Exhibit 99.1
CONTACT:
Norris Battin
The Cooper Companies, Inc.
E-mail: nbattin@usa.net
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FOR IMMEDIATE RELEASE
THE COOPER COMPANIES REPORTS FISCAL FOURTH QUARTER AND 1998 RESULTS
Yearly Revenue from Continuing Operations Rises 66%, Pretax Up 36%
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Operating Income at 20% of Sales
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Note to readers and editors: During the fourth quarter of 1998, Cooper's
Hospital Group of America unit (HGA) was declared a discontinued operation.
Divestiture of this business is in progress. Historical and current financial
information has been restated and includes, as continuing operations, only
Cooper's two medical device businesses, CooperVision (CVI) and CooperSurgical
(CSI).
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IRVINE, Calif., Dec. 14, 1998 -- The Cooper Companies, Inc. (NYSE/PCX: COO)
today reported results for its 1998 fourth quarter and fiscal year ended October
31, 1998.
In its press release dated October 2, 1998, Cooper announced that it expected
certain events in its 1998 fiscal fourth quarter that would cause results to
differ from analysts' consensus pretax earnings estimates. These events are
described and quantified in the paragraphs that follow, along with discussions
of the fourth quarter and full year 1998 results.
Revenue
Revenue in the fourth quarter of 1998 was $40.6 million, 55% above the fourth
quarter of 1997. For the 1998 fiscal year, revenue increased 66% to $147.2
million.
Summary of Fiscal Fourth Quarter and Year End 1998
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(In millions except per share) Q4 1998 Year 1998
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Pretax Income $3.9 $23.1
Per share $0.26 $1.51
Per share taxed at 40% $0.16 $0.91
Per share pretax from discontinued operations $0.05 $0.29
Per share fourth quarter operating events (see table $0.36 $0.36
below)
Per share before operating events and after profit in
discontinued operations $0.67 $2.16
Tax Benefit ($32.9) ($34.7)
Per share $2.19 $2.28
Discontinued Operations, Net ($21.6) ($18.0)
Per share ($1.44) ($1.18)
Net Income $15.2 $39.8
Diluted earnings per share $1.01 $2.61
Diluted shares outstanding 15.0 15.3
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Pretax Income
A number of operating events impacted Cooper's fourth quarter earnings. These
included temporary contact lens manufacturing inefficiencies, new product
revenue delays coupled with marketing start-up costs spent in support of product
launches, litigation reserves and operating costs within discontinued operations
related to selling HGA. The impact of these events totaled $5.4 million, or $.36
per share, in the fourth quarter. The section below headed "Fourth Quarter
Operating Results Analysis" specifies the impact of each of these events. As a
result, 1998 fourth quarter pretax income from continuing operations was $3.9
million, or $.26 per share, 34% below the $5.9 million, or $.39 per share,
reported in the fourth quarter of 1997. Adjusting for these items, 1998 fourth
quarter pretax income was $9.3 million, or $.62 per share. HGA's profit in
discontinued operations before taxes was $.05 cents per share. With this
included, fourth quarter pretax profits would have been $.67 per share.
Year over year, pretax income from continuing operations grew 36% to $23.1
million, or $1.51 per share. Excluding the impact of the operating events noted
above, 1998 pretax earnings per share would have been $2.16.
Fourth Quarter Operating Results Analysis
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Item EPS Impact
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Continuing operations before taxes $0.26
To compute EPS without the impact of the operating events, add
back the following:
HGA profit in discontinued operations $0.05
Rationalizing contact lens manufacturing, filling backorders and new product
startup $0.11
Inefficiencies
Operating income impact of product launch delays at CVI U.S. and CSI $0.07
Litigation and settlement of disputes--GT Labs suit $0.07
Marketing costs spent ahead of new product launches at CVI and CSI $0.09
HGA business disruption costs during divestiture $0.02
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Total fourth quarter unusual operating items $0.36
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Fourth quarter pretax earnings per share without the
impact of operating events $0.67
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Net Income
The second event, which affects net income, relates to the tax benefits of
Cooper's NOLs (net operating tax loss carryforwards). The 1998 tax benefits
recorded in 1998 reflect the remaining tax savings that Cooper expects to get
from its existing NOLs as, according to Generally Accepted Accounting
Principles, companies with NOLs that also expect sustainable profit going
forward, must account for their remaining tax benefits when the profitability
determination is made. In the future, Cooper will record expenses for income
taxes using, initially, a tax rate of approximately 40%. From a cash standpoint,
however, it will pay only state and foreign taxes. For federal tax purposes, the
NOLs, now about $180 million, will continue to shelter Cooper's federal tax
liability.
Diluted earnings per share from continuing operations for the fourth quarter of
1998 were $2.45 including a net tax benefit of $2.19 per share, versus $2.02 in
the fourth quarter of 1997, including a net tax benefit of $1.63 per share. For
the fiscal year, diluted earnings per share from continuing operations were
$3.79 including a net tax benefit of $2.28 versus, in 1997, $3.33 diluted
earnings per share including a $2.04 per share net tax benefit.
The third event reflects Cooper's estimated loss on the sale of HGA's assets. In
October, Cooper declared HGA a discontinued operation and recorded a charge
reflecting its estimate of the ultimate loss when HGA is divested. In the fourth
quarter, this charge was $22.3 million, or $1.49 per share. For the full year,
the charge was $18 million, or $1.18 per share, net of $4.3 million of HGA
profit. Cooper has signed nonbinding letters of intent to sell HGA in two
separate transactions. Under the first, Universal Health Services, Inc. will pay
Cooper $27 million in cash for three of its facilities when the transaction
closes plus up to $3 million if certain contingent events occur. Under the
second transaction with Focus Healthcare, Cooper will realize a total of $4.5 to
$5.0 million in cash and the collection of receivables for the remaining HGA
property.
Commenting on Cooper's 1998 results, A. Thomas Bender, chief executive officer
said, "This was a year of transition for Cooper. With our expected exit from the
psychiatric services business, Cooper will become a pure medical device company.
At the same time, our two remaining businesses, CooperVision and CooperSurgical,
each made important transitions of their own: at CVI, we became a strong
competitor in the contact lens market outside of North America as we integrated
Aspect Vision into our organization; at CSI, we began the second phase of our
growth strategy by launching our own proprietary new products. Overall, I'm
pleased with the 66% increase in total revenue and the 20% operating margin we
achieved, even with the temporary inefficiencies we experienced in the fourth
quarter."
CooperVision
Fourth Quarter and 1998 Results
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CooperVision Revenue Highlights ($'s in millions)
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% %
4Q Change Total Change
1998 vs 1997 1998 vs 1997
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Total revenue $33.4 75% $119.2 86%
U.S. $20.6 26% $74.2 35%
Aspect (outside North America) $10.1 n/m $35.0 n/m
Disposable-planned replacement torics--U.S. $8.0 53% $27.3 77%
Disposable-planned replacement spheres--U.S. $3.9 75% $12.4 71%
Total U.S. planned replacement $11.9 59% $39.7 75%
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"In 1998," said Bender, "CVI revenue growth continued strong in all the markets
we compete in around the world. We are gaining share in every product segment
and geographic area where we actively participate. In the U.S., we significantly
outpaced market growth in the two most important markets. In disposable planned
replacement torics, the fastest growing U.S. segment, CVI's 1998 U.S. revenue
grew 77%, while the market grew 42% through the first nine months. In
disposable-planned replacement spheres--about two-thirds of the U.S. market--CVI
grew 71% in an essentially flat market. In Europe, we estimate that the market
is growing less than 10% and that CVI sales grew approximately 20%.
"Aspect Vision total revenue is meeting our original acquisition plan and, even
with its fourth quarter inefficiencies, is slightly accretive to 1998 operating
results.
"Regarding the operating events in the fourth quarter," Bender continued,
"strong demand for our new products, particularly the Frequency 55 spherical
lens, which is manufactured at Aspect and was introduced in the U.S. in May, and
the inventory build up in advance of the full national launch of Frequency 55
Toric in November, strained the capacity of our manufacturing units in both the
U.S. and the U.K. To take advantage of the sales opportunity, however, we
decided to incur the extra costs to fill the spherical lens orders at Aspect by
hiring and training new workers who were paid third shift and Sunday premiums.
In the U.S., the capacity freed by moving spherical lens manufacturing to the
U.K. was immediately shifted to toric manufacturing, but again at higher costs
and some deferred revenue, as the new lines scaled up.
"As a result of these activities, CVI's gross margin fell from 65% in the first
nine months to 60% this quarter. Both manufacturing facilities have since
lowered their costs through increased automation. Lens output per employee is
improving and shift premiums are declining. Gross margins are expected to return
to their previously higher levels during the second quarter of fiscal 1999, and
we believe that we have resolved our plant capacity issues.
Regarding recent market trends, Bender noted that, "The North American
disposable spherical lens market has been disappointing throughout the year, and
although we have only a small stake in here, it's important to note this. We do
not, however, see the same thing happening in the toric lens market--it's up
over 15%. Nevertheless, we're watching these trends very closely and developing
contingency plans to protect our bottom line growth."
Cooper Surgical
Fourth Quarter and 1998 Results and Operating Income Charges
Over the past few years, CSI has been a successful consolidator of the in-office
gynecological products market, acquiring nine companies or product lines since
1990. CSI's revenue in 1998, $28.0 million, was up 13% from 1997 primarily
reflecting these earlier acquisitions. Gross margin improved from 52% in 1997 to
55% in 1998 as the efficiencies of CSI's in-house manufacturing continued to
generate cost improvements. Operating income declined 14% from 1997's level due
primarily to the combination of new product revenue delays and marketing
expenses spent in support of the new product launches. Excluding these costs,
CSI's operating income would have been $4.4 million or 78% over 1997.
CSI continues to believe that its dual approach to business growth--acquisition
and investment in its own proprietary new product development--while more costly
in the short-term, will maximize long-term value and that this will begin to be
realized in 1999.
The first new product CSI introduced in 1998 was the Cerveillance Scope, the
first in a planned series of products in this innovative digital colposcopy
system. This product allows physicians to store, recall and document digital
images of their findings from examinations of the cervix. The manufacturing
transition from pilot operations in Kansas to scale up at our Shelton, Conn.,
facility during the fourth quarter caused
shipping delays which deferred revenue into fiscal 1999. Cerveillance
instruments are now shipping on schedule and sales are meeting expectations.
CSI also introduced the CooperSurgical InfraRed Coagulator (IRC) this year, a
device that creates infrared energy for contact coagulation of condylomas
(genital lesions). Infrared coagulation is a simple, safe, rapid and precise
technique used primarily for outpatients, and it does not require special
training for physicians. The product will begin to ship this month, and orders
in hand are meeting expectations.
"While CSI experienced major delays in the ramp-up of these products in 1998,"
said Bender, "I'm still confident that Cerveillance and the IRC, with their
manufacturing issues now resolved, will begin to perform to their potential in
1999."
The third product that CSI introduced in 1998 is the FemExam pH and Amines
TestCard, the first in a planned series of point-of-use diagnostic products in
its FemExam Test Card System. This product can provide practitioners with
improved information to help them diagnose vaginitis, the most common
gynecological condition presenting in the physician's office and bacterial
vaginosis (BV), the most prevalent form of vaginitis. If not treated, BV has
been associated with amniotic fluid infections, premature rupture of the
amniotic sac, pre-term and low birth weight infants, endometritis, and
post-surgical infections.
Reporting on FemExam's performance to date, Bender noted that, "While early
acceptance of the product has been below our expectations due to yet unanswered
questions that practitioners raise about its medical economic benefit, we
continue to believe that FemExam is a breakthrough technology. A study sponsored
by The Centers for Disease Control and Prevention found FemExam at least
equivalent to the more rigorous diagnostic criteria now used. It is easy to use
and can save practitioners time, thus adding to their practice income. We have
recently begun formal cost benefit studies and are working to improve the level
of third-party reimbursement for the product. Until this data is ready to be
presented to physicians, a co-marketing affiliation with a pharmaceutical
partner has been delayed.
"Revenue expectations for FemExam in 1999 are approximately $1 million. This
slower acceptance will not impact operating income, as next year's planned
marketing expenses have been adjusted downward to match the expected revenue."
GT Labs Settlement
In January 1998, GT Estates, on behalf of GT Laboratories, Inc. (GT Labs) was
awarded a judgment of $1.7 million in federal court against Cooper in a lawsuit
originated in 1992. The court found that Cooper had violated the terms of a
1989-supply agreement with GT Labs for rigid gas permeable contact lens raw
materials. The parties have now agreed to a settlement payment of $1.3 million,
which is expected to be concluded this month. Seven cents per share was accrued
in fiscal 1998 for this payment.
Outlook
"We expect to maintain 20-25% top and bottom line growth over the next several
years, excluding the possibility of major acquisitions," said Bender.
"CVI growth will come from increased market penetration with our new products
and continued global expansion. At CSI, we expect that the new products we
introduced in 1998 will continue to grow, and we anticipate acquiring additional
products or small companies in the in-office gynecology market."
Business Unit P&L Highlights ($'s in millions)
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Three Months Ended October 31,
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Revenue Operating Income
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% % %Revenue %Revenue
1998 1997 Inc. 1998 1997 Inc. 1998 1997
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CVI $33.4 $19.1 75% $8.4 $6.9 22% 25% 36%
CSI 7.2 7.1 2% 0.2 0.7 (61%) 4% 10%
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Subtotal 40.6 26.2 55% 8.6 7.6 14% 21% 29%
HQ expense - - (2.0) (1.5) n/a n/a n/a
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TOTAL $40.6 $26.2 55% $6.6 $6.1 8% 16% 23%
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12 Months Ended October 31,
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Revenue Operating Income
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% % %Revenue %Revenue
1998 1997 Inc. 1998 1997 Inc. 1998 1997
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CVI $119.2 $64.0 86% $34.6 $23.1 50% 29% 36%
CSI 28.0 24.8 13% 2.1 2.5 (14%) 8% 10%
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Subtotal 147.2 88.8 66% 36.7 25.6 44% 25% 29%
HQ expense - - (7.0) (5.8) n/a n/a n/a
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TOTAL $147.2 $88.8 66% $29.7 $19.8 50% 20% 22%
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Forward-Looking Statements
Statements in this report not based on historical fact may be "forward-looking
statements" as defined by the Private Securities Litigation Reform Act of 1995.
They include words like "may," "will," "expect," "estimate," "anticipate,"
"continue" or similar terms and reflect Cooper's current analysis of existing
trends. Actual results could differ materially from those indicated due to:
major changes in business conditions and the economy, loss of key senior
management, major disruptions in the operations of Cooper's manufacturing
facilities or hospitals, new competitors or technologies, significant
disruptions caused by the failure of third parties to address the Year 2000
issue or by unforeseen delays in
completing Cooper's Year 2000 compliance program, acquisition integration costs,
foreign currency exchange exposure including the potential impact of the Euro,
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 currently accrued, costs
of litigation and business divestitures, and items listed in Cooper's SEC
reports, including the section titled "Business " in its Annual Report on
Form 10-K for the year ended October 31, 1997.
The Cooper Companies, Inc. and its subsidiaries develop, manufacture and market
specialty healthcare products. Corporate offices are located in Irvine and
Pleasanton, Calif.
CooperVision, Inc., headquartered in Irvine, Calif., with manufacturing
facilities in Huntington Beach, Calif., Rochester, N.Y., Toronto Canada and
Southampton, England, markets a broad range of contact lenses for the vision
care market. CooperSurgical, Inc., headquartered in Shelton, Conn., markets
diagnostic and surgical instruments, equipment and accessories for the
gynecological market. Hospital Group of America, Cooper's mental health services
division was declared a discontinued operation in October 1998.
NOTE: A toll free interactive telephone system at 1-800-334-1986 provides stock
quotes, recent press releases and financial data. Cooper's Internet address is
www.coopercos.com.
Frequency'TM' 55, Frequency'TM', Cerveillance'TM' System, FemExam TestCard
System'TM', FemExam'r' pH and Amines TestCard'TM' and Preference'r' Toric, are
trademarks of The Cooper Companies, Inc., its subsidiaries or affiliates and are
shown in italics in the text.
[FINANCIAL STATEMENTS FOLLOW]
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
(In thousands, except per share figures)
(Unaudited)
Three Months Ended Years Ended
October 31, October 31,
-------------------- -------------------
1998 1997(1) 1998 1997 (1)
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Net sales $40,649 $26,161 $147,192 $88,769
Cost of sales 16,587 7,913 55,764 27,325
Selling, general and administrative expense 16,008 11,124 56,226 38,337
Research and development expense 433 514 1,944 1,739
Amortization of intangibles 1,014 505 3,558 1,565
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Income from operations 6,607 6,105 29,700 19,803
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Interest expense 1,799 343 6,253 3,174
Settlement of disputes, net 1,050 - 1,250 (104)
Other income, net 133 172 890 203
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Income before income taxes 3,891 5,934 23,087 16,936
(Benefit of) income taxes (32,859) (24,795) (34,723) (26,735)
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Income from continuing operations before
extraordinary items 36,750 30,729 57,810 43,671
Discontinued operations, net of taxes:
Income before extraordinary items 746 1,792 4,336 4,719
Loss on sales of operations (22,300) (18,000) (22,300) (18,000)
Extraordinary items - (469) - (469)
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Loss from discontinued operations (21,554) (16,677) (17,964) (13,750)
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Income before extraordinary items 15,196 14,052 39,846 29,921
Extraordinary items, net of taxes - 1,461 - 1,461
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Net income $15,196 $15,513 $ 39,846 $31,382
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Basic earnings per share:
Continuing operations $ 2.49 $ 2.08 $ 3.90 $ 3.42
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Discontinued operations $ (1.46) $ (1.13) $ (1.21) $ (1.07)
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Extraordinary items $ - $ 0.10 $ - $ 0.11
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Net income $ 1.03 $ 1.05 $ 2.69 $ 2.46
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Diluted earnings per share:
Continuing operations $ 2.45 $ 2.02 $ 3.79 $ 3.33
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Discontinued operations $ (1.44) $ (1.10) $ (1.18) $ (1.05)
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Extraordinary items $ - $ 0.10 $ - $ 0.11
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Net income $ 1.01 $ 1.02 $ 2.61 $ 2.39
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Number of shares used to compute earnings per
share:
Basic 14,736 14,764 14,828 12,759
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Diluted 14,978 15,249 15,269 13,120
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Memo diluted earnings per share data:
Income before income taxes $ 0.26 $ 0.39 $ 1.51 $ 1.29
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(1) Restated to reflect Hospital Group of America as a discontinued operation.
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
October 31, October 31,
1998 1997(1)
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ASSETS
Current assets:
Cash and cash equivalents $ 7,333 $18,249
Trade receivables, net 24,426 13,150
Inventories 30,349 14,921
Net assets of discontinued operations 29,206 -
Other current assets 24,763 7,412
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Total current assets 116,077 53,732
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Property, plant and equipment, net 34,234 7,634
Intangibles, net 84,308 32,274
Net assets of discontinued operations - 46,842
Other assets 61,442 30,142
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$296,041 $170,624
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $11,570 $ 438
Other current liabilities 35,131 28,680
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Total current liabilities 46,701 29,118
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Long-term debt 78,677 9,125
Other liabilities 25,410 20,848
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Total liabilities 150,788 59,091
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Stockholders' equity 145,253 111,533
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$296,041 $170,624
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(1) Restated to reflect Hospital Group of America as a discontinued operation.
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as.................... 'TM'
The registered trademark symbod shall be expressed as......... 'r'