e10vq
10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarter ended June 30, 2005
OR
|
|
|
o |
|
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, Ltd.
(Exact name of registrant as specified in its charter)
|
|
|
Bermuda
|
|
98-0355628 |
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.) |
|
|
|
600 Travis, Suite 5800
|
|
Houston, Texas 77002 |
|
(Address of principal executive offices)
|
|
(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 is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes þ No o
Number of registrants common stock outstanding as of June 30, 2005 was 92,617,784 Class A common
shares that are held by the public and 8,499,687 Class A common shares and 54,810,129 Class B
common shares that are held by the issuers wholly-owned subsidiaries.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER INDUSTRIES, LTD.
CONSOLIDATED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in millions, where applicable) |
Revenues |
|
$ |
1,189.2 |
|
|
$ |
1,109.3 |
|
|
$ |
2,334.0 |
|
|
$ |
2,173.9 |
|
Cost of sales |
|
|
814.7 |
|
|
|
775.2 |
|
|
|
1,602.3 |
|
|
|
1,517.2 |
|
Selling and administrative expenses |
|
|
232.9 |
|
|
|
212.0 |
|
|
|
460.4 |
|
|
|
420.4 |
|
Operating earnings |
|
|
141.6 |
|
|
|
122.1 |
|
|
|
271.3 |
|
|
|
236.3 |
|
Interest expense, net |
|
|
17.7 |
|
|
|
17.2 |
|
|
|
35.5 |
|
|
|
34.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
123.9 |
|
|
|
104.9 |
|
|
|
235.8 |
|
|
|
202.0 |
|
Income taxes |
|
|
26.6 |
|
|
|
21.0 |
|
|
|
50.7 |
|
|
|
40.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
97.3 |
|
|
$ |
83.9 |
|
|
$ |
185.1 |
|
|
$ |
161.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.05 |
|
|
$ |
.91 |
|
|
$ |
1.99 |
|
|
$ |
1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.02 |
|
|
$ |
.89 |
|
|
$ |
1.94 |
|
|
$ |
1.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share |
|
$ |
.37 |
|
|
$ |
.35 |
|
|
$ |
.74 |
|
|
$ |
.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
-2-
COOPER INDUSTRIES, LTD.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
|
|
(in millions) |
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
537.0 |
|
|
$ |
652.8 |
|
Receivables |
|
|
879.2 |
|
|
|
820.9 |
|
Inventories |
|
|
590.5 |
|
|
|
523.0 |
|
Deferred income taxes and other current assets |
|
|
181.5 |
|
|
|
221.9 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,188.2 |
|
|
|
2,218.6 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, less accumulated depreciation |
|
|
685.9 |
|
|
|
696.4 |
|
Goodwill |
|
|
2,100.5 |
|
|
|
2,142.3 |
|
Deferred income taxes and other noncurrent assets |
|
|
280.6 |
|
|
|
283.5 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,255.2 |
|
|
$ |
5,340.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
6.4 |
|
|
$ |
97.6 |
|
Accounts payable |
|
|
408.2 |
|
|
|
350.7 |
|
Accrued liabilities |
|
|
461.0 |
|
|
|
488.8 |
|
Accrual for discontinued operations |
|
|
191.3 |
|
|
|
225.1 |
|
Current maturities of long-term debt |
|
|
591.5 |
|
|
|
665.4 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,658.4 |
|
|
|
1,827.6 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
694.9 |
|
|
|
698.6 |
|
Postretirement benefits other than pensions |
|
|
169.0 |
|
|
|
173.3 |
|
Other long-term liabilities |
|
|
345.6 |
|
|
|
354.8 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,867.9 |
|
|
|
3,054.3 |
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value |
|
|
0.9 |
|
|
|
0.9 |
|
Capital in excess of par value |
|
|
445.9 |
|
|
|
446.2 |
|
Retained earnings |
|
|
2,087.3 |
|
|
|
1,971.6 |
|
Accumulated other nonowner changes in equity |
|
|
(146.8 |
) |
|
|
(132.2 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
2,387.3 |
|
|
|
2,286.5 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
5,255.2 |
|
|
$ |
5,340.8 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
-3-
COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
|
|
(in millions) |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
185.1 |
|
|
$ |
161.6 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
57.5 |
|
|
|
57.5 |
|
Deferred income taxes |
|
|
5.3 |
|
|
|
18.2 |
|
Restructuring charge payments |
|
|
(0.4 |
) |
|
|
(3.7 |
) |
Changes in assets and liabilities: (1) |
|
|
|
|
|
|
|
|
Receivables |
|
|
(74.9 |
) |
|
|
(83.3 |
) |
Inventories |
|
|
(69.4 |
) |
|
|
(25.8 |
) |
Accounts payable and accrued liabilities |
|
|
14.0 |
|
|
|
27.7 |
|
Other assets and liabilities, net |
|
|
64.2 |
|
|
|
67.1 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
181.4 |
|
|
|
219.3 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(47.9 |
) |
|
|
(39.0 |
) |
Cash paid for acquired businesses |
|
|
(2.4 |
) |
|
|
(10.1 |
) |
Proceeds from sales of property, plant and equipment and other |
|
|
4.3 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(46.0 |
) |
|
|
(41.2 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuances of debt |
|
|
|
|
|
|
2.0 |
|
Repayments of debt |
|
|
(117.9 |
) |
|
|
(1.5 |
) |
Dividends |
|
|
(69.4 |
) |
|
|
(65.1 |
) |
Subsidiary purchase of parent shares |
|
|
(77.2 |
) |
|
|
(164.9 |
) |
Activity under employee stock plans and other |
|
|
41.2 |
|
|
|
24.1 |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(223.3 |
) |
|
|
(205.4 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(27.9 |
) |
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(115.8 |
) |
|
|
(29.8 |
) |
Cash and cash equivalents, beginning of period |
|
|
652.8 |
|
|
|
463.7 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
537.0 |
|
|
$ |
433.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of the effects of acquisitions and translation. |
The accompanying notes are an integral part of these statements.
-4-
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies
Basis of Presentation - The consolidated financial statements of Cooper Industries, Ltd., a
Bermuda company (Cooper), have been prepared in accordance with generally accepted accounting
principles in the United States.
The financial information presented as of any date other than December 31 has been prepared
from the books and records without audit. Financial information as of December 31 has been derived
from 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, 2004 included in Part IV of Coopers 2004 Annual Report on Form 10-K.
In December 2004, the Financial Accounting Standards Board issued FASB Statement 123(R),
Share-Based Payment, which is a revision of SFAS No. 123. For Cooper, the revised statement is
effective January 1, 2006. Statement 123(R) must be applied to new awards and previously granted
awards that are not fully vested on the effective date. Cooper adopted SFAS No. 123 on January 1,
2003 using the prospective transition method which applied only to awards granted, modified or
settled after the adoption date. Accordingly, compensation cost for some previously granted
unvested awards that were not recognized under SFAS No. 123 will be recognized under Statement
123(R). Had we adopted Statement 123(R) in prior periods the impact of that standard would
approximate the impact of SFAS No. 123 as described in the disclosure of pro forma net income and
earnings per share in Note 2 of the Notes to the Consolidated Financial Statements.
Note 2. Stock-Based Compensation
Under Cooper stock option plans, officers, directors and key employees may be granted options
to purchase Coopers common stock at no less than 100% of the market price on the date the option
is granted. Options generally become exercisable ratably over a three-year period commencing one
year from the grant date and have a maximum term of ten years. The plans also provide for the
granting of performance-based stock awards and restricted stock awards to certain key executives
that generally vest over periods ranging from three to five years. Cooper also has an Employee
Stock Purchase Plan which provides employees an option to purchase common stock. There is
currently no outstanding offering under the Employee Stock Purchase Plan.
Effective January 1, 2003, Cooper adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), as amended. Cooper utilized the
prospective method of adoption. Cooper accounts for stock-based compensation awards granted,
modified or settled prior to January 1, 2003 using the intrinsic value method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
and related interpretations (APB No. 25). SFAS No. 123 provides an alternative fair value based
method for recognizing stock-based compensation in which compensation expense is measured at the
grant date based on the value of the award and is recognized over the service period, which is
usually the vesting period. The fair value of stock options granted was estimated using the
Black-Scholes option-pricing model. The fair value of restricted stock and performance-based awards
granted was measured at the market price on the grant date. Stock-based
compensation expense was $16.6 million and $11.6 million during the six months ended June 30,
2005 and 2004, respectively.
-5-
The following table presents pro forma income and earnings per share as if the fair value
based method had been applied to all outstanding and unvested awards in each period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in millions) |
Net income, as reported |
|
$ |
97.3 |
|
|
$ |
83.9 |
|
|
$ |
185.1 |
|
|
$ |
161.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects |
|
|
6.2 |
|
|
|
4.4 |
|
|
|
10.2 |
|
|
|
6.9 |
|
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects |
|
|
(5.6 |
) |
|
|
(6.4 |
) |
|
|
(8.1 |
) |
|
|
(9.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
97.9 |
|
|
$ |
81.9 |
|
|
$ |
187.2 |
|
|
$ |
159.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
1.05 |
|
|
$ |
.91 |
|
|
$ |
1.99 |
|
|
$ |
1.74 |
|
Basic pro forma |
|
$ |
1.05 |
|
|
$ |
.89 |
|
|
$ |
2.01 |
|
|
$ |
1.72 |
|
Diluted as reported |
|
$ |
1.02 |
|
|
$ |
.89 |
|
|
$ |
1.94 |
|
|
$ |
1.70 |
|
Diluted pro forma |
|
$ |
1.03 |
|
|
$ |
.87 |
|
|
$ |
1.96 |
|
|
$ |
1.68 |
|
Note 3. Acquisitions
In March 2004, Cooper acquired a manufacturer of specification and commercial grade lighting
fixtures for $10.1 million. In November 2004, Cooper acquired a U.K. based manufacturer of visual
and audible alarms and public address speakers for $38.5 million.
Note 4. Inventories
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
|
|
(in millions) |
Raw materials |
|
$ |
209.6 |
|
|
$ |
185.2 |
|
Work-in-process |
|
|
152.0 |
|
|
|
118.6 |
|
Finished goods |
|
|
336.5 |
|
|
|
320.2 |
|
Perishable tooling and supplies |
|
|
14.2 |
|
|
|
13.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
712.3 |
|
|
|
637.2 |
|
Allowance for excess and obsolete inventory |
|
|
(58.7 |
) |
|
|
(58.9 |
) |
Excess of current standard costs over LIFO costs |
|
|
(63.1 |
) |
|
|
(55.3 |
) |
|
|
|
|
|
|
|
|
|
Net inventories |
|
$ |
590.5 |
|
|
$ |
523.0 |
|
|
|
|
|
|
|
|
|
|
-6-
Note 5. Shareholders Equity
At June 30, 2005, 92,617,784 Class A common shares, $.01 par value were issued and outstanding
(excluding the 8,499,687 Class A common shares held by wholly-owned subsidiaries as discussed
below) compared to 92,543,660 Class A common shares, $.01 par value (excluding the 3,700,200 Class
A common shares held by wholly-owned subsidiaries) at December 31, 2004. During the first six
months of 2005, Cooper issued 1,207,424 Class A common shares primarily in connection with employee
incentive and benefit plans and Coopers dividend reinvestment program. During the first six
months of 2005, Coopers wholly-owned subsidiaries purchased 1,133,300 Class A common shares for
$77.2 million under Coopers share repurchase plan and a wholly-owned subsidiary purchased
3,669,037 previously unissued Class A common shares at fair market value. The share purchases are
recorded by Coopers wholly-owned subsidiaries as an investment in its parent company that is
eliminated in consolidation. During the first six months of 2005, 2,850 Class A common shares held
by wholly-owned subsidiaries were issued in connection with employee incentive plans, leaving
8,499,687 Class A common shares held by wholly-owned subsidiaries at June 30, 2005.
A wholly-owned subsidiary also owns all the issued and outstanding Class B common shares. The
subsidiarys investment in the Class B common shares is eliminated in consolidation. If at any
time a dividend is declared and paid on the Class A common shares, a like dividend shall be
declared and paid on the Class B common shares in an equal amount per share.
Note 6. Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in millions) |
Electrical Products |
|
$ |
1,010.6 |
|
|
$ |
928.9 |
|
|
$ |
1,978.9 |
|
|
$ |
1,819.6 |
|
Tools & Hardware |
|
|
178.6 |
|
|
|
180.4 |
|
|
|
355.1 |
|
|
|
354.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
1,189.2 |
|
|
$ |
1,109.3 |
|
|
$ |
2,334.0 |
|
|
$ |
2,173.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-7-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in millions) |
Electrical Products |
|
$ |
148.2 |
|
|
$ |
129.4 |
|
|
$ |
283.6 |
|
|
$ |
250.2 |
|
Tools & Hardware |
|
|
15.8 |
|
|
|
12.6 |
|
|
|
30.5 |
|
|
|
24.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings |
|
|
164.0 |
|
|
|
142.0 |
|
|
|
314.1 |
|
|
|
274.6 |
|
General Corporate expenses |
|
|
22.4 |
|
|
|
19.9 |
|
|
|
42.8 |
|
|
|
38.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating earnings |
|
|
141.6 |
|
|
|
122.1 |
|
|
|
271.3 |
|
|
|
236.3 |
|
Interest expense, net |
|
|
17.7 |
|
|
|
17.2 |
|
|
|
35.5 |
|
|
|
34.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
123.9 |
|
|
$ |
104.9 |
|
|
$ |
235.8 |
|
|
$ |
202.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7. Pension and Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in millions) |
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
4.2 |
|
|
$ |
3.7 |
|
|
$ |
8.7 |
|
|
$ |
8.1 |
|
Interest cost |
|
|
10.0 |
|
|
|
10.6 |
|
|
|
20.4 |
|
|
|
20.7 |
|
Expected return on plan assets |
|
|
(12.6 |
) |
|
|
(11.9 |
) |
|
|
(25.4 |
) |
|
|
(23.4 |
) |
Amortization of prior service cost |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.3 |
|
Recognized actuarial loss |
|
|
2.5 |
|
|
|
1.9 |
|
|
|
4.8 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
4.2 |
|
|
$ |
4.4 |
|
|
$ |
8.8 |
|
|
$ |
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-8-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in millions) |
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Interest cost |
|
|
1.7 |
|
|
|
2.0 |
|
|
|
3.5 |
|
|
|
4.1 |
|
Recognized actuarial gain |
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
(1.5 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1.1 |
|
|
$ |
1.4 |
|
|
$ |
2.1 |
|
|
$ |
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Income Taxes
The effective tax rate was 21.5% for the six months ended June 30, 2005 and 20.0% for the six
months ended June 30, 2004. The rate increase is primarily related to increased projected taxable
earnings in 2005 without a corresponding increase in projected tax benefits.
In April 2005, Cooper received an Examination Report from the Internal Revenue Service, which
included a challenge to the treatment of gains and interest deductions claimed on Coopers 2000 and
2001 federal income tax returns, relating to transactions involving government securities. If the
proposed adjustment is upheld, it would require that Cooper pay approximately $26.5 million in
taxes plus accrued interest. Interest will continue to accrue until the matter is resolved. Cooper
believes these transactions were properly reported on its federal income tax returns in accordance
with applicable tax laws and regulations in effect during the period involved. Cooper is
challenging these adjustments vigorously. While the outcome of proceedings of this type cannot be
predicted with certainty, management believes that the ultimate outcome of this matter will not
have a material impact on Coopers consolidated financial position, results of operations, or cash
flows.
Note 9. Net Income Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in millions) |
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
97.3 |
|
|
$ |
83.9 |
|
|
$ |
185.1 |
|
|
$ |
161.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
93.0 |
|
|
|
92.2 |
|
|
|
93.0 |
|
|
|
92.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
97.3 |
|
|
$ |
83.9 |
|
|
$ |
185.1 |
|
|
$ |
161.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
93.0 |
|
|
|
92.2 |
|
|
|
93.0 |
|
|
|
92.9 |
|
Incremental shares from assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, performance-based stock
awards and other employee awards |
|
|
2.4 |
|
|
|
2.2 |
|
|
|
2.5 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
and common share equivalents |
|
|
95.4 |
|
|
|
94.4 |
|
|
|
95.5 |
|
|
|
95.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-9-
Options and employee awards are not considered in the calculations if the effect would be
antidilutive.
Note 10. Net Income and Other Nonowner Changes in Equity
The components of net income and other nonowner changes in equity, net of related taxes, were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(in millions) |
Net income |
|
$ |
97.3 |
|
|
$ |
83.9 |
|
|
$ |
185.1 |
|
|
$ |
161.6 |
|
Foreign currency translation gains
(losses) |
|
|
(5.4 |
) |
|
|
(13.1 |
) |
|
|
(13.5 |
) |
|
|
1.8 |
|
Change in fair value of derivatives |
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
(1.1 |
) |
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and other nonowner
changes in equity |
|
$ |
92.1 |
|
|
$ |
70.7 |
|
|
$ |
170.5 |
|
|
$ |
164.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11. Restructuring
During the fourth quarter of 2003, Cooper recorded net restructuring charges of $16.9 million,
or $13.6 million after taxes ($.14 per diluted common share). This represented costs associated
with restructuring projects undertaken in 2003 of $18.4 million, partially offset by a $1.5 million
adjustment of estimates for restructuring projects initiated in 2002.
The most significant action included in the charges was an announcement of the closing of
Cooper Wiring Devices manufacturing operations in New York City. This action will include the
withdrawal from a multiple-employer pension plan. Cooper recorded a $12.5 million obligation as an
estimate of Coopers portion of unfunded benefit obligations of the plan. The remaining $5.9
million charge primarily represents severance for announced employment reductions at several
locations. The 2003 net impact of the charges was $16.4 million on the Electrical Products
segment, $(0.4) million on the Tools & Hardware segment and $0.9 million related to General
Corporate. As of June 30, 2005, Cooper had paid a total of $5.3 million for these actions, all of
which was for severance costs.
A total of 114 salaried and 150 hourly personnel were eliminated as a result of these actions,
and all personnel were terminated as of December 31, 2004. The majority of the severance obligation
was paid by the first half of 2004. The multiple-employer pension obligation is expected to be paid
over 15 years, beginning in 2005.
During the fourth quarter of 2002, Cooper committed to (1) the closure of ten manufacturing
facilities, (2) further employment reductions to appropriately size Coopers workforce to market
conditions, and (3) the write-off of assets related to production rationalization activities.
These actions were taken as a part of Cooper managements ongoing assessment of required production
capacity in consideration of current demand levels. In connection with these commitments, certain
production capacity and related assets were sold, outsourced, discontinued or moved to a lower cost
environment. Cooper recorded a provision for these announced actions of $39.1 million ($15.0
million of which was non-cash), or $29.8 million after taxes ($.32 per diluted common share). Of
this amount, $24.0 million ($11.0 million of which was non-cash) was
associated with the Electrical Products segment, $12.7 million ($3.4 million of which was non-cash)
was associated with the Tools & Hardware segment and the remainder was related to General
Corporate.
-10-
The following table reflects activity related to the fourth quarter 2002 restructuring charge.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities |
|
|
Number of |
|
Accrued |
|
Closure and |
|
|
Employees |
|
Severance |
|
Rationalization |
|
|
|
|
|
|
($ in millions) |
Balance at December 31, 2002 |
|
|
1,022 |
|
|
$ |
16.2 |
|
|
$ |
5.8 |
|
Employees terminated |
|
|
(982 |
) |
|
|
|
|
|
|
|
|
Cash expenditures |
|
|
|
|
|
|
(14.9 |
) |
|
|
(2.9 |
) |
Reversal of excess accruals |
|
|
(9 |
) |
|
|
(0.9 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
|
31 |
|
|
|
0.4 |
|
|
|
2.3 |
|
Employees terminated |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
Cash expenditures |
|
|
|
|
|
|
(0.4 |
) |
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
0.6 |
|
Cash expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2005 |
|
|
|
|
|
$ |
|
|
|
$ |
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A total of 435 salaried and 771 hourly positions were eliminated as a result of the
planned closure and rationalization actions. Of those planned position eliminations, approximately
600 positions were replaced ultimately as a result of Coopers ongoing efforts to relocate
production capacity to lower cost locations.
See Restructuring Charges in Managements Discussion and Analysis of Financial Condition and
Results of Operations for additional information.
Note 12. Charge Related to Discontinued Operations
In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation
(Federal-Mogul). These discontinued businesses (including the Abex 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 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 and indicated that Federal-Mogul may not
honor the indemnification obligations to Cooper. As of the date of this filing, Federal-Mogul had
not rejected the 1998 Agreement, which includes the indemnification to Cooper. If Federal-Mogul
rejects the 1998 Agreement, Cooper will be relieved of its future obligations under the 1998
Agreement, including specific indemnities relating to payment of taxes and certain obligations
regarding insurance for its former Automotive Products businesses. To the extent Cooper is
obligated to Pneumo for any asbestos-related claims arising from the Abex product line (Abex
Claims), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims. Based
on information provided by representatives of Federal-Mogul and recent claims experience, from
August 28, 1998 through June 30, 2005, a total of 135,971 Abex Claims were filed, of which 94,292
claims have been resolved leaving 41,679 Abex Claims pending at June 30, 2005, that are the
responsibility of Federal-Mogul. During the three months ended June 30, 2005, 1,756 claims were
filed and 6,931 claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $2,130 before insurance. A total of $72.4 million was spent on defense
costs for the period August 28, 1998 through June 30, 2005. Historically, existing insurance
coverage has provided 50% to 80% of the total defense and indemnity payments for Abex Claims.
With the assistance of independent advisors, Bates White, LLC, in the fourth quarter of 2001
Cooper completed a thorough analysis of its potential exposure for asbestos liabilities in the
event Federal-Mogul
rejects the 1998 Agreement. Based on Coopers analysis of its contingent liability exposure
resulting from Federal-Moguls bankruptcy, Cooper concluded that an additional fourth-quarter 2001
discontinued operations provision of $30 million after-tax, or $.32 per share, was appropriate to
reflect the potential net
-11-
impact of this issue. The analysis included a review of the twenty-year
history of Abex Claims; the average indemnity payments for resolved claims; the jurisdictions in
which claims had been filed; Bates White, LLC data on the incidence of asbestos exposure and
diseases in various industries; existing insurance coverage including the insurance recovered by
Pneumo and Federal-Mogul for pre-bankruptcy claims and the contractual indemnities. Assumptions
were made regarding future claim filings and indemnity payments, and, based on the advisors data,
the expected population of persons exposed to asbestos in particular industries. All of this data
was used to determine a reasonable expectation of future claims, indemnity payments and insurance
coverage. Cooper is preserving its rights as a creditor for breach of Federal-Moguls
indemnification to Cooper and its rights against all Federal-Mogul subsidiaries. Cooper intends to
take all actions to seek a resolution of the indemnification issues and future handling of the
Abex-related claims within the Federal-Mogul bankruptcy proceedings.
Coopers fourth-quarter 2001 analysis of the contingent liability exposure assumed that the
liabilities would be settled within the Federal-Mogul bankruptcy proceedings. This analysis
assumed that representatives of Federal-Mogul, its bankruptcy committees and the future claimants
(the Representatives) would reach similar conclusions regarding the potential future liabilities
and insurance recoveries as Cooper did based on the Bates White, LLC analysis. Throughout 2003,
Cooper worked towards resolution of the indemnification issues and future handling of the
Abex-related claims within the Federal-Mogul bankruptcy proceedings. This included negotiations
with the Representatives regarding participation in Federal-Moguls proposed 524(g) asbestos trust.
Based on the status of negotiations in 2004, Cooper concluded that it was probable that
Federal-Mogul will reject the 1998 Agreement. Cooper also concluded that the Representatives would
require any negotiated settlement through the Federal-Mogul bankruptcy to be at the high end of the
Bates White, LLC liability analysis and with substantially lower insurance recovery assumptions and
higher administrative costs.
While Cooper believes that the insurance has significant additional value, extensive
litigation with the insurance carriers and other parties that have access to the insurance may be
required to receive recoveries and there is risk that court decisions could reduce the value of the
recoveries. Additionally, the assumptions on liability payments could prove inaccurate over time.
If Cooper is unable to reach a settlement with the Representatives and the 1998 Agreement is
rejected, Cooper would be required to reflect an accrual for the asbestos liability and a related
receivable for the probable insurance recoveries.
During late February and early March 2004, Cooper reassessed the accrual required based on the
then current status of the negotiations with the Representatives and the liability and insurance
receivable that would be required to be recorded if this matter is not settled within the
Federal-Mogul bankruptcy. Cooper concluded that resolution within the Federal-Mogul proposed
524(g) asbestos trust would likely be within the range of the liabilities, net of insurance
recoveries, that Cooper would accrue if this matter were not settled within the Federal-Mogul
bankruptcy. Accordingly, Cooper recorded a $126.0 million after-tax discontinued operations charge,
net of a $70.9 million income tax benefit, in the fourth quarter of 2003.
Cooper has continued discussions with the Representatives, but to date has been unable to
reach a satisfactory conclusion. At this time, the exact manner in which this issue will be
resolved is not known. The accrual for potential liabilities related to the Automotive Products
sale and the Federal-Mogul bankruptcy was $191.3 million at June 30, 2005 and $225.1 million at
December 31, 2004. Insurance recoveries are recorded as an increase in the accrual when cash is
received, which may be an extended period from the date when a claim or defense costs are paid.
During 2005, Cooper has engaged Bates White, LLC to update its analysis and assist Cooper in
evaluating analyses prepared by the Representatives and their advisors and advise Cooper on
accounting and reporting practices.
-12-
Note 13. Consolidating Financial Information
Prior to January 1, 2005, Cooper fully and unconditionally guaranteed the registered debt
securities of Cooper Industries, Inc. (Cooper Ohio), a wholly-owned indirect subsidiary.
Effective January 1, 2005, Cooper Industries, LLC, a wholly-owned indirect subsidiary, became the
successor issuer of Cooper Ohios registered debt securities as a result of a merger of Cooper Ohio
into Cooper Industries, LLC. Cooper and certain principal operating subsidiaries fully and
unconditionally guarantee, on a joint and several basis, the registered debt securities of Cooper
Industries, LLC. The following condensed consolidating financial information is included so that
separate financial statements of Cooper Industries, LLC or Cooper Ohio are not required to be filed
with the Securities and Exchange Commission. The consolidating financial statements present
investments in subsidiaries using the equity method of accounting. Intercompany investments in the
Class A and Class B common shares are accounted for using the cost method.
Consolidating Income Statements
Three Months Ended June 30, 2005
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
Guaranteeing |
|
Other |
|
Consolidating |
|
|
|
|
Cooper |
|
LLC |
|
Subsidiaries |
|
Subsidiaries |
|
Adjustments |
|
Total |
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
811.0 |
|
|
$ |
408.6 |
|
|
$ |
(30.4 |
) |
|
$ |
1,189.2 |
|
Cost of sales |
|
|
|
|
|
|
0.2 |
|
|
|
575.9 |
|
|
|
269.0 |
|
|
|
(30.4 |
) |
|
|
814.7 |
|
Selling and administrative
expenses |
|
|
2.5 |
|
|
|
2.0 |
|
|
|
144.7 |
|
|
|
83.7 |
|
|
|
|
|
|
|
232.9 |
|
Interest expense, net |
|
|
(0.4 |
) |
|
|
13.4 |
|
|
|
(0.7 |
) |
|
|
5.4 |
|
|
|
|
|
|
|
17.7 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
124.3 |
|
|
|
42.8 |
|
|
|
28.8 |
|
|
|
69.0 |
|
|
|
(264.9 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(1.7 |
) |
|
|
(26.8 |
) |
|
|
(55.4 |
) |
|
|
107.3 |
|
|
|
(23.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
|
|
120.5 |
|
|
|
0.4 |
|
|
|
64.5 |
|
|
|
226.8 |
|
|
|
(288.3 |
) |
|
|
123.9 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
(7.9 |
) |
|
|
(4.4 |
) |
|
|
38.9 |
|
|
|
|
|
|
|
26.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
120.5 |
|
|
$ |
8.3 |
|
|
$ |
68.9 |
|
|
$ |
187.9 |
|
|
$ |
(288.3 |
) |
|
$ |
97.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2004
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
Other |
|
Consolidating |
|
|
|
|
Cooper |
|
Ohio |
|
Subsidiaries |
|
Adjustments |
|
Total |
Revenues |
|
$ |
|
|
|
$ |
73.3 |
|
|
$ |
1,041.0 |
|
|
$ |
(5.0 |
) |
|
$ |
1,109.3 |
|
Cost of sales |
|
|
0.2 |
|
|
|
48.9 |
|
|
|
731.1 |
|
|
|
(5.0 |
) |
|
|
775.2 |
|
Selling and administrative
expenses |
|
|
2.7 |
|
|
|
26.8 |
|
|
|
182.5 |
|
|
|
|
|
|
|
212.0 |
|
Interest expense, net |
|
|
(0.3 |
) |
|
|
12.1 |
|
|
|
5.4 |
|
|
|
|
|
|
|
17.2 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
88.0 |
|
|
|
103.1 |
|
|
|
41.0 |
|
|
|
(232.1 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(1.5 |
) |
|
|
(77.6 |
) |
|
|
79.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
|
|
83.9 |
|
|
|
11.0 |
|
|
|
242.1 |
|
|
|
(232.1 |
) |
|
|
104.9 |
|
Income tax expense (benefit) |
|
|
|
|
|
|
(30.0 |
) |
|
|
51.0 |
|
|
|
|
|
|
|
21.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
83.9 |
|
|
$ |
41.0 |
|
|
$ |
191.1 |
|
|
$ |
(232.1 |
) |
|
$ |
83.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-13-
Consolidating Income Statements
Six Months Ended June 30, 2005
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
Guaranteeing |
|
Other |
|
Consolidating |
|
|
|
|
Cooper |
|
LLC |
|
Subsidiaries |
|
Subsidiaries |
|
Adjustments |
|
Total |
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,562.6 |
|
|
$ |
832.0 |
|
|
$ |
(60.6 |
) |
|
$ |
2,334.0 |
|
Cost of sales |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
1,112.3 |
|
|
|
550.2 |
|
|
|
(60.6 |
) |
|
|
1,602.3 |
|
Selling and administrative
expenses |
|
|
4.7 |
|
|
|
3.8 |
|
|
|
283.2 |
|
|
|
168.7 |
|
|
|
|
|
|
|
460.4 |
|
Interest expense, net |
|
|
(0.9 |
) |
|
|
26.9 |
|
|
|
(1.7 |
) |
|
|
11.2 |
|
|
|
|
|
|
|
35.5 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
238.0 |
|
|
|
49.7 |
|
|
|
110.6 |
|
|
|
129.4 |
|
|
|
(527.7 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(2.5 |
) |
|
|
(26.8 |
) |
|
|
(166.2 |
) |
|
|
242.0 |
|
|
|
(46.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes |
|
|
231.5 |
|
|
|
(8.0 |
) |
|
|
113.2 |
|
|
|
473.3 |
|
|
|
(574.2 |
) |
|
|
235.8 |
|
Income tax expense (benefit) |
|
|
|
|
|
|
(21.5 |
) |
|
|
(16.1 |
) |
|
|
88.3 |
|
|
|
|
|
|
|
50.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
231.5 |
|
|
$ |
13.5 |
|
|
$ |
129.3 |
|
|
$ |
385.0 |
|
|
$ |
(574.2 |
) |
|
$ |
185.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2004
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
Other |
|
Consolidating |
|
|
|
|
Cooper |
|
Ohio |
|
Subsidiaries |
|
Adjustments |
|
Total |
Revenues |
|
$ |
|
|
|
$ |
140.3 |
|
|
$ |
2,043.7 |
|
|
$ |
(10.1 |
) |
|
$ |
2,173.9 |
|
Cost of sales |
|
|
0.6 |
|
|
|
92.3 |
|
|
|
1,434.4 |
|
|
|
(10.1 |
) |
|
|
1,517.2 |
|
Selling and administrative
expenses |
|
|
4.7 |
|
|
|
52.7 |
|
|
|
363.0 |
|
|
|
|
|
|
|
420.4 |
|
Interest expense, net |
|
|
(0.5 |
) |
|
|
23.9 |
|
|
|
10.9 |
|
|
|
|
|
|
|
34.3 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
169.1 |
|
|
|
226.5 |
|
|
|
75.7 |
|
|
|
(471.3 |
) |
|
|
|
|
Intercompany income (expense) |
|
|
(2.7 |
) |
|
|
(203.9 |
) |
|
|
206.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes |
|
|
161.6 |
|
|
|
(6.0 |
) |
|
|
517.7 |
|
|
|
(471.3 |
) |
|
|
202.0 |
|
Income tax expense (benefit) |
|
|
|
|
|
|
(81.7 |
) |
|
|
122.1 |
|
|
|
|
|
|
|
40.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
161.6 |
|
|
$ |
75.7 |
|
|
$ |
395.6 |
|
|
$ |
(471.3 |
) |
|
$ |
161.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-14-
Consolidating Balance Sheets
June 30, 2005
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
Guaranteeing |
|
Other |
|
Consolidating |
|
|
|
|
Cooper |
|
LLC |
|
Subsidiaries |
|
Subsidiaries |
|
Adjustments |
|
Total |
Cash and cash equivalents |
|
$ |
26.8 |
|
|
$ |
|
|
|
$ |
219.8 |
|
|
$ |
290.4 |
|
|
$ |
|
|
|
$ |
537.0 |
|
Receivables |
|
|
0.1 |
|
|
|
|
|
|
|
531.7 |
|
|
|
347.4 |
|
|
|
|
|
|
|
879.2 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
351.0 |
|
|
|
239.5 |
|
|
|
|
|
|
|
590.5 |
|
Deferred income taxes and
other current assets |
|
|
0.4 |
|
|
|
100.0 |
|
|
|
98.5 |
|
|
|
(17.4 |
) |
|
|
|
|
|
|
181.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
27.3 |
|
|
|
100.0 |
|
|
|
1,201.0 |
|
|
|
859.9 |
|
|
|
|
|
|
|
2,188.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
less accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
388.1 |
|
|
|
297.8 |
|
|
|
|
|
|
|
685.9 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
1,018.0 |
|
|
|
1,082.5 |
|
|
|
|
|
|
|
2,100.5 |
|
Investment in subsidiaries |
|
|
4,758.5 |
|
|
|
939.4 |
|
|
|
4,818.9 |
|
|
|
2,368.0 |
|
|
|
(12,884.8 |
) |
|
|
|
|
Investment in parent |
|
|
|
|
|
|
|
|
|
|
2,490.4 |
|
|
|
279.3 |
|
|
|
(2,769.7 |
) |
|
|
|
|
Intercompany accounts
receivables |
|
|
564.5 |
|
|
|
875.2 |
|
|
|
|
|
|
|
612.5 |
|
|
|
(2,052.2 |
) |
|
|
|
|
Intercompany notes receivable |
|
|
46.0 |
|
|
|
|
|
|
|
62.3 |
|
|
|
5,877.2 |
|
|
|
(5,985.5 |
) |
|
|
|
|
Deferred income taxes and
other noncurrent assets |
|
|
|
|
|
|
123.9 |
|
|
|
31.8 |
|
|
|
124.9 |
|
|
|
|
|
|
|
280.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,396.3 |
|
|
$ |
2,038.5 |
|
|
$ |
10,010.5 |
|
|
$ |
11,502.1 |
|
|
$ |
(23,692.2 |
) |
|
$ |
5,255.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6.4 |
|
|
$ |
|
|
|
$ |
6.4 |
|
Accounts payable |
|
|
34.4 |
|
|
|
17.4 |
|
|
|
195.1 |
|
|
|
161.3 |
|
|
|
|
|
|
|
408.2 |
|
Accrued liabilities |
|
|
3.4 |
|
|
|
30.0 |
|
|
|
304.9 |
|
|
|
122.7 |
|
|
|
|
|
|
|
461.0 |
|
Accrual for discontinued
operations |
|
|
|
|
|
|
191.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191.3 |
|
Current maturities of long-term
debt |
|
|
|
|
|
|
229.0 |
|
|
|
|
|
|
|
362.5 |
|
|
|
|
|
|
|
591.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
37.8 |
|
|
|
467.7 |
|
|
|
500.0 |
|
|
|
652.9 |
|
|
|
|
|
|
|
1,658.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
685.2 |
|
|
|
8.0 |
|
|
|
1.7 |
|
|
|
|
|
|
|
694.9 |
|
Intercompany accounts
payables |
|
|
|
|
|
|
|
|
|
|
1,688.6 |
|
|
|
363.6 |
|
|
|
(2,052.2 |
) |
|
|
|
|
Intercompany notes payable |
|
|
178.7 |
|
|
|
462.9 |
|
|
|
5,235.5 |
|
|
|
108.4 |
|
|
|
(5,985.5 |
) |
|
|
|
|
Other long-term liabilities |
|
|
|
|
|
|
128.0 |
|
|
|
273.6 |
|
|
|
113.0 |
|
|
|
|
|
|
|
514.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
216.5 |
|
|
|
1,743.8 |
|
|
|
7,705.7 |
|
|
|
1,239.6 |
|
|
|
(8,037.7 |
) |
|
|
2,867.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
0.9 |
|
Class B common stock |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
Subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258.4 |
|
|
|
(258.4 |
) |
|
|
|
|
Capital in excess of par value |
|
|
3,183.6 |
|
|
|
|
|
|
|
498.6 |
|
|
|
6,396.5 |
|
|
|
(9,632.8 |
) |
|
|
445.9 |
|
Retained earnings |
|
|
2,151.4 |
|
|
|
411.2 |
|
|
|
1,962.9 |
|
|
|
3,927.6 |
|
|
|
(6,365.8 |
) |
|
|
2,087.3 |
|
Accumulated other nonowner
changes in equity |
|
|
(156.7 |
) |
|
|
(116.5 |
) |
|
|
(156.7 |
) |
|
|
(320.0 |
) |
|
|
603.1 |
|
|
|
(146.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
5,179.8 |
|
|
|
294.7 |
|
|
|
2,304.8 |
|
|
|
10,262.5 |
|
|
|
(15,654.5 |
) |
|
|
2,387.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
5,396.3 |
|
|
$ |
2,038.5 |
|
|
$ |
10,010.5 |
|
|
$ |
11,502.1 |
|
|
$ |
(23,692.2 |
) |
|
$ |
5,255.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-15-
Consolidating Balance Sheets
December 31, 2004
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
Other |
|
Consolidating |
|
|
|
|
Cooper |
|
Ohio |
|
Subsidiaries |
|
Adjustments |
|
Total |
Cash and cash equivalents |
|
$ |
111.5 |
|
|
$ |
246.1 |
|
|
$ |
295.2 |
|
|
$ |
|
|
|
$ |
652.8 |
|
Receivables |
|
|
|
|
|
|
15.0 |
|
|
|
805.9 |
|
|
|
|
|
|
|
820.9 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
523.0 |
|
|
|
|
|
|
|
523.0 |
|
Deferred income taxes and other
current assets |
|
|
1.3 |
|
|
|
215.0 |
|
|
|
5.6 |
|
|
|
|
|
|
|
221.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
112.8 |
|
|
|
476.1 |
|
|
|
1,629.7 |
|
|
|
|
|
|
|
2,218.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
less
accumulated depreciation |
|
|
|
|
|
|
34.5 |
|
|
|
661.9 |
|
|
|
|
|
|
|
696.4 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
2,142.3 |
|
|
|
|
|
|
|
2,142.3 |
|
Investment in subsidiaries |
|
|
2,785.8 |
|
|
|
4,796.1 |
|
|
|
193.5 |
|
|
|
(7,775.4 |
) |
|
|
|
|
Investment in parent |
|
|
|
|
|
|
2,245.5 |
|
|
|
202.2 |
|
|
|
(2,447.7 |
) |
|
|
|
|
Intercompany accounts receivable |
|
|
514.0 |
|
|
|
|
|
|
|
681.9 |
|
|
|
(1,195.9 |
) |
|
|
|
|
Intercompany notes receivable |
|
|
25.6 |
|
|
|
21.3 |
|
|
|
3,899.6 |
|
|
|
(3,946.5 |
) |
|
|
|
|
Deferred income taxes and other
noncurrent assets |
|
|
|
|
|
|
112.6 |
|
|
|
170.9 |
|
|
|
|
|
|
|
283.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,438.2 |
|
|
$ |
7,686.1 |
|
|
$ |
9,582.0 |
|
|
$ |
(15,365.5 |
) |
|
$ |
5,340.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
97.6 |
|
|
$ |
|
|
|
$ |
97.6 |
|
Accounts payable |
|
|
32.5 |
|
|
|
21.1 |
|
|
|
297.1 |
|
|
|
|
|
|
|
350.7 |
|
Accrued liabilities |
|
|
2.9 |
|
|
|
130.6 |
|
|
|
355.3 |
|
|
|
|
|
|
|
488.8 |
|
Accrual for discontinued
operations |
|
|
|
|
|
|
225.1 |
|
|
|
|
|
|
|
|
|
|
|
225.1 |
|
Current maturities of long-term
debt |
|
|
|
|
|
|
229.0 |
|
|
|
436.4 |
|
|
|
|
|
|
|
665.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
35.4 |
|
|
|
605.8 |
|
|
|
1,186.4 |
|
|
|
|
|
|
|
1,827.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
688.3 |
|
|
|
10.3 |
|
|
|
|
|
|
|
698.6 |
|
Intercompany accounts payable |
|
|
|
|
|
|
1,195.9 |
|
|
|
|
|
|
|
(1,195.9 |
) |
|
|
|
|
Intercompany notes payable |
|
|
135.7 |
|
|
|
3,763.9 |
|
|
|
46.9 |
|
|
|
(3,946.5 |
) |
|
|
|
|
Other long-term liabilities |
|
|
|
|
|
|
253.2 |
|
|
|
274.9 |
|
|
|
|
|
|
|
528.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
171.1 |
|
|
|
6,507.1 |
|
|
|
1,518.5 |
|
|
|
(5,142.4 |
) |
|
|
3,054.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
Class B common stock |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
Subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
137.0 |
|
|
|
(137.0 |
) |
|
|
|
|
Capital in excess of par value |
|
|
2,882.2 |
|
|
|
12.1 |
|
|
|
7,252.0 |
|
|
|
(9,700.1 |
) |
|
|
446.2 |
|
Retained earnings |
|
|
350.0 |
|
|
|
1,263.8 |
|
|
|
773.1 |
|
|
|
(415.3 |
) |
|
|
1,971.6 |
|
Accumulated other nonowner
changes in equity |
|
|
33.5 |
|
|
|
(96.9 |
) |
|
|
(98.6 |
) |
|
|
29.8 |
|
|
|
(132.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
3,267.1 |
|
|
|
1,179.0 |
|
|
|
8,063.5 |
|
|
|
(10,223.1 |
) |
|
|
2,286.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
3,438.2 |
|
|
$ |
7,686.1 |
|
|
$ |
9,582.0 |
|
|
$ |
(15,365.5 |
) |
|
$ |
5,340.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-16-
Consolidating Statements of Cash Flows
Six Months Ended June 30, 2005
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
Guaranteeing |
|
Other |
|
Consolidating |
|
|
|
|
Cooper |
|
Industries, LLC |
|
Subsidiaries |
|
Subsidiaries |
|
Adjustments |
|
Total |
Net cash provided by (used in)
operating activities |
|
$ |
(2.1 |
) |
|
$ |
(69.7 |
) |
|
$ |
13.0 |
|
|
$ |
286.6 |
|
|
$ |
(46.4 |
) |
|
$ |
181.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(26.5 |
) |
|
|
(21.4 |
) |
|
|
|
|
|
|
(47.9 |
) |
Cash paid for acquired
businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
(2.4 |
) |
Investment in affiliates |
|
|
(6.3 |
) |
|
|
|
|
|
|
(33.7 |
) |
|
|
|
|
|
|
40.0 |
|
|
|
|
|
Loans to affiliates |
|
|
(46.0 |
) |
|
|
|
|
|
|
(61.5 |
) |
|
|
(43.0 |
) |
|
|
150.5 |
|
|
|
|
|
Repayments of loans from
affiliates |
|
|
25.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.6 |
) |
|
|
|
|
Dividends from subsidiaries |
|
|
|
|
|
|
|
|
|
|
19.0 |
|
|
|
|
|
|
|
(19.0 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
1.5 |
|
|
|
0.3 |
|
|
|
2.5 |
|
|
|
|
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) investing activities |
|
|
(26.7 |
) |
|
|
1.5 |
|
|
|
(102.4 |
) |
|
|
(64.3 |
) |
|
|
145.9 |
|
|
|
(46.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117.9 |
) |
|
|
|
|
|
|
(117.9 |
) |
Borrowings from affiliates |
|
|
43.0 |
|
|
|
|
|
|
|
|
|
|
|
107.5 |
|
|
|
(150.5 |
) |
|
|
|
|
Repayments of loans to
affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.6 |
) |
|
|
25.6 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
6.6 |
|
|
|
68.2 |
|
|
|
31.1 |
|
|
|
(105.9 |
) |
|
|
|
|
|
|
|
|
Dividends |
|
|
(69.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69.4 |
) |
Dividends paid to affiliates |
|
|
(46.4 |
) |
|
|
|
|
|
|
|
|
|
|
(19.0 |
) |
|
|
65.4 |
|
|
|
|
|
Subsidiary purchase of parent
shares |
|
|
10.3 |
|
|
|
|
|
|
|
(10.3 |
) |
|
|
(77.2 |
) |
|
|
|
|
|
|
(77.2 |
) |
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.0 |
|
|
|
(40.0 |
) |
|
|
|
|
Employee stock plan activity
and other |
|
|
|
|
|
|
|
|
|
|
41.2 |
|
|
|
|
|
|
|
|
|
|
|
41.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities |
|
|
(55.9 |
) |
|
|
68.2 |
|
|
|
62.0 |
|
|
|
(198.1 |
) |
|
|
(99.5 |
) |
|
|
(223.3 |
) |
Effect of exchange rate changes
on cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27.9 |
) |
|
|
|
|
|
|
(27.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents |
|
|
(84.7 |
) |
|
|
|
|
|
|
(27.4 |
) |
|
|
(3.7 |
) |
|
|
|
|
|
|
(115.8 |
) |
Cash and cash equivalents,
beginning of period |
|
|
111.5 |
|
|
|
|
|
|
|
247.2 |
|
|
|
294.1 |
|
|
|
|
|
|
|
652.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end
of period |
|
$ |
26.8 |
|
|
$ |
|
|
|
$ |
219.8 |
|
|
$ |
290.4 |
|
|
$ |
|
|
|
$ |
537.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-17-
Consolidating Statements of Cash Flows
Six Months Ended June 30, 2004
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
Other |
|
Consolidating |
|
|
|
|
Cooper |
|
Ohio |
|
Subsidiaries |
|
Adjustments |
|
Total |
Net cash provided by (used in)
operating activities |
|
$ |
(3.8 |
) |
|
$ |
(53.8 |
) |
|
$ |
276.9 |
|
|
$ |
|
|
|
$ |
219.3 |
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(10.4 |
) |
|
|
(28.6 |
) |
|
|
|
|
|
|
(39.0 |
) |
Cash paid for acquired
businesses |
|
|
|
|
|
|
|
|
|
|
(10.1 |
) |
|
|
|
|
|
|
(10.1 |
) |
Intercompany sale (purchase)
of investment in parent |
|
|
|
|
|
|
109.5 |
|
|
|
(109.5 |
) |
|
|
|
|
|
|
|
|
Intercompany sale (purchase)
of investment in subsidiaries |
|
|
|
|
|
|
(182.1 |
) |
|
|
182.1 |
|
|
|
|
|
|
|
|
|
Investment in affiliates |
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
3.8 |
|
|
|
|
|
Loans to affiliates |
|
|
(34.1 |
) |
|
|
(3.7 |
) |
|
|
(67.7 |
) |
|
|
105.5 |
|
|
|
|
|
Repayments of loans from
affiliates |
|
|
|
|
|
|
|
|
|
|
84.5 |
|
|
|
(84.5 |
) |
|
|
|
|
Dividends from subsidiaries |
|
|
134.0 |
|
|
|
3.3 |
|
|
|
|
|
|
|
(137.3 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
0.7 |
|
|
|
7.2 |
|
|
|
|
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) investing activities |
|
|
96.1 |
|
|
|
(82.7 |
) |
|
|
57.9 |
|
|
|
(112.5 |
) |
|
|
(41.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of
debt |
|
|
|
|
|
|
|
|
|
|
2.0 |
|
|
|
|
|
|
|
2.0 |
|
Repayments of debt |
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
|
|
|
|
(1.5 |
) |
Borrowings from affiliates |
|
|
67.7 |
|
|
|
|
|
|
|
37.8 |
|
|
|
(105.5 |
) |
|
|
|
|
Repayments of loans to
affiliates |
|
|
(132.1 |
) |
|
|
|
|
|
|
47.6 |
|
|
|
84.5 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
1.9 |
|
|
|
172.1 |
|
|
|
(174.0 |
) |
|
|
|
|
|
|
|
|
Dividends |
|
|
(65.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65.1 |
) |
Dividends paid to affiliates |
|
|
|
|
|
|
|
|
|
|
(137.3 |
) |
|
|
137.3 |
|
|
|
|
|
Subsidiary purchase of parent
shares |
|
|
|
|
|
|
(110.3 |
) |
|
|
(54.6 |
) |
|
|
|
|
|
|
(164.9 |
) |
Employee stock plan activity
and other |
|
|
|
|
|
|
24.1 |
|
|
|
3.8 |
|
|
|
(3.8 |
) |
|
|
24.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities |
|
|
(127.6 |
) |
|
|
85.9 |
|
|
|
(276.2 |
) |
|
|
112.5 |
|
|
|
(205.4 |
) |
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
(2.5 |
) |
|
|
|
|
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents |
|
|
(35.3 |
) |
|
|
(50.6 |
) |
|
|
56.1 |
|
|
|
|
|
|
|
(29.8 |
) |
Cash and cash equivalents,
beginning of period |
|
|
96.4 |
|
|
|
257.2 |
|
|
|
110.1 |
|
|
|
|
|
|
|
463.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period |
|
$ |
61.1 |
|
|
$ |
206.6 |
|
|
$ |
166.2 |
|
|
$ |
|
|
|
$ |
433.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-18-
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of Financial Condition |
|
|
and Results of Operations |
Results of Operations
Three Months Ended June 30, 2005 Compared With Three Months Ended June 30, 2004
Net income for the second quarter of 2005 was $97.3 million on revenues of $1,189.2 million
compared with 2004 second quarter net income of $83.9 million on revenues of $1,109.3 million.
Second quarter diluted earnings per share increased 15% to $1.02 from $.89 in 2004.
Revenues:
Revenues for the second quarter of 2005 increased 7% compared to the second quarter of 2004.
The impact of foreign currency translation increased reported revenues by approximately 1% for the
quarter.
Electrical Products segment revenues for the second quarter of 2005 increased 9% compared to
the second quarter of 2004. Foreign currency translation increased revenues by approximately 1% for
the quarter. All of Coopers Electrical Products businesses experienced revenue growth during the
quarter. Continued positive trends in industrial, commercial and residential construction were the
primary drivers of the improvement, as well as solid retail performance against easy comparables in
last years second quarter. However, overall non-residential project construction remained soft.
Sales of power transmission and distribution equipment also remained strong.
Tools & Hardware segment revenues for the second quarter of 2005 decreased 1% from the second
quarter of 2004. Foreign currency translation increased revenues by approximately 2% for the
quarter. Tools & Hardware segment 2005 revenues were below 2004 levels due to lower shipments of
assembly equipment and lower sales of industrial power tools, partially offset by continued
improvement in hand tool sales to both the industrial and retail markets.
Costs and Expenses:
Cost of sales, as a percentage of revenues, was 68.5% for the second quarter of 2005 compared
to 69.9% for the comparable 2004 quarter. The decrease in the cost of sales percentage was
primarily due to favorable business mix in the Tools segment, continued productivity improvements
and adequate pricing to offset material, energy and transportation cost increases.
Electrical Products segment cost of sales, as a percentage of revenues, was 68.1% for the
second quarter of 2005 compared to 69.1% for the second quarter of 2004. The decrease in cost of
sales percentage resulted from productivity improvements, revenue leverage and price increases to
offset inflationary pressures. Tools & Hardware segment cost of sales, as a percentage of
revenues, was 70.4% for the second quarter of 2005 compared to 73.2% for the second quarter of
2004. The decrease in cost of sales percentage was due to productivity initiatives, pricing
actions and a favorable sales mix from declines in lower margin assembly equipment shipments.
Selling and administrative expenses, as a percentage of revenues, for the second quarter of
2005 were 19.6% compared to 19.1% for the second quarter of 2004. The increase is due to higher
stock-based compensation expenses, increased audit and Sarbanes-Oxley Act compliance costs and
further investment in growth initiatives.
Electrical Products segment selling and administrative expenses, as a percentage of revenues,
for the second quarter of 2005 were 17.3% compared to 16.9% for the second quarter of 2004. The
increase in selling and administrative expenses percentage is primarily due to increased
stock-based compensation expense and investments in international and other sales and marketing
initiatives.
-19-
Tools & Hardware segment selling and administrative expenses, as a percentage of revenues, for
the second quarter of 2005 were 20.8% compared to 19.8% for the second quarter of 2004. The
increase in the selling and administrative expenses percentage is primarily due to decreased
leverage from lower volumes and increased stock-based compensation costs.
Interest expense, net for the second quarter of 2005 increased $0.5 million from the 2004
second quarter primarily as a result of higher average interest rates, partially offset by
additional interest earned on higher average cash balances. Average debt balances were $1.32
billion and $1.33 billion and average interest rates were 6.0% and 5.6% for the second quarter of
2005 and 2004, respectively.
Operating Earnings:
Electrical Products segment second quarter 2005 operating earnings increased 15% to $148.2
million from $129.4 million for the same quarter of last year. The increase was a result of
revenue growth, productivity improvements and adequate price increases to offset inflationary
pressures on key product and distribution costs.
Tools & Hardware segment second quarter 2005 operating earnings increased 25% to $15.8 million
compared to $12.6 million in the second quarter of 2004. The increase primarily reflects the
impact of a favorable sales mix, improved productivity and efficiency and pricing improvements.
General Corporate expense increased $2.5 million to $22.4 million during the second quarter of
2005 compared to $19.9 million during the second quarter of 2004. This increase primarily resulted
from increased stock-based compensation expenses, increased audit and Sarbanes-Oxley Act compliance
expenses and costs associated with executive management team additions and costs for transition of
the Chief Executive Officer.
Income Taxes:
The effective tax rate was 21.5% for the three months ended June 30, 2005 and 20.0% for the
three months ended June 30, 2004. The increase is primarily related to increased projected taxable
earnings in 2005, without a corresponding increase in projected tax benefits.
-20-
Six Months Ended June 30, 2005 Compared With Six Months Ended June 30, 2004
Net income for the first six months of 2005 was $185.1 million on revenues of $2,334.0 million
compared with 2004 first half net income of $161.6 million on revenues of $2,173.9 million. First
half diluted earnings per share increased 14% to $1.94 from $1.70 in 2004.
Revenues:
Revenues for the first six months of 2005 increased 7% compared to the first six months of
2004. The impact of foreign currency translation increased revenues by approximately 1% for the
first half of the year.
Electrical Products segment revenues for the first six months of 2005 increased approximately
9% compared to the first half of 2004. Foreign currency translation contributed approximately 1% to
the revenue increase. All of Coopers Electrical Products businesses experienced revenue growth
during the first six months of the year. Sales growth was a result of positive market environments
driven by industrial, commercial and residential construction as well as activity from the utility
and petro-chemical industries. Price increases in response to inflationary cost pressures also
contributed to revenue growth. Overall non-residential project construction remained soft.
Tools & Hardware segment revenues for the first six months of 2005 were comparable to the
first half of 2004. Foreign currency translation increased revenues by approximately 2% in the
first six months of 2005. Increases in sales of hand tools and price increases were essentially
offset by declines in assembly equipment and industrial power tools. Industrial, retail and
international markets provided growth for hand tools. Lower activity levels from the automotive
industry resulted in assembly equipment sales declines.
Costs and Expenses:
Cost of sales, as a percentage of revenues, was 68.7% for the first six months of 2005
compared to 69.8% for the comparable 2004 period. The decrease in the cost of sales percentage was
primarily a result of increased leverage from higher revenues, favorable sales growth mix and
productivity improvements. Overall, pricing actions were estimated to be close to adequate to
offset increases in key materials, energy and transportation costs.
Electrical Products segment cost of sales, as a percentage of revenues, was 68.2% for the
first six months of 2005 compared to 69.1% for the first half of 2004. The decrease in the cost of
sales percentage was primarily a result of productivity initiatives, continued benefit from global
sourcing initiatives and improved leverage. Tools & Hardware segment cost of sales, as a
percentage of revenues, was 70.6% for the first half of 2005 compared to 73.1% for the same period
of 2004. The decrease in cost of sales percentage reflects a favorable sales mix, cost structure
alignment and productivity improvements.
Selling and administrative expenses, as a percentage of revenues, for the first six months of
2005 were 19.7% compared to 19.3% for the first half of 2004. The increase is due to higher
stock-based compensation costs, increased audit and Sarbanes-Oxley Act compliance expenses and
further investments in selling and marketing growth initiatives.
Electrical Products segment selling and administrative expenses, as a percentage of revenues,
for the first six months of 2005 were 17.5% compared to 17.2% for the first half of 2004. The
increase in selling and administrative expenses percentage is primarily due to increased
stock-based compensation costs and investment in growth initiatives.
Tools & Hardware segment selling and administrative expenses, as a percentage of revenues, for
the first six months of 2005 were 20.8% compared to 20.0% for the first six months of 2004. The
increase in the selling and administrative expenses percentage is primarily due to increased
incentive-based compensation expenses and globalization initiatives.
-21-
Interest expense, net for the first six months of 2005 increased $1.2 million from the 2004
first six months primarily as a result of higher average interest rates and slightly higher
average debt balances, partially offset by additional interest earned on higher average cash
balances. Average debt balances were $1.36 billion and $1.33 billion and average interest rates
were 5.9% and 5.6% for the first six months of 2005 and 2004, respectively.
Operating Earnings:
Electrical Products segment first half 2005 operating earnings increased 13% to $283.6 million
from $250.2 million for the same period of last year. The increase was primarily due to the
combination of revenue increases and productivity improvement initiatives.
Tools & Hardware segment first half 2005 operating earnings increased 25% to $30.5 million
compared to $24.4 million in the same period of 2004. The increase reflects favorable sales mix,
benefits from pricing actions, productivity improvements and product cost reductions.
General Corporate expense increased $4.5 million to $42.8 million during the first six months
of 2005 compared to $38.3 million during the same period of 2004. This increase primarily resulted
from the incremental impact of stock-based compensation costs, Sarbanes-Oxley Act compliance costs
and executive management team additions and costs for transition of the Chief Executive Officer.
In the 2005 third quarter, Cooper began a series of broad based actions to improve the
productivity of the Companys selling and administrative and other functions. These activities
will include the redefinition of various corporate and operational roles to improve the efficiency
of a range of support activities and organizational structures. Costs to execute these projects,
net of related savings, in the range of $0.07 to $0.10 per share are expected to be incurred during
the second half of 2005.
Restructuring:
During the fourth quarter of 2003, Cooper recorded net restructuring charges of $16.9 million,
or $13.6 million after taxes ($.14 per diluted common share). This represented costs associated
with restructuring projects undertaken in 2003 of $18.4 million, partially offset by a $1.5 million
adjustment of estimates for restructuring projects initiated in 2002.
The most significant action included in the charges was an announcement of the closing of
Cooper Wiring Devices manufacturing operations in New York City. This action will include the
withdrawal from a multiple-employer pension plan. Cooper recorded a $12.5 million obligation as an
estimate of Coopers portion of unfunded benefit obligations of the plan. The remaining $5.9
million charge primarily represents severance for announced employment reductions at several
locations. The 2003 net impact of the charges was $16.4 million on the Electrical Products
segment, $(0.4) million on the Tools & Hardware segment and $0.9 million related to General
Corporate. As of June 30, 2005, Cooper had paid a total of $5.3 million for these actions, all of
which was for severance costs.
A total of 114 salaried and 150 hourly personnel were eliminated as a result of these actions.
The multiple-employer pension obligation is expected to be paid over 15 years beginning in 2005.
Cooper estimates the annual savings from the personnel reductions was approximately $6 million,
(net of additional employees added in lower-cost regions) with most of the savings beginning in the
first quarter of 2004. The savings from the withdrawal from the multiple-employer pension plan are
approximately $1 million per year and are expected to begin in 2006. The majority of the
eliminated costs previously were reflected as cost of sales.
During the fourth quarter of 2002, Cooper committed to (1) the closure of ten manufacturing
facilities, (2) further employment reductions to appropriately size Coopers workforce to market
conditions, and (3) the write-off of assets related to production rationalization activities.
These actions were taken as a
-22-
part of Cooper managements ongoing assessment of required production capacity in
consideration of the current demand levels. In connection with these commitments, certain
production capacity and related assets were sold, outsourced, discontinued or moved to a lower cost
environment. Cooper recorded a provision for these announced actions of $39.1 million ($15.0
million of which was non-cash), or $29.8 million after taxes ($.32 per diluted common share). Of
this amount, $24.0 million ($11.0 million of which was non-cash) was associated with the Electrical
Products segment, $12.7 million ($3.4 million of which was non-cash) was associated with the Tools
& Hardware segment and the remainder was related to General Corporate. During 2003, Cooper reduced
estimates of the cost related to those actions by $1.5 million.
The following table reflects activity related to the fourth quarter 2002 restructuring charge.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities |
|
|
Number of |
|
Accrued |
|
Closure and |
|
|
Employees |
|
Severance |
|
Rationalization |
|
|
|
|
|
|
($ in millions) |
Balance at December 31, 2002 |
|
|
1,022 |
|
|
$ |
16.2 |
|
|
$ |
5.8 |
|
Employees terminated |
|
|
(982 |
) |
|
|
|
|
|
|
|
|
Cash expenditures |
|
|
|
|
|
|
(14.9 |
) |
|
|
(2.9 |
) |
Reversal of excess accruals |
|
|
(9 |
) |
|
|
(0.9 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
|
31 |
|
|
|
0.4 |
|
|
|
2.3 |
|
Employees terminated |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
Cash expenditures |
|
|
|
|
|
|
(0.4 |
) |
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
0.6 |
|
Cash expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2005 |
|
|
|
|
|
$ |
|
|
|
$ |
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A total of 435 salaried and 771 hourly positions were eliminated as a result of the
planned closure and rationalization actions. Of those position eliminations, approximately 600
positions were replaced ultimately as a result of Coopers ongoing efforts to relocate production
capacity to lower cost locations. Substantially all of the closure and rationalization activities
were initiated and completed by the end of 2003. The expenditures related to the 2002 restructuring
charge were funded from cash provided by operating activities.
Cooper estimates that the earnings impact in 2003 from these actions was approximately $10
million in pretax savings, the majority of which benefited the second half of that year. The
initial savings were realized from personnel reductions that principally impacted selling and
administrative expenses and lower costs of sales. Cooper estimates that incremental savings of
$25.0 to $30.0 million were realized in 2004, largely reflected as lower cost of sales.
Income Taxes:
The effective tax rate was 21.5% for the six months ended June 30, 2005 and 20.0% for the six
months ended June 30, 2004. The increase is primarily related to increased projected taxable
earnings in 2005 without a corresponding increase in projected tax benefits.
Liquidity and Capital Resources
Liquidity:
Coopers operating working capital (defined as receivables and inventories less accounts
payable) increased $68 million during the first six months of 2005. The increase included a $58
million increase in receivables and a $68 million increase in inventories, partially offset by a
$58 million increase in accounts payable, which were all driven by increased sales volume and
actions to improve customer service. However, operating working capital turnover (defined as
annualized revenues divided by average quarterly operating working capital) for the first six
months of 2005 of 4.5 turns increased from 4.4 turns in the same period of 2004 and was primarily
due to revenues growing at a higher rate than operating working capital.
-23-
Cash provided by operating activities was $181 million for the first six months of 2005. This
cash, plus $116 million of cash and cash equivalents and $41 million of cash received from employee
stock activity were used to fund capital expenditures of $48 million, dividends of $69 million,
debt repayments of $118 million and share purchases of $77 million during the first half of 2005.
Cash provided by operating activities was $219 million during the first six months of 2004.
This cash, plus an additional $30 million of cash and cash equivalents and $24 million of cash
received from employee stock activity were primarily used to fund capital expenditures of $39
million, an acquisition of $10 million, dividends of $65 million and share purchases of $165
million.
In connection with acquisitions accounted for as purchases, Cooper records, to the extent
appropriate, accruals for the costs of closing duplicate facilities, severing redundant personnel
and integrating the acquired businesses into existing Cooper operations. Cash flows from operating
activities are reduced by the amounts expended against the various accruals established in
connection with each acquisition. Spending against these accruals was $0.9 million and $3.0
million during the six months ended June 30, 2005 and 2004, respectively.
Cooper is continuing to focus on initiatives to maximize cash flows. Cooper currently
anticipates a continuation of its long-term ability to annually generate approximately $200 million
in cash flow available for acquisitions, debt repayments and common stock repurchases.
As discussed in Note 12 of Notes to the Consolidated Financial Statements, Cooper is
continuing discussions with the Representatives of Federal-Mogul, its bankruptcy committees and the
future claimants regarding settlement of Coopers contingent liabilities related to the Automotive
Products sale to Federal-Mogul. It is likely that if a settlement is reached, the settlement would
involve a cash contribution. Cooper anticipates that any settlement cash contribution amounts
would be funded from operating cash flows and existing cash.
Capital Resources:
Cooper has targeted a 35% to 45% debt-to-total capitalization ratio and intends to utilize
cash flows to maintain a debt-to-total capitalization ratio within this range. Excess cash flows
are utilized to fund acquisitions or to purchase shares of Cooper common stock. Coopers
debt-to-total capitalization ratio was 35.1% at June 30, 2005, 39.0% at December 31, 2004 and 38.7%
at June 30, 2004.
At June 30, 2005 and December 31, 2004, Cooper had short-term debt of $6.4 million and $97.6
million, respectively and no commercial paper outstanding.
Coopers practice is to back up its short-term debt balance with a combination of cash and
committed credit facilities. At June 30, 2005 and December 31, 2004, Cooper had cash and cash
equivalents of $537.0 million and $652.8 million, respectively. At June 30, 2005, Cooper had a $500
million committed credit facility which matures in November 2009. Short-term debt to the extent
not backed up by cash, 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 limit Coopers debt-to-total capitalization ratio to 60% and require 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 adversely affected due to a change in its credit ratings, Cooper would rely on a
combination of available cash
-24-
and its committed credit facility to provide short-term funding. The committed credit facility
does not contain any provision which makes its availability to Cooper dependent on Coopers credit
ratings.
In the 2005 second half, Cooper may refinance a portion of the 300 million Euro bond issuance,
which matures in October, 2005. In addition, $229 million of Coopers second series medium-term
notes will mature in the second half of 2005. Requirements for debt maturities will be funded from
operating cash flows, existing cash, debt refinancings and, if necessary, commercial paper
issuances.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
As of June 30, 2005, 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, 2004.
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:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
2005 |
|
2004 |
|
|
(in millions) |
Electrical Products |
|
$ |
378.9 |
|
|
$ |
330.1 |
|
Tools & Hardware |
|
|
63.8 |
|
|
|
86.4 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
442.7 |
|
|
$ |
416.5 |
|
|
|
|
|
|
|
|
|
|
Private Securities Litigation Reform Act Safe Harbor Statement
This Form 10-Q includes certain forward-looking statements. The forward-looking statements
reflect Coopers expectations, objectives and goals with respect to future events and financial
performance, and are based on assumptions and estimates which Cooper believes are reasonable.
Forward-looking statements include, but are not limited to, statements regarding the facilities
closure and production rationalization plan and cost-reduction programs, potential liability
exposure resulting from Federal-Mogul Corporations (Federal-Mogul) bankruptcy filing, and any
statements regarding future revenues, cost and expenses, earnings, earnings per share, margins,
cash flows and capital expenditures. Cooper wishes to caution readers not to put undue reliance on
these statements and that actual results could differ materially from anticipated results.
Important factors which may affect the actual results include, but are not limited to, the
resolution of Federal-Moguls bankruptcy proceedings, political developments, market and economic
conditions, changes in raw material and energy costs, industry competition, the net effects of
Coopers cost-control and productivity improvement programs, the timing and net effects of facility
closures and the magnitude of any disruptions from such closures, the successful implementation of
Coopers strategic initiatives, changes in mix of products sold, mergers and acquisitions and their
integration into Cooper, the timing and amount of any share repurchases, changes in financial
markets including foreign currency rate fluctuations and changing legislation and regulations
including changes in tax law, tax treaties or tax regulations. The forward-looking statements
contained in this report are intended to qualify for the safe harbor provisions of Section 21E of
the Securities Exchange Act of 1934, as amended.
Item 4.
Controls and Procedures
As of the end of the period covered by this report, Coopers management, under the supervision
and with the participation of the Chief Executive Officer and Chief Financial Officer, performed an
evaluation of the effectiveness of the design and operation of Coopers disclosure controls and
procedures. Based on that
-25-
evaluation, Coopers management, including the Chief Executive Officer and Chief Financial Officer,
concluded that the disclosure controls and procedures are effective. There have been no
significant changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of this evaluation.
Cooper is executing a multi-year plan of implementing an Enterprise Business System (EBS)
globally. To date, approximately one-third of Coopers global operations are functioning on the
new system. Implementing an EBS system on a global basis involves significant changes in business
processes. The implementation is phased, which reduces the risks associated with making these
changes. In addition, Cooper is taking the necessary steps to monitor and maintain appropriate
internal controls during the implementations.
-26-
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Cooper is subject to various suits, legal proceedings and claims that arise in the normal
course of business. While it is not feasible to predict the outcome of these matters with
certainty, management is of the opinion that their ultimate disposition should not have a material
adverse effect on Coopers financial statements.
In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation
(Federal-Mogul). These discontinued businesses (including the Abex 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 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 and indicated that Federal-Mogul may not
honor the indemnification obligations to Cooper. As of the date of this filing, Federal-Mogul had
not rejected the 1998 Agreement, which includes the indemnification to Cooper. If Federal-Mogul
rejects the 1998 Agreement, Cooper will be relieved of its future obligations under the 1998
Agreement, including specific indemnities relating to payment of taxes and certain obligations
regarding insurance for its former Automotive Products businesses. To the extent Cooper is
obligated to Pneumo for any asbestos-related claims arising from the Abex product line (Abex
Claims), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims. Based
on information provided by representatives of Federal-Mogul and recent claims experience, from
August 28, 1998 through June 30, 2005, a total of 135,971 Abex Claims were filed, of which 94,292
claims have been resolved leaving 41,679 Abex Claims pending at June 30, 2005, that are the
responsibility of Federal-Mogul. During the three months ended June 30, 2005, 1,756 claims were
filed and 6,931 claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $2,130 before insurance. A total of $72.4 million was spent on defense
costs for the period August 28, 1998 through June 30, 2005. Historically, existing insurance
coverage has provided 50% to 80% of the total defense and indemnity payments for Abex Claims.
With the assistance of independent advisors, Bates White, LLC, in the fourth quarter of 2001
Cooper completed a thorough analysis of its potential exposure for asbestos liabilities in the
event Federal-Mogul rejects the 1998 Agreement. Based on Coopers analysis of its contingent
liability exposure resulting from Federal-Moguls bankruptcy, Cooper concluded that an additional
fourth-quarter 2001 discontinued operations provision of $30 million after-tax, or $.32 per share,
was appropriate to reflect the potential net impact of this issue. The analysis included a review
of the twenty-year history of Abex Claims; the average indemnity payments for resolved claims; the
jurisdictions in which claims had been filed; Bates White, LLC data on the incidence of asbestos
exposure and diseases in various industries; existing insurance coverage including the insurance
recovered by Pneumo and Federal-Mogul for pre-bankruptcy claims and the contractual indemnities.
Assumptions were made regarding future claim filings and indemnity payments, and, based on the
advisors data, the expected population of persons exposed to asbestos in particular industries.
All of this data was used to determine a reasonable expectation of future claims, indemnity
payments and insurance coverage. Cooper is preserving its rights as a creditor for breach of
Federal-Moguls indemnification to Cooper and its rights against all Federal-Mogul subsidiaries.
Cooper intends to take all actions to seek a resolution of the indemnification issues and future
handling of the Abex-related claims within the Federal-Mogul bankruptcy proceedings.
Coopers fourth-quarter 2001 analysis of the contingent liability exposure assumed that the
liabilities would be settled within the Federal-Mogul bankruptcy proceedings. This analysis
assumed that representatives of Federal-Mogul, its bankruptcy committees and the future claimants
(the Representatives) would reach similar conclusions regarding the potential future liabilities
and insurance recoveries as Cooper did based on the Bates White, LLC analysis. Throughout 2003,
Cooper worked
-27-
towards resolution of the indemnification issues and future handling of the Abex-related
claims within the Federal-Mogul bankruptcy proceedings. This included negotiations with the
Representatives regarding participation in Federal-Moguls proposed 524(g) asbestos trust. Based on
the status of the negotiations in 2004, Cooper concluded that it was probable that Federal-Mogul
will reject the 1998 Agreement. Cooper also concluded that the Representatives would require any
negotiated settlement through the Federal-Mogul bankruptcy to be at the high end of the Bates
White, LLC liability analysis and with substantially lower insurance recovery assumptions and
higher administrative costs.
While Cooper believes that the insurance has significant additional value, extensive
litigation with the insurance carriers and other parties that have access to the insurance may be
required to receive recoveries and there is risk that court decisions could reduce the value of the
recoveries. Additionally, the assumptions on liability payments could prove inaccurate over time.
If Cooper is unable to reach a settlement with the Representatives and the 1998 Agreement is
rejected, Cooper would be required to reflect an accrual for the asbestos liability and a related
receivable for the probable insurance recoveries.
During late February and early March 2004, Cooper reassessed the accrual required based on the
then current status of the negotiations with the Representatives and the liability and insurance
receivable that would be required to be recorded if this matter is not settled within the
Federal-Mogul bankruptcy. Cooper concluded that resolution within the Federal-Mogul proposed
524(g) asbestos trust would likely be within the range of the liabilities, net of insurance
recoveries, that Cooper would accrue if this matter were not settled within the Federal-Mogul
bankruptcy. Accordingly, Cooper recorded a $126.0 million after-tax discontinued operations charge,
net of a $70.9 million income tax benefit, in the fourth quarter of 2003.
Cooper has continued discussions with the Representatives, but to date has been unable to
reach a satisfactory conclusion. At this time, the exact manner in which this issue will be
resolved is not known. The accrual for potential liabilities related to the Automotive Products
sale and the Federal-Mogul bankruptcy was $191.3 million at June 30, 2005 and $225.1 million at
December 31, 2004. Insurance recoveries are recorded as an increase in the accrual when cash is
received, which may be an extended period from the date when a claim or defense costs are paid.
During 2005, Cooper has engaged Bates White, LLC to update its analysis and assist Cooper in
evaluating analyses prepared by the Representatives and their advisors and advise Cooper on
accounting and reporting practices.
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 Coopers
wholly-owned subsidiaries during the three months ended June 30, 2005:
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
Shares that May Yet |
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
Be Purchased Under |
|
|
Total Number of |
|
Average Price Paid |
|
Announced Plans or |
|
the Plans or |
Period |
|
Shares Purchased |
|
per Share |
|
Programs(1) |
|
Programs(1) |
As of 3/31/05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,761,050 |
|
4/01/04 4/30/05 |
|
|
232,500 |
|
|
$ |
68.08 |
|
|
|
232,500 |
|
|
|
6,528,550 |
|
5/01/04 5/31/05 |
|
|
254,300 |
|
|
|
65.96 |
|
|
|
254,300 |
|
|
|
6,274,250 |
|
6/01/04 6/30/05 |
|
|
246,500 |
|
|
|
67.04 |
|
|
|
246,500 |
|
|
|
6,027,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
733,300 |
|
|
$ |
67.00 |
|
|
|
733,300 |
|
|
|
|
|
|
|
|
(1) |
|
On February 9, 2000, Cooper publicly announced that its Board of Directors
authorized the repurchase of up to 5 million shares of Cooper common stock. On November 2,
2004, Coopers Board of Directors authorized the repurchase of up to five million additional
shares of Coopers Class A common stock. Cooper has also announced that the Board authorized
the repurchase of shares issued from time to time under its equity compensation plans in order
to offset the dilution that results from issuing shares under |
-28-
|
|
|
|
|
these plans. For 2005, Coopers current estimate is that 2.0 million shares will be issued under
equity compensation plans which is reflected in the above table. |
Item 6. Exhibits
12. |
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 2000 through 2004
and the Six Months Ended June 30, 2005 and 2004. |
|
23. |
|
Consent of Bates White, LLC. |
|
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. |
-29-
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, Ltd. |
|
|
|
|
|
(Registrant) |
|
|
|
Date: August 3, 2005
|
|
/s/ Terry A. Klebe |
|
|
|
|
|
Terry A. Klebe |
|
|
Senior Vice President and |
|
|
Chief Financial Officer |
|
|
|
Date: August 3, 2005
|
|
/s/ Jeffrey B. Levos |
|
|
|
|
|
Jeffrey B. Levos |
|
|
Vice President and Controller and |
|
|
Chief Accounting Officer |
-30-
Exhibit Index
Exhibit No.
12. |
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 2000 through 2004
and the Six Months Ended June 30, 2005 and 2004. |
|
23. |
|
Consent of Bates White, LLC. |
|
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. |