principal payments on the HGA IRB are due monthly and holders have
elected their right to accelerate all payments of outstanding principal at
December 31, 1995. The HGA Term Loan and the HGA IRB each contain covenants
including the maintenance by HGA of certain ratios and levels of net worth (as
defined), capital expenditures, interest and debt payments, as well as
restrictions on payment of cash dividends.
On September 20, 1994, CVI entered into a Loan and Security Agreement with
a commercial lender providing for revolving advances of up to $8,000,000. To
date, no funds have been drawn under
43
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
this agreement. If and when funds are drawn, they will bear interest at 2 1/2
percentage points above the highest most recently announced prime rate of the
three financial institutions of national repute named in the agreement, with a
floor of 8.5% per annum. As of December 30, 1994, this rate would have been
2 1/2 points above 8.5%, or 11.0% per annum. CVI agreed to the payment of
various fees, including minimum interest of $150,000 per year. The aggregate
amount of advances under the agreement will be capped at the lesser of
$8,000,000, or a percentage of CVI's levels of eligible receivables and
inventory as defined in the agreement (approximately $6,200,000 in total line
availability at October 31, 1994) and will be collateralized by virtually all of
the assets of CVI.
A covenant of the Loan and Security Agreement states that CVI (provided
that no Event of Default, as defined, has occurred and is continuing) may make
loans, advances, investments, capital contributions and distributions to the
Company, and pay management fees to the Company, so long as the total amount of
all such amounts does not exceed an amount equal to the sum of (i) 75% of CVI's
Tangible Net Worth, as defined, on the closing date, plus (ii) all amounts in
excess of required increases in CVI's Tangible Net Worth for each fiscal year
ending after October 31, 1994. At September 30, 1994 CVI's Tangible Net Worth
was $11,480,000. At that time, CVI could have upstreamed to the Company
$8,480,000. At October 31, 1994, CVI had net assets of $20,164,000, of which
$11,077,000 was restricted under the terms of the Loan and Security Agreement.
The Loan and Security Agreement contains various additional covenants,
including the maintenance of certain ratios and levels of net worth (as
defined), limitations on capital expenditures and incurrence of indebtedness as
well as limitations regarding change in control and transactions with
affiliates.
In connection with the Loan and Security Agreement, the Company guaranteed
all of the obligations under the HGA Term Loan and CVI's obligations under the
Loan and Security Agreement and the Company pledged all of the outstanding stock
of CVI as collateral for the HGA Term Loan guaranty.
UNAMORTIZED BOND DISCOUNT AND DEFERRED PREMIUM
The difference between the carrying amount and the principal amount of the
Company's 10 5/8% Convertible Subordinated Reset Debentures due 2005 represents
unamortized discount which is being charged to expense over the life of the
issue. As of October 31, 1994, the amount of unamortized discount was
approximately $80,000.
The carrying value of the Debentures exchanged less the face value of the
Notes issued and the aggregate cash payment for the Debentures was recorded as a
deferred premium. The Company is recognizing the benefit of the deferred premium
as a reduction to the effective interest rate on the Notes over the life of the
issue. As of October 31, 1994, the amount of the unamortized deferred premium
was $3,467,000.
NOTE 10. EMPLOYEE STOCK PLANS
1988 LONG-TERM INCENTIVE PLAN ('LTIP')
The LTIP is a vehicle for the Company to attract, retain and motivate key
employees and consultants to the Company and its subsidiaries and affiliates,
who are directly linked to the profitability of the Company and to increasing
stockholder value.
The LTIP authorizes a committee consisting of three or more individuals not
eligible to participate in the LTIP or, if no committee is appointed, the
Company's Board of Directors, to grant to eligible individuals during a period
of ten years from September 15, 1988, stock options, stock appreciation rights,
restricted stock, deferred stock, stock purchase rights, phantom stock units and
long term performance awards for up to 6,376,710 shares of common stock, subject
to adjustment for future stock
44
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
splits, stock dividends, expirations, forfeitures and similar events. As of
October 31, 1994, 3,445,475 shares remained available under the LTIP for future
grants.
In February and June 1992, the Administrative Committee of the LTIP
authorized grants to employees and consultants covering an aggregate of 223,250
restricted shares. These restricted shares were to have had restrictions removed
in 20% increments at various price levels attained by the Company's common stock
or have restrictions removed based on performance criteria or at the end of ten
years. Of these grants, restrictions were removed from a total of 12,300 shares
in 1992, and the remainder, not otherwise forfeited, had restrictions removed
during 1993 as a result of a 'Change of Control' as defined by the LTIP in
connection with the issuance by the Company of Series B Preferred Stock. (See
Note 7.)
As of August 1, 1993, there were outstanding options to purchase an
aggregate of 1,102,500 shares of common stock granted to, and not subsequently
forfeited by, optionholders at exercise prices ranging from $.69 to $4.25. The
Company offered each employee who held options granted under the LTIP an
opportunity to exchange those options for a smaller number of substitute
options. Each new option is exercisable at $.56 per share. The number of shares
each employee was entitled to purchase pursuant to such option was computed by
an independent nationally recognized compensation consulting firm using an
option exchange ratio derived under the Black-Scholes option pricing model. Each
person who elected to participate in the option exchange program received an
option to purchase an individually calculated percentage ranging from 21% to 70%
of the shares such person was originally entitled to purchase. A percentage of
the new option, equal to the percentage of the outstanding option that was
already exercisable, was immediately exercisable, and the remainder became
exercisable in 1994 in 25% tranches when the trading price of the Company's
common stock over 30 days averaged, $1.00, $1.50, $2.00 and $2.50 per share,
respectively. The option exchange program provided optionholders the opportunity
to exchange options with exercise prices well in excess of the then current
market price of the Company's common stock with a lesser number of options
exercisable at a price that, while still above the then price, was lower than
the exercise price on the surrendered options. Under the terms of the option
exchange offer, each person who elected to participate waived the vesting of
options that otherwise would have resulted from the Change in Control (as such
term is defined in the LTIP) that occurred when stockholders approved the
conversion rights of the Series B Preferred Stock on September 14, 1993. (See
Note 7.)
1990 NON-EMPLOYEE DIRECTORS RESTRICTED STOCK PLAN ('NEDRSP')
Under the terms of the NEDRSP, each director of the Company who is not also
an employee of or a consultant to the Company or any subsidiary of the Company
('Non-Employee Director') is granted the right to purchase, for $.10 per share,
5,000 shares of the Company's common stock, subject to restrictions, which can
be lifted either by the fair market value of the Company's common stock
achieving stated targets, or upon the passage of a stated period of time,
typically 10 years after the grant. One hundred thousand shares of such common
stock were authorized and reserved for issuance under the NEDRSP. Shares which
are forfeited become available for new awards under such plan.
Transactions involving the grant of options or restricted shares of the
Company's common stock in connection with the LTIP and NEDRSP during each of the
years in the three year period ended October 31, 1994 are summarized below. At
October 31, 1994, there were 3,445,475 and 45,000 shares of the Company's common
stock available for future grants under the LTIP and NEDRSP, respectively.
45
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NUMBER OF SHARES
-------------------
1994 LTIP NEDRSP
- ------------------------------------------------------------------------------------------ ---------- ------
Balance at beginning of year.............................................................. 2,367,797 55,000
Options granted........................................................................... 410,000 --
Options forfeited......................................................................... (144,340) --
Restricted shares granted................................................................. 297,778 --
---------- ------
Balance at end of year.................................................................... 2,931,235 55,000
---------- ------
---------- ------
Consisting of:
Options issued but not exercisable................................................... 586,656
Options issued and exercisable....................................................... 210,012
Options exercised at $.56 per share.................................................. 3,220
Restricted shares issued with restrictions in force.................................. 163,333
Restricted shares issued with restrictions removed................................... 1,968,014 55,000
---------- ------
2,931,235 55,000
---------- ------
---------- ------
Options issued and outstanding have option prices ranging from $0.56 to
$3.75 per share.
NUMBER OF SHARES
-------------------
1993 LTIP NEDRSP
- ------------------------------------------------------------------------------------------ ---------- ------
Balance at beginning of year.............................................................. 2,805,519 35,000
Options granted........................................................................... 620,000 --
Options forfeited......................................................................... (962,089) --
Restricted shares granted................................................................. 125,000 20,000
Restricted shares purchased by the Company................................................ (196,633) --
Restricted shares forfeited............................................................... (24,000) --
---------- ------
Balance at end of year.................................................................... 2,367,797 55,000
---------- ------
---------- ------
Consisting of:
Options issued but not exercisable................................................... 519,269 --
Options issued and exercisable....................................................... 14,959 --
Restricted shares issued with restrictions in force.................................. 182,611 5,000
Restricted shares issued with restrictions removed................................... 1,650,958 50,000
---------- ------
2,367,797 55,000
---------- ------
---------- ------
NUMBER OF SHARES
-------------------
1992 LTIP NEDRSP
- ------------------------------------------------------------------------------------------ ---------- ------
Balance at beginning of year.............................................................. 2,543,827 21,000
Options granted........................................................................... 660,000 --
Options forfeited......................................................................... (20,000) --
Restricted shares granted................................................................. 223,250 20,000
Restricted shares purchased by the Company................................................ (576,558) (6,000)
Restricted shares forfeited............................................................... (25,000) --
---------- ------
Balance at end of year.................................................................... 2,805,519 35,000
---------- ------
---------- ------
Consisting of:
Options issued but not exercisable................................................... 772,500 --
Options issued and exercisable....................................................... 103,817 --
Restricted shares issued with restrictions in force.................................. 795,022 23,000
Restricted shares issued with restrictions removed................................... 1,134,180 12,000
---------- ------
2,805,519 35,000
---------- ------
---------- ------
46
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The excess of market value over $.10 per share of LTIP and NEDRSP
restricted shares on respective dates of grant is recorded as unamortized
restricted stock award compensation, a separate component of stockholders'
equity. Restricted shares and other stock compensation charged (credited) to
selling, general and administrative expense for the twelve months ended October
31, 1994, 1993 and 1992 was approximately $55,000, $1,084,000 and ($33,000),
respectively.
PRIOR STOCK OPTION PLANS
Prior to the September 15, 1988 implementation of the LTIP, the Company had
two stock option plans (the 'Stock Option Plans'). With the adoption of the
LTIP, all authorized but unallocated options under the Stock Option Plans
(options for approximately 430,500 shares of the Company's common stock) were
transferred to the LTIP. No further grants are allowed from the Stock Option
Plans, although previously existing grants remained in effect.
Transactions in the Company's common stock during each of the three years
ended October 31, 1994 in connection with the Stock Option Plans are summarized
below:
NUMBER OPTION PRICE
1994 OF SHARES PER SHARE
- --------------------------------------------------------------------------- --------- -----------------
Outstanding and exercisable at beginning of year........................... 29,150 $16.13-$19.75
Expired or canceled........................................................ ( 6,200) $16.13-$19.75
---------
Outstanding and exercisable at end of year................................. 22,950 $16.13-$19.75
1993
- ---------------------------------------------------------------------------
Outstanding and exercisable at beginning of year........................... 40,238 $16.13-$19.75
Expired or canceled........................................................ (11,088) $16.13-$19.75
---------
Outstanding and exercisable at end of year................................. 29,150 $16.13-$19.75
1992
- ---------------------------------------------------------------------------
Outstanding and exercisable at beginning of year........................... 48,493 $ 5.33-$19.75
Expired or canceled........................................................ (8,255) $ 5.33-$16.13
---------
Outstanding and exercisable at end of year................................. 40,238 $16.13-$19.75
NOTE 11. EMPLOYEE BENEFITS
THE COMPANY'S RETIREMENT INCOME PLAN
The Company adopted The Cooper Companies, Inc. Retirement Income Plan (the
'Retirement Plan') in December 1983. The Retirement Plan is a non-contributory
pension plan covering substantially all full-time United States employees of
CVI, CVP and the Company's Corporate Headquarters. The Company's customary
contributions are designed to fund normal cost on a current basis and to fund
over thirty years the estimated prior service cost of benefit improvements
(fifteen years for annual gains and losses). The unit credit actuarial cost
method is used to determine the annual cost. The Company pays the entire cost of
the Retirement Plan and funds such costs as they accrue. Retirement costs
applicable to continuing and discontinued operations of the Company for the
years ended October 31, 1994, 1993 and 1992 were approximately $123,000,
$181,000 and $265,000, respectively. Virtually all of the assets of the
Retirement Plan are comprised of participations in equity and fixed income
funds.
47
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based on the latest actuarial information available, the following tables
set forth the net periodic pension costs, funded status and amounts recognized
in the Company's consolidated financial statements for the Retirement Plan:
NET PERIODIC PENSION COST
YEAR ENDED OCTOBER 31,
---------------------------
1994 1993 1992
----- ----- -----
(IN THOUSANDS)
Service cost......................................................... $ 173 $ 180 $ 187
Interest cost........................................................ 479 453 426
Actual return on assets.............................................. (531) (628) (364)
Net amortization and deferral........................................ 2 176 16
----- ----- -----
Net periodic pension cost....................................... $ 123 $ 181 $ 265
----- ----- -----
----- ----- -----
SCHEDULE RECONCILING THE FUNDED STATUS OF THE PLAN
WITH PROJECTED AMOUNTS FOR THE FINANCIAL STATEMENTS
1994 1993
----- -----
Assumptions:
Discount rate on plan liabilities................................. 8.0% 8.0%
Long-range rate of return on plan assets.......................... 9.0% 9.0%
Salary increase rate.............................................. 6.0% 6.0%
Average remaining service......................................... 15.27 years 15.22 years
OCTOBER 31,
------------------
1994 1993
------ ------
(IN THOUSANDS)
Vested benefit obligation...................................................... $5,861 $5,592
Non-vested benefit obligation.................................................. 84 48
------ ------
Accumulated benefit obligation............................................ 5,945 5,640
Effect of projected earnings levels............................................ 546 532
------ ------
Projected benefit obligation................................................... 6,491 6,172
Fair value of plan assets...................................................... 5,828 5,993
------ ------
Projected benefit obligation in excess of assets.......................... 663 179
Add (Deduct):
Unrecognized net gain..................................................... 379 926
Prior service cost remaining to be amortized, including unrecognized net
assets.................................................................. (465) (490)
------ ------
Pension liability recognized................................................... $ 577 $ 615
------ ------
------ ------
THE COMPANY'S 401(k) SAVINGS PLAN
The Company's 401(k) Plan provides for the deferral of compensation as
described in the Internal Revenue Code, and is available to substantially all
full-time United States employees of the Company. United States resident
employees of the Company who participate in the 401(k) Plan may elect to have
from 2% to 10% of their pre-tax salary or wages, but not more than $5,000 (for
highly compensated employees) for the calendar year ended December 31, 1994,
deferred and contributed to the trust established under the 401(k) Plan. The
Company's contribution to the 401(k) Plan on account of the
48
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's participating employees, net of forfeiture credits, was $80,000,
$90,000 and $72,000 for the years ended October 31, 1994, 1993 and 1992,
respectively.
THE COMPANY'S INCENTIVE PAYMENT PLAN
The Company's Incentive Payment Plan ('IPP') is available to officers and
other key executives. Participants may, in certain years, receive bonuses based
on Company and subsidiary performance. Total payments earned for the years ended
October 31, 1994, 1993 and 1992, were approximately $1,296,000, $439,000 and
$456,000, respectively. The Board of Directors of the Company also approved
discretionary bonuses outside of the IPP for the years ended October 31, 1993
and October 31, 1992 of approximately $124,000 and $343,000, respectively.
THE COMPANY'S TURN-AROUND INCENTIVE PLAN
The Company's Turn-Around Incentive Plan ('TIP') was adopted by the
Compensation Committee of the Board and the 1988 Long Term Incentive Plan
Administrative Committee of the Board on May 18, 1993. The TIP was adopted, upon
the recommendation of the Company's independent compensation consultants, to
recognize the special efforts of certain individuals in guiding the Company
through a resolution of its difficulties arising from its then current capital
structure and its former ownership of companies that manufactured and
distributed breast implants.
The TIP provided for awards in varying amounts to be made to designated
participants. Before any awards could become payable, however, the Company had
to significantly reduce its liabilities relating to the former breast implant
business to levels approved by the Board of Directors, which condition was
satisfied when the MEC Agreement became final on January 6, 1994 (see Note 14).
Upon satisfaction of such condition, one-third of the award was payable when the
average per share price of the Company's common stock over a period of thirty
days equaled or exceeded $1.50 per share. That occurred on May 25, 1994, and
participants in the TIP were, therefore, awarded one-third of the total award
for which they were eligible under the TIP. The payments were made in cash
($246,667) and by means of the issuance of 297,778 shares of restricted stock
under the Company's 1988 Long Term Incentive Plan. That stock generally will
remain restricted and non-transferable for a period of two years. The remaining
two-thirds of the allocated TIP awards will be payable at such time as the
30-day average of the price of the Company's common stock equals or exceeds
$3.00 per share. The maximum value of the awards that could be made (whether
paid in stock or cash), assuming both targets are satisfied, is $2,250,000.
NOTE 12. LEASE AND OTHER COMMITMENTS
Total minimum annual rental obligations under noncancelable operating
leases (substantially all real property and equipment) in force at October 31,
1994 are payable in subsequent years as follows:
(IN THOUSANDS)
1995...................................................... $2,018
1996...................................................... 1,257
1997...................................................... 774
1998...................................................... 482
1999...................................................... 384
2000 and thereafter....................................... 2,222
-------
$7,137
-------
-------
Aggregate rental expense for both cancelable and noncancelable contracts
amounted to $2,438,000, $2,105,000 and $2,828,000 in 1994, 1993 and 1992,
respectively.
49
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The $9,000,000 liability recorded for payments to be made to MEC under the
MEC Agreement (see Note 3) will become due as follows:
DECEMBER 31,
- ------------------------------------------------------------
1994..................................................... $1,250,000
1995..................................................... 1,500,000
1996..................................................... 1,750,000
1997..................................................... 2,000,000
1998..................................................... 2,500,000
----------
$9,000,000
----------
----------
Additional payments to be made to MEC beginning December 31, 1999 are
contingent upon the Company's earning net income before taxes in each fiscal
year, and are, therefore, not recorded in the Company's financial statements.
Such payments are limited to the smaller of 50% of the Company's net income
before taxes in each such fiscal year on a noncumulative basis or the amounts
shown below:
DECEMBER 31,
- ------------------------------------------------------------
1999..................................................... $3,000,000
2000..................................................... $3,500,000
2001..................................................... $4,000,000
2002..................................................... $4,500,000
2003..................................................... $3,000,000
Under the terms of a supply agreement most recently modified in 1993, the
Company agreed to purchase by December 31, 1997, certain contact lenses from a
British manufacturer, Pilkington plc with an aggregate cost of approximately
`L'4,063,000. Approximately `L'400,000, `L'213,000, `L'7,000 was purchased under
the terms of the supply agreement in fiscal years 1994, 1993 and 1992,
respectively. As of December 31, 1994, there remained a commitment of
approximately `L'3,381,000.
WARRANTS
In connection with agreements to extend the due date on certain of the
Company's outstanding debt in 1988, the Company issued warrants to a group of
its lenders. Warrants to purchase 658,950 shares of the Company's common stock
vested in December 1988 and currently have an expiration date of December 29,
1995. All other warrants related to the agreements expired.
The terms of the warrants provide that the exercise price is to be reset
every six months to the lower of the then current exercise price or 80% of the
market value as defined in the warrant agreement. As of January 12, 1994, the
most recent reset date, the exercise price was $.37 per share.
The Company issued a warrant to Foothill Capital Corporation ('Foothill')
to purchase 80,000 shares of the Company's common stock at $1.875 per share in
connection with the loan and security agreement among Foothill, CVI, and
CooperVision Canada. The warrant becomes exercisable on September 21, 1997 and
expires on May 26, 1999. Both the number of shares under the warrant and the
exercise price per share are adjustable under certain circumstances to avoid
dilution.
NOTE 13. RELATIONSHIPS AND TRANSACTIONS BETWEEN THE COMPANY, CLS, COOPER
DEVELOPMENT COMPANY (CDC') AND THE COOPER LABORATORIES, INC. STOCKHOLDERS'
LIQUIDATING TRUST (THE TRUST')
ADMINISTRATIVE SERVICES
Pursuant to separate agreements between the Company and CDC, CLS and the
Trust, which was formed in connection with the liquidation of the Company's
former parent, Cooper Laboratories, Inc., the Company provided certain
administrative services to CDC, CLS and the Trust, including the
50
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
services of the Company's treasury, legal, tax, data processing, corporate
development, investor relations and accounting staff. Expenses were charged on
the basis of specific utilization or allocated based on personnel, space,
percent of assets used or other appropriate bases. The agreements relating to
the provision of administrative services to CDC and CLS terminated on September
17, 1988. The Company has not performed any services for CDC and CLS since
September 17, 1988, other than historic tax services pursuant to the Trust.
Combined corporate administrative expenses charged to the Trust by the Company
were $213,000 in 1992 and $560,000 in 1991. On July 9, 1992, the Trust filed a
petition in Bankruptcy under Chapter 7 of the Bankruptcy Code; and, effective
July 31, 1992, the Company ceased providing services to the Trust. The Company
has asserted a claim for approximately $750,000 in the Trust's bankruptcy
proceedings, primarily representing unpaid administrative service fees and
expenses and legal fees advanced by the Company on behalf of the Trust.
AGREEMENTS WITH CLS
On October 21, 1988, the Company and CLS entered into a settlement
agreement (the '1988 CLS Settlement Agreement') pursuant to which certain claims
between the two corporations were settled. Among other things, the 1988 CLS
Settlement Agreement provided that (a) the discovery period under the directors
and officers liability insurance policy issued by the Company covering directors
and officers of CLS would be extended pursuant to an option contained in the
insurance policy (see 'Liability Insurance' below), (b) CLS would indemnify the
Company for certain claims made by a former consultant to the Company, (c) CLS
would have no further liability to the Company with respect to the termination
of the contract pursuant to which the Company had agreed to purchase ophthalmic
laser systems from CLS, (d) CLS would pay the Company $2,750,000 and (e) CLS, in
its capacity as a holder of the Company's Senior Exchangeable Redeemable
Restricted Voting Preferred Stock (the 'SERPS'), would consent to the Company's
proposed sales of its CTI business and its Cooper Surgical business and to the
proposed deletion of the mandatory redemption provision of the SERPS. The 1988
CLS Settlement Agreement did not allocate the $2,750,000 settlement amount among
the various items contained therein. The $2,750,000 was paid in full by CLS in
December 1988.
On November 27, 1989, the Company and CLS entered into another separate
settlement agreement (the '1989 CLS Settlement Agreement'). Pursuant to the 1989
CLS Settlement Agreement, among other things, the Company and CLS (i) entered
into a mutual standstill arrangement precluding each party from acquiring each
other's common stock and precluding CLS from acquiring additional shares of the
SERPS, (ii) dismissed most of the outstanding litigations among the Company and
CLS, (iii) reaffirmed the Company's obligation to register the SERPS, and (iv)
obtained the consent of CLS, as a holder of outstanding SERPS, to any future
sale of all or any portion of the Company's remaining contact lens business,
subject to the receipt of a fairness opinion and following a 90-day period
(since expired) in which the Company would negotiate the sale of the business
exclusively with CLS and CDC.
On June 12, 1992, the Company consummated a transaction with CLS, which
eliminated approximately 80% of the SERPS (the '1992 CLS Transaction'). Pursuant
to an Exchange Agreement between the Company and CLS dated as of June 12, 1992
(the '1992 Exchange Agreement'), the Company acquired from CLS 488,004 shares of
the SERPS owned by CLS, and all of CLS's right to receive, by way of dividends
pursuant to the terms of the SERPS, an additional 11,996 shares of SERPS (such
11,996 shares together with the 488,004 shares being referred to collectively as
the SERPS) in exchange for 4,850,000 newly issued shares of the Company common
stock (the 'Company Shares'). In addition, the Company purchased 200,000
unregistered shares of CLS common stock (the 'CLS Shares'), for a purchase price
of $1,500,000 in cash and entered into a settlement agreement with CLS dated as
of June 12, 1992 (the '1992 Settlement Agreement'), with respect to certain
litigation and administrative proceedings in which the Company and CLS were
involved. Pursuant to the 1992 Settlement Agreement, CLS, among other things,
released its claim against the Company for unliquidated damages arising from the
Company's failure to register the SERPS, in return for the Company's payment of
$500,000, the reimbursement of certain legal fees and expenses in the amount of
51
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$650,000 incurred by CLS in connection with certain litigation and
administrative proceedings, and the payment of $709,000 owed by the Company to
CLS pursuant to tax sharing agreements between them. The Company also agreed to
reimburse CLS for up to $250,000 of legal and other fees and expenses incurred
by CLS in connection with the 1992 CLS Transaction and, if requested by CLS, to
use its reasonable best efforts to cause the election to the Company's Board of
Directors of one or two designees of CLS, reasonably acceptable to the Company
(the number of designees depending, respectively, on whether CLS owns more than
1,000,000 but less than 2,400,000 shares, or more than 2,400,000 shares of the
Company's common stock).
As part of the 1992 CLS Transaction, pursuant to Registration Rights
Agreements, dated as of June 12, 1992, each between the Company and CLS (the
'Registration Rights Agreements'), the Company and CLS each agreed to use its
reasonable best efforts to register, respectively, the Company Shares and the
CLS Shares. On July 27, 1992, the Company filed with the Securities and Exchange
Commission a registration statement for the Company Shares which became
effective November 20, 1992. If a registration statement covering the Company
Shares had not been declared effective within 180 days following June 12, 1992,
the Company had agreed to pay $1,250,000 in cash (an amount equal to the value
of 'pay-in-kind' dividends it would have accrued on the SERPS but for the
exchange). CLS has agreed that if CLS had not registered the CLS Shares within
17 months from the closing date, the Company could require CLS to repurchase the
CLS Shares, at the Company's cost of $1,500,000, by either, at CLS's option, (a)
payment of cash, (b) delivery of shares of Senior Preferred Stock, valued at $39
per share, or (c) delivery of shares of the Company's common stock, valued at $3
per share. The CLS shares were delivered to CLS as part of the 1993 CLS
Settlement Agreement (as defined and described below).
On June 14, 1993, the Company acquired from CLS all of the remaining
outstanding SERPS of the Company, having an aggregate liquidation preference of
$16,060,000, together with all rights to any dividends or distributions thereon,
in exchange for shares of Series B Preferred Stock having an aggregate
liquidation preference of $3,450,000 and a par value of $.10 per share (the
'1993 Exchange Agreement'). Such shares, and any shares of Series B Preferred
Stock issued as dividends, were convertible into one share of common stock of
the Company for each $1.00 of liquidation preference, subject to customary
antidilution adjustments.
The Company also had the right to compel conversion of Series B Preferred
Stock at any time after the market price of the common stock on its principal
trading market averaged at least $1.375 for 90 consecutive calendar days and
closed at not less than $1.375 on at least 80% of the trading days during such
period. On September 26, 1994, the Company's common stock met the above
requirements, and the Series B Preferred Stock was converted into 3,450,000
shares of the Company's common stock.
No dividends accrued on the Series B Preferred Stock through June 14, 1994.
Subsequently, dividends accrued and were paid in cash, at the rate of 9% (of
liquidation preference) per annum, through the date of conversion.
The Company and CLS also entered into a Registration Rights Agreement,
dated June 14, 1993, providing for the registration under the Securities Act of
the shares of common stock issued upon such conversion of any of the Series B
Preferred Stock and any of the 4,850,000 shares of common stock currently owned
by CLS which have not been sold prior thereto.
On June 14, 1993, the Board of Directors amended the Rights Agreement dated
as of October 29, 1987, between the Company and The First National Bank of
Boston, as Rights Agent, so that CLS and its affiliates and associates as of the
amendment date would not be Acquiring Persons thereunder as a result of CLS's
beneficial ownership of more than 20% of the outstanding common stock of the
Company by reason of its ownership of Series B Preferred Stock or common stock
issued upon conversion thereof. (See Note 5.)
CLS obtained 4,850,000 shares of the Company's common stock pursuant to the
1992 Exchange Agreement described above. In Amendment No. 1 to its Schedule 13D,
filed with the SEC on
52
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
November 12, 1992, CLS disclosed that 'in light of the recent public disclosures
relating to the Company and the recent significant decline in the public trading
price of the common stock, CLS is presently considering various courses of
action which it may determine to be necessary or appropriate in order to
maintain and restore the value of the common stock. Included among the actions
which CLS is considering pursuing are the initiation of litigation against the
Company and the replacement of management and at least a majority of the members
of the Board of Directors of the Company.'
On June 14, 1993, in order to resolve all disputes with CLS, the Company
and CLS entered into a Settlement Agreement (the '1993 Settlement Agreement'),
pursuant to which CLS delivered a general release of claims against the Company,
subject to exceptions for specified ongoing contractual obligations, and agreed
to certain restrictions on its voting and transfer of securities of the Company,
in exchange for the Company's payment of $4,000,000 in cash and delivery of
200,000 shares of common stock of CLS owned by the Company and a general release
of claims against CLS, subject to similar exceptions. The cash paid and fair
value of CLS shares returned have been charged to the Company's statement of
operations as settlement of disputes. (See Note 6.)
Pursuant to the 1993 Settlement Agreement, the Company agreed to nominate,
and to vote all of its shares of common stock of the Company in favor of the
election of, a Board of Directors of the Company consisting of eight members, up
to three of whom will, at CLS's request, be designated by CLS (such designees to
be officers or more than 5% stockholders of CLS as of June 14, 1993 or otherwise
be reasonably acceptable to the Company). The number of CLS designees will
decline as CLS's ownership of common stock declines. A majority of the Board
members (other than CLS designees) are to be individuals who are not officers or
employees of the Company. Pursuant to the Settlement Agreement, CLS designated,
and on August 10, 1993 the Board of Directors elected, one person to serve as a
director of the Company until the 1993 Annual Meeting. CLS also designated that
individual along with two other people as its three designees to the
eight-member Board of Directors that was elected at the 1993 Annual Meeting.
Each of those three CLS designees was reelected to the Board at the 1994 Annual
Meeting.
CLS also agreed in the 1993 Settlement Agreement not to acquire any
additional securities of the Company and to certain limitations on its transfer
of securities of the Company. In addition, CLS agreed, among other things, not
to seek control of the Company or the Board or otherwise take any action
contrary to the 1993 CLS Settlement Agreement. CLS is free, however, to vote all
voting securities owned by it as it deems appropriate on any matter before the
Company's stockholders.
The agreements with respect to Board representation and voting, and the
restrictions on CLS's acquisition and transfer of securities of the Company,
were to terminate on June 14, 1995, or earlier if CLS beneficially owned less
than 1,000,000 shares of common stock (including as owned the common stock into
which shares of Series B Preferred Stock owned by CLS were converted). The
agreements were to be extended if the market price of the common stock increased
to specified levels prior to each of June 12, 1995, and June 12, 1996, or if the
Company agreed to nominate one CLS designee, who was independent of CLS and
reasonably acceptable to the Company, in addition to that number of designees to
which CLS was then entitled on each such date, which would have resulted in such
agreements continuing through October 31, 1996, and CLS having up to five
designees on the Board (which would then have a total of ten members, or eleven
members if a new chairman or chief executive officer was then serving on the
Board). In January 1995, in connection with the further amendment to the Rights
Agreement (see Note 5), the Company and CLS amended the 1993 Settlement
Agreement to provide that the provisions relating to CLS representation on the
Company's Board, CLS's obligations with respect to voting its securities of the
Company and the restrictions on CLS's acquisition and transfer of securities of
the Company, will now end on the earlier of (i) the first date on which CLS
beneficially owns fewer than 1,000,000 shares of the Company's outstanding
common stock or (ii) October 31, 1996, or if any person (other than two
specified individuals) becomes the beneficial owner of 20% or more of the
outstanding shares of common stock of CLS, April 30, 1997.
53
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following termination of the 1993 Settlement Agreement and through June 12,
2002, CLS will continue to have the contractual right that it had pursuant to
the 1992 CLS Settlement Agreement to designate two directors of the Company, so
long as CLS continues to own at least 2,400,000 shares of common stock, or one
director, so long as it continues to own at least 1,000,000 shares of common
stock.
OTHER
CLS was formerly an 89.5% owned subsidiary of the Company's former parent,
Cooper Laboratories, Inc. ('Labs').
On June 14, 1993, CLS acquired 345 shares of Series B Preferred Stock which
were convertible into 3,450,000 shares of common stock. Those shares were
converted on September 26, 1994 and according to a report on beneficial
ownership on Form 4 dated October 9, 1994 filed by CLS with the SEC, as of
September 30, 1994, CLS owned 7,467,000 shares (or approximately 22%) of common
stock of the Company.
Two members of the Company's Board of Directors are also officers of CLS.
Mel Schnell, President and Director of CLS, and Steven Rosenberg, Vice President
and Chief Financial Officer of CLS, each owns 5,000 shares of the Company's
common stock, obtained through the NEDRSP. (See Note 10.)
NOTE 14. BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION
The Company's operations are attributable to four business segments:
HGA, which provides healthcare services through the ownership and
operation of certain psychiatric facilities, and the management of
other such facilities,
CVI, which develops, manufactures and markets a range of contact
lenses in the United States and Canada,
CVP, a development stage business, which develops proprietary
ophthalmic pharmaceuticals, and
CSI, which develops, manufactures and distributes diagnostic and
surgical instruments and disposables, primarily for gynecology.
Total revenues by business segment represents service and sales revenue as
reported in the Company's statement of consolidated operations. Total net sales
revenue by geographic area includes intercompany sales which are generally
priced at terms that allow for a reasonable profit for the seller. Operating
income (loss) is total revenue less cost of products sold (or services provided,
in the case of HGA revenues), research and development expenses, selling,
general and administrative expenses, costs of restructuring and amortization of
intangible assets. Corporate operating loss is principally corporate
headquarters expense. Investment income, net, settlement of disputes, debt
restructuring costs, gain on sales of assets and businesses, net, other income
(expense), net, and interest expense were not allocated to individual businesses
or geographic segments.
Identifiable assets are those assets used in continuing operations
(exclusive of cash and cash equivalents) or which are allocated thereto when
used jointly. Corporate assets include cash and cash equivalents and temporary
investments.
54
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information by business segment for each of the years in the three-year
period ended October 31, follows:
CORPORATE &
1994 HGA CVI CVP CSI ELIMINATIONS CONSOLIDATED
- --------------------------------------------------- ------- ------- ------- ------- ------------ ------------
(IN THOUSANDS)
Revenue from non-affiliates........................ $44,611 $37,793 $ 394 $12,847 $ -- $ 95,645
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Operating income (loss)............................ $ 3,321 $11,963 $(3,063) $ (932) $(10,866) $ 423
------- ------- ------- ------- ------------
------- ------- ------- ------- ------------
Investment income (loss), net...................... (153)
Settlement of disputes............................. (4,950)
Debt restructuring costs........................... (340)
Gain on sale of assets and businesses, net......... 214
Other income (expense), net........................ 42
Interest expense................................... (4,533)
------------
Loss from continuing operations before income taxes
and extraordinary items.......................... (9,297)
------------
------------
Identifiable assets................................ $50,522 $22,814 $ 442 $ 9,289 $ 11,991 $ 95,058
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Depreciation expense............................... $ 1,387 $ 1,025 $ 36 $ 339 $ 83 $ 2,870
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Amortization expense............................... $ 205 $ 448 $ 22 $ 302 $ -- $ 977
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Capital expenditures............................... $ 338 $ 524 $ 12 $ 58 $ 6 $ 938
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
CORPORATE &
1993 HGA CVI CVP CSI ELIMINATIONS CONSOLIDATED
- --------------------------------------------------- ------- ------- ------- ------- ------------ ------------
(IN THOUSANDS)
Revenue from non-affiliates........................ $45,283 $32,120 $ 570 $14,679 $ -- $ 92,652
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Operating income (loss)............................ $ 2,124 $ 7,842 $(2,045) $(3,407) $(25,968) $(21,454)
------- ------- ------- ------- ------------
------- ------- ------- ------- ------------
Investment income, net............................. 1,615
Settlement of disputes............................. (6,350)
Debt restructuring costs........................... (2,131)
Gain on sales of assets and businesses, net........ 620
Other income (expense), net........................ 174
Interest expense................................... (6,129)
------------
Loss from continuing operations before income taxes
and extraordinary items.......................... $(33,655)
------------
------------
Identifiable assets................................ $48,434 $24,339 $ 833 $12,133 $ 23,785 $109,524
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Depreciation expense............................... $ 1,324 $ 807 $ 46 $ 343 $ 104 $ 2,624
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Amortization expense............................... $ 205 $ 187 $ 90 $ 290 $ -- $ 772
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Capital expenditures............................... $ 774 $ 398 $ 91 $ 305 $ 181 $ 1,749
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
55
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CORPORATE &
1992 HGA(1) CVI CVP CSI ELIMINATIONS CONSOLIDATED
- --------------------------------------------------- ------- ------- ------- ------- ------------ ------------
(IN THOUSANDS)
Revenue from non-affiliates........................ $19,406 $27,817 $ 46 $16,010 $ -- $ 63,279
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Operating income (loss)............................ $ 1,967 $ 3,772 $(1,652) $(2,909) $(22,097) $(20,919)
------- ------- ------- ------- ------------
------- ------- ------- ------- ------------
Investment income, net............................. 14,254
Settlement of disputes............................. (4,498)
Gain on sales of assets and businesses, net........ 1,030
Other income (expense), net........................ 772
Interest expense................................... (6,697)
------------
Loss from continuing operations before income taxes
and extraordinary items.......................... $(16,058)
------------
------------
Identifiable assets................................ $56,707 $21,245 $ 410 $10,974 $ 83,671 $173,007
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Depreciation expense............................... $ 546 $ 540 $ 4 $ 189 $ 258 $ 1,537
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Amortization expense............................... $ 86 $ 202 $ 22 $ 308 $ 124 $ 742
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Capital expenditures............................... $ 101 $ 498 $ 45 $ 555 $ 3,211(2) $ 4,410
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
- ------------
(1) Results from May 29, 1992.
(2) Includes $3,149,000 for two real estate investments made by Cooper Real
Estate Group.
Information by geographic area for each of the years in the three year
period ended October 31, follows:
ELIMINATIONS
UNITED AND
1994 STATES EUROPE CANADA OTHER CORPORATE CONSOLIDATED
- ------------------------------------------------ ------- ------ ------ ------ ------------ ------------
(IN THOUSANDS)
Revenue from non-affiliates..................... $84,871 $ 946 $7,406 $2,422 $ -- $ 95,645
Sales between geographic areas.................. 3,859 -- -- -- (3,859) --
------- ------ ------ ------ ------------ ------------
Net operating revenue........................... $88,730 $ 946 $7,406 $2,422 $ (3,859) $ 95,645
------- ------ ------ ------ ------------ ------------
------- ------ ------ ------ ------------ ------------
Operating income (loss)......................... $10,939 $ 12 $ 168 $ 170 $(10,866) $ 423
------- ------ ------ ------ ------------ ------------
------- ------ ------ ------ ------------ ------------
Identifiable assets............................. $80,084 $ 603 $3,560 $ -- $ 10,811 $ 95,058
------- ------ ------ ------ ------------ ------------
------- ------ ------ ------ ------------ ------------
1993
- ------------------------------------------------
Revenue from non-affiliates..................... $83,189 $ 795 $7,131 $1,537 $ -- $ 92,652
Sales between geographic areas.................. 4,593 -- -- -- (4,593) --
------- ------ ------ ------ ------------ ------------
Net operating revenue........................... $87,782 $ 795 $7,131 $1,537 $ (4,593) $ 92,652
------- ------ ------ ------ ------------ ------------
------- ------ ------ ------ ------------ ------------
Operating income (loss)......................... $ 4,161 $ (72) $ 561 $ (136) $(25,968) $(21,454)
------- ------ ------ ------ ------------ ------------
------- ------ ------ ------ ------------ ------------
Identifiable assets............................. $85,962 $ 832 $3,059 $ -- $ 19,671 $109,524
------- ------ ------ ------ ------------ ------------
------- ------ ------ ------ ------------ ------------
1992
- ------------------------------------------------
Revenue from non-affiliates..................... $54,036 $ 648 $7,316 $1,279 $ -- $ 63,279
Sales between geographic areas.................. 2,872 -- -- -- (2,872) --
------- ------ ------ ------ ------------ ------------
Net operating revenue........................... $56,908 $ 648 $7,316 $1,279 $ (2,872) $ 63,279
------- ------ ------ ------ ------------ ------------
------- ------ ------ ------ ------------ ------------
Operating income(loss).......................... $ 480 $ (45) $ 826 $ (146) $(22,034) $(20,919)
------- ------ ------ ------ ------------ ------------
------- ------ ------ ------ ------------ ------------
Identifiable assets............................. $84,997 $1,613 $4,339 $1,152 $ 80,906 $173,007
------- ------ ------ ------ ------------ ------------
------- ------ ------ ------ ------------ ------------
56
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
Net operating revenue.............................................. $22,907 $ 24,455 $ 23,901 $ 24,382
Income (loss) applicable to common stock from continuing
operations....................................................... (5,150) (3,850) 3,000 1,214
------- -------- -------- --------
Net income (loss) applicable to common stock....................... $(5,150) $ (3,850) $ 3,000 $ 1,214
------- -------- -------- --------
------- -------- -------- --------
Net income (loss) per common share*:
Continuing operations......................................... $ (.17) $ (.13) $ .09 $ .04
------- -------- -------- --------
Net income (loss) per common share................................. $ (.17) $ (.13) $ .09 $ .04
------- -------- -------- --------
------- -------- -------- --------
Common Stock price range:
High.......................................................... $ 0.750 $ 1.250 $ 1.875 $ 3.500
Low........................................................... $ 0.500 $ 0.4688 $ 1.000 $ 1.625
1993
- -------------------------------------------------------------------
Net operating revenue.............................................. $22,360 $ 23,659 $ 24,495 $ 22,138
Loss applicable to common stock from continuing operations......... (2,844) (6,343) (13,705) (11,500)
Loss on disposition of discontinued operations..................... -- (13,657) -- --
Extraordinary items................................................ 924 -- -- --
------- -------- -------- --------
Loss applicable to common stock.................................... $(1,920) $(20,000) $(13,705) $(11,500)
------- -------- -------- --------
------- -------- -------- --------
Net income (loss) per common share*:
Continuing operations......................................... $ (.09) $ (.22) $ (.46) $ (.38)
Loss on disposition of discontinued operations................ -- (.45) -- --
Extraordinary items........................................... .03 -- -- --
------- -------- -------- --------
Net loss per common share*......................................... $ (.06) $ (.67) $ (.46) $ (.38)
------- -------- -------- --------
------- -------- -------- --------
Common Stock price range:
High.......................................................... $ 1.375 $ 1.125 $ 0.750 $ 0.500
Low........................................................... $ 0.875 $ 0.406 $ 0.344 $ 0.344
- ------------
* The sum of income (loss) per common share for the four quarters is different
from the full year net income (loss) per common share as a result of
computing the quarterly and full year amounts on weighted average number of
common shares outstanding in the respective periods.
57
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- -------- --------
(IN THOUSANDS)
Included in the 1994 quarters are the following items:
Investment income (loss), net................................. $ (351) $ (129) $ 209 $ 118
Interest expense.............................................. (1,402) (1,024) (1,042) (1,065)
Settlement of disputes........................................ (1,950) (2,000) (1,000) --
Gain on sales of assets and businesses, net................... 214 -- -- --
Dividend requirements on Senior Preferred Stock............... -- -- (54) (35)
Tax reserve adjustment........................................ -- -- 4,000 1,000
All other components of net income (loss)..................... (1,661) (697) 887 1,196
------- -------- -------- --------
Net income (loss) applicable to common stock.................. $(5,150) $ (3,850) $ 3,000 $ 1,214
------- -------- -------- --------
------- -------- -------- --------
Included in the 1993 quarters are the following items:
Investment income (loss), net................................. $ 3,677 $ (249) $ (199) $ (1,614)
Interest expense.............................................. (1,634) (1,536) (1,430) (1,529)
Settlement of disputes........................................ -- -- (4,850) (1,500)
Debt restructuring costs...................................... -- -- -- (2,131)
Cost of restructuring operations.............................. -- (451) -- --
Gain on sales of assets and businesses, net................... -- 620 -- --
Discontinued operations....................................... -- (13,657) -- --
Extraordinary items........................................... 924 -- -- --
Dividend requirements on Senior Preferred Stock............... (160) (160) -- --
All other components of net loss.............................. (4,727) (4,567) (7,226) (4,726)
------- -------- -------- --------
Loss applicable to common stock.................................... $(1,920) $(20,000) $(13,705) $(11,500)
------- -------- -------- --------
------- -------- -------- --------
At December 31, 1994 and 1993 there were 4,495 and 4,550 common
stockholders of record, respectively.
NOTE 16. LEGAL PROCEEDINGS
The Company is a defendant in a number of legal actions relating to its
past or present businesses in which plaintiffs are seeking damages. In the
opinion of management, after consultation with counsel, the ultimate disposition
of those actions will not materially affect the Company's financial position.
On November 10, 1992, the Company was charged in an indictment (the
'Indictment'), filed in the United States District Court for the Southern
District of New York, with violating federal criminal laws relating to a
'trading scheme' by Gary A. Singer, a former Co-Chairman of the Company (who
went on a leave of absence on May 28, 1992, begun at the Company's request, and
who subsequently resigned on January 20, 1994), and others, including G. Albert
Griggs, Jr., a former analyst of The Keystone Group, Inc., and John D. Collins
II, to 'frontrun' high yield bond purchases by the Keystone Custodial Funds,
Inc., a group of mutual funds. The Company was named as a defendant in 10
counts. Gary Singer was named as a defendant in 24 counts, including violations
of the Racketeer Influenced and Corrupt Organizations Act and the mail and wire
fraud statutes (including defrauding the Company by virtue of the 'trading
scheme,' by, among other things, transferring profits on trades on DR Holdings,
Inc. 15.5% bonds (the 'DR Holdings Bonds') from the Company to members of his
family during fiscal 1991), money laundering, conspiracy, and aiding and
abetting violations of the Investment Advisers Act of 1940, as amended (the
'Investment Advisers Act'), by an investment advisor. On January 13, 1994, the
Company was found guilty on six counts of mail fraud and one count of wire fraud
based upon Mr. Singer's conduct, but was acquitted of charges of conspiracy and
aiding and abetting violations of the Investment Advisers Act. Mr. Singer was
found guilty on 21 counts. One count against Mr. Singer and the Company was
dismissed at trial and two counts against Mr. Singer relating to forfeiture
penalties were resolved by stipulation between the government and Mr. Singer.
Mr. Singer's attorney has advised
58
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company that Mr. Singer intends to appeal his conviction. Although the
Company may be obliged under its Certificate of Incorporation to advance the
costs of such appeal, the Company and Mr. Singer have agreed that Mr. Singer
will not request such advances, but that he will reserve his rights to
indemnification in the event of a successful appeal. The Company was sentenced
on July 15, 1994, at which time it was ordered to make restitution to Keystone
Custodian Funds, Inc. of $1,310,166 within 30 days of such date. Such
restitution has been made. In addition, the Company was ordered to pay a non-
interest bearing fine over the next three years in the amount of $1,831,568.
On November 10, 1992, the SEC filed a civil Complaint for Permanent
Injunction and Other Equitable Relief (the 'SEC Complaint') in the United States
District Court for the Southern District of New York against the Company, Gary
A. Singer (a former Co-Chairman of the Board of the Company), Steven G. Singer
(the Company's former Executive Vice President and Chief Operating Officer and
Gary Singer's brother), and, as relief defendants, certain persons related to
Gary and Steven Singer and certain entities in which they and/or those related
persons have an interest. The SEC Complaint alleged that the Company and Gary
and Steven Singer violated various provisions of the Securities Exchange Act of
1934, as amended (the 'Securities Exchange Act'), including certain of its
antifraud and periodic reporting provisions, and aided and abetted violations of
the Investment Company Act, and the Investment Advisers Act, in connection with
a 'trading scheme' to 'frontrun' high yield bond purchases by the Keystone
Custodian Funds, Inc., a group of mutual funds. The SEC Complaint further
alleged, among other things, federal securities law violations (i) by the
Company and Gary Singer in connection with an alleged manipulation of the
trading price of the Company's 10 5/8% Convertible Subordinated Reset Debentures
due 2005 (the 'Debentures') to avoid an interest rate reset allegedly required
on June 15, 1991 under the terms of the Indenture governing the Debentures, (ii)
by Gary Singer in allegedly transferring profits on trades of high yield bonds
from the Company to members of his family and failing to disclose such
transactions to the Company and (iii) by the Company in failing to disclose
publicly on a timely basis such transactions by Gary Singer. The SEC Complaint
asked that the Company and Gary and Steven Singer be enjoined permanently from
violating the antifraud, periodic reporting and other provisions of the federal
securities laws, that they disgorge the amounts of the alleged profits received
by them pursuant to the alleged frauds (stated in the SEC's Litigation Release
No. 13432 announcing the filing of the SEC Complaint as being $1,296,406,
$2,323,180 and $174,705, respectively), plus interest, and that they each pay
appropriate civil monetary penalties. The SEC Complaint also sought orders
permanently prohibiting Gary and Steven Singer from serving as officers or
directors of any public company and disgorgement from certain Singer family
members and entities of amounts representing the alleged profits received by
such defendants pursuant to the alleged frauds. On December 20, 1994, a Final
Judgment (on Consent) of Permanent Injunction and Other Relief was entered
settling the SEC Complaint with respect to the Company. The principal terms of
the settlement involve the Company's agreement to permanent injunctions against
violation of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the
Securities Exchange Act from aiding and abetting violations of Section 204 of
the Investment Advisers Act of 1940, and from employing Gary Singer, Steven
Singer and/or any of their relatives. The Company agreed to the disgorgement of
$1,621,474 and the payment of a civil penalty of $1,150,000. The Company had
already disgorged $1,310,166 in connection with the sentence imposed in a
related criminal action involving the 'frontrunning' arrangement; the balance of
the disgorgement was paid in January 1995. The civil penalty imposed by the SEC
is offset by the larger fine to which the Company was sentenced in the criminal
action.
The Company is named as a nominal defendant in a shareholder derivative
action entitled Harry Lewis and Gary Goldberg v. Gary A. Singer, Steven G.
Singer, Arthur C. Bass, Joseph C. Feghali, Warren J. Keegan, Robert S. Holcombe
and Robert S. Weiss, which was filed on May 27, 1992 in the Court of Chancery,
State of Delaware, New Castle County. On May 29, 1992, another plaintiff, Alfred
Schecter, separately filed a derivative complaint in Delaware Chancery Court
that was essentially identical to the Lewis and Goldberg complaint. Lewis and
Goldberg later amended their complaint, and the Delaware
59
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Chancery Court thereafter consolidated the Lewis and Goldberg and Schecter
actions as In re The Cooper Companies, Inc. Litigation, Consolidated C.A. 12584,
and designated Lewis and Goldberg's amended complaint as the operative complaint
(the 'First Amended Derivative Complaint'). The First Amended Derivative
Complaint alleges that certain directors of the Company and Gary A. Singer, as
Co-Chairman of the Board of Directors, caused or allowed the Company to be a
party to the 'trading scheme' referenced in the SEC Complaint described above.
The First Amended Derivative Complaint also alleges that the defendants violated
their fiduciary duties to the Company by not vigorously investigating the
allegations of securities fraud. The First Amended Derivative Complaint requests
that the Court order the defendants (other than the Company) to pay damages and
expenses to the Company and certain of the defendants to disgorge their profits
to the Company. On October 16, 1992, the defendants moved to dismiss the First
Amended Derivative Complaint on grounds that such Complaint fails to comply with
Delaware Chancery Court Rule 23.1 and that Count III of the First Amended
Derivative Complaint fails to state a claim. No further proceedings have taken
place. The Company has been advised by the individual directors named as
defendants that they believe they have meritorious defenses to this lawsuit and
intend vigorously to defend against the allegations in the First Amended
Derivative Complaint. The parties have engaged in preliminary settlement
negotiations; however, there can be no assurances that these discussions will be
concluded successfully.
The Company was named as a nominal defendant in a purported shareholder
derivative action entitled Bruce D. Sturman v. Gary A. Singer, Steven G. Singer,
Brad C. Singer, Martin Singer, John D. Collins II, Back Bay Capital, Inc., G.
Albert Griggs, Jr., John and Jane Does 1-10 and The Cooper Companies, Inc.,
which was filed on May 26, 1992 in the Supreme Court of the State of New York,
County of New York. The plaintiff, Bruce D. Sturman, a former officer and
director of the Company, alleged that Gary A. Singer, as Co-Chairman of the
Board of Directors, and various members of the Singer family caused the Company
to make improper payments to alleged third-party co-conspirators as part of the
'trading scheme' that was the subject of the SEC Complaint. The complaint
requested that the Court order the defendants (other than the Company) to pay
damages and expenses to the Company, including reimbursement of payments made by
the Company to the co-conspirators, and to disgorge their profits to the
Company. Pursuant to its decision and order, filed August 17, 1993, the Court
dismissed this action under New York Civil Practice Rule 327(a). On September
22, 1993, the plaintiff filed a Notice of Appeal, and the appeal was heard by
the Appellate Division in early January 1995; no decision has been rendered by
the Appellate Court to date.
In two virtually identical actions, Frank H. Cobb, Inc. v. The Cooper
Companies, Inc., et al., and Arthur J. Korf v. The Cooper Companies, Inc., et
al., class action complaints were filed in the United States District Court for
the Southern District of New York in August 1989, against the Company and
certain individuals who served as officers and/or directors of the Company after
June 1987. In their Fourth Amended Complaint filed in September 1992, the
plaintiffs allege that they are bringing the actions on their own behalf and as
class actions on behalf of a class consisting of all persons who purchased or
otherwise acquired shares of the Company's common stock during the period May
26, 1988 through February 13, 1989. The amended complaints seek an undetermined
amount of compensatory damages jointly and severally against all defendants. The
complaints, as amended, allege that the defendants knew or recklessly
disregarded and failed to disclose to the investing public material adverse
information about the Company. Defendants are accused of having allegedly failed
to disclose, or delayed in disclosing, among other things: (a) that the
allegedly real reason the Company announced on May 26, 1988 that it was dropping
a proposed merger with Cooper Development Company, Inc. was because the
Company's banks were opposed to the merger; (b) that the proposed sale of Cooper
Technicon, Inc., a former subsidiary of the Company, was not pursuant to a
definitive sales agreement but merely an option; (c) that such option required
the approval of the Company's debentureholders and preferred stockholders; (d)
that the approval of such sale by the Company's debentureholders and preferred
stockholders would not have been forthcoming absent extraordinary expenditures
by the Company; and (e) that the purchase agreement between the Company and
Miles, Inc. for the sale of
60
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cooper Technicon, Inc. included substantial penalties to be paid by the Company
if the sale was not consummated within certain time limits and that the sale
could not be consummated within those time limits. The amended complaints
further allege that the defendants are liable for having violated Section 10(b)
of the Securities Exchange Act and Rule 10(b)-5 thereunder and having engaged in
common law fraud. Based on management's current knowledge of the facts and
circumstances surrounding the events alleged by plaintiffs as giving rise to
their claims, the Company believes that it has meritorious defenses to these
lawsuits. The Company has reached a settlement with counsel for the class
plaintiffs, which will have no material impact on the Company's financial
condition. In December 1994, the Court gave preliminary approval to the
settlement, ordered notice to be given to putative class members, and set a
hearing for April 7, 1995 to consider possible objections to the settlement.
Therefore, there can be no assurance that the proposed settlement will
ultimately end the litigation. In the event the case proceeds to trial, the
Company intends to vigorously defend itself against the allegations in the
amended complaint.
Under an agreement dated July 11, 1985, as amended (the 'HMG Agreement'),
Hampton Medical Group, P.A. ('HMG'), which is not affiliated with the Company,
contracted to provide clinical and clinical administrative services at Hampton
Psychiatric Institute ('Hampton Hospital'), the primary facility operated by
Hospital Group of New Jersey, Inc. ('HGNJ'), a subsidiary of HGA. On November
29, 1993 and February 1, 1994, HGNJ delivered notices to HMG asserting that HMG
had defaulted under the HMG Agreement. The first notice was based upon the
failure of HMG to provide to HGNJ records needed to analyze information HGNJ had
received indicating that HMG allegedly had engaged in fraudulent billing
practices; the second was based upon information uncovered in the review of
those records, when they were ultimately produced, and other available
information. At the request of HMG, a New York state court enjoined HGNJ from
terminating the HMG Agreement based upon the initial notice and ordered the
parties (on consent) to arbitrate whether HMG had defaulted. On February 2,
1994, HMG commenced an arbitration in New York, New York, entitled Hampton
Medical Group, P.A. and Hospital Group of New Jersey, P.A. (American Arbitration
Association). In the arbitration, HMG contests the alleged default under the HMG
Agreement and HGNJ's allegations regarding fraudulent conduct, and advances a
claim against HGNJ that HMG has the right to provide clinical and clinical
administrative services at all HGNJ-owned facilities in New Jersey (which would
include, HMG contends, the outpatient clinics in Marlton and Toms River, New
Jersey, and the Hampton Academy, at which certain non-HMG physicians have been
employed at various times since the HMG Agreement was executed), regardless of
whether these facilities are connected to Hampton Hospital. HMG maintains that
it is entitled to an unspecified amount of damages for professional fees it
would have received for the clinical services that were provided by non-HMG
physicians at the outpatient facilities. HGNJ has responded to this claim
asserting, among other things, (1) that HMG has no contractual right to provide
services at those facilities, (2) that HMG has waived or lost any such right, if
it ever had one, and (3) that the assertions of billing fraud are a defense to
any such right.
As HGNJ's knowledge of HMG's billing practices developed, HGNJ notified the
authorities and, subsequently, Blue Cross and Blue Shield of New Jersey, Inc.
('Blue Cross'), the largest of the third party payors from which HGNJ received
payment for its hospital services from 1988 through 1994.
During December 1994, Blue Cross informed HGNJ that it had investigated
matters at Hampton Hospital, that it had formed the view that it had been
overcharged as a result of those matters, including fraudulent practices of HMG
which resulted in increased hospital bills to Blue Cross subscribers, and that
it intended promptly to commence a lawsuit to recover amounts inappropriately
charged. On December 30, 1994, Blue Cross and HGNJ entered into an agreement to
settle all claims against Hampton Hospital on behalf of Blue Cross subscribers
and certain other subscribers for whom Blue Cross administers claims. The
settlement includes a cash payment, over time, by HGNJ, offset by certain
amounts owed by Blue Cross to HGNJ. On the same day, Blue Cross commenced a
lawsuit against HMG and certain related entities and individuals unrelated to
HGNJ or its affiliates alleging, among other things, fraudulent billing
practices. HGNJ is cooperating with Blue Cross in Blue Cross'
61
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
investigation of HMG. HGNJ has also received a request for information from the
State of New Jersey Department of Insurance with respect to a related
investigation, with which HGNJ is also cooperating.
HGNJ is continuing to seek the termination of the HMG Agreement and intends
to seek recovery from HMG for any losses, expenses or other damages HGNJ incurs
by reason of HMG's conduct, including amounts paid or offset pursuant to the
Blue Cross settlement and any damages that may result from any future claims by
other third party payors or others arising out of the billing practices at
Hampton Hospital, which claims could, in the aggregate, be material; however,
management of the Company, after consultation with counsel, does not believe
that the outcome of such claims (should any be brought) would, in the aggregate,
have a material adverse effect on the Company's financial condition. In
addition, HGA is seeking to recover damages from Progressions Health Systems,
Inc., the successor to the former owner of HGA, based upon breaches of
representations and warranties in the purchase agreement or other rights of
indemnification thereunder. There can be no assurance, however, that HGA will be
able to recover the amount of any or all such losses, expenses or damages from
HMG or Progressions Health Systems, Inc.
On September 2, 1993, a patent infringement complaint was filed against the
Company in the United States District Court for the District of Nevada captioned
Steven P. Shearing v. The Cooper Companies, Inc. On or about that same day, the
plaintiff filed twelve additional complaints, accusing at least fourteen other
defendants of infringing the same patent. The patent in these suits covers a
specific method of implanting an intraocular lens into the eye. Until February
1989, the Company manufactured intraocular lenses and ophthalmic instruments,
but did not engage in the implantation of such lenses. Subsequent to February
1989, the Company was not involved in the manufacture, marketing or sale of
intraocular lenses. On April 4, 1994, all of Shearing's complaints were
dismissed; thereafter, Shearing successfully moved for leave to file an amended
complaint. The Company denies the material allegations of Shearings' amended
complaint. The parties have executed a settlement agreement effective January
24, 1995, pursuant to which the litigation will be dismissed. The settlement has
no material impact on the Company's financial condition.
The Company was named in an action entitled Bruce D. Sturman v. The Cooper
Companies, Inc. and Does 1-100, Inclusive, first brought on July 24, 1992 in the
Superior Court of the State of California, Los Angeles County. Mr. Sturman
alleged that his suspension from his position as Co-Chairman of the Board of
Directors constituted, among other things, an anticipatory breach of his
employment agreement. On May 14, 1993, Mr. Sturman filed a First Amended
Complaint in the Superior Court of the State of California, County of Alameda,
Eastern Division, the jurisdiction to which the original case had been
transferred. In the Amended Complaint, Mr. Sturman alleged that by first
suspending and then terminating him from his position as Co-Chairman, the
Company breached his employment agreement, violated provisions of the California
Labor Code, wrongfully terminated him in violation of public policy, breached
its implied covenant of good faith and fair dealing, defamed him, invaded his
privacy and intentionally inflicted emotional distress, and was otherwise
fraudulent, deceitful and negligent. After engaging in prolonged settlement
negotiations, a settlement was reached, and on December 2, 1994, the case was
dismissed with prejudice. The settlement has no material impact on the Company's
financial condition.
62
SCHEDULE III
THE COOPER COMPANIES, INC.
CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31,
-----------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE FIGURES)
General and administrative expense............................................... ($10,781) ($24,134) ($21,303)
Settlement of disputes........................................................... (4,292) (6,350) (3,193)
Debt restructuring costs......................................................... (340) (2,131) --
Equity in earnings of subsidiaries............................................... 9,390 1,894 265
Investment income (loss), net.................................................... (307) 1,415 13,515
Gain on sales of assets and businesses, net...................................... -- -- 1,030
Other expense, net............................................................... (54) (113) (328)
Interest expense................................................................. (2,913) (4,236) (5,730)
------- ------- -------
Loss from continuing operations before income taxes.............................. (9,297) (33,655) (15,744)
Provision for (benefit of) income taxes.......................................... (4,600) 417 414
------- ------- -------
Loss from continuing operations before extraordinary items....................... (4,697) (34,072) (16,158)
Loss on sale of discontinued operations, net of taxes............................ -- (13,657) (9,300)
------- ------- -------
Loss before extraordinary items.................................................. (4,697) (47,729) (25,458)
Extraordinary items.............................................................. -- 924 640
------- ------- -------
Net loss......................................................................... (4,697) (46,805) (24,818)
Less, dividend requirements on preferred stock................................... 89 320 1,804
------- ------- -------
Net loss applicable to common stock.............................................. ($4,786) ($47,125) ($26,622)
------- ------- -------
------- ------- -------
Net loss per common share:
Continuing operations....................................................... ($0.15) ($1.13) ($0.64)
Discontinued operations..................................................... -- (0.45) (0.34)
------- ------- -------
Loss before extraordinary items.................................................. (0.15) (1.58) (0.98)
Extraordinary items.............................................................. -- 0.03 0.02
------- ------- -------
Net loss per common share........................................................ ($0.15) ($1.55) ($0.96)
------- ------- -------
------- ------- -------
Average number of common shares outstanding...................................... 31,082 30,377 27,669
------- ------- -------
------- ------- -------
The condensed financial statements presented in this Schedule III are the
parent company only condensed financial statements of The Cooper Companies, Inc.
(the 'Registrant'). The Registrant accounts for its investments in its
consolidated subsidiaries, all of which are virtually wholly owned, under the
equity method. Accordingly, net loss applicable to common stock and
shareholders' equity (deficit) reported in this Schedule III are equal to the
figures reported in the consolidated financial statements of The Cooper
Companies, Inc. and Subsidiaries ('Consolidated Statements') located herein. See
the notes to the Consolidated Statements for disclosures concerning the material
contingencies and long-term obligations of the Registrant.
63
SCHEDULE III
THE COOPER COMPANIES, INC.
CONDENSED BALANCE SHEET
OCTOBER 31,
----------------------
1994 1993
--------- ---------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 5,270 $ 5,946
Temporary investments.............................................................. -- 6,438
Other receivables.................................................................. 47 2,127
Prepaid expenses................................................................... 1,142 1,141
--------- ---------
Total current assets.......................................................... 6,459 15,652
--------- ---------
Property, plant and equipment, at cost.................................................. 1,141 1,251
Less, accumulated depreciation and amortization....................................... 880 887
--------- ---------
261 364
--------- ---------
Investments in and advances to subsidiaries............................................. 59,180 67,145
Other assets............................................................................ 221 302
--------- ---------
$ 66,121 $ 83,463
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt............................................. $ -- $ 4,350
Accounts payable................................................................... 3,634 1,619
Accrued liabilities................................................................ 11,844 18,567
Income taxes payable............................................................... 10,105 14,828
--------- ---------
Total current liabilities..................................................... 25,583 39,364
--------- ---------
Long-term debt:
10% Senior Subordinated Secured Notes due 2003..................................... 25,410 --
10 5/8% Convertible Subordinated Reset Debentures due 2005......................... 9,210 34,647
--------- ---------
34,620 34,647
--------- ---------
Other non-current liabilities........................................................... 9,572 9,000
--------- ---------
Total liabilities............................................................. 69,775 83,011
--------- ---------
Commitments and contingencies (See Notes 12 and 16 to consolidated financial statements)
Stockholders' equity (deficit):
Series B preferred stock, $.10 par value........................................... -- --
Common stock, $.10 par value....................................................... 3,388 3,013
Additional paid-in capital......................................................... 179,883 179,810
Translation adjustments............................................................ (396) (223)
Accumulated deficit................................................................ (186,529) (181,743)
Unamortized restricted stock award compensation.................................... -- (405)
--------- ---------
Total stockholders' equity (deficit).................................................... (3,654) 452
--------- ---------
$ 66,121 $ 83,463
--------- ---------
--------- ---------
64
SCHEDULE III
THE COOPER COMPANIES, INC.
CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31,
-----------------------------
1994 1993 1992
------ ------- --------
(IN THOUSANDS,
EXCEPT PER SHARE FIGURES)
Net cash used by operating activities............................................ ($5,172) ($54,620) ($31,860)
Cash flows from investing activities:
Sales of assets and businesses (including releases of cash from escrow)..... 2,610 8,300 5,959
Purchases of assets and businesses, net of cash acquired.................. -- -- (14,452)
Sales of temporary investments............................................ 7,302 32,088 265,352
Purchases of temporary investments........................................ -- (3,689) (263,464)
Purchases of Cooper Life Sciences Inc. common stock....................... -- -- (1,500)
------ ------- --------
Net cash provided (used) by investing activities................................. 9,912 36,699 (8,105)
------ ------- --------
Cash flows from financing activities:
Payments associated with the Exchange Offer and Consent
Solicitation including debt restructuring costs........................... (5,416) -- --
Purchase of the Company's 10 5/8% Debentures................................ -- (3,861) (4,325)
------ ------- --------
Net cash used by financing activities............................................ (5,416) (3,861) (4,325)
------ ------- --------
Net decrease in cash and cash equivalents........................................ (676) (21,782) (44,290)
Cash and cash equivalents at beginning of year................................... 5,946 27,728 72,018
------ ------- --------
Cash and cash equivalents at end of year......................................... $5,270 $ 5,946 $ 27,728
------ ------- --------
------ ------- --------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amounts capitalized)..................................... $3,063 $ 4,339 $ 5,860
------ ------- --------
------ ------- --------
Dividends on preferred stock.............................................. $ 89 -- --
------ ------- --------
------ ------- --------
Income taxes.............................................................. $ 132 $ 90 $ 511
------ ------- --------
------ ------- --------
For other supplemental disclosures, all of which relate to the Cooper
Companies, Inc., see 'The Cooper Companies, Inc. and Subsidiaries Consolidated
Statement of Cash Flows' herein.
65
SCHEDULE VIII
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED OCTOBER 31, 1994
ADDITIONS ADDITIONS ADDITIONS/
BALANCE AT CHARGED TO CHARGED DEDUCTIONS/ BALANCE
BEGINNING COSTS AND TO OTHER RECOVERIES/ AT END
OF YEAR EXPENSES ACCOUNTS OTHER OF YEAR
---------- ---------- --------- ----------- --------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended October 31, 1994............... $3,240 $2,431 $ (19) $(3,005)(3) $2,647
---------- ---------- --------- ----------- --------
---------- ---------- --------- ----------- --------
Year ended October 31, 1993............... $3,031 $3,202 $-- $(2,993)(1)(3) $3,240
---------- ---------- --------- ----------- --------
---------- ---------- --------- ----------- --------
Year ended October 31, 1992............... $ 403 $ 363 $-- $ 2,265(2)(3) $3,031
---------- ---------- --------- ----------- --------
---------- ---------- --------- ----------- --------
- ------------
(1) Represents acquired reserve of CoastVision, Inc.
(2) Represents acquired reserve of Hospital Group of America, Inc.
(3) Uncollectible accounts written off, recovered accounts receivable previously
written off and other items.
66
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During fiscal years 1994 and 1993, TCC neither changed its accountants nor
reported a disagreement on Form 8-K on any matter of accounting principles or
practices of financial statement disclosure.Not applicable.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information requiredcontained under the heading 'Election of Directors' and
'Executive Officers of the Company,' in the Company's Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on March 25, 1997 is
incorporated herein by Part III, Items 10, 11, 12reference with respect to each of the Company's directors
and 13, has been
omitted from this Report pursuantthe executive officers who are not also directors of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the sub-heading 'Executive Compensation'
and 'Compensation of Directors,' of the 'Election of Directors' section of the
Company's Proxy Statement for the Annual Meeting of Stockholders scheduled to Instruction G(3) as it will be
filedheld on March 25, 1997 is incorporated herein by reference with respect to the
SecuritiesCompany's chief executive officer and Exchange Commissionthe four other most highly compensated
executive officers of the Company and the directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the sub-headings 'Securities Held by
an amendmentManagement' and 'Principal Securityholders' of the 'Election of Directors'
section of the Company's Proxy Statement for the Annual Meeting of Stockholders
scheduled to this Reportbe held on Form
10-K-A.March 25, 1997 is incorporated herein by reference with
respect to certain beneficial owners, the directors and management.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the sub-heading 'Certain Relationships and
Related Transactions' of the 'Election of Directors' section of the Company's
Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on
March 25, 1997 is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements of the Company.
The Consolidated Financial Statements and the Notes thereto the Financial
Statement Schedules identified in (2) below and the
Accountants'Independent Auditors' Report on the foregoing, aresuch items contained in
the Company's 1996 Annual Report to Stockholders which is incorporated
herein by reference and is included in Part II, Item 8 ofas Exhibit 13 to this report.Form 10-K.
2. Accountants' Consent and Report on Schedule.
3. Financial Statement Schedules of the Company.
SCHEDULE
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------------------
III. Condensed Financial Information of Registrant
VIII.II. Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and,
therefore, have been omitted.
Also included herein are separate company Financial Statementsfinancial statements and the
Notesnotes thereto, the Accountants'Independent Auditors' Report thereon and required
Financial Statement
Schedulesfinancial statement schedules of:
Hospital Group of America, Inc. and Subsidiaries and CooperSurgical,
Inc.
6712
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors
THE COOPER COMPANIES, INC.
The audits of the consolidated financial statements of The Cooper
Companies, Inc. and subsidiaries referred to in our report dated December 9,
1996, which is incorporated herein by reference, included the related financial
statement schedule for each of the years in the three-year period ended October
31, 1996 as listed in Item 14 of the Annual Report on Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to incorporation by reference in the Registration Statement Nos.
33-50016 and 33-11298 on Form S-3 and Registration Statement Nos. 333-10997,
33-27938, 33-36325 and 33-36326 on Form S-8 of The Cooper Companies, Inc. of our
reports dated December 9, 1996, relating to the consolidated balance sheets of
The Cooper Companies, Inc. and subsidiaries as of October 31, 1996 and 1995 and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
October 31, 1996, and related schedule, and of our reports dated December 3,
1996 relating to the consolidated balance sheets of Hospital Group of America,
Inc. and subsidiaries as of October 31, 1996 and 1995 and the related
consolidated statements of operations, stockholder's equity (deficiency) and
cash flows for each of the years in the three-year period ended October 31,
1996, and related schedule, and the balance sheets of CooperSurgical, Inc. as of
October 31, 1996 and 1995 and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended October 31, 1996, and related schedule, which reports
appear in or are incorporated by reference in the October 31, 1996 Annual Report
on Form 10-K of The Cooper Companies, Inc.
KPMG PEAT MARWICK LLP
San Francisco, California
January 24, 1997
13
SCHEDULE II
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED OCTOBER 31, 1996
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS/ BALANCE
BEGINNING COSTS AND RECOVERIES/ AT END
OF YEAR EXPENSES OTHER (1) OF YEAR
---------- ---------- ----------- -------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended October 31, 1996................................. $2,241 $1,849 $(2,121) $1,969
---------- ---------- ----------- -------
---------- ---------- ----------- -------
Year ended October 31, 1995................................. $2,647 $2,300 $(2,706) $2,241
---------- ---------- ----------- -------
---------- ---------- ----------- -------
Year ended October 31, 1994................................. $3,240 $2,431 $(3,024) $2,647
---------- ---------- ----------- -------
---------- ---------- ----------- -------
- ------------
(1) Uncollectible accounts written off, recovered accounts receivable previously
written off and other items.
14
INDEPENDENT AUDITORS' REPORT
Board of Directors
HOSPITAL GROUP OF AMERICA, INC.:
We have audited the accompanying consolidated balance sheets of Hospital
Group of America, Inc., (a wholly owned subsidiary of The Cooper Companies,
Inc.) and subsidiaries ('HGA') as of October 31, 1994, October 31, 1993,1996 and May 29, 19921995, and the related
consolidated statements of operations, stockholder's equity (deficiency) and
cash flows for each of the years in the three year period ended October 31,
1994, and 1993, for the period from
May 30, 1992 to October 31, 1992 and for the period from June 1, 1991 to May 29,
1992.1996. In connection with our audits of the consolidated financial statements, we
also audited financial statement schedule VIII.Schedule II. These consolidated financial
statements and financial statement schedule are the responsibility of HGA's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hospital
Group of America, Inc. and subsidiaries at October 31, 1994, October 31, 19931996 and May 29, 1992,1995, and the
results of their operations, and their cash flows for each of the years in the
three year period ended October 31, 1994 and 1993, for the period from May 30, 1992 to
October 31, 1992 and for the period from June 1, 1991 to May 29, 19921996 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
January 11, 1995
68December 3, 1996
15
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
OCTOBER 31,
------------------------
1994 1993
----------- -----------1996 1995
-------- -------
(IN THOUSANDS OF
DOLLARS)
ASSETS
Current assets:
Cash and cash equivalents...............equivalents............................................................. $ 3,5931,464 $ 4562,314
Accounts receivable, net of estimated uncollectibles of $1,834$1,253 in 19941996 and $2,067$1,693 in
1993............ 10,341 8,6431995................................................................................. 13,108 11,176
Other receivables.......... 893 466
Supplies................... 258 249receivables..................................................................... 2 64
Supplies.............................................................................. 253 238
Prepaid expenses and other current assets............ 1,006 872
----------- -----------assets............................................. 792 1,135
-------- -------
Total current assets.............. 16,091 10,686
----------- -----------assets............................................................. 15,619 14,927
-------- -------
Property and equipment
Land.......................equipment:
Land.................................................................................. 1,305 1,4261,305
Buildings and improvements.............. 31,496 31,400improvements............................................................ 31,732 31,521
Equipment, furniture and fixtures.................. 1,680 1,370fixtures..................................................... 2,347 1,988
Construction in progress...progress.............................................................. 861 0
31
----------- -----------
34,481 34,227-------- -------
36,245 34,814
Less accumulated depreciation.............. (3,285) (1,868)
----------- -----------depreciation......................................................... (6,221) (4,726)
-------- -------
Total property and equipment, net...... 31,196 32,359
----------- -----------net................................................ 30,024 30,088
Goodwill, net of accumulated amortization of $497$906 in 19941996 and $292$701 in 1993.............. 5,658 5,8631995................. 4,604 5,032
Other assets.................... 502 673
----------- -----------
$53,447 $49,581
----------- -----------
----------- -----------assets............................................................................... 268 353
-------- -------
$ 50,515 $50,400
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable...........payable...................................................................... $ 8911,149 $ 1,052577
Accrued liabilities........ 2,208 1,391liabilities................................................................... 2,525 4,751
Accrued salaries and related expenses.......... 2,257 1,903expenses................................................. 2,009 2,565
Accrued interest payable... 142 147payable.............................................................. 146 177
Net estimated third-party payor settlements......... 2,511 431settlements........................................... 492 2,098
Current portion of long-term debt............ 1,187 1,162
Current portion of due to
Parent.................... 12,559 6,082
----------- -----------debt..................................................... 667 2,124
-------- -------
Total current liabilities......... 21,755 12,168liabilities........................................................ 6,988 12,292
Long-term debt, less current portion....................... 11,369 12,556portion....................................................... 10,008 9,222
Other noncurrent liabilities.... 700 --non-current liabilities.............................................................. 1,680 3,001
Due to parent................... 16,000 16,000parent.............................................................................. 44,011 33,340
Stockholder's equity:deficiency:
Common stock, $.01 par value, 1000 shares authorized, issued and outstanding...............outstanding.......... 0 0
Additional paid-in capital...................capital............................................................ 12,324 12,324
Accumulated deficit........ (8,701) (3,467)
----------- -----------deficit................................................................... (24,496) (19,779)
-------- -------
Total stockholder's equity.............. 3,623 8,857
----------- -----------
$53,447 $49,581
----------- -----------
----------- -----------deficiency................................................... (12,172) (7,455)
-------- -------
$ 50,515 $50,400
-------- -------
-------- -------
See accompanying notes to consolidated financial statements.
6916
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARYEARS ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 19931996, 1995 AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 19921994
PERIOD FROM
MAY 30,
YEAR ENDED YEAR ENDED 1992 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31,1996 1995 1994
1993 1992
----------- ----------- ------------------ -------- -------
(IN THOUSANDS OF DOLLARS)
Net patient service revenue...............................................revenue..................................................... $40,676 $ 38,392 $40,365 $41,330 $19,187
Other operating revenue...................................................revenue......................................................... 2,337 2,520 2,675
2,644 881
----------- ----------- ------------------ -------- -------
Net operating revenue.....................................................revenue........................................................... 43,013 40,912 43,040
43,974 20,068
----------- ----------- ------------------ -------- -------
Costs and expenses:
Salaries and benefits................................................benefits...................................................... 24,394 23,654 23,348
23,737 9,752
Purchased services...................................................services......................................................... 1,998 1,865 2,044
2,202 834
Professional fees....................................................fees.......................................................... 3,116 3,312 3,177
2,681 1,621
Supplies expense.....................................................expense........................................................... 2,162 1,938 1,929 2,026 821
Other operating expenses............................................. 10,128 8,612 3,867expenses................................................... 7,214 7,832 8,620
Settlement of disputes, net................................................ (223) 5,213 1,508
Bad debt expense.....................................................expense........................................................... 1,211 1,551 1,753 2,792 1,251
Depreciation and amortization........................................amortization.............................................. 1,871 1,790 1,735 1,674 635
Interest on long-term debt...........................................debt................................................. 1,737 1,377 1,365 1,599 824
Interest on due to Parent note.......................................note............................................. 4,250 3,458 2,795
1,821 760
----------- ----------- ------------------ -------- -------
Total costs and expenses...................................expenses.............................................. 47,730 51,990 48,274
47,144 20,365
----------- ----------- ------------------ -------- -------
Net loss..................................................................loss........................................................................ $(4,717) $(11,078) $(5,234)
$(3,170) $ (297)
----------- ----------- -----------
----------- ----------- ------------------ -------- -------
------- -------- -------
See accompanying notes to consolidated financial statements.
7017
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY YEAR(DEFICIENCY)
YEARS ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 19931996, 1995 AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 19921994
TOTAL
ADDITIONAL TOTALSTOCKHOLDER'S
COMMON PAID-IN ACCUMULATED STOCKHOLDER'SEQUITY
STOCK CAPITAL DEFICIT EQUITY(DEFICIENCY)
------ ---------- ----------- -------------
(IN THOUSANDS OF DOLLARS)
Balance, May 30, 1992............................................November 1, 1993.................................... $0 $12,324 $ 0 $12,32412,324 $ (3,467) $ 8,857
Net loss................................................ (297) (297)0 0 (5,234) (5,234)
-- ---------- ----------- -------------
Balance, October 31, 1992........................................1994.................................... $0 $12,324 $ (297) $12,027
---12,324 $ (8,701) $ 3,623
-- ---------- ----------- -------------
----- ---------- ----------- -------------
Balance, November 1, 1992........................................1994.................................... $0 $12,324 $ (297) $12,02712,324 $ (8,701) $ 3,623
Net loss................................................ (3,170) (3,170)0 0 (11,078) (11,078)
-- ---------- ----------- -------------
Balance, October 31, 1993........................................1995.................................... $0 $12,324 $(3,467) $ 8,857
---12,324 $ (19,779) $ (7,455)
-- ---------- ----------- -------------
----- ---------- ----------- -------------
Balance, November 1, 1993........................................1995.................................... $0 $ 12,324 $(3,467) $ 8,857(19,779) $ (7,455)
Net loss................................................ (5,234) (5,234)
---0 0 (4,717) (4,717)
-- ---------- ----------- -------------
Balance, October 31, 1994........................................1996.................................... $0 $ 12,324 $(8,701) $ 3,623
---(24,496) $ (12,172)
-- ---------- ----------- -------------
----- ---------- ----------- -------------
See accompanying notes to consolidated financial statements.
7118
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARYEARS ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 19931996, 1995 AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 19921994
PERIOD FROM
MAY 30, 1992
YEAR ENDED YEAR ENDED TO
OCTOBER 31,1996 1995 1994
OCTOBER 31, 1993 OCTOBER 31, 1992
---------------- ---------------- ----------------------- -------- -------
(IN THOUSANDS OF DOLLARS)
Cash flows from operating activities:
Net loss..............................................loss.................................................................... $(4,717) $(11,078) $(5,234) $(3,170) $ (297)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization of goodwill and loan fees................................................fees................ 1,871 1,790 1,735 1,674 725
Accrued interest, management fees and net expenses due to parent...........................................Parent....... 8,663 4,328 5,477 1,658 785
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable.......receivable................................. (1,870) (174) (1,698)
1,114 (1,477)
(Increase) decreaseDecrease in supplies, other current assets and other
current
assets.........................................noncurrent assets............................................... 636 312 (570)
60 (124)
Increase (decrease)(Increase) Decrease in accounts payable, accrued expenses,
estimated third party payor settlements, and other noncurrent
liabilities...liabilities..................................................... (5,168) 5,060 3,785
(2,649) 1,188
--------------- -------- -------
Net cash provided by (used in) operating activities................................activities.......... (585) 238 3,495
(1,313) 800------- -------- -------
Cash flows from investing activities:
Proceeds from the sale of property.................... 121property.............................................. 0 0 121
Capital expenditures..................................expenditures........................................................ (1,431) (333) (375)
(781) (102)
Collection of note receivable.........................Proceeds from Progressions' settlement...................................... 235 421 0
0 2,149
Other.................................................Other....................................................................... 48 5 58
62 (15)
--------------- -------- -------
Net cash fromprovided by (used in) investing activities.......... (1,148) 93 (196)
(719) 2,032------- -------- -------
Cash flows from financing activities:
Principal payments on long-term debt..................debt........................................ (667) (1,210) (1,162)
(5,168) (713)Cash to Parent.............................................................. (250) (800) (400)
Cash advance from parent.............................. 1,000 2,321 0
--------Parent.................................................... 1,800 400 1,400
------- -------- -------
Net cash usedprovided by (used in) financing activities.......activities.......... 883 (1,610) (162)
(2,847) (713)------- -------- -------
Net (decrease) increase in cash and cash equivalents.......equivalents............................. (850) (1,279) 3,137 (4,879) 2,119
Cash and cash equivalents, beginning of period.............period................................... 2,314 3,593 456
5,335 3,216
--------------- -------- -------
Cash and cash equivalents, end of period...................period......................................... $ 1,464 $ 2,314 $ 3,593
$ 456 $5,335
--------------- -------- -------
--------------- -------- -------
Supplemental disclosure of cash flow information
-- interestInterest paid during the period...........period............................................. $ 1,486 $ 1,452 $ 1,520 $ 630
--------1,452
------- -------- -------
--------------- -------- -------
See accompanying notes to consolidated financial statements.
7219
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARYEARS ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 19931996 , 1995 AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 19921994
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
On May 29, 1992, The Cooper Companies, Inc. ('Cooper' or 'Parent') acquired
all of the common stock of Hospital Group of America, Inc. (HGA) from its
ultimate parent, Nu-Med, Inc. (Nu-Med). The acquisition of HGA was accounted for
as a purchase and the purchase adjustments were 'pushed-down' to the separate
financial statements of HGA resulting in a new basis of accounting as of May 30,
1992. The Parent's cost of the acquisition was approximately $50 million,
including the assumption of approximately $22 million of third-party debt of
HGA. The purchase price was allocated to assets and liabilities based on their
estimated fair values as of the acquisition date. The purchase price exceeded
the estimated fair value of the identifiable net assets acquired resulting in
goodwill. The estimated goodwill amount of $6,155,000 was recorded as of May 30,
1992 and is being amortized over 30 years on a straight-line basis.
BUSINESSBusiness -- The accompanying consolidated financial statements include the
accounts of HGAHospital Group of America, Inc. (HGA) a wholly-owned subsidiary of
The Cooper Companies, Inc. ('Cooper' or 'Parent') and its wholly owned
subsidiaries (the 'Company'). All intercompany balances and transactions have
been eliminated. The Company owns and operates the following psychiatric
facilities:facilities (the 'Facilities'):
NAME OF FACILITY LOCATION
- ---------------------------------------------- -------------------------------------------------------------- --------
Hartgrove Hospital............................ Chicago, Illinois
Hampton Hospital.............................. Rancocas, New Jersey
Meadow Wood Hospital..........................MeadowWood Hospital........................... New Castle, Delaware
- ----------------------------------------------------------
Effective May 30, 1992, PSG Management, Inc. (PSG), a sister company to HGA
and a wholly-owned subsidiary of Cooper, entered into a three year agreement to
manage the two psychiatric hospitals and the substance abuse treatment center
owned by the subsidiaries of Nu-Med, Inc. The management fee earned by PSG from
the subsidiaries of Nu-Med, Inc. related to this agreement is $2,000,000
annually, payable in equal monthly installments. The management agreement is
jointly and severally guaranteed by Nu-Med and a wholly owned subsidiary of
Nu-Med, Inc. HGA is not a party to this agreement and therefore the management
fee earned by PSG from the subsidiaries of Nu-Med, Inc. is not recognized in the
accompanying financial statements. However, in connection with this agreement,
HGA performs services on behalf of PSG for which it earns a fee of 25% of
certain of its corporate headquarters' cost plus a 20% mark-up. Such fees earned
by HGA from PSG amounted to $428,000 for the year ended October 31, 1994,
$691,000 for the year ended October 31, 1993 and $260,000 for the period from
May 30, 1992 to October 31, 1992. On January 6, 1993, Nu-Med (but not any of its
direct or indirect subsidiaries) filed a voluntary petition under Chapter 11 of
the United States Bankruptcy Code. Such filing, under certain circumstances,
could have a material adverse effect on the guarantee as to Nu-Med. However,
none of the Nu-Med subsidiaries have filed under Chapter 11, and the Nu-Med
subsidiaries have paid the management fee on a timely basis.
73
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNet Patient Service Revenue -- (CONTINUED)
YEAR ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 1993
AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 1992
The following are subsidiaries of Nu-Med which own the facilities managed
by PSG:
NAME OF SUBSIDIARY LOCATION
- ---------------------------------------------------------------------- ----------------------------
Northwestern Institute of Psychiatry, Inc............................. Ft. Washington, Pennsylvania
Malvern Institute for Psychiatric and Alcoholic Studies, Inc.......... Malvern, Pennsylvania
South Central Health Services, Inc. (dba) Pinelands Hospital.......... Nacogdoches, Texas
NET PATIENT SERVICE REVENUE Net patient service revenue is recorded at
the estimated net realizable amounts from patients, third-partythird party payors and
others for services rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Retroactive adjustments are
accrued on an estimated basis in the period the related services are rendered
and adjusted in the period as final settlements are determined. CHARITY CAREIn 1996 and
1995, HGA received and recognized approximately $2,000,000 and $2,400,000,
respectively, associated with prior year cost report settlements.
With respect to net service revenue, receivables from government programs
represent the only concentrated group of potential credit risk to the Company.
Management does not believe that there are any credit risks associated with
these governmental agencies. Negotiated and private receivables consist of
receivables from various payors, including individuals involved in diverse
activities, subject to differing economic conditions, and do not represent any
concentrated credit risks to the Company. Furthermore, management continually
monitors and, where indicated, adjusts the allowances associated with these
receivables.
Charity Care -- The Company provides care to indigent patients who meet
certain criteria under its charity care policy without charge or at amounts less
than its established rates. Because the Company does not pursue collection of
amounts determined to qualify as charity care, they are not reported as revenue.
The Company maintains records to identify and monitor the level of charity care
it provides. These records include the amount of charges foregone for services
and supplies furnished under its charity care policy. Charges at the Company's
established rates forgoneforegone for charity care provided by the Company amounted to
$2,275,431, $2,142,000 and $2,498,000 during the year ended October 31,for 1996, 1995 and 1994, $3,220,000 during the year
ended October 31, 1993 and $1,597,000 during the period from May 29, 1992 to
October 31, 1992.respectively.
Hampton Hospital is required by its Certificate of Need to incur not less than
10% of total patient days as free care.
HEALTH INSURANCE COVERAGEHealth Insurance Coverage -- The Company is self-insured for the health
insurance coverage offered to its employees. The provision for estimated
self-insured health insurance costs includes management's estimates of the
ultimate costs for both reported claims and claims incurred but not reported.
SUPPLIESSupplies -- Supplies consist principally of medical supplies and are stated
at the lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENTProperty and Equipment -- Property and equipment are stated at fair value as of May 29, 1992, the
date of the acquisition of HGA by Cooper.cost.
Depreciation is computed on the straight-line method over the estimated useful
lives of the respective assets, which range from 20 to 40 years for buildings
and improvements and 5 to 10 years for equipment, furniture and fixtures.
GOODWILLGoodwill -- Goodwill is amortized on a straight-line basis over thirty
years. Goodwill is reviewed for impairment whenever events or circumstances
provide evidence that suggest that the carrying amount of goodwill may not be
recoverable. The Company assesses the recoverability of goodwill by
20
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED OCTOBER 31, 1996 , 1995 AND 1994
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through reasonably expected undiscounted future results.
74
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSOther Assets -- (CONTINUED)
YEAR ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 1993
AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 1992
OTHER ASSETS Loan fees incurred in obtaining long-term financing are
deferred and recorded as other assets. Loan fees are amortized over the terms of
the related loans. The balance of unamortized loan fees amounted to $399,000, $540,000,$149,000 and
$727,000$258,000 respectively, at October 31, 1994, 1993,1996 and 1992.
INCOME TAXES1995.
Income Taxes -- The Company is included in the consolidated income tax
returns of the Parent. The consolidated federal, state and local taxes are
subject to a tax sharing agreement under which the Company's liability is
computed on a non-consolidated basis using a combined rate of 40%
Effective November 1, 1993, the Company adopted the liability method of
accounting for income taxes as prescribed by.
Statement of Financial Accounting Standards No. 109 'Accounting for Income Taxes' (FAS
109). The was adopted by the Company in 1994. FAS 109 required a change from the
deferred method to the asset and liability method under FAS 109 measuresof accounting for income
taxes. Under the expected tax impact of future taxableasset and liability method, deferred income or
deductions resulting from temporary differences intaxes are
recognized for the tax consequences of 'temporary differences' by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and financial
reportingthe tax bases of existing assets
and liabilities reflected in the consolidated balance
sheet. Deferred tax assets and liabilities are determined using the enacted tax
rates in effect for the year in which these differences are expected to reverse.liabilities. Under FAS 109, the effect on deferred tax assets and liabilitiestaxes of a change in tax
rates is recognized in income in the period that includes the change was enacted. In 1993enactment date.
Provision is made for deferred income taxes applicable to temporary
differences between financial statement and prior years,taxable income.
Use of Estimates -- Management of the Company accounted for income taxes under APB Opinion 11.
CASH AND CASH EQUIVALENTShas made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash and cash equivalents include investments
in highly liquid debt instruments with a maturity of three months or less.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with current
year presentation.
B. NET PATIENT SERVICE REVENUE
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
Commercial Insurance -- Most commercial insurance carriers reimburse the
Company on the basis of the hospitals'Facilities' charges, subject to the rates and
limits specified in their policies. Patients covered by commercial
insurance generally remain responsible for any differences between
insurance proceeds and total charges.
Blue Cross -- Reimbursement under Blue Cross plans variesvary depending on the
areas in which the CompanyFacilities presently operates facilities.operate. Benefits paid to the
Company can be charge-based, cost-based,cost based, negotiated per diem rates or
approved through a state rate setting process.
Medicare -- Services rendered to Medicare program beneficiaries are
reimbursed under a retrospectively determined reasonable cost system with
final settlement determined after submission of annual cost reports by the
Company and audits thereof by the Medicare fiscal intermediary.
Managed Care -- Services rendered to subscribers of health maintenance
organizations, preferred provider organizations and similar organizations
are reimbursed based on prospective negotiated rates.
75Medicaid -- Services rendered to State Medicaid beneficiaries are
reimbursed based on rates established by each individual state program.
21
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARYEARS ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 19931996 , 1995 AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 1992
Medicaid -- Services rendered to State Medicaid program
beneficiaries are reimbursed based on rates established by each
individual State program.1994
The Company's business activities are primarily with large insurance
companies and federal and state agencies or their intermediaries. Other than
adjustments arising from audits by certain of these agencies, the risk of loss
arising from the failure of these entities to perform according to the terms of
their respective contracts is considered remote.
C. RELATED PARTY TRANSACTIONS
The current portion of Due to Parent atas of October 31, 19941996 consists of costs of
amounts due under a Demand Note (the 'Demand Note')(Demand Note) for costs incurred or paid by the
Parent in connection with the acquisition of the Company in 1992, cash advances
from the Parent, interest payable on the subordinated note in the amount of
$1,920,000 and an allocation of Cooper corporate services amounting to
$1,219,000,$1,378,000, net of payments to the Parent.
All current and future borrowingsborrowing under the terms of the Demand Note bear
interest, payable monthly, commencing on December 1, 1993 at the rate of 15% per annum (17% in the event
principal and interest is not paid when due), and all principal and all accrued
and unpaid interest under the Demand Note shall be completely due and payable on
demand. Prior to December 1, 1993, the Parent did
not charge the Company for amounts due to it except for amounts due under the
Subordinated Promissory Note. The Parent has indicated that a demand for payment will not be made
prior to November 1, 1995.1997.
The non-current portion of Due to Parent consists of a $16,000,000
subordinated note. The annual interest rate on the noteNote is 12%. The principal
amount of this Note shall be due and payable on May 29, 2002 unless payable
sooner pursuant to the terms of the Note.
HGA allocatesperformed management services on behalf of PSG Management, Inc. (PSG),
a sister company to HGA and a wholly-owned subsidiary of Cooper, in connection
with a management agreement, which ended in May, 1995, between PSG and the
former owner of HGA for which it earned a fee of 25% of certain of its corporate
headquarters' cost plus a 20% mark-up. Such fees earned by HGA from PSG amounted
to $269,000 and $428,000 for the years ended October 31, 1995 and 1994,
respectively.
HGA allocated interest expense to PSG primarily to reflect an estimate of
the interest cost on debt incurred by HGA in connection with the May 29, 1992
acquisition of the Company by Cooper, which relates to the PSG management
agreement with Nu-Med.described above. Such allocations amounted to $163,000 and $254,000
for 1995 and $194,000 for the year ended October 31,
1994, and October 31, 1993, respectively, and $106,000 for the period from May 30,
1992 to October 31, 1992 and are recorded as reductions of interest on
long-term debt and interest on dueDue to Parent note.Demand Note.
D. EMPLOYEE BENEFITS
The Company participates in Cooper's 401(k) plan (the 'Plan'), which covers
substantially all full-time employees with more than 60 days of service. The
Company matches employee contributions up to certain limits. These costs were
$49,000, $58,000 and $61,000 for the year ended October 31,1996, 1995 and 1994, $40,000 for the year ended October
31, 1993 and $26,000 for the period from May 30, 1992 to October 31, 1992.
76respectively.
22
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARYEARS ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 19931996 , 1995 AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 19921994
E. LONG TERM DEBT
Long-term debt at October 31, 19941996 and 19931995 consists of the following:
1994 19931996 1995
----------- -----------
Bank term loan, interest at 4%2.5% above the bank's prime rate
(7.75%(8.25% at October 31, 1994)1996), subject to a minimum rate of 12%, payable monthly,
principal payable in installments from September 1992 through August
1997................................................................... $10,556,000 $11,223,000
Industrial Revenue Bonds, interest at 85% of prime rate (7.75% at October
31, 1994)9%,
payable monthly, principal payable in installments through
1997................................................................... 2,000,000 2,495,000August 2001.................................................. $10,675,000 $ 9,889,000
Industrial Revenue Bonds (IRB), interest at 85% of prime rate
(8.75% at October 31, 1995), paid in 1996.................... 0 1,457,000
----------- -----------
12,556,000 13,718,00010,675,000 11,346,000
Less current portion..................................................... (1,187,000) (1,162,000)portion........................................... (667,000) (2,124,000)
----------- -----------
$11,369,000 $12,556,000$10,008,000 $ 9,222,000
----------- -----------
----------- -----------
Annual maturities of long-term debt are as follows:
YEARSYEAR ENDING
OCTOBER 31
- -----------------------------------------------------------------------------------------------------
1995..................................................................................1997......................................................................... $ 1,187,000
1996.................................................................................. 1,231,000
1997.................................................................................. 9,847,000
1998.................................................................................. 291,000
-----------
$12,556,000
-----------
-----------667,000
1998......................................................................... 667,000
1999......................................................................... 667,000
2000......................................................................... 667,000
2001......................................................................... 8,007,000
Substantially all of the property and equipment and accounts receivable of
the Company collateralize the debt outstanding.
The long-term debt agreements containagreement contains several covenants, including the
maintenance by the Company of certain ratios and levels of net worth (as
defined), restrictions with respect to the payments of cash dividends on common
stock and on the levels of capital expenditures, interest and debt payments. TheOn
December 29, 1995, the outstanding principal balance of $1,320,000 on the
Industrial Revenue Bonds ('IRB'Bond was reloaded into the bank term loan. The bank term loan
was renegotiated on September 17, 1996. Terms of the amended agreement reduced
the interest rate to two and one half percentage points above the bank's prime
rate and extended the loan maturity to August 1, 2001. Additionally, because HGA
achieved targeted operating results, the interest rate was further reduced
effective November 1, 1996 to a rate of two percentage points (2%) carries interest at 85%above the
bank's prime rate, subject to a minimum of prime, or approximately 6.6% per annumnine percent (9%). The rates in
effect at October 31, 1994. Interest1996 and principal payments on the IRB are due monthly1995 were 10.75% and holders have elected their right to accelerate all payments of outstanding
principal at December 31, 1995.
Substantially all of the property and equipment and accounts receivable of
the Company collateralize the debt outstanding.12.75%, respectively.
F. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in various
litigation cases. In the opinion of management, the disposition of such
litigation will not have a material adverse effect on the Company's consolidated
financial position.
77position or results of operations.
23
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARYEARS ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 19931996 , 1995 AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 19921994
The Company leases certain space and equipment under operating lease
agreements. The following is a schedule of estimated minimum payments due under
such leases with an initial term of more than one year as of October 31, 1994:1996:
YEARSYEAR ENDING OCTOBER 31 BUILDINGS EQUIPMENT TOTAL
- --------------------------------------------------------------------------------------- --------- --------- ------------------
1995..................................................... $470,000 $149,0001997............................................... $ 619,000
1996..................................................... 280,000 76,000 356,000
1997..................................................... 54,000 50,000 104,000
1998..................................................... 21,000 40,000 61,000
1999-2000................................................287,000 $ 66,000 $353,000
1998............................................... 179,000 60,000 239,000
1999............................................... 30,000 32,000 62,000
2000-2001.......................................... 0 21,000 21,00048,000 48,000
--------- --------- ----------
$825,000 $336,000 $1,161,000--------
$ 496,000 $206,000 $702,000
--------- --------- ------------------
--------- --------- ------------------
- ----------------------------------------------------------
Some of the operating leases contain provisions for renewal or increased
rental (based upon increases in the Consumer Price Index), none of which are
taken into account in the above table. Rental expense under all operating leases
amounted to $857,000, $706,000 and $736,000 respectively, for 1996, 1995 and 1994,
respectively.
On May 14, 1996, the year ended OctoberCompany acquired land and an existing structure in
Kouts, Indiana, for development of a 50 bed residential treatment center.
Renovations and additions to the existing structure are currently in progress
and an opening date of March 31, 1994, and the year ended October 31, 1993 and $340,000 for the period from May
30, 1992 to October 31, 1992.1997 is anticipated.
G. INCOME TAXES
As discussed in note A, the Company adopted FAS 109 as of November 1, 1993.
The adoption had no impact on the statement of consolidated operations for the
year ended October 31, 1994. The tax benefit for net operating loss
carryforwards has not been recognized since the related tax asset was fully
offset by a valuation allowance.
A reconciliation of the provision for (benefit of) income taxes included in
the Company's consolidated statementstatements of operations and the amount computed by
applying the federal income tax rate to income (loss) from continuing operations
before income taxeslosses follows:
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------------
(IN THOUSANDS)
Computed expected (benefit of) taxes......................................benefit..................................... $(1,604) $(3,766) $(1,780) $(1,078) $(101)
Increase in taxes resulting from:
Amortization of intangibles..........................................intangibles.............................. 70 70 2970
Net operating losses for which no tax benefit was
recognized.........recognized............................................. 1,520 3,680 1,704
1,002 72
Other................................................................ 6Other.................................................... 14 16 6
------- ------- ------------
Actual provision for income taxes.........................................taxes........................ $ 0 $ 0 $ 0
------- ------- -----
-------
------- ------------ -------
7824
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARYEARS ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 19931996 , 1995 AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 19921994
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October 31,
1994 are as follows:
YEAR ENDED
OCTOBER 31,
------------------
1996 1995
------- -------
(IN THOUSANDS)
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts............accounts.......................................................... $ 668501 $ 677
Accrued liabilities, principally due to litigation reserves........................ 1,008reserves......... 1,194 2,830
Net operating loss carryforwards................................................... 4,806
--------------carryforwards.................................... 9,705 6,341
------- -------
Total gross deferred tax assets............................................... 6,482
Offset to consolidatedassets................................ 11,400 9,848
Less valuation allowance.................................... 678
--------------allowance....................................... (4,944) (3,250)
------- -------
Net deferred tax assets....................................................... 7,160
--------------assets........................................ 6,456 6,598
------- -------
Deferred tax liabilities:
Plant and equipment, principally due to purchase accounting
requirements........... (6,734)requirements...................................................... (6,358) (6,303)
Other, principally due to differences in accounting methods for
financial and tax purposes.......................................................................... (426)
--------------
Total gross deferredpurposes........................................ (98) (295)
------- -------
Deferred tax liabilities.......................................... (7,160)
--------------liabilities............................................ (6,456) (6,598)
------- -------
Net deferred tax liability....................................................assets............................................. $ 0 --------------
--------------$ 0
------- -------
------- -------
The Company's net deferred tax liability was offset against the Parent's
consolidated valuation allowance. The net deferred tax liability which offset
the Parent's consolidated valuation allowance as of November 1, 1993 was
$3,950,000.
The net change in this offsetthe total valuation allowance for the year ended October
31, 1996, 1995 and 1994 was an increase of $1,694,000, $3,928,000 and a decrease
of $3,272,000.$3,272,000, respectively.
At October 31, 19941996 the Parent had consolidated net operating loss
carryforwards, of which approximately $10,000,000 related to the Company. The
tax benefit of an additional $2,000,000$14,000,000 of the Company's net operating loss
carryforwards, which have been utilized in the Parent's consolidated return, are
available in the future should the Company have sufficient taxable income during
the carryforward period. The net operating loss carryforwards expire commencing
in 2001.
H. PLEDGE AGREEMENT
Pursuant to a pledge agreement dated as of January 6, 1994, between the
Parent and the Trustee for the holders of a new class of debt issued by the
Parent (the 'Notes'), the Parent has pledged a first priority security interest
in all of its right, title and interest of its investment in the Company, all
additional shares of stock of, or other equity interest in the Company from time
to time acquired by the Parent, all additional intercompany indebtedness of the
Company from time to time held by the Parent and except as set forth in the
indenture to the Notes, the proceeds received from the sale or disposition of
any or all of the foregoing.
I. LEGAL PROCEEDINGS
Under an agreement dated July 11, 1985, as amended (the 'HMG Agreement'),
Hampton Medical Group, P.A. ('HMG'), which is not affiliated with the Company,HGA,
contracted to provide clinical and clinical administrative services at Hampton
Psychiatric Institute ('Hampton Hospital'), the primary facility operated by
HGNJ,Hospital Group of New Jersey, Inc. ('HGNJ'), a subsidiary of HGA. On November 29,In late 1993
and February 1,early 1994, HGNJ delivered notices to HMG asserting that HMG had defaulted
under the HMG Agreement. The first notice wasAgreement based upon billing practices by HMG that HGNJ believed
to be fraudulent. At the failurerequest of HMG, to provide to HGNJ
records needed to analyze information HGNJ had received indicating that HMG
allegedly had engaged in fraudulent billing practices; the
79a
25
HOSPITAL GROUP OF AMERICA, INC., AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF THE COOPER COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARYEARS ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 19931996 , 1995 AND PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 1992
second was based upon information uncovered in the review of those records, when
they were ultimately produced, and other available information. At the request
of HMG, a1994
New York state court enjoined HGNJ from terminating the HMG Agreement based upon
the initial notice and ordered the parties (on consent) to arbitrate whether HMG had
defaulted.
On February 2,December 30, 1994, HMG commenced an arbitration in
New York, New York, entitled Hampton Medical Group, P.A. and Hospital Group of
New Jersey, P.A. (American Arbitration Association). In the arbitration, HMG
contests the alleged default under the HMG Agreement and HGNJ's allegations
regarding fraudulent conduct, and advances a claim against HGNJ that HMG has the
right to provide clinical and clinical administrative services at all HGNJ-owned
facilities in New Jersey (which would include, HMG contends, the outpatient
clinics in Marlton and Toms River, New Jersey, and the Hampton Academy, at which
certain non-HMG physicians have been employed at various times since the HMG
Agreement was executed), regardless of whether these facilities are connected to
Hampton Hospital. HMG maintains that it is entitled to an unspecified amount of
damages for professional fees it would have received for the clinical services
that were provided by non-HMG physicians at the outpatient facilities. HGNJ has
responded to this claim asserting, among other things, (1) that HMG has no
contractual right to provide services at those facilities, (2) that HMG has
waived or lost any such right, if it ever had one, and (3) that the assertions
of billing fraud are a defense to any such right.
As HGNJ's knowledge of HMG's billing practices developed, HGNJ notified the
authorities and, subsequently, Blue Cross and Blue Shield of New Jersey, Inc.
('Blue Cross'), the largest of the third party payors from which HGNJ received
payment for its hospital services from 1988 through 1994.
During December 1994, Blue Cross informed HGNJ that it had investigated
matters at Hampton Hospital, that it had formed the view that it had been
overcharged as a result of those matters, including fraudulent practices of HMG
which resulted in increased hospital bills to Blue Cross subscribers, and that
it intended promptly to commencecommenced a lawsuit to recover amounts inappropriately
charged. On December 30, 1994,in the Superior Court of New Jersey entitled Blue Cross and
HGNJ entered into an agreement to
settle all claims againstBlue Shield of New Jersey, Inc. v. Hampton Hospital on behalf of Blue Cross subscribers
and certain other subscribers for whom Blue Cross administers claims. The
settlement includes a cash payment, over time, by HGNJ, offset by certain
amounts owed by Blue Cross to HGNJ. On the same day, Blue Cross commenced a
lawsuitMedical Group, et al. against HMG and
certain related entities and individuals unrelated to HGNJ or its affiliates
alleging, among other things, fraudulent billing practices. HGNJ is cooperatingpractices (the 'Blue Cross
Action').
On December 11, 1995, the Parent announced a settlement of all disputes
with Blue Cross in Blue Cross' investigationHMG and Dr. Pottash, owner of HMG. Pursuant to the settlement, (i) the
parties released each other from, among other things, the claims underlying the
arbitration, (ii) HGA purchased HMG's interest in the HMG Agreement on December
31, 1995, and (iii) HGNJ agreed to make certain payments to Dr. Pottash in
respect of claims he had asserted. While only HMG and Dr. Pottash are parties to
the settlement with HGA, HGNJ and the Parent, HGA has also received a requestnot been notified of any
claims by other third party payors or others relating to the billing or other
practices at Hampton Hospital, although it continues to respond voluntarily to
requests for information from the State of New Jersey Department of Insurance
and other government agencies with respect to these matters. The settlement with
HMG and Dr. Pottash resulted in a related investigation,one-time charge with which HGNJ is also cooperating.
HGNJ is continuinga present value of
$5,551,000 to seek the termination of the HMG Agreement and intends
to seek recovery from HMG for any losses, expenses or other damages HGNJ incurs
by reason of HMG's conduct, includingfourth quarter fiscal earnings. That charge reflects amounts paid
or offset pursuant to the
Blue Cross settlementDr. Pottash in December 1995 of $3,100,000 included in other current
liabilities at October 31, 1995 as well as two payments scheduled to be made to
HMG in May 1997 and any damages that may result from any future claims by
other third party payors or others arising out of the billing practices at
Hampton Hospital, which claims could,1998, each in the aggregate, be material; however,
managementamount of the Company, after consultation with counsel, does not believe
that the outcome of such claims (should any be brought) would, in the aggregate,
have a material adverse effect on the Company's financial condition. In
addition,$1,537,000.
HGA is seeking to recover damages fromand Progressions Health Systems, Inc., the successor to the former owner of HGA, based upon breaches of
representations and warranties in entered into the purchase price
agreement orwhich settled cross claims between the parties related to purchase
price adjustments (which were credited to goodwill) and other rightsdisputes and
provided for a series of indemnification thereunder. There canpayments to be no assurance, however, thatmade to HGA. Pursuant to this agreement,
HGA will be
ablereceived approximately $853,000 in 1995, $421,000 of which has been credited
to recover the amountSettlement of any or all such losses, expenses or damages from
HMG or Progressions Health Systems, Inc.
80
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 29, 1992
(IN THOUSANDS OF DOLLARS)
ASSETS
Current assets:
Cash and cash equivalents......................................................................... $ 3,216
Accounts receivable net of estimated uncollectibles of $2,347..................................... 10,759
Other receivables................................................................................. 780
Supplies.......................................................................................... 258
Prepaid expenses and other current assets......................................................... 419
-------
Total current assets......................................................................... 15,432
-------
Property and equipment
Land.............................................................................................. 882
Buildings and improvements........................................................................ 31,525
Equipment, furniture and fixtures................................................................. 4,159
Construction in progress.......................................................................... 50
-------
36,616
Less accumulated depreciation..................................................................... (7,050)
-------
Total property and equipment, net............................................................ 29,566
-------
Other assets........................................................................................... 929
-------
$45,927
-------
-------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................................................................. $ 1,412
Accrued liabilities............................................................................... 2,601
Accrued salaries and related expenses............................................................. 2,415
Estimated third-party payor settlements........................................................... 1,633
Current portion of long-term debt................................................................. 4,426
-------
Total current liabilities.................................................................... 12,487
Long-term debt, less current portion................................................................... 15,173
Stockholder's equity:
Common stock, .01 par value, 1000 shares authorized, issued and outstanding....................... 7
Additional paid-in capital........................................................................ 16,654
Retained earnings................................................................................. 1,606
-------
Total stockholder's equity................................................................... 18,267
-------
$45,927
-------
-------
See accompanying notes to consolidated financial statements.
81
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS OF DOLLARS)
PERIOD FROM
JUNE 1,
1991 TO MAY
29, 1992
-----------
Net patient service revenue........................................................................ $51,412
Other operating revenue, (including management fees earned from related parties of $320 and $3,557
for the month ended May 31, 1991 and the period ended May 29, 1992, respectively)................ 5,462
-----------
Net operating revenue.............................................................................. 56,874
-----------
Costs and expenses:
Salaries and benefits......................................................................... 24,172
Purchased services............................................................................ 2,378
Professional fees............................................................................. 5,146
Other operating expenses...................................................................... 11,402
Bad debt expense.............................................................................. 3,304
Depreciation and amortization................................................................. 1,928
Interest on long-term debt.................................................................... 2,304
-----------
Total costs and expenses............................................................ 50,634
-----------
Earnings before provision for income taxes......................................................... 6,240
Provision for income taxes......................................................................... 2,496
-----------
Net earnings....................................................................................... $ 3,744
-----------
-----------
See accompanying notes to consolidated financial statements.
82
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
PERIOD FROM JUNE 1, 1991 TO MAY 29, 1992
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
(IN THOUSANDS OF DOLLARS)
Balance
June 1, 1991................................................ $7 $16,654 $ 18,457 $ 35,118
Net earnings................................................ 3,744 3,744
Forgiveness of due from related parties balances as of May
29, 1992 in connection with the acquisition............... (20,595) (20,595)
--
---------- -------- -------------
Balance
May 29, 1992................................................ $7 $16,654 $ 1,606 $ 18,267
--- ---------- -------- -------------
--- ---------- -------- -------------
See accompanying notes to consolidated financial statements.
83
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
PERIOD FROM
JUNE 1,
1991 TO MAY
29, 1992
-----------
Cash flows from operating activities:
Net earnings.................................................................................. $ 3,744
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization............................................................ 1,928
Provision for income taxes............................................................... 2,496
Change in operating assets and liabilities:
Decrease in accounts receivable..................................................... 722
Increase in supplies and other current assets....................................... (210)
Increase in accounts payable, accrued expenses and estimated third party payor
settlements......................................................................... 161
-----------
Net cash provided by operating activities...................................... 8,841
-----------
Cash flows from investing activities:
Capital expenditures.......................................................................... (655)
Decrease in other assets...................................................................... 127
-----------
Net cash used by investing activiites.......................................... (528)
-----------
Cash flows from financing activities:
Principal payments on long-term debt.......................................................... (3,866)
Advances to related parties................................................................... (6,581)
-----------
Net cash used by financing activities.......................................... (10,447)
Net decrease in cash and cash equivalents.......................................................... (2,134)
Cash and cash equivalents, beginning of period..................................................... 5,350
-----------
Cash and cash equivalents, end of period........................................................... $ 3,216
-----------
-----------
Supplemental disclosure of cash flow information -- interest paid during the period................ $ 2,415
-----------
-----------
Supplemental disclosure of non cash activity -- concurrent with the acquisition, $20,595 of due
from related party balances were forgiven with a corresponding charge to retained earnings.
See accompanying notes to consolidated financial statements.
84
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATEDDisputes, Net.
J. FINANCIAL STATEMENTS
PERIOD FROM JUNE 1 1991 TO MAY 29, 1992
A. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BUSINESSINSTRUMENTS
The accompanying consolidated financial statements include the accounts of
Hospital Group of America (HGA) and its wholly owned subsidiaries (the
'Company') and certain other assets and operations owned by an entity affiliated
through common ownership. HGA was a wholly owned subsidiary of PsychGroup, Inc.
which in turn is wholly owned by Nu-Med, Inc. The financial position and results
of operations of Hospital Group of America and its subsidiaries may not
necessarily be indicative of conditions that may have existed or the results of
operations if the Company had been operated as an affiliated entity. All
intercompany balances and transactions have been eliminated. The Company owns
and operates the following psychiatric facilities:
NAME OF FACILITY LOCATION
- ----------------------------------------- -----------------------------------------
Hartgrove Hospital....................... Chicago, Illinois
Hampton Hospital......................... Rancocas, New Jersey
Meadow Wood Hospital..................... New Castle, Delaware
BASIS OF PRESENTATION
On May 29, 1992, PSG Acquisition, Inc., a wholly owned subsidiarycarrying amounts of the Cooper Companies, Inc. ('Cooper'), acquired all of the issued and outstanding
capital stock of HGA from PsychGroup, Inc. Concurrent with the acquisition, all
due from related parties balances as of May 20, 1992 were forgiven. The
accompanyingCompany's financial statements represent the financial position and results
of operations of the Company as of May 29, 1992 immediately prior to the
acquisition and the period from June 1, 1991 to May 29, 1992 just prior to the
acquisition and reflect the elimination of the due from related parties balances
as of May 29, 1992 with a corresponding charge to retained earnings in the
amount of $20,595,000.
NEW PATIENT SERVICE REVENUE
Net patient service revenue is recorded at the estimated net realizable
amounts from patients, third-party payors, and others from services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. Retroactive adjustments are accrued on an estimated basis in
the period the related services are rendered and adjusted in the period as final
settlements are determined.
CHARITY CARE
The Company provides care to indigent patients who meet certain criteria
under its charity care policy without charge or at amounts less than its
established rates. Because the Company does not pursue collection of amounts
determined to qualify as charity care, they are not reported as revenue. The
Company maintains records to identify and monitor the level of charity care it
provides. These recordsinstruments, which include
the amount of charges foregone for services and
supplies furnished under its charity care policy. Charges at the Company's
established rates foregone for charity care provided by the Company amounted to
$4,768,000. Hampton Hospital is required by its Certificate of Need to incur not
less than 10% of total patient days as free care.
HEALTH INSURANCE COVERAGE
Effective October 1, 1991, the Company is self-insured for the health
insurance coverage offered to its employees. The provision for estimated
self-insured health insurance costs includes management's estimates of the
ultimate costs for both reported claims and claims incurred but not reported.
85
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PERIOD FROM JUNE 1, 1991 TO MAY 29, 1992
SUPPLIES
Supplies consist principally of medical supplies and are stated at the
lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the respective assets,
which range from 20 to 40 years for buildings and improvements, and 5 to 10
years for equipment, furniture and fixtures.
OTHER ASSETS
Pre-opening costs incurred in new facilities and loan fees incurred in
obtaining long-term financing are deferred and recorded as other assets.
Pre-opening costs are amortized on a straight-line basis over five years. The
unamortized portion of pre-opening costs was $21,000 at May 29, 1992. Loan fees
are amortized over the terms of the related loans. The balance of unamortized
loan fees amounted to $802,000 at May 29, 1992.
INCOME TAXES
The Company was included in the consolidated tax returns of Nu-Med. The
Company computes a tax provision as if it were a stand-alone entity. The
corresponding liability for such taxes is included in the net amount Due from
Related Parties.
CASH AND CASH EQUIVALENTS
Cashcash and cash equivalents, include investments in highly liquid debt
instruments with atrade receivables, accounts payable, and accrued
liabilities, approximate their fair values at October 31, 1996, because of the
short maturity of three months or less.
B. NET PATIENT SERVICE REVENUEthese instruments.
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summaryfair value of the payment arrangements with major third-party payors follows:
Commercial Insurance -- Most commercial insurance carriers reimburseCompany's bank term loan approximates the Company on the basis of the hospitals' charges, subject to the rates
and limits specified in their policies. Patients covered by commercial
insurance generally remain responsible for any differences between
insurance proceeds and total charges.
Blue Cross -- Reimbursement under Blue Cross plans varies depending on
the areas in which the Company presently operates facilities. Benefits paid
to the Company can be charge-based, cost-based, negotiated per diem rates
or approved through a state rate setting process.
Medicare -- Services rendered to Medicare program beneficiaries are
reimbursed under a retrospectively determined reasonable cost system with
final settlement determined after submission of annual cost reports by the
Company and audits thereof by the Medicare fiscal intermediary.
Managed Care -- Services rendered to subscribers of health maintenance
organizations, preferred provider organizations and similar organizations
are reimbursed based on prospective negotiated rates.
The Company's business activities are primarily with large insurance
companies and federal and state agencies or their intermediaries. Other than
adjustments arising from audits by certain of these agencies, the risk of loss
arising from the failure of these entities to perform according to the terms of
their respective contracts is considered remote.
86
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PERIOD FROM JUNE 1, 1991 TO MAY 29, 1992
C. RELATED PARTY TRANSACTIONS
Due from related parties consisted primarily of cash advances to Nu-Med and
income tax obligations.
Included in the Other Operating Revenue are management fees of $3,557,000
charged to other affiliated entities which are under common ownership.
In connection with the acquisition of HGA, all due from related parties
balancescarrying
value as of May 29, 1992 were forgiven and the balance of $20,595,000 as of
that date was eliminated with a corresponding charge to retained earnings.
D. EMPLOYEE BENEFITS
The Company participated in the Nu-Med Combined Savings Plan, (the 'Plan'),
which covers substantially all full-time employees with more than one year of
service. Nu-Med may make annual contributions to the Plan based upon earnings,
which the Plan may utilize to acquire Nu-Med common stock. In addition, Nu-Med
may make contributions to the Plan in the form of Nu-Med common stock. No such
contributions were made during the period ended May 29, 1992. The Company does
not provide post-retirement benefits to its employees.
Hartgrove had a defined benefit pension plan, which was terminated during
the period ended May 29, 1992, at which time all benefits became fully vested.
The excess of plan assets over vested benefits amounted to approximately
$94,000. Such amount has been recorded as other operating revenue in the
accompanying statement of earnings.
E. LONG TERM DEBT
Long-term debt at May 29, 1992 consists of the following:
Bank term loan, interest at 1% to 1 1/2% above the bank's prime rate (6.5% at May
29, 1992), payable quarterly, principal payable in installments through 1995....... $ 2,609,000
Bank term loan, interest at 4% above the bank's prime rate (6.5% at May 29, 1992),
subject to a minimum rate of 12%, payable monthly, principal payable in
installments from September 1992 through August 1997............................... 12,000,000
Industrial Revenue Bonds, interest at 85% of prime rate (6.5% at May 29, 1992),
payable monthly, principal payable in installments through 1997.................... 4,990,000
-----------
19,599,000
Less current portion................................................................ (4,426,000)
-----------
$15,173,000
-----------
-----------
Annual maturities of long-term debt are as follows:
YEAR ENDING MAY 29,
- -----------------------------------------------------------------------------------------
1993.............................................................................. 4,426,000
1994.............................................................................. 2,210,000
1995.............................................................................. 1,187,000
1996.............................................................................. 1,217,000
1997.............................................................................. 1,276,000
Thereafter........................................................................ 9,283,000
-----------
$19,599,000
-----------
-----------
87
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PERIOD FROM JUNE 1, 1991 TO MAY 29, 1992
The long-term debt agreements contain several covenants, including the
maintenance of certain ratios and levels of net worth (as defined), restrictions
with respect to the payments of cash dividends on common stock and on the levels
of capital expenditures, interest and debt payments. In addition, the industrial
Revenue Bonds give the holders the right to accelerate all outstanding principal
at December 31, 1995 upon notification one year prior to that date.
Substantially all of the property and equipment and accounts receivable of
the Company collateralize the debt outstanding.
F. COMMITMENTS AND CONTINGENCIES
Inwas refinanced within the normal course of business, the Company is involved in various
litigation cases. In the opinion of management, the disposition of such
litigation will not have a material adverse effect on the Company's consolidated
financial position.
The Company leases certain space and equipment under operating lease
agreements. The following is a schedule of estimated minimum payments due under
such leases with an initial term of more than one year as of May 29, 1992:
YEAR ENDING MAY 29, BUILDINGS EQUIPMENT TOTAL
- --------------------------------------------------------------- ---------- --------- ----------
1993.................................................... $ 406,000 $112,000 $ 518,000
1994.................................................... 378,000 112,000 490,000
1995.................................................... 299,000 96,000 395,000
1996.................................................... 209,000 90,000 299,000
1997.................................................... 0 44,000 44,000
---------- --------- ----------
$1,292,000 $454,000 $1,746,000
---------- --------- ----------
---------- --------- ----------
Some of the operating leases contain provisions for renewal or increased
rental (based upon increases in the Consumer Price Index), none of which are
taken into account in the above table. Rental expense under all operating leases
amounted to $619,000.
The provision for income taxes for the following period is composed of the
following:
Federal......................................................................... $2,122,000
State........................................................................... 374,000
----------
$2,496,000
----------
----------
The provision for income taxes included in the consolidated statements of
earnings differs from the amount computed by applying the statutory federal
income tax rate of 34% to earnings before taxes due to the effect of the state
franchise taxes, net of federal benefit. This amounted to 6% for the periods
presented.
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes.' Cooper and the Company are required to adopt the new method of
accounting for income taxes no later than thelast fiscal year ending October 31,
1994. Neither the Company nor Cooper has completed an analysis to estimate the
impact of the statement on the Company's consolidated financial statements.
88year.
26
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PERIOD FROM JUNE 1, 1991 TO MAY 29, 1992
G. SUBSEQUENT EVENT
Pursuant to a pledge agreement dated as of January 6, 1994, between the
Parent and the trustee for the holders of a new class of debt issued by the
Parent (the 'Notes'), the Parent has pledged a first priority security interest
in all of its right, title and interest in stock of the Company, all additional
shares of stock of, or other equity interest in, the Company from time to time
acquired by the Parent, all intercompany indebtedness of the Company from time
to time held by the Parent and except as set forth in the indenture to the
Notes, the proceeds received from the sale or disposition of any or all of the
foregoing. A full description of the pledge agreement and terms of the indenture
to the Notes is included in the Parent's Amended and Restated Offer to Exchange
and Consent Solicitation filed with the Securities and Exchange Commission on
December 15, 1993.
89
SCHEDULE VIIIII
HOSPITAL GROUP OF AMERICA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARTHREE YEARS ENDED OCTOBER 31, 1994, YEAR ENDED OCTOBER 31, 1993
PERIOD FROM MAY 30, 1992 TO OCTOBER 31, 1992, PERIOD FROM JUNE 1, 1991 TO MAY
29, 19921996
ADDITIONS ADDITIONS DEDUCTIONS/ BALANCE
BALANCE AT CHARGED TO CHARGED TO WRITE OFFS/ AT ENDDEDUCTIONS/ BALANCE
BEGINNING COSTS AND OTHER RECOVERIES/ AT END
OF YEAR EXPENSES OTHER(1) OF PERIOD EXPENSES ACCOUNTS OTHER PERIODYEAR
---------- ---------- ---------- ----------------------- -------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended October 31, 1994................... $2,067 $1,753 $0 $(1,986) $1,8341996................................ $1,693 $1,838 $ (2,278) $1,253
---------- ---------- ------------ -------
---------- ---------- ------------ -------
Year ended October 31, 1993................... $2,556 $2,792 $0 $(3,281) $2,067
Period1995................................ $1,834 $1,551 $ (1,692) $1,693
---------- ---------- ------------ -------
---------- ---------- ------------ -------
Year ended October 31, 1992................. $2,347 $1,251 $0 $(1,042) $2,556
Period ended May 29, 1992.....................1994................................ $2,067 $1,753 $ 884 $3,304 $0 $(1,841) $2,347(1,986) $1,834
---------- ---------- ------------ -------
---------- ---------- ------------ -------
90- ------------
(1) Uncollectible accounts written off, recovered accounts receivable previously
written off and other items.
27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
COOPERSURGICAL, INC.:
We have audited the accompanying balance sheets of CooperSurgical, Inc. as
of October 31, 19941996 and 1993,1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended October 31, 1994.1996. In connection with our audits of the
financial statements, we also have audited the Company's financial statement
schedule VIII.Schedule II. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CooperSurgical, Inc. as of
October 31, 19941996 and 1993,1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended October 31, 1994,1996, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
January 16, 1995
91December 3, 1996
28
COOPERSURGICAL, INC.
BALANCE SHEETS
OCTOBER 31,
--------------------
1994 1993
------- ------------------------------------
1996 1995
------------ -------------
(IN THOUSANDS OF DOLLARS)
ASSETS
Current assets:
Cash................................................................................Cash............................................................................. $ 247309 $ 297
Receivables197
Receivables:
Trade, less allowance for doubtful accounts of $542$531 in 19941996 and
$472$373 in 1993... 1,649 2,209
Other receivables................................................................... 53 50
------- -------
1,702 2,259
Inventories1995................................................................... 2,635 1,598
Other............................................................................ 66 13
------------ -------------
2,701 1,611
Inventories:
Raw materials....................................................................... 2,544 3,100
Work-in-process..................................................................... 283 344materials.................................................................... 1,669 2,068
Work-in-process.................................................................. 278 260
Finished goods...................................................................... 1,535 2,497
------- -------
4,362 5,941
------- -------goods................................................................... 1,758 1,121
------------ -------------
3,705 3,449
------------ -------------
Prepaid expenses......................................................................... 253 366
------- -------expenses...................................................................... 259 246
------------ -------------
Total current assets...................................................... 6,564 8,863
------- -------assets........................................................ 6,974 5,503
------------ -------------
Furniture and equipment.................................................................. 1,499 1,469equipment............................................................... 2,193 1,725
Less accumulated depreciation....................................................... (989) (663)
------- -------
510 806
------- -------depreciation.................................................... (1,477) (1,242)
------------ -------------
716 483
------------ -------------
Intangibles, net of accumulated amortization
Goodwill............................................................................ 1,584 1,681amortization:
Patents (note 2)................................................................. 941 1,005
Goodwill......................................................................... 1,389 1,486
Distribution rights.............................................................. 106 132
Non-compete agreements.............................................................. 224 405
Distribution rights................................................................. 157 182
------- -------
1,965 2,268
------- -------agreements........................................................... -- 45
------------ -------------
2,436 2,668
------------ -------------
Other assets.............................................................................assets.......................................................................... 496 493
------- -------496
------------ -------------
$ 9,535 $12,430
------- -------
------- -------10,622 $ 9,150
------------ -------------
------------ -------------
LIABILITIES & STOCKHOLDERS' DEFICITEQUITY
Current liabilities:
Current installments of long-term debt (note 6).....................................7).................................. $ 1517 $ 17--
Accounts payable (note 3)........................................................... 941 1,0504)........................................................ 1,867 940
Accrued liabilities................................................................. 1,531 1,643
------- -------liabilities.............................................................. 2,439 1,617
------------ -------------
Total current liabilities................................................. 2,487 2,710liabilities................................................... 4,323 2,557
Long-term debt (note 6).................................................................. 105 1067)............................................................... 102 153
Due to Parent (note 4)................................................................... 3,147 22,325
------- -------5)................................................................ 4,210 3,967
------------ -------------
Total liabilities......................................................... 5,739 25,141
------- -------liabilities........................................................... 8,635 6,677
------------ -------------
Commitments and contingencies (note 7)8):
Stockholders' equity (deficit):equity:
Series A Convertible Preferred stock: 10,633,572 shares authorized, 10,436,660
issued and outstanding at October 31, 1994 (640,000 in 1993),1996 and 1995, par value per share $.0001,
aggregate liquidation preference of $20,253 at October 31, 1994 ($1,242 in
1993)1996 and 1995 plus
cumulative dividend of $2,274$6,324 at October 31, 19941996 ($2484,299 in 1993)1995) (note 9).................................................................................10).... 1 --1
Common stock: 12,000,000 shares authorized, 23,21213,264 issued and outstanding, par
value per share $.0001 at October 31, 1994...............................................1996 and 1995............................. -- --
Additional paid-in capital..........................................................capital....................................................... 20,252 1,242
Translation adjustments............................................................. (67) 3320,252
Accumulated deficit................................................................. (16,390) (13,986)
------- -------deficit.............................................................. (18,266) (17,780)
------------ -------------
Total stockholders' equity (deficit)...................................... 3,796 (12,711)
------- -------equity.................................................. 1,987 2,473
------------ -------------
$ 9,535 $12,430
------- -------
------- -------10,622 $ 9,150
------------ -------------
------------ -------------
See accompanying notes to financial statements.
9229
COOPERSURGICAL, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31,
-----------------------------
1996 1995 1994 1993 1992
------- ------- -------
(IN THOUSANDS OF DOLLARS)
Net sales (note 2)3)............................................................... $17,227 $12,824 $12,847 $14,679 $16,010
Cost of goods sold............................................................... 8,469 6,182 6,680 7,429 7,368
------- ------- -------
Gross profit........................................................... 8,758 6,642 6,167 7,250 8,642
------- ------- -------
Costs and expensesexpenses:
Research and development expense............................................ 386 804 673 778 1,248
Selling, general and administrative expense (note 4)5)........................ 8,112 5,909 6,513
10,507 9,034Costs associated with restructuring operations.............................. -- 425 --
Other expense............................................................... 34 140 9 460 568
Amortization of intangibles................................................. 232 318 303 290 308
Interest:
Parent promissory notes..................................................... 474 429 1,062
2,240 1,134
Other....................................................................... 6 7 11 18 55
------- ------- -------
9,244 8,032 8,571 14,293 12,347
------- ------- -------
Net loss..........................................................loss............................................................... $ (486) $(1,390) $(2,404) $(7,043) $(3,705)
------- ------- -------
------- ------- -------
See accompanying notes to financial statements.
9330
COOPERSURGICAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED OCTOBER 31, 1994, 19931996, 1995 AND 19921994
RETAINED TOTAL
SERIES A ADDITIONAL EARNINGS STOCKHOLDERS'STOCKHOLDERS
PREFERRED COMMON PAID-IN TRANSLATION (ACCUMULATED EQUITY
STOCK STOCK CAPITAL ADJUSTMENTSADJUSTMENT DEFICIT) (DEFICIT)
--------- ------------- ---------- --------------------- ------------ -------------
(DOLLARS IN THOUSANDS)------------
(IN THOUSANDS OF DOLLARS)
Balance at October 31, 1991........ $-- $--1993......... $-- $-- $ (3,238) $(3,238)
Issuance of 640,000 shares of
Series A convertible preferred
stock............................ -- -- 1,242 -- -- 1,242
Issuance of 23,212 shares of common
stock and retirement of 1,000
shares of common stock........... -- -- -- -- -- --
Net loss........................... -- -- -- -- (3,705) (3,705)
--------- ------- ---------- ----------- ------------ -------------
Balance at October 31, 1992........ -- -- 1,242 -- (6,943) (5,701)
Net loss........................... -- -- -- -- (7,043) (7,043)
Aggregate translation adjustment... -- -- --$ 33 -- 33
--------- ------- ---------- ----------- ------------ -------------
Balance at October 31, 1993........ -- -- 1,242 33 (13,986) (12,711)$(13,986) $(12,711)
Issuance of 9,796,660 shares of
Series A convertible preferred
stock (note 4)...................5).................... 1 -- 19,010 -- -- 19,011
Net loss...........................Loss............................ -- -- -- -- (2,404) (2,404)
Aggregate translation adjustment...adjustment.... -- -- -- (100) -- (100)
--------- ------------- ---------- --------------------- ------------ -------------------------
Balance at October 31, 1994........1994......... 1 -- 20,252 (67) (16,390) 3,796
Net Loss............................ -- -- -- -- (1,390) (1,390)
Aggregate translation adjustment.... -- -- -- 67 -- 67
--------- ------ ---------- ---------- ------------ ------------
Balance at October 31, 1995......... 1 -- 20,252 -- (17,780) 2,473
Net Loss............................ -- -- -- -- (486) (486)
--------- ------ ---------- ---------- ------------ ------------
Balance at October 31, 1996......... $ 1 $-- $ -- $20,25220,252 $-- $(18,266) $ (67) $(16,390) $ 3,7961,987
--------- ------------- ---------- --------------------- ------------ -------------------------
--------- ------------- ---------- --------------------- ------------ -------------------------
See accompanying notes to financial statements.
9431
COOPERSURGICAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1994, 1993 AND 1992
YEARS ENDED OCTOBER 31,
-------------------------------
1996 1995 1994
1993 1992----- ------- -------
-------
(DOLLARS IN THOUSANDS)(IN THOUSANDS OF DOLLARS)
Cash flows provided (used) by operating activities:
Net loss.....................................................................loss................................................................. $(486) $(1,390) $(2,404) $(7,043) $(3,705)
Adjustments to reconcile net loss to cash provided (used) by operating
activities:
Depreciation and amortization................................................amortization............................................ 467 585 629 540 478
Bad debt expense.............................................................expense......................................................... 40 18 70 191 9
Interest on Parent advances.................................................. -- 2,240 1,134
Management fees to Parent.................................................... -- 1,312 341
Change in assets and liabilities:
(Increase) decrease in receivables......................................receivables....................................... (347) 73 487
(463) (210)
(Increase) decreaseDecrease in inventories......................................inventories.................................................. 92 913 1,579
(1,286) (2,413)
(Increase) decreaseDecrease in other current assets.............................assets......................................... 41 7 113 288 (103)
(Increase) in other assets..............................................assets............................................... -- -- (3) (330) (123)
Increase (decrease) in accounts payable.................................payable.................................. 493 (201) (109) (724) 940
Increase (decrease) in accrued liabilities and other....................other..................... 119 138 (187)
517 186
------------ ------- -------
Net cash provided (used) by operating activities.............................activities................................ 419 143 175
(4,758) (3,466)
------------ ------- -------
Cash flows used inby investing activities --activities:
Capital expenditures.........................................................expenditures..................................................... (404) (168) (30)
(302) (555)
------------ ------- -------
Net cash (used)used by investing activities......................................activities.................................... (404) (168) (30)
(302) (555)
------------ ------- -------
Cash flows provided (used) by financing activities:
Proceeds from issuance of preferred stock.................................... -- -- 1,242
Proceeds from (repayment of) Parent advances.................................advances............................. 330 820 (167) 5,554 3,995
Repayment of long-term debt..................................................debt.............................................. (33) (24) (28)
(404) (1,077)
-------Payment of final installment of purchased patent......................... (200) (821) --
----- ------- -------
Net cash provided (used) by financing activities.............................activities......................... 97 (25) (195)
5,150 4,160
------------ ------- -------
Net increase (decrease) in cash and cash equivalents..............................equivalents.......................... 112 (50) 90 139(50)
Cash and cash equivalents, beginning of period....................................period................................ 197 247 297
207 68
------------ ------- -------
Cash and cash equivalents, end of period..........................................period...................................... $ 309 $ 197 $ 247
$ 297 $ 207----- ------- -------
-------
------------ ------- -------
Cash paid for:
Interest.....................................................................Interest................................................................. $ 1,073474 $ --429 $ 401,062
----- ------- -------
-------
------------ ------- -------
Income taxes.................................................................taxes............................................................. $-- $ -- $ --
$ ------- ------- -------
----- ------- -------
------- -------
Non-cash investing and financing activities:
During fiscal 1994, CooperSurgical's Parent converted $19,011Non-cash investing and financing activities:
During fiscal 1996, CooperSurgical purchased certain assets ($1,654,000) and
liabilities ($1,336,000) of Unimar, Inc., an affiliate of the parent, via an
intercompany note bearing a 12% interest rate.
During fiscal 1995, CooperSurgical acquired the rights to certain patented
products for $1,000,000 of which $800,000 was paid prior to October 31,
1995. Additionally, in fiscal 1995, CooperSurgical acquired a new telephone
system under the terms of a capital lease for $72,000.
During fiscal 1994, CooperSurgical's Parent converted $19,011,000 of Parent
advances into 9,796,660 shares of CooperSurgical Series A convertible
preferred stock.
See accompanying notes to financial statements.
9532
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS
(1)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
CooperSurgical, Inc. ('CooperSurgical'), a Delaware corporation, develops,
manufactures and distributes electrosurgical, cryosurgical and general
application diagnostic surgical instruments and equipment. The Cooper Companies,
Inc. ('Parent'), a Delaware corporation, owns 100% of CooperSurgical's Series A
convertible preferred stock. CooperSurgical's outstanding common stock is 100%
owned by individuals on the CooperSurgical Advisory Board which provides counsel
and management of clinical trials in the area of minimally invasive surgery. The
accompanying financial statements have been prepared from the separate records
of CooperSurgical and may not be indicative of conditions which would have
existed or the results of its operations if CooperSurgical operated autonomously
(see note 4)5). Foreign exchange translation and transactions are immaterial.
DEPENDENCE UPON PARENTNATURE OF OPERATIONS
CooperSurgical has incurred substantial losses and negative cash flows from
operations. The Company has, therefore, been dependent upon its Parentis a worldwide provider of practice enhancement products for
financing to meet its cash obligations.
During fiscal 1994, the Company has streamlined its sales force and its
customer service organization, reduced advertising expenditures and consolidated
administrative functions to reduce costs. These actions, combined with
reductions in inventories and receivables, have resulted in reduced losses and
improved operating cash flows in the fiscal year ended October 31, 1994. The
Company believes that such actions will permit it to meet its cash obligations
until its liability to its parent matures.gynecologist. The Company's Parent has extendedprincipal products include the maturityLEEP product line
(Loop Electrosurgical Excision Procedure), diagnostic and operative hysteroscopy
products, colposcopy products and every day instrumentation and disposable
products. Marketed principally to the domestic market through a variety of
the Company'sindependent marketing partnerships, global coverage is obtained through top
distributors of gynecology products for a given market arena.
INTERCOMPANY LIABILITY
CooperSurgical's liability to Parent until May 1, 1997 andmatures on October 31, 2001, the
Parent is committed to funding the Company's cash requirements, as necessary,
until that date.
The Company does not expect to be able to repay its liability to Parent at
maturity without a significant improvement in operating results from present
levels. There can be no assurance that such an improvement will be achieved or
that the Parent will extend further the maturity date of the Company's
liability.
REVENUE RECOGNITION
CooperSurgical recognizes product revenue when risk of ownership has
transferred to the buyer, net of appropriate provisions for sales returns and
bad debts.
ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
For all financial instruments included in CooperSurgical's balance sheet,
the fair value of those financial instruments approximates their financial
statements carrying amounts.
INCOME TAXES
CooperSurgical is included in the consolidated income tax returns of the
Parent. The consolidated federal, state and local taxes are subject to a tax
sharing agreement under which CooperSurgical's liability is computed on a
non-consolidated basis using a combined rate of 40%.
Effective November 1, 1993, CooperSurgical adopted the liability method of
accounting for income taxes as prescribed by Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes' (FAS 109). The liability method
under FAS 109 measures the expected tax impact of future
33
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
taxable income or deductions resulting from temporary differences in the tax and
financial reporting bases of assets and liabilities reflected in the consolidated balance
sheet. Deferred tax assets and liabilities are determined using the enacted tax
rates in effect for the year in which these differences are expected to reverse.
Under FAS 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the period that the change wasis enacted. In 1993 and
prior years, the Company accounted for income taxes under APB Opinion 11.
96
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
POSTEMPLOYMENT BENEFITS
In December 1992, the FASB issuedEffective November 1, 1994, CooperSurgical, Inc. adopted Statement of
Financial Accounting Standards No. 112, 'Employers''Employers Accounting for Postemployment
Benefits' ('FAS 112'). FAS 112 establishes accounting standards for employers
who provide benefits to former or inactive employees after employment but before
retirement ('postemployment benefits'). Postemployment benefits are all types of
benefits provided to former or inactive employees, their beneficiaries, and
covered dependents. Those benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits (including workers' compensation), job training and
counseling, and continuation of benefits such as healthcare benefits and life
insurance coverage.
The termination benefits portion of the restructuring charge incurred in
fiscal 1995, discussed in note 2, has been accounted for in accordance with the
provisions of FAS 112 is effective for fiscal years beginning after December 15, 1993.
The Parent and CooperSurgical will adopt FAS 112 as required, and believe the
adoption will not have a material impact on CooperSurgical's financial
statements.112.
INVENTORIES
Inventories are carried at the lower of cost, determined on an average cost
basis, or market.
ADVERTISING
CooperSurgical expenses the production costs of advertising the first time
the advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefits.
Direct Response advertising consists primarily of catalog mailings that
include order forms for CooperSurgical's products. The capitalized costs of the
advertising are amortized over a three to four month period or until the next
catalog mailing is made.
At October 31, 1996 and 1995, direct response advertising costs of $89,000
and $136,000, respectively, were included in prepaid expenses. Advertising
expense was $993,000, $839,000 and $1,033,000 in fiscal 1996, 1995, and 1994,
respectively.
FURNITURE AND EQUIPMENT
Furniture and equipment areis carried at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of depreciable assets.
AMORTIZATION OF INTANGIBLES
Amortization is currently provided on all intangible assets on a
straight-line basis over periods up to 20 years. Accumulated amortization at
October 31, 19941996 and 19931995 was $1,136,000$1,686,000 and $831,000,$1,454,000, respectively. The
Company assesses the recoverability of intangiblegoodwill and other long-lived assets by
determining whether the amortization of the intangible assetthese assets over itstheir remaining life
can be recovered through reasonably expected future results.
RECLASSIFICATIONS
Certain amountscash flow.
34
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT EVENTS
RESTRUCTURING
During fiscal 1995, CooperSurgical closed their Redmond, Washington and
Belgium field offices whereby all employees at these locations and certain
support personnel at CooperSurgical's Shelton, Connecticut headquarters were
terminated, resulting in a $425,000 restructuring charge. The restructuring
charge includes termination benefits of $314,000 which covers eight employees.
As of October 31, 1996, all termination benefits had been paid and eight
employees had been officially terminated.
PATENT ACQUISITION
During fiscal 1995, CooperSurgical acquired the rights to certain patented
products for fiscal years 1993 and 1992 have$1,000,000. $800,000 had been reclassifiedpaid prior to conformOctober 31, 1995 with
the current year's presentation.
(2)remaining $200,000 paid during fiscal 1996 which ended October 31, 1996.
LICENSE AGREEMENTS
On April 11, 1996, CooperSurgical obtained the worldwide license rights,
from an affiliate of the Parent, for the complete line of Unimar, Inc. products.
This agreement allows the Company to market and sell, through its existing sales
distribution channels, all products through April 11, 2006 with a 60 day
cancellation clause by either entity. A monthly Royalty fee of approximately
$100,000 will be incurred by CooperSurgical.
3. EXPORT SALES
CooperSurgical had export sales of $2,441,000, $2,200,000,$2,995,000, $2,118,000, and $2,096,000$2,441,000
for the years ended October 31, 1996, 1995 and 1994, 1993 and 1992, respectively.
(3)4. ACCOUNTS PAYABLE
CooperSurgical utilized a cash concentration account with the Parent
whereby approximately $193,000$713,000 and $131,000$180,000 of checks issued and outstanding at
October 31, 19941996 and 1993,1995, respectively, in excess of related bank cash balances
were reclassified to accounts payable. Sufficient funds were available from the
Parent to cover these checks.
(4)5. RELATED PARTY TRANSACTIONS
Included in CooperSurgical's selling, general and administrative expense
are Parent allocations for technical service fees of $514,000, $1,312,000$1,191,000, $389,000, and
$341,000$514,000 for the years ended October 31, 1996, 1995 and 1994, 1993 and 1992, respectively.
Technical service fees for the year ended October 31, 1993 include $134,000
relating to redetermination of the appropriate amount for the year ended October
31, 1992.
These costs
97
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) are charges from the Parent for accounting, legal, tax and other
services provided to CooperSurgical and are added to the balance Due to Parent.
Amounts due to the Parent at October 31, 1994 and 1993 were composed of the
following:
OCTOBER 31,
-----------------
1994 1993
------ -------
(000'S)
Advances with interest at 10% per annum............................................ $ -- $ 6,000
Advances with interest at 15% per annum............................................ -- 12,552
Advances with interest at 12% per annum............................................ 3,147 --
Interest due on Parent advances.................................................... -- 3,702
Other.............................................................................. -- 71
------ -------
$3,147 $22,325
------ -------
------ -------
On December 1, 1993, CooperSurgical converted all outstanding Parent
advances into a promissory note bearing interest at 15%. Under the terms of this
note, all principal and unpaid interest was due and payable on demand.
On January 24, 1994, CooperSurgical's Parent converted $19,011,000 of
Parent advances into 9,796,660 shares of CooperSurgical Series A convertible
preferred stock and converted the remaining $3,313,000 balance of Parent
advances into a Term Note, with principal and interest due January 24, 1996,
bearing interest at 12%, compounded monthly (Parent advances in excess of
$4,000,000 bear interest at 15%, compounded monthly). On January 10, 1995, theThe maturity date of this
Term Note for principal plus any accrued unpaid interest was extended to May 1, 1997.
(5)October
31, 2001.
Included in CooperSurgical's selling, general and administrative expenses
are Royalty payments of $675,000 made during fiscal 1996 in conjunction with
license agreements for Unimar, Inc. product line. This amount covers the period
from April 11, 1996 to October 31, 1996.
35
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
As discussed in note 1, CooperSurgical adopted FAS 109 as of November 1,
1993. The adoption had no impact on the statement of operations for the year
ended October 31, 1994. The tax benefit for net operating loss carryforwards has
not been recognized since the related tax assets were fully offset by a
valuation allowance.
A reconciliation of the provision for (benefit of) income taxes included in
CooperSurgical's statement of operations and the amount computed by applying the
federal income tax rate to income (loss) from continuing operations before
extraordinary items and income taxes follows:
YEARS ENDED OCTOBER 31,
--------------------------------------------------
1996 1995 1994
1993 1992
----- ------- -------
(000'S)----- -----
(IN THOUSANDS OF
DOLLARS)
Computed expected provision for (benefit of) taxes........................taxes............................ $(164) $(473) $(817)
$(2,395) $(1,260)
Increase (decrease) in taxes resulting from:
Amortization of intangibles..........................................intangibles.............................................. 33 29 3633 33
Net operating losses for which no tax benefit was recognized.........recognized............. 119 432 781
2,364 1,219
Other................................................................Other.................................................................... 12 8 3
2 5
----- ------- ------------ -----
Actual provision for income taxes.........................................taxes............................................. $-- $ -- $ --$-- $--
----- ------- -------
----- ------- ------------
----- ----- -----
98
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October 31,
1994 are as follows:
(000'S)
--------OCTOBER 31,
-------------------------------
1996 1995
------------- --------------
(IN THOUSANDS OF DOLLARS)
Deferred tax assets:Tax Assets:
Accounts receivable, principally due to allowance for doubtful
accounts.................accounts........................................................... $ 152280 $ 230
Inventories, principally due to obsolescence reserves................................... 594reserves................ 743 697
Accrued liabilities, principally due to compensation accruals........................... 148accruals........ 401 327
Net operating loss carryforwards........................................................ 5,675
Tax credit carryforwards................................................................
Other................................................................................... 11
--------carryforwards..................................... 5,744 5,731
Other................................................................ 136 98
------------- --------------
Total gross deferred tax assets.................................................... 6,580assets................................. 7,304 7,083
Less valuation allowances.......................................................... (6,580)
--------allowance............................................. (7,304) (7,083)
------------- --------------
Net deferred tax asset............................................................. $ --
--------
--------asset.......................................... $-- $--
------------- --------------
------------- --------------
The valuation allowance for deferred tax assets as of November 1, 1993 was
$5,330,000.
The net change in the total valuation allowance for the year ended October
31, 1996, 1995 and 1994 was an increase of $1,250,000.$221,000, $503,000 and $1,250,000;
respectively.
At October 31, 19941996, the Parent had consolidated net operating loss
carryforwards of which approximately $12,000,000$11,400,000 related to CooperSurgical. The
tax benefit of an additional $2,000,000$3,000,000 of CooperSurgical net operating loss
carryforwards which have been utilized in the Parent's consolidated return are
available in the future should CooperSurgical have sufficient taxable income
during the carryforward period. The net operating loss carryforwards expire
commencing in 2006.
(6)7. LONG-TERM DEBT
Long-term debt consists of the following:
OCTOBER 31,
------------
1994 1993-------------------------------
1996 1995
---- ----
(000'S)(IN THOUSANDS OF DOLLARS)
Note payable; interest at 9%............................................................ $120 $123, maturing 1998..................... $ 81 $ 105
Capitalized lease; interest at 8%, maturing 1999................ 38 48
------ ------
119 153
Less current portion.................................................................... (15)portion............................................ (17) ---- ----
$105 $106
---- ----
---- ------
------ ------
$102 $ 153
------ ------
------ ------
36
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1995, CooperSurgical acquired a new telephone system under
the terms of a capital lease for $72,000 whereby CooperSurgical can purchase the
system for $1 at the end of the 48 month lease term. As of October 31, 1995,
accumulated depreciation associated with the telephone system totaled $5,000.
Annual maturities of long-term debt, including current installments
thereof, are as follows:
YEAR ENDING OCTOBER 31, (000'S)(IN THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------- -------------------------
1995............................................................................................ $15
1996............................................................................................ 15
1997............................................................................................ --
1998............................................................................................ 901997......................................................... 17
1998......................................................... 85
(7)8. COMMITMENTS AND CONTINGENCIES
In the normal course of its business, CooperSurgical is involved in various
litigation cases.litigations. In the opinion of management, the disposition of such litigation
will not have a materially adverse effect on CooperSurgical's financial
condition.
99
COOPERSURGICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CooperSurgical leases certain property and equipment under non-cancellable
operating lease agreements. The following is a schedule of the estimated minimum
payment due under such leases with an initial term of more than one year as of
October 31, 1994:1996:
YEAR ENDING OCTOBER 31, (000'S)(IN THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------- -------------------------
1995............................................................................................ $322
1996............................................................................................ 250
1997............................................................................................1997......................................................... 256
1998............................................................................................1998......................................................... 262
1999............................................................................................1999......................................................... 263
20002000......................................................... 263
2001......................................................... 262
2002 and thereafter............................................................................. 525thereafter.......................................... --
Rental expense for all leases amounted to approximately $311,000, $340,000$300,000, $317,000,
and $322,000$311,000 for the years ended October 31, 1996, 1995 and 1994, 1993 and 1992, respectively.
(8)9. EMPLOYEE BENEFITS
CooperSurgical employees are eligible to participate in the Parent's 401(k)
Savings Plan, a defined contribution plan and the Parent's Retirement Income
Plan, a defined benefit plan. As of October 31, 1994,1996, CooperSurgical has not
elected to participate in the Parent's Retirement Income Plan. CostsEmployer
contributions to the Parent's 401(k) Savings Plan, as well as costs and expenses
of administration ofadministering the Parent's 401(k) Savings Plan, are allocated to CooperSurgical as appropriate. These
costsamounts were not significant for the years ended October 31, 1994, 19931996, 1995 and
1992.
(9)1994.
10. SERIES A CONVERTIBLE PREFERRED STOCK
The Series A Convertible Preferred Stock is convertible into Common Stock
on a one-to-one basis, subject to adjustment for stock splits, dividends and
certain other distributions of Common Stock and has voting rights equal to the
number of shares of Common Stock into which it is convertible. CooperSurgical is
required to reserve for issuance, shares of Common Stock equal to the shares of
Preferred Stock issued and outstanding at any given date. The Preferred Stock
has a liquidation preference of $1.940625 per share and accrues cumulative
dividends of $0.1940625 per share per annum. The aggregate liquidation
preference of the Preferred Stock at October 31, 19941996 is $20,253,000, plus
cumulative dividends of $2,274,000.$6,324,000. The Preferred Stock participates ratably
with the Common Stock in any additional dividends declared beyond the cumulative
dividends and in any remaining assets beyond the liquidation preference. The
Series A Convertible Preferred Stock represents 99.8% of the total voting rights
of all outstanding CooperSurgical stock.
10037
SCHEDULE VIIIII
COOPERSURGICAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED OCTOBER 31, 19941996
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO
BALANCE
BEGINNING COSTS AND OTHER BALANCE END OF
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ---------------------------------------------------------------------------------------------------- ---------- ---------- ---------- ---------- -------------------
(AMOUNTS IN THOUSANDS OF DOLLARS)
Allowance for doubtful accounts:
Year ended October 31, 1994.................... $4721996................ $373 $ 55 $103 $ -- $ 531
---------- --- ---------- ---- -----------
---------- --- ---------- ---- -----------
Year ended October 31, 1995................ $379 $ 18 $ -- $ 24 $ 373
---------- --- ---------- ---- -----------
---------- --- ---------- ---- -----------
Year ended October 31, 1994................ $309 $ 70 $ -- $ -- $542$ 379
---------- --- ---------- ---- -----------
---------- --- ---------- --------
---------- ---------- ---------- ---------- --------
Year ended October 31, 1993.................... $281 $197 $ -- $ 6 $472
---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- --------
Year ended October 31, 1992.................... $272 $ 12 $ -- $ 3 $281
---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ------------ -----------
10138
3. Exhibits.EXHIBITS.
EXHIBIT
NUMBER PAGE
- ------------- ----
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,
1988.1988..............................................................................................
3.2 --Certificate of Amendment of Restated Certificate of Incorporation dated September 21, 1995
incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995................................................................
3.3 --Amended and Restated By-Laws, incorporated by reference to Exhibit 3.2 to the Company's Report on
Form 8-A dated January 18, 1994.1994...................................................................
4.1 --Second Supplemental Indenture, dated as of January 6, 1994, between the Company and Bankers Trust
Company, as successor trustee, with respect to the 10 5/8% Convertible Subordinated Reset
Debentures due 2005, incorporated by reference to Exhibit 4.3 to the Company's Report on Form 8-A
dated January 18, 1994.1994............................................................................
4.2 --Indenture, dated as of January 6, 1994, between the Company and IBJ Schroder Bank & Trust
Company, as trustee, with respect to the 10% Senior Subordinated Secured Notes due 2003,
incorporated by reference to Exhibit 4.8 to the Company's Report on Form 8-A dated January 18,
1994.1994..............................................................................................
4.3 --Pledge Agreement, dated January 6, 1994, by the Company in favor of IBJ Schroder Bank & Trust
Company, as Trustee, incorporated by reference to Exhibit 4.9 to the Company's Report on Form 8-A
dated January 18, 1994.1994............................................................................
4.4 --Rights Agreement, dated as of October 29, 1987, between the Company and The First National Bank
of Boston, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated October 29, 1987.1987............................................................................
4.5 --Amendment No. 1 to Rights Agreement, dated as of June 14, 1993, between the Company and The First
National Bank of Boston, incorporated by reference to Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the Fiscal Quarterfiscal quarter ended April 30, 1993.1993...................................
4.6 --Amendment No. 2 to Rights Agreement, dated as of January 16, 1995, between the Company and The
First National Bank of Boston.Boston, incorporated by reference to Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1994....................................
4.7 --Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred
Stock of The Cooper Companies, Inc., incorporated by reference to Exhibit 4.10 of the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1989.1989.............................
10.1 --1988 Long Term Incentive Plan, Amended and Restated as of January 16, 1995.1995, incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1994..................................................................................
10.2 --Amendment No. 1 to 1988 Long-Term Incentive Plan, as Amended and Restated, dated October 10,
1996..............................................................................................
10.3 --Turn-Around Incentive Plan.
10.3Plan, incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1994....................................
10.4 --Severance Agreement entered into as of June 10, 1991, by and between CooperVision, Inc. and A.
Thomas Bender, incorporated by reference to Exhibit 10.26 to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1992.
10.41992.............................
10.5 --Letter dated March 25, 1994, to A. Thomas Bender from the Chairman of the Compensation Committee
of the Company's Board of Directors.
10.5 --Employment Agreement dated as of December 1, 1991, by and between Robert S. Holcombe and the Company,Directors, incorporated by reference to Exhibit 10.27 to Amendment No. 110.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1992.1994.............................
10.6 --Severance Agreement entered into as of April 26, 1990, by and between Nicholas J. Pichotta and
the Company incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K
for fiscal year ended October 31, 1995............................................................
39
EXHIBIT
NUMBER PAGE
- ------ ----
10.7 --Letter Agreement dated November 16, 1994,1, 1992, by and between Robert S. HolcombeNicholas J. Pichotta and the Company.
10.7Company
incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995................................................................
10.8 --Employment Agreement entered into as of May 27, 1992, by and between Mark R. Russell and Hospital
Group of America, Inc., incorporated by reference to Exhibit 10.20 to Form 10-K-A dated February
27, 1995..........................................................................................
10.9 --Letter Agreement dated June 18, 1993, by and between Mark R. Russell and Hospital Group of
America, Inc., incorporated by reference to Exhibit 10.21 to Form 10-K-A dated February 27,
1995..............................................................................................
10.10 --Letter Agreement dated January 11, 1995, by and between Mark R. Russell and Hospital Group of
America, Inc., incorporated by reference to Exhibit 10.22 to Form 10-K-A dated February 27,
1995..............................................................................................
10.11 --Letter Agreement dated April 15, 1996, by and between Mark R. Russell and Hospital Group of
America, Inc. ....................................................................................
10.12 --Severance Agreement entered into as of August 21, 1989, by and between Robert S. Weiss and the
Company, incorporated by reference to Exhibit 10.28 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1992.
10.8 --1990 Restricted Stock1992....................................
10.13 --1996 Long Term Incentive Plan for Non-Employee Directors of The Cooper Companies, Inc.,
incorporated by reference to the Company's Proxy Statement dated June 15, 1990.
10.9 --Exchange Agreement, dated June 12, 1992 by and between the Company andfor its 1996 Annual Meeting of
Stockholders......................................................................................
10.14 --Amendment No. 1 to 1996 Long-Term Incentive Plan for Non-Employee Directors of The Cooper
Life Sciences,Companies, Inc., incorporated by reference to Exhibit 28(d) to the Company's Current Report on Form 8-K dated June 12,
1992.
10.10 --Settlement Agreement, dated June 12, 1992, by and between the Company and Cooper Life Sciences, Inc.,
incorporated by reference to Exhibit 28(e) to the Company's Current Report on Form 8-K dated June 12,
1992.
10.11 --Exchange Agreement, dated June 14, 1993, between the Company and Cooper Life Sciences, Inc., incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Fiscal Quarter ended
April 30, 1993.
10.12October 10, 1996...........................................................
10.15 --Registration Rights Agreement, dated June 14, 1993, between the Company and Cooper Life Sciences,
Inc., incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the Fiscal
Quarterfiscal quarter ended April 30, 1993.
102
EXHIBIT
NUMBER
- -------
10.131993...........................................................
10.16 --Settlement Agreement, dated June 14, 1993, between the Company and Cooper Life Sciences, Inc.,
incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the
Fiscal
Quarterfiscal quarter ended April 30, 1993.
10.141993...............................................................
10.17 --Amendment No. 1 to Settlement Agreement of June 14, 1993, dated as of January 16, 1995, between
the Company and Cooper Life Sciences, Inc.
10.15 --Stock Purchase Agreement, dated as of April 6, 1992, by and among PSG and Nu-Med and PsychGroup (the
'Agreement'), and for the limited purposes set forth therein, Malvern, Northwestern, South Central,
Alliance, HGA and PSG Management are parties to the Agreement, incorporated by reference to Exhibit 10(a)exhibit 10.14 to the
Company's CurrentAnnual Report on Form 8-K dated May 29, 1992.
10.16 --Management Services Agreement, dated as of May 29, 1992, by and among PSG Management and South Central,
Malvern and Northwestern (the 'Management Agreement'), together with the Guarantee of PsychGroup and
Nu-Med attached thereto, incorporated by reference to Exhibit 10(b) on Form 8-K dated May 29, 1992. The
Schedules to the Management Agreement are not included and will be furnished upon request.
10.17 --Indemnification Agreement, dated as of April 6, 1992, by and among PSG and Nu-Med and PsychGroup (the
'Indemnification Agreement'), and10-K for the limited purposes set forth therein HGA and certain wholly-owned
subsidiaries of PsychGroup are parties to the Indemnification Agreement, incorporated by reference to
Exhibit 10(c) to the Company's Current Report on Form 8-K dated May 29, 1992.fiscal year ended October 31, 1994...................
10.18 --Agreement dated as of September 28, 1993, among Medical Engineering Corporation, Bristol-Myers
Squibb Company and the Company, incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated October 1, 1993.
11.11993..........................................................
11 --Calculation of Net IncomeEarnings (loss) per Common Share.
21.1 --Subsidiaries.
23.1 --Consentshare.........................................................
13 --Five Year Financial Highlights, Management's Discussion and Analysis of KPMG Peat Marwick LLP.Financial Condition and
Results of Operations, the Consolidated Financial Statements and the Notes thereto, and the
Independent Auditors' Report in the 1996 Annual Report to Stockholders are incorporated by
reference in this document and are deemed 'filed'.................................................
21 --Subsidiaries......................................................................................
27 --Financial Data Schedule.Schedule..........................................................................
(b) Reports on Form(B) REPORTS ON FORM 8-K.
None.
103August 8, 1996 -- Item 5. Other Events.
August 27, 1996 -- Item 5. Other Events.
October 29, 1996 -- Item 5. Other Events.
40
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 24, 1995.27, 1997.
THE COOPER COMPANIES, INC.
By: /S/ ALLAN E. RUBENSTEIN
.................................
ALLAN E. RUBENSTEIN
CHAIRMAN OF THE BOARD OF DIRECTORS/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 January , 1995.the dates set forth opposite their
respective names.
SIGNATURE CAPACITY DATE
- ------------------------------------------ -------------------------------------------- -------------------
/s/ ALLAN E. RUBENSTEIN Chairman of the Board of Directors January 24, 199527, 1997
.........................................
ALLAN(ALLAN E. RUBENSTEINRUBENSTEIN)
/s/ A. THOMAS BENDER President, Chief Executive Officer and January 27, 1997
......................................... Director
(A. THOMAS BENDER)
/s/ ROBERT S. WEISS Senior Vice-President,Executive Vice President, Treasurer, and Chief January 24, 199527, 1997
......................................... Financial Officer ROBERTand Director
(ROBERT S. WEISSWEISS)
/s/ STEPHEN C. WHITEFORD Vice President and Corporate Controller January 24, 199527, 1997
.........................................
STEPHEN(STEPHEN C. WHITEFORD
/s/ A. THOMAS BENDER Executive Vice President, Chief Operating January 24, 1995
......................................... Officer and Director
A. THOMAS BENDERWHITEFORD)
/s/ MARK A. FILLER Director January 24, 199527, 1997
.........................................
MARK(MARK A. FILLERFILLER)
/s/ MICHAEL H. KALKSTEIN Director January 24, 199527, 1997
.........................................
MICHAEL(MICHAEL H. KALKSTEINKALKSTEIN)
/s/ MOSES MARX Director January 27, 1997
.........................................
(MOSES MARX)
/s/ DONALD PRESS Director January 24, 199527, 1997
.........................................
DONALD PRESS(DONALD PRESS)
/s/ STEVEN ROSENBERG Director January 24, 199527, 1997
.........................................
STEVEN ROSENBERG
/s/ MEL SCHNELL Director January 24, 1995
.........................................
MEL SCHNELL(STEVEN ROSENBERG)
10441
EXHIBIT INDEX
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBERINGNUMBER
NUMBER DESCRIPTION OF DOCUMENT 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)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, 1988.1988...............................................................
3.2 --Certificate of Amendment of Restated Certificate of Incorporation dated September 21, 1995
incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1995.....................................................
3.3 --Amended and Restated By-Laws, incorporated by reference to Exhibit 3.2 to the Company's
Report on Form 8-A dated January 18, 1994.1994..................................................
4.1 --Second Supplemental Indenture, dated as of January 6, 1994, between the Company and
Bankers Trust Company, as successor trustee, with respect to the 10 5/8% Convertible
Subordinated Reset Debentures due 2005, incorporated by reference to Exhibit 4.3 to the
Company's Report on Form 8-A dated January 18, 1994.1994........................................
4.2 --Indenture, dated as of January 6, 1994, between the Company and IBJ Schroder Bank & Trust
Company, as trustee, with respect to the 10% Senior Subordinated Secured Notes due 2003,
incorporated by reference to Exhibit 4.8 to the Company's Report on Form 8-A dated January
18, 1994.1994...................................................................................
4.3 --Pledge Agreement, dated January 6, 1994, by the Company in favor of IBJ Schroder Bank &
Trust Company, as Trustee, incorporated by reference to Exhibit 4.9 to the Company's Report
on Form 8-A dated January 18, 1994.1994.........................................................
4.4 --Rights Agreement, dated as of October 29, 1987, between the Company and The First National
Bank of Boston, incorporated by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated October 29, 1987.1987............................................................
4.5 --Amendment No. 1 to Rights Agreement, dated as of June 14, 1993, between the Company and
The First National Bank of Boston, incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the Fiscal Quarterfiscal quarter ended April 30, 1993.1993........
4.6 --Amendment No. 2 to Rights Agreement, dated as of January 16, 1995, between the Company and
The First National Bank of Boston.Boston, incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994............
4.7 --Certificate of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock of The Cooper Companies, Inc., incorporated by reference to Exhibit 4.10 of
the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1989.1989........
10.1 --1988 Long Term Incentive Plan, Amended and Restated as of January 16, 1995.1995, incorporated
by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1994................................................................
10.2 --Amendment No. 1 to 1988 Long-Term Incentive Plan, as Amended and Restated, dated October
10, 1996...................................................................................
10.3 --Turn-Around Incentive Plan.
10.3Plan, incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1994......................
10.4 --Severance Agreement entered into as of June 10, 1991, by and between CooperVision, Inc.
and A. Thomas Bender, incorporated by reference to Exhibit 10.26 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992.
10.41992............
10.5 --Letter dated March 25, 1994, to A. Thomas Bender from the Chairman of the Compensation
Committee of the Company's Board of Directors.
10.5 --Employment Agreement dated as of December 1, 1991, by and between Robert S. Holcombe and
the Company,Directors, incorporated by reference to Exhibit 10.27 to Amendment No. 110.4 to
the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992.1994........
42
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBER
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ------ --------------------------------------------------------------------------------------------- ------------
10.6 --Severance Agreement entered into as of April 26, 1990, by and between Nicholas J. Pichotta
and the Company incorporated by reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-K for fiscal year ended October 31, 1995...........................................
10.7 --Letter Agreement dated November 16, 1994,1, 1992, by and between Robert S. HolcombeNicholas J. Pichotta and the
Company.
10.7Company incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1995............................................
10.8 --Employment Agreement entered into as of May 27, 1992, by and between Mark R. Russell and
Hospital Group of America, Inc., incorporated by reference to Exhibit 10.20 to Form 10-K-A
dated February 27, 1995....................................................................
10.9 --Letter Agreement dated June 18, 1993, by and between Mark R. Russell and Hospital Group of
America, Inc., incorporated by reference to Exhibit 10.21 to Form 10-K-A dated February 27,
1995.......................................................................................
10.10 --Letter Agreement dated January 11, 1995, by and between Mark R. Russell and Hospital Group
of America, Inc., incorporated by reference to Exhibit 10.22 to Form 10-K-A dated February
27, 1995...................................................................................
10.11 --Letter Agreement dated April 15, 1996, by and between Mark R. Russell and Hospital Group
of America, Inc............................................................................
10.12 --Severance Agreement entered into as of August 21, 1989, by and between Robert S. Weiss and
the Company, incorporated by reference to Exhibit 10.28 to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1992.
10.8 --1990 Restricted Stock1992......................
10.13 --1996 Long Term Incentive Plan for Non-Employee Directors of The Cooper Companies, Inc.,
incorporated by reference to the Company's Proxy Statement dated June 15, 1990.
10.9 --Exchange Agreement, dated June 12, 1992 by and between the Company andfor its 1996 Annual Meeting of
Stockholders...............................................................................
10.14 --Amendment No. 1 to 1996 Long-Term Incentive Plan for Non-Employee Directors of The Cooper
Life
Sciences,Companies, Inc., incorporated by reference to Exhibit 28(d) to the Company's Current Report
on Form 8-K dated June 12, 1992.
105
LOCATION
OF EXHIBIT
IN SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ------- --------------------------------------------------------------------------------------------- -------------
10.10 --Settlement Agreement, dated June 12, 1992, by and between the Company and Cooper Life
Sciences, Inc., incorporated by reference to Exhibit 28(e) to the Company's Current Report
on Form 8-K dated June 12, 1992.
10.11 --Exchange Agreement, dated June 14, 1993, between the Company and Cooper Life Sciences,
Inc., incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the Fiscal Quarter ended April 30, 1993.
10.12October 10, 1996....................................................
10.15 --Registration Rights Agreement, dated June 14, 1993, between the Company and Cooper Life
Sciences, Inc., incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the Fiscal Quarterfiscal quarter ended April 30, 1993.
10.131993...................................
10.16 --Settlement Agreement, dated June 14, 1993, between the Company and Cooper Life Sciences,
Inc., incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the Fiscal Quarterfiscal quarter ended April 30, 1993.
10.141993...........................................
10.17 --Amendment No. 1 to Settlement Agreement of June 14, 1993, dated as of January 16, 1995,
between the Company and Cooper Life Sciences, Inc.
10.15 --Stock Purchase Agreement, dated as of April 6, 1992, by and among PSG and Nu-Med and
PsychGroup (the 'Agreement'), and for the limited purposes set forth therein, Malvern,
Northwestern, South Central, Alliance, HGA and PSG Management are parties to the Agreement, incorporated by reference to Exhibit 10(a)exhibit
10.14 to the Company's CurrentAnnual Report on Form 8-K
dated May 29, 1992.
10.16 --Management Services Agreement, dated as of May 29, 1992, by and among PSG Management and
South Central, Malvern and Northwestern (the 'Management Agreement'), together with the
Guarantee of PsychGroup and Nu-Med attached thereto, incorporated by reference to Exhibit
10(b) on Form 8-K dated May 29, 1992. The Schedules to the Management Agreement are not
included and will be furnished upon request.
10.17 --Indemnification Agreement, dated as of April 6, 1992, by and among PSG and Nu-Med and
PsychGroup (the 'Indemnification Agreement'), and10-K for the limited purposes set forth
therein HGA and certain wholly-owned subsidiaries of PsychGroup are parties to the
Indemnification Agreement, incorporated by reference to Exhibit 10(c) to the Company's
Current Report on Form 8-K dated May 29, 1992.fiscal year ended October 31,
1994.......................................................................................
10.18 --Agreement dated as of September 28, 1993, among Medical Engineering Corporation,
Bristol-Myers Squibb Company and the Company, incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K dated October 1, 1993.
11.11993.............................
11 --Calculation of Net IncomeEarnings (loss) per Common Share.
21.1 --Subsidiaries.
23.1 --Consentshare..................................................
13 --Five Year Financial Highlights, Management's Discussion and Analysis of KPMG Peat Marwick LLP.Financial
Condition and Results of Operations, the Consolidated Financial Statements and the Notes
thereto, and the Independent Auditors' Report in the 1996 Annual Report to Stockholders are
incorporated by reference in this document and are deemed 'filed'..........................
21 --Subsidiaries...............................................................................
27 --Financial Data Schedule.Schedule....................................................................
106
(B) REPORTS ON FORM 8-K.
August 8, 1996 -- Item 5. Other Events.
August 27, 1996 -- Item 5. Other Events.
October 29, 1996 -- Item 5. Other Events.
STATEMENT OF DIFFERENCES
The registration symbol shall be expressed as............. 'r'
The trademark symbol shall be expressed as................ 'tm'
The pound sterling symbol shall be expressed as...........------------------------
The registered trademark symbol shall be expressed as 'r'
The trademark symbol shall be expressed as 'tm'
The British pound sterling sign shall be expressed as 'L'
43