10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Exact name of registrant as specified in its charter)

Bermuda		98-0355628
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

600 Travis, Suite 5600		Houston, Texas 77002
(Address of principal executive offices)		(Zip Code)

(713) 209-8400

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

Number of registrant’s common stock outstanding as of June 30, 2009 was 166,739,478 Class A common shares that are held by the public and 36,533,714 Class A common shares and 105,420,258 Class B common shares that are held by the issuer’s wholly-owned subsidiaries.

 

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in millions, except per share data)
Revenues		$	1,269.8			$	1,724.3			$	2,526.6			$	3,270.4
Cost of sales			885.0				1,155.9				1,769.8				2,178.1
Selling and administrative expenses			249.4				314.4				506.3				615.9
Restructuring charges			10.4				7.6				19.2				7.6
Operating earnings			125.0				246.4				231.3				468.8
Interest expense, net			16.3				18.3				31.5				33.2
Income from continuing operations before income taxes			108.7				228.1				199.8				435.6
Income taxes expense			19.4				66.2				29.3				120.3
Income from continuing operations			89.3				161.9				170.5				315.3
Income related to discontinued operations, net of income taxes			—				—				18.9				—
Net income		$	89.3			$	161.9			$	189.4			$	315.3
Income per common share:
Basic:
Income from continuing operations		$	.53			$	.93			$	1.02			$	1.79
Income from discontinued operations			—				—				.11				—
Net income		$	.53			$	.93			$	1.13			$	1.79
Diluted:
Income from continuing operations		$	.53			$	.92			$	1.01			$	1.77
Income from discontinued operations			—				—				.11				—
Net income		$	.53			$	.92			$	1.12			$	1.77
Cash dividends declared per common share		$	.25			$	.25			$	.50			$	.50

The accompanying notes are an integral part of these statements.

COOPER INDUSTRIES, LTD.
CONSOLIDATED BALANCE SHEETS

		June 30,				December 31,
		2009				2008
		(unaudited)				(Note 1)
		(in millions)
ASSETS
Cash and cash equivalents		$	450.2			$	258.8
Investments			12.6				21.9
Receivables			901.5				1,011.4
Inventories			547.2				641.8
Current discontinued operations receivable			13.4				17.5
Deferred income taxes and other current assets			196.3				246.5
Total current assets			2,121.2				2,197.9
Property, plant and equipment, less accumulated depreciation			728.9				728.2
Goodwill			2,645.9				2,567.3
Long-term discontinued operations receivable			166.6				174.8
Deferred income taxes and other noncurrent assets			468.1				496.7
Total assets		$	6,130.7			$	6,164.9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt		$	11.8			$	25.6
Accounts payable			409.8				492.5
Accrued liabilities			537.8				618.7
Current discontinued operations liability			50.2				50.4
Current maturities of long-term debt			275.0				275.0
Total current liabilities			1,284.6				1,462.2
Long-term debt			924.7				932.5
Postretirement benefits other than pensions			69.6				71.2
Long-term discontinued operations liability			754.8				764.7
Other long-term liabilities			326.9				326.9
Total liabilities			3,360.6				3,557.5
Common stock, $.01 par value			1.7				1.7
Capital in excess of par value			—				—
Retained earnings			3,042.7				2,935.4
Accumulated other nonowner changes in equity			(274.3	)			(329.7	)
Total shareholders’ equity			2,770.1				2,607.4
Total liabilities and shareholders’ equity		$	6,130.7			$	6,164.9

The accompanying notes are an integral part of these statements.

COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

		Six Months Ended
		June 30,
		2009				2008
		(in millions)
Cash flows from operating activities:
Net income		$	189.4			$	315.3
Adjust: Income related to discontinued operations			(18.9	)			—
Income from continuing operations			170.5				315.3
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization			71.2				70.3
Deferred income taxes			(9.3	)			4.9
Excess tax benefits from stock options and awards			2.1				(3.4	)
Restructuring charges			19.2				7.6
Changes in assets and liabilities: (1)
Receivables			128.1				(122.2	)
Inventories			108.8				(63.4	)
Accounts payable and accrued liabilities			(194.3	)			(32.9	)
Discontinued operations assets and liabilities, net			33.0				12.2
Other assets and liabilities, net			46.8				76.9
Net cash provided by operating activities			376.1				265.3
Cash flows from investing activities:
Proceeds from short-term investments			9.3				41.3
Proceeds from cash restricted for business acquisitions			—				290.1
Capital expenditures			(55.9	)			(57.9	)
Cash paid for acquired businesses			(22.2	)			(269.6	)
Proceeds from sales of property, plant and equipment and other			1.1				1.0
Net cash provided by (used in) investing activities			(67.7	)			4.9
Cash flows from financing activities:
Proceeds from issuance of debt			—				297.6
Debt issuance costs			—				(0.5	)
Proceeds from debt derivatives			—				0.5
Repayments of debt			(21.9	)			(299.1	)
Dividends			(84.0	)			(82.8	)
Purchases of common shares			(26.0	)			(282.9	)
Excess tax benefits from stock options and awards			(2.1	)			3.4
Proceeds from exercise of stock options and other			3.5				10.8
Net cash used in financing activities			(130.5	)			(353.0	)
Effect of exchange rate changes on cash and cash equivalents			13.5				4.7
Increase (decrease) in cash and cash equivalents			191.4				(78.1	)
Cash and cash equivalents, beginning of period			258.8				232.8
Cash and cash equivalents, end of period		$	450.2			$	154.7

The accompanying notes are an integral part of these statements.

COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Accounting Policies

     Basis of Presentation - The consolidated financial statements of Cooper Industries, Ltd., a Bermuda company (“Cooper”), have been prepared in accordance with generally accepted accounting principles in the United States.

     The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. Financial information as of December 31 has been derived from Cooper’s audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated, have been included. Further, in connection with preparation of the consolidated financial statements and in accordance with the recently issued Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS No. 165”), Cooper evaluated subsequent events after the balance sheet date of June 30, 2009 through August 6, 2009. For additional information regarding Cooper’s accounting policies, refer to the Consolidated Financial Statements and related notes for the year ended December 31, 2008 included in Part IV of Cooper’s 2008 Annual Report on Form 10-K.

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing assets or liabilities and establishes a hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. On February 12, 2008, the FASB delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Cooper implemented the provisions of SFAS No. 157 as of January 1, 2008 for those assets and liabilities not subject to the deferral described above. The implementation of SFAS No. 157 as of January 1, 2009 for assets and liabilities previously subject to the deferral described above did not have a material impact on the Company’s results of operations, financial position or cash flows. See Note 15 of the Notes to the Consolidated Financial Statements.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (“SFAS No.141(R)”). SFAS No. 141(R) provides enhanced guidance related to the measurement of identifiable assets acquired, liabilities assumed and disclosure of information related to business combinations and their effect on Cooper. This Statement, together with the International Accounting Standards Board’s (“IASB”) IFRS 3, Business Combinations, completes a joint effort by the FASB and IASB to improve financial reporting about business combinations and promotes the international convergence of accounting standards. Cooper implemented SFAS No. 141(R) prospectively to business combinations completed on or after January 1, 2009. Cooper recognizes acquisition-related costs in the period in which such costs are incurred as required by SFAS 141(R).

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidating Financial Statements (“SFAS No. 160”). SFAS No. 160 provides enhanced guidance related to the disclosure of information regarding noncontrolling interests in a subsidiary and their effect on Cooper. This Statement, together with the IASB’s IAS 27, Consolidated and Separate Financial Statements, concludes a joint effort by the FASB and IASB to improve the accounting for and reporting of noncontrolling interests in consolidated financial statements and promotes international convergence of accounting standards. For Cooper, SFAS No. 160 was effective January 1, 2009. Cooper did

not apply the disclosure provisions of SFAS No. 160 as the information regarding noncontrolling interests in a subsidiary is immaterial to the consolidated financial statements.

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 requires entities to provide greater transparency about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows. Cooper implemented this Statement as of January 1, 2009 and has provided the additional disclosures required.

     In December 2008, the FASB affirmed Financial Accounting Standards Board Staff Position SFAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (“FSP SFAS 132(R)-1”). FSP SFAS 132(R)-1 requires additional disclosures about assets held in an employer’s defined benefit pension or other postretirement plan, primarily related to categories and fair value measurements of plan assets. FSP SFAS 132(R)-1 is effective for fiscal years ending after December 15, 2009 and will only impact the disclosures related to Cooper’s pension assets.

     In April 2009, the FASB issued FASB Staff Position No. 107-1 and Accounting Principles Board Opinion No. 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP No. 107-1 and APB 28-1”). FSP No. 107-1 is effective for interim periods ending after June 15, 2009 and extends the annual disclosure requirements of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments to interim financial statements. FSP 107-1 also amends APB Opinion 28, Interim Financial Reporting to require those disclosures in all interim financial statements. Cooper has implemented FSP 107-1 and APB 28-1 and has provided the additional disclosures required.

     Reclassification – Certain amounts in the Consolidated Statements of Cash Flows in 2008 have been reclassified to conform to the 2009 presentation.

Note 2. Restructuring Charges

     During the fourth quarter of 2008, Cooper committed to employment reductions to appropriately size Cooper’s workforce to current and anticipated market conditions and to downsize a domestic Tools segment manufacturing operation. Cooper recorded a $35.7 million charge in the fourth quarter of 2008 related to these actions, $25.5 million of which relates to the Electrical Products segment and $10.2 million relates to the Tools segment. A total of 1,314 hourly and 930 salaried positions are being eliminated as a result of the fourth quarter 2008 restructuring actions to reduce Cooper’s workforce.

     During the first six months of 2009, Cooper committed to additional employment reductions and certain facility closures as a result of management’s ongoing assessment of its hourly and salary workforce and its required production capacity in consideration of current and anticipated market conditions and demand levels. Cooper recorded charges of $19.2 million in the first six months of 2009 related to these actions, $11.2 million of which relates to the Electrical Products segment and $6.3 million relates to the Tools segment. The remaining $1.7 million relates to reductions in Cooper’s corporate staff. A total of 559 hourly and 568 salaried positions are being eliminated as a result of the 2009 restructuring actions to reduce Cooper’s workforce.

     The following table reflects activity in the accrued liability related to the restructuring actions.

										Contract
		Involuntary Employee								Termination
		Termination Benefits								and Other
		Headcount				Dollars				Exit Costs
						($ in millions)
Balance at December 31, 2008			886			$	28.0			$	1.7
2009 restructuring actions			1,127				17.9				1.3
Headcount reductions or costs incurred			(1,951	)			(34.0	)			(1.7	)
Balance at June 30, 2009			62			$	11.9			$	1.3

     The workforce reductions, contract termination and other exit costs and the related cash payments associated with the accrual balances at June 30, 2009 will be substantially completed in 2009. As part of the restructuring actions, Cooper has approved the closure of nine factories and warehouses, five of which have been completed at the end of the second quarter 2009. Of the remaining facility closures, two are expected to be completed by the end of 2009 with the remaining two factory closures expected to be substantially completed in the first half of 2010. Cooper expects to incur incremental restructuring charges in the range of approximately $15 to $21 million associated with the completion of planned restructuring activities as the actions are implemented over the next year.

Note 3. Goodwill

     Cooper had goodwill of $2.65 billion and $2.57 billion at June 30, 2009 and December 31, 2008, respectively. Under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), goodwill is subject to an annual impairment test. Cooper has designated January 1 as the date of its annual goodwill impairment test. If an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value; an interim impairment test would be performed between annual tests. Cooper has identified eight reporting units for which goodwill is tested for impairment. The results of step one of the goodwill impairment tests as of January 1, 2009 did not require the completion of step two of the test for any reporting unit.

Note 4. Stock-Based Compensation

     Cooper has a share-based compensation plan known as the Amended and Restated Stock Incentive Plan (the “Plan”). The Plan provides for the granting of stock options, performance-based share awards and restricted stock units. Since the original Plan’s inception in 1996, the aggregate number of shares authorized under the Plan is 41 million. As of June 30, 2009, 5,899,009 shares were available for future grants under the Plan. Of the total shares available for future grants, 2,819,658 are available for grants of performance-based shares and restricted stock units. Total compensation expense for all share-based compensation arrangements under the Plan was $14.0 million and $18.5 million for the six months ended June 30, 2009 and 2008, respectively. The total income tax benefit recognized in the income statement for all share-based compensation arrangements under the Plan was $4.8 million and $6.4 million for the six months ended June 30, 2009 and 2008, respectively. During the six months ended June 30, 2009, Cooper granted 2,414,725 stock option awards, 370,560 performance-based shares and 88,660 restricted stock units.

Note 5. Acquisitions

     Cooper completed three acquisitions and acquired certain intellectual property rights in the Electrical Products segment during the six months ended June 30, 2009. These acquisitions were selected because of their strategic fit with existing Cooper businesses.

     Cooper makes an initial allocation of the purchase price as of the date of acquisition, based on its estimate of the fair value of the assets and liabilities acquired. Cooper continues to evaluate the acquisition date fair value of the assets and liabilities acquired and will adjust the allocations as additional information relative to the businesses becomes available for up to one year from the acquisition date. This includes finalization of amount by major asset class and weighted-average amortization period for other intangible assets acquired.

     The acquisition date fair value of the total consideration for the 2009 acquisitions was approximately $25.0 million. The acquisitions resulted in the recognition of preliminary estimated aggregate goodwill of $14.0 million, substantially all of which is not expected to be deductible for tax purposes. Total cash consideration paid for acquisitions during the first six months of 2009 was $22.2 million, net of cash acquired.

     The results of operations of acquisitions are included in the consolidated income statement since the respective acquisition dates. Pro-forma income from continuing operations and diluted earnings per share for the six months ended June 30, 2009 and 2008, assuming the acquisitions had occurred at the beginning of the period, would not be materially different from reported results.

Note 6. Inventories

		June 30,				December 31,
		2009				2008
		(in millions)
Raw materials		$	210.8			$	239.3
Work-in-process			160.7				163.2
Finished goods			360.8				405.0
Perishable tooling and supplies			13.6				13.9
			745.9				821.4
Allowance for excess and obsolete inventory			(84.1	)			(77.0	)
Excess of current standard costs over LIFO costs			(114.6	)			(102.6	)
Net inventories		$	547.2			$	641.8

Note 7. Contingencies

     Cooper and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. Cooper estimates the range of liability related to pending litigation when management believes the amount and range of loss can be estimated. Cooper records its best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, Cooper records the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, Cooper assesses the potential liability related to pending litigation and claims and revises its estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from the estimates. In the opinion of management and based on liability accruals provided, the ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on Cooper’s consolidated financial position or cash flows, although they could have a material adverse effect on the results of operations for a particular reporting period.

     The U.S. Federal Government has enacted legislation intended to deny certain federal funding and government contracts to U.S. companies that reincorporate outside the United States, including Section 745 of the Consolidated Appropriations Act, 2008 (Public Law 110-161), Section 724(c) of the Transportation, Treasury, Housing and Urban Development, the Judiciary, and Independent Agencies Appropriations Act, 2006 (Public Law 109-115), and 6 U.S.C. 395(b) of The Homeland Security Act. Cooper has self-reported to the Department of Defense certain transactions aggregating approximately $8 million with U.S. government entities which may be subject to the legislation. At the time of this filing, it is too early to determine whether any fines or penalties may be assessed against Cooper.

Note 8. Debt

     At June 30, 2009, Cooper has $11.8 million of short-term debt. At June 30, 2009 Cooper had no commercial paper borrowings outstanding. At June 30, 2009, Cooper has U.S. committed credit facilities that total $513 million, of which $13 million matures in September 2009 and $500 million matures in November 2009.

     Cooper is currently negotiating a new $350 million committed credit facility with a term of three years and anticipates the new facility to be in place in August 2009. However, there can be no assurance that a new facility will be negotiated in that time, or at all, and it is likely that the terms of the new facility will not be as attractive as in the existing facility that expires in November 2009.

Note 9. Shareholders’ Equity

     At June 30, 2009, 166,739,478 Class A common shares, $.01 par value were issued and outstanding (excluding 36,533,714 Class A common shares held by wholly-owned subsidiaries) compared to 166,908,287 Class A common shares, $.01 par value (excluding 37,362,915 Class A common shares held by wholly-owned subsidiaries) at December 31, 2008. During the six months ended June 30, 2009, Cooper issued 1,093,991 Class A common shares primarily in connection with employee incentive and benefit plans and Cooper’s dividend reinvestment program. During the six months ended June 30, 2009, Cooper and its wholly-owned subsidiaries purchased 1,262,800 Class A common shares for $26.0 million under Cooper’s share repurchase plans. The share purchases are recorded by Cooper’s wholly-owned subsidiaries as an investment in its parent company that is eliminated in consolidation.

     A wholly-owned subsidiary owns all of the issued and outstanding Class B common shares. During the first quarter of 2009, Cooper repurchased 4.2 million Class B common shares from its wholly-owned subsidiary. The subsidiary’s investment in the Class B common shares is eliminated in consolidation. If at any time a dividend is declared and paid on the Class A common shares, a like dividend shall be declared and paid on the Class B common shares in an equal amount per share.

     On February 12, 2008, Cooper’s Board of Directors authorized the purchase of ten million shares of common stock. On February 9, 2009, Cooper announced that the Board of Directors authorized the repurchase of ten million shares of common stock in addition to the remaining February 12, 2008 authorization. In the six months ended June 30, 2009, Cooper repurchased the one million shares intended to offset dilution from share issuances under equity compensation plans, as well as 262,800 additional shares under the Cooper Board of Directors’ authorizations discussed above. Cooper may continue to repurchase shares under these authorizations from time to time during 2009. The decision whether to do so will depend on the favorability of market conditions, as well as potential cash requirements for acquisitions and debt repayments. As of June 30, 2009, 12,766,635 shares remain available to be repurchased under the authorizations by the Board of Directors.

Note 10. Segment Information

		Revenues
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in millions)
Electrical Products		$	1,131.1			$	1,510.0			$	2,261.6			$	2,871.6
Tools			138.7				214.3				265.0				398.8
Total revenues		$	1,269.8			$	1,724.3			$	2,526.6			$	3,270.4

		Operating Earnings
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in millions)
Electrical Products		$	153.5			$	259.0			$	293.5			$	482.5
Tools			2.9				22.3				(1.0	)			39.5
Segment operating earnings			156.4				281.3				292.5				522.0
General Corporate expense			21.0				27.3				42.0				45.6
Restructuring charges			10.4				7.6				19.2				7.6
Total operating earnings			125.0				246.4				231.3				468.8
Interest expense, net			16.3				18.3				31.5				33.2
Income from continuing operations before income taxes		$	108.7			$	228.1			$	199.8			$	435.6

     General Corporate expense includes currency losses primarily related to tax reorganizations and financing the MTL acquisition of $5.4 million and $0.3 million in the three and six month periods ended June 30, 2008, respectively.

Note 11. Pension and Other Postretirement Benefits

		Pension Benefits
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in millions)
Components of net periodic benefit cost:
Service cost		$	0.9			$	0.9			$	1.7			$	1.9
Interest cost			10.4				10.6				20.8				21.1
Expected return on plan assets			(9.8	)			(12.5	)			(19.5	)			(25.0	)
Amortization of prior service cost			(0.7	)			(0.6	)			(1.3	)			(1.1	)
Recognized actuarial loss			5.7				2.4				11.3				4.8
Net periodic benefit cost		$	6.5			$	0.8			$	13.0			$	1.7

		Other Postretirement Benefits
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in millions)
Components of net periodic benefit cost:
Interest cost		$	1.2			$	1.3			$	2.4			$	2.6
Amortization of prior service cost			(0.5	)			(0.5	)			(1.0	)			(1.0	)
Recognized actuarial gain			(0.8	)			(0.6	)			(1.6	)			(1.2	)
Net periodic benefit cost (gain)		$	(0.1	)		$	0.2			$	(0.2	)		$	0.4

Note 12. Income Taxes

     The effective tax rate was 14.7% for the six months ended June 30, 2009 and 27.6% for the six months ended June 30, 2008. Cooper reduced income taxes expense by $8.4 million and $4.6 million in the first six months of 2009 and 2008, respectively, for discrete tax items primarily related to foreign taxes. Excluding the impacts of the discrete items, Cooper’s effective tax rate would have been 18.9% for the six months ended June 30, 2009 and 28.7% for the first six months of 2008. The decrease in Cooper’s 2009 effective tax rate compared to 2008, adjusted for the aforementioned discrete items, is primarily related to a decrease in taxable earnings in 2009 without a corresponding decrease in projected tax benefits.

     Cooper has unrecognized gross tax benefits of $32.1 million at June 30, 2009. Approximately $24.9 million of unrecognized tax benefits, if recognized, would favorably impact the effective tax rate. Cooper believes it is reasonably possible that additional tax benefits in the range of approximately $1 to $5 million could be recognized during the next 12 months as audits close and statutes expire.

     In June 2009, the Internal Revenue Service completed its examination of Cooper’s 2007 Federal Tax Return and issued a notice of assessment in the amount of $16 million. The IRS challenged Cooper’s intercompany pricing with a foreign affiliate. On July 15, 2009, Cooper filed its protest for this assessment. While the outcome of the proceedings with the Internal Revenue Service cannot be predicted with certainty, management believes that it is more likely than not that its tax position will prevail.

     In June 2008, the German Tax Authorities issued a proposed audit finding related to a 2004 reorganization that was treated as a non-taxable event. Cooper believes that the reorganization was properly reflected on its German income tax returns in accordance with applicable tax laws and regulations in effect during the period involved. Cooper is preparing a response related to the proposed audit finding and will challenge the proposed finding vigorously. While the outcome of the proceedings with the German Tax Authorities cannot be predicted with certainty, management believes that it is more likely than not that its tax position related to the 2004 reorganization will prevail. If the proposed audit finding is upheld, it would require Cooper to pay German tax of approximately €58 million, which would be available for credit in the United States, plus accrued interest.

     The Internal Revenue Service has completed its examination of Cooper’s 2007 Federal income tax return and Cooper is under examination by various United States State and Local taxing authorities, as well as various taxing authorities in other countries. Cooper is no longer subject to U.S. Federal income tax examinations by tax authorities for years prior to 2007, and with few exceptions, Cooper is no longer subject to State and Local, or non-U.S. income tax examinations by tax authorities for years before 2000. Cooper fully cooperates with all audits, but defends existing positions vigorously. These audits are in various stages of completion. To provide for potential tax exposures, Cooper maintains a liability for unrecognized tax benefits, which management believes is adequate. The results of future audit assessments, if any, could have a material effect on Cooper’s cash flows as these audits are completed.

Note 13. Net Income Per Common Share

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in millions)
Basic:
Income from continuing operations		$	89.3			$	161.9			$	170.5			$	315.3
Income from discontinued operations			—				—				18.9				—
Net income applicable to common stock		$	89.3			$	161.9			$	189.4			$	315.3
Weighted average common shares outstanding			166.9				174.3				167.1				175.7
Diluted:
Income from continuing operations		$	89.3			$	161.9			$	170.5			$	315.3
Income from discontinued operations			—				—				18.9				—
Net income applicable to common stock		$	89.3			$	161.9			$	189.4			$	315.3
Weighted average common shares outstanding			166.9				174.3				167.1				175.7
Incremental shares from assumed conversions:
Options, performance-based stock awards and other employee awards			1.1				2.2				1.0				2.2
Weighted average common shares and common share equivalents			168.0				176.5				168.1				177.9

     Options and employee awards are not considered in the calculations if the effect would be antidilutive. Out of the money options and employee awards of 7.8 million and 3.2 million shares were excluded in the six months ended June 30, 2009 and 2008, respectively.

Note 14. Net Income and Other Nonowner Changes in Equity

     The components of net income and other nonowner changes in equity, net of related taxes, were as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
						(in millions)
Net income		$	89.3			$	161.9			$	189.4			$	315.3
Foreign currency translation gains			69.4				14.0				46.5				23.7
Change in fair value of derivatives			4.2				(0.5	)			4.7				10.0
Pension and postretirement benefit plans			2.3				0.4				4.2				0.9
Net income and other nonowner changes in equity		$	165.2			$	175.8			$	244.8			$	349.9

Note 15. Financial Instruments and Hedging Activities, Concentrations of Credit Risk and Fair Value of Financial Instruments

     Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”), as amended, requires that all derivatives be recognized as assets and liabilities and measured at fair value. For derivative instruments that are not designated as hedges, the gain or loss on the derivative is recognized in earnings currently. A derivative instrument may be designated as a hedge of the exposure to changes in the fair value of an asset or liability or variability in expected future cash flows if the hedging relationship is expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedged risk during the period of designation. If a derivative is designated as a fair value hedge, the gain or loss on the derivative and the offsetting loss or gain on the hedged asset, liability or firm commitment is recognized in earnings. For derivative instruments designated as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated nonowner changes in equity and reclassified into earnings in the same period that the hedged transaction affects earnings. The ineffective portion of the gain or loss is immediately recognized in earnings.

     Hedge accounting is discontinued prospectively when (1) it is determined that a derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the derivative is sold, terminated or exercised; (3) the hedged item no longer meets the definition of a firm commitment; or (4) it is unlikely that a forecasted transaction will occur within two months of the originally specified time period.

     When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative will continue to be carried on the balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because a hedged item no longer meets the definition of a firm commitment, the derivative will continue to be carried on the balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment will be removed from the balance sheet and recognized as a gain or loss currently in earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur within two months of the originally specified time period, the derivative will continue to be carried on the balance sheet at its fair value, and gains and losses reported in accumulated nonowner changes in equity will be recognized immediately in earnings.

     As a result of having sales, purchases and certain intercompany transactions denominated in currencies other than the functional currencies of Cooper’s businesses, Cooper is exposed to the effect of currency exchange rate changes on its cash flows and earnings. Cooper enters into currency forward exchange contracts to hedge significant non-functional currency denominated transactions for periods consistent with the terms of the underlying transactions. Contracts generally have maturities that do not exceed one year.

     Currency forward exchange contracts executed to hedge forecasted transactions are accounted for as cash flow hedges. Currency forward exchange contracts executed to hedge a recognized asset, liability or firm commitment are accounted for as fair value hedges. Cooper also enters into certain currency forward exchange contracts that are not designated as hedges. These contracts are intended to reduce cash flow volatility related to short-term intercompany financing transactions. Cooper sometimes enters into commodity swaps to reduce the volatility of price fluctuations on a portion of up to eighteen months of forecasted material purchases. These instruments are designated as cash flow hedges. Cooper does not enter into speculative derivative transactions.

     During October 2005, Cooper entered into cross-currency swaps to effectively convert its newly issued $325 million, 5.25% fixed-rate debt to €272.6 million of 3.55% fixed-rate debt. The $325 million debt issuance proceeds were swapped to €272.6 million and lent through an intercompany loan to a non-U.S. subsidiary to partially fund repayment of the 300 million Euro bond debt that matured on October 25, 2005. The cross-currency swaps mature in November 2012.

     SFAS No. 157 expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

     Assets and liabilities measured at fair value are based on one or more of three valuation techniques described in SFAS No. 157. Valuation techniques utilized for each individual asset and liability category are referenced in the tables below. The valuation techniques are as follows:

	(a)		Market approach – Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;
	(b)		Income approach – Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models);
	(c)		Cost approach – Amount that would be required to replace the service capacity of an asset (replacement cost).

     Assets and liabilities measured at fair value as of June 30, 2009 on a recurring basis are as follows:

		Assets				Liabilities
		Significant other				Significant other
		observable inputs				observable inputs				Valuation
(in millions)		(Level 2)				(Level 2)				Technique
Short-term investments		$	12.6			$	—				(a	)
Short-term currency forward exchange contracts			14.1				(26.9	)			(a	)
Long-term currency forward exchange contracts			49.7				(19.2	)			(a	)
Short-term commodity swaps			0.5				(10.4	)			(a	)
Long-term cross-currency swaps			—				(45.8	)			(a	)

     Except as discussed below, the currency forward exchange contracts and commodity swaps in the above table are designated as hedging instruments under SFAS No. 133. Currency forward exchange contracts representing approximately $33 million of assets and $21 million of liabilities at June 30, 2009 are not designated as hedging instruments under SFAS No. 133.

     Assets and liabilities measured at fair value as of December 31, 2008 on a recurring basis are as follows:

		Assets				Liabilities
		Significant other				Significant other
		observable inputs				observable inputs				Valuation
(in millions)		(Level 2)				(Level 2)				Technique
Short-term investments		$	21.9			$	—				(a	)
Short-term currency forward exchange contracts			40.0				(8.4	)			(a	)
Long-term currency forward exchange contracts			91.3				(40.0	)			(a	)
Short-term commodity swaps			—				(33.5	)			(a	)
Long-term cross-currency swaps			—				(29.1	)			(a	)

     There were no changes in our valuation techniques used to measure asset or liability fair values on a recurring basis in the six months ended June 30, 2009.

     Gains or losses on derivative instruments are reported in the same line item as the underlying hedged transaction in the consolidated statements of income. The net gain or loss on currency forward exchange contracts was not material in the six months ended June 30, 2009 and 2008. For commodity swaps, Cooper recognized in cost of sales a net loss of $14.6 million during the six months ended June 30, 2009 and a net gain of $5.7 million during the six months ended June 30, 2008. At June 30, 2009, Cooper estimates that approximately $9 million of net losses on derivative instruments designated as cash flow hedges will be reclassified from accumulated other nonowner changes in equity to earnings during the next twelve months. The amount of discontinued cash flow hedges in the six months ended June 30, 2009 and 2008 was not material.

     The table below summarizes the U. S. dollar equivalent contractual amounts of Cooper’s forward exchange contracts at June 30, 2009 and December 31, 2008.

		June 30,				December 31,
		2009				2008
		(in millions)
U.S. Dollar		$	669.3			$	502.4
Euro			320.8				214.6
British Pound Sterling			174.1				151.3
Mexican Peso			21.0				40.9
Other			58.6				43.8
		$	1,243.8			$	953.0

     The contractual amounts of Cooper’s commodity swap contracts at June 30, 2009 and December 31, 2008 were approximately $43 million and $68 million, respectively.

Other Instruments

     In the normal course of business, Cooper executes stand-by letters of credit, performance bonds and other guarantees that ensure Cooper’s performance or payment to third parties that are not reflected in the consolidated balance sheets. The aggregate notional value of these instruments was $116.3 million and $107.9 million at June 30, 2009 and December 31, 2008, respectively. In the past, no significant claims have been made against these financial instruments. Management believes the likelihood of demand for payment under these instruments is minimal and expects no material losses to occur in connection with these instruments.

Concentrations of Credit Risk

     Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers as well as their dispersion across many different geographic areas with no one customer receivable exceeding 6.0% of accounts receivable at June 30, 2009 (5.5% at December 31, 2008).

Fair Value of Financial Instruments Other than Derivatives

     Cooper’s financial instruments other than derivative instruments consist primarily of cash and cash equivalents, investments, restricted cash, trade receivables, insurance receivables related to discontinued operations, trade payables and debt instruments. The book values of cash and cash equivalents, investments, restricted cash, trade receivables, insurance receivables related to discontinued operations and trade payables are considered to be representative of their respective fair values. Cooper had a book value of approximately $1.21 billion and $1.23 billion for debt instruments at June 30, 2009 and December 31, 2008, respectively. The fair value (as represented primarily by quoted market prices) of these debt instruments was approximately $1.27 billion and $1.25 billion at June 30, 2009 and December 31, 2008, respectively.

Note 16. Discontinued Operations Receivable and Liability

Discontinued Operations Liability

     In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation (“Federal-Mogul”). These discontinued businesses (including the Abex Friction product line obtained from Pneumo-Abex Corporation (“Pneumo”) in 1994) were operated through subsidiary companies, and the stock of those subsidiaries was sold to Federal-Mogul pursuant to a Purchase and Sale Agreement dated August 17, 1998 (“1998 Agreement”). In conjunction with the sale, Federal-Mogul indemnified Cooper for certain liabilities of these subsidiary companies, including liabilities related to the Abex Friction product line and any potential liability that Cooper may have to Pneumo pursuant to a 1994 Mutual Guaranty Agreement between Cooper and Pneumo. On October 1, 2001, Federal-Mogul and several of its affiliates filed a Chapter 11 bankruptcy petition. The Bankruptcy Court for the District of Delaware confirmed Federal-Mogul’s plan of reorganization and Federal-Mogul emerged from bankruptcy in December 2007. As part of Federal-Mogul’s Plan of Reorganization, Cooper and Federal-Mogul reached a settlement agreement that was subject to approval by the Bankruptcy Court resolving Federal-Mogul’s indemnification obligations to Cooper. As discussed further below, on September 30, 2008, the Bankruptcy Court issued its final ruling denying Cooper’s participation in the proposed Federal-Mogul 524(g) trust resulting in implementation of the previously approved Plan B Settlement. As part of its obligation to Pneumo for any asbestos-related claims arising from the Abex Friction product line (“Abex Claims”), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims. Based on information provided by representatives of Federal-Mogul and recent claims experience, from August 28, 1998 through June 30, 2009, a total of 147,011 Abex Claims were filed, of which 123,983 claims have been resolved leaving 23,028 Abex Claims pending at June 30, 2009. During the six months ended June 30, 2009, 836 claims were filed and 1,496 claims were resolved. Since August 28, 1998, the average indemnity payment for resolved Abex Claims was $2,064 before insurance. A total of $155.4 million was spent on defense costs for the period August 28, 1998 through June 30, 2009. Historically, existing insurance coverage has provided 50% to 80% of the total defense and indemnity payments for Abex Claims. However, insurance recovery is currently at a lower percentage (approximately 30%) due to exhaustion of primary layers of coverage and litigation with certain excess insurers.

2005 — 2007

     In December 2005, Cooper reached an initial agreement in negotiations with the representatives of Federal-Mogul, its bankruptcy committees and the future claimants (the “Representatives”) regarding Cooper’s participation in Federal Mogul’s proposed 524(g) asbestos trust. By participating in this trust, Cooper would have resolved its liability for asbestos claims arising from Cooper’s former Abex Friction Products business. The proposed settlement agreement was subject to court approval and certain other approvals. Future claims would have been resolved through the bankruptcy trust.

     Although the final determination of whether Cooper would participate in the Federal-Mogul 524(g) trust was unknown, Cooper’s management concluded that, at the date of the filing of its 2005 Form 10-K, the most likely outcome in the range of potential outcomes was a settlement approximating the December 2005 proposed settlement. Accordingly, the accrual for potential liabilities related to the Automotive Products sale and the Federal-Mogul bankruptcy was $526.3 million at December 31, 2005. The December 31, 2005 discontinued operations accrual included payments to a 524(g) trust over 25 years that were undiscounted, and included $215 million of insurance recoveries where insurance in place agreements, settlements or policy recoveries were probable.

     Throughout 2006 and 2007, Cooper continued to believe that the most likely outcome in the range of potential outcomes was a revised settlement with Cooper resolving its asbestos obligations through participation in the proposed Federal-Mogul 524(g) trust. While the details of the proposed settlement agreement evolved during the on-going negotiations throughout 2006 and 2007, the underlying principles of the proposed settlement arrangements being negotiated principally included fixed payments to a 524(g) trust over 25 years that were subject to reduction for insurance proceeds received in the future.

     As a result of the then current status of settlement negotiations, Cooper recorded a $20.3 million after-tax discontinued operations charge, net of an $11.4 million income tax benefit, in the second quarter of 2006 to reflect the revised terms of the proposed settlement agreement at that time. The discontinued operations accrual was $509.1 million and $529.6 million as of December 31, 2007 and 2006, respectively, and included payments to a 524(g) trust over 25 years that were undiscounted, and included insurance recoveries of $230 million and $239 million, respectively, where insurance in place agreements, settlements or policy recoveries were probable.

     The U.S. Bankruptcy Court for the District of Delaware confirmed Federal-Mogul’s plan of reorganization on November 8, 2007, and the U.S. District Court for the District of Delaware affirmed the Bankruptcy Court’s order on November 14, 2007. As part of its ruling, the Bankruptcy Court approved the Plan B Settlement between Cooper and Federal-Mogul, which would require payment of $138 million to Cooper in the event Cooper’s participation in the Federal-Mogul 524(g) trust is not approved for any reason, or if Cooper elected not to participate or to pursue participation in the trust. The Bankruptcy Court stated that it would consider approving Cooper’s participation in the Federal-Mogul 524(g) trust at a later time, and that its order confirming the plan of reorganization and approving the settlement between Cooper and Federal-Mogul did not preclude later approval of Cooper’s participation in the 524(g) trust. Accordingly, in an effort to continue working towards approval of Cooper’s participation in the trust and to address certain legal issues identified by the Court, Cooper, Pneumo-Abex, Federal-Mogul, and other plan supporters filed the Modified Plan A Settlement Documents on December 13, 2007. The Modified Plan A Settlement Documents would have required Cooper to make an initial payment of $248.5 million in cash to the Federal-Mogul trust upon implementation of Plan A with additional annual payments of up to $20 million each due over 25 years. If the Bankruptcy Court had approved the modified settlement and that settlement was implemented, Cooper, through Pneumo-Abex LLC, would have continued to have access to Abex insurance policies.

2008 — 2009

     During the first quarter of 2008, the Bankruptcy Court concluded hearings on Plan A. On September 30, 2008, the Bankruptcy Court issued its ruling denying the Modified Plan A Settlement resulting in Cooper not participating in the Federal-Mogul 524(g) trust and instead proceeding with the Plan B Settlement that had previously been approved by the Bankruptcy Court. As a result of the Plan B Settlement, Cooper received the $138 million payment, plus interest of $3 million, in October 2008 from the Federal-Mogul Bankruptcy estate and will continue to resolve through the tort system the asbestos related claims arising from the Abex Friction product line that it had sold to Federal-Mogul in 1998. Additionally, under Plan B, Cooper has access to Abex insurance policies.

     The accrual for potential liabilities related to the Automotive Products sale and the Federal-Mogul bankruptcy and a progression of the activity is presented in the following table assuming resolution through participation in the Federal-Mogul 524(g) trust up until September 30, 2008 when the accounting was adjusted to reflect the Plan B Settlement.

		Six Months Ended				Nine Months Ended
		June 30, 2008				September 30, 2008
		(in millions)
Accrual at beginning of period (under Plan A)		$	509.1			$	509.1
Indemnity and defense payments			(11.9	)			(16.9	)
Insurance recoveries			25.4				25.4
Other			(1.3	)			(1.6	)
Accrual at end of period (under Plan A) *		$	521.3			$	516.0

     As a result of the September 30, 2008 Bankruptcy Court ruling discussed above, Cooper adjusted its accounting in the third quarter of 2008 to reflect the separate assets and liabilities related to the on-going

activities to resolve the potential asbestos related claims through the tort system. Cooper recorded income from discontinued operations of $16.6 million, net of a $9.4 million income tax expense, in the third quarter of 2008 to reflect the Plan B Settlement.

     The following table presents the separate assets and liabilities under the Plan B settlement and the cash activity under the Plan B Settlement.

		June 30,				December 31,
		2009				2008
		(in millions)
Asbestos liability analysis:
Total liability for unpaid, pending and future indemnity and defense costs at end of period		$	805.0			$	815.1
Asbestos receivable analysis
Insurance receivable for previously paid claims and insurance settlements		$	65.7			$	74.6
Insurance-in-place agreements available for pending and future claims			114.3				117.7
Total estimated asbestos receivable at end of period		$	180.0			$	192.3

		Six Months Ended
		June 30, 2009
		(in millions)
Cash Flow:
Indemnity and defense payments		$	(9.9	)
Insurance recoveries			43.1
Other			(0.2	)
Net cash flow		$	33.0

     During the first quarter of 2009, Cooper recognized a gain from discontinued operations of $18.9 million, net of a $12.0 million income tax expense, from negotiated insurance settlements consummated in the first quarter that were not previously recognized. Cooper believes that it is likely that additional insurance recoveries will be recorded in the future as new insurance-in-place agreements are consummated or settlements with insurance carriers are completed. Timing and value of these agreements and settlements cannot be currently estimated as they may be subject to extensive additional negotiation and litigation.

Asbestos Liability Estimate

     As of June 30, 2009, Cooper estimates that the liability for pending and future indemnity and defense costs for the next 45 years will be $805.0 million. The amount included for unpaid indemnity and defense costs is not significant at June 30, 2009. The estimated liability is before any tax benefit and is not discounted as the timing of the actual payments is not reasonably predictable.

     The methodology used to project Cooper’s liability estimate relies upon a number of assumptions including Cooper’s recent claims experience and declining future asbestos spending based on past trends and publicly available epidemiological data, changes in various jurisdictions, management’s judgment about the current and future litigation environment, and the availability to claimants of other payment sources.

     Abex discontinued using asbestos in the Abex Friction product line in the 1970’s and epidemiological studies that are publicly available indicate the incidence of asbestos-related disease is in decline and should continue to decline steadily. However, there can be no assurance that these studies, or other assumptions, will not vary significantly from the estimates utilized to project the undiscounted liability.

     Although Cooper believes that its estimated liability for pending and future indemnity and defense costs represents the best estimate of its future obligation, Cooper utilized scenarios that it believed were

reasonably possible that indicate a broader range of potential estimates from $735 to $950 million (undiscounted).

Asbestos Receivable Estimate

     As of June 30, 2009, Cooper, through Pneumo-Abex LLC, has access to Abex insurance policies with remaining limits on policies with solvent insurers in excess of $700 million. Insurance recoveries reflected as receivables in the balance sheet include recoveries where insurance-in-place agreements, settlements or policy recoveries are probable. As of June 30, 2009, Cooper’s receivable for recoveries of costs from insurers amounted to $180.0 million, of which $65.7 million relate to costs previously paid or insurance settlements. Cooper’s arrangements with the insurance carriers defer certain amounts of insurance and settlement proceeds that Cooper is entitled to receive beyond twelve months. Approximately 90% of the $180.0 million receivable from insurance companies at June 30, 2009 is due from domestic insurers whose AM Best rating is Excellent (A-) or better. The remaining balance of the insurance receivable has been significantly discounted to reflect management’s best estimate of the recoverable amount.

     Cooper believes that it is likely that additional insurance recoveries will be recorded in the future as new insurance-in-place agreements are consummated or settlements with insurance carriers are completed. However, extensive litigation with the insurance carriers may be required to receive those additional recoveries.

Critical Accounting Assumptions

     The amounts recorded by Cooper for its asbestos liability and related insurance receivables are not discounted and rely on assumptions that are based on currently known facts and strategy. The value of the liability on a discounted basis net of the amount of insurance recoveries likely to materialize in the future would be significantly lower than the net amounts currently recognized in the balance sheet. Cooper’s actual asbestos costs or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the estimation process vary significantly from actual results over time. As the estimated liability is not discounted and extends over 45 years, any changes in key assumptions could have a significant impact on the recorded liability. Key variables in these assumptions include the number and type of new claims filed each year, the average indemnity and defense costs of resolving claims, the number of years these assumptions are projected into the future, and the resolution of on-going negotiations of additional settlement or coverage-in-place agreements with insurance carriers. Assumptions with respect to these variables are subject to greater uncertainty as the projection period lengthens. Other factors that may affect Cooper’s liability and ability to recover under its insurance policies include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms that may be made by state and federal courts, and the passage of state or federal tort reform legislation. Cooper will review these assumptions on a periodic basis to determine whether any adjustments are required to the estimate of its recorded asbestos liability and related insurance receivables.

     From a cash flow perspective, Cooper management believes that the annual cash outlay for its potential asbestos liability, net of insurance recoveries, will not be material to Cooper’s operating cash flow.

Note 17. Consolidating Financial Information

     Cooper and certain of its principal operating subsidiaries (the “Guarantors”) fully and unconditionally guarantee, on a joint and several basis, the registered debt securities of Cooper Industries, LLC and Cooper US, Inc. The following condensed consolidating financial information is included so that separate financial statements of Cooper Industries, LLC, Cooper US, Inc. or the Guarantors are not required to be filed with the Securities and Exchange Commission. The consolidating financial statements present investments in subsidiaries using the equity method of accounting. Intercompany investments in the Class A and Class B common shares are accounted for using the cost method.

Consolidating Income Statements
Three Months Ended June 30, 2009
(in millions)

						Cooper				Cooper
						Industries,				US,								Other				Consolidating
		Cooper				LLC				Inc.				Guarantors				Subsidiaries				Adjustments				Total
Revenues		$	—			$	—			$	—			$	748.9			$	631.7			$	(110.8	)		$	1,269.8
Cost of sales			—				(0.7	)			—				535.0				461.5				(110.8	)			885.0
Selling and administrative expenses			4.9				2.6				14.5				118.6				110.4				(1.6	)			249.4
Restructuring charges			—				—				0.1				2.8				7.5				—				10.4
Interest expense, net			(0.1	)			4.0				12.1				0.4				(0.1	)			—				16.3
Equity in earnings of subsidiaries, net of tax			135.2				(5.3	)			60.3				18.3				59.6				(268.1	)			—
Intercompany income (expense)			(7.5	)			6.5				8.5				(34.5	)			62.1				(35.1	)			—
Income (loss) from continuing operations before income taxes			122.9				(4.7	)			42.1				75.9				174.1				(301.6	)			108.7
Income tax expense (benefit)			—				1.0				(17.5	)			22.4				13.5				—				19.4
Income (loss) from continuing operations			122.9				(5.7	)			59.6				53.5				160.6				(301.6	)			89.3
Income from discontinued operations, net of tax			—				—				—				—				—				—				—
Net income (loss)		$	122.9			$	(5.7	)		$	59.6			$	53.5			$	160.6			$	(301.6	)		$	89.3

Consolidating Income Statements
Three Months Ended June 30, 2008
(in millions)

						Cooper				Cooper
						Industries,				US,								Other				Consolidating
		Cooper				LLC				Inc.				Guarantors				Subsidiaries				Adjustments				Total
Revenues		$	—			$	—			$	—			$	1,004.1			$	822.7			$	(102.5	)		$	1,724.3
Cost of sales			0.1				(0.1	)			1.9				705.2				551.3				(102.5	)			1,155.9
Selling and administrative expenses			3.3				3.5				20.3				142.5				149.9				(5.1	)			314.4
Restructuring charges			—				—				—				—				7.6				—				7.6
Interest expense, net			—				4.6				13.0				—				0.7				—				18.3
Equity in earnings of subsidiaries, net of tax			205.2				7.6				124.8				33.9				129.9				(501.4	)			—
Intercompany income (expense)			(10.1	)			(10.2	)			26.9				(38.3	)			66.5				(34.8	)			—
Income (loss) before income taxes			191.7				(10.6	)			116.5				152.0				309.6				(531.1	)			228.1
Income tax expense (benefit)			—				(6.8	)			(13.3	)			47.2				39.1				—				66.2
Net income (loss)		$	191.7			$	(3.8	)		$	129.8			$	104.8			$	270.5			$	(531.1	)		$	161.9

Consolidating Income Statements
Six Months Ended June 30, 2009
(in millions)

						Cooper				Cooper
						Industries,				US,								Other				Consolidating
		Cooper				LLC				Inc.				Guarantors				Subsidiaries				Adjustments				Total
Revenues		$	—			$	—			$	—			$	1,518.3			$	1,236.4			$	(228.1	)		$	2,526.6
Cost of sales			—				(1.3	)			0.1				1,110.1				889.0				(228.1	)			1,769.8
Selling and administrative expenses			7.8				5.0				32.1				242.3				220.7				(1.6	)			506.3
Restructuring charges			—				—				1.5				6.3				11.4				—				19.2
Interest expense, net			—				8.0				23.6				0.4				(0.5	)			—				31.5
Equity in earnings of subsidiaries, net of tax			279.2				(9.6	)			108.7				31.7				128.8				(538.8	)			—
Intercompany income (expense)			(15.3	)			(4.9	)			32.6				(69.5	)			125.3				(68.2	)			—
Income (loss) from continuing operations before income taxes			256.1				(26.2	)			84.0				121.4				369.9				(605.4	)			199.8
Income tax expense (benefit)			—				(6.5	)			(44.8	)			36.9				43.7				—				29.3
Income (loss) from continuing operations			256.1				(19.7	)			128.8				84.5				326.2				(605.4	)			170.5
Income from discontinued operations, net of tax			—				18.9				—				—				—				—				18.9
Net income (loss)		$	256.1			$	(0.8	)		$	128.8			$	84.5			$	326.2			$	(605.4	)		$	189.4

Consolidating Income Statements
Six Months Ended June 30, 2008
(in millions)

						Cooper				Cooper
						Industries,				US,								Other				Consolidating
		Cooper				LLC				Inc.				Guarantors				Subsidiaries				Adjustments				Total
Revenues		$	—			$	—			$	—			$	1,925.1			$	1,532.3			$	(187.0	)		$	3,270.4
Cost of sales			(0.1	)			(0.2	)			3.1				1,337.2				1,025.1				(187.0	)			2,178.1
Selling and administrative expenses			5.5				6.0				43.1				287.4				283.1				(9.2	)			615.9
Restructuring charges			—				—				—				—				7.6				—				7.6
Interest expense, net			—				10.2				24.7				—				(1.7	)			—				33.2
Equity in earnings of subsidiaries, net of tax			399.5				12.6				231.3				65.2				244.7				(953.3	)			—
Intercompany income (expense)			(19.5	)			(19.4	)			58.6				(82.6	)			131.4				(68.5	)			—
Income (loss) before income taxes			374.6				(22.8	)			219.0				283.1				594.3				(1,012.6	)			435.6
Income tax expense (benefit)			—				(13.3	)			(25.6	)			88.3				70.9				—				120.3
Net income (loss)		$	374.6			$	(9.5	)		$	244.6			$	194.8			$	523.4			$	(1,012.6	)		$	315.3

Consolidating Balance Sheets
June 30, 2009
(in millions)

						Cooper				Cooper
						Industries,				US,								Other				Consolidating
		Cooper				LLC				Inc.				Guarantors				Subsidiaries				Adjustments				Total
Cash and cash equivalents		$	—			$	—			$	212.7			$	5.8			$	231.7			$	—			$	450.2
Investments			—				—				12.6				—				—				—				12.6
Receivables			0.1				—				—				449.3				452.1				—				901.5
Inventories			—				—				—				272.4				274.8				—				547.2
Current discontinued operations receivable			—				13.4				—				—				—				—				13.4
Deferred income taxes and other current assets			1.8				21.6				43.8				35.0				94.1				—				196.3
Total current assets			1.9				35.0				269.1				762.5				1,052.7				—				2,121.2
Property, plant and equipment, less accumulated depreciation			—				—				62.4				320.2				346.3				—				728.9
Goodwill			—				—				—				1,278.1				1,367.8				—				2,645.9
Investment in subsidiaries			2,831.1				570.6				4,622.9				1,190.3				2,484.4				(11,699.3	)			—
Investment in parent			—				—				3,418.9				—				312.7				(3,731.6	)			—
Intercompany accounts receivable			—				63.4				—				1,659.4				1,539.4				(3,262.2	)			—
Intercompany notes receivable			3,345.0				24.0				566.0				0.1				4,166.7				(8,101.8	)			—
Long-term discontinued operations receivable			—				166.6				—				—				—				—				166.6
Deferred income taxes and other noncurrent assets			—				247.4				13.2				(88.8	)			296.3				—				468.1
Total assets		$	6,178.0			$	1,107.0			$	8,952.5			$	5,121.8			$	11,566.3			$	(26,794.9	)		$	6,130.7
Short-term debt		$	—			$	—			$	—			$	—			$	11.8			$	—			$	11.8
Accounts payable			41.7				2.7				15.9				153.8				195.7				—				409.8
Accrued liabilities			6.5				28.7				81.3				209.5				211.8				—				537.8
Current discontinued operations liability			—				50.2				—				—				—				—				50.2
Current maturities of long-term debt			—				275.0				—				—				—				—				275.0
Total current liabilities			48.2				356.6				97.2				363.3				419.3				—				1,284.6
Long-term debt			—				2.2				922.5				—				—				—				924.7
Intercompany accounts payable			87.4				—				3,174.8				—				—				(3,262.2	)			—
Intercompany notes payable			1,353.8				—				1,211.9				1,742.1				3,794.0				(8,101.8	)			—
Long-term discontinued operations liability			—				754.8				—				—				—				—				754.8
Other long-term liabilities			—				50.1				111.1				71.8				163.5				—				396.5
Total liabilities			1,489.4				1,163.7				5,517.5				2,177.2				4,376.8				(11,364.0	)			3,360.6
Class A common stock			2.0				—				—				—				—				(0.3	)			1.7
Class B common stock			1.1				—				—				—				—				(1.1	)			—
Subsidiary preferred stock			—				—				—				—				325.5				(325.5	)			—
Subsidiary common stock			—				—				—				—				285.4				(285.4	)			—
Capital in excess of par value			3,258.3				—				751.9				1,490.3				2,184.2				(7,684.7	)			—
Retained earnings			1,569.2				76.2				2,948.5				1,495.5				4,687.7				(7,734.4	)			3,042.7
Accumulated other non- owner changes in equity			(142.0	)			(132.9	)			(265.4	)			(41.2	)			(293.3	)			600.5				(274.3	)
Total shareholders’ equity			4,688.6				(56.7	)			3,435.0				2,944.6				7,189.5				(15,430.9	)			2,770.1
Total liabilities and shareholders’ equity		$	6,178.0			$	1,107.0			$	8,952.5			$	5,121.8			$	11,566.3			$	(26,794.9	)		$	6,130.7