UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarterly Period Ended January 31, 2001
----------------
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 1-8597
------
The Cooper Companies, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2657368
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6140 Stoneridge Mall Road, 94588
- --------------------------------------------------------------------------------
Suite 590, Pleasanton, CA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (925) 460-3600
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Common Stock, $.10 par value 14,574,095 Shares
- ------------------------------ -------------------------------------------
Class Outstanding at February 28, 2001
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income - Three Months
Ended January 31, 2001 and 2000 3
Consolidated Condensed Balance Sheets - January 31, 2001
and October 31, 2000 4
Consolidated Condensed Statements of Cash Flows - Three
Months Ended January 31, 2001 and 2000 5
Consolidated Condensed Statements of Comprehensive Income -
Three Months Ended January 31, 2001 and 2000 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk 21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
Signature 23
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
January 31,
------------------------
2001 2000
------ ------
Net sales $48,899 $40,404
Cost of sales 16,790 13,772
-------- --------
Gross profit 32,109 26,632
Selling, general and administrative expense 20,338 16,764
Research and development expense 884 648
Amortization of intangibles 1,222 980
-------- --------
Operating income 9,665 8,240
Interest expense 999 1,381
Other income, net 826 400
-------- --------
Income before income taxes and cumulative effect of change
in accounting principle 9,492 7,259
Provision for income taxes 3,183 2,432
-------- --------
Income before cumulative effect of change in accounting
principle 6,309 4,827
Cumulative effect of change in accounting principle - (432)
-------- --------
Net income $ 6,309 $ 4,395
======== ========
Earnings per share:
Basic:
Income before cumulative effect of change in accounting
principle $ 0.44 $ 0.34
Cumulative effect of change in accounting principle - (0.03)
-------- --------
Earnings per share $ 0.44 $ 0.31
======== ========
Diluted:
Income before cumulative effect of changes in accounting
principle $ 0.43 $ 0.34
Cumulative effect of change in accounting principle - (0.03)
-------- --------
Earnings per share $ 0.43 $ 0.31
======== ========
Number of shares used to compute earnings per share:
Basic 14,493 14,069
======== ========
Diluted 14,818 14,359
======== ========
See accompanying notes.
3
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
January 31, October 31,
2001 2000
---------- -----------
ASSETS (In thousands)
Current assets:
Cash and cash equivalents $ 11,980 $ 14,608
Trade receivables, net 33,735 33,058
Marketable securities 5,978 -
Inventories 41,197 38,219
Deferred tax asset 17,404 17,800
Other current assets 9,753 9,000
--------- ---------
Total current assets 120,047 112,685
--------- ---------
Property, plant and equipment, net 49,979 47,933
Goodwill and other intangibles, net 109,070 110,854
Deferred tax asset 40,099 42,979
Other assets 2,295 8,114
--------- --------
$321,490 $322,565
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable $ 25,598 $ 13,795
Current installments of long-term debt 2,047 2,032
Accrued acquisition costs 4,966 18,900
Accrued income taxes 7,817 8,033
Other current liabilities 22,693 22,515
--------- ---------
Total current liabilities 63,121 65,275
Long-term debt 40,621 40,257
Other noncurrent liabilities 11,929 18,595
--------- ---------
Total liabilities 115,671 124,127
--------- ---------
Stockholders' equity:
Common stock, $.10 par value 1,525 1,519
Additional paid-in capital 259,228 257,994
Accumulated other comprehensive loss (4,109) (3,558)
Accumulated deficit (40,190) (46,210)
Other (152) (129)
Treasury stock at cost (10,483) (11,178)
---------- ---------
Total stockholders' equity 205,819 198,438
--------- ---------
$321,490 $322,565
========= =========
See accompanying notes.
4
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
January 31,
------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 6,309 $ 4,395
Depreciation and amortization 2,536 2,011
Deferred income taxes 3,276 1,431
Net (increase) decrease in working capital (5,959) 481
Net increase in non-current assets/liabilities (3,712) (3,009)
-------- ---------
Net cash provided by operating activities 2,450 5,309
-------- ---------
Cash flows from investing activities:
Costs related to a discontinued operation (18) (89)
Purchases of property, plant and equipment (3,269) (3,290)
Acquisitions of assets and businesses (3,402) (21,637)
-------- ---------
Net cash used by investing activities (6,689) (25,016)
-------- ---------
Cash flows from financing activities:
Repayments of long-term debt (576) (18,241)
Proceeds from long-term debt 634 19,500
Dividends on common stock (289) (281)
Exercise of stock options 1,727 -
Other 63 456
-------- ---------
Net cash provided by financing activities 1,559 1,434
-------- ---------
Effect of exchange rate changes on cash and cash equivalents 52 33
-------- ---------
Net decrease in cash and cash equivalents (2,628) (18,240)
Cash and cash equivalents - beginning of period 14,608 20,922
-------- ---------
Cash and cash equivalents - end of period $ 11,980 $ 2,682
======== =========
See accompanying notes.
5
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three Months Ended
January 31,
-------------------
2001 2000
------- ------
Net income $6,309 $4,395
Other comprehensive income (loss):
Foreign currency translation adjustment 341 (393)
Change in value of derivative instruments (715) -
Unrealized loss on marketable securities (177) -
-------- --------
(551) (393)
-------- --------
Comprehensive income $5,758 $4,002
======== ========
See accompanying notes.
6
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1. General
The Cooper Companies, Inc. ("Cooper" or "we" and similar pronouns), through its
principal subsidiaries, develops, manufactures and markets healthcare products.
CooperVision ("CVI") markets a range of specialty contact lenses to correct
visual defects, including toric lenses that correct astigmatism, cosmetic lenses
that change or enhance appearance of the eyes' natural color and aspheric lenses
that improve vision in low light conditions. Its leading products are
disposable-planned replacement toric and spherical lenses. CooperSurgical
("CSI") markets diagnostic products and surgical instruments and accessories to
the women's healthcare market.
During interim periods, we follow the accounting policies described in our most
recent Form 10-K. Please refer to this and to our Annual Report to Stockholders
for the fiscal year ended October 31, 2000 when reviewing this Form 10-Q.
Current results are not a guarantee of future performance.
The unaudited consolidated condensed financial statements presented in this
report contain all adjustments necessary to present fairly Cooper's consolidated
financial position as of January 31, 2001 and October 31, 2000, and the
consolidated results of its operations and its consolidated cash flows for the
three months ended January 31, 2001 and 2000. Adjustments consist only of normal
recurring items except for an adjustment recorded in the first quarter of 2000
for the adoption of the American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Cost of Start-up Activities,"
which resulted in $432,000 loss from cumulative effect of change in accounting
principle. In the first quarter of 2001, a transaction between Quidel and
Litmus, affecting our investment in Litmus, resulted in $719,000 of other
income, and we incurred about $700,000 of additional SGA costs related to
integration of acquisitions at CSI.
Note 2. Inventories, at the Lower of Average Cost or Market
January 31, October 31,
2001 2000
----------- -----------
(In thousands)
Raw materials $ 9,447 $ 9,740
Work-in-process 7,738 6,056
Finished goods 24,012 22,423
-------- --------
$ 41,197 $38,219
======== ========
7
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Note 3. Acquisitions
Aspect Acquisition: In December 1997, we acquired Aspect Vision Care Ltd.
("Aspect"), a privately held manufacturer of high quality contact lenses sold
primarily in the United Kingdom and other European countries. Aspect is an
English company with the pound sterling as its functional currency.
The acquisition agreement provided for additional payments of 'L'13.5
million (about $20.5 million), based on Aspect's performance over the last three
years. One payment of 'L'2.3 million was made December 11, 2000. Future
payments of 'L'8.8 million and 'L'2.4 million will be made on June 11,
2001 and December 11, 2001, respectively. On December 11, 2000 the 'L'8.8
million amount was converted into a note payable ($12.1 million, net of certain
contractual amounts) to a selling shareholder of Aspect who is an employee. The
employee is not an officer of Cooper.
Note 4. Adoption of Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
We adopted SFAS 133 in the first quarter of 2001. In accordance with SFAS 133,
we have recorded all derivative instruments at fair value on our consolidated
condensed balance sheet. Because all of our transactions that included
derivatives met the specific hedging criteria set out in SFAS 133, the $715,000
reduction in fair value was recorded as a charge against other comprehensive
income and did not reduce net income for the period.
Note 5. Long-Term Debt
January 31, October 31,
2001 2000
----------- -----------
(In thousands)
Promissory notes - Aspect $20,863 $20,653
KeyBank line of credit 7,686 7,059
Aspect Vision bank loans 5,256 5,264
County of Monroe Industrial Development
Agency ("COMIDA") bond 2,395 2,455
Other - 26
Capitalized leases 6,468 6,832
--------- ---------
42,668 42,289
Less current installments 2,047 2,032
--------- ---------
$40,621 $40,257
========= =========
8
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
KeyBank Line of Credit: At January 31, 2001, we had $35.1 million available
under the KeyBank line of credit.
Line of credit summary:
(in millions)
Amount of line $50.0
Loans (7.7)
Letters of credit backing other debt (7.2)
-------
Available credit $35.1
=======
Note 6. Earnings Per Share ("EPS")
Three Months Ended
January 31,
----------------------
2001 2000
---- ----
(In thousands, except for
earnings per share)
Income from continuing operations $ 6,309 $ 4,827
Cumulative effect of change in accounting principle - (432)
-------- --------
Net income $ 6,309 $ 4,395
======== ========
Basic:
Weighted average common shares 14,493 14,069
======== ========
Basic earnings per share:
Continuing operations $ 0.44 $ 0.34
Cumulative effect of change in accounting principle - (0.03)
-------- --------
Basic earnings per share $ 0.44 $ 0.31
======== ========
Diluted:
Weighted average common shares 14,493 14,069
Add dilutive securities:
Options 325 290
-------- --------
Denominator for diluted earnings per share 14,818 14,359
======== ========
Diluted earnings per share:
Continuing operations $ 0.43 $ 0.34
Cumulative effect of change in accounting principle - (0.03)
-------- --------
Diluted earnings per share $ 0.43 $ 0.31
======== ========
9
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
We excluded the following options to purchase Cooper's common stock from the
computation of diluted EPS because their exercise prices were above the average
market price.
Three Months Ended
January 31,
-----------------------------------
2001 2000
------------------ ---------------
Number of shares excluded 503,150 798,250
=============== ===============
Range of exercise prices $36.00 - $62.21 $30.69 - $62.21
=============== ===============
Note 7. Income Taxes
The effective tax rates ("ETR") for the provision for income taxes of $3.2
million and $2.4 million for the three months ended January 31, 2001 and 2000,
respectively, were both at 33.5%.
Note 8. Cash Dividends
In the first quarter of fiscal 2001, Cooper announced that its Board of
Directors approved an increase in the annual dividend from 8 cents to 10 cents
per share, payable in semiannual installments of 5 cents per share. The first
semiannual dividend payment is planned for July 5, 2001 to holders of record on
June 15, 2001.
Note 9. Business Segment Information
Cooper is organized by product line for management reporting with operating
income the primary measure of segment profitability. Corporate expenses are not
allocated to the segments' operating income. Items accounted for below operating
income are not considered when measuring segment profitability. The accounting
policies used to generate segment results are the same as our overall accounting
policies.
10
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Identifiable assets are those assets used in continuing operations excluding
cash and cash equivalents, which we deem to be corporate assets. Long-lived
assets are primarily property, plant and equipment and goodwill and other
intangibles.
Segment information:
Three Months Ended
January 31,
------------------------------
2001 2000
---------- ---------
(In thousands)
Sales to external customers:
CVI $ 35,625 $ 31,969
CSI 13,274 8,435
--------- ---------
$ 48,899 $ 40,404
========= =========
Operating income:
CVI $ 9,428 $ 8,332
CSI 1,837 1,417
Corporate (1,600) (1,509)
----------- ----------
Total operating income 9,665 8,240
Interest expense (999) (1,381)
Other income, net 826 400
------------ ----------
Income before income taxes and cumulative effect
of change in accounting principle $ 9,492 $ 7,259
=========== ==========
11
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Concluded
(Unaudited)
January 31, October 31,
2001 2000
----------- ------------
(in thousands)
Identifiable assets:
CVI $184,909 $180,433
CSI 65,988 66,428
Corporate 70,593 75,704
---------- ----------
Total $321,490 $322,565
========== ==========
Geographic information:
Three Months Ended
January 31,
------------------------------
2001 2000
-------- ---------
(in thousands)
Sales to external customers by country of domicile:
United States $ 36,589 $ 29,596
Europe 8,970 7,974
Canada 3,340 2,834
----------- ---------
Total $ 48,899 $ 40,404
=========== =========
January 31, October 31,
2001 2000
----------- -----------
(in thousands)
Long-lived assets by country of domicile:
United States $ 67,765 $ 67,866
Europe 88,919 88,527
Canada 2,365 2,394
--------- ---------
Total $ 159,049 $158,787
========= =========
12
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Note numbers refer to "Notes to Consolidated Condensed Financial Statements"
beginning on page 7 of this report.
Forward-Looking Statements: Some of the information included in this Form 10-Q
contains "forward-looking statements" as defined by the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include all statements
regarding anticipated growth in our revenue, anticipated market conditions and
results of operations. To identify forward-looking statements look for words
like "believes," "expects," "may," "will," "should," "seeks," "intends,"
"plans," "estimates" or "anticipates" and similar words or phrases. Discussions
of strategy, plans or intentions often contain forward-looking statements.
These, and all forward-looking statements, necessarily depend on assumptions,
data or methods that may be incorrect or imprecise.
Events, among others, that could cause actual results and future actions to
differ materially from those described by or contemplated in forward-looking
statements include major changes in business conditions, a major disruption in
the operations of our manufacturing facilities, new competitors or technologies,
the impact of an undetected virus on our computer systems, acquisition
integration delays or costs, foreign currency exchange exposure, investments in
research and development and other start-up projects, dilution to earnings per
share from acquisitions or issuing stock, regulatory issues, significant
environmental cleanup costs above those already accrued, litigation costs, cost
of business divestitures, the requirement to provide for a significant liability
or to write off a significant asset, changes in accounting principles or
estimates, and other factors described in our Securities and Exchange Commission
filings, including the "Business" section in our Annual Report on Form 10-K for
the year ended October 31, 2000. We caution investors not to rely on
forward-looking statements. They reflect our analysis only on their stated dates
or the date of this Form 10-Q. We disclaim any intent or obligation to update
these forward-looking statements.
Results of Operations
In this section we discuss the results of our operations for the first quarter
of fiscal 2001 and compare them with those of 2000's first quarter. We discuss
our cash flows and current financial condition beginning on page 19 under
"Capital Resources and Liquidity."
First Quarter Highlights vs. 2000's First Quarter:
o Net sales up 21% to $48.9 million.
o Gross profit up 21%; margin 66% of sales in each period.
o Operating income up 17% to $9.7 million.
o Diluted earnings per share from continuing operations up 26% to 43 cents from
34 cents.
13
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Selected Statistical Information - Percentage of Sales and Growth
Percent of Sales
Three Months Ended
January 31,
--------------------- %
2001 2000 Growth
----- ----- ------
Net sales 100% 100% 21%
Cost of sales 34% 34% 22%
Gross profit 66% 66% 21%
Selling, general and administrative 42% 42% 21%
Research and development 2% 2% 36%
Amortization 2% 2% 25%
Operating income 20% 20% 17%
Net Sales: All of Cooper's revenue is generated by its two business units,
CooperVision ("CVI") and CooperSurgical ("CSI"):
o CVI markets a broad range of contact lenses primarily in North America and
Europe.
o CSI markets diagnostic products, surgical instruments and accessories to
the women's healthcare market, primarily in the United States.
Our consolidated revenue grew $8.5 million, or 21%:
Three Months Ended
January 31,
------------------------ %
2001 2000 Increase
------ ------ --------
(In millions)
CVI $35.6 $32.0 11%
CSI 13.3 8.4 57%
------ -----
$48.9 $40.4 21%
====== =====
14
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
CVI Revenue: CVI's worldwide core business, which we define as all revenue
except lower margin original equipment manufacturer ("OEM") sales to other
contact lens manufacturers, grew 15%:
% Change from
Segment First Quarter 2001 % Total First Quarter 2000
- ------- ------------------- ------- ------------------
($ in millions)
U.S. $23.0 65% 14%
International 12.2 34% 17%
------ ---
Core business 35.2 99% 15%
OEM 0.4 1% (71%)
------- ---
$35.6 100% 11%
======= ===
The 17% growth in international markets includes the negative effect on reported
revenue of weakness in the pound sterling, the euro and the Canadian dollar,
which lost 10%, 12% and 4%, respectively, in value against the U.S. dollar
compared with their average exchange rates for the first quarter of 2000. In
constant currency, our core business grew 28% internationally and 19% worldwide.
As expected, our OEM business decreased by 71%, reducing our total growth to 11%
as reported and 15% in constant currency.
In the United States, which represents almost half of the world market, revenue
grew 14%. Our disposable planned replacement (DPR) toric lenses to correct
astigmatism grew 18% and our DPR spherical lenses, used to correct near and
farsightedness, grew 46%, driven by sales of Frequency Aspheric lenses. Total
DPR revenue grew 27% in the U.S. and now accounts for 77% of CVI's U.S.
business.
CSI Revenue: Revenue at CSI grew 57 percent over last year's first quarter to
$13.3 million, due primarily to recent acquisitions. Acquisitions accounted for
52% of CSI's growth, and internal product sales grew 5%. Sales of colposcopy
products were $2.4 million during the quarter, reflecting the addition of the
Leisegang product line. Sales of products for reproductive medicine grew 23% and
products supporting the Loop Electrosurgical Excision Procedure ("LEEP") were
12% ahead of last year's first quarter.
We anticipate that CSI will continue to consolidate the fragmented women's
healthcare market through acquisitions.
Cost of Sales/Gross Profit: Gross profit as a percentage of sales ("margin") was
as follows:
First Quarter Margin
--------------------
2001 2000
---- ----
CVI 71% 69%
CSI 53% 56%
Consolidated 66% 66%
15
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
The gross profit improvement at CVI reflects:
o Cost reduction projects at both our U.S. and U.K. manufacturing sites.
o Favorable product mix resulting from our shift away from OEM business to
higher margin branded products.
o Cost reductions at our U.K. manufacturing facility when costs in pounds are
translated into dollars.
We believe that CVI's current margins are attainable in the future, excluding
the effect of a major change in product or geographic mix, which could result
from substantial increases in sales to our Japanese distributor and/or sales of
opaque lenses, both of which generate lower margins.
As expected, CSI's margins declined from the 56% of revenue reported for the
first quarter of 2000, reflecting the lower margins of recently acquired
products. Subject to the effect of future acquisitions, we expect that, as
recent acquisitions become fully integrated, our margins will return to, and
perhaps surpass 56%.
Selling, General and Administrative ("SGA") Expense:
Three Months Ended January 31,
-------------------------------------------
2001 2000
----------------- ----------------
($ in millions)
% Rev. % Rev. % Increase
------ ------ ----------
CVI $14.5 41% $12.7 40% 15%
CSI 4.2 32% 2.6 31% 63%
Headquarters 1.6 N/A 1.5 N/A 6%
------- -----
$20.3 42% $16.8 42% 21%
======= =====
SGA was 42% of sales in both periods. SGA at CSI included about $700,000 of
costs to virtually complete the integration of Leisegang and MedaSonics, two
recently acquired businesses. Without these one-time costs, CSI's SGA as a
percentage of sales decreased from 31% in Q1 2000 to 26%, and total SGA
decreased from 42% of sales in Q1 2000 to 40%. CVI's 15% increase in SGA
resulted from marketing costs associated with new product launches.
Research and Development ("R&D") Expense: We expect R&D spending to remain a low
percentage of sales as Cooper is focusing on acquiring products that will not
require large expenditures of time or money before introduction.
16
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Operating Income: Operating income improved by $1.5 million, or 17%, in the
fiscal first quarter.
Three Months Ended
January 31,
--------------------------------------------------------
2001 2000
--------------------- ------------------
($ in millions) %
% Rev. % Rev. Increase
------ ------ --------
CVI $ 9.4 26% $ 8.3 26% 13%
CSI 1.9 14% 1.4 17% 30%
Headquarters (1.6) N/A (1.5) N/A N/A
------- -------
$ 9.7 20% $ 8.2 20% 17%
====== =======
Interest Expense: Interest expense decreased $382,000, or 28%, in the first
quarter due to the net repayment of long-term debt of $17.4 million late in the
first quarter of 2000. Favorable currency translation also reduced interest
expense on our pounds sterling denominated debt, as did a lower outstanding
balance in Q1 2001 vs. Q1 2000 on our KeyBank debt. The decrease was partially
offset by an increase associated with the earn-out loan note.
Other Income, Net:
Three Months Ended
January 31,
-------------------
2001 2000
------ -----
(In thousands)
Interest income $162 $211
Foreign exchange (49) (101)
Gain on Litmus/Quidel transaction 719 -
Gain on swap contract - 240
Other (6) 50
----- -----
$826 $400
===== =====
In this year's first quarter, Quidel Corporation acquired Litmus Concepts, Inc.
through an exchange of common stock. We held a preferred equity position in
Litmus, which equated to approximately a 10 percent ownership. As a result of
this transaction, we recorded a gain below the operating income line of
approximately $700,000, as the market value of the Quidel shares received
exceeded the carrying value of our investment in Litmus.
In the first quarter of 2000, we repaid a portion of our debt on which we had
entered into an interest rate swap to convert variable interest rate debt to
fixed rate. As the swap was then no longer required, and our policy is only to
enter into derivative instrument transactions to manage specific risks, we
canceled the swap, realizing a gain of $240,000.
17
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Provision for Income Taxes: We estimate that our effective tax rate ("ETR") for
the full fiscal year 2001 will be 33%. In the first quarter of 2001, we
estimated that the tax on the gain on the Quidel/Litmus transaction would be
40%, resulting in an overall ETR of 33.5%. The effective tax rate in the first
quarter of the prior year was also 33.5%.
We implemented a global tax plan in the fourth quarter of fiscal 1999 to
minimize both the taxes reported in our statement of income and the actual taxes
we will have to pay once we use all the benefits of our net operating loss
("NOLs"). Assuming no major acquisitions or large stock issuances, we currently
expect to reduce our ETR to approximately 30% over the next several years. This
plan could possibly extend the cash flow benefits of the NOLs through 2003. We
expect that actual cash payments of taxes will average below 10% of pretax
profits over this period.
Cumulative Change in Accounting Principles: In the first quarter of 2000, we
recorded a net of tax charge of $432,000 to implement a new accounting
principle.
18
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Capital Resources & Liquidity
First Quarter Highlights:
o Operating cash flow $2.5 million vs. $5.3 million in 2000's first quarter,
reflecting a build of inventory for anticipated new products and geographic
launches in the second and third quarters.
o Cash flow (pretax income from continuing operations plus depreciation and
amortization) per diluted share 81 cents vs. 65 cents in 2000's first
quarter.
Comparative Statistics (Dollars in millions, except per share amounts):
January 31, 2001 October 31, 2000
---------------- ----------------
Cash and cash equivalents $12.0 $14.6
Total assets $321.5 $322.6
Working capital $56.9 $47.4
Total debt $61.0 $48.4
Ratio of debt to equity 0.30:1 0.24:1
Debt as a percentage of total capitalization 23% 20%
Operating cash flow - twelve months ended $38.2 $41.0
Cash flow per diluted share - twelve months ended $3.67 $3.51
Operating Cash Flows: Our major source of liquidity continues to be cash flow
provided by operating activities, which totaled $2.5 million in the first
quarter of fiscal 2001 and $38.2 million over the twelve-month period ended
January 31, 2001.
Major uses of cash for operating activities in the first quarter included
payments of $3.5 million to settle disputes, $1.7 million to fund entitlements
under Cooper's bonus plans and $328,000 in interest payments. The first two
items have historically led to Q1 being our weakest operational cash flow
quarter.
Investing Cash Flows: The cash outflow of $6.7 million from investing activities
resulted from capital expenditures of $3.3 million and $3.4 million paid to
former Aspect Vision Care shareholders to partially fund required earn out
payments. (See note 3.)
Financing Cash Flows: Financing activities provided $1.6 million in cash, driven
primarily by stock option exercises, which provided $1.7 million. We also paid
dividends on our common stock of $289,000 in the first fiscal quarter of 2001.
19
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Concluded
Outlook: We believe that cash and cash equivalents on hand of $12 million plus
cash from operating activities will fund future operations, capital
expenditures, cash dividends and smaller acquisitions. We may need additional
funds for larger acquisitions and other strategic alliances. At January 31,
2001, we had over $35 million available under the KeyBank line of credit and,
based on conversations with KeyBank, anticipate that additional financing would
be available as required.
Risk Management: We are exposed to risks caused by changes in foreign exchange,
principally pound sterling denominated debt and from operations in foreign
currencies. We have hedged most of the debt by entering into contracts to buy
sterling forward. We are also exposed to risks associated with changes in
interest rates, as the interest rate on certain of our debt varies with the
London Interbank Offered Rate.
Trademarks: Frequency'r' is a registered trademark of the Cooper Companies,
Inc., its affiliates and subsidiaries or both.
20
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosure About Market Risk
See Capital Resources and Liquidity under "Risk Management" in Item 2 of this
report.
21
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
11* Calculation of Earnings Per Share.
* The information called for in this exhibit is provided in Footnote 6
to the Consolidated Condensed Financial Statements in this report.
(b) Cooper filed the following reports on Form 8-K during the period from
November 1, 2000 to January 31, 2001.
Date of Report Item Reported
-------------- -------------
November 6, 2000 Item 5. Other Events
December 12, 2000 Item 5. Other Events
22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Cooper Companies, Inc.
---------------------------------------
(Registrant)
Date: March 13, 2001 /s/ Robert S. Weiss
---------------------------------------
Executive Vice President, Treasurer and
Chief Financial Officer
23
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as.......'r'
The British pound sterling sign shall be expressed as.......'L'