e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended September 30, 2010
OR
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o |
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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 1-31330
Cooper Industries plc
(Exact name of registrant as specified in its charter)
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Ireland
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98-0632292 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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5 Fitzwilliam Square
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Dublin 2, Ireland |
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(Address of principal executive offices)
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(Zip Code) |
(713) 209-8400
(Registrants 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.
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 registrants common shares outstanding as of September 30, 2010 was 162,702,453.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER INDUSTRIES PLC
CONSOLIDATED INCOME STATEMENTS
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(in millions, except per share data) |
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Revenues |
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$ |
1,240.7 |
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$ |
1,286.4 |
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$ |
3,806.0 |
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$ |
3,813.0 |
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Cost of sales |
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821.6 |
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876.5 |
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2,537.7 |
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2,646.3 |
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Selling and administrative expenses |
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236.7 |
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251.1 |
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737.1 |
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757.4 |
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Loss related to contribution of net assets
to Apex Tool Group, LLC |
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134.5 |
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Equity in earnings of Apex Tool Group, LLC |
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(10.5 |
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(10.5 |
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Restructuring and asset impairment charges |
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1.5 |
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6.5 |
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8.0 |
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25.7 |
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Operating earnings |
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191.4 |
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152.3 |
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399.2 |
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383.6 |
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Interest expense, net |
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12.3 |
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15.9 |
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36.2 |
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47.4 |
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Income from continuing operations
before income taxes |
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179.1 |
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136.4 |
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363.0 |
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336.2 |
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Income taxes expense |
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37.4 |
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22.1 |
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61.1 |
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51.4 |
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Income from continuing operations |
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141.7 |
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114.3 |
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301.9 |
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284.8 |
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Income related to discontinued operations,
net of income taxes |
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6.6 |
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25.5 |
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Net income |
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$ |
141.7 |
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$ |
120.9 |
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$ |
301.9 |
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$ |
310.3 |
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Income per common share: |
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Basic: |
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Income from continuing operations |
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$ |
.86 |
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$ |
.68 |
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$ |
1.81 |
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$ |
1.71 |
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Income from discontinued operations |
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.04 |
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.15 |
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Net income |
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$ |
.86 |
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$ |
.72 |
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$ |
1.81 |
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$ |
1.86 |
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Diluted: |
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Income from continuing operations |
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$ |
.85 |
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$ |
.68 |
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$ |
1.79 |
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$ |
1.69 |
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Income from discontinued operations |
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.04 |
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.15 |
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Net income |
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$ |
.85 |
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$ |
.72 |
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$ |
1.79 |
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$ |
1.84 |
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Cash dividends declared per common share |
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$ |
.27 |
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$ |
.25 |
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$ |
.81 |
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$ |
.75 |
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The accompanying notes are an integral part of these statements.
-2-
COOPER INDUSTRIES PLC
CONSOLIDATED BALANCE SHEETS
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September 30, |
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December 31, |
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2010 |
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2009 |
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(unaudited) |
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(Note 1) |
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(in millions) |
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ASSETS |
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Cash and cash equivalents |
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$ |
296.0 |
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$ |
381.6 |
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Receivables, less allowances |
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833.2 |
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697.7 |
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Inventories |
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477.8 |
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423.9 |
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Current discontinued operations receivable |
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14.2 |
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12.7 |
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Other current assets |
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182.0 |
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210.1 |
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Total current assets |
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1,803.2 |
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1,726.0 |
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Restricted cash |
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34.9 |
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Property, plant and equipment, less accumulated depreciation |
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589.8 |
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639.0 |
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Goodwill |
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2,323.4 |
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2,338.3 |
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Other intangible assets, less accumulated amortization |
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311.8 |
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306.8 |
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Assets to be contributed to Apex Tool Group, LLC |
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588.9 |
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Investment in Apex Tool Group, LLC |
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498.5 |
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Long-term discontinued operations receivable |
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150.6 |
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166.6 |
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Other noncurrent assets |
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246.7 |
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218.8 |
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Total assets |
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$ |
5,958.9 |
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$ |
5,984.4 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Short-term debt |
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$ |
9.6 |
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$ |
9.4 |
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Accounts payable |
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417.8 |
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347.5 |
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Accrued liabilities |
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484.2 |
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460.6 |
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Current discontinued operations liability |
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41.7 |
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43.4 |
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Current maturities of long-term debt |
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2.3 |
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Total current liabilities |
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953.3 |
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863.2 |
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Long-term debt |
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923.1 |
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922.7 |
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Liabilities to be contributed to Apex Tool Group, LLC |
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140.1 |
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Long-term discontinued operations liability |
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718.1 |
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741.1 |
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Other long-term liabilities |
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336.3 |
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354.0 |
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Total liabilities |
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2,930.8 |
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3,021.1 |
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Common stock, $.01 par value |
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1.7 |
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1.7 |
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Retained earnings |
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3,493.8 |
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3,254.1 |
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Treasury stock |
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(288.5 |
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(12.5 |
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Accumulated other nonowner changes in equity |
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(178.9 |
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(280.0 |
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Total shareholders equity |
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3,028.1 |
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2,963.3 |
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Total liabilities and shareholders equity |
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$ |
5,958.9 |
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$ |
5,984.4 |
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The accompanying notes are an integral part of these statements.
-3-
COOPER INDUSTRIES PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Nine Months Ended |
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September 30, |
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2010 |
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2009 |
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(in millions) |
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Cash flows from operating activities: |
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Net income |
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$ |
301.9 |
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$ |
310.3 |
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Adjust: Income related to discontinued operations |
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(25.5 |
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Income from continuing operations |
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301.9 |
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284.8 |
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Adjustments to reconcile to net cash provided by operating activities: |
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Depreciation and amortization |
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107.7 |
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108.1 |
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Deferred income taxes |
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(35.6 |
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(13.7 |
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Excess tax benefits from stock options and awards |
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(4.8 |
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1.6 |
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Loss related to contribution of net assets to Apex Tool Group, LLC |
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134.5 |
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Equity in earnings of Apex Tool Group, LLC |
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(10.5 |
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Restructuring and asset impairment charges |
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8.0 |
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25.7 |
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Changes in assets and liabilities: (1) |
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Receivables |
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(150.7 |
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163.4 |
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Inventories |
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(61.4 |
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153.5 |
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Accounts payable and accrued liabilities |
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91.2 |
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(156.9 |
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Discontinued operations assets and liabilities, net |
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(10.2 |
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35.9 |
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Other assets and liabilities, net |
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26.9 |
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36.0 |
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Net cash provided by operating activities |
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397.0 |
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638.4 |
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Cash flows from investing activities: |
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Proceeds from short-term investments |
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19.1 |
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Capital expenditures |
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(57.9 |
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(70.8 |
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Cash restricted for business acquisition |
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(34.9 |
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Cash paid for acquired businesses |
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(21.6 |
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(21.8 |
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Proceeds from sales of property, plant and equipment and other |
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(4.6 |
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1.4 |
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Net cash used in investing activities |
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(119.0 |
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(72.1 |
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Cash flows from financing activities: |
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Debt issuance costs |
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(1.7 |
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Repayments of debt, net |
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(2.3 |
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(24.6 |
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Dividends |
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(132.7 |
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(125.7 |
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Purchases of common shares |
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(26.0 |
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Purchases of treasury shares |
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(276.0 |
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Excess tax benefits from stock options and awards |
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4.8 |
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(1.6 |
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Proceeds from exercise of stock options and other |
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34.5 |
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4.5 |
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Net cash used in financing activities |
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(371.7 |
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(175.1 |
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Effect of exchange rate changes on cash and cash equivalents |
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8.1 |
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8.4 |
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Increase (decrease) in cash and cash equivalents |
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(85.6 |
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399.6 |
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Cash and cash equivalents, beginning of period |
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381.6 |
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258.8 |
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Cash and cash equivalents, end of period |
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$ |
296.0 |
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$ |
658.4 |
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(1) |
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Net of the effects of acquisitions and translation. |
The accompanying notes are an integral part of these statements.
-4-
COOPER INDUSTRIES PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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Note 1. |
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Accounting Policies |
Basis
of Presentation The consolidated financial statements of Cooper Industries plc, an
Irish 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 Coopers 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. For further information regarding
Coopers accounting policies, refer to the Consolidated Financial Statements and related notes for
the year ended December 31, 2009 included in Part IV of Coopers 2009 Annual Report on Form 10-K.
Reclassification Other intangible assets in the December 31, 2009 Consolidated Balance
Sheet have been reclassified to conform to the 2010 presentation. As discussed in Note 2 of the
Notes to Consolidated Financial Statements, the amounts related to the contribution of certain
Tools business assets and liabilities to Apex Tool Group, LLC in July 2010 have been reclassified
to separate lines in the December 31, 2009 Consolidated Balance Sheet.
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Note 2. |
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Contribution of Tools Business Assets and Liabilities to Joint Venture |
On March 26, 2010, Cooper announced that it entered into a Framework Agreement with Danaher
Corporation to create a joint venture combining Coopers Tools business with certain Tools
businesses from Danahers Tools and Components Segment (the Joint Venture). On July 6, 2010,
Cooper announced the completion of the Joint Venture, named Apex Tool Group, LLC. Cooper and
Danaher each own a 50% interest in the Joint Venture, have equal representation on its Board of
Directors and have a 50% voting interest in the Joint Venture. At completion of the transaction in
July, Cooper deconsolidated the Tools business assets and liabilities contributed to the Joint
Venture and recognized Coopers 50% ownership interest as an equity investment. Beginning in the
third quarter of 2010, Cooper recognizes its proportionate share of the Joint Ventures operating
results using the equity method. Recording the investment at its fair value of $480 million
resulted in a pretax loss of $134.5 million related to the transaction. The pretax loss related to
the formation of the Joint Venture included a $26.5 million gain from the contribution of the Tools
business net assets resulting from the difference in the fair value of the equity investment and
the carrying value of the net assets being contributed and transaction related costs. This gain
was offset by the write-off of approximately $161.0 million (approximately $104.4 million net of
the associated tax affect) from recognition of the accumulated other nonowner changes in equity
related to the Tools business, primarily related to cumulative currency translation losses. The
Tools business assets and liabilities contributed to the Joint Venture in July 2010 have been
reclassified to separate lines in the accompanying December 31, 2009 consolidated balance sheet.
Because the Tools business assets and liabilities to be contributed to the Joint Venture were
considered held for sale at June 30, 2010, Cooper recognized the $134.5 million loss in the second
quarter of 2010 by recognizing $126.1 million of the cumulative currency translation losses
included in other nonowner changes in equity (approximately $82.0 million net of the associated tax
affect) and transaction related costs. In the third quarter of 2010, Cooper recognized the
remaining items previously deferred in accumulated other nonowner changes in equity which was
offset by the gain on the underlying net assets contributed. As a result, there was no impact to
the income statement in the third quarter of 2010 upon deconsolidation of the Tools business assets
and liabilities contributed to the Joint Venture.
-5-
The following table reflects the components of the Tools business assets and liabilities as of
June 30, 2010 and December 31, 2009.
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June 30, |
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December 31, |
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2010 |
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2009 |
|
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|
(in millions) |
|
Receivables, less allowances |
|
$ |
111.4 |
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$ |
100.0 |
|
Inventories |
|
|
64.7 |
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|
60.0 |
|
Other current assets |
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|
12.5 |
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|
15.6 |
|
Property, plant and equipment, less accumulated depreciation |
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|
85.0 |
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|
92.7 |
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Goodwill |
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|
303.8 |
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|
304.9 |
|
Other intangible assets, less accumulated amortization |
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|
0.6 |
|
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|
0.7 |
|
Other noncurrent assets |
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|
12.8 |
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|
15.0 |
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Assets to be contributed to Tools joint venture |
|
$ |
590.8 |
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$ |
588.9 |
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Accounts payable |
|
|
48.2 |
|
|
|
36.9 |
|
Accrued liabilities |
|
|
55.9 |
|
|
|
54.6 |
|
Other long-term liabilities |
|
|
41.6 |
|
|
|
48.6 |
|
|
|
|
|
|
|
|
Liabilities to be contributed to Tools joint venture |
|
$ |
145.7 |
|
|
$ |
140.1 |
|
|
|
|
|
|
|
|
|
|
|
Note 3. |
|
Investment in Apex Tool Group, LLC |
As discussed in Note 2, Cooper contributed its Tools business assets and liabilities to Apex
Tool Group, LLC (Apex) in July 2010 and recognized Coopers 50% ownership interest as an equity
investment. Beginning in the third quarter of 2010, Cooper recognizes its proportionate share of
Apexs operating results using the equity method.
The following table reflects summarized financial information for Apex.
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
(in millions) |
|
|
|
|
|
|
Current assets |
|
$ |
560.5 |
|
Noncurrent assets |
|
|
946.5 |
|
Current liabilities |
|
|
(342.9 |
) |
Noncurrent liabilities |
|
|
(167.1 |
) |
|
|
|
|
Net equity |
|
$ |
997.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, 2010 |
|
|
(in millions) |
|
|
|
|
|
Revenues |
|
$ |
356.5 |
|
Operating earnings |
|
|
25.4 |
|
Net income |
|
|
21.1 |
|
-6-
Cooper completed two acquisitions in the Energy and Safety Solutions segment and acquired
certain intangible assets in the Electrical Products Group segment during the nine months ended
September 30, 2010. These acquisitions were selected because of their strategic fit with existing
Cooper businesses. The acquisition date fair value of the total consideration for the 2010
transactions was approximately $25.4 million and resulted in the recognition of aggregate goodwill
of $5.9 million. The transactions consummated in 2010 also resulted in the recognition of $19.8
million in other intangible assets consisting primarily of technology and customer relationships.
Total cash consideration paid for acquisitions during the nine months ended September 30, 2010 was
$21.6 million, net of cash acquired.
The results of operations of acquisitions are included in the consolidated income statements
since the respective acquisition dates. Pro-forma income from continuing operations and diluted
earnings per share for the nine months ended September 30, 2010 and 2009, assuming the acquisitions
had occurred at the beginning of the period, would not be materially different from reported
results.
In
October 2010, Cooper made a tender offer for all outstanding shares of Mount
Engineering, a publicly-traded company based in the United Kingdom. The total cash purchase price
offered for the shares is approximately £19.2 million. As
of the date of this filing, Cooper has acquired more than 90% of the outstanding shares of
Mount and expects to complete the acquisition of the remaining shares
in November 2010. Cash held in an escrow account at September
30, 2010 related to the tender offer has been recorded as restricted cash in the
accompanying financial statements.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Raw materials |
|
$ |
179.0 |
|
|
$ |
170.7 |
|
Work-in-process |
|
|
109.8 |
|
|
|
104.1 |
|
Finished goods |
|
|
303.3 |
|
|
|
265.1 |
|
Perishable tooling and supplies |
|
|
7.6 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
599.7 |
|
|
|
548.4 |
|
Allowance for excess and obsolete inventory |
|
|
(61.6 |
) |
|
|
(66.8 |
) |
Excess of FIFO costs over LIFO costs |
|
|
(60.3 |
) |
|
|
(57.7 |
) |
|
|
|
|
|
|
|
Net inventories |
|
$ |
477.8 |
|
|
$ |
423.9 |
|
|
|
|
|
|
|
|
Cooper has goodwill of $2.32 billion and $2.34 billion at September 30, 2010 and December 31,
2009, respectively. Goodwill is subject to an annual impairment test and Cooper has designated
January 1 as the date of this 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, 2010 did not require the completion of step two of the test for
any reporting unit. As a result of the Tools joint venture as discussed above, Cooper completed an
interim impairment test for the Tools reporting unit goodwill. The results of step one of the
goodwill impairment test for the Tools reporting unit did not require the completion of step two of
the test.
-7-
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 Coopers 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.
In connection with laws and regulations pertaining to the protection of the environment,
Cooper and its subsidiaries are party to several environmental proceedings and remediation
investigations and cleanups and, along with other companies, have been named a potentially
responsible party (PRP) for certain sites at which hazardous substances have been released into the
environment (Superfund sites).
Each of these matters is subject to various uncertainties and it is possible that some of
these matters will be decided unfavorably against Cooper. The resolution of these matters often
spans several years and frequently involves regulatory oversight or adjudication. Additionally,
many remediation requirements are not fixed and are likely to be affected by future technological,
site and regulatory developments. Consequently, the ultimate liability with respect to such
matters, as well as the timing of cash disbursements cannot be determined with certainty.
Environmental remediation costs are accrued based on Coopers current estimates of the most
likely amount of losses that it believes will be incurred on known environmental remediation
exposures and such accruals are adjusted as information develops or circumstances change.
Third-party sites usually involve multiple contributors where Coopers liability will be determined
based on an estimate of Coopers proportionate responsibility for the total cleanup. The amount
actually accrued for such sites is based on these estimates as well as an assessment of the
financial capacity of the other potentially responsible parties. At September 30, 2010, Cooper had
an accrual of $24.4 million with respect to potential environmental liabilities, including $10.4
million classified as a long-term liability. Cooper has not utilized any form of discounting in
establishing its environmental liability accruals.
In the first quarter of 2010, Cooper received two notices of potential liability under Section
107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA) from the United States Environmental Protection Agency with respect to the release or
threatened release of hazardous substances, pollutants, and contaminants into the 17-mile stretch
of the river known as the Lower Passaic River Study Area, which is part of the Diamond Alkali
Superfund Site located in Newark, New Jersey. The EPA sent notices to over 125 companies. The
notices to Cooper identified three former sites in the Newark area owned by the former Thomas A.
Edison, Inc. and McGraw-Edison Company. The notice alleges that as the successor to Thomas A.
Edison, Inc. and the McGraw-Edison Company, the former owners and operators
of the facilities, Cooper may be potentially liable for response costs and clean up of the
site. The notices do
-8-
not state an amount of potential liability and Cooper is investigating the
claims. At the time of this filing, it is too early to determine the amount of Coopers liability,
if any, related to this matter.
At September 30, 2010, Cooper has $9.6 million of short-term debt and has no commercial paper
borrowings outstanding. At September 30, 2010, Cooper has available a $350 million U.S. committed
credit facility that matures in August 2012.
|
|
|
Note 9. |
|
Shareholders Equity |
At September 30, 2010, Cooper Industries plc had 162,702,453 common shares, $.01 par value
issued and outstanding compared to 167,316,595 common shares, $.01 par value at December 31, 2009.
During the nine months ended September 30, 2010, Cooper issued 1,626,658 common shares primarily in
connection with employee incentive and benefit plans and Coopers dividend reinvestment program.
During the nine months ended September 30, 2010, Cooper Industries plc purchased 6,240,800 shares
of treasury stock at an average price of $44.23 per share.
On February 12, 2008, Coopers Board of Directors authorized the purchase of ten million
shares of common stock. On February 9, 2009, Coopers Board of Directors increased the share
repurchase authorization by ten million shares. Coopers Board has also authorized the repurchase
of shares issued from time to time under its equity compensation plans, matched savings plan and
dividend reinvestment plan in order to offset the dilution that results from issuing shares under
these plans. For 2010, Cooper estimated that 2.5 million shares would be issued under equity
compensation plans. During the nine months ended September 30, 2010, Cooper had repurchased
6,240,800 shares under these Board of Directors authorizations concluding the February 12, 2008
authorization. Cooper may continue to repurchase shares under these authorizations from time to
time during 2010. The decision whether to do so will be dependent on the favorability of market
conditions, as well as potential cash requirements for acquisitions and debt repayments. As of
September 30, 2010, 8,731,235 shares remain available to be repurchased under the February 9, 2009
authorization by the Board of Directors.
|
|
|
Note 10. |
|
Net Income and Other Nonowner Changes in Equity |
The components of net income and other nonowner changes in equity, net of taxes, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Net income |
|
$ |
141.7 |
|
|
$ |
120.9 |
|
|
$ |
301.9 |
|
|
$ |
310.3 |
|
Foreign currency translation gains1 |
|
|
67.1 |
|
|
|
3.5 |
|
|
|
99.3 |
|
|
|
50.0 |
|
Change in fair value of derivatives |
|
|
(3.3 |
) |
|
|
2.9 |
|
|
|
(5.8 |
) |
|
|
7.6 |
|
Pension and postretirement benefit plans2 |
|
|
3.1 |
|
|
|
2.3 |
|
|
|
7.6 |
|
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and other nonowner
changes in equity |
|
$ |
208.6 |
|
|
$ |
129.6 |
|
|
$ |
403.0 |
|
|
$ |
374.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Foreign currency translation gains included in net income and other nonowner
changes in equity for the nine month period ended September 30, 2010 includes a gain from the
reclassification of $159.3 million ($103.5 million net of the associated tax affect) of previously
deferred currency translation losses that were recognized as a loss in net income related to the
Tools joint venture as discussed in Note 2. |
|
2 |
|
The change in pension and postretirement benefit plans included in net income
and other nonowner changes in equity for the nine month period ended September 30, 2010 includes a
gain from the reclassification of $1.7 million ($0.9 million net of the associated
tax affect) of previously deferred pension plan losses that were recognized as a loss in net income
related to the Tools joint venture as discussed in Note 2. |
-9-
|
|
|
Note 11. |
|
Segment Information |
During the first quarter of 2010, Cooper revised its segment reporting to align its external
reporting with changes to its internal reporting structure and in conjunction with the announcement
of the Tools joint venture. The former Electrical Products segment has been divided into two new
reportable segments. Following this change, Coopers operations consist of three segments: Energy
and Safety Solutions, Electrical Products Group and Tools. Beginning in the third quarter of 2010
following completion of the Tools joint venture, Cooper has two reportable segments.
The Energy and Safety Solutions segment includes the business unit results from the Cooper
Crouse-Hinds, Cooper Power Systems, and Cooper Safety divisions. This segment manufactures, markets
and sells electrical protection products, including fittings, plugs, receptacles, cable glands,
hazardous duty electrical equipment, intrinsically safe explosion-proof instrumentation, emergency
lighting, fire detection and mass notification systems and security products for use in
residential, commercial and industrial construction and maintenance and repair applications. The
segment also manufactures, markets and sells products for use by utilities and in industry for
electrical power transmission and distribution, including distribution switchgear, transformers,
transformer terminations and accessories, capacitors, voltage regulators, surge arresters, energy
automation solutions and other related power systems components.
The Electrical Products Group segment includes the business unit results from the Cooper
B-Line, Cooper Bussmann, Cooper Lighting and Cooper Wiring Devices divisions. This segment
manufactures, markets and sells electrical and circuit protection products, support systems,
enclosures, specialty connectors, wiring devices, plugs, receptacles, switches, lighting fixtures
and controls, and fuses for use in residential, commercial and industrial construction, maintenance
and repair applications.
The Tools segment manufactures, markets and sells hand tools for industrial, construction,
electronics and consumer markets; automated assembly systems for industrial markets and electric
and pneumatic industrial power tools, related electronics and software control and monitoring
systems for general industry, primarily automotive and aerospace manufacturers. In July 2010,
Cooper contributed substantially all of the assets and liabilities of the Tools segment to Apex
Tool Group, LLC as discussed in Note 2. Beginning in the third quarter of 2010, Cooper recognizes
its proportionate share of Apexs operating results using the equity method.
Cooper manages cash, debt and income taxes centrally. Accordingly, Cooper evaluates
performance of its segments and operating units based on operating earnings exclusive of financing
activities and income taxes. The accounting policies of the segments are the same as those for
Cooper. Intersegment sales and related receivables for each of the years presented were
insignificant.
All periods have been restated for the changes to the segment reporting structure discussed
above. Financial information by industry segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and Safety Solutions |
|
$ |
655.7 |
|
|
$ |
611.8 |
|
|
$ |
1,840.0 |
|
|
$ |
1,828.1 |
|
Electrical Products Group |
|
|
585.0 |
|
|
|
535.4 |
|
|
|
1,654.8 |
|
|
|
1,580.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Electrical segments revenues |
|
|
1,240.7 |
|
|
|
1,147.2 |
|
|
|
3,494.8 |
|
|
|
3,408.8 |
|
Tools |
|
|
|
|
|
|
139.2 |
|
|
|
311.2 |
|
|
|
404.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
1,240.7 |
|
|
$ |
1,286.4 |
|
|
$ |
3,806.0 |
|
|
$ |
3,813.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-10-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and Safety Solutions |
|
$ |
111.1 |
|
|
$ |
101.5 |
|
|
$ |
310.9 |
|
|
$ |
281.1 |
|
Electrical Products Group |
|
|
94.2 |
|
|
|
72.0 |
|
|
|
250.3 |
|
|
|
185.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Electrical segments operating earnings |
|
|
205.3 |
|
|
|
173.5 |
|
|
|
561.2 |
|
|
|
467.0 |
|
Tools |
|
|
|
|
|
|
6.8 |
|
|
|
33.1 |
|
|
|
5.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings |
|
|
205.3 |
|
|
|
180.3 |
|
|
|
594.3 |
|
|
|
472.8 |
|
General corporate expense |
|
|
22.9 |
|
|
|
21.5 |
|
|
|
63.1 |
|
|
|
63.5 |
|
Loss related to contribution of net assets to
Apex Tool Group, LLC |
|
|
|
|
|
|
|
|
|
|
134.5 |
|
|
|
|
|
Equity in earnings of Apex Tool Group, LLC |
|
|
(10.5 |
) |
|
|
|
|
|
|
(10.5 |
) |
|
|
|
|
Restructuring and asset impairment charges |
|
|
1.5 |
|
|
|
6.5 |
|
|
|
8.0 |
|
|
|
25.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating earnings |
|
|
191.4 |
|
|
|
152.3 |
|
|
|
399.2 |
|
|
|
383.6 |
|
Interest expense, net |
|
|
12.3 |
|
|
|
15.9 |
|
|
|
36.2 |
|
|
|
47.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes |
|
$ |
179.1 |
|
|
$ |
136.4 |
|
|
$ |
363.0 |
|
|
$ |
336.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expense includes $2.8 million and $3.0 million of incremental legal and
other costs associated with the Ireland reorganization transaction for the three and nine month
periods ended September 30, 2009, respectively.
|
|
|
Note 12. |
|
Restructuring Charges |
During the fourth quarter of 2008, Cooper committed to employment reductions to appropriately
size Coopers 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, $15.2 million of which related to the Energy and Safety
Solutions segment, $10.3 million related to the Electrical Products Group segment and $10.2 million
related to the Tools segment. A total of 1,314 hourly and 930 salaried positions were eliminated
as a result of the fourth quarter 2008 restructuring actions to reduce Coopers workforce.
During 2009, Cooper committed to additional employment reductions and certain facility
closures as a result of managements 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 $28.7 million during the year ended December 31, 2009
related to these actions, $8.1 million of which related to the Energy and Safety Solutions segment,
$10.4 million related to the Electrical Products Group segment and $8.6 million related to the
Tools segment. The remaining $1.6 million was related to reductions in Coopers corporate staff.
A total of 1,088 hourly and 772 salaried positions were eliminated as a result of the 2009
restructuring actions to reduce Coopers workforce. As part of these restructuring actions, Cooper
approved the closure of ten factories and warehouses, eight of which were completed by the end of
2009. Cooper recorded non-cash impairment charges of $1.2 million in the second half of 2009
related to these actions. In the nine months ended September 30, 2010, Cooper completed the two
remaining factory closures and recorded $8.0 million of costs associated with substantial
completion of the restructuring
actions. The 2010 restructuring costs include $7.4 million related to the Electrical Products
Group segment, $.5 million related to the Energy and Safety Solutions segment and $0.1 million
related to the Tools segment.
-11-
The following table reflects activity related to the restructuring accrual.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract |
|
|
|
Involuntary Employee |
|
|
Termination |
|
|
|
Termination Benefits |
|
|
and Other |
|
|
|
Headcount |
|
|
Dollars |
|
|
Exit Costs |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 fourth quarter restructuring actions |
|
|
2,244 |
|
|
$ |
33.7 |
|
|
$ |
2.0 |
|
Headcount reductions or costs incurred |
|
|
(1,358 |
) |
|
|
(5.7 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
886 |
|
|
$ |
28.0 |
|
|
$ |
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
2009 restructuring actions |
|
|
1,860 |
|
|
$ |
24.8 |
|
|
$ |
3.9 |
|
Headcount reductions or costs incurred |
|
|
(2,478 |
) |
|
|
(47.7 |
) |
|
|
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
268 |
|
|
$ |
5.1 |
|
|
$ |
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring actions |
|
|
24 |
|
|
$ |
3.5 |
|
|
$ |
4.5 |
|
Headcount reductions or costs incurred |
|
|
(292 |
) |
|
|
(7.9 |
) |
|
|
(5.3 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010 |
|
|
|
|
|
$ |
0.7 |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative restructuring actions
2008 fourth quarter through September 30,
2010 |
|
|
4,128 |
|
|
$ |
62.0 |
|
|
$ |
10.4 |
|
As of September 30, 2010, the workforce reductions, contract termination and other exit
costs and the related cash payments have been substantially completed.
|
|
|
Note 13. |
|
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 Plans inception in 1996, the aggregate
number of shares authorized under the Plan is 41 million. As of September 30, 2010, 4,434,145
shares were available for future grants under the Plan. Of the total shares available for future
grants, 2,504,545 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 $24.1
million and $20.4 million for the nine months ended September 30, 2010 and 2009, respectively. The
total income tax benefit recognized in the income statement for all share-based compensation
arrangements under the Plan was $8.7 million and $7.2 million for the nine months ended September
30, 2010 and 2009, respectively. During the nine months ended September 30, 2010, Cooper granted
1,600,480 stock option awards, 516,362 performance-based shares and 163,435 restricted stock units.
The effective tax rate was 16.8% for the nine months ended September 30, 2010 and 15.3% for
the nine months ended September 30, 2009. During the second quarter of 2010, Cooper reduced income
tax expense by $40.8 million to recognize the discrete tax effects related to the contribution of
net assets to the Tools joint venture as discussed in Note 2. Cooper reduced income tax expense by
$9.6 million during the nine months ended Septebmer 30, 2009 for discrete tax items primarily
related to foreign taxes. Excluding the discrete tax items and the loss related to the
contribution of net assets to the Tools joint venture, Coopers
effective tax rate was 20.5% for the nine months ended September 30, 2010 and 18.2% for the
nine months ended September 30, 2009.
-12-
In June 2009, the Internal Revenue Service (IRS) completed its examination of Coopers 2007
Federal Tax Return and issued a notice of assessment in the amount of $16 million. The IRS
challenged Coopers intercompany pricing with a foreign affiliate. On July 15, 2009, Cooper filed
its protest for this assessment and continues to work with the IRS to resolve this matter. While
the outcome of the proceedings with the IRS 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. In December 2009, at Coopers request, the
German taxing authorities finalized and issued a notice of assessment for 62.8 million, inclusive
of 5.7 million of interest, related to this matter. In order for Cooper to continue to challenge
the German tax authorities finding, Cooper paid the assessment in December 2009 for approximately
$90 million and filed a suit to challenge the notice of assessment. Cooper continues to believe
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 and will challenge the
assessment 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. As such, Cooper has recognized the 62.8
million tax payment, including interest, in other noncurrent assets in the accompanying balance
sheets. The German tax payment will be available as a foreign tax credit in the United States.
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
Coopers cash flows as these audits are completed.
Cooper has unrecognized gross tax benefits of $39.4 million at September 30, 2010.
Approximately $32.7 million of the unrecognized tax benefits would favorably impact the effective
tax rate if recognized. Cooper believes it is reasonably possible that tax benefits in the range
of approximately $7 to $10 million could be recognized during the next 12 months as audits close
and statutes expire.
At September 30, 2010, Cooper has a foreign deferred tax asset of approximately $1.2 billion
relating to a net operating loss carryforward that was approved by a foreign jurisdiction in
September 2009. While this net operating loss carryforward has an indefinite life, a valuation
allowance of approximately $1.2 billion was recognized because management believes at this time it
is more likely than not that the deferred tax asset will not be realized.
-13-
|
|
|
Note 15. |
|
Pension and Other Postretirement Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
0.7 |
|
|
$ |
0.9 |
|
|
$ |
2.5 |
|
|
$ |
2.6 |
|
Interest cost |
|
|
9.1 |
|
|
|
10.6 |
|
|
|
28.6 |
|
|
|
31.4 |
|
Expected return on plan assets |
|
|
(10.6 |
) |
|
|
(9.9 |
) |
|
|
(32.1 |
) |
|
|
(29.4 |
) |
Amortization of prior service cost |
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
(2.0 |
) |
|
|
(2.0 |
) |
Recognized actuarial loss |
|
|
5.2 |
|
|
|
5.7 |
|
|
|
15.9 |
|
|
|
17.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3.7 |
|
|
$ |
6.6 |
|
|
$ |
12.9 |
|
|
$ |
19.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
$ |
1.1 |
|
|
$ |
1.2 |
|
|
$ |
3.5 |
|
|
$ |
3.6 |
|
Amortization of prior service cost |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
(1.5 |
) |
|
|
(1.5 |
) |
Recognized actuarial gain |
|
|
(0.5 |
) |
|
|
(0.8 |
) |
|
|
(1.5 |
) |
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (gain) |
|
$ |
0.1 |
|
|
$ |
(0.1 |
) |
|
$ |
0.5 |
|
|
$ |
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
-14-
|
|
|
Note 16. |
|
Net Income Per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
141.7 |
|
|
$ |
114.3 |
|
|
$ |
301.9 |
|
|
$ |
284.8 |
|
Income from discontinued operations |
|
|
|
|
|
|
6.6 |
|
|
|
|
|
|
|
25.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
141.7 |
|
|
$ |
120.9 |
|
|
$ |
301.9 |
|
|
$ |
310.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
165.3 |
|
|
|
167.1 |
|
|
|
166.9 |
|
|
|
167.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
141.7 |
|
|
$ |
114.3 |
|
|
$ |
301.9 |
|
|
$ |
284.8 |
|
Income from discontinued operations |
|
|
|
|
|
|
6.6 |
|
|
|
|
|
|
|
25.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
141.7 |
|
|
$ |
120.9 |
|
|
$ |
301.9 |
|
|
$ |
310.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
165.3 |
|
|
|
167.1 |
|
|
|
166.9 |
|
|
|
167.1 |
|
Incremental shares from assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, performance-based stock
awards and other employee awards |
|
|
1.8 |
|
|
|
1.2 |
|
|
|
1.9 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
and common share equivalents |
|
|
167.1 |
|
|
|
168.3 |
|
|
|
168.8 |
|
|
|
168.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and employee awards are not included as common stock equivalents in the calculations
if the effect would be anti-dilutive. Anti-dilutive options and employee awards of 2.6 million and
7.7 million shares were excluded from the calculations during the nine months ended September 30,
2010 and 2009 respectively.
|
|
|
Note 17. |
|
Financial Instruments and Hedging Activities, Concentrations of Credit Risk
and Fair Value of Financial Instruments |
Derivative Instruments and Hedging Activities
All derivatives are 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.
-15-
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 Coopers 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 sometimes 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 also 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 maturing in November 2012 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.
Assets and liabilities measured at fair value are based on one or more of three valuation
techniques. 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). |
The inputs used in measuring fair value are prioritized using a three-tier fair value
hierarchy 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.
-16-
Assets and liabilities measured at fair value as of September 30, 2010 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 currency forward
exchange contracts |
|
$ |
14.8 |
|
|
$ |
(20.6 |
) |
|
|
(a |
) |
Long-term currency forward
exchange contracts |
|
|
65.2 |
|
|
|
(26.9 |
) |
|
|
(a |
) |
Short-term commodity swaps |
|
|
0.8 |
|
|
|
(0.2 |
) |
|
|
(a |
) |
Long-term cross-currency swaps |
|
|
|
|
|
|
(33.8 |
) |
|
|
(a |
) |
Currency forward exchange contracts representing approximately $40.9 million of assets and
$28.9 million of liabilities at September 30, 2010 are not designated as hedging instruments.
Except as discussed in the preceding sentence, the currency forward exchange contracts and
commodity swaps in the above table are designated as hedging instruments.
Assets and liabilities measured at fair value as of December 31, 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 currency forward
exchange contracts |
|
$ |
13.6 |
|
|
$ |
(12.7 |
) |
|
|
(a |
) |
Long-term currency forward
exchange contracts |
|
|
55.8 |
|
|
|
(22.5 |
) |
|
|
(a |
) |
Short-term commodity swaps |
|
|
3.3 |
|
|
|
(0.7 |
) |
|
|
(a |
) |
Long-term cross-currency swaps |
|
|
|
|
|
|
(54.4 |
) |
|
|
(a |
) |
Currency forward exchange contracts representing approximately $35.7 million of assets and
$24.1 million of liabilities at December 31, 2009 are not designated as hedging instruments. Except
as discussed in the preceding sentence, the currency forward exchange contracts and commodity swaps
in the above table are designated as hedging instruments.
There were no changes in the valuation techniques used to measure asset or liability fair
values on a recurring basis during the nine months ended September 30, 2010.
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 nine months ended September 30, 2010
and 2009. For commodity swaps, Cooper recognized, in cost of sales, a net gain of $1.9 million
in the nine months ended September 30, 2010 and a net loss of $17.6 million in the nine months
ended September 30, 2009. At September 30, 2010, Cooper estimates that approximately $.8
million of net gains 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 nine months ended September
30, 2010 and 2009 was not material.
-17-
The table below summarizes the U. S. dollar equivalent contractual amounts of Coopers forward
exchange contracts at September 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
U.S. Dollar |
|
$ |
729.4 |
|
|
$ |
533.1 |
|
Euro |
|
|
332.6 |
|
|
|
353.4 |
|
British Pound Sterling |
|
|
255.4 |
|
|
|
294.0 |
|
Canadian Dollar |
|
|
180.7 |
|
|
|
5.7 |
|
Other |
|
|
31.5 |
|
|
|
28.1 |
|
|
|
|
|
|
|
|
|
|
$ |
1,529.6 |
|
|
$ |
1,214.3 |
|
|
|
|
|
|
|
|
The contractual amounts of Coopers commodity swap contracts at September 30, 2010 and
December 31, 2009 were approximately $12 million and $15 million, respectively.
Other Instruments
In the normal course of business, Cooper executes stand-by letters of credit, performance
bonds and other guarantees that ensure Coopers performance or payment to third parties that are
not reflected in the consolidated balance sheets. The aggregate notional value of these instruments
was $101.5 million and $107.4 million at September 30, 2010 and December 31, 2009, 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 4.8% of accounts receivable at September 30, 2010 (5.2% at December
31, 2009).
Fair Value of Financial Instruments Other than Derivatives
Coopers financial instruments other than derivative instruments consist primarily of cash and
cash equivalents, trade receivables, trade payables and debt instruments. The book values of cash
and cash equivalents, trade receivables, and trade payables are considered to be representative of
their respective fair values. Cooper had a book value of approximately $932.7 million and $934.4
million for debt instruments at September 30, 2010 and December 31, 2009, respectively. The fair
value of these debt instruments, as represented primarily by quoted market prices, was
approximately $1.05 billion and $1.01 billion at September 30, 2010 and December 31, 2009,
respectively.
|
|
|
Note 18. |
|
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-Moguls plan of reorganization and Federal-Mogul emerged from bankruptcy in December 2007.
As part of Federal-
-18-
Moguls Plan of Reorganization, Cooper and Federal-Mogul reached a settlement
agreement that was subject to approval by the Bankruptcy Court resolving Federal-Moguls
indemnification obligations to Cooper. As discussed further below, on September 30, 2008, the
Bankruptcy Court issued its final ruling denying Coopers 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 September 30, 2010, a total of 148,960 Abex
Claims were filed, of which 133,366 claims have been resolved leaving 15,594 Abex Claims pending at
September 30, 2010. During the nine months ended September 30, 2010, 1,220 claims were filed and
8,455 claims were resolved. Since August 28, 1998, the average indemnity payment for resolved Abex
Claims was $2,031 before insurance. A total of $182.8 million was spent on defense costs for the
period August 28, 1998 through September 30, 2010. Due to the exhaustion of primary layers of
coverage and litigation with certain excess insurers, existing insurance coverage currently
provides approximately 30% recovery of the total defense and indemnity payments for Abex Claims,
although, in certain periods, insurance recoveries can be higher due to new settlements with
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 Coopers participation in Federal Moguls proposed 524(g) asbestos trust. By
participating in this trust, Cooper would have resolved its liability for asbestos claims arising
from Coopers 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, Coopers 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-Moguls plan of
reorganization on November 8, 2007, and the U.S. District Court for the District of Delaware
affirmed the Bankruptcy Courts 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 Coopers participation in the Federal-Mogul 524(g) trust is not
approved for any reason,
-19-
or if Cooper elected not to participate or to pursue participation in the
trust. The Bankruptcy Court stated that it would consider approving Coopers 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 Coopers participation in the 524(g) trust. Accordingly, in an effort to continue
working towards approval of Coopers 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 - 2010
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.
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.
|
|
|
|
|
|
|
|
|
|
|
September |
|
|
December 31, |
|
|
|
30, 2010 |
|
|
2009 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
Asbestos liability analysis (undiscounted): |
|
|
|
|
|
|
|
|
Total liability for unpaid, pending and future indemnity and
defense costs at end of period |
|
$ |
759.8 |
|
|
$ |
784.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos receivable analysis (undiscounted): |
|
|
|
|
|
|
|
|
Insurance receivable for previously paid claims and insurance
settlements |
|
$ |
57.5 |
|
|
$ |
64.6 |
|
Insurance-in-place agreements available for pending and future claims |
|
|
107.3 |
|
|
|
114.7 |
|
|
|
|
|
|
|
|
Total estimated asbestos receivable at end of period |
|
$ |
164.8 |
|
|
$ |
179.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
Cash Flow: |
|
|
|
|
|
|
|
|
Indemnity and defense payments |
|
$ |
(23.0 |
) |
|
$ |
(17.5 |
) |
Insurance recoveries |
|
|
14.5 |
|
|
|
53.9 |
|
Other |
|
|
(1.7 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
Net cash flow |
|
$ |
(10.2 |
) |
|
$ |
35.9 |
|
|
|
|
|
|
|
|
-20-
During the nine months ended September 30, 2009, Cooper recognized after tax gains from
discontinued operations of $25.5 million, which is net of a $16.2 million income tax expense, from
negotiated insurance settlements consummated in 2009 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 September 30, 2010, Cooper estimates that the liability for pending and future indemnity
and defense costs for the next 45 years will be $759.8 million. The amount included for unpaid
indemnity and defense costs is not significant at September 30, 2010. 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 Coopers liability estimate relies upon a number of
assumptions including Coopers recent claims experience and declining future asbestos spending
based on past trends and publicly available epidemiological data, changes in various jurisdictions,
managements 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 1970s 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 $505
to $877 million (undiscounted).
Asbestos Receivable Estimate
As of September 30, 2010, Cooper, through Pneumo-Abex LLC, has access to Abex insurance
policies with remaining limits on policies with solvent insurers in excess of $670 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 September 30,
2010, Coopers receivable for recoveries of costs from insurers amounted to $164.8 million, of
which $57.5 million relate to costs previously paid or insurance settlements. Coopers
arrangements with the insurance carriers may defer certain amounts of insurance and settlement
proceeds that Cooper is entitled to receive beyond twelve months. Approximately 92% of the $164.8
million receivable from insurance companies at September 30, 2010 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 managements 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. Timing and value of these agreements and settlements cannot be currently estimated
as they may be subject to extensive additional negotiation and litigation.
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. Coopers 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
-21-
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 Coopers 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 Coopers
operating cash flow. Management continues to evaluate various alternatives with respect to its
discontinued operations liability. Certain of these alternatives, if implemented, would involve a
cash outlay which could be material to Coopers operating cash flow for a particular reporting
period or year.
|
|
|
Note 19. |
|
Consolidating Financial Information |
Cooper Industries plc, Cooper Industries, Ltd. and certain of Coopers 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. Cooper Industries plc
was incorporated on June 4, 2009 and replaced Cooper Industries, Ltd. as the ultimate parent
company on September 8, 2009. In September 2010, Cooper Industries, LLC fully repaid its remaining
registered debt securities and as a result is no longer separately presented in the accompanying
consolidating financial information. The following condensed consolidating financial information
is included so that the separate financial statements of 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.
-22-
Consolidating Income Statements
Three Months Ended September 30, 2010
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries |
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
plc |
|
|
Ltd. |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
820.1 |
|
|
$ |
596.5 |
|
|
$ |
(175.9 |
) |
|
$ |
1,240.7 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
(0.9 |
) |
|
|
579.4 |
|
|
|
419.0 |
|
|
|
(175.9 |
) |
|
|
821.6 |
|
Selling and
administrative expenses |
|
|
0.5 |
|
|
|
|
|
|
|
17.7 |
|
|
|
124.5 |
|
|
|
96.3 |
|
|
|
(2.3 |
) |
|
|
236.7 |
|
Loss related to
contribution of net
assets to Apex Tool
Group, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
0.5 |
|
|
|
|
|
Equity in earnings of
Apex Tool Group, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.5 |
) |
|
|
|
|
|
|
(10.5 |
) |
Restructuring and asset
impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
1.5 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
12.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.3 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
73.1 |
|
|
|
138.9 |
|
|
|
74.5 |
|
|
|
0.7 |
|
|
|
42.2 |
|
|
|
(329.4 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(0.3 |
) |
|
|
(3.6 |
) |
|
|
(19.2 |
) |
|
|
(41.1 |
) |
|
|
60.4 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
72.3 |
|
|
|
135.3 |
|
|
|
26.2 |
|
|
|
73.8 |
|
|
|
195.3 |
|
|
|
(323.8 |
) |
|
|
179.1 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
|
|
|
|
(16.1 |
) |
|
|
33.4 |
|
|
|
20.1 |
|
|
|
|
|
|
|
37.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations |
|
|
72.3 |
|
|
|
135.3 |
|
|
|
42.3 |
|
|
|
40.4 |
|
|
|
175.2 |
|
|
|
(323.8 |
) |
|
|
141.7 |
|
Income from
discontinued
operations, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
72.3 |
|
|
$ |
135.3 |
|
|
$ |
42.3 |
|
|
$ |
40.4 |
|
|
$ |
175.2 |
|
|
$ |
(323.8 |
) |
|
$ |
141.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Income Statements
Three Months Ended September 30, 2009
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries |
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
plc |
|
|
Ltd. |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
745.5 |
|
|
$ |
703.2 |
|
|
$ |
(162.3 |
) |
|
$ |
1,286.4 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
532.6 |
|
|
|
506.7 |
|
|
|
(162.3 |
) |
|
|
876.5 |
|
Selling and
administrative expenses |
|
|
0.5 |
|
|
|
5.0 |
|
|
|
13.1 |
|
|
|
114.6 |
|
|
|
118.4 |
|
|
|
(0.5 |
) |
|
|
251.1 |
|
Restructuring and asset
impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2 |
|
|
|
5.3 |
|
|
|
|
|
|
|
6.5 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
11.6 |
|
|
|
|
|
|
|
4.3 |
|
|
|
|
|
|
|
15.9 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
21.1 |
|
|
|
167.7 |
|
|
|
63.4 |
|
|
|
5.4 |
|
|
|
66.4 |
|
|
|
(324.0 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
|
|
|
|
(6.5 |
) |
|
|
9.1 |
|
|
|
(34.1 |
) |
|
|
66.9 |
|
|
|
(35.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
20.6 |
|
|
|
156.2 |
|
|
|
48.3 |
|
|
|
68.4 |
|
|
|
201.8 |
|
|
|
(358.9 |
) |
|
|
136.4 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
|
|
|
|
(18.2 |
) |
|
|
26.0 |
|
|
|
14.3 |
|
|
|
|
|
|
|
22.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations |
|
|
20.6 |
|
|
|
156.2 |
|
|
|
66.5 |
|
|
|
42.4 |
|
|
|
187.5 |
|
|
|
(358.9 |
) |
|
|
114.3 |
|
Income from
discontinued
operations, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.6 |
|
|
|
|
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
20.6 |
|
|
$ |
156.2 |
|
|
$ |
66.5 |
|
|
$ |
42.4 |
|
|
$ |
194.1 |
|
|
$ |
(358.9 |
) |
|
$ |
120.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-23-
Consolidating Income Statements
Nine Months Ended September 30, 2010
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries |
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
plc |
|
|
Ltd. |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,292.6 |
|
|
$ |
2,007.3 |
|
|
$ |
(493.9 |
) |
|
$ |
3,806.0 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
(0.7 |
) |
|
|
1,626.2 |
|
|
|
1,406.1 |
|
|
|
(493.9 |
) |
|
|
2,537.7 |
|
Selling and
administrative expenses |
|
|
2.6 |
|
|
|
(0.2 |
) |
|
|
80.1 |
|
|
|
353.0 |
|
|
|
334.8 |
|
|
|
(33.2 |
) |
|
|
737.1 |
|
Loss related to
contribution of net
assets to Apex Tool
Group, LLC |
|
|
|
|
|
|
|
|
|
|
2.4 |
|
|
|
|
|
|
|
131.6 |
|
|
|
0.5 |
|
|
|
134.5 |
|
Equity in earnings of
Apex Tool Group, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.5 |
) |
|
|
|
|
|
|
(10.5 |
) |
Restructuring and asset
impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.8 |
|
|
|
4.2 |
|
|
|
|
|
|
|
8.0 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
36.7 |
|
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
36.2 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
143.9 |
|
|
|
279.0 |
|
|
|
133.8 |
|
|
|
22.4 |
|
|
|
8.7 |
|
|
|
(587.8 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
0.1 |
|
|
|
(12.9 |
) |
|
|
(60.2 |
) |
|
|
(107.6 |
) |
|
|
176.8 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
141.4 |
|
|
|
266.3 |
|
|
|
(44.9 |
) |
|
|
224.4 |
|
|
|
327.1 |
|
|
|
(551.3 |
) |
|
|
363.0 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
|
|
|
|
(53.7 |
) |
|
|
84.5 |
|
|
|
30.3 |
|
|
|
|
|
|
|
61.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations |
|
|
141.4 |
|
|
|
266.3 |
|
|
|
8.8 |
|
|
|
139.9 |
|
|
|
296.8 |
|
|
|
(551.3 |
) |
|
|
301.9 |
|
Income from
discontinued
operations, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
141.4 |
|
|
$ |
266.3 |
|
|
$ |
8.8 |
|
|
$ |
139.9 |
|
|
$ |
296.8 |
|
|
$ |
(551.3 |
) |
|
$ |
301.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Income Statements
Nine Months Ended September 30, 2009
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries |
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
plc |
|
|
Ltd. |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,263.8 |
|
|
$ |
1,939.6 |
|
|
$ |
(390.4 |
) |
|
$ |
3,813.0 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
|
1,642.7 |
|
|
|
1,394.4 |
|
|
|
(390.4 |
) |
|
|
2,646.3 |
|
Selling and
administrative expenses |
|
|
0.5 |
|
|
|
12.8 |
|
|
|
45.2 |
|
|
|
356.9 |
|
|
|
344.1 |
|
|
|
(2.1 |
) |
|
|
757.4 |
|
Restructuring and asset
impairment charges |
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
7.5 |
|
|
|
16.7 |
|
|
|
|
|
|
|
25.7 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
35.2 |
|
|
|
0.4 |
|
|
|
11.8 |
|
|
|
|
|
|
|
47.4 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
21.1 |
|
|
|
446.9 |
|
|
|
172.1 |
|
|
|
37.1 |
|
|
|
195.2 |
|
|
|
(872.4 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
|
|
|
|
(21.8 |
) |
|
|
41.7 |
|
|
|
(103.6 |
) |
|
|
187.3 |
|
|
|
(103.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
20.6 |
|
|
|
412.3 |
|
|
|
132.3 |
|
|
|
189.8 |
|
|
|
555.1 |
|
|
|
(973.9 |
) |
|
|
336.2 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
|
|
|
|
(63.0 |
) |
|
|
62.9 |
|
|
|
51.5 |
|
|
|
|
|
|
|
51.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations |
|
|
20.6 |
|
|
|
412.3 |
|
|
|
195.3 |
|
|
|
126.9 |
|
|
|
503.6 |
|
|
|
(973.9 |
) |
|
|
284.8 |
|
Income from
discontinued
operations, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.5 |
|
|
|
|
|
|
|
25.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
20.6 |
|
|
$ |
412.3 |
|
|
$ |
195.3 |
|
|
$ |
126.9 |
|
|
$ |
529.1 |
|
|
$ |
(973.9 |
) |
|
$ |
310.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-24-
Consolidating Balance Sheets
September 30, 2010
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries |
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
plc |
|
|
Ltd. |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
58.8 |
|
|
$ |
1.3 |
|
|
$ |
59.3 |
|
|
$ |
0.1 |
|
|
$ |
176.5 |
|
|
$ |
|
|
|
$ |
296.0 |
|
Receivables, less allowances |
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
|
224.6 |
|
|
|
605.4 |
|
|
|
|
|
|
|
833.2 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267.4 |
|
|
|
210.4 |
|
|
|
|
|
|
|
477.8 |
|
Current discontinued
operations receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.2 |
|
|
|
|
|
|
|
14.2 |
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
51.4 |
|
|
|
31.8 |
|
|
|
98.8 |
|
|
|
|
|
|
|
182.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
58.8 |
|
|
|
1.3 |
|
|
|
113.9 |
|
|
|
523.9 |
|
|
|
1,105.3 |
|
|
|
|
|
|
|
1,803.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.9 |
|
|
|
|
|
|
|
34.9 |
|
Property, plant and
equipment, less
accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
44.3 |
|
|
|
310.3 |
|
|
|
235.2 |
|
|
|
|
|
|
|
589.8 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,288.5 |
|
|
|
1,034.9 |
|
|
|
|
|
|
|
2,323.4 |
|
Investment in Apex Tool
Group, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498.5 |
|
|
|
|
|
|
|
498.5 |
|
Investment in subsidiaries |
|
|
2,865.2 |
|
|
|
3,449.4 |
|
|
|
2,807.7 |
|
|
|
1,029.2 |
|
|
|
2,254.2 |
|
|
|
(12,405.7 |
) |
|
|
|
|
Investment in parent |
|
|
|
|
|
|
|
|
|
|
3,428.1 |
|
|
|
|
|
|
|
312.7 |
|
|
|
(3,740.8 |
) |
|
|
|
|
Intercompany accounts
receivable |
|
|
37.5 |
|
|
|
51.2 |
|
|
|
|
|
|
|
1,781.0 |
|
|
|
356.5 |
|
|
|
(2,226.2 |
) |
|
|
|
|
Intercompany notes
receivable |
|
|
40.0 |
|
|
|
3,339.6 |
|
|
|
1,684.0 |
|
|
|
4.4 |
|
|
|
5,631.8 |
|
|
|
(10,699.8 |
) |
|
|
|
Long-term discontinued
operations receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150.6 |
|
|
|
|
|
|
|
150.6 |
|
Other noncurrent assets |
|
|
|
|
|
|
|
|
|
|
15.4 |
|
|
|
(83.4 |
) |
|
|
626.5 |
|
|
|
|
|
|
|
558.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,001.5 |
|
|
$ |
6,841.5 |
|
|
$ |
8,093.4 |
|
|
$ |
4,853.9 |
|
|
$ |
12,241.1 |
|
|
$ |
(29,072.5 |
) |
|
$ |
5,958.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9.6 |
|
|
$ |
|
|
|
$ |
9.6 |
|
Accounts payable |
|
|
44.4 |
|
|
|
|
|
|
|
18.7 |
|
|
|
161.2 |
|
|
|
193.5 |
|
|
|
|
|
|
|
417.8 |
|
Accrued liabilities |
|
|
1.6 |
|
|
|
0.2 |
|
|
|
67.1 |
|
|
|
204.9 |
|
|
|
214.2 |
|
|
|
(3.8 |
) |
|
|
484.2 |
|
Current discontinued
operations liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41.7 |
|
|
|
|
|
|
|
41.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
46.0 |
|
|
|
0.2 |
|
|
|
85.8 |
|
|
|
366.1 |
|
|
|
459.0 |
|
|
|
(3.8 |
) |
|
|
953.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
923.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923.1 |
|
Intercompany accounts
payable |
|
|
|
|
|
|
|
|
|
|
2,226.2 |
|
|
|
|
|
|
|
|
|
|
|
(2,226.2 |
) |
|
|
|
|
Intercompany notes
payable |
|
|
418.9 |
|
|
|
1,615.8 |
|
|
|
1,827.7 |
|
|
|
2,817.9 |
|
|
|
4,019.5 |
|
|
|
(10,699.8 |
) |
|
|
|
|
Long-term discontinued
operations liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
718.1 |
|
|
|
|
|
|
|
718.1 |
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
|
100.7 |
|
|
|
67.3 |
|
|
|
168.3 |
|
|
|
|
|
|
|
336.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
464.9 |
|
|
|
1,616.0 |
|
|
|
5,163.5 |
|
|
|
3,251.3 |
|
|
|
5,364.9 |
|
|
|
(12,929.8 |
) |
|
|
2,930.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
Subsidiary preferred stock |
|
|
|
|
|
|
2,872.1 |
|
|
|
|
|
|
|
|
|
|
|
335.1 |
|
|
|
(3,207.2 |
) |
|
|
|
|
Subsidiary common stock |
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
7.5 |
|
|
|
256.5 |
|
|
|
(265.7 |
) |
|
|
|
|
Capital in excess of
par value |
|
|
2,727.5 |
|
|
|
410.3 |
|
|
|
761.5 |
|
|
|
1,517.5 |
|
|
|
2,394.4 |
|
|
|
(7,811.2 |
) |
|
|
|
|
Retained earnings |
|
|
47.7 |
|
|
|
1,987.8 |
|
|
|
2,296.3 |
|
|
|
130.3 |
|
|
|
3,975.4 |
|
|
|
(4,943.7 |
) |
|
|
3,493.8 |
|
Treasury stock |
|
|
(288.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(288.5 |
) |
Accumulated other non-
owner changes in equity |
|
|
48.2 |
|
|
|
(46.4 |
) |
|
|
(127.9 |
) |
|
|
(52.7 |
) |
|
|
(85.2 |
) |
|
|
85.1 |
|
|
|
(178.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
2,536.6 |
|
|
|
5,225.5 |
|
|
|
2,929.9 |
|
|
|
1,602.6 |
|
|
|
6,876.2 |
|
|
|
(16,142.7 |
) |
|
|
3,028.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
3,001.5 |
|
|
$ |
6,841.5 |
|
|
$ |
8,093.4 |
|
|
$ |
4,853.9 |
|
|
$ |
12,241.1 |
|
|
$ |
(29,072.5 |
) |
|
$ |
5,958.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-25-
Consolidating Balance Sheets
December 31, 2009
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Industries plc |
|
|
Ltd. |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
146.0 |
|
|
$ |
|
|
|
$ |
27.9 |
|
|
$ |
0.3 |
|
|
$ |
207.4 |
|
|
$ |
|
|
|
$ |
381.6 |
|
Receivables, less allowances |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
370.6 |
|
|
|
327.0 |
|
|
|
|
|
|
|
697.7 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236.2 |
|
|
|
187.7 |
|
|
|
|
|
|
|
423.9 |
|
Current discontinued
operations receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.7 |
|
|
|
|
|
|
|
12.7 |
|
Other current assets |
|
|
0.6 |
|
|
|
|
|
|
|
70.0 |
|
|
|
38.2 |
|
|
|
101.3 |
|
|
|
|
|
|
|
210.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
146.6 |
|
|
|
|
|
|
|
98.0 |
|
|
|
645.3 |
|
|
|
836.1 |
|
|
|
|
|
|
|
1,726.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, less
accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
57.4 |
|
|
|
334.2 |
|
|
|
247.4 |
|
|
|
|
|
|
|
639.0 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,288.7 |
|
|
|
1,049.6 |
|
|
|
|
|
|
|
2,338.3 |
|
Assets to be contributed to
Apex Tool Group, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
588.9 |
|
|
|
|
|
|
|
588.9 |
|
Investment in subsidiaries |
|
|
2,663.2 |
|
|
|
3,092.0 |
|
|
|
4,789.6 |
|
|
|
991.4 |
|
|
|
2,589.9 |
|
|
|
(14,126.1 |
) |
|
|
|
|
Investment in parent |
|
|
|
|
|
|
|
|
|
|
3,418.5 |
|
|
|
|
|
|
|
312.7 |
|
|
|
(3,731.2 |
) |
|
|
|
|
Intercompany accounts
receivable |
|
|
37.1 |
|
|
|
|
|
|
|
|
|
|
|
1,883.3 |
|
|
|
1,273.2 |
|
|
|
(3,193.6 |
) |
|
|
|
|
Intercompany notes
receivable |
|
|
|
|
|
|
3,340.0 |
|
|
|
754.9 |
|
|
|
8.9 |
|
|
|
4,364.0 |
|
|
|
(8,467.8 |
) |
|
|
|
|
Long-term discontinued
operations receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166.6 |
|
|
|
|
|
|
|
166.6 |
|
Other noncurrent assets |
|
|
|
|
|
|
|
|
|
|
(18.3 |
) |
|
|
(76.8 |
) |
|
|
620.7 |
|
|
|
|
|
|
|
525.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,846.9 |
|
|
$ |
6,432.0 |
|
|
$ |
9,100.1 |
|
|
$ |
5,075.0 |
|
|
$ |
12,049.1 |
|
|
$ |
(29,518.7 |
) |
|
$ |
5,984.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9.4 |
|
|
$ |
|
|
|
$ |
9.4 |
|
Accounts payable |
|
|
41.9 |
|
|
|
2.3 |
|
|
|
16.8 |
|
|
|
131.2 |
|
|
|
155.3 |
|
|
|
|
|
|
|
347.5 |
|
Accrued liabilities |
|
|
0.9 |
|
|
|
1.0 |
|
|
|
65.7 |
|
|
|
208.3 |
|
|
|
184.7 |
|
|
|
|
|
|
|
460.6 |
|
Current discontinued
operations liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43.4 |
|
|
|
|
|
|
|
43.4 |
|
Current maturities of
long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3 |
|
|
|
|
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
42.8 |
|
|
|
3.3 |
|
|
|
82.5 |
|
|
|
339.5 |
|
|
|
395.1 |
|
|
|
|
|
|
|
863.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
922.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
922.7 |
|
Liabilities to be
contributed to Apex Tool
Group, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140.1 |
|
|
|
|
|
|
|
140.1 |
|
Intercompany accounts
payable |
|
|
|
|
|
|
26.9 |
|
|
|
3,166.7 |
|
|
|
|
|
|
|
|
|
|
|
(3,193.6 |
) |
|
|
|
|
Intercompany notes
payable |
|
|
154.7 |
|
|
|
1,520.9 |
|
|
|
1,274.7 |
|
|
|
1,773.7 |
|
|
|
3,743.8 |
|
|
|
(8,467.8 |
) |
|
|
|
|
Long-term discontinued
operations liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
741.1 |
|
|
|
|
|
|
|
741.1 |
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
|
122.1 |
|
|
|
69.7 |
|
|
|
162.2 |
|
|
|
|
|
|
|
354.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
197.5 |
|
|
|
1,551.1 |
|
|
|
5,568.7 |
|
|
|
2,182.9 |
|
|
|
5,182.3 |
|
|
|
(11,661.4 |
) |
|
|
3,021.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
Subsidiary preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325.5 |
|
|
|
(325.5 |
) |
|
|
|
|
Subsidiary common stock |
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
7.6 |
|
|
|
280.4 |
|
|
|
(291.1 |
) |
|
|
|
|
Capital in excess of
par value |
|
|
2,626.2 |
|
|
|
3,276.1 |
|
|
|
756.6 |
|
|
|
1,559.2 |
|
|
|
1,512.3 |
|
|
|
(9,730.4 |
) |
|
|
|
|
Retained earnings |
|
|
41.5 |
|
|
|
1,751.0 |
|
|
|
3,040.6 |
|
|
|
1,380.5 |
|
|
|
5,066.8 |
|
|
|
(8,026.3 |
) |
|
|
3,254.1 |
|
Treasury stock |
|
|
(12.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.5 |
) |
Accumulated other non-owner changes in equity |
|
|
(7.5 |
) |
|
|
(149.3 |
) |
|
|
(265.8 |
) |
|
|
(55.2 |
) |
|
|
(318.2 |
) |
|
|
516.0 |
|
|
|
(280.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
2,649.4 |
|
|
|
4,880.9 |
|
|
|
3,531.4 |
|
|
|
2,892.1 |
|
|
|
6,866.8 |
|
|
|
(17,857.3 |
) |
|
|
2,963.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
2,846.9 |
|
|
$ |
6,432.0 |
|
|
$ |
9,100.1 |
|
|
$ |
5,075.0 |
|
|
$ |
12,049.1 |
|
|
$ |
(29,518.7 |
) |
|
$ |
5,984.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-26-
Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2010
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Industries plc |
|
|
Ltd. |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
$ |
1.2 |
|
|
$ |
(16.0 |
) |
|
$ |
(68.1 |
) |
|
$ |
246.8 |
|
|
$ |
233.1 |
|
|
$ |
|
|
|
$ |
397.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(3.6 |
) |
|
|
(26.7 |
) |
|
|
(27.6 |
) |
|
|
|
|
|
|
(57.9 |
) |
Cash restricted for business
acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34.9 |
) |
|
|
|
|
|
|
(34.9 |
) |
Cash paid for acquired businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.6 |
) |
|
|
|
|
|
|
(21.6 |
) |
Investments in affiliates |
|
|
(1.9 |
) |
|
|
|
|
|
|
(44.0 |
) |
|
|
|
|
|
|
(67.9 |
) |
|
|
113.8 |
|
|
|
|
|
Loans to affiliates |
|
|
(40.0 |
) |
|
|
|
|
|
|
(604.1 |
) |
|
|
|
|
|
|
(1,752.7 |
) |
|
|
2,396.8 |
|
|
|
|
|
Repayments of loans from affiliates |
|
|
|
|
|
|
0.5 |
|
|
|
447.3 |
|
|
|
4.5 |
|
|
|
1,112.5 |
|
|
|
(1,564.8 |
) |
|
|
|
|
Dividends from affiliates |
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
|
13.3 |
|
|
|
270.4 |
|
|
|
(285.6 |
) |
|
|
|
|
Proceeds from sales of property,
plant and equipment and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.6 |
) |
|
|
|
|
|
|
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
(41.9 |
) |
|
|
0.5 |
|
|
|
(202.5 |
) |
|
|
(8.9 |
) |
|
|
(526.4 |
) |
|
|
660.2 |
|
|
|
(119.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of debt, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.3 |
) |
|
|
|
|
|
|
(2.3 |
) |
Borrowings from affiliates |
|
|
419.1 |
|
|
|
909.2 |
|
|
|
600.4 |
|
|
|
|
|
|
|
468.1 |
|
|
|
(2,396.8 |
) |
|
|
|
|
Repayments of loans to affiliates |
|
|
(154.9 |
) |
|
|
(823.6 |
) |
|
|
(162.0 |
) |
|
|
(416.0 |
) |
|
|
(8.3 |
) |
|
|
1,564.8 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
63.5 |
|
|
|
(68.8 |
) |
|
|
129.2 |
|
|
|
177.9 |
|
|
|
(301.8 |
) |
|
|
|
|
|
|
|
|
Dividends |
|
|
(132.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132.7 |
) |
Dividends paid to affiliates |
|
|
|
|
|
|
|
|
|
|
(270.4 |
) |
|
|
|
|
|
|
(15.2 |
) |
|
|
285.6 |
|
|
|
|
|
Purchases of treasury shares |
|
|
(276.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(276.0 |
) |
Excess tax benefits from stock
options and awards |
|
|
|
|
|
|
|
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8 |
|
Issuance of stock to affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113.8 |
|
|
|
(113.8 |
) |
|
|
|
|
Proceeds from exercise of stock
options and other |
|
|
34.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
(46.5 |
) |
|
|
16.8 |
|
|
|
302.0 |
|
|
|
(238.1 |
) |
|
|
254.3 |
|
|
|
(660.2 |
) |
|
|
(371.7 |
) |
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1 |
|
|
|
|
|
|
|
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
|
(87.2 |
) |
|
|
1.3 |
|
|
|
31.4 |
|
|
|
(0.2 |
) |
|
|
(30.9 |
) |
|
|
|
|
|
|
(85.6 |
) |
Cash and cash equivalents,
beginning of period |
|
|
146.0 |
|
|
|
|
|
|
|
27.9 |
|
|
|
0.3 |
|
|
|
207.4 |
|
|
|
|
|
|
|
381.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period |
|
$ |
58.8 |
|
|
$ |
1.3 |
|
|
$ |
59.3 |
|
|
$ |
0.1 |
|
|
$ |
176.5 |
|
|
$ |
|
|
|
$ |
296.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-27-
Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2009
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Industries plc |
|
|
Ltd. |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
$ |
(0.4 |
) |
|
$ |
(28.6 |
) |
|
$ |
0.4 |
|
|
$ |
254.3 |
|
|
$ |
412.7 |
|
|
$ |
|
|
|
$ |
638.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term
investments |
|
|
|
|
|
|
|
|
|
|
19.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.1 |
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(15.6 |
) |
|
|
(26.8 |
) |
|
|
(28.4 |
) |
|
|
|
|
|
|
(70.8 |
) |
Cash paid for acquired businesses |
|
|
|
|
|
|
|
|
|
|
(10.7 |
) |
|
|
(7.9 |
) |
|
|
(3.2 |
) |
|
|
|
|
|
|
(21.8 |
) |
Investments in affiliates |
|
|
|
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
Loans to affiliates |
|
|
|
|
|
|
|
|
|
|
(261.3 |
) |
|
|
|
|
|
|
(1,131.2 |
) |
|
|
1,392.5 |
|
|
|
|
|
Repayments of loans from affiliates |
|
|
|
|
|
|
0.1 |
|
|
|
375.8 |
|
|
|
|
|
|
|
841.4 |
|
|
|
(1,217.3 |
) |
|
|
|
|
Dividends from affiliates |
|
|
|
|
|
|
|
|
|
|
107.9 |
|
|
|
42.5 |
|
|
|
8.0 |
|
|
|
(158.4 |
) |
|
|
|
|
Proceeds from sales of property,
plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
|
|
|
|
|
|
|
|
215.0 |
|
|
|
7.8 |
|
|
|
(312.0 |
) |
|
|
17.1 |
|
|
|
(72.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
|
|
|
|
|
|
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.7 |
) |
Repayments of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.0 |
) |
|
|
(16.6 |
) |
|
|
|
|
|
|
(24.6 |
) |
Borrowings from affiliates |
|
|
|
|
|
|
1,313.0 |
|
|
|
47.6 |
|
|
|
|
|
|
|
31.9 |
|
|
|
(1,392.5 |
) |
|
|
|
|
Repayments of loans to affiliates |
|
|
|
|
|
|
(1,105.8 |
) |
|
|
(47.5 |
) |
|
|
|
|
|
|
(64.0 |
) |
|
|
1,217.3 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
0.1 |
|
|
|
76.5 |
|
|
|
185.7 |
|
|
|
(253.5 |
) |
|
|
(8.8 |
) |
|
|
|
|
|
|
|
|
Dividends |
|
|
|
|
|
|
(125.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125.7 |
) |
Dividends paid to affiliates |
|
|
|
|
|
|
(107.6 |
) |
|
|
|
|
|
|
|
|
|
|
(50.8 |
) |
|
|
158.4 |
|
|
|
|
|
Purchases of common shares |
|
|
|
|
|
|
(26.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26.0 |
) |
Excess tax benefits from stock
options and awards |
|
|
|
|
|
|
|
|
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.6 |
) |
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
(0.3 |
) |
|
|
|
|
Proceeds from exercise of stock
options and other |
|
|
0.3 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
0.4 |
|
|
|
28.6 |
|
|
|
182.5 |
|
|
|
(261.5 |
) |
|
|
(108.0 |
) |
|
|
(17.1 |
) |
|
|
(175.1 |
) |
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.4 |
|
|
|
|
|
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
397.9 |
|
|
|
0.6 |
|
|
|
1.1 |
|
|
|
|
|
|
|
399.6 |
|
Cash and cash equivalents,
beginning of period |
|
|
|
|
|
|
|
|
|
|
81.6 |
|
|
|
1.3 |
|
|
|
175.9 |
|
|
|
|
|
|
|
258.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period |
|
$ |
|
|
|
$ |
|
|
|
$ |
479.5 |
|
|
$ |
1.9 |
|
|
$ |
177.0 |
|
|
$ |
|
|
|
$ |
658.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-28-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
We often discuss expectations regarding our future markets, demand for our products and
services, and our performance in our annual and quarterly reports, press releases, and other
written and oral statements. Statements that relate to matters that are not historical facts are
forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act. These forward-looking statements are
based on an analysis of currently available competitive, financial and economic data and our
operating plans. They are inherently uncertain and investors should recognize that events and
actual results could turn out to be significantly different from our expectations. By way of
illustration, when used in this document, words such as anticipate, believe, expect, plan,
intend, estimate, project, will, should, could, may, predict and similar
expressions are intended to identify forward-looking statements.
This Quarterly Report on Form 10-Q, including Managements Discussion and Analysis of
Financial Condition and Results of Operations, includes forward-looking statements.
Forward-looking statements include, but are not limited to, any statements regarding future
revenues, costs and expenses, earnings, earnings per share, margins, cash flows, dividends and
capital expenditures. Important factors which may affect the actual results include, but are not
limited to, political developments, market and economic conditions, changes in raw material,
transportation and energy costs, industry competition, the ability to execute and realize the
expected benefits from strategic initiatives including revenue growth plans and cost control and
productivity improvement programs, the ability to develop and introduce new products, the magnitude
of any disruptions from manufacturing rationalizations, changes in mix of products sold, mergers
and acquisitions and their integration into Cooper, the timing and amount of any stock repurchases
by Cooper, changes in financial markets including currency exchange rate fluctuations, changing
legislation and regulations including changes in tax law, tax treaties or tax regulations, and the
resolution of potential liabilities and insurance recoveries resulting from on-going Pneumo-Abex
related asbestos claims.
The above description of risks and uncertainties is by no means all-inclusive, but is designed
to highlight what we believe are important factors to consider. For a more detailed description of
risk factors, please see Part I Item 1A. Risk Factors.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to
we, us, our, the Company, or Cooper means Cooper Industries plc and, where the context
requires, includes our subsidiaries.
Results of Operations
On March 26, 2010, Cooper announced that it entered into a Framework Agreement with Danaher
Corporation to create a joint venture combining Coopers Tools business with certain Tools
businesses from Danahers Tools and Components Segment (the Joint Venture). On July 6, 2010,
Cooper announced the completion of the Joint Venture, named Apex Tool Group, LLC. Cooper and
Danaher each own a 50% interest in the Joint Venture, have equal representation on its Board of
Directors and have a 50% voting interest in the Joint Venture. At completion of the transaction in
July, Cooper deconsolidated the Tools business assets and liabilities contributed to the Joint
Venture and recognized Coopers 50% ownership interest as an equity investment. Beginning in the
third quarter of 2010, Cooper recognizes its proportionate share of the Joint Ventures operating
results using the equity method. Recording the investment at its fair value of $480 million
resulted in a pretax loss of $134.5 million related to the transaction. The pretax loss related to
the formation of the Joint Venture included a $26.5 million gain from the contribution of the Tools
business net assets resulting from the difference in the fair value of the equity investment and
the carrying value of the net assets being contributed and transaction related costs. This gain was
offset by the write-off of approximately $161.0 million (approximately $104.4 million net of the
associated tax affect) from recognition of the accumulated other nonowner changes in equity related
to the Tools business, primarily
related to cumulative currency translation losses. The Tools business assets and liabilities
contributed to the
-29-
Joint Venture in July 2010 have been reclassified to separate lines in the
accompanying December 31, 2009 consolidated balance sheet. Because the Tools business assets and
liabilities to be contributed to the Joint Venture were considered held for sale at June 30, 2010,
Cooper recognized the $134.5 million loss in the second quarter of 2010 by recognizing $126.1
million of the cumulative currency translation losses included in other nonowner changes in equity
(approximately $82.0 million net of the associated tax affect) and transaction related costs. In
the third quarter of 2010, Cooper recognized the remaining items previously deferred in accumulated
other nonowner changes in equity which was offset by the gain on the underlying net assets
contributed. As a result, there was no impact to the income statement in the third quarter of 2010
upon deconsolidation of the Tools business assets and liabilities contributed to the Joint Venture.
In conjunction with the announcement of the Tools joint venture and certain changes in
Coopers management structure in the first quarter of 2010, Cooper modified its disclosures related
to segment activities. The former Electrical Products segment has been divided into two segments.
The Energy & Safety Solutions segment will include business unit results from the Cooper
Crouse-Hinds, Cooper Power Systems, and Cooper Safety Divisions. The Electrical Products Group
segment will include business unit results from the Cooper B-Line, Cooper Bussmann, Cooper
Lighting, and Cooper Wiring Devices Divisions. Beginning in the third quarter of 2010, Cooper
recognizes its proportionate share of Apex Tool Groups operating results using the equity method.
All segment information included in this Quarterly Report on Form 10-Q has been restated for
changes to the segment reporting structure.
Three Months Ended September 30, 2010 Compared With Three Months Ended September 30, 2009
Net income for the third quarter of 2010 was $141.7 million on revenues of $1,240.7 million
compared with 2009 third quarter net income from continuing operations of $114.3 million on
revenues of $1,286.4 million. The results for the third quarter 2010 reflect the deconsolidation
of the Tools segment as a result of the previously announced formation of the Apex Tool Group, LLC
joint venture. Third quarter diluted earnings per share from operations was $.85 compared to $.68
from continuing operations in 2009. The third quarter of 2010 also included restructuring charges
of $1.5 million or $.01 per share compared to restructuring and asset impairment charges of $6.5
million or $.03 per share in the third quarter of 2009. The third quarter 2009 results also
included discrete tax adjustments that increased earnings per share from continuing operations by
$.01 per share.
Revenues:
Revenues for the third quarter of 2010 increased 8.2% compared to the third quarter of 2009,
excluding the Tools segment revenues for third quarter 2009 of $139.2 million. Core revenues in
the third quarter of 2010 were 8.3% higher than the prior year with acquisitions increasing
reported revenues by 0.8% and currency translation reducing reported revenues by 0.9%.
Energy & Safety Solutions segment revenues for the third quarter of 2010 increased 7.2%
compared to the third quarter of 2009. Core revenues were 7.5% higher in the third quarter of 2010
as a result of continued strength in the industrial markets coupled with improving utility market
demand. Unfavorable currency translation decreased reported revenues by 1.8% with acquisitions
adding 1.5% to reported revenues in the quarter.
Electrical Products Group segment revenues increased 9.3% compared to the third quarter of
2009. Core revenues in the third quarter of 2010 were 9.2% higher than the prior years third
quarter with favorable currency translation increasing reported revenues by 0.1% for the quarter.
Despite continued weakness in commercial markets, the industrial and electronic markets improved
with particular strength in International markets.
Costs and Expenses:
Cost of sales, as a percentage of revenues, was 66.2% for the third quarter of 2010 compared
to 68.1% for the comparable 2009 quarter. The decrease in the cost of sales percentage resulted
from the
-30-
favorable impact of restructuring actions taken during 2008 and 2009 to lower
manufacturing costs; favorable impact of higher production volumes; the positive impact of on-going
activities to improve overall cost productivity coupled with the impact of the deconsolidation of
the Tools segment.
Energy & Safety Solutions segment costs of sales, as a percentage of revenues, was 66.9% for
the third quarter of 2010 compared to 67.1% for the third quarter of 2009. The decrease in costs of
sales as a percentage of revenues in comparison to the prior year third quarter was due to the
favorable impact of restructuring actions taken during 2008 and 2009 to lower manufacturing costs
and the positive impact of Coopers activities to improve overall cost productivity partially
offset by unfavorable sales mix.
Electrical Products Group segment cost of sales, as a percentage of revenues, was 65.3% for
the third quarter of 2010 compared to 68.3% for the third quarter of 2009. The decrease in cost of
sales as a percentage of revenues in comparison to the prior year third quarter was due to the
favorable impact of restructuring actions taken during 2008 and 2009 to lower manufacturing costs
and favorable leverage of fixed costs from improved demand due to the recovery in selected global
markets, the positive impact of Coopers activities to improve overall cost productivity and by
favorable sales mix.
Selling and administrative expenses, as a percentage of revenues, for the third quarter of
2010 was 19.1% compared to 19.5% for the third quarter of 2009. The decrease in percentage is
reflective of improved revenue coupled with the cost reduction actions taken to align the overall
selling and administrative expenses with market demand, partially offset by continued investments
to enhance marketing programs and international expansion.
Energy & Safety Solutions segment selling and administrative expenses, as a percentage of
revenues for the third quarter of 2010, were 16.2% compared to 16.3% for the third quarter of 2009.
The decrease in percentage for the third quarter 2010 reflects the impact of higher comparable
revenue levels and cost reduction actions taken throughout 2009 to adjust segment selling and
administrative expenses partially offset by continued investments primarily in international
markets.
Electrical Products Group segment selling and administrative expenses, as a percentage of
revenues for the third quarter of 2010, were 18.6% compared to 18.3% for the third quarter of 2009.
The increase in percentage for the third quarter 2010 reflects the impact of investments in
strategic growth opportunities partially offset by the favorable impact of higher comparable
revenue levels coupled with cost reduction actions previously taken to adjust segment selling and
administrative expenses to global market conditions.
Net interest expense in the third quarter of 2010 decreased $3.6 million from the 2009 third
quarter. The decrease resulted primarily from the retirement of $275 million of 5.5% senior
unsecured notes upon maturity in the fourth quarter of 2009 and lower average interest rates on
outstanding debt. Average debt balances were $0.93 billion and $1.21 billion and average interest
rates were 5.09% and 5.37% for the third quarter of 2010 and 2009, respectively.
Operating Earnings:
Energy & Safety Solutions segment third quarter 2010 operating earnings increased over 9% to
$111.1 million from $101.5 million for the same quarter of last year. The increase resulted from
the favorable impact of restructuring actions previously taken to adjust the segments overall cost
structure and overall demand partially offset by unfavorable sales mix. The Energy & Safety
Solutions segment continues its investment in productivity initiatives which include
manufacturing
productivity improvements, product redesign and investment in developing markets to increase global
revenues.
Electrical Products Group segment third quarter 2010 operating earnings increased 31% to $94.2
million from $72 million for the same quarter of last year. The increase resulted from the
improvement in demand in most global markets and demand for maintenance and repair products in the
industrial markets, the continuing favorable impact of restructuring actions previously taken and
favorable sales mix. The Electrical Products Group segment continues its investment in productivity
initiatives which include
-31-
manufacturing productivity improvements, product redesign and investment
in developing markets to increase global revenues.
Equity income from the Apex Tool Group joint venture is included in operating earnings
beginning in the third quarter of 2010. Reported equity earnings from Apex Tool Group for the third
quarter of 2010 are $10.5 million. The Tools segment reported operating earnings of $6.8 million
for the third quarter of 2009.
General Corporate expense increased $1.4 million to $22.9 million during the third quarter of
2010 compared to $21.5 million during the same period of 2009. The increase is primarily driven by
higher litigation related costs and investment in strategic infrastructure.
Restructuring Charges:
Cooper recognized pre-tax restructuring charges of $1.5 million and $6.5 million in the third
quarter of 2010 and 2009, respectively, related to its restructuring activities as discussed
further below.
Income Taxes:
The effective tax rate was 20.9% for the three months ended September 30, 2010 and 16.2% for
the three months ended September 30, 2009. During the third quarter of 2009, Cooper reduced income
tax expense by $1.2 million for discrete tax items primarily related to foreign taxes. Excluding
the discrete tax items, Coopers effective tax rate for the three months ended September 30, 2009
was 17.1%. The increase in the effective tax rate in the third quarter 2010 is primarily related to
the increase in earnings.
Nine Months Ended September 30, 2010 Compared With Nine Months Ended September 30, 2009
Net income for the nine months ended September 30, 2010 was $301.9 million on revenues of
$3,806.0 million compared with income from continuing operations in the comparable nine month
period of 2009 of $284.8 million on revenues of $3,813.0 million. Diluted earnings per share were
$1.79 for the nine months ended September 30, 2010, compared to income from continuing operations
of $1.69 in 2009. Reported net income in the nine month period ended September 30, 2010 was
reduced by the non-cash after-tax charge of $93.7 million or $.55 per share related to the
formation of the Tools Joint Venture and includes restructuring charges of $8.0 million or $.04 per
share. Income from continuing operations in the nine month period ended September 30, 2009
included restructuring charges of $25.7 million or $.13 per share and was favorably impacted by
discrete tax items primarily related to foreign taxes which improved earnings by $.06 per share.
Revenues:
Reported revenues for the nine months ended September 30, 2010 were essentially flat compared
to the same period in 2009. Excluding the impact of the revenues from the now deconsolidated Tools
segment, comparable revenues increased 2.5% in 2010 compared to 2009. Core revenues, excluding the
impact of the deconsolidated Tools segment, in the nine months ended September 30, 2010 were 1.8%
higher than the prior year with acquisitions increasing revenues by 0.6% and currency translation
adding 0.1% to revenues.
Energy & Safety Solutions segment revenues for the nine months ended September 30, 2010
increased 0.7% compared to the same period in 2009. Core revenues were 0.1% lower in the nine
months ended September 30, 2010 compared to the prior year on slow demand from Commercial and
Industrial markets in North America. The core growth achieved in the third quarter was more than
offset by the lower
demand experienced during the first half of 2010. Unfavorable currency translation decreased
reported revenues by 0.3% with acquisitions adding 1.1% to revenues in the nine months ended
September 30, 2010.
Electrical Products Group segment revenues increased 4.7% in the nine months ended September
30, 2010 compared to the same period in 2009. Core revenues in the nine months ended September 30,
2010 were 4.1% higher than the prior year comparable period with favorable currency translation
increasing
-32-
reported revenues by 0.6%. Despite continued weakness in Commercial markets, the
Industrial and Electronic markets are growing with particular strength through International
channels.
Costs and Expenses:
Cost of sales, as a percentage of revenues, was 66.7% for the nine months ended September 30,
2010 compared to 69.4% for the comparable 2009 period. The decrease in cost of sales as a
percentage of revenues primarily resulted from improved productivity reflecting the benefits of
restructuring actions taken during 2008 and 2009 to lower manufacturing costs coupled with
favorable leverage on fixed costs from improved demand for products, partially offset by material
inflation not fully offset through favorable product pricing achieved in the market in certain
products lines.
Energy & Safety Solutions segment cost of sales, as a percentage of revenues, was 66.7% for
the nine months ended September 30, 2010 compared to 68.3% for the same period in 2009. The
decrease in cost of sales as a percentage of revenues was primarily due to the benefits from
restructuring actions taken during 2008 and 2009 to lower manufacturing costs and continued focus
on on-going productivity efforts partially offset by material inflation not fully offset through
favorable product pricing achieved in the market in certain products lines and unfavorable sales
mix.
Electrical Products Group segment cost of sales, as a percentage of revenues, was 66.1% for
the nine months ended September 30, 2010 compared to 69.4% for the comparable period in 2009. The
decrease in cost of sales as a percentage of revenues in comparison to the prior year nine month
period was primarily due to the benefits from restructuring actions taken during 2008 and 2009 to
lower manufacturing costs, favorable leverage of fixed costs from the increase in revenues and
favorable sales mix.
Tools segment cost of sales, as a percentage of revenues, were 69% in 2010 prior to the
deconsolidation of the segment at the beginning of the third quarter reflecting the benefits from
restructuring actions taken during 2008 and 2009 to lower manufacturing costs and favorable
leverage of fixed costs due to higher production volumes. Tools segment cost of sales, as a
percentage of revenues, was 75.2% for the nine months ended September 30, 2009.
Selling and administrative expenses, as a percentage of revenues, for the nine months ended
September 30, 2010 was 19.4% compared to 19.9% for the same period in 2009. The decrease in
percentage is reflective of the improved revenue levels coupled with cost containment actions taken
to align the overall selling and administrative expenses with current and projected market demand.
Energy & Safety Solutions segment selling and administrative expenses, as a percentage of
revenues, for the nine months ended September 30, 2010 of 16.4% were unchanged compared to the same
period in 2009. The selling and administrative expenses reflect the higher level of selling and
administrative expense incurred in acquired businesses offset by on-going cost reduction actions
taken to control segment selling and administrative expenses.
Electrical Products Group segment selling and administrative expenses, as a percentage of
revenues, for the nine months ended September 30, 2010 was 18.7% compared to 18.8% for the
comparable period in 2009. The decrease in percentage reflects the impact of improving comparable
revenue levels in 2010 coupled with the cost reduction actions previously taken to adjust segment
selling and administrative expenses to global market conditions, partially offset by investments in
global strategic growth opportunities.
Tools segment selling and administrative expenses, as a percentage of revenues, were 20.4% in
2010 prior to the deconsolidation of the segment at the beginning of the third quarter reflecting
the benefits from cost reduction actions implemented and higher revenue levels. Tools segment
selling and administrative expenses, as a percentage of revenues, was 23.4% for the nine months
ended September 30, 2009.
Net interest expense for the nine months ended September 30, 2010 decreased $11.2 million
compared to the same period in 2009. The decrease resulted primarily from the retirement of $275
million of
-33-
5.5% senior unsecured notes upon maturity in the fourth quarter of 2009. Average debt
balances were $0.93 billion and $1.22 billion and average interest rates were 5.30% and 5.35% for
the nine months ended September 30, 2010 and 2009, respectively.
Operating Earnings:
Energy & Safety Solutions segment operating earnings in the nine months ended September 30,
2010 increased 11% to $310.9 million from the $281.1 million reported for the same period of last
year. The increase primarily resulted from the impact of favorable productivity from cost
reduction actions previously taken coupled with higher production volumes partially offset by
material inflation not fully offset through favorable product pricing achieved in the market in
certain products lines.
Electrical Products Group segment operating earnings in the nine months ended September 30,
2010 increased 35% to $250.3 million from the $185.9 million reported for the same period of last
year. The increase primarily resulted from the improved global market demand and impact from the
favorable productivity from higher volumes and cost reduction actions previously taken.
Equity income from the Apex Tool Group joint venture is included in operating earnings
commencing in the third quarter of 2010. Reported equity earnings from Apex Tool Group for the
third quarter of 2010 are $10.5 million. Prior to the deconsolidation of the Tools segment at the
beginning of the third quarter in 2010, the Tools segment reported operating earnings in the first
six months of 2010 of $33.1 million compared to $5.8 million reported for the nine month period
ended September 30, 2009. The improved operating results in 2010 were driven by the impact of
higher unit volumes and previously implemented cost reduction actions to lower the segments fixed
overhead.
General Corporate expense decreased $0.4 million to $63.1 million during the nine months ended
September 30, 2010 compared to $63.5 million during the same period of 2009. The decrease
primarily related to on-going actions taken to reduce overall General Corporate expense.
Restructuring Charges:
As a result of the downturn in economic conditions in the latter half of 2008, Cooper
committed in the fourth quarter of 2008 to employment reductions to appropriately size Coopers
workforce to current and anticipated market conditions and to downsize a domestic Tools segment
manufacturing operation. During 2009, Cooper committed to additional employment reductions and
certain facility closures as a result of managements ongoing assessment of its hourly and salary
workforce and its required production capacity in consideration of the global economic recession.
Cooper recorded a $35.7 million charge in the fourth quarter of 2008 related to these actions,
$15.2 million of which related to the Energy and Safety Solutions segment, $10.3 million related to
the Electrical Products Group segment and $10.2 million related to the Tools segment. A total of
1,314 hourly and 930 salaried positions were eliminated as a result of the fourth quarter 2008
restructuring actions to reduce Coopers workforce. Cooper recorded additional charges of $28.7
million during the year ended December 31, 2009 related to these actions, $8.1 million of which
related to the Energy and Safety Solutions segment, $10.4 million related to the Electrical
Products Group segment and $8.6 million related to the Tools segment. The remaining $1.6 million
was related to reductions in Coopers corporate staff. A total of 1,088 hourly and 772 salaried
positions were eliminated as a result of the 2009 restructuring actions to reduce Coopers
workforce. As part of these restructuring actions, Cooper approved the closure of ten factories and
warehouses, eight of which were completed by the end of 2009. Cooper
recorded non-cash impairment charges of $1.2 million in the second half of 2009 related to
these actions. At December 31, 2009, Cooper had an accrual of $6.1 million for future cash
expenditures related to its restructuring actions.
In the nine month period ended September 30, 2010, Cooper completed the two remaining
factory closures and recorded $8.0 million of costs associated with substantial completion of the
restructuring actions. The 2010 restructuring costs include $7.4 million related to the Electrical
Products Group segment, $0.5 million related to the Energy and Safety Solutions segment and $0.1
million related to the Tools
-34-
segment. During the nine months ended September 30, 2010, Cooper
expended $13.2 million in cash related to its restructuring actions. The workforce reductions,
contract termination and other exit costs and the related cash payments have been substantially
completed. See Note 12 of the Notes to Consolidated Financial Statements.
Income Taxes:
The effective tax rate was 16.8% for the nine months ended September 30, 2010 and 15.3% for
the nine months ended September 30, 2009. During the second quarter of 2010, Cooper reduced income
tax expense by $40.8 million to recognize the discrete tax effects related to the contribution of
net assets to the Tools Joint Venture. Cooper reduced income tax expense by $9.6 million during
the nine months ended September 30, 2009 for discrete tax items primarily related to foreign taxes.
Excluding the discrete tax items and the loss related to the contribution of net assets to the
Tools joint venture, Coopers effective tax rate was 20.5% for the nine months ended September 30,
2010 and 18.1% for the nine months ended September 30, 2009. The increase in the effective tax
rate is primarily related to the increase in earnings in 2010.
Income Related to Discontinued Operations:
During the nine months ended September 30, 2009, Cooper recognized an after tax gain from
discontinued operations of $25.5 million, which is net of a $16.2 million income tax expense (or
$.15 per diluted share) related to its asbestos liability regarding the Automotive Products
segment, which was sold in 1998. The income resulted from negotiated insurance settlements
consummated in 2009 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. See Note 18 of the Notes to Consolidated Financial
Statements.
Liquidity and Capital Resources
Liquidity:
Coopers operating working capital (defined as receivables and inventories less accounts
payable) increased $119.1 million during the nine months ended September 30, 2010, exclusive of the
Tools business contributed to Apex Tool Group in July 2010. A $135.5 million increase in
receivables and a $53.9 million increase in inventories were partially offset by a $70.3 million
increase in accounts payable. Operating working capital turnover (defined as annualized quarterly
revenues divided by average quarterly operating working capital), exclusive of the Tools business
contributed to Apex Tool Group in July 2010, for the nine months ended September 30, 2010 was 5.8
turns as compared to 5.4 turns for the same period of 2009 reflecting efficient working capital
utilization.
Cash provided by operating activities was $397.0 million during the nine months ended
September 30, 2010. This cash, plus an additional $85.6 million of cash and cash equivalents and
$34.5 million of cash received from stock option exercises, was primarily used to fund share
purchases of $276.0 million, dividends of $132.7 million, capital expenditures of $57.9 million,
and acquisitions of $21.6 million. Cooper also used
$34.9 million to place funds in an escrow account related to a
tender offer for all
outstanding shares of Mount Engineering, a publicly
traded company based in the United Kingdom as discussed in Note 4 of the Notes to Consolidated
Financial Statements.
Cash provided by operating activities was $638.4 million during the nine months ended
September 30, 2009. This cash, plus $19.1 million from redemption of short-term investments and
$4.5 million of cash received from stock option exercises significantly exceeded the funds utilized
to fund capital expenditures of $70.8 million, acquisitions of $21.8 million, dividends of $125.7
million, debt repayments of $24.6 million and share purchases of $26.0 million. Cash provided by
operating activities in 2009 was net of a $25 million voluntary contribution to the U.S. defined
benefit pension plan.
-35-
As discussed in Note 18 of the Notes to Consolidated Financial Statements, Coopers contingent
liabilities related to the Automotive Products sale to Federal-Mogul in 1998 will continue to be
resolved through the tort system. Cooper anticipates that the annual cash outlay for its potential
asbestos liability, net of insurance recoveries, will average in the range of $20 to $30 million,
although the amounts will vary as the amount of the actual net cash outlay is not reasonably
predictable. Management continues to evaluate various alternatives with respect to its
discontinued operations liability. Certain of these alternatives, if implemented, would involve a
cash outlay which could be material to Coopers operating cash flow for a particular reporting
period or year.
Coopers financial position and liquidity remained strong during the recent global economic
recession. While the length and depth of the recession was more severe than predicted by most
experts, Cooper proactively and aggressively adjusted its cost structure. In this regard, in the
fourth quarter of 2008, Cooper implemented contingency plans to reduce our cost structure and
recognized a restructuring charge of $35.7 million primarily related to reductions in our workforce
in excess of 2,200 employees. During 2009, Cooper further reduced its workforce by approximately
1,900 additional employees and recognized restructuring charges of $28.7 million. As part of these
restructuring actions, Cooper approved the closure of ten factories and warehouses, eight of which
were completed at the end of the 2009. During the nine months ended September 30, 2010, Cooper
completed the two remaining factory closures and recorded $8.0 million of costs associated with
substantial completion of the restructuring actions.
Cash flows from operating activities during the nine months ended September 30, 2010 and 2009
have been reduced by $13.2 million and $46.0 million, respectively for the amounts expended in
connection with the restructuring actions. At September 30, 2010, the workforce reductions,
contract termination and other exit costs and the related cash payments have been substantially
completed. See Note 12 of the Notes to Consolidated Financial Statements for further information.
Cooper currently anticipates that it will annually generate in excess of $500 million in cash
flow available for acquisitions, debt repayment, dividends and common stock repurchases in 2010.
Capital expenditures are currently projected to be approximately $85 to $95 million in 2010.
Capital Resources:
Cooper targets a 30% to 40% debt-to-total capitalization ratio. Excess cash flows are
utilized to fund acquisitions or to purchase shares of Cooper common stock. Coopers debt-to-total
capitalization ratio was 23.5% at September 30, 2010, 24.0% at December 31, 2009 and 29.6% at
September 30, 2009.
At September 30, 2010 and December 31, 2009, Cooper had cash and cash equivalents of $296.0
million and $381.6 million, respectively. Cooper had short-term debt of $9.6 million at September
30, 2010 and $9.4 million at December 31, 2009.
Coopers practice is to back up its short-term debt balance with a combination of cash, cash
equivalents, and committed credit facilities. At September 30, 2010, Cooper has available a $350
million U.S. committed credit facility that matures in August 2012. Short-term debt, to the extent
not backed up by
cash or short-term investments, reduces the amount of additional liquidity provided by the
committed credit facility.
The credit facility agreement is not subject to termination based on a decrease in Coopers
debt ratings or a material adverse change clause. The principal financial covenants in the
agreement limits Coopers debt-to-total capitalization ratio to 60% and requires Cooper to maintain
a minimum earnings before interest expense, income taxes, depreciation and amortization to interest
ratio of 3 to 1. Cooper is in compliance with all covenants set forth in the credit facility
agreement.
Coopers access to the commercial paper market could be adversely affected by a change in the
credit ratings assigned to its commercial paper. Should Coopers access to the commercial paper
market be
-36-
adversely affected due to a change in its credit ratings, Cooper would rely on a
combination of available cash and its committed credit facilities to provide short-term funding.
The committed credit facilities do not contain any provision, which makes their availability to
Cooper dependent on Coopers credit ratings.
Critical Accounting Estimates and Recently Issued Accounting Standards
We disclosed our critical accounting policies in our Annual Report on Form 10-K for the year
ended December 31, 2009 and no significant change has occurred to those policies.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
As of September 30, 2010, there have been no material changes to Coopers off-balance sheet
arrangements and contractual obligations as described in its Annual Report on Form 10-K for the
year ended December 31, 2009.
Backlog
Sales backlog represents the dollar amount of all firm open orders for which all terms and
conditions pertaining to the sale have been approved such that a future sale is reasonably
expected. Sales backlog by segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Energy & Safety Solutions |
|
$ |
470.7 |
|
|
$ |
371.5 |
|
Electrical Products Group |
|
|
210.3 |
|
|
|
173.5 |
|
Tools |
|
|
|
|
|
|
56.8 |
|
|
|
|
|
|
|
|
|
|
$ |
681.0 |
|
|
$ |
601.8 |
|
|
|
|
|
|
|
|
As discussed in Note 2 to the Notes to Consolidated Financial Statements, in July
2010, Cooper contributed substantially all of the assets and liabilities of the Tools segment to
Apex Tool Group, LLC. Beginning in the third quarter of 2010, Cooper recognizes its proportionate
share of Apexs operating results using the equity method.
Item 4. Controls and Procedures
The Companys management, with the participation of the Companys Chairman and Chief Executive
Officer and Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of
the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on
such evaluation, the Companys Chairman and Chief Executive Officer and Senior Vice President and
Chief Financial Officer have concluded that, as of the end of such period, the Companys disclosure
controls and procedures are effective, at the reasonable assurance level, in recording, processing,
summarizing and reporting, on a timely basis, information required to be disclosed by the Company
in the reports that it files or submits under the
Exchange Act and are effective, at the reasonable assurance level, in ensuring that
information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act is accumulated and communicated to the Companys management, including the
Companys Chairman and Chief Executive Officer and Senior Vice President and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
There have not been any changes in the Companys internal control over financial reporting
(identified in connection with the evaluation required by paragraph (d) in Rules 13a-15 and 15d-15
under the Exchange Act) during the most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting.
-37-
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Discontinued Operations Liability
Information regarding the discontinued operations liability is incorporated by reference to
Note 18 of the Notes to Consolidated Financial Statements included in Part I of this Form 10-Q.
Other Matters
Information regarding other matters is incorporated by reference to Note 7 of the Notes to
Consolidated Financial Statements included in Part I of this Form 10-Q.
Item 1A. Risk Factors
There have been no material changes in the risk factors previously disclosed in Coopers
Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
The following table reflects activity related to equity securities purchased by Cooper during
the three months ended September 30, 2010:
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
|
Purchased as Part of |
|
|
Shares that May Yet Be |
|
|
|
Total Number of |
|
|
Average Price |
|
|
Publicly Announced Plans |
|
|
Purchased Under the Plans |
|
Period |
|
Shares Purchased |
|
|
Paid per Share |
|
|
or Programs (1) |
|
|
or Programs (1) |
|
As of 6/30/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,973,935 |
|
7/01/10 7/31/10 |
|
|
833.200 |
|
|
$ |
45.10 |
|
|
|
833,200 |
|
|
|
12,140,735 |
|
8/01/10 8/31/10 |
|
|
1,967,700 |
|
|
$ |
42.56 |
|
|
|
1,967,700 |
|
|
|
10,173,035 |
|
9/01/10 9/30/10 |
|
|
1,441,800 |
|
|
$ |
43.91 |
|
|
|
1,441,800 |
|
|
|
8,731,235 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,242,700 |
|
|
$ |
43.52 |
|
|
|
4,242,700 |
|
|
|
|
|
|
|
|
(1) |
|
On February 12, 2008, Coopers Board of Directors authorized the purchase of
ten million shares of common stock. On February 9, 2009, Coopers Board of Directors
increased the share repurchase authorization by ten million shares. Coopers Board has also
authorized the repurchase of shares issued from time to time under its equity compensation
plans, matched savings plan and dividend reinvestment plan in order to offset the dilution
that results from issuing shares under these plans. For 2010, Cooper used an estimate that
2.5 million shares would be issued under equity compensation plans, which is reflected in the
above table. |
|
(2) |
|
As of the date of this filing in 2010, Cooper had repurchased the 2.5
million shares intended to offset the dilution from share issuances under equity compensation
plans, as well as 3,743,300 additional shares under the Board of Directors authorizations
discussed above. Cooper may continue to repurchase shares under the remaining February 9,
2009 authorization from time to time during 2010. The decision whether to do so will be
dependent on the favorability of market conditions, as well as potential cash requirements for
acquisitions and debt repayments. |
Item 3. Defaults Upon Senior Securities
Not applicable
Item 5. Other Information
Cooper entered into a Benefits Continuation Agreement (Agreement) on November 2, 2010 with
Mr. Hachigian, its Chairman and Chief Executive Officer. The Agreement is attached hereto as
Exhibit 10.3. The Management Development and Compensation Committee of Coopers Board
of Directors approved the Agreement, which includes provisions permitting Mr. Hachigian and
his family to remain eligible to participate (at their expense) in Coopers medical benefit
programs in certain circumstances following Mr. Hachigians death, disability, qualifying
retirement, or termination without cause. The Agreement further provides that certain unvested
equity awards will vest upon Mr. Hachigians death, disability, qualifying retirement, or
termination without cause. A qualifying retirement means retirement any time after June 29,
2015 with at least one year advance notice provided to the Board of Directors.
-38-
Item 6. Exhibits
10.1 |
|
Form of Director Indemnification Agreement with Cooper Industries plc
(incorporated by reference to Exhibit 10.1 to Cooper Industries plcs Form 8-K filed
September 7, 2010). |
|
10.2 |
|
Form of Director Indemnification Agreement with Cooper Industries Ltd.
(incorporated by reference to Exhibit 10.2 to Cooper Industries plcs Form 8-K filed
September 7, 2010). |
|
10.3 |
|
Benefits Continuation Agreement dated November 2, 2010 among
Cooper Industries plc, Cooper U.S., Inc. and Kirk S. Hachigian. |
|
12. |
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 2005
through 2009 and the Nine Months Ended September 30, 2010 and 2009. |
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS
|
|
XBRL Instance Document |
101.SCH
|
|
XBRL Schema Document |
101.CAL
|
|
XBRL Calculation Linkbase Document |
101.LAB
|
|
XBRL Label Linkbase Document |
101.PRE
|
|
XBRL Presentation Linkbase Document |
101.DEF
|
|
XBRL Definition Linkbase Document |
Pursuant to Rule 406T of Regulation S-T, the interactive data included in Exhibit 101 is
deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or
12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities
Exchange Act of 1934, and otherwise is not subject to liability under these sections.
Signatures
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.
|
|
|
|
|
|
Cooper Industries
plc
(Registrant)
|
|
Date: November 8, 2010 |
/s/ David A. Barta
|
|
|
David A. Barta, Senior Vice President and |
|
|
Chief Financial Officer |
|
|
|
|
|
Date: November 8, 2010 |
/s/ Rick L. Johnson
|
|
|
Rick L. Johnson, Vice President, Controller and |
|
|
Chief Accounting Officer |
|
-39-
Exhibit Index
|
|
|
Exhibit No. |
|
|
|
10.1 |
|
Form of Director Indemnification Agreement with Cooper Industries plc
(incorporated by reference to Exhibit 10.1 to Cooper Industries plcs Form 8-K filed
September 7, 2010). |
|
10.2 |
|
Form of Director Indemnification Agreement with Cooper Industries Ltd.
(incorporated by reference to Exhibit 10.2 to Cooper Industries plcs Form 8-K filed
September 7, 2010). |
|
10.3 |
|
Benefits Continuation Agreement dated November 2, 2010 among
Cooper Industries plc, Cooper U.S., Inc. and Kirk S. Hachigian. |
|
|
|
12.
|
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 2005
through 2009 and the Nine Months ended September 30, 2010 and 2009. |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS
|
|
XBRL Instance Document |
101.SCH
|
|
XBRL Schema Document |
101.CAL
|
|
XBRL Calculation Linkbase Document |
101.LAB
|
|
XBRL Label Linkbase Document |
101.PRE
|
|
XBRL Presentation Linkbase Document |
101.DEF
|
|
XBRL Definition Linkbase Document |
Pursuant to Rule 406T of Regulation S-T, the interactive data included in Exhibit 101 is
deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or
12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities
Exchange Act of 1934, and otherwise is not subject to liability under these sections.