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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 July 31, 2003
-------------
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from __________ to __________
Commission File Number 1-8597
The Cooper Companies, Inc.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2657368
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6140 Stoneridge Mall Road, Suite 590, Pleasanton, CA 94588
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (925) 460-3600
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
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 31,443,498 Shares
- ---------------------------- ------------------------------
Class Outstanding at August 31, 2003
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income - Three
and Nine Months Ended July 31, 2003 and 2002 3
Consolidated Condensed Balance Sheets - July 31, 2003
and October 31, 2002 4
Consolidated Condensed Statements of Cash Flows - Nine
Months Ended July 31, 2003 and 2002 5
Consolidated Condensed Statements of Comprehensive
Income - Three and Nine Months Ended
July 31, 2003 and 2002 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosure About Market Risk 28
Item 4. Controls and Procedures 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities and Use of Proceeds 29
Item 6. Exhibits and Reports on Form 8-K 30
Signature 31
Index of Exhibits 32
Certifications 33
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 Nine Months Ended
July 31, July 31,
------------------ -------------------
2003 2002 2003 2002
-------- ------- -------- --------
Net sales $108,442 $90,563 $298,824 $220,585
Cost of sales 39,810 34,844 108,405 83,217
-------- ------- -------- --------
Gross profit 68,632 55,719 190,419 137,368
Selling, general and administrative expense 41,518 37,055 118,985 88,439
Research and development expense 1,400 1,118 3,994 2,893
Amortization of intangibles 388 565 1,143 1,265
-------- ------- -------- --------
Operating income 25,326 16,981 66,297 44,771
Interest expense 1,655 2,347 5,167 4,681
Other income, net 375 3,668 1,671 4,686
-------- ------- -------- --------
Income before income taxes 24,046 18,302 62,801 44,776
Provision for income taxes 5,383 4,941 15,072 12,092
-------- ------- -------- --------
Net income $ 18,663 $13,361 $ 47,729 $ 32,684
======== ======= ======== ========
Earnings per share:
Basic $ 0.60 $ 0.44 $ 1.54 $ 1.07
======== ======= ======== ========
Diluted $ 0.58 $ 0.43 $ 1.49 $ 1.05
======== ======= ======== ========
Number of shares used to compute earnings per share:
Basic 31,253 30,616 31,054 30,514
======== ======= ======== ========
Diluted 32,398 31,210 31,950 31,139
======== ======= ======== ========
See accompanying notes.
3
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
July 31, October 31,
2003 2002
--------- -----------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 30,798 $ 10,255
Trade receivables, net 80,006 74,545
Marketable securities 5,976 2,750
Inventories 82,880 76,279
Deferred tax asset 14,423 17,781
Other current assets 20,950 17,300
-------- --------
Total current assets 235,033 198,910
-------- --------
Property, plant and equipment, net 105,401 87,944
Goodwill, net 273,297 238,966
Other intangible assets, net 14,626 14,651
Deferred tax asset 24,089 26,806
Other assets 4,663 3,838
-------- --------
$657,109 $571,115
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 22,744 $ 36,333
Accounts payable 13,692 15,212
Accrued acquisition costs 16,276 24,773
Accrued income taxes 15,168 12,261
Other current liabilities 41,426 38,102
-------- --------
Total current liabilities 109,306 126,681
Long-term debt 169,055 127,318
Other liabilities 1,521 5,674
-------- --------
Total liabilities 279,882 259,673
-------- --------
Stockholders' equity:
Common stock, $.10 par value 3,204 3,153
Additional paid-in capital 295,831 285,619
Accumulated other comprehensive income (loss) 4,868 (4,396)
Retained earnings 83,098 37,236
Unearned compensation (16) (78)
Treasury stock at cost (9,758) (10,092)
-------- --------
Total stockholders' equity 377,227 311,442
-------- --------
$657,109 $571,115
======== ========
See accompanying notes.
4
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
July 31,
---------------------
2003 2002
--------- ---------
Cash flows from operating activities:
Net income $ 47,729 $ 32,684
Depreciation and amortization 9,092 8,489
Net increase in operating capital (9,078) (4,993)
Net decrease in non-current liabilities (1,973) (3,665)
Net decrease in non-current assets 2,377 7,419
--------- ---------
Net cash provided by operating activities 48,147 39,934
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (22,754) (16,962)
Acquisitions of businesses (63,722) (130,522)
Sale of marketable securities -- 4,382
Other (7) 112
--------- ---------
Net cash used by investing activities (86,483) (142,990)
--------- ---------
Cash flows from financing activities:
Net repayments of short-term debt (419) (3,019)
Repayments of long-term debt (158,662) (98,000)
Proceeds from long-term debt 208,891 198,454
Dividends on common stock (1,952) (1,527)
Exercises of stock options 10,509 3,190
Other -- 47
--------- ---------
Net cash provided by financing activities 58,367 99,145
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 512 (227)
--------- ---------
Net increase (decrease) in cash and cash equivalents 20,543 (4,138)
Cash and cash equivalents - beginning of period 10,255 12,928
--------- ---------
Cash and cash equivalents - end of period $ 30,798 $ 8,790
========= =========
See accompanying notes.
5
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -----------------
2003 2002 2003 2002
------- ------- ------- -------
Net income $18,663 $13,361 $47,729 $32,684
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (233) 2,998 8,819 2,970
Change in value of derivative instruments 34 (73) 93 337
Minimum pension liability (1,745) (616) (1,745) (616)
Unrealized gain (loss) on marketable securities:
Gain (loss) arising during period 979 (417) 2,097 (353)
Reclassification adjustment -- (6) -- (744)
------- ------- ------- -------
Unrealized gain (loss) on marketable securities 979 (423) 2,097 (1,097)
------- ------- ------- -------
Other comprehensive income (loss), net of tax (965) 1,886 9,264 1,594
------- ------- ------- -------
Comprehensive income $17,698 $15,247 $56,993 $34,278
======= ======= ======= =======
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
two business units, develops, manufactures and markets healthcare products.
CooperVision ("CVI") markets a range of specialty contact lenses to correct
visual defects, including toric lenses to correct astigmatism, cosmetic lenses
to change or enhance the appearance of the eye's natural color, multifocal
lenses designed to correct for presbyopia, an age-related vision defect, and
lenses for patients experiencing the symptoms of dry eye syndrome. Its leading
products are disposable-planned replacement toric and spherical lenses.
CooperSurgical ("CSI") markets medical devices, diagnostic products and surgical
instruments and accessories used primarily by gynecologists and obstetricians.
During interim periods, we have followed the accounting policies described in
our Form 10-K for the fiscal year ended October 31, 2002. Please refer to this
and to our Annual Report to Stockholders for the same period when reviewing this
Form 10-Q. Certain prior period amounts have been reclassified to conform to the
current periods' presentation. You should not assume that the results reported
here are either an indicator or 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 at July 31, 2003 and October 31, 2002, the consolidated
results of its operations for the three and nine months ended July 31, 2003 and
2002, and its cash flows for the nine months ended July 31, 2003 and 2002. All
of these adjustments are normal and recurring.
See "Estimates and Critical Accounting Policies" in Item 2. Management's
Discussion and Analysis of Financial Conditions and Results of Operations.
Note 2. Inventories, at the Lower of Average Cost or Market
July 31, October 31,
2003 2002
-------- -----------
(In thousands)
Raw materials $16,592 $13,176
Work-in-process 13,878 14,067
Finished goods 52,410 49,036
------- -------
$82,880 $76,279
======= =======
7
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Note 3. New Accounting Pronouncements
At the beginning of fiscal 2003, Cooper adopted Financial Accounting Standards
Board ("FASB") Interpretation No. 45 ("FIN 45") "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken by it in issuing the guarantee. It also requires certain disclosures
in the financial statements of the guarantor with respect to its obligations.
The implementation of FIN 45 has had no material impact on our financial
statements.
Note 4. Acquisitions
Prism Acquisition: On May 5, 2003, Cooper completed the acquisition of Prism
Enterprises, LP. Prism, which had annual revenue of $8.7 million, develops,
manufactures and markets medical devices and other disposable products for the
obstetric, neonatal and gynecological markets.
We paid about $23 million for Prism. Prism's results of operations have been
included in our financial statements from the date of acquisition. Initially, we
have ascribed $21.2 million to goodwill, $1.3 million to working capital
(including acquisition costs of $620,000), $474,000 to other intangible assets
and $300,000 to net property, plant and equipment.
Disposable products accounted for virtually all of Prism's 2002 revenue. In
2002, disposable vacuum assisted delivery ("VAD") systems accounted for about
60% of Prism's revenue, and its disposable obstetric, neonatal and gynecological
products made up the remainder. These products support the perinatal period -
three months before birth to one month after birth - and include heating
products, uterine infusion catheters, bellybands and amniotic hooks.
8
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Note 5. Accrued Acquisition Costs
When we record acquisitions, we accrue for the estimated costs of severance,
legal, consulting, due diligence, plant/office closure of the acquired business
and deferred acquisition payments. The table below presents the opening balance
of accrued acquisition costs at October 31, 2002, activity recorded in the first
nine months of fiscal 2003 and the closing balance at July 31, 2003.
Opening Closing
Description Balance Additions Payments Balance
- ----------- ------- --------- -------- -------
(In thousands)
Severance $ 8,965 $ -- $ 3,356 $ 5,609
Legal and consulting 3,542 819 2,479 1,882
Plant shutdown 7,807 524 1,731 6,600
Hold back due 4,333 1,650 5,196 787
Pre-acquisition liabilities -- 1,959 709 1,250
Other 126 160 138 148
------- ------ ------- -------
$24,773 $5,112 $13,609 $16,276
======= ====== ======= =======
Note 6. Intangible Assets
(In thousands)
--------------
Goodwill
Balance as of November 1, 2002 $238,966
Goodwill on acquisitions and acquisition adjustments 30,280
Other adjustments* 4,051
--------
$273,297
========
* Primarily translation differences in goodwill denominated in foreign
currency.
As of July 31, 2003 As of October 31, 2002
------------------------------ ------------------------------
Accumulated Accumulated
Gross Carrying Amortization Gross Carrying Amortization
Amount & Translation Amount & Translation
-------------- ------------- -------------- -------------
(In thousands)
Other Intangible Assets
Trademarks $ 578 $ 164 $ 578 $ 144
Patents 13,201 4,871 12,711 4,289
License and distribution rights 6,904 1,964 6,654 1,602
Other 1,060 118 778 35
------- ------- ------- ------
21,743 $ 7,117 20,721 $6,070
======= ======
Less accumulated amortization
and translation 7,117 6,070
------- -------
Other intangible assets, net $14,626 $14,651
======= =======
9
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
We estimate that amortization expense will be about $1.5 million per year in the
five-year period ending October 31, 2007.
Note 7. Debt
July 31, October 31,
2003 2002
-------- -----------
(In thousands)
Short-term:
Notes payable to banks $ 2,100 $ 2,519
Current portion of long-term debt 20,644 33,814
-------- --------
$ 22,744 $ 36,333
======== ========
Long-term:
Convertible senior debentures $111,181 $ --
KeyBank line of credit 73,313 132,310
Capitalized leases 3,144 4,471
County of Monroe Industrial Development
Agency bond 1,715 1,899
Promissory notes - Aspect -- 22,291
Other 346 161
-------- --------
189,699 161,132
Less current portion 20,644 33,814
-------- --------
$169,055 $127,318
======== ========
KeyBank Line of Credit: In December 2002, we used $21 million of our KeyBank
line of credit to retire the promissory notes - Aspect.
At July 31, 2003, we had $143.7 million available under the KeyBank line of
credit.
(In millions)
-------------
Amount of line $220.3
Outstanding loans (76.6)*
------
Available $143.7
======
* Includes $3.3 million in letters of credit backing other debt.
On July 31, 2003, Cooper and KeyBank amended the credit agreement to provide
Cooper with more financial flexibility. The amendment extended the revolving
credit facility maturity to April 30, 2007 from April 30, 2005, allowed us to
issue the senior convertible debentures and increased the allowable ratio of
debt to earnings before interest, taxes, depreciation and amortization (the
"leverage ratio") to 3.0 to 1 from 2.5 to 1 as of July 31, 2003. The amendment
also relaxed certain borrowing, investment and acquisition restrictions.
10
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
Convertible Senior Debentures: In the third quarter, we issued $115 million of
2.625% convertible senior debentures (the "Debentures") due on July 1, 2023, in
a private placement pursuant to Rule 144A and Regulation S of the Securities
Act. The Debentures are convertible at the holder's option under certain
circumstances into 22.5201 shares of our common stock per $1,000 principal
amount of Debentures, approximately $44.40 per share. When converted, we have
the right to deliver, in lieu of shares of our common stock, cash or combination
of cash and shares of common stock. The Debentures rank equally in right of
payment with all of our other unsecured and unsubordinated indebtedness and are
effectively subordinated to the indebtedness and other liabilities of our
subsidiaries, including trade creditors. We may redeem the Debentures (in whole
or in part) for cash on or after July 1, 2008 at a price equal to 100% of the
principal amount. Holders may require us to repurchase the Debentures on July 1,
2008, 2013 and 2018, at a repurchase price equal to 100% of the principal
amount.
Note 8. Earnings Per Share ("EPS")
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -----------------
2003 2002 2003 2002
------- ------- ------- -------
(In thousands, except for EPS)
Net income $18,663 $13,361 $47,729 $32,684
======= ======= ======= =======
Basic:
Weighted average common shares 31,253 30,616 31,054 30,514
======= ======= ======= =======
Basic EPS $ 0.60 $ 0.44 $ 1.54 $ 1.07
======= ======= ======= =======
Diluted:
Basic weighted average common shares 31,253 30,616 31,054 30,514
Add dilutive securities:
Stock options 1,145 594 896 625
------- ------- ------- -------
Denominator for diluted EPS 32,398 31,210 31,950 31,139
======= ======= ======= =======
Diluted EPS $ 0.58 $ 0.43 $ 1.49 $ 1.05
======= ======= ======= =======
11
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 Nine Months Ended
July 31, July 31,
------------------------ -----------------------------
2003 2002 2003 2002
-------- ------------- ------------- -------------
Number of shares excluded 150,000 1,045,500 286,000 1,045,500
======== ============= ============= =============
Range of exercise prices $ 35.69 $23.93-$31.11 $31.11-$35.69 $23.93-$31.11
======== ============= ============= =============
Note 9. Income Taxes
Cooper now expects its effective tax rate ("ETR") (provision for income taxes
divided by pretax income) for fiscal 2003 will be 24%. Based on the accounting
principles generally accepted in the United States of America ("GAAP")
requirement that the projected fiscal year ETR be included in the year-to-date
results, the ETR for the third quarter and nine-month period ended July 31, 2003
was revised downward to 22% and 24%, respectively. The ETR used to record the
provision for income taxes for the quarter and nine-month period ended July 31,
2002 was 27% for both periods. The decrease in 2003 ETR reflected the shift of
business to jurisdictions with lower tax rates.
Note 10. Litigation Settlement
On April 25, 2001, Dioptics Medical Products, Inc. filed a lawsuit against
Cooper, CVI and A. Thomas Bender in the United States District Court, Northern
District of California, Case No. C01-20356-JW. This lawsuit alleged that CVI's
CV Encore family of contact lenses infringed Dioptics' ENCORE trademark for
sunglasses. The Company believes that it did not infringe any valid and
protectable trademark held by Dioptics. Nevertheless, to avoid ongoing legal
costs and management distraction, Cooper entered into a Confidential Settlement
Agreement on May 5, 2003. The Company recorded a settlement provision in the
first fiscal quarter of 2003 that covers all associated costs.
Note 11. Accounting for Stock Plans
As permitted by SFAS 123, Cooper applies APB Opinion No. 25 and related
interpretations to account for its plans for stock options issued to employees
and directors. Accordingly, no compensation cost has been recognized for its
employee and director stock option plans. Had compensation cost for our
stock-based compensation plans been determined under the fair value method
included in SFAS 123, as amended by SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an Amendment of FASB Statement No.
123,"
12
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
(Unaudited)
adopted in the second quarter 2003, our net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ ------------------
2003 2002 2003 2002
------- ------- -------- -------
(In thousands, except per share amounts)
Net income, as reported $18,663 $13,361 $ 47,729 $32,684
Deduct: Total stock-based employee and
director compensation expense determined
under fair value based method for all
awards granted since February 1, 1995,
net of related tax effects (3,588) (1,011) (10,094) (2,872)
------- ------- -------- -------
Pro forma net income $15,075 $12,350 $ 37,635 $29,812
======= ======= ======== =======
Basic earnings per share:
As reported $ 0.60 $ 0.44 $ 1.54 $ 1.07
Pro forma $ 0.48 $ 0.40 $ 1.21 $ 0.98
Diluted earnings per share:
As reported $ 0.58 $ 0.43 $ 1.49 $ 1.05
Pro forma $ 0.47 $ 0.40 $ 1.19 $ 0.97
Effective tax rate used to determine pro forma
net income 22% 25% 24% 25%
Note 12. Cash Dividends
We paid a semiannual dividend of 3 cents per share on each of January 6, and
July 3, 2003 to stockholders of record on December 16, 2002 and June 13, 2003,
respectively.
Note 13. Business Segment Information
For management reporting, Cooper is organized by operating business segment with
segment profitability measured primarily by operating income. Corporate expenses
are not allocated to segment operating income. Items accounted for after
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, which are designed to provide financial statements in
accordance with accounting principles generally accepted in the United States of
America.
13
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 designate as corporate assets. Long-lived
assets are primarily property, plant and equipment, goodwill and other
intangibles.
Segment information:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ ----------------------
2003 2002 2003 2002
-------- ------- -------- -----------
(In thousands)
Sales to external customers:
CVI $ 87,773 $70,596 $238,638 $168,843
CSI 20,669 19,967 60,186 51,742
-------- ------- -------- --------
$108,442 $90,563 $298,824 $220,585
======== ======= ======== ========
Operating income:
CVI $ 23,948 $16,843 $ 62,468 $ 40,475
CSI 4,793 2,463 12,636 10,049
Corporate (3,415) (2,325) (8,807) (5,753)
-------- ------- -------- --------
Total operating income 25,326 16,981 66,297 44,771
Interest expense (1,655) (2,347) (5,167) (4,681)
Other income, net 375 3,668 1,671 4,686
-------- ------- -------- --------
Income before income taxes $ 24,046 $18,302 $ 62,801 $ 44,776
======== ======= ======== ========
July 31, October 31,
2003 2002
-------- -----------
Identifiable assets:
CVI $442,124 $401,421
CSI 141,462 111,998
Corporate 73,523 57,696
-------- --------
Total $657,109 $571,115
======== ========
Goodwill:
CVI $181,590 $170,843
CSI 91,707 68,123
-------- --------
Total $273,297 $238,966
======== ========
14
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Concluded
(Unaudited)
Geographic information:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -------------------
2003 2002 2003 2002
-------- ------- -------- --------
(In thousands)
Sales to external customers by country of domicile:
United States $ 62,913 $56,597 $178,635 $145,904
Europe 33,700 28,971 90,150 62,149
Rest of world 11,829 4,995 30,039 12,532
-------- ------- -------- --------
Total $108,442 $90,563 $298,824 $220,585
======== ======= ======== ========
July 31, October 31,
2003 2002
-------- -----------
Long-lived assets by country of domicile:
United States $190,019 $158,477
Europe 201,116 180,585
Rest of world 2,189 2,499
-------- --------
Total $393,324 $341,561
======== ========
15
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.
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. These include statements about our capital
resources, performance and results of operations. In addition, all statements
regarding anticipated growth in our revenue, anticipated market conditions and
results of operations are forward-looking. To identify these statements look for
words like "believes," "expects," "may," "will," "should," "seeks," "intends,"
"plans," "estimates" or "anticipates" and similar words or phrases. Discussions
of strategies, plans or intentions often contain forward-looking statements.
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 in forward-looking statements include
major changes in business conditions, a major disruption in the operations of
our manufacturing facilities, new competitors or technologies, significant
delays in new product introductions, the impact of an undetected virus on our
computer systems, acquisition integration delays or costs, increases in interest
rates, foreign currency exchange exposure, investments in research and
development and other start-up projects, dilution to earnings per share from
acquisitions or issuing stock, worldwide regulatory issues, including product
recalls and the effect of healthcare reform legislation, cost of complying with
new corporate governance regulatory requirements, changes in tax laws or their
interpretation, changes in geographical profit mix effecting tax rates,
significant environmental cleanup costs above those already accrued, litigation
costs including any related settlements or judgments, cost of business
divestitures, the requirement to provide for a significant liability or to write
off a significant asset, including impaired goodwill, changes in accounting
principles or estimates, including the potential cost of expensing stock
options, and other events 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, 2002. We caution investors that forward-looking
statements reflect our analysis only on their stated date. We disclaim any
intent to update them except as required by law.
Results of Operations
In this section we discuss the results of our operations for the third quarter
and nine months of fiscal 2003 and compare them with the same periods of fiscal
2002. We discuss our cash flows and current financial condition beginning on
page 24 under "Capital Resources and Liquidity."
Third Quarter Highlights:
o Sales up 20% to $108.4 million.
o Gross profit up 23%; margin up one percentage point to 63% of revenue.
o Operating income up 49% to $25.3 million.
o Diluted earnings per share up 35% to 58 cents from 43 cents.
16
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Nine-Month Highlights:
o Sales up 35% to $298.8 million.
o Gross profit up 39% on margin of 64%, up two percentage points from last
year.
o Operating income up 48% to $66.3 million.
o Diluted earnings per share up 42% to $1.49 from $1.05.
Selected Statistical Information - Percentage of Sales and Growth
Percent of Sales Percent of Sales
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ % ----------------- %
2003 2002 Growth 2003 2002 Growth
---- ---- ------ ---- ---- ------
Net sales 100% 100% 20% 100% 100% 35%
Cost of sales 37% 38% 14% 36% 38% 30%
Gross profit 63% 62% 23% 64% 62% 39%
Selling, general and administrative 38% 41% 12% 40% 40% 35%
Research and development 1% 1% 25% 1% 1% 38%
Amortization 1% 1% (31%) 1% 1% (10%)
Operating income 23% 19% 49% 22% 20% 48%
Net Sales: Cooper's two business units, CooperVision ("CVI") and CooperSurgical
("CSI") generate all its revenue:
o CVI markets a broad range of soft contact lenses for the vision care market
worldwide.
o CSI markets medical devices, diagnostic products and surgical instruments
and accessories used primarily by gynecologists and obstetricians.
Our consolidated net sales grew $17.9 million (20%) in the three-month period
and $78.2 million (35%) in the nine-month period:
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------------------------------------
2003 2002 % Incr. 2003 2002 % Incr.
------ ----- ------- ------ ------ ------
($ in millions)
CVI $ 87.8 $70.6 24% $238.6 $168.9 41%
CSI 20.6 20.0 4% 60.2 51.7 16%
------ ----- ------ ------
$108.4 $90.6 20% $298.8 $220.6 35%
====== ===== ====== ======
CVI Revenue: Practitioner and patient preferences in the worldwide contact lens
market continue to change. The major shifts are from:
o Conventional lenses replaced annually to disposable and frequently replaced
lenses. Disposable lenses are designed for either daily, two-week or
monthly replacement; frequently replaced lenses are designed for
replacement after one to three months.
17
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
o Commodity lenses to specialty lenses including toric lenses, cosmetic
lenses, multifocal lenses and lenses for patients experiencing the symptoms
of dry eye syndrome.
o Commodity spherical lenses to value-added spherical lenses such as lenses
with aspherical optical properties.
These shifts favor CVI's line of specialty products, which now comprise over 60%
of CVI's revenue.
Definitions: Lens revenue consists of sales of spherical lenses, which include
aspherically designed lenses, and specialty lenses - toric, cosmetic, multifocal
lenses and lenses for patients with dry eyes.
o Aspheric lenses correct only for near- and farsightedness, but they have
additional optical properties that help improve visual acuity in low light
conditions and can correct low levels of astigmatism and low levels of
presbyopia, an age-related vision defect.
o Toric lenses are designed to correct astigmatism by adding the additional
optical properties of cylinder and axis.
o Cosmetic lenses are opaque and color enhancing lenses that alter the
natural appearance of the eye.
o Multifocal lenses are designed to correct presbyopia.
o Proclear lenses help enhance tissue/device compatibility for patients
experiencing mild discomfort relating to dry eyes during lens wear.
CVI's worldwide revenue grew 24% and 41% in the three- and nine-month periods;
17% and 34% when the foreign exchange rates applied to the prior periods are
also applied on a memo basis to the current periods' revenue (in "constant
currency"). The primary reasons for our growth include continued global market
share gains with our toric products revenue up 21% in the quarter, continued
momentum in Europe with our growth up 28% in the quarter, and growth in
disposable spheres up 39% in the quarter.
CVI reported revenue includes revenue from Biocompatibles beginning in March
2002. In the following table we adjust CVI reported revenue by adding the
Biocompatibles revenue for the four-month period we did not own Biocompatibles
(as shown on the Biocompatibles' unaudited ledgers) to our actual results for
the nine-month period. This shows the growth in the total lens business we now
own. Revenue grew 24% in the three-month period and adjusted revenue grew 23%,
in the nine-month period ended July 31, 2003.
Since the acquisition of Biocompatibles, CVI has actively promoted Proclear
lenses. In many cases, practitioners now recommend Proclear lenses rather than
older CVI products.
18
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Third Quarter Nine Months
------------- --------------
Reported: 2003 2002 Growth 2003 2002 Growth
----- ----- ------ ------ ------ ------
($ in millions)
U.S. $42.4 $35.8 18% $116.2 $ 90.9 28%
International 44.0 32.2 37% 115.3 70.0 65%
----- ----- ------ ------
Soft lens revenue 86.4 68.0 27% 231.5 160.9 44%
Miscellaneous revenue 1.4 2.6 (46%) 7.1 8.0 (11%)
----- ----- ------ ------
Total reported $87.8 $70.6 24% $238.6 $168.9 41%
===== ===== ====== ======
Adjustments - to include Biocompatibles revenue for comparable periods:
Nine Months
-----------
2002
----
($ in millions)
U.S. $ 6.3
International 18.5
-----
Soft lens revenue 24.8
Miscellaneous revenue 0.3
-----
Total reported $25.1
=====
Third Quarter Nine Months
------------- ---------------
As adjusted: 2003 2002 Growth 2003 2002 Growth
----- ----- ------ ------ ------ ------
($ in millions)
U.S. $42.4 $35.8 18% $116.2 $ 97.2 20%
International 44.0 32.2 37% 115.3 88.5 30%
----- ----- ------ ------
Soft lens revenue 86.4 68.0 27% 231.5 185.7 25%
Miscellaneous revenue 1.4 2.6 (46%) 7.1 8.3 (13%)
----- ----- ------ ------
Total as adjusted $87.8 $70.6 24% $238.6 $194.0 23%
===== ===== ====== ======
Total adjusted worldwide revenue grew 24% and 23% for the three- and nine-month
periods (about 17% in constant currency for both periods). International soft
lens revenue of $44 million grew 37% (21% in constant currency) for the
three-month period.
The 37% and 30% growth in reported international soft lens revenue, from $32.2
million and $88.5 million to $44 million and $115.3 million in the three- and
nine-month periods, respectively, was largely driven by sales of two-week and
monthly sphere products. These grew $7.6 million, or 46%, and $19 million, or
44%, in the three- and nine-months periods. Also, sales of two-week and monthly
toric products grew $3.5 million, or 52%, and $6.3 million, or 36%, in the
three- and nine-month periods.
19
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Adjusted revenue in the United States grew 18% in the third quarter and 20% in
the first nine months of fiscal 2003, primarily due to sales of two-week and
monthly sphere products, which added $3.5 million, growing 29%, and $9.3
million, growing 29%, in the three- and nine-month periods, respectively. Also,
sales of two-week and monthly toric products added $3.5 million, growing 44%,
and $9.4 million, growing 45%, in the three- and nine-month periods. The
acquisition of Biocompatibles enhanced the growth in these product lines,
especially the sales of Proclear toric and other specialty lenses.
CSI Revenue: Women's healthcare products used primarily by obstetricians and
gynecologists generate about 90% of CSI's revenue. The balance represents sales
of medical devices outside of women's healthcare that CSI does not actively
market. CSI's overall third quarter revenue increased 4% to $20.6 million. The
third quarter growth in CSI revenue of $3 million was due to recent
acquisitions. The reported growth of $600,000 was net of declining sales in more
mature product lines, softness in the equipment part of the market and the delay
in launching a replacement for an in-vitro fertilization catheter that CSI could
no longer market when an exclusive distributor relationship ended.
Cost of Sales/Gross Profit: Gross profit as a percentage of sales ("gross
margin") was:
Gross Margin % Gross Margin %
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -----------------
2003 2002 2003 2002
---- ---- ---- ----
CVI 66% 66% 67% 66%
CSI 54% 44% 52% 50%
Consolidated 63% 62% 64% 62%
CVI's gross margin for the third quarter of fiscal 2003, at 66%, was equal to
2002 third quarter. CVI manufactures about 61% of its lenses in the United
Kingdom. The favorable impact of currency on revenue is offset by the
unfavorable impact on manufacturing costs. In addition, we have lower gross
margin on sales to Asia-Pacific distributors, which have increased 91%. Last
year's gross margin reflects lower gross margin sales of certain Biocompatibles'
products. Gross margin on Biocompatibles' products have improved as CVI has
improved manufacturing costs and continues to shift customers to higher gross
margin Proclear products.
CSI's gross margin was 54%, compared with 44% for the third fiscal quarter last
year. In the third quarter last year, we phased out the Cerveillance Colposcope
system, and recorded a charge against cost of sales (primarily write down of
inventory distribution rights and prepaid royalties) of about $2 million.
Excluding this charge last year's margin was 54% for both the third quarter and
for the nine-month period. Absent future acquisitions with lower-margin
products, we expect gross margin to continue to improve as we complete the
integration of recent acquisitions.
20
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Selling, General and Administrative ("SGA") Expense:
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------------------- ---------------------------------
2003 % Rev. 2002 % Incr. 2003 % Rev. 2002 % Incr.
----- ------ ----- ------- ------ ------ ----- -------
($ in millions)
CVI $32.4 37% $29.1 11% $ 93.1 39% $68.2 36%
CSI 5.7 28% 5.6 1% 17.1 28% 14.5 18%
Headquarters 3.4 -- 2.3 47% 8.8 -- 5.7 53%
----- ----- ------ -----
$41.5 38% $37.0 12% $119.0 40% $88.4 35%
===== ===== ====== =====
Consolidated SGA increased 12%, and as a percentage of revenue, declined to 38%
from 41% for the three-month period and was 40% for both nine-month periods.
About $1.6 million and $4.8 million of the SGA increase in the three- and
nine-month periods, reflected the relative weakness of the U.S. dollar against
foreign currencies. Corporate headquarters' expenses, which increased 47% to
$3.4 million, include continued expenses for various projects associated with
maintaining the Company's global trading arrangement. These expenses are
expected to flatten and then decline after 2003, but costs to comply with
recently enacted and proposed corporate governance requirements are expected to
increase in 2004.
Research and Development ("R&D") Expense: During the first nine months of fiscal
2003, CVI R&D expenditures were $2.7 million, up 40% over the same 2002 period,
reflecting the previously announced initiative to develop new and improved
contact lens products. During the 2003 to 2005 period, CVI is investing in two
new research programs: the development of an extended wear contact lens and an
improved contact lens technology. We expect that CVI R&D expense will approach
$4 million in 2003. CSI R&D expenditures in the first nine months of fiscal 2003
were about $1.3 million, up 35%, primarily because of R&D projects of acquired
companies.
Amortization of Intangibles: Amortization expenses were $388,000 and $1.1
million in the three and nine months of fiscal 2003, down from $565,000 and $1.3
million in last year's three and nine-month periods.
21
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 $8.3 million, or 49%, and $21.5
million, or 48%, for the three- and nine-month periods:
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------------------- --------------------------------
2003 % Rev. 2002 % Incr. 2003 % Rev. 2002 % Incr.
----- ------ ----- ------- ----- ------ ----- -------
($ in millions)
CVI $23.9 27% $16.8 42% $62.5 26% $40.5 54%
CSI 4.8 23% 2.5 95% 12.6 21% 10.0 26%
Headquarters (3.4) -- (2.3) -- (8.8) -- (5.7) --
----- ----- ----- -----
$25.3 23% $17.0 49% $66.3 22% $44.8 48%
===== ===== ===== =====
Interest Expense: Interest expense decreased $692,000, or 29%, in the
three-month period and increased $486,000, or 10%, in the nine-month period. The
increase in the nine-month period related to higher average borrowing for
acquisitions, partially offset by lower interest rates.
Other Income (Expense), Net:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -----------------
2003 2002 2003 2002
---- ------ ------ ------
(In thousands)
Interest income $ 59 $ 47 $ 148 $ 125
Foreign exchange transactions 282 1,539 1,903 1,365
Settlement of dispute -- -- (500) --
Gain on Quidel stock -- 40 -- 1,168
Gain on Litmus/Quidel transaction -- 2,075 -- 2,075
Other 34 (33) 120 (47)
---- ------ ------ ------
$375 $3,668 $1,671 $4,686
==== ====== ====== ======
In conjunction with the acquisition of Biocompatibles, we inherited intercompany
accounts in various currencies, primarily pounds sterling. The pound
strengthened against the dollar in the first nine months of 2003, resulting in a
net gain of about $1.9 million. We have taken steps to minimize this exposure.
Our policy continues to be to hedge foreign exchange exposure whenever possible.
In the first quarter of 2003, we provided $500,000 for the settlement of a legal
dispute.
In the third fiscal quarter of 2002, we received an additional 334,727 shares of
Quidel that were held in escrow and recorded a gain of $2.1 million, based on
the fair market value of Quidel shares on the day we received them. In the first
nine months of 2002, we sold 592,000 shares of Quidel stock, realizing a gain of
approximately $1.2 million.
22
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 now estimate that our effective tax rate ("ETR")
for fiscal year 2003 (provision for taxes divided by income before taxes) will
be 24%, down from 25% reported in our second quarter results. The ETR was
revised downward to adjust for the favorable shift of business to jurisdictions
with lower tax rates. This resulted in a 22% ETR in the third quarter. Assuming
no major acquisitions, we expect our ETR to continue to decline, and we now
expect our ETR to be about 23% in fiscal 2004.
We implemented a global trading arrangement in fiscal 1999 to minimize both the
taxes reported in our statement of income and the actual taxes we will have to
pay when we exhaust all the benefits of our net operating loss carryforwards
("NOLs").
The global trading arrangement consists of a restructuring of the legal
ownership structure for the CooperVision foreign sales and manufacturing
subsidiaries. The stock of those subsidiaries is now owned by a single foreign
holding company, which centrally directs much of the activities of those
subsidiaries. The foreign holding company has applied for and received the
benefits of a reduced tax rate under a special tax regime available in its
country of residence.
Assuming no major acquisitions or large stock issuances, we expect that this
arrangement will extend the cash flow benefits of the NOLs through 2006, and
that actual cash payments of taxes will average less than 5% of pretax profits
over this period. After 2006, we expect that actual cash payments of income
taxes will average less than 20% of pretax profits.
23
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Capital Resources and Liquidity
Third Quarter Highlights:
o Operating cash flow $18 million vs. $15.3 million in 2002's third quarter.
o Cash payments for acquisitions totaled $25.2 million.
o Expenditures for purchases of property, plant and equipment ("PP&E") $9.3
million vs. $5 million in 2002's third quarter.
Nine-Month Highlights:
o Operating cash flow $48.1 million vs. $39.9 million in the first nine
months of 2002.
o Cash payments for acquisitions totaled $63.7 million.
o Expenditures for purchases of PP&E $22.8 million vs. $17 million in the
first nine months of 2002.
Comparative Statistics (dollars in millions, except per share amounts):
July 31, 2003 October 31, 2002
------------- ----------------
Cash and cash equivalents $ 30.8 $ 10.3
Total assets $ 657.1 $ 571.1
Working capital $ 125.7 $ 72.2
Total debt $ 191.8 $ 163.7
Stockholders' equity $ 377.2 $ 311.4
Ratio of debt to equity 0.51:1 0.53:1
Debt as a percentage of total capitalization 34% 34%
Operating cash flow - twelve months ended $ 64.2 $ 55.9
Operating Cash Flows: Our major source of liquidity continues to be cash flow
provided by operating activities, which totaled $48.1 million in the first nine
months of fiscal 2003 and $64.2 million over the trailing twelve months ended
July 31, 2003.
Major uses of cash for operating activities in the first nine months included
payments of $4.5 million to settle the dispute with Medical Engineering
Corporation, a subsidiary of Bristol-Myers Squibb Company, pursuant to a 1993
settlement agreement, $2.6 million to fund entitlements under Cooper's bonus
plans and $5 million in interest payments.
24
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Our working capital increased by $53.5 million in the first nine months of
fiscal 2003, driven in part by the weak U.S. dollar, which triggered increases
in trade receivables and inventory and the reduction of about $13.6 million of
short-term debt. At the end of the third fiscal quarter, Cooper's days sales
outstanding ("DSO's") decreased to 66 days from 71 days last quarter, reflecting
improved cash collections. DSO's are expected to be in the upper 60's to low
70's through the remainder of fiscal 2003.
Investing Cash Flows: The cash outflow of $86.5 million from investing
activities was capital expenditures of $22.8 million and payments of $63.7
million on acquisitions, including $22.4 million paid to the Aspect noteholders,
the final payment for the Aspect acquisition.
Financing Cash Flows: Financing activities provided $58.4 million of cash
primarily from increased borrowing. In the third quarter, we issued $115 million
principal amount of 2.625% convertible senior debentures in a private placement
(see Note 7, "Debt" under "Convertible Senior Debentures"). With the proceeds
from the debenture, we repaid the majority of the revolving portion of our line
of credit, which included borrowing for the recent acquisition of Prism (see
Note 4, "Acquisitions"). Cash received from the exercises of stock options
provided $10.5 million. We repaid net other debt of about $2.1 million. We paid
dividends on our common stock of $2 million in the first nine months of 2003.
25
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Continued
Estimates and Critical Accounting Policies
Estimates and judgments made by Management are an integral part of financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP"). Actual results may be different from
amounts reported for or at the end of any period. We believe that the following
critical accounting policies address the more significant estimates required of
Management when preparing our consolidated financial statements in accordance
with GAAP:
o Revenue recognition - In general, we recognize revenue upon shipment of our
products, when risk of ownership transfers to our customers. We record,
based on historical statistics, appropriate provisions for shipments to
customers who have the right of return.
o Adequacy of allowance for doubtful accounts - In accordance with GAAP, our
reported balance of accounts receivable, net of the allowance for doubtful
accounts, represents our estimate of the amount that ultimately will be
realized in cash. We review the adequacy of our allowance for doubtful
accounts on an ongoing basis, using historical payment trends and the age
of the receivables, complemented by individual knowledge of our customers.
If and when our analyses indicate, we increase or decrease our allowance
accordingly.
o Net realizable value of inventory - GAAP states that inventories be stated
at the lower of cost or market value, or "net realizable value." On an
ongoing basis, we review the carrying value of our inventories, measuring
number of months on hand and other indications of salability and, when
indicated, reduce the value of inventory if there are indications that the
carrying value is greater than market.
o Valuation of goodwill - We record and evaluate our goodwill balances and
test them for impairment in accordance with the provisions of Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets," respectively. Pursuant to
GAAP, we performed an impairment test in our third fiscal quarter of 2003,
and our analysis indicated that we have no goodwill impairment.
o Income taxes - As part of the process of preparing our consolidated
financial statements, we are required to estimate our income taxes in each
of the jurisdictions in which we operate. This process involves estimating
our current tax exposures in each jurisdiction including the impact, if
any, of additional taxes resulting from tax examinations as well as making
judgments regarding the recoverability of deferred tax assets. To the
extent recovery of deferred tax assets is not likely based on our
estimation of future taxable income in each jurisdiction, a valuation
allowance is established. Tax exposures can involve complex issues and may
require an extended period to resolve. To determine the quarterly tax rate,
we are required to estimate full-year income and the related income tax
expense in each jurisdiction. The estimated effective tax rate is adjusted
for the tax related to significant unusual items. Changes in the geographic
mix or estimated level of annual pre-tax income can affect the overall
effective tax rate.
26
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 $30.8 million plus cash
from operating activities will fund future operations, capital expenditures,
cash dividends and smaller acquisitions. At July 31, 2003, we had $143.7 million
available under the KeyBank line of credit.
Risk Management
We are exposed to risks caused by changes in foreign exchange, principally pound
sterling and euro denominated debt and receivables and from operations in
foreign currencies. We have taken steps to minimize our balance sheet exposure.
We are also exposed to risks associated with changes in interest rates, as the
interest rate on our revolver and term loan debt varies with the London
Interbank Offered Rate. We have decreased our interest risk through our 2.625%
convertible debenture offering (see Note 7).
Trademarks
Proclear'r' and Cerveillance'r' are registered trademarks of The Cooper
Companies, Inc., its affiliates and/or subsidiaries and are italicized in this
report.
27
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosure About Market Risk
See "Risk Management" under Capital Resources and Liquidity in Item 2 of this
report.
Item 4. Controls and Procedures
The Company has established and currently maintains disclosure controls and
procedures designed to ensure that material information required to be disclosed
in its reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified by the
Securities and Exchange Commission and that any material information relating to
the Company is recorded, processed, summarized and reported to its principal
officers to allow timely decisions regarding required disclosures. In designing
and evaluating the disclosure controls and procedures, management recognized
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and in reaching a reasonable level of assurance, management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
In conjunction with the close of each fiscal quarter, the Company conducts a
review and evaluation, under the supervision and with the participation of the
Company's Management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. The Company's Chief Executive Officer and
Chief Financial Officer, based upon such an evaluation as of July 31, 2003, the
end of the fiscal quarter covered by this report, concluded that the Company's
disclosure controls and procedures were effective at the reasonable assurance
level.
There has been no change in the Company's internal control over financial
reporting during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information required by this item is incorporated herein by reference to
Note 10, "Litigation Settlement" under Notes to Consolidated Condensed Financial
Statements in Part I, Item I of this report.
Item 2. Changes in Securities and Use of Proceeds
On June 25, 2003, Cooper sold $100 million aggregate principal amount of 2.625%
convertible senior debentures due 2023 to UBS Investment Bank, McDonald
Investments Inc., Fleet Securities, Inc. and HSBC, as initial purchasers, in a
private placement pursuant to Rule 144A and Regulations S under the Securities
Act of 1933, as amended. The Company recorded net proceeds, after deduction of
an aggregate initial purchasers' discount of $2.5 million, of $97.5 million,
along with $1 million of deferred charges in connection with the debt issue
cost. On July 2, 2003, the initial purchasers of these debentures exercised
their option to purchase an additional $15 million of debentures, bringing the
total sale to $115 million. This exercise generated additional net proceeds,
after deduction of an aggregate initial purchasers' discount of $300,000, of
$14.7 million. We used the net proceeds from the offering to repay most of the
revolving portion of our existing line of credit. The debentures are convertible
into 22.5201 shares of our common stock per $1,000 principal amount of
debentures (approximately $44.40 per share) under certain conditions and subject
to certain adjustments. When converted, we have the right to deliver, in lieu of
shares of our common stock, cash or combination of cash and shares of common
stock.
29
PART II - OTHER INFORMATION -- Continued
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
------- -----------
4.1 Indenture dated as of June 25, 2003, between The Cooper
Companies, Inc. and Wells Fargo Bank, National Association,
incorporated by reference to Exhibit 4.1 to our Current
Report on Form 8-K filed with the Securities and Exchange
Commission on June 25, 2003
11* Calculation of Earnings Per Share
31.1 Certification of the Chief Executive Officer, pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2 Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934
32.1 Certification of the Chief Executive Officer, pursuant to 18
U.S.C. Section 1350
32.2 Certification of the Chief Financial Officer, pursuant to 18
U.S.C. Section 1350
* The information called for in this Exhibit is provided in Footnote 8 to the
Consolidated Condensed Financial Statements in this report.
(b) The Company filed the following reports on Form 8-K during the period May
1, 2003 to July 31, 2003.
Date of Report Item Reported
- -------------- -------------
May 5, 2003 Item 5. Other Events
June 4, 2003 Item 5. Other Events
June 19, 2003 Item 5. Other Events
June 20, 2003 Item 5. Other Events and Item 9. Regulation FD Disclosure
June 25, 2003 Item 5. Other Events
30
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: September 5, 2003 /s/ Stephen C. Whiteford
---------------------------------------
Vice President and Corporate Controller
(Principal Accounting Officer)
31
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Index of Exhibits
Exhibit No.
-----------
4.1 Indenture dated as of June 25, 2003, between The Cooper
Companies, Inc. and Wells Fargo Bank, National Association,
incorporated by reference to Exhibit 4.1 to our Current
Report on Form 8-K filed with the Securities and Exchange
Commission on June 25, 2003
11* Calculation of Earnings Per Share
31.1 Certification of the Chief Executive Officer, pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2 Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934
32.1 Certification of the Chief Executive Officer, pursuant to 18
U.S.C. Section 1350
32.2 Certification of the Chief Financial Officer, pursuant to 18
U.S.C. Section 1350
* The information called for in this Exhibit is provided in Footnote 8 to the
Consolidated Condensed Financial Statements in this report.
32
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as.................. 'r'